美國廢棄物管理公司 (WM) 2002 Q3 法說會逐字稿

Good morning, everyone, and welcome to today's Waste Management, Inc. third quarter 2002 earnings conference call.

Today's 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, EVP Operations Support and CAO.

Maury will start things off with a review of business trends, an update on the progress of our initiatives, and will discuss other improvement opportunities for the company. Then Bill will review the financial statements in detail and cover a few related topics. After that, we will open the lines for questions and answers.

This call is being recorded and will be available 24 hours a day beginning about 1:00 p.m. Central Time today, until noon on November 14th. To hear a replay of the call over the Internet, access the Waste Management Web site at www.wm.com. To hear a telephonic replay of the call, dial 719-457-0820 and enter reservation code 544613.

As it 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 27(a) of the Securities Act of 1933 and Section 21(e) 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, 2001, and its Form 10-Q for the period ended June 30, 2002, 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.

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 October 31st, 2002, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Waste Management is prohibited.

Now, I will turn the call over to Waste Management's chief executive, Maury Myers.

Thanks, Cherie. Good morning, and thank you for joining us on our third quarter conference call. I'll start the call off today with a review of the trends we're seeing in volumes and pricing, give an update on our key business improvement initiatives, and then talk about some of the other opportunities we see for further profit improvement. After that, Bill Trubeck will review the financials in detail.

Starting with internal revenue growth, the trends in the third quarter were fairly similar to what we saw during the second quarter. We continued to see marginal improvements in year-over-year volume comparisons -- that is, while volumes were negative six-tenths of one percent as compared to third quarter 2001, this is quite an improvement over the negative 2.6% in the first quarter and negative 2% in the second quarter.

Taking a look at disposal volumes, we did see modest improvements in average daily tonnage comparisons during the quarter versus what we'd seen in the second quarter. Daily tons were down 2% in the third quarter, whereas they had been down about 2.6% in the second quarter. September average daily tons were off only seven-tenths of 1% due to easy comparisons as a result of volumes that didn't move for a few weeks after the September 11th -- after September 11th last year. The roll-off data was even more encouraging.

In fact, in August and September, we had average daily pulls equal to or slightly more than the averages for the same months last year, something we certainly had not seen at all in the first or second quarters of the year. Data for the first four weeks of October indicates that year-over-year comparisons on both disposal and roll-off continue in the same positive direction. Additionally, roll-off volumes in both the East and Midwest look encouraging, but we think it's really too early to confirm a trend at this point.

The pricing environment was relatively unchanged in the third quarter from what we'd experienced in the second quarter, as noted in the press release. Prices were up a half of 1% in the third quarter, the same as they were in the second quarter. As we discussed on last quarter's call, it is more difficult to get price increases than it was a year ago, and some existing customers are requesting reductions to their price based on price quotes they've received from competitors.

As is normal in this business, some markets are more accepting of price increases than others, and we've been tailoring our price increase strategy to each market. Where roll-off demand has been growing, we're testing the price elasticity on a weekly and sometimes even daily basis. The good news is, of course, that on an overall basis, we continued to see positive pricing in the quarter. With the roll-out of our new and improved commercial pricing tool during the third quarter, market areas are actively reviewing customer pricing and developing their annual price increase plans for the implementation by year end.

In addition, our roll-off pricing tool is in pilot and will be ready for implementation in the first quarter of next year.

I should also mention that we made a slight modification to our internal revenue growth calculation this quarter. The change is related to a difference in the number of workdays in a quarter year over year. Our previous calculation was pushing the difference related to workdays into the price calculation. Commercial and residential prices are generally a fixed amount per month, while a change in the workdays in a quarter results in either more or fewer pickups for these customers. Therefore, we're now making an adjustment to remove the impact of differences in the comparable number of days.

Under the modified approach, the split for the first quarter should have been nine-tenths positive price --nine-tenths of a percent positive price, and negative 2.6% volume, versus the 1.6% positive price and 3.3% negative volume that we originally reported. We'll use this same methodology going forward to make for apples and apples and more meaningful comparisons.

The recycling commodity markets partially reversed during the third quarter. As you probably recall, cardboard prices rose quickly during the second quarter, but as we predicted, they lost much of those gains in the third quarter. October's yellow sheet indicates $70 per ton average price for cardboard across the country. While this isn't a bad price, it's well off the highs, and we think it may be headed lower by year end.

On the other hand, newspaper pricing firmed up some during the quarter. The October yellow sheet indicates an average of about $75 a ton for newspaper, up from about $50 at the end of the second quarter. We're projecting OCC pricing for the fourth quarter to remain at or slightly below the $70 level.

In 2003, we anticipate it to further settle downward toward our floor pricing ranges of $45 to $50 a ton. We expect newspaper to remain at about current levels into 2003.

I should also mention that in the West -- or in the -- the West Coast labor port problems have started to have some negative impact on the export of commodities to Asia. It's too early to tell how much the impact will be, but we don't expect currently that it will have a material impact to our fourth-quarter results. We continue to make progress at WM Trading, and as of September 30th, 10% of our overall recycling commodity volumes were hedged financially through WM trading, thus reducing the company's exposure to the ups and downs of recycling commodity markets.

While we're just beginning our 2003 planning cycle, I'd like to share with you the approach we're taking in planning for price and volume growth next year. On the volume side, economists have not been able to accurately predict when the economy will rebound, which is what we'd relied upon for the current-year plan. So for 2003, we're going to assume that the economy stays at the level we see today, resulting in relatively flat waste volume projections.

For pricing, we'll plan to utilize our pricing tools and market-by-market analysis to get price increases at about the rate of inflation on those customers not limited on pricing by contract. With flat volume expectations, we'll plan our expenses accordingly, thus avoiding what happened to us this year, which was that expenses were budgeted assuming a rebound in the economy and corresponding growth in our volumes. In other words, we planned for more people and resources than we've needed this year. It's far more difficult to reduce spending levels from plan than to add to them, and we don't want our managers to plan for increased volumes that don't materialize.

Now let's review the progress of our key initiatives, starting with a year-to-date recap of our cost savings. Beginning with procurement, in 2002 we've saved 57 million in expense and 27 million of capital expenditures. This initiative remains on track for total 2002 savings of 70 million in expenses and 25 million in capital. The market business strategy initiative has improved 2002 EBIT by 68 million versus 2001, and 141 million since project inception.

