美國廢棄物管理公司 (WM) 2001 Q1 法說會逐字稿

WASTE MANAGEMENT INC. FIRST QUARTER 2001 EARNINGS CONFERENCE CALL

Good morning everyone and welcome to today's Waste Management Inc. first quarter 2001 earnings conference. This call is being recorded. At this time, I would like to turn the call over to the Vice President of Investor Relations, Ms. Cherie Rice. Please go ahead ma'am.

Thank you Tony. Good morning everyone and thank you for joining us. With me this morning are Maury Myers, Chairman, President, and CEO of Waste Management and Bill Trubeck, the Chief Financial Officer. Our presentation will be fairly brief this morning, since it has been only two months since our last conference call, and we don't have many unusual or unanticipated items in the quarter to discuss. Maury will start things off with an overview of the quarter, followed by a review of our progress on key initiatives. Then Bill will review the financial statements in detail and cover a few retailed topics. After that, we will open the line for questions and answers, and we would expect the call to run, you know, an hour or less than that today. This call is being recorded and will be available 24 hours a day from about noon, central time, today through 5 p.m. on May 16, 2001. To hear a replay of the call over the Internet, access the Waste Management website at www.wm.com. To hear a telephonic replay of the call, dial 719-457-0820 and enter our reservation code as 62-00-78. 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, which are described in detail in Waste Management's annual report on form 10-K, for the year ended December 31, 2000, and in the company's press release this morning. These risks and uncertainties could cause actual results to differ materially from those advised in the forward-looking statements. Now I will turn the call over to Waste Management's Chief Executive, Maury Myers.

