Republic Services Inc (RSG) 2012 Q2 法說會逐字稿

Good afternoon and welcome to the second quarter 2012 call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for today's call are Don Slager, President and CEO; Tod Holmes, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer.

Today's call is being recorded and all participants are in listen-only mode. There will be a question and answer session following Republic's summary of quarterly earnings. (Operator Instructions). It is now my pleasure to turn the call over to Mr. Lang. Good afternoon Mr. Lang.

Thank you, Victor. Welcome, good afternoon and thank you for joining us. This is Ed Lang and I would like to welcome everyone to Republic Services second quarter 2012 conference call. Don Slager, our CEO, and Tod Holmes, our CFO, are joining me as we discuss our second-quarter performance.

Before we get started, I would 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 may be 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 rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is July 26, 2012.

Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. With that, I would like to turn the call over to Don.

Thanks, Ed. Good afternoon everyone and thank you for joining us as we discuss Republic Services second-quarter performance. I will now review our second-quarter financial performance before discussing our updated 2012 guidance.

Revenue of approximately $2.1 billion. Core price growth in the quarter was 0.6%, which was in line with our expectations. MSW landfill price was 2.4%. Volumes decreased by 1.3%. A majority of the volume decline can be attributed to the loss of Oakleaf and a large national account, both of which we discussed in April.

Our second-quarter adjusted earnings per share was $0.59. Approximately $0.09 of our earnings resulted from a favorable tax rate. All material tax disputes have now been resolved.

Our adjusted free cash flow was $156 million. Our adjusted EBITDA margin was 30.3% and SG&A was 9.6%.

We repurchased this 5.3 million shares in the second quarter for $141 million. We have approximately $480 million remaining under our authorization through 2013.

We remain committed to an efficient cash utilization strategy which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was $223 million during the second quarter. Our Board of Directors has approved an increase in the quarterly dividend to $0.235 per share, which is a 7% increase.

Some of our achievements in the second quarter include -- our safety performance continues to improve, with a 3.5% favorable reduction in our frequency rate. We have closed on $73 million of acquisitions through June 30 that represent $47 million of annual run rate revenue. We remain on track to complete $100 million of acquisitions for the full year, which was the high end of our guidance range. Our pipeline remains strong for future growth acquisitions.

We continue to invest in fleet automation and converting the fleet to CNG. As of June 30, 61% of our residential routes are now automated and we have placed 223 CNG vehicles into service.

In April we opened a single-stream processing facility in Jacksonville, Florida that increased our capacity in that market by 90,000 tons per year. Our largest single-stream recycle facility, which services the San Jose market, went into operation in July. This startup coincides with converting the City of San Jose commercial and industrial collection service offerings from open market to franchise.

In May we completed a debt refinancing and renewed our five-year bank facility at lower rates, which together reduced or a dual interest expense by approximately $25 million. Republic does not have a material debt maturity until 2016.

Tod and Ed will now update our financial performance.

Thanks, Don. As Don indicated, second-quarter revenue of approximately $2.1 billion reflects the following components of internal growth. First, core price growth of 0.6%. This level of core price was consistent with our Q1 performance and it is also in line with our expectations.

Core price is positive in both the collection and disposable businesses, with higher prices in the disposable business due to landfill MSW price increases of 2.4%. We expect price levels to be comparable between the first and second quarters, which was the case, and we expect prices to modestly rise in the second half of the year as the impact from higher CPI-based pricing takes hold on our restricted customer base.

Our fuel recovery fee decreased by 0.1%. The decrease in fuel recovery fees relates to a decrease in fuel costs. The average price per gallon of diesel declined to $3.95 in Q2 2012 from $4.01 in the prior year, a decrease of 1.5%.

Commodity revenue decreased 1%. Commodity prices decreased by 16% to an average price of $122 a ton in Q2 from $146 per ton in the prior year. Q2 recycling facility commodity volume of 540,000 tons was up 2.1% from the prior year and up 1.8% on a same-store basis.