Market business strategy has been a very successful initiative for us in large part because our people in the field have embraced the program and taken true ownership for the market improvement plans that they've developed. Our goal for 2002 was for 70 million increased EBIT from market business strategy. Clearly we'll exceed that target and our new target for the year is 90 million.

Earlier this year, we announced additional 2002 cost savings goals of 50 million from a tactical cost savings program, and 68 million from our restructuring. The reorganization savings are about on track, with 45 million in savings through the third quarter. On the tactical cost savings program, we found that we could not achieve savings in cost categories such as overtime and contract labor during our peak volume season of summer and early fall, but we're going back after those savings in the fourth quarter.

In travel and entertainment, one of the tactical cost savings categories that was targeted, we actually achieved 4 million in savings in the quarter, exceeding our target of 2 million.

Service machine continues to progress well. We now have about 35% of all districts gold certified and 78% of our 200 largest locations gold certified. By year-end, we expect 75% of all districts and 100 of our 200 largest to be gold certified.

The primary goal of this initiative is to reduce customer churn. Before we started service machine about 18 months ago, our commercial customer churn rate was 12%. We have seen steady improvement in the rate, and in the third quarter, it was down to 8.5 percent, also favorably impacted by our sales effectiveness initiatives. We are very pleased with these results.

Now I'd like to talk some about some of the more important recent programs that we've been working on, starting with fleet maintenance.

On our last conference call, I talked about the process we have for reviewing our maintenance shops and putting process improvement plans in place that are specific to each facility. In addition to that, we're beginning to install a new maintenance software program called Compass, which some of you learned about during our investor day in September in Phoenix. Combined, we believe these two projects can improve our maintenance processes significantly, resulting in lower overall maintenance costs, which currently run about $750 million per year, as well as improved productivity which should result from better preventive maintenance and fewer on the road breakdowns.

As an example of what the shop improvement plans can do for us, let me give you some of the statistics from our Midwest group, which has really been out in front on this particular initiative. As a whole, the group budgeted maintenance costs to decrease by 5% in 2002. Through the end of the third quarter, they're actually almost actually 9% under budget and they credit the new fleet maintenance program with this success.

We have installed Compass in only a few shops to date, but the results so far have been impressive, and we're looking for opportunities to speed up the rollout. Some of the improvements statistics from the pilots, our inventories reduced up to 24%, preventive maintenance compliance improved by over 40%, and 4% increase in mechanic productivity.

With statistics like these, you can see why we're excited about the compass software. Like many of the other projects we've implemented over the last couple of years, Compass is existing technology and the kind of computerization used to schedule work and control inventory in other industries that have large fleets to maintain. So many of the opportunities we've found are just like this, just bringing our operations up-to-date using modern and available technology.

Another issue -- or another initiative that we have only briefly mentioned on past calls is sales effectiveness. In the past, we've stressed a focus on our competitive advantage to national customers. Sales force effectiveness focuses on our local market area customer opportunities. With McKenzie's help, we developed and piloted a sales model in four markets over a six-month period. We're currently implementing the model in all collection companies.

The first component of the model identifies the skills needed to sell to various customer segments and sizes. Our current sales reps are then matched to these specific customer segments where we hire appropriate new resources outside the company to fill the positions. The next step involves targeting prospects within a market to reach our goals rather than allowing each rep to decide the appropriate targets.

Also included are specific action plans to address all inbound prospect calls with the goal of increasing our close rates and managing pricing more effectively. The model includes action plans for existing customers who call us to cancel their service.

Lastly, we have incorporated key metrics that measure not just results, but the activities that lead to results, and then we manage aggressively to these metrics in every market every week. We are in the early implementation of this initiative, but the results are very encouraging. In a market area in the eastern group, total new revenues sold increased 27% versus their baseline prior to the sales effectiveness program.

Our close ratios in this market on inbound calls have doubled, and with a market-specific account retention effort, coupled with service machine, we reduced cancellation requests and improved churn by 35%. We're now setting improvement targets in each market as we implement sales effectiveness over the coming months.

On last quarter's conference call, I discussed some of the important corporate governance topics that were on the top of people's minds at the time, and today I thought I'd address a few more of those. First, the continued implementation of the Sarbanes-Oxley Act. The act recommends, but does not require, that companies establish a disclosure committee to specifically oversee the process of providing clear and accurate disclosure of material information.

We've established a Waste Management disclosure committee, members of which include our general counsel, chief accounting officer, vice president of industrial - investor relations, treasurer, vice president of engineering and compliance, and other employees with knowledge and skills important to ensuring that we have a broad and detailed understanding of both the company and SEC requirements for disclosure.

While we believe that our processes around disclosure and the preparation of SEC filings were already very disciplined and strong, we think that the addition of a disclosure committee is a good idea and one that we support.

Another topic that has received much attention in the investment community is pension obligations. As a reminder, we terminated the one broadbased, defined benefit pension plan that old Waste Management had a couple of years ago. The liabilities associated with that plan have all been retired. We do have very modest obligations related to a few union pension plans, but these obligations are less than $20 million and are essentially fully funded. So the pension obligation issue that's likely to create problems for a number of other companies in the coming year is not an issue for Waste Management.

And finally, the issue of expensing stock options. Over the past couple of months, we've addressed this issue not only with our board of directors, but also we've asked many of our investors what they think about it. The conclusion we've come to, and one which most investors that we have spoke with support, is that we'll wait for FASB to issue their new guidelines. As you probably know, they proposed a rule change for companies that are transitioning to expensing stock options, and for all companies to add additional annual and interim stock option-related disclosures.

So we'll wait for this new rule to go into effect, and then, of course, we'll comply with that new reporting requirement. If we'd expensed options in the third quarter, EPS would have been reduced by 3 cents, as will be noted in our 10-Q.

Before passing the call over to Bill, let me just reflect a little on the past three years. Next week will mark the completion of my first three years at Waste Management. When I came here, we had over 1,000 auditors helping us close our books, our billing system was a mess, we had very little data about our operations to assist us in making decisions, and the company was run more as a collection of 1,200 independent operations than as a cohesive branded company with one set of goals and one philosophy.

Our entire team is very proud of the progress we've made, and of the new Waste Management culture. Today, we have a streamlined and efficient process to close our books and report our quarterly earnings. In fact, for the first time in many years, we're reporting earnings in the first month after the quarter end.