Thanks Cherie and good morning. I will start the call off today with an overview of the quarter and then I will review the details of our important strategic initiatives. Overall, we are very pleased with the first quarter results. Our revenue was weaker than we had anticipated, for a number of reasons that I will review. Cash flow was good. Earnings were a little better than we had anticipated, and most importantly, we made solid progress with our key initiatives. I think, we are off to a good start in 2001, and as stated in the press release, our expectations for the year continue to be in line with First Call estimates. While I will leave most of the quarter's financial review for Bill, I do want to spend a few minutes talking about internal revenue growth. The overall rate of negative 0.8% is a result of revenue being about 40 million below our expectations and is generally attributed to 10 million from weather impacts, 5 million from culling of accounts largely New York City, and 25 million that we attribute to softness in the economy. As we had mentioned in the release, commodity prices had a negative impact of 27 million or 1%. Partially offsetting this negative impact to internal growth was the positive impact from the fuel surcharge, which was 15 million higher than last year's surcharge, helping the internal revenue growth rate by 0.6%. Taking out the impact from commodity prices and the fuel surcharge, internal growth was down about three-tenths from year to year, with price up about eight-tenths, and volume down 1.1%. So why didn't we have any net growth in the business? I will take a little help, if we look at some of the statistics in the various lines of business, and I will start with disposal volumes. On a year-to-year basis, our same-store total disposal turns were down about 1% in the quarter, as compared to last year. That was due to last year having been a leap year, which added a full day's volume to the 2000 quarter. On a tons-per-day measure, total volumes were basically flat with last year during the quarter. The volumes have been trending in the right direction over the last several weeks, and in fact for the last two full weeks of April, the same-store landfill volumes were actually higher than the previous years. We estimate the landfill volumes were negatively impacted by a combination of weather and the soft economy. Looking for a tie into the economy with our landfill data, special waste volumes have been running quite a bit lower than last year, about 7%. Special waste jobs can often be moved ahead or back, so it maybe that some companies are delaying those types of projects, and in calculating the price in volume components of internal growth, the special waste volume losses were also negatively impacting price, as most of the lost waste streams were much higher priced than our overall average. Most important, it appears that volumes are now back on track. Roll-off pulls were also weaker in the quarter, while we don't have the comparable year-over-year data on these as yet, we do have comparison to budgeted pulls. In total, roll-off hauls were off budget by 3.8% in the quarter. The lagging volumes during the quarter appeared to be primarily related to large industrial customers as opposed to construction projects, which is consistent with the economic indicators we've seen here to date. Geographically, the greatest percentage grant from budget was in Canada followed by the Midwest and the East. The South and the West were closest to budget, but their volumes were modestly off as well. April's hauls for the company overall attracted about 4.5% under budget for the full month, but the number of hauls per week is trending in the right direction, and we saw a significant upturn in the hauls in the final week of April. As with the disposal volumes, it appears that roll-off volumes are beginning to get back on track. We will be watching both of these statistics closely, as we progress through May and June. In the commercial collection business, we lost about a million dollars a month in revenue during the course of the first quarter as a result of our new broker policy. As we mentioned before, based on our analysis, the broker work on the whole was very low margin work with integrated operating margins in the mid single digits. We anticipated these kinds of customer losses when we implemented the new broker policy, and we do expect further losses during the second quarter potentially up to another million dollars a month in revenue. We've monitored the last broker business closely, and we remain convinced that these losses have been very low margin work. We expect to redeploy the assets and employees that have been utilized for the broker business to higher and better use for more profitable customers. In fact, we recently won two large national accounts with almost 10 million in annual revenues where many of the broker assets will soon be deployed. On the pricing side, price was up 1.7% overall, including the fuel surcharge, in the collection segment of the business. As stated in our last conference call, we have been putting through price increases in many markets, and those price increases have generally been well accepted. But overall, pricing of the landfills is basically flat. With lower seasonal volumes in the first quarter, it was not an ideal time to be raising landfill prices. However, as we rollout our market strategy program, landfill pricing is one of the most important areas of review and one which we are finding has significant opportunities. Based on these reviews, we expect to increase pricing at selected locations this year. Additionally, we are beginning to rollout the new tool that assist us into trimming profitability on a customer-by-customer basis in our commercial collection business. This tool will also help us in determining and affecting appropriate price increases in our various operating locations. In summary, it appears that our volume trends are getting back on track, so we expect to see better year-over-year volume growth in the second quarter. The commodity prices will continue to be a drag on overall pricing in the second quarter and will lose most of the one time year-to-year comparative improvement from the fuel surcharge, as the surcharge was largely implemented in the second quarter last year. If special waste volumes continue at these lower levels that will also be a drag on pricing. But on the positive side, we expect to begin seeing pricing improvement from the market strategy work as well as from the rollout of the new pricing tool. In the larger scheme of things, I want to bring you up to date on our progress on 2001's four key initiatives. We will start with PeopleSoft implementation. I am pleased to report that the financial system conversion continues to be on track and on schedule. We converted an additional 143 districts as of May 1, 2001, so now we have over 200 conversions completed which comprises the entire Midwest area. The conversions continue to proceed smoothly, and we anticipate completing the 1,500 total conversions by the end of the year. During the third quarter, we will be converting the Eastern area districts, and this is our largest single