Our current commodity prices are approximately $112 per ton, which is down from the guidance we provided in April of $129 per ton. For reference purposes, a $10 per ton change in commodity values equals approximately $0.03 of full year EPS, which includes the impact of our recycling facility and collection businesses.

Turning to volume, Q2 volumes decreased by 130 basis points year-over-year. Most of the decline relates to a few specific losses, including the Oakleaf business and a large national account. Our collection business volumes were down 0.3%. Excluding the losses I just mentioned, our total collection volume was actually positive.

Disposal volumes were down 4.7% versus the prior year, which relates primarily to MSW tons at our transfer stations and landfills. Again, this relates primarily to lost municipal contracts in prior quarters and also the competitive pressures in our L.A. market, which we discussed back in April.

In Q2, special waste volumes were essentially flat with the prior year, and we did not see the typical seasonal increase in landfill C&D volumes.

Now, I will discuss the second-quarter year-over-year margin. Q2 2012 adjusted EBITDA margin was 30.3% compared to 31.1% in the prior year. This is an 80 basis point decrease.

Some of the more significant changes in margins include, first, labor. A 60 basis point increase in expense is mostly due to normal increases in wages and health care costs, and also a change in our revenue mix. Disposal volumes, commodity revenues and subcontract revenues are down, which have little or no variable labor costs.

Additionally there is an increase of about 10 basis points related to work stoppages that occurred during the first quarter. Improvements in collection labor productivity partially offset the increase in labor cost, primarily in the residential business through automation.

Second, disposal. The improvement of 30 basis points relates to decreased disposal expense, primarily due to an increase in internalization.

Third, our maintenance costs. The 70 basis point increase in maintenance expense relates to implementation costs associated with our One Fleet maintenance initiative, an increase in the cost of tires across our supplier base and also the refurbishing of containers versus purchasing new containers, which from a cash standpoint is an efficient operating practice.

Next, fuel. The 20 basis point improvement is due to a 1.5% decrease in the cost of diesel. After considering the impact of related fuel recovery fees, the net margin improvement was 10 basis points.

The current cost of diesel is approximately $3.78 per gallon, which is down from guidance we provided in April of $4.13 per gallon. For reference purposes, a $0.10 change in diesel fuel per gallon is about $0.01 of full-year EPS, which includes the impact of fuel recovery fees.

Finally, cost of goods sold. The 30 basis point improvement relates to a reduction in rebates paid for volumes delivered to our recycling facilities. Cost of goods sold decreased to an average of $39 per ton, from $48 per ton in the prior year. While the change in cost was favorable, when you consider the decrease in related commodity revenues, there was a 40 basis point decline in EBITDA margin.

Our second quarter 2002 (sic) SG&A of 9.6% was consistent with the prior year. We expect our full-year SG&A expense to be consistent with our previous guidance at slightly above 10% of revenue.

DD&A as a percentage of revenue was 11.4% in the current quarter -- current year versus 10.9% in the prior year. The 50 basis point increase in expense primarily relates to landfill liability adjustments recorded in the current quarter for sites that have already closed. Additionally, the prior year included the favorable impact of [expansions] granted which did not repeat in the current quarter. DD&A is higher than capital expenditures as a percentage of our revenue due to the amortization of intangibles.

Ed will now discuss interest expense, taxes and our free cash flow.

Thanks, Tod. Second quarter 2012 interest expense was $99 million, which included $15 million of non-cash amortization. As Don mentioned, we called $750 million of senior notes due in 2017 and issued new debt for 10 years at a rate of 3.55%.

This lower rate will reduce annual cash interest expense by approximately $23 million. We also renewed our five-year bank facility at lower pricing that will generate over $2 million in an annual savings. Our EPS guidance included the favorable impact of refinancing this debt, but excluded any premiums paid or debt discounts written off in connection with early extinguishments.