Billing has been stabilized for a couple of years now, and we're well into the development of a new revenue management system that we will begin installing next year that will greatly improve our customer management capabilities. Today, we have excellent data and reports to help us benchmark our operations and find where we have the most opportunities for improvement.

Waste Management is becoming a very recognizable brand to the public, and our image as a company is improving all the time. Internally, our people are proud to work for Waste Management, and we have changed the culture to one that's focused on operating excellence, process improvement, and leveraging our assets and the size of our company.

Rapid culture change is always difficult, but I couldn't have asked for better cooperation from our management and our employees. But our work is not over, and we know that we have much more to do in terms of creating efficiencies and wringing the maximum value out of our assets in terms of profitability and free cash flow, and we are just beginning to work on revenue improvement. So we'll continue to press on and work to make this a better company each and every day.

And with that, let me turn the call over to Bill.

Thanks, Maury. Let's start with a review of some of the key items of interest in the quarter's financial statements, beginning with revenues. Total revenue is basically flat year over year, down just 1 million versus third quarter of 2001. North American solid waste, however, is up 44 million over prior -- over the prior year, offset by 45 million of revenues related to international and non-core businesses we have since divested.

The drivers of increased solid waste revenues include -- recycling commodity prices, up $34 million year over year. This is primarily a result of the surge in OCC or cardboard prices that began in the second quarter before peaking in July and then quickly dropping down again. For perspective, in the first quarter of the year, OCC was $40 to $45 a ton. In the second quarter, it rose to a high of $95 a ton. July, the peak for the year was about $120 a ton. And in October, we're back down to an average of about $70 a ton.

So while we still anticipate seeing some year-over-year commodity price advantage in the fourth quarter, it is expected to be substantially less than the $34 million in this quarter.

The other main driver of improved revenue over third quarter of 2001 was improved pricing in both the commercial and residential lines of the business. Commercial pricing was up by $8 million, or 1.2%, and residential pricing was up $11 million, or 1.9%. So the use of our customer by customer pricing software, we have continued to have success in increasing commercial customer pricing, and the majority of our public sector contracts have annual price increase clauses that allow us to pass through fixed or indexed price increases.

Operating expenses in the quarter were 1,746,000,000, as compared to 1,693,000,000 in the year-ago quarter, or a $53 million increase.

Now, let me review some of the main contributors to this increase. First of all, as a reminder, last year's third quarter operating expenses were benefited by $19 million in cost reductions related to insurance settlements, which, of course, did not repeat in the current quarter. This year, landfill taxes and fees increased by $10 million, most of which we were able to pass along to customers, but an increase to our expenses nonetheless.

As a result of higher commodity prices, recycling rebates increased about $14 million. Risk management costs, primarily workers' comp and auto liability, increased approximately 9 million over prior year. And while we have been - seen substantial improvements in our occurrence rates this year, the rising cost of insurance combined with continued development of costs related to prior-year claims have pushed expenses higher this year.

Health benefit costs are also up by 6 million versus last year, primarily driven by higher premium costs. Maintenance costs and sub-hauling costs increased by 2 million and 9 million respectively over the prior-year quarter. These are actually larger gross increases because these are cost categories in which we have also seen some of the offsetting benefits from our procurement and market business strategy initiatives. And finally, contract labor costs were up 5 million versus last year.

Some of these cost increases, such as in maintenance costs, are partially a result of the upfront implementation costs related to our improvement programs. When we go into a maintenance shop and start doing more preventive maintenance on our vehicles, for example, the initial result is to actually increase the level of spending. The risk management and benefit cost increases that we've been seeing are common across all industries right now. However, by offering other, less-expensive health benefit programs, we anticipate holding these costs at or near current-year levels for 2003.

SG&A expenses were 376 million, or 13% of revenue, as compared to 383 million, or 13.2% last year. Now, while this is an improvement year over year, as you may have noted, this quarter's SG&A is an increase both in terms of dollars and as a percent of revenues versus the second quarter.

Primarily, the increase in SG&A from second quarter is related to litigation costs and legal issues. A total of $13 million of these kinds of expenses were booked in the quarter .Unfortunately, we still have various legal issues to deal with from the past, but we now have a couple more of those behind us. Clearly, we've made progress in terms of SG&A spend this year, and continue to project getting to 11% of revenue over the course of the next couple of years.

Depreciation and amortization was 311 million, or 10.7% of revenue, as compared to 352 million or 12.2% in the year-ago period. As a reminder, in 2001, we had goodwill amortization expense of $39 million in the quarter as a result of the implementation of FAS 142. Such amortization has been discontinued in 2002.

On a comparative basis, third quarter 2001 depreciation and amortization would have been 313 million, or 10.8% of revenue, without the goodwill amortization.

Interest expense, minority interest, and interest income and other, net, are all in similar ranges to what we've seen for the past few quarters, and I don't think any of those items require further explanation.

Income taxes, you may have noted, were 34.5% of pretax income, lower than the 38.2% we have reported in the first two quarters of the year. And there are two main items that resulted in the lower tax rate for the third quarter.

During the third quarter, we traditionally review our book to tax adjustments for the year based on the most recently filed income tax return and actual year-to-date results. For 2002, we have determined that our credits from the sale of landfill gas will exceed what we originally estimated, thus reducing the full-year projected tax rate.

In addition, earlier this year we had a capital loss from a divestiture. At the time, we had no capital gains to offset that loss, so we were unable to take the tax benefit related to that loss. However, we now know that we will have a capital gain from the sale of our minority interest in brand services in the fourth quarter, enabling us at this time to reflect in our tax rate the benefit from the first quarter loss.

The effect of these two items requires that we recalibrate the effective tax rate for the year, which we are now estimating to be 36.8%. The 34.5% rate in the third quarter reflects the recognition of the cumulative benefit of the lower rate for the first three quarters, and we anticipate that the fourth quarter's effective tax rate will be 36.8%.

While on the subject of tax rates, let me just mention one other item. A portion of the Section 29 tax benefits that we currently enjoy related to certain of our landfill gas sales will expire at the end of this year. However, proposals and current drafts of the energy bill would replace and possibly even exceed these tax benefits, if the bill is enacted. Depending on the final form of the bill, we are estimating that our 2003 effective tax rate could be as high as 39%. This being the case, if the bill is not enacted, or no new benefits accrue to us from the passage of a new bill.

Let me assure you that we are very closely monitoring the progress of the bill, and certainly our new senior Vice President of Government Relations, Barry Caldwell, and his staff are doing everything they can to promote the passage of the bill.

