美國廢棄物管理公司 (WM) 2008 Q2 法說會逐字稿

Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Waste Management second quarter 2008 earnings release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to introduce Mr. Greg Nikkel, Director of Investor Relations.

Thank you, Nicole. Good morning, everyone, and thank you for joining us. With me this morning are David Steiner, Chief Executive Officer; Larry O'Donnell, President and Chief Operating Officer; and Bob Simpson, Senior Vice President and Chief Financial Officer. David will start things off with a summary of the financial results for the quarter and a review of the details of our revenue growth, including price and volume trends. He will also provide a brief update on the proposed acquisition of Republic Services. Larry will cover operating costs and Bob will cover the financial statements. We will conclude with questions and answers.

This call is being recorded and will be available 24 hours a day beginning approximately at noon central time today until 5 p.m. on August 12th. To hear a replay of the call on the internet, access the Waste Management website as wm.com. To hear a telephonic replay of the call, dial 800-642-1687 and enter reservation code 53383277.

As is our custom, I will remind you that during the course of this presentation we will be providing estimates, projections and other forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties which are described in detail in Waste Management's annual report on form 10-K for the year ended December 31, 2007 and in the company's press release this morning. These risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements.

We will discuss free cash flow which is a non-GAAP financial measure. We will also discuss net income, earnings per share, earnings per share growth, income from operations, income from operations as a percent of revenue, operating expenses, and operating expenses as a percent of revenue, all adjusted for certain unusual or non-operational items which are also non-GAAP financial measures. David's, Larry's, and Bob's comments on these measures will be on an as-adjusted basis. We have defined and reconciled these items as part of the earnings press release, or the release 8-K filed today, which can be found on the Company's website at wm.com.

I stated earlier, this call will be available for replay for a two-week period. Time sensitive information given during the course of today's call, which is occurring on July 29, 2008, may no longer be accurate at the time a the replay. Any redistribution, retransmission, or rebroadcast of the 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 CEO, David Steiner.

Thanks, Greg and good morning from Houston. I am pleased to say that we again achieved our primary financial goals of growing earnings, expanding operating margins, and generating strong free cash flow to return to our shareholders. This performance demonstrates the strength of our managers, and our strategy of disciplined pricing combined with cost controls through operational improvements. It is a strategy that is working and we intend to maintain.

After adjusting for the items we noted in today's press release, we earned $0.63 per diluted share in this year's second quarter, which is an increase of $0.07 per share, or 12.5% compared with the second quarter of 2007. Our results in the second quarter of 2007 included a $0.03 per diluted share benefit from section 45K tax credit. Without that benefit, 2007's second quarter earnings would have been $0.53 per diluted share. On that basis, year over year earnings would have grown $0.10 per diluted share, or nearly 19% in the second quarter of 2008.

We increased income from operations as a percent of revenue year over year - by 20 basis points, to 18.1% in the second quarter of this year. Excluding the impact of rising diesel prices, income from operations as a percent of revenue would have expanded by 100 basis points in the second quarter, in line with our expectations for the year. We generated strong cash from operations during the second quarter of 2008. We produced $570 million in net cash from operating activities, a 6% increase when compared with the $537 million we produced in the second quarter of 2007.

Turning to our revenue performance, we grew revenues by $131 million, or 3.9% in the second quarter of this year, with the most significant contributions coming from yield on our collection business including our fuel surcharge and higher recycling commodity prices. Our internal revenue growth from yield in our base business was 3.1% in the second quarter. Over the last three years we have averaged over 3% yield, which reflects our long term commitment to our pricing programs, even in a downturn. If you include the benefit of our fuel surcharge program and higher commodity prices, internal revenue growth from yield increased a total of 7% during second quarter of 2008.

Our collection pricing programs remain the primary drivers of earnings growth and margin expansion. As we expected and as we have seen for some time, our pricing programs again effected our volumes, but the trade-off remains positive. The net result is, once again, higher income from operations and significant margin expansion in our collection line of business. The income from operations from our collections business grew by nearly 10% in the second quarter of this year, compared with the same period of 2007. And our income from operations margin in our collection business expanded by 160 basis points. Our combined revenue growth from yield in the industrial, commercial, and residential lines of our collection business was 4.1% in the second quarter, or 7.3% if we include the effect of our fuel surcharge.

In the past we have reported price without the fuel surcharge, but because the surcharges has become such a significant portion of price and because the price of fuel does not appear to be abating, we thought it would be useful to include the fuel surcharge in our price information. So when we look at the pricing in the commercial collection line of business with the fuel surcharge, yield in the commercial collection line of business reached 9.3% in the second quarter of this year. On the same basis, the yield components of internal revenue growth in our residential and roll-off lines of business were 5.6% and 6.6%, respectively. Without the fuel surcharge, commercial, residential and roll-off prices increased 5.1%, 4.1%, and 2.9% respectively. These levels of revenue growth from higher yield show that we have maintained our pricing discipline and our fuel surcharge discipline in spite of lower volumes. Again, we intend to maintain that discipline.