Our annual run rate interest expense after the refinancing is approximately $385 million, of which $55 million is non-cash. Our refinancing activities since December 2008, which have benefited from our investment-grade status and low rate environment, have reduced annual interest expense by approximately $230 million. We have now completed all significant refinancing transactions.

I will now discuss taxes. Our second-quarter 2012 effective tax was favorably impacted by finalizing Allied's 2002 exchange of partnership interest matter and favorably resolving other tax matters, including closing out open federal tax years through 2008.

In April, we guided to a 37% full year 2012 effective tax rate. This included the benefit from finalizing the exchange of partnership interest matter, since we were in the late stages of negotiations with the IRS. We did not include the other tax matters, which resulted in about $0.03 of additional EPS.

We now expect a full year 2012 tax rate of approximately 36%. We expect the second half of 2012 effective tax rate to be approximately 40%.

To summarize the tax impact, we saw a $0.09 benefit in the second quarter relative to the 37% full-year tax rate we provided in April. We expect $0.06 of this benefit to flip in the second half of the year, since we are expecting a second-half tax rate of approximately 40%. The net impact versus the April guidance is a positive $0.03, which is the amount by which we raise the top end of our EPS guidance range.

I will now discuss free cash flow. Year to date, 2012 adjusted free cash flow was $331 million, which consisted of cash provided by operating activities of $695 million, less property and equipment received of $458 million, plus proceeds from the sale of property of $21 million, plus merger-related expenditures net of tax of $41 million, plus Allied cash tax settlements of $34 million, less cash tax benefit from debt extinguishment of $5 million, plus divestiture-related tax payments of $1 million, plus Central States [costs] net of tax of $2 million. Therefore, adjusted free cash flow equals $331 million.

Free cash flow timing tends to vary by quarter, in particular due to the capital expenditures and changes in working capital. We remain comfortable with our guidance of approximately $775 million of full-year 2012 adjusted free cash flow.

Now I will discuss the balance sheet. At June 30 our accounts receivable balance was $845 million and our days sales outstanding was 37 days, or 23 days net of deferred revenue. Reported debt was approximately $7.1 billion at June 30, and excess credit available under our bank facility was approximately $1.3 billion.

I will now turn the call back to Don.

Thanks, Ed. I would like to update our 2012 guidance.

We're maintaining our free cash flow guidance of $775 million. This level of free cash flow is consistent with our original guidance and demonstrates the strong, predictable cash flows generated by the business.

Due to the successful resolution of open tax years we are raising our adjusted earnings per share guidance to a range of $1.91 to $1.93. We expect our full-year tax rate to be approximately 36%.

To sum it all up, we are on track. I want to leave you with a couple of key points. In the beginning of the year, we anticipated a steadily improving economy as a backdrop for price and volume growth. While the economy has not given us the support we expected, the industry remains a rational and we have effectively managed cost to generate EBITDA margin in excess of 30%.

Our free cash flow remains strong and predictable. We continue to invest in accretive tuck-in acquisitions and return substantial cash to our shareholders. Republic's business and financial strategies remain focused on return on capital and free cash flow improvement.

I would like to thank the Republic employees for their dedication to operational excellence they've shown throughout the year. At this time, operator, we will open the call for questions.

(Operator Instructions) Hamzah Mazari, Credit Suisse.

Thank you. Good afternoon. The first question is just, Don, on maintenance costs you had a big uptick last quarter in maintenance spend. What are you doing on maintenance costs for the balance of the year? Are you guys spreading that out more? Or what is the update on that?

Sure. We continued to roll out our maintenance initiative on track through the first half of the year. We had already started some divisions that we couldn't pull back on.

We kind of moderated our approach through the remainder of the year. We're stretching basically the initiative out from a three-year to a four-year initiative. We are reducing the number of divisions that we are rolling out in the second half of the year.