area with almost 440 districts. The countdown to conversion process is currently ongoing in the East, and the training group is staffing up to support the upcoming conversions. The procurement initiative also continues to make progress. First of all, we are almost completed with our staffing efforts for the procurement department. In fact, the outside professionals have helped us kick-start the initiative, have completed their work, and Waste Management is now running the program 100%. A couple of our most recent procurement successes have been for tires and office supplies. Tires are of course a very critical part of our operations, and we are extremely pleased with the outcome in this area. We have reached an agreement with our two tire partners that will result in projected annual savings of $5 million, which exceeded our goal, but additionally and importantly, our two tire partners are the two that we already did the most business with, and we are preferred vendors in Michellin and Bridgestone. The procurement team is currently working on several more strategic sourcing opportunities, including truck parts, fuel, and containers. Our new office supplies deal provides for purchasing via the Internet. Our longer-term goal is to do all of our procurement electronically and this gets us off to a fast start. Overall, I am pleased with the progress this team is making, and based on the results today, I continue to be optimistic about the short-term and long-term opportunities we have outlined. As a reminder, we project total cost savings at $75 million in 2001, about half capital and half expense, and in the longer term, we anticipate up to 400 million in annual savings, with the expense savings being in the range of 200 million to 300 million, and the capital savings being in the range of 100 million to 200 million. Those numbers will become more define as we go forward with the program. The third major initiative is market strategy. Late last week Bill, Larry, and I were in the field reviewing the results of the first wave strategy work that was done in the South and in the East areas. These reviews support our expectations for the initiative overall, and we continue to be very encouraged about the potential for the income improvements from this work. Additionally, our teams are just about fully trained to continue on their own, and as at the end of the April, McKenzie consultants have completed their work helping to design and implement the market strategy review process. We have announced that Chuck Wilcox has been appointed Senior Vice President, Market Planning and Development and will oversee the market strategy work in the future. The fourth and final major initiative for this year is the service machine. As a reminder, this is an effort to streamline our operations to become more customer-friendly, customer-focused, and more productive. The eventual goal is to increase customer retention, which should also increase overall customer growth. We are currently running three service machine pilots, and putting together the template to be used in a large-scale rollout which will start later this year. Again, we are on track and pleased with what we are seeing from the efforts today. You might recall that on our last conference call, we mentioned that we were planning a Waste Management Leadership Conference. The conference was held last week, and I would like to give you a quick rundown. First of all from all indications it was a huge success. There were over 1,600 Waste Management employees from across the country, and attendants including district, division, region, area, and corporate personnel. We had two main goals for the conference, first of all, we wanted to provide our field leadership with the opportunity to learn more about the initiatives that are being rolled out and about the new tools and systems that are being developed, and secondly, we wanted to ensure that our entire leadership team clearly understood where the company is headed so that they can help drive the initiatives throughout the organization. The 21/2-day meeting included five workshops in a trade show format featuring 42 instructions booths. Based on the feedbacks that we have received both formally and informally, I think the conference hit both marks. We consistently heard a number of positive comments from the field. They said they gained a deeper understanding of the major initiatives that are being rolled out this year, and how these tools will help them achieve our goals. They said they were excited about the new tools and technology that are being developed to help them on everything from customer profitability analysis to municipal marketing and bidding to fleet services. They said they feel better about the direction the company is headed than they have ever felt before, and that they were proud to be on the Waste Management team and excited to be playing their part and helping us with our goal to make the company not only the most admired in our industry, but also one of the most successful in corporate America. It was a great meeting, and it should help in getting the participation that we need from all levels of the company. Finally, I just want to mention a few personnel changes and promotions that we made recently. First of all back in March, we announced that Bill Trubeck, our CFO, and Larry O'Donnell, General Counsel, had both been promoted to Executive Vice President from Senior Vice President. Their leadership and contributions to the turnarounds at Waste Management have been invaluable and these promotions are in recognition. I previously mentioned Chuck Wilcox who hade been running the Eastern area, will be coming to the corporate office to oversee the market strategy initiatives. As we have progressed with this work in recent months, it's become clear just how important this particular project is to our success. The implementation is huge, and we will create a fundamentally new way of doing business. There is so much opportunity here that I don't want us to slowdown, miss a beat, or overlook anything, so I decided to take one of my strongest field manager Chuck, and put him in charge of the initiative. I know he will do a great job. Fortunately, we had an excellent internal candidate to backfill the position that Chuck was vacating Rich Felago. Rich has been in the business for almost 20 years, worked with Tech Wheelabrator. As you probably know, Wheelabrator is a major presence in many of the largest markets in the Eastern area, so Rich is already familiar with those markets as well as the waste industry. A natural fit to replace Rich, as President of Wheelabrator is Drennan Lowell. Drennan has been CFO of Wheelabrator and has the knowledge and know-how to step right into the job. And separate from these changes early in the quarter Dan Pio was appointed president of Canadian Waste Services. Dan has been controller for Canada, and is also a great fit for this particular position. As I have said, since I arrived here, we have a great team of leaders in this company and these changes reflect that fact. That wraps up my comments for today, and now I will turn it over to Bill Trubeck to review more of the numbers and results.