Moving on, share count has decreased as a result of our share buyback program. As noted in the press release, during the third quarter the company repurchased an additional 3.1 million shares of common stock for approximately $80 million. This brings the year-to-date share repurchases to 21.3 million shares with a net total cash cost to the company of 561 million. We do intend to complete the approximately 1 billion full-year repurchase program during the course of the fourth quarter, and we expect that to do so will require another accelerated purchase program similar to the program entered into in the first quarter, in addition to open-market purchases.

Our plans call for the company to be in the market beginning November 4th for approximately 30 days, following which we will likely proceed with an accelerated program to repurchase the balance of the shares for 2002.

As a reminder, the board has authorized a three-year share repurchase program, with the authorization to buy up to $1 billion of stock back in each of 2002, '03 and '04, so we expect to continue the buyback program as we roll into the new year.

Now let's turn to cash generation and usage in the quarter. Free cash flow in the quarter was $281 million for a total of 613 million year-to-date. Capital spending in the quarter was consistent with second quarter spend at $362 million, resulting in a total spend of $914 million year-to-date.

We are projecting full-year capital expenditures of approximately $1.2 billion, having reduced our full-year projected spend to reflect the current economic conditions and business levels. This level of capital spending still accommodates the accelerated vehicle replacement plan aimed at reducing our age -- the age of our fleet as well as providing us with landfill capacity that we require going into 2003.

Turning to receivables, while days sales outstanding did improve by one day to 48 days from 49 days, total receivables actually grew modestly due to the fact that our revenues and averages ales per day were up in the quarter. We continue to strive for 45 days sales at year end, and continue to have the field focused on collection of receivables.

We're still anticipating full-year free cash flow of approximately $1 billion, not including the approximately $350 million net payment to settle the shareholder class life (ph) action lawsuit, should that be paid out later this year.

While this projection implies strong fourth quarter free cash flow, let me just remind you that in the fourth quarter last year, we produced 362 million of free cash flow and that was after spending $485 million on capital items in the quarter.

As I mentioned just a few minutes ago, $80 million of cash was used in the quarter for share repurchases. We also repaid the remaining $276 million of notes that matured on July 15th and spent $59 million in cash on acquisitions closed in the quarter. Gross debt was reduced by $93 million in the quarter, and I would like to take a moment to review what the changes to debt were in the quarter outside of the $276 million note pay-down.

Once again, the value of our interest rate swaps increased during the course of this past quarter, from 102 million at June 30th to 255 million at September 30th. This $153 million favorable change in the carrying value of the interest rate swaps results -- is an increase to other assets and to long-term debt in the same amount.

I would stress that this is the appropriate accounting as required by FAS 133, and results in a reported debt balances increasing, although we have not taken on more debt.

The cash balance related to the industrial revenue bonds was 266 million at the end of the quarter, up 14 million from the end of the second quarter. New issuance of IRBs in the quarter was $107 million. We issue IRBs opportunistically, taking advantage of the low rates and tax-exempt status for specific projects or purchases that meet the requirements of each participating state. Recent interest rates on issuances have been in the range of 3% to 5%.

Upon issuance, the funded amounts are included in our debt balances. However, the cash is put into restricted accounts until the project or purchases require the funds. Therefore, instead of this $266 million of cash being reported as part of our cash balances, the IRB cash is reflected in other assets on the balance sheet.

I should also note that our ratio of fixed to floating-rate debt is currently at about 65% fixed and 35% floating. We intend to continue to actively manage our fixed to floating ratio to the best advantage of the company based on existing markets and projected trends for interest rates. I anticipate that our percentage of debt at floating rates, primarily attained via interest rate swaps, will be in the range of 30% to 35% total debt for the near term.

Liquidity continues to be excellent, with cash balances at September 30 '09 of 656 million, plus 266 million of restricted cash I just mentioned from tax-exempt bond offerings. That will be used towards the -- towards capital spending over the next year.

We also have approximately 900 million of unused and available long-term bank lines. The remaining approximately 1.5 billion of bank credit is being utilized for the issuance of letters of credit. Of course, it is the strong and consistent cash-generating nature of the business that is our best source of liquidity.

A portion of the quarter-end cash balance was used to redeem 286 million of senior notes that matured on October 1st. Later in the fourth quarter, on December 15th, we have 350 million of 6.5% senior notes coming due. The company intends to refinance these maturing senior notes with a new senior note offering likely in the fourth quarter. I want to emphasize that we are very committed to maintaining strong balance sheet and coverage ratios.

Achieving and maintaining investment-grade ratings from all rating agencies continues to be an important goal for us, and on that note, we understand that the securities valuation department of NAIC has upgraded Waste Management's bonds to a 2 rating.

Let's briefly look at our debt ratios. At September 30th, 2002, our debt to total cap ratio was 61.2%. It is important to note that that included -- that included in the debt figure was the $255 million of swap values. That is, swaps where the company has either received cash or has a positive liquidation value. And the $266 million of IRB debt, where we have pre-funded future capital expenditures.

Excluding these amounts, our debt to total capitalization ratio was 59.7% at September 30th. We expect that this adjusted ratio will continue to be in the 59% to 60% range at year-end.

Let me now give you a brief update on our progress in determining the impact of FAS 143. As many of you are aware, FAS 143, accounting for asset retirement obligations, will impact our accounting for landfills. Costs associated with future capping activities that occur during the life of a landfill which are currently recognized on an undiscounted basis over the operating life of the landfill as air space is consumed, will be accounted for as asset retirement obligation on a discounted basis.

The recognized asset retirement cost, including both capping costs and other closure and post-closure costs, will be capitalized as part of the cost of the asset and depreciated over the useful life of the asset. The company has proposed to the SEC a methodology for application of FAS 143 to our particular industry that we believe is appropriate for this business.

For example, we think the closure, post-closure, and capping obligations should be accrued as waste is placed in the landfill as opposed to accruing (ph) the entire liability upfront. We also believe that the costs of capping should be treated separately from other closure and post-closure costs because most of the capping activities occur during the operating life of the landfill. We are in the process of clarifying our proposed approach with the SEC and hope that they will indicate in the near future that they do not object.

Once a method is agreed upon, we need to annualize the impact for each of our approximately 300 operating and 100 closed landfills before we'll be able to give estimates for the impact of the required transition or catch-up entry, as well as the expected annual earnings impact, if any, as a result of the implementation of this rule.