We were doing 12 a quarter, we will be doing 8 a quarter in Q3, and maybe even 6 or 7 in the last quarter of the year. So we're just taking a little slower approach to it and we're absorbing the cost at a slower pace. We're still very committed to the initiative. It's the right thing to do for the fleet, for productivity, for safety and for customer experience, but we're just slowing down the absorption rate of the change.

Okay, got you. And just to follow-up on the volume side, any change in the volume environment? Are you seeing it get more competitive? Maybe you can talk about your commercial business, service increases versus decreases. And on the special waste side, is that pipeline still pretty firm?

I think in terms of service changes, it has been pretty consistent with previous quarters, meaning flat on a net basis. So we're not seeing anything as far as net step-up in volume related to service changes.

As far as our volume expectations for the full year, we expected to be flat to maybe slightly negative. One of the things I think we saw and we always talk about in the first quarter, where we saw some C&D activity a little bit early, you couldn't really tell if that was the economy or the weather.

And really I think now that after we look at the Q2 volume performance, what you could say that there was a little bit of full forward in Q1 on C&D activity, because there really was not a seasonal step up above the Q1 levels in Q2. What we really did, we just pulled forward some of that activity. So (multiple speakers)

And as far special waste goes, the pipeline's in pretty good shape. We think we're seeing the same kind of activity in special waste for the remainder of the year. (multiple speakers)

Sorry, go ahead.

Go ahead, what is your question?

I was saying on special waste, do you guys have any government business that is getting deferred or not really?

We do have some government business, so there probably will be some deferrals of some special waste work, and that probably is -- it is discretionary spend. So, as we saw a couple of years ago, we have seen some deferrals of special waste projects. So the work is still there it is just being slowed down a little bit as folks try to hold on to the dollars.

But I think (multiple speakers) also one thing I would like to just make clear as we look at in the second half of the year, that the Q3 volume performance will be negatively impacted due to one less work day. However, we make that up in the fourth quarter because Q4 has an additional work day. So on a net basis it evens out, but it will impact the reported volume performance in the second half of the year.

Got you, thank you.

Corey Greendale, First Analysis.

Question on the guidance. So I think I'm getting the moving pieces with the taxes, but if you listen to what you said about the impact of commodity prices and fuel, it seems like you would have a net drag from lower commodity prices. Yet, you didn't change the guidance other than the tax impact. So what is enabling you to offset the impact of lower commodity prices than you factored in before? (multiple speakers)

This is Tod. I think we are a little tighter on the costs. Obviously when we saw those higher maintenance costs coming in the first quarter, well, it took us a quarter to adjust. The organization is very committed to the maintenance initiatives, but also we are adjusting the pace and looking closely at those costs as well as other costs in the business.

And fuel commodity has been about (multiple speakers)

That is right. There is a net of fuel in commodity, so there's not too much of an impact there. So we are very focused on the core business and obviously running the business efficiently.

Okay. And then on the price side, Don, I know you choose the word rational. But was hoping you could elaborate on what you are seeing kind of incrementally moving through the year, as far as the competitive pricing environment, you know, particularly interested in national accounts and the municipal side.

I would tell you it is very much the same of what we have been seeing. The one national account loss we highlighted last quarter was, as we told you, somewhat of an anomaly. It was our largest national account. Our next largest national account is less than half the size of that, right. So I think it is about one-fourth the size of that. We are not seeing any increased activity there.

The municipal sector is very similar, right, the way it is spent. The attitude of municipal buyers isn't going to change. Their state of finance isn't really going to change until they get some help from the economy.

So, when their tax base improves they will be less sensitive to pricing. And we will have to live without for a while. But we're not seeing anything being materially better. We're certainly not seeing anything materially worse.

The only benefit, of course, that is obvious is the benefit of CPI increasing the second half of the year. So, generally, competitively, things are pretty stable and we're doing our part to keep our volume up and protect our business with cash flow and try to grow it where we can.

And Corey, just to how the resets in the restricted markets will impact reported price, we're expecting -- obviously the first half of the year pricing was 0.6%. And we expect pricing in the second half of the year to be in the neighborhood of about 1%. And that step up is really being driven by the CPI resets in the restricted markets we have.