Thank you Maury. Let's begin by reviewing the financial statements for the quarter, starting with the income statement. While total revenue is down by 498 million on a year-over-year basis, this is largely due to the divestiture program. You should note that international revenues are almost $400 million less than they were in the first quarter of 2000, and non-solid waste revenues are 36 million less. These are the two business segments with a significant portion of their assets divested in the past year. There have also been net divestitures in the North American solid waste segment, with the revenue impact for the first quarter being $42 million. Maury already reviewed in detail the internal revenue growth components of North American solid waste, so I will move on to expenses. However, I would like to note, as Maury did, that we have experienced a kick-up in disposal and roll-off volumes in April, and we are encouraged by the pricing potential we have seen throughout our market strategy analytical work. I think that the adjustments to reported expenses for our pro forma analysis were pretty clearly laid out in the press release, but I will mention a couple of things about those items. First of all, as we continued with some of the last bits and pieces of the divestiture program, there was a net loss in the quarter related assets sales and impairment of assets held-for-sale of $9 million. Largely, this loss relates to the pending sales of our Argentina business. Also, the final cash outflow associated with the termination of the Waste Management Holdings defined benefit pension plan of $13 million was paid this quarter. Last quarter, we told you we expected a pension termination expense of 5 million in the first quarter associated with the final termination payment. After receiving actuary analyses including final participant elections, the termination payments came in at lower than we had previously thought. The accruals that we had on the books were enough to enable us to make these payments without having recorded additional expense. This plan termination is now completed. The $44 million adjustment to G&A is consistent with the unusual cost we projected for the year, persistent rollout and development and other professional fees. We projected a total $121 million of these type of expenses in 2001, and we continue to expect the total for the year to be at or near that total amount. I think that covers the important items in our pro forma analysis, as I sure you have all noticed the level of pro forma adjustments continues to decline, and beginning next year, I would expect to be reporting on an as reported basis only. Beyond the unusual items, I think it is notable that we didn't have any big surprises in our normal operating expenses in the quarter. As Maury mentioned, even though revenues came in somewhat weaker than we had anticipated, our pro forma earnings were a little bit better than we had expected. The primary driver of the lower expenses was within G&A and more specifically it relates to lower than budgeted corporate overhead. Largely, the lower costs are due to delays in some of the planned hiring and other expenses until later in the year. These delays should not have a negative impact on our ability to meet the goals that we have laid out for the company. We will also continue to critically assess each of these planned expenditures. I also want to mention that during our budgeting process for 2001, we placed particular focus of our managing overtime, maintenance cost, professional services, and warranty plans. This effort has paid off, and for example, during the first quarter, we put a lot of focus and good management practice to work in the maintenance area, and I am happy to say that we saw a substantial reduction in maintenance cost in the first quarter versus the fourth quarter. We expect to make further improvements as we progress through the next several quarters, and we are off to a good start. The other area that we are becoming focused on, is labor in general and overtime more specifically. Because this is a capital-intensive business and in certain cases it makes the most financial sense, we scheduled a certain amount of overtime. We are analyzing overtime practices in the field and working toward overtime guidelines by job type. For example, there are maintenance jobs that it probably makes sense to have less overtime for full time equivalent than it does on collection rounds. For those of you tracking the margins of the core business only, we have again prepared an analysis of what the costs and margins would have been in the quarter, if the revenue and expenses of the assets held-for-sale were excluded. And here are the details for those of you who are again taking notes. For the quarter, operating costs would have been 59.5% of revenue, G&A would have been 13% of revenue, depreciation and amortization would have been 12.7% of revenue, our operating margin would have been 14.8%, and the EBITDA margin would have been 27.5%. Now I would like to review some cash flow items. I am sure it did not go unnoticed that our capital expenditures were quite low in the quarter. The two most significant drivers in this were slower than anticipated truck purchases, and lands those for construction. As we talked about on the March call, we had recently chosen preferred truck chassis and body manufacturers significantly reducing the number of vendors that we will be buying these items from. Due to the process of choosing the new vendors, finalizing our standard specifications, and entering into the agreements, our truck purchases virtually stopped for a period of several weeks. However, we are currently taking delivery of a steady stream of new trucks, and at this time, we anticipate getting back on track with truck deliveries, some time in the third quarter. Plans for construction is generally the slowest during the first quarter due to the winter weather, and of course this year severe winter weather conditions were no exception. Additionally, we think that container purchases were probably lighter than usual due to the lower than expected roll-off volumes, and the availability of commercial front-load and rear-load bins due to the last broker work. Also on cash flow, I want to talk about most significant items driving the 145 million cash outflow in changes and assets and liabilities as shown on the free cash flow analysis, included with this release The biggest single item is that our trade and other accounts payable balances were significantly down for year-end, over $170 million in total. This, of course, is a use of cash and it is primarily related to significantly lower capital spending, seasonality, and other reduced expenses accruals in the first versus the fourth quarter. The change in trade and other accounts payable also included pension termination payments of 13 million that I mentioned earlier and that you see listed as an adjustment below on the schedule. Also prepaid expenses used about 12 million cash in this quarter. The largest change in prepaid is for truck licenses, which are often paid at the beginning of the year. In addition, accrued liabilities declined almost $50 million primarily due to the payment of annual bonuses to our employees in the quarter. Last year, bonuses did not get paid until the second quarter, and they were a smaller total amount. You all know that the items I have listed add up to more than a 145 million, exactly about $100 million more. On the favorable side cash inflows, we improved receivable balances by over $100 million in the quarter. The two driving factors here were a further reduction in day's sales outstanding to 48 days at the end of the first quarter from 50 days at year-end, and a reduction to average sales per day driven by the seasonally lower volumes in the quarter. I am very pleased with the continued improvement of DSO, our people in the field are working very hard not only to collect receivables but also at doing upfront credit checks so that we are not taking on undue risks when we sign up new customers. Furthermore, as our systems continue to improve, I expect that we can drive the level even lower, and we expect to get down to about 45 days at year-end. A couple of notes regarding expectations now for the second quarter free cash flow, first of all, the second quarter has a highest projected cash interest payments at $175 million. Second, budgeted capital expenditures for the quarter are 440 million. It is still too early to tell whether we will be able to get our capital spend rate up enough in the quarter to spend all this but it certainly is possible, and for the full year, we do anticipate spending the full $1.4 billion, even though the first quarter's spend rate was quite low. And finally just to remind you that as we learned last year, even if base sale is held at existing levels, the total sales per day is rising as it generally does in the second quarter, so the receivables outstanding are expected to rise as well. Also before I leave the cash flow topic, we do still project adjusted free cash flow of about $1 billion for the full year. That concludes the comment I wanted to make on the income statement and cash flow statement. Now I will move on to few other topics that maybe of interest to you. Starting with our debt structure, debt levels are higher at March 31, due to the issuance of $600 million in free-fund notes maturing in May and June. This also accounts for the unusually high cash balances at the quarter end. Excluding these notes, the total debt to total capital ratio fell to 63% at March 31, which is below the December 31, 2000 figure of 63.9% and in line with our goal of dropping to below 60% by year-end, 2001. After issuing the 600 million of fixed rate debt in early February, the company entered into a series of interest rate swaps that exchanged fixed rate exposure for floating rate exposure. This had the effect of resetting the portion of fixed rate debt to about 70% of total debt, which is a level that we are comfortable with. As a result of these swaps, the company expects to realize interest rate savings over $15 million this year. The bulk of these savings will occur in the last 3 quarters of the year. As you may recall, the proceeds from the notes we issued in February are expected to be used to repay $600 million in senior notes maturing during the second quarter, 200 million on May 15, and 200 million on June 1, and 200 million on June 15. Then due to the certain mandatory tender features are notes that were issued in July 1998; the company is likely to be required to purchase up to $600 million of these other notes during the third quarter. And at this time, the company does not anticipate the need to issue new long-term debt to fund the purchase of these mandatory tender notes. Instead, we would expect to utilize the available cash and unused bank lines to purchase the notes. Based on our projected 2001 cash flow, we anticipate repaying such bank borrowings well before the end of the year. And regarding the bank loans, the $1.5 billion Syndicated Facility expires July 10, 2001, while the 1.4 billion senior evolving Credit Facility matures August of 2002. We have already initiated the process of renewing extended maturities of these facilities and expect that this process will go smoothly. As you know, we have an excellent group of banks participating in our credit facilities, and we are really pleased by the support that they have given us during the past two years. I should also mention that we recently visited with S&P and Moody's. Both the agencies are pleased with the progress being made by the company. We are optimistic that as the company continues to improve its financial condition and achieves its financial goals that these improvements will be recognized by the rating agencies. I would also like to note that as pleased as we were with the strong reception by the debt markets of our $600 million offering in February, we were even more encouraged by the fact that the after market trading in these notes after market trading has been about 220 basis points over 10 year treasuries. This is slightly better than the 230 basis points over treasuries when they were issued, and is at a level that is consistent with other investment grade companies. And clearly these investors like what we are doing and see the potential here at Waste Management. And before I close, I want to make one further comment regarding potential impacts due to the economy. As we have said before, to get the economy work to go into the prolonged downturn, there would be some negative impact on the company. Our business is not recession proof, but we do expect it will hold up better than many other businesses, other kinds of businesses in recession. So in summary, as Maury mentioned, we are pleased with our progress thus far in 2001. Our four major initiatives are progressing on track into many other projects and initiatives within the company are also moving along well. The biggest challenge we had in the first quarter was lower volumes than we had expected as measured by disposal volumes and roll-off pulls. But the good news is that the last couple of weeks of data shows strong improvement in these areas. We hope that these positive trends will continue and remain through the months of May and June. We continue to expect that the company's full year pro forma earnings will be in line with the expectations as published by First Call, and we are optimistic that the initiatives we are working on in 2001 will result in the projected profitable improvements in our business. With that operator, why don't we open the lines for questions?