Turning to the volume side, internal revenue growth from volumes on base business declined 3.8% in the second quarter of 2008, caused mainly by our pricing programs and economic declines which occurred primarily in our roll-off line of business. The 3.8% rate of decline is the best workday adjusted volume performance we have had since the third quarter of 2006. And it is a sign that we are seeing volume declines stabilize in most areas of our business.

Most of the volume lost in the quarter was in the collection side of the business, which fell by 5.7%. This is very close to the same level of decline we saw in the first quarter of this year. We estimate that our pricing programs caused roughly 60% of the collection volume loss, with the remainder due to the economy. The area we have seen the most economic impact is in our roll-off volumes, which were down 9% in the quarter, a level comparable to what we have seen in recent quarters.

Turning to price and volume on the disposal side of our business, we saw a year over year increase in revenues at our landfills for the first time since 2007. This was caused by an increase in special waste volumes and higher pricing on municipal solid waste. In the second quarter of this year, the internal revenue growth from yield for municipal solid waste stood at the highest level we have seen in the last two and a half years, which is a sign of continued progress we are making in our disposal pricing. We expect that momentum to continue as contracts come up for renewal and as we get better information from our new landfill Scale House Software.

Volumes improved in our special waste line of business and stabilized in the other disposal line. We think this is a good indication for the second half of the year. Our recycling operations turned in another strong performance in the second quarter of the year, on the strength of higher recycling commodity prices and better rebate structures that we have negotiated with our customers.

So, we are very pleased with our second quarter results. Not only because we accomplished our primary financial goals, but also because it shows the strength of our people and of our business, and it validates our strategy to maintain our pricing discipline and control our operating costs. We are committed to this strategy and expect that it will continue to drive our success in the last half of 2008. We are very confident that in the second half of the year we will meet the upper end of our full year earnings goal and achieve the free cash flow objectives that we announced at the beginning of the year.

Finally, with respect to our proposal to acquire Republic Services, we are working hard to prepare a proposal that will address all of the issues raised by the Republic board. We have also made our Hart-Scott-Rodino filing to begin the antitrust review. So, we believe we can timely close an acquisition. The recent actions taken by Republic's board could affect a hostile proposal, but our proposal is designed to work cooperatively with Republic - to structure a transaction that would benefit both Republic Services and Waste Management stockholders.

With that, I will turn the call over to Larry who will review our operating cost results.

Thank you, David, and good morning to everyone on the call. Operating expenses in the second quarter of 2008 were $2.181 billion, or $89 million dollars higher than in the 2007 quarter. As a percent of revenue, this is a 20 basis point increase in our operating costs, from 62.3% of revenue to 62.5% of revenue. Excluding the impact of higher recycling commodity and higher diesel fuel prices, operating costs in the second quarter of 2008 would have been $46 million lower than they were for the same period last year. Excluding these costs and their associated revenue, operating expense as a percent of revenue would have stood at 61% in the second quarter, or a decrease of 130 basis points, compared with the second quarter of last year.

I am pleased with the progress we made in managing our controllable operating costs during the quarter. We accomplished this through our consistent focus on operational excellence and the recovery of higher costs through our pricing excellence and fuel surcharge programs. Our labor and benefits costs improved by about 70 basis points as a percent of revenue during the second quarter of this year. On an absolute dollar basis, we held these costs flat when compared with the second quarter of 2007.

We continue to flex down costs as volumes decline. We reduced our driver hours by about 638,000 hours in the second quarter of 2008, compared with the same period in 2007. Approximately 62% of this reduction was due to the ability of our field managers to actively flex down our labor costs as volumes have declined. The remainder of this reduction was due to divestitures.

Risk management costs improved nearly 15 basis points as a percent of revenue, driven by lower auto and general liability costs. The primary reason for continued reduction in our risk management cost has been our tremendous improvement in our safety performance. We are very pleased with this achievement, which shows that our focus on safety generates value to our shareholders and our employees.

As a result of our improved safety performance, our risk management costs were benefited by a $10 million reduction in our reserve for prior year's claims. Our second quarter 2007 results included a similar adjustment. Based on the improvements we continue to make in safety, we expect to receive additional benefits in future quarters, but we can't predict when or to what extent that might happen. This was the 30th consecutive quarter in which we improved our total reportable injury rate, which is an OSHA safety measure.

We improved our TRIR by over 30% in the second quarter of this year, compared to the same period in 2007, to a TRIR of 3.1. Over the past several years, a number of our facilities have worked with OSHA to receive OSHA's VPP Star Certification, which means these sites are recognized as being among the safest workplaces in the United States. As a result of our tremendous progress in safety, OSHA has invited Waste Management to participate in their Corporate VPP program. We are the only company in our industry to be invited to participate. We are honored to be recognized in this way by OSHA.