That's a helpful detail. Thank you.

Al Kaschalk, Wedbush Securities.

Good afternoon. Just a follow-up or maybe an incremental on the previous question. In terms of the customer base, are you hearing anything incrementally more rationally positive? Or is it as expected, and therefore sort of a flattish tone on the volume comment?

Yes, I would say flattish. As far as volume goes, we just don't see the economic lift that we had hoped when we first built our business plan. As far as pricing, there is still some sensitivity, as I said, because the economy is not improving.

We continue to maintain our cadence of price increases out across the market place, so we are staying really true to our strategy and our business plan. And we have not seen anything change for the better or worse, really.

If you had to pick a more positive or constructive tone geographically and one that was less constructive on a tone geographically, where would those regions be in your markets?

Pricing is pretty consistent across the board. I think volume tends to be in and around the energy business is ranging. Right?

Exactly as Don mentioned, those geographies tied to energy or heavy manufacturing. So I think we have seen the best volume performance in some of the locations in the Southwest, and then our Midwest locations are probably faring better than the West and some places in the East Coast, particularly the Southeast. Those markets that were more tied to the -- let's call it the overheated real estate markets are still lagging due to the excess capacity or inventory in those particular markets.

Thank you for that. If I may slide one more in, just on the municipality in particular, with a number of the bankruptcies here in the lovely state of California and other places, are there any opportunities or -- opportunities for the sector or for you specifically as a result of that? Or is it just sort of business as usual?

No, I think we've talked about privatization the past and we have successfully privatized the city in the Midwest last year. We have a small pipeline of opportunities there that we're working. But as you could appreciate, the sales cycle on those is quite a bit longer than a typical sale of a rebid or an extension of an existing municipal account. So we will continue to work that. It's not really our headline, but we think there could be some opportunity there for us eventually.

Thanks a lot.

Michael Hoffman, Wunderlich Securities.

Thank you. If we could come back to the free cash flow outlook, my takeaway is you are reaffirming that guidance. I would like to understand what do we need to do, where does that incremental or $440 million roughly come from as you think about the makeup in the second half? What drives that? How much is working capital versus (multiple speakers)

Yes, what you have typically is our capital spend in the first half of the year was higher than our annual target of about $830 million. You also get the first quarter, which is seasonally weak, with a little bit of a negative working capital in that first quarter. And then taxes also tend to be volatile quarter by quarter.

And then Q3 is usually our strongest quarter as far as volumes through the year, and then just simply from the timing of some incentive comp payments that were made early in the year along with some other matters that kind of cleared books. So I don't think there's anything structural by the business that is different. It was just that some timing issues of certain cash flows in the first half of the year.

First quarter is always a weak working capital quarter because of what Ed mentioned there. The other thing I would say is, as we had said in April, we were reaffirming that $775 million, a little bit better outcome than we thought on taxes. So we are very, very confident with that free cash flow.

Okay, that's terrific. Don and all of you, in the business environment you live with right now, in July, where the paper is, your pricing outlook, volumes, what is your perspective on what 2013 looks like?

Well, we're not giving 2013 guidance, but we've got a lot of good things going on in the business that will certainly anniversary and rollover into 2013. You know, again, I can't predict fuel and commodity prices.

What I can say is we are getting, again, a 0.6% price in the quarter, the first half of the year, moving upward in the second half. We are holding our own on volume. We have good productivity initiatives in place we will continue to invest in.

We've got the acquisition machine kind of up and running now. We will have the benefit of those things rolling through. So I am pretty positive that we're doing all the right things. We would like to have some help from the economy, and again we're not economists.

So, when the economy improves, the pricing dynamic in the market will get better, customer sentiment will get better, commodities will get better. Those kind of things will give us some tailwind. But in the meantime we're doing the right things and I think it shows up in our margin. And ultimately it always shows up in our cash flow.

Okay, thank you.