We have reviewed the impact based upon our proposed methods for 15 landfills and have come to the conclusion that, at a high level, there is very little predictability of outcome, and that each landfill must be analyzed individually. The most important thing to note, however, is that there will be no free cash flow impact as a result of FAS 143's implementation.

And finally, I should mention the sale of our interest in brand services. As some of you may recall, the company sold Brand (ph) back in 1996. However, we retained a minority equity position in the company and also had a note receivable outstanding from Brand (ph). The sale of the company was completed earlier this month, and accordingly, we will have a gain on the equity sale and a repayment of our note in our fourth quarter results. The EPS impact from the gains will be approximately 4 cents.

So just to sum up, we are pleased with our results for the quarter, particularly in view of the continued weakness in the economy. We continue to see the benefits from our major initiatives and we are well positioned to see benefits even before we return to a period of positive economic growth.

And with that, I think we'll open the lines for questions and answers.

Thank you, sir. 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 the star key followed by the digit 1 on your touch-tone telephone. Once again, that is star 1 to signal. If you do find that your question has been answered and would like to remove yourself from the queue, please remove yourself by pressing the pound key. Again, that's star 1 to signal and pound to remove yourself.

We'd also like to remind everyone that, if you are using a speakerphone that utilizes a mute button, we do ask that you disengage your mute button so that your signal may reach our equipment.

Again, star 1 to signal and pound to remove yourself.

We go first to Alan Pavese with Credit Suisse First Boston.

Good morning.

Good morning, Alan.

Two part question on margins. First, you did very good on the procurement and all the other cost savings initiatives and had some good sequential improvement in internal growth and yet the margins kind of rolled back a little bit sequentially. I think you pointed out the legal expenses on the SG&A side that caused that. Can you touch on whether that's going to continue? What were the issues on the operating expense side that caused those margins to roll back a little bit?

And then the second part of that is, you're giving guidance kind of pointing to consensus, and yet there's not a lot of guidance given to us on the street as to what some of these changes in costs are likely to be prospectively, making the consensus less reliable. Is there a way to either give, you know, us better guidance on how some of those things are going to impact the margins on a quarterly basis or give more specific guidance that you think is, you know, perhaps more useful on a quarterly basis?

Maybe I can kind of start in a general way, and Bill can support the answer, Alan.

You know, I think what we were trying to say in Bill's comments there is that the cost elements that he pointed out were things that are not things that are likely to stick. For example, we had -- I think we had $13 million of legal expenses. And, you know, we're still driven to improve our margins, the EBITDA margin. We've said all along it should start with a 3. We are convinced that we can do that, and that's the case.

We still have substantial costs associated with the implementation of our initiatives, and we've talked about that all along. We have teams in the field putting these things in place, and we think that's the right thing to do. Obviously, we could stop all of that and immediately improve the margins, but we think for the long term that we're doing the right thing by spending these additional -- these additional expenses to put our initiatives in place. So, you know, the thing, I think, is the cash flow remains excellent, and we keep our eye on that ball. And I don't know, Bill, did you have anything else to add to that?

Yeah, just a couple. Alan, I can give you a few more details if you like on recapping the changes in operating expenses. Cost of goods sold -- I think I mentioned most of these in my comments. Just to recap, that was - the effect of that was $14 million. The Pennsylvania tax was approximately $8 million. Other subcontractor costs were a total of 9. Risk management was 9 million cost. The insurance recoveries, 19 million and, let's see -- I'm sorry, in '03 -- I'm sorry. What's that --that's -- yeah. Last year ...

If I'm not mistaken, those were year-over-year changes.

That's right, that's right. That's what we're trying to reconcile for you.

What about on a sequential basis, though? It seems, you know, with good progress on savings, it seems like the margins went back sequentially, which a lot of that stuff doesn't really play into, and it seems like it ties into some of those comments that Maury was making in terms of some costs, you know, being required, and understandably so, to get at the cost savings.

Can you tell us what those were, and even more importantly, can you give us an idea going forward, as you do, you know, with what the cost savings targets are, what the investment and the expense, you know, targets are for the next couple of quarters?

You know, I think what we'll do --what we're planning to do is, as we start talking about 2003, we'll give you some more detail on that, but for example, the areas where we are spending a substantial amount of money right now, and where we haven't really given you targets on returns are in the revenue management project. That's a big project. We've got a lot of people involved in that project, and the returns, we are just finishing up the work right now. We've done the preliminary work when we justified the project initially.

But we're just finishing up the work and the returns are substantial. And we'll start seeing those returns sequentially as we roll through the company installing the revenue management program. So that's area.

Another area where we need to give you some more detail -- and we will as we start talking about 2003 -- is our maintenance program, and we gave you a little hint as to -- and this is typically what we've done is we have these projects in pilot and we start to get confident that there's going to save a substantial amount of money and we start to give you the details. So the maintenance program, we'll give you some more details as to how that will roll out and what those savings will be as well, and -- and then the other thing we gave you some preliminary information on is the sales effectiveness program.

So we need to -- as we get through pilots on these things, we see more -- you know, clearly what we think we can promise, and we're just reluctant to promise too early in advance. But, you know, overall, Alan, I think the answer to your question is, yeah, you know, you don't like to see the margins go backwards in a quarter. There were some things there that we don't think will -- are things that are going to stick, and we'll continue to move forward with the margins as we go into next year.

The other problem, obviously, is that in a revenue-stagnant environment, it's more difficult to improve margins.

Okay. And you -- so you will be able to provide some of those costs going forward ...

Yeah.

... as those roll out a little bit better than you have?

Yeah, we will. We'll give you --we'll not only give you some more details about the costs but we'll tell you more about the benefits as we -- as we head into 2003.

All right. Thank you.

Alan, just one other thing I might mention, which is captured up in SG&A, which is, of course, the legal (ph) I had also singled out for you. That was 13 million in the quarter. Sequentially that should be down in Q4 from that run rate. Probably more in the 5 million or 6 million level.

Great. Thank you.

We go next to Steve Binder with Bear Stearns.

Yeah, Maury, can you maybe talk a little bit about the revenue enhancement program and, you know, what are the things being worked on right now and how do you say that playing a factor in 2003?