Today's question and answer session will be conducted electronically. If you would like to signal to ask a question, please do so by pressing '*' Key followed by the digit '1' on your touch-tone phone. Again that is '*1' to signal. If you find that your question has been answered and would like to remove yourself from the queue at any time, you may press the '#' sign, once again to signal press '*1'. We'll pause just a moment. We'll go first to Bill Genco with Merrill Lynch.

Thank-you. If you excluded the impact of few surcharges and paper price fluctuations, where would you expect to be exiting the year in terms of a rate of price increase in core business?

Well, we budgeted total actual growth of 3% this year and about half of that is volume and half of that is price, and we would still expect to be able to implement that budget, even though the first quarter obviously is not up to that level.

So, that would imply that the price increases would be close to 2% plus, as you exit the year.

Yeah, that's right, for the rest of the year, and what we anticipate is getting that out of our strategy initiatives where we are looking at profitability on a customer-by-customer basis and frankly culling accounts that aren't profitable.

And could you bring us up to date in terms of where you are with your shareholder litigations?

Larry O'Donnell is here, our Chief Counsel, and we will just let him give you a quick update on that.

Yeah, Bill this is Larry O'Donnell, where we are, is we have filed our motions to dismiss and both us as well as the plaintiffs have completed our briefing with the courts, so where we are, is we are waiting for the courts to rule on our motion to dismiss. As we've stated previously, we'll continue to consider potential settlement options that are appropriate in the company's best interest but that's really where we are. We are awaiting the court to rule on our motion.

In relation to this, how large you would quantify it unusual legal fees, are those unusual legal fees showing up in pro forma or in the actual of SG&A?

We got a list here. We will pull that out for you. We are working hard on reducing legal fees, obviously the legal fees is associated with the clause action lawsuit. We would categorize as unusual. Larry has put together a legal matter software program, where we are managing legal fees all over the company. The legal fees last year were in excess of $100 million. We anticipate bringing that down substantially this year, and what's the unusual in that Bill?