Scott Levine, JPMC.

Quick question, just a clarification, did you say that the Oakleaf and the contract losses, without the impact of those, that you guys would have been roughly flat on volumes? Or said another way, what is the volume impact associated with those contracts? And should we expect that to anniversary by the first quarter of 2013?

Well, you're talking about a couple of different items and they will have different timing. So, I think it will start to anniversary in early '13. Some of these other items won't be until mid-2013. And obviously when we give guidance next year we will talk specifically as to how those particular items will impact our guidance.

So the large national account took place in May, so we will anniversary that sometime in May, right. The Oakleaf loss started in the fourth quarter last year and will continue to trickle in the first quarter. I think we're pretty much done with it by the end of the first quarter, most of that business that the Oakleaf internalized.

And we had disposal fees that anniversaries out in June, midyear. The other thing from a volume standpoint is, again, I think what Ed and Don said earlier -- the seasonal lift there. We saw definitely some pull forward there in the C&D activity and the first quarter.

Second-quarter lift, the seasonal lift this year was more muted than last year's seasonal lift. So certainly we are seeing a little bit of drag from C&D. And then while we have a robust pipeline there, it seems to be a little bit of deferral, wait and see, on special waste.

Got it. Thanks. And as my follow-up on pricing, just to clarify, are you guys saying that you expect pricing of 1%-ish in the back half, or 1% for the full year? And then as a tack-on, would the effect of CPI-linked pricing going up, should that accelerate or gain momentum into 2013, implying upward minimum price as you enter that year or --?

Again, we're not going to give guidance on '13. So, as I say, we will see in the second half of the year about a 40 basis point average step up first half to second half. But we're not going to give guidance on '13.

I think what happens is if you kind of put the whole year together, pricing for the full year is about 1% for the full year, maybe a few basis points under, but it is about 1%, with that split first half and the second half driven by increases in the restricted markets.

Got it, thanks.

Bill Fisher, Raymond James.

Good afternoon. Don, just on some of the acquisitions you have done, are they mostly tuck-in hauling operations? Or are you buying some recycling facilities? Or what types of things are you looking at?

Yes, they are primarily tuck-in hauling. We did have one recycler that we bought here in recent history but, again, primarily tuck-in hauling in markets we're already in. They tend to have the best returns post-synergy, lowest risk, et cetera, and we're buying them at good multiples. So that is probably the biggest part of the pipeline.

And just on a follow-up on that, the 60 basis points of price -- was the industrial and disposal side better than the average and commercial residential below? Or did you have some color on that?

As far as the -- (multiple speakers)

The components of the segments, were industrial and disposal a little better?

Disposal has really been a bright spot for us, specifically MSW. So when we think about our pricing strategy, one of the things that we have continued to do is price our infrastructure correctly. And our MSW price was 2.5%, 2.4% as Todd said. That really is a strong point.

Collection -- pretty consistent with the way it has been, probably industrial being the brightest spot there for us on the collection side.

Okay, thank you.

Vance Edelson, Morgan Stanley.

Thanks. Just a couple of follow-ups really. I wasn't sure I caught the exact answer on something asked earlier with the Oakleaf and the one national account causing the volume decline. Did I hear the volumes had otherwise been positive or flat? Or is there any chance you could give us the exact normalized figure, can that be calculated?

Well, I would say a majority of the volume decline was related to Oakleaf and the national account. There were -- keep in mind we did not see the seasonal uptick in C&D, and Tod also spoke to some of the deferral of the special waste volumes. So there was a component of the volume decline that was related to other lines of business beyond those lost businesses we talked about in the April call.

Okay, got it. And with the latest dividend raise which is now the norm, which is nice to see, how does it look for a higher buyback authorization the next time the Board meets? And I guess as part of the same question, given the pipeline is still strong for future M&A, do you see the amount allocated to the M&A possibly going up as well?