Sure. We have -- I had some details in my -- in my little overview there, but Steve, in essence what we're talking about in what we call sales effectiveness is a management program for our sales force. And it -- it's simply getting our sales force organized, pointing them toward targets as opposed to, you know, sort of the old traditional method of driving around until you see a bin that's a different color than yours, and then stopping in.

And so far, we're we've -- where we've implemented this thing, it's been -- it's been really, really successful at not only driving down churn, but also at attracting new business. And one of the things we've done is quit looking at net new business -- that is, business lost versus business new. But we look at both sides and try to control both sides. So we have great expectations for that.

On the pricing side, we -- I talked just very briefly about our software tools. We've talked about that in the past. We have a new and improved software tool for commercial pricing, and rather than just looking at our customers that are underwater, we're now in the process of looking at the whole customer -- commercial customer pricing - or commercial customer list, and determining what kind of pricing increases we can get. Doing a more complete study with a more comprehensive tool.

And then lastly, we are now piloting a software tool that we can use on the roll-off business. So far, we had really only focused on -commercial. And, you know, the net effect of all of that is we've been able to get price increases through this down economy, so what it says is that the pricing activities are working pretty well.

And when you look at, you know, the subject of yield management, what inning do you think we're in right now at Waste Management?

I think we're probably in about the third inning.

Okay. And the other thing is, you know, you mentioned -- you singled out the Pennsylvania tax issue but, you know, there's obviously pressures across the country right now in a lot of states. You know, do you see an upward bias, you know, basically, in increased taxation at the statewide level?

Well, yeah. I guess it's primarily in the East that we're -- that we're seeing that. The other area -- the other state that's very active is Virginia. We have some -- we've joined in some lawsuits that challenge some of these concepts. Not necessarily the ability to tax, but the problem of passing through those taxes. We actually have some counties that are collecting the tax and not passing it through to us, for example.

So I think some of these things are being challenged, and we'll see how it plays out this next year. But, you know, we're optimistic that the contracts that we have are enforceable, that we will be able to pass this tax through for the most part, and, you know, that the vast majority of the tax we will be able to pass through.

And one other thing. Any noticeable change when you look at the -- you know, geographically from where we sat in the second quarter? You know, if you look at the trends in different regions of the country, has there been any changes in either volume or pricing from what you saw in the second quarter year over year?

You know, not really much change. And I'll give you a little recap. The South is extremely competitive, with commercial pricing in particular, and in particular, what's going on there, one of the things that has -- that has impacted us is that we've got competitors out promising -- or signing up contracts promising no price increase for 2 to 3 years. That certainly is not a favorable trend.

The -- I guess the most favorable things that we've got going are to see the Midwest and the East roll-off trends improve, and that's happening month to month. It looks to us like it's not just special waste, but we're actually seeing improvements in industrial sector. So, you know, whether that's a precursor to an economic rebound we're not ready to say, but we see this happening, you know, week to week, and it's -- and it's still happening for the fourth week of October that we just looked at today.

Okay. And last, Bill, can you just touch on two balance sheet items? Other assets rose in the quarter by -- it looks like about $135 million, $140 million, and just the -- on the liabilities side, you know, you don't break out payables, accrued liabilities, and deferred revenues on the release. There was an increase of about 140 million there. Where was that increase?

We'll get you the breakout.

While they're looking at it, somebody just slipped me a note here that says the Pennsylvania tax net impact on us was only 1.5 million negative in the third quarter, which ain't much.

In terms of EBIT.

In terms of EBIT, yeah.

Yeah. On the other assets, that was what Bill talked about with the ...

The swaps.

The interest rate swaps.

Okay.

There's been no change in the long-term hedged assets. That's 161 million.

And the liability? I asked about the bucket payables (ph), accrued liabilities - where was that increase? Was that in payables or ...

Well, you know, this was -- this was a quarter where interest payments are lower than interest expense, so that was one of the drivers. We also had further income tax deferrals.

Okay. And Bill, do you know what the cash taxes are planned to be in '03 right now?

For '03, it's -- huh?

Apparently we can't give you that just yet.

For just -- for '03, we're just not done with our plan yet so that we can't roll that out for you. We're not quite ready for that.

Okay. Thanks very much.

Thanks Steve.

We go next to Leone Young with Salomon Smith Barney.

Yeah. Good morning.

We should make it clear that you're not Leon, you're Leone.

I don't even notice anymore.

Hi, Leone.

Just to take Alan's question one step further on the gross margin line in particular, do you think also there were any mix issues involved here?

Well, that's a -- that's a good question. We'll look at our revenue split real quick.

You know, you -- that's probably right, Leone. Landfill as a percent was a little bit smaller in the mix of things, and when you look at split between commercial, that probably had a little bit of a negative impact as well.

Okay. But -- all right. So then, taking that in what Bill and Maury had said, it looks like we really should use the third quarter, then, in terms of the operating expense level as kind of our base to go from. There's not a whole lot of stuff that will seem to reverse out of that, whereas if we look at SG&A, you know, we remove a little bit of the legal, assume the rest is flat, and then go from there? Is that a fair characterization?

Yeah, I think so. I think one thing Bill had talked about was the increased recycling, you know, commodity rebates that run the ...

That 14 million, I think, wasn't it?

Yeah. And you know, with the recycling prices coming back down, you know, in terms of dollars, those will stop dropping as well.

Okay. So we'll get -- so some of that will be a little bit nonrecurring then also on the operating side?

Right.

Okay. Just a couple technical questions. Do you have the share count at quarter end?

Yeah, that's in the press release.

It's in the press release.

Oh, I'm sorry. It's in the press release. I can look it up.

Okay.

And also, just, you mentioned the gain from the share on brand. I would assume that's exclusive of the guidance?

Yes.

Yes, that's right.

Thank you.

We go next to Tom Ford with Lehman Brothers.

Good morning.

Good morning, Tom.

Good morning.

Maury, one question to go back to was the change in internal growth, those numbers you gave. Did you give -- was it -- I think did you -- did you just give one quarter? Do you have both quarters in the first half of '02?

There wasn't any impact on the second quarter because there was the same number of days year over year.

Okay.

Okay? So there's only a change for the first quarter.

Did you get those first quarter numbers or do you want us to repeat them?

No, I have them. Thanks.

Okay.

Okay.

Okay. Going to -- back to one of Steve's questions about the sales effectiveness program ...

Right.

... I just wanted to make sure - the way I understood it correctly is that before sales effectiveness is rolled out, the district or area has to be -- or market, sorry, has to be gold certified. Is that right?