During that quarter, we spent about 1.4 million just related to this litigation, and that was backed after pro forma.

Thank you very much.

Thanks.

We take our next question from Leone Young with Salomon Smith Barney.

Yes, good morning. Can you help me out a little bit with the divestitures as we look into the second quarter, obviously almost all the international business is gone, but I believe you still have some non-core business that you still like to sell. Can you give us an update on that?

Yeah, I think the only businesses left are our international business in Argentina, which is small, and then the only other significant piece I believe is the IPP and also our mainfield line of business [Serat]. So, those are the only two pieces left.

And would you anticipate being able to get rid of those in the second quarter or is it probably a little more delayed than that?

Yeah it's probably more delayed than that. We had a deal on [Serat], which is now off, and the IPP sale has also been delayed as a result of all the energy problems in California. So, we are working our ways through those.

And also the SG&A levels when adjusted of about 13.1% were less than what you targeted as you mentioned you held off on corporate overhead. Would you be willing to comment on whether this new level is probably a better level to use rather than 13.5%?

Well, I think, actually the only, part of the reason for that, of course, was the timing on the people brought in, as we mentioned during the discussion. I wouldn't want to go much lower than that, I think, we have said all along that that number is going to be relatively higher for a period of time until I could get the people and systems in place. But, I think right now I wouldn't move it too much further down from that.

From the 13.5%?

Yes, correct. 00:3541 LEONE YOUNG: Thanks.

We take our next question from Jaimi Goodfriend, First Analysis.

Good morning.

Morning.

My first question will be, is the interest income line just higher because of the higher cash down for the quarter?

That's right.

And how come of the slightly lower minority interest lines.

Well, I know a large percentage of the minority interest that we had last year was related to international businesses, which has been largely partly sold, so.

Year or sequential...is this 4 million dollars, I was wondering if there was a ...

Let me say about getting some detail that'll help me answer that Jaimi.

Sorry.

Go ahead. We will dig through that one and see if we can get you the answer.

What was the change in the accounting principle I apologize but it was listed in the press release?

That was the effect of the implementation of SFAS 133.

Okay, thank you.

Okay, thanks. We will get back to you with your other question before we hang up.

We take our next question form Bill Fischer with Raymond James.

Good morning. I have a couple of questions if you could, one on the recycling and other revenue. Do you have what the recycling revenues are down to now in the quarter?

Recycling revenues in the quarter were about 104 million.

Okay, thanks. On the special waste any kind of a rough percentage of what that is to your disposal volume, is it 10% or that's kind of running?

I will get that if you have other questions to ask go ahead.

Yeah, last thing, as of either March or April, what's your average interest rate would be running?

On the variable rate data it's now 5.6%.

Yeah, I guess, do you have an overall blended rate or ...

Yeah, I will get this point, just one second.

Okay. We'll get those for you before we hang up Bill.

Great. That's it from me, thanks.

And special rates on a percent of total landfill revenue, it runs slightly higher than 10% of overall landfill revenue.

Okay, thanks.

Okay. Thank-you.

We are taking our next question from Stacy Devine with Deutsche Bank Alex Brown.

Yeah, the first question I have is, actually a quick follow up on Bill's question about the litigations, you mentioned you are waiting for the court to rule on the dismissal. Do you have a timing and when that would be?

Stacy, we really can't determine. That's totally up to the judge, and we are not in control unfortunately. The only thing we can do is to press and respond quickly, ask for expedite the proceedings, we are doing all those things, but we simply aren't in control of that.

Okay and last quarter you had benefited a little bit from some unusual energy sales, was there any of that in this quarter?

No, that's gone. That was a one-quarter phenomenon.

Okay. Last question is you talked about landfill pricing being flat in the first quarter and have you actually started any of those initiatives yet or is that still to come, and when do you think you would actually start those initiatives?

We are just in a process of, as we mentioned, of reviewing all of these strategic plans on our 31 MSAs around the country, and those pricing plans are really scheduled throughout the year, with most of them starting in the late second quarter.

Okay, so we shouldn't hopefully then see more of an impact starting in the third quarter from now on.

Yes.

Okay, great. Thank-you.

Thanks.

We got next Alan Pavese with Credit Suisse First Boston.

Maury, you were taking about being slightly disappointed with the revenues, but looking at the sequential comparison, the rate of growth in the collection and disposal side actually improved slightly, and looking at your landfill volumes year-over-year, they're only down like 1% to 2% like you were saying. So I'm just wondering whether that you're more disappointed with relative to budgeting or relative to true market expectations and market performance over the last three months?

Well, I think primarily not so much disappoint is, as we obviously like to see it stronger, and I think the economy and the weather are the primary drivers of any lack of expectation that we had. I think our people are doing a good job, and we're getting improvements where we are rolling out new strategies, but overall things are going fine. We just like to see the economy having been a little stronger and not had the weather impacts that we had.