Well, first, on the buyback we have this authorization we are living under that gets us through 2013, so we've got plenty of capacity there. As far as the acquisitions go, two years ago we did zero in acquisitions, last year about $50 million and this year $100 million. That is kind of what we're looking at for this year, and as we look at the pipeline and look at our business plan for next year, we'll come back to you on that.

Again we're not giving '13 guidance, but our goal is to really focus on our core business, the markets we are in. We don't want to be distracted in other areas. And that $100 million or so is a nice, we think, a steady diet of acquisition pace for us today, and that is the way we see it as we sit here today.

We entered this year with $650 million share repurchase authorization. So if you were to split that evenly between '12 and '13, we have $325 million for the share repurchase and the dividend is probably somewhere between $325 million and $340 million. So we're returning $650 million, $660 million, which is 6.5% to 7% cash yield to the owners.

And then, the balance is the acquisitions -- that $100 million or $100 million plus of spend that Don mentioned. So the math is pretty simple in terms of our $775 million-plus of free cash flow.

Our formula for success really hasn't changed over the long-term. We talk about being an ROI-focused, we talk about maintaining a strong credit profile, having a balanced approach to how we return cash to shareholders. We've continued to demonstrate that with the stock repurchase, with the dividend raise.

And on the acquisition front, we have always said that we've got flexibility financially. If something comes along that's a little bit bigger that really fits our marketplace, and we can do it at the right price, then we have the flexibility to do that and we've got the Board support to do that. So, having said that, steady as she goes here and that is really the message of the call.

Okay, that is really helpful, and just one other quick follow-up. Without asking for 2013 guidance, just given what you know about the contract structure and what has already happened with the CPI, without even getting to 2013, is the CPI impact going to be increasing through the second half of the year, kind of accelerating given what you know historically about the CPI?

I think as you know, what is happening with the CPI today takes about 12 or 18 months to move into our restricted pricing. So we really have a pretty good handle as to what the resets will be for the second half of 2012, and that has been reflected already in the comments we have made. But, just like if anybody is out there looking over a multi-year period, always keep in mind whatever is happening in CPI in calendar '12 doesn't really start to impact our pricing until the second half of 2013.

Yes, understood. Okay. Thanks a lot.

Adam Thalhimer, BB&T Capital Markets.

Hi, good afternoon guys. I just want to make sure I understand the $0.59 adjusted. Why wouldn't you back out the tax gain from that?

Well, we did. That is why we called it out saying $0.09 was the impact. So if you want to look at it, the EPS from ongoing operations was $0.50.

Our effective tax rate in the second quarter was probably somewhere in the 24%, 25% range, and again, that is a function of us closing out some open tax years from 2004 to 2008. So it is obviously not an ongoing tax rate.

Hence, as Ed had said, we've got a $0.09 benefit in the quarter. The tax rate goes back up to about 40% in the second half of the year. So $0.06 of that comes back in the second half, and then net benefit to the Company in the full year is $0.03.

Correct. We had just given previous guidance to investors stating that the average tax rate this year would be 37% with the resolution of the items we mentioned. The full year effective tax rate is going to be 36%, which is an additional $0.03 of EPS. So it was just making those adjustments to update the guidance that was previously given.

Okay, that makes sense. Thank you very much.

At this time I'm showing no further questions.

Okay, thank you operator. In closing, I would like to thank the entire Republic team for our performance in the second quarter. If you're listening, keep up the good work.

We remain focused on the business fundamentals required to improve our return on invested capital further position Republic Services to grow across all lines of business.

As a reminder, recording of this call will be available through August 3, 2012 by calling 203-369-1011 and using the passcode 4589. Additionally, what to point out that our SEC filings, our earnings press release which includes GAAP reconciliation tables and a discussion of business activities, along with a recording of this call, are all available on Republic's website at RepublicServices.com.

And finally, I want to remind you that Republic's management team routinely participates in investor conferences. When presentations are scheduled, the dates and times are posted on our website along with instructions for listening to the live webcast of the event. 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.