No.

It isn't?

It's not right, no. We are - I think what I said was that, in many places - or some of the places where we're getting these benefits, we get the benefits from both the sales effectiveness and the gold certification on the churn rate, in particular. But no, they don't -- they don't have to be gold certified. I think as a practical matter, that's what happens, because we're going after the biggest areas first and they all seem to be about the -- you know, the same ones, but ...

Okay, so one is ...

The two programs certainly do work in concert.

Right. Okay.

The Pennsylvania landfill tonnage tax ...

Right.

... is that in other, in terms of the organic growth?

Let's think about that. Some of that actually doesn't even get booked into revenue when it's just a tax pass-through in terms of at the landfill. Where it's being incorporated into collection pricing, it would actually be showing in pricing.

Okay. But you don't have a sense as to what that is?

On the collection side? I really don't.

Okay.

You know, much more of it was really, you know, direct pass-through at the landfill, however, and again, that doesn't - we don't book that as revenue because it's just a pass-through tax.

Okay. Okay. And last but not least, I just wanted to try and get a sense, Maury, I know you had talked about it already, I just wanted to go back over with it. I mean, you are seeing improvement in roll-off activity?

Yes.

But you're not -- I mean, do you have -- I'm just -- I guess I'm just looking for a little bit more definitive comment, Terry, from you, in terms of what do you think it actually is? I mean, is it economic? Is it year-over-year comparison? Is it, you know -- I mean, if you could just -- I don't know. If you have any more incremental detail there in terms of what do you think is behind it.? I mean, is there any type of per-customer measurement tools that you use to see if, you know, existing customers are generating --you know, if there's an uptick there?

About all we've done at this point to try to sort through that is to sort between special waste and -- you know, and industrial. And it's not just -- and it's not just special waste. So that -- you know, that gives us the impetus to search farther and we're going to do that.

It's a very optimistic -- or it's a very encouraging sign, but there are really no other signs with the economy that would corroborate that. For example, I think we talked before that we'd been dealing with trying to find leading indicators, and boring into the industrial - the industrial index, looking at, you know, what we might rely on. And continuing to bore in there, we don't see anything that's telling us that the economy is picking up.

Right.

So ...

Is that the reason, then, for a little bit of your skepticism ...

Yeah.

... just that -- yeah.

Yeah. We can't find anything yet that would corroborate what's going on. For example, what might be happening is that our sales effectiveness program -- or rather, primarily, our service machine program, because that's rolled out pretty wide now, might be helping us with market share. We could be picking up market share. So we need to drill down into that farther to determine what's going on.

Okay. Great. Thank you.

We go next to Bill Fisher with Raymond James.

Good morning.

Good morning.

Yeah. I just had a couple questions. One, just for Cherie, if you have -- do you have a rough breakout of the industrial/residential mix on the collection side?

Yes, I've got that right here. Let's see. Residential was about 31%, commercial 38%, and industrial about 29.5%, actually, and a little bit of other.

Okay. And then on -- actually for Bill, on the deferred tax -- or cash taxes for -- actually for '02, do you have a rough percentage of where that's going to fall?

Let me take a look and we'll get right back to you.

Okay. And I ...

Yeah. Just for Q4, it looks like it will be cash tax in the range of 90 - somewhere between $90 million and $115 million. I know that's a little broad for you, but that's what we have.

Okay. And then, I guess somewhat related to this, this settlement you have on insurance, is it 350, is that tax deductible? Is that the net figure that you're indicating or ...

Would you ask that question again?

Would you ask that again because that's ...

Pre ...

Pretax.

Okay.

No, no, no, no.

What he's asking is, is the 350 after-tax or before tax? The settlement.

That's net cash.

Net cash out.

Net cash out. Okay. And then last question, just for Maury. On the -- you mentioned there's a lot of costs of implementation on the various initiatives you have going on, and they primarily, just like consulting and outside training costs or what would you classify as kind of these costs.

No. There's really -- I'd classify two categories. It's not outside. I'd mentioned that we'd used McKenzie, but we're using consultants very sparingly these days. For example, on that -- on that sales program, they came in and helped us for a number of months, and then they're gone, and we're -- we pick up the program at that point.

I think there's two categories of costs, and we'll identify some of these more specifically for you as we get into 2003. But one is we have - we have too many employees as we -- for example, we've talked about this before. For example, we've set up what we call a service center here at corporate, and we have -- we have yet to get out the double count of employees. We have - we still have employees in the field doing the same work that the people here in the corporate office are doing, and over time and through attrition, we'll drive down those number of employees.

So, while the net result will be, you know, a real improvement in the short run we have a cost for those kinds of things that need to -- that needs to come out.

And then the other -- the other costs are our teams. We have teams out in the field, teams of 6 and 8 employees, installing things like both the sales effectiveness program and the revenue management program and service machine. So, you know, there's a lot of costs associated - there are literally hundreds of people out installing those programs.

Okay, great. Thank you.

We go next to Michael Hoffman (ph) with Friedman Billings Ramsey.

Good morning.

Good morning, Michael.

Can I follow-up on the cash side? While you're working on your cash tax one, can you also come up with cash interest and what you think the working capital and other line would be for the fourth quarter, so we -- you know, we'll work on our own EBITDA number, but if you can help us on the others, that gets us closer to how you get to the billion dollars.

Okay.

And then, following back up on your comments, Maury, about the costs that you've added, given all the tools you have to measure things, I've got this high degree of confidence that you know absolutely how much it's costing you to do this, so if you pulled that out, what's the margin impact?

Yeah. Well, we'll do that -- as I said I think earlier, in an answer to Alan's question, as we've put together our 2003 plans, we will tell you, you know, what those costs are and what the benefits will be, and when the -- when we expect the benefits to roll out on those initiatives that we haven't really identified yet. And ...

All right. Well, let me ask you this. I guess trying to slice this onion another way then, maybe not so much how much, but can you give us a quarter when we should start to see the trend move in the right direction? Is it fourth quarter? Is it the first quarter? I mean, it's been a long time talking about this. You've had the economy working against you to show some of it, but ...

Yeah.

... we've got to be able to start seeing it because we can't measure the things you're telling us about.

Well, we can tell you how to measure those things. And you can -- you can measure them. We can give you some more details on the measurements. But we need to give you - in order to answer that question for you, Michael, we need to give you specifics on the costs and on the benefits on the various programs, and we can do that and we'll include that in our guidance for 2003.