And also, could you talk about in the second quarter with the rollout of new pricing tools, have you seen some results in areas where those have been implemented and have they been implemented throughout the entire company at this point?

No, it's still very early. It's taking longer than we'd anticipated, frankly. Those two levels of these pricing tools, the first one is a pretty simple tool that's based off of the old MAS computer system that we have, and really it just takes, for example, in a particular district it will pick all the commercial accounts. It goes through a cost allocation procedure, so it's not really an account-by-account analysis of cost. It's a cost allocation procedure and then it will raise the accounts in terms of profitability so that our people can go after the accounts that appear to be the furthest underwater and so forth. We're really just getting started with that, and the tool while it was showcased at our meeting in Las Vegas, our leadership conference, and people are just starting to use it, so that's the first stage. Then the second stage is really an all up tool that will give us customer-by-customer profitability with a more detailed analysis of the cost and we are not going to have that until towards the end of the year.

But the first stage is hanging, it's kind of a little slower than you're expecting, do you still hope to get better pricing in the second quarter without that or is that going to impair your ability to better price?

Yeah, no, we'll start to use the tool in the second quarter, and again we're seeing as we go out and review the market strategy work. Our people are beginning to use it. It just starts to drive some discipline and create some goals that we can measure against it to make sure that these reviews are actually being accomplished. The early results are pretty interesting, you know, kind of what you'd hope is happening and that is you're saying, wow, I didn't realize I had so many accounts that are underwater. So it's going as we'd anticipated, it's just going to take some time to get our people up to speed on how to use it and actually get the price increases rolled out.

Okay, and just lastly one more followup to the litigation. It seems like talking about waiting for the actual judge's ruling, that's actually the track that probably would take years, no matter what the ruling is going to be, I am just wondering if there are ongoing active settlement negotiation talks taking place at the moment?

Yes, there are.

Okay, thank you.

We take our next question from Tom Ford with Lehman Brothers.

Hi, good morning.

Morning Tom.

Maury, I know you gave us the information, I was just wondering if you could just boil it down for me, I mean, collection pricing 1Q versus this year versus last, the comparison there if we nix out the special waste, do you have a sense as to what that, I'm assuming that there is an up trend there.

The special waste impact is really under the disposal side. You said in collection, right?

Right, right. I am just trying to sort of actually, I am just trying to get sort of a trend idea here.

I think, what we gave you that was that the, on the collection the prices are up 17, is a good number.

Okay. And yet it sounds also as though that the tool rollout with the delay clearly there is, you've got expectations of clearly more to come.

Yeah, we do absolutely. I think I've mentioned in the past that one of the hurdles that we have with respect to pricing is that our people still remember what happened to them back in early 1999, when they rolled out very large price increases and had them pretty much thrown back on their face and lost large amounts of volume, and it's still fresh in many of our customers' minds as well. So they're being cautious, maybe overly cautious, but what we're trying to do is build a fact base and show them that these increases are appropriate. We're doing competitive analysis so they can see how they stand relative to the competition, and we've had good early success. So I think all of that bodes well for as we go forward because they start to have more confidence in their ability to raise prices.

Great. In terms of your reference with respect to Alan's question that the field was coming back noting that surprised by the number of customers that were underwater? Is there a number that you have there or a general range?

Yeah, but I guess at this point we're not ready to tell the world. When we get the market strategy work done, maybe we'll be in a better position to tell you that, but it's a significant number much more than they thought. I think what's happened is that, what they're telling us anyway is that these accounts were set up probably wrong in the first place. The analysis was not done correctly as to what the costs were, and then sometimes they've just been ignored, and we haven't had appropriate price increases on a year-to-year basis. So, there is a substantial number that we think we can get the price up, or we're going to walk away from the business, because there is no point doing business that's not profitable.

Right. Two more quick questions, number one, you're hedge position in terms of fuel, and number two, if there was any cost impact from the weather in the first quarter?

Yeah, I think, well, in terms of cost impact I guess there were some, we haven't quantified that. We've talked about weather impact on the revenue side. In terms of fuel hedge, we have the fuel surcharge in place, which covers about 60% of our fuel and past that we have not hedged. We continue to look at that, but at this point, we feel that the program we have is successful. What happens then eventually is that the other 40%, for the most part is covered by, or to a large degree anyway, is covered by contracts that have perhaps annual escalators, and so we eventually do get increases on, usually it's on a cost of living basis, on an annual basis.

Okay, great, thank you.

Thanks.

We got next to Clare Hart with JP Morgan Fleming.

Hi, good morning. I just actually want to clarify some numbers that you gave us related to the divestitures and the revenue line, $400 million, I think you'd said related to international, 36 related to non-solid waste, are those sort of the full quarter effect of what we would expect to see related to the divestitures?