And when will that be?

Our board will review our 2003 numbers in January, so we'll be giving it to you then.

No sooner? Okay. And then, when did you know the taxes issue was going to change?

The tax issue with respect to the ...

Yes.

Just very recently and not, of course, until we had the close on the sale of brand accomplished, but we had -- we had anticipated that, you know, towards the - towards the very end of the quarter based upon facts that we were aware of at that time.

Okay.

The -- let me give you your -- you'd asked for the cash interest number as well.

Yes.

It looks like it will be -- Q4 will be about 160 million.

One six zero.

One six zero. In that range. And it looks -- as I mentioned before, 90 before, maybe around $90 million would be cash taxes.

Okay. And what do you think - so the working capital and other area? Is there any -- do you think there's going to be any changes there, positive or negative, that have a cash impact?

It's just hard to guess right now.

Okay. So it would look like capital spending has to go down a whole lot more than ...

Yeah. It will probably be -- we'll probably see about $125 million, $150 million swing there.

In capital spending?

Right -- well ...

In favorable working capital.

Favorable working capital, yeah.

Not necessarily -- yeah.

120 to 150 million favorable.

Right.

Okay, okay. Thanks a lot.

You bet.

Okay.

We go next to Amanda Tepper with JP Morgan.

Hi. Good morning, and thanks for taking my questions. When you're looking at these initiatives, and obviously you've gotten a lot of questions on the costs and the specifics, but from a broad perspective, Maury, when you and the board and senior management are looking at these, what kind of payback do you guys want to see before you go ahead? Is it -- do you look at it on an EPS basis or return on capital? And over what time period?

Well, we've got an internal target on any investments that we make of a 15% IRR, and we apply that to, you know, everything that we do. All of these that we've looked at on a preliminary basis, and then after we get the details, are giving us substantially more than that.

But is there a certain time period before it breaks even that you have a minimum, or are you willing to invest over a multiyear period before a payback?

Sure. I mean, these are all multiyears, as you've seen, that we've done so far, and as time goes on, the expenses go down and the -- and the benefits roll out.

Okay.

And as you recall, we started to try to give you some guidance on this at the Phoenix meeting, where we laid out a little schedule on each one, so you could see over what period of time we're working on these things, because we realize that it's difficult. We've got so many of them now they overlap, and it's difficult for you guys to model anything. We'll give you some more detail on this as we go forward into 2003.

Okay. And then also, congratulations on your, I guess, almost third year anniversary now.

Well, thank you. I'm looking forward to my pin (ph).

Oh, boy. Well - so, from when you came in to today, if you could, you know, just pause for a second, where are you versus where you expected? What's the biggest single thing you've done that you're really proud of, and from where you're sitting here today, what's the biggest challenge that you're facing now, going toward, to get to that margin that starts with a 3 that we're all looking for.

You know, I think the biggest challenge that we had is the culture of the company, because the things that we need to change were pretty obvious, especially in the beginning. There were systems issues, basic business issues, and, you know, the real question was, would this company that's operated in a very different way for years and years and years change? And it has.

I think the -- you know, again, I reiterate what I said, I couldn't ask for more cooperation from everybody in the field, as well as the entire company, in terms of moving forward with programs that are just very logical and make sense, and I think that's why it's been a relatively easy to sell. They are very logical and make sense and we've been getting early positive results from those programs.

The thing -- probably the biggest disappointment has been that everything that we've done, we've been -- we've been running into a headwind associated with the economy, and we've probably had -- you know, this business has been traditionally characterized as having - either being -- probably recession-proof has been a word that's been used in the past. Well, that's not true, because especially our most profitable business segments is impacted by the economy, and that's happened to us.

So, you know, if the economy had continued to move forward and at the same time we had all these improvements, we would see better bottom-line results, and we could -- I think I mentioned earlier, we could stop all these improvements right now, reap the benefits of what we've got, and I'm confident get the margins that we've all been talking about -- that is, EBITDA margins beginning with a 3.

But I don't think that's smart. We're still -- we're still looking at the long-term, trying to make this company a premier company for the long run, and to do that we need to keep making investments in these improvements that have become -- the improvements have become more and more obvious as we've -- as we've gone forward.

So I don't know. Does that give you a summary?

Yeah. No, that's very helpful. Thank you.

Thanks.

We're going to take one final call.

We'll take that question from Michael Garrity (ph) with Morgan Stanley.

Good morning. Just a thought, and my intent is not to beat this to death, but with respect to the roll-off business, can you articulate the trends in dollar terms that you're seeing over the course of the year, be it the, you know, average revenue per rolloff pulled or touch upon the behavior of some of the local independent operators who have clearly been benefiting and been more aggressive at the curbside, given their highest operating costs, the tipping fees of remaining at somewhat subdued levels.

The point being, do you think those operators have reached a point where the economics of their business are no longer sustainable at lower prices? Is there anything anecdotally that you're seeing that would suggest that?

I don't know that we've got enough data to come to that conclusion, or that we'd want to say that, frankly. I would, at this point, rather attribute our increases to improvements in our service. We've got data that would indicate that our service has improved substantially. And if you go back to the survey work we did when we first came here, price isn't the only thing that people are concerned about. They really are concerned about service, and typically what happens is that service - a service failure is what drives people to consider changing, and then they end up getting a lower price.

So I -- you know, I don't know that there's a lot going on with the competition that would -- that would attribute our gains on the roll-off side, but that's a theory, and certainly something that we would -- we'll look at as we try to drill down into this and figure out why these improvements are occurring.

Okay. That's -- just one follow-up. As you well know, in this industry the light accounts have always subsidized the heavy accounts, particularly at the old Waste Management. As you look at that phenomenon with respect to where you are today, what percentage of your business do you think is appropriately priced? Or how much opportunity, I should say, do you think is left there?

Oh, we think there's a lot of opportunity. We -- you know, one of the things that we're doing is -- I mean, we're just looking at our whole -- our whole list and ...

If it was a percentage, what would you say? Not to pin you down.

I'd say that there is an opportunity to raise our prices in more than half of our business.

Okay. That's great.

Okay?

Fantastic.

Thanks.

Thank you.

Thank you.

Thanks very much. And that's the last call. We appreciate your being with us and we look forward to talking to you next quarter.

This does conclude today's Waste Management, Inc. third quarter 2002 earnings conference. We thank you for your participation. You may disconnect at this time.