Yeah, that's correct.

Okay, that's it thanks.

Could I just jump on that more for a second and bring Bill up-to-date on that question on the weighted average cost of debt. The total right now is 6.8% and that is down just a little bit from EBITDA. I think we mentioned in the last call and the decline being really attributable just to the drop in short-term rates. So weighted average is 6.8%.

We go next to Steve Binder with Bear Stearns.

Yeah, good morning. Maybe I missed this, but what kind of pickups did you get sequentially from lower maintenance and fair cost in Q1 versus Q4?

I guess we didn't roll that out Steve, and I'm not sure we've got that at hand here, but you might recall in Q4, we talked about the fact that our maintenance expenses were substantial. They were way over budget and we brought them back in the budget, and I don't have a number for you.

And how about with respect to corporate overhead, where would you quantify that to be in the first quarter?

I am sorry what's the question?

Yeah, corporate overhead expense, how much was that in the first quarter?

Total corporate overhead expense.

Yeah.

Let me find that number for you Steve.

We'll get your numbers to you before we hang up there.

All right. Just two more questions, can you maybe touch on what kind of organic growth you've seen in April? I mean, you commented about the pickup in the disposal volumes and roll-off volumes. Can you just touch on the overall growth rate you saw in the quarter organically in April, excuse me.

Yeah, the problem, I guess, we can't and the reason is that it changes significantly from the first week to the fourth week and we're watching that carefully. It is a period of significant change.

And lastly Maury, can you maybe just touch on this leadership conference and specifically on the collection side. You touched on the emphasis on pricing. You touched on overtime. Could we have that with respect to other efforts to improve productivity, improve collection margins from a cross standpoint. What other strategies are you seeing as potential lever points to improve margins.

I guess that would primarily fall under our service machine initiative and it's still in a pilot phase, but just to give you an idea, some of the things that we've found are that as much as 30% of our first account setups have a problem. In other words, we send out the wrong container. It's not delivered on time. There's a billing problem. We didn't get the billing straight. So one of the first things that we've attacked is to set the thing up right the first time, and this is a big productivity saver in that it prevents rework. You go from that to missed pickups which is the biggest complaint that we have and instead of having to go back and pickup accounts that we missed, just do a much more careful job of pickup. We have reduced our error rates in most of the functions substantially in these pilot projects, and the other thing that we've done is consolidate routes. Often what we found is that the routes just weren't as productive as they should run as efficiently as they ought to be. In one case, that I'm thinking about that we just reviewed, they dropped as many as five routes out of the district, which was pretty significant.

Is there any goal in mind on what you can do with collection margin.

Yeah, we'll have that when we finish our strategy work. We don't have it at this point. It's a big number.

Okay, thank-you.

Thank-you.

And Steve, just to answer your corporate overhead expense question, it was 128 million in the quarter and that included the net 33 million of those SG&A that were adjusted out of the pro forma. So on a pro forma basis it would be 95.

Thank-you.

And while I'm answering questions, I'll also go back to Jaimi's question on minority interest. It was significantly due to some international sales that concluded in the fourth quarter, primarily Hong Kong, and that was over 2 million of the difference. Also, some of the ongoing minority interest that we will have to do with Wheelabrator, and those specific earnings were down somewhat in the quarter, so that was another piece of it.

And Steve, I'll just add on to my answer to your question. On all of these initiatives whether it be the market strategy work or the procurement work or the service machine, we're still in the stage of identifying the savings in the bottom line improvement. We're a little hesitant at this point to take guesses at what the improvement numbers will be. We have said, for example, that this year 2001, we think we can save $75 million and procurement effort, half in capital and half in expense, and the same thing with the market strategy work, we talked about $75 million savings there. So, we've started to rollout what these improvements are. As we get these projects better defined, we'll be more specific as to what the savings are. But we think at this point it's prudent to just rollout the information that we have.

We'll take our final question for the day from Evan Steen with EOS.

Thanks, very nice quarter. I just have a very simple question. You guys are obviously the leaders in your industry in North America. There are a number of smaller companies out there that are public that have substantially higher margins. We're talking 200, 300, 400, 500 basis points on an EBITDA basis. I wanted to know over the longer term, say three-four years, if there is anything that you see inherently different in your operation that would prevent you from obtaining similar types of margins.

I think the simple answer to that is that we are spending money on infrastructure to build this company, and that over the long run, we anticipate that infrastructure expenditures that we're making now will pay off in better margins for the future, and we don't see any reason why we shouldn't be as good or better than at least the larger competitors.

Okay, thank you very much.

Thanks. I guess that was the last call. Thank you very much. We appreciate your listening today.

This does conclude today's Waste Management Inc. first quarter 2001 earnings conference. You may disconnect at this time.