Transfer and disposal expenses, which include those costs that our collection companies pay to third party landfills and transfer stations, improved by nearly 80 basis points as a percent of revenue in the second quarter of 2008. The category of other operating costs improved by 45 basis points, caused primarily by a benefit resulting from the sale of surplus real estate. Even without these sales, our costs in this category would still have improved on a year over year basis.

Our maintenance and repair costs improved by approximately 10 basis points as a percent of revenue in the second quarter of this year, compared to the second quarter last year. Our collection plate maintenance improvement efforts have helped to offset the higher cost in labor rates, fuel parts, and oil-based supplies such as lubricants.

I should note that maintenance and repair expenses at our Wheelabrator waste-to-energy facilities increased by $7 million in the second quarter, in line with our operating plan. The maintenance cost at the Wheelabrator facilities can fluctuate from quarter to quarter based on when we schedule outages to perform maintenance and repairs. After adjusting for the Wheelabrator increase, maintenance costs were flat on a year over year basis due to the benefit of our fleet maintenance program, divestures, and lower volumes.

Higher direct diesel fuel costs caused an increase of over 170 basis points in operating expense as a percent of revenue. Fuel costs rose, on average, by over $1.50 per gallon in the second quarter of 2008, compared with the second quarter of 2007. These higher diesel fuel prices not only negatively affected our operating margins, but they also lowered earnings by approximately $0.015 per share, because the fuel surcharge revenue lagged with the steep increase of higher fuel cost. The sharp rise in diesel prices caused direct and indirect fuel costs to increase nearly $93 million in the second quarter, which was substantially offset by the $81 million increase in fuel surcharge revenue. So on a net basis, our fuel surcharge revenue was short by $12 million in the quarter.

Under normal circumstances, our fuel surcharge program is designed so that increases in our fuel surcharge revenue keep pace with the increase in our direct and indirect diesel fuel cost. It is when fuel prices spike upward that our fuel surcharge does not keep pace. We have seen diesel prices stabilize and even reduce recently. If that continues, we would not expect fuel to have a negative impact on earnings.

Due to the higher recycling commodity prices in the second quarter of 2008, our cost of goods sold category increased by over 60 basis points. While this negatively impacted our reported operating expenses, and squeezed our operating margins, the overall impact on our recycling earnings and returns is positive.

I am pleased with our performance and controlling our operating costs. Our continued progress in these areas was due to the efforts of our outstanding employees and the many tools, systems, and standard practices that are in use at Waste Management today. We remain committed to our cost control and pricing strategy, which we expect will lead to continued operational and financial success.

With that, I will turn the call over to Bob.

Thank you, Larry. SG&A expenses were 10.3% of revenue during the second quarter of 2008, which was in line with our expectations and a 10 basis point increase when compared with the prior year quarter. Our year over year costs increased $15 million in the second quarter of 2008, compared with the second quarter of 2007. This year over year increase was primarily due to increases in salaries and wages related to annual merit raises and higher sales and marketing spending.

Depreciation and amortization expense for the second quarter of 2008 was down $4 million, when compared with the second quarter of 2007. The year over year decline is primarily due to the impacts of lower landfill volumes and divestitures. As a percent of revenue, depreciation and amortization expense was 9.1%, compared to 9.6% in the prior quarter. Interest expense was $105 million in the second quarter of this year, a $27 million decrease from 2007. This decrease is due primarily to the lower interest rate environment and a benefit from terminating interest rate swaps associated with the senior notes we elected to retire in May 2008. Interest income decreased $7 million year over year in the second quarter of this year, due to the decrease in our cash and investment balances and the lower interest rate environment.

Moving to income taxes -- In our press release, we noted a $7 million benefit to net income in the second quarter of 2008, compared with the benefit of $24 million in the second quarter of 2007. In the second quarter of 2008, our effective tax rate, excluding the $7 million benefit, was approximately 40%. We expect our effective tax rate for the remainder of the year to continue to be approximately 40%.

Total reported debt decreased by $326 million at the end of the quarter, compared with the end of the first quarter of this year, due primarily to the early retirement of a senior note in May. Our debt to total capital ratio as of June, 2008, was 59.5%.

As David noted, we generated strong cash from operations during the second quarter. Net cash from operations was $570 million during the current quarter, a $33 million improvement when compared with the prior year quarter, or approximately 6%. Capital expenditures were $273 million during the second quarter of 2008, up from $209 million in the second quarter of last year. The increase is primarily due to increased fleet purchases in 2008.

Net proceeds from divestitures and sales of assets were $24 million in this year's quarter, compared with $147 million in the second quarter of 2007, when we were more active in selling low margin operations. As a result, our free cash flow was $321 million for the quarter. For the first six months of this year, we generated $683 million of free cash flow, so we are on the way to achieving our full year target.

We repurchased approximately 3.4 million shares for $120 million during the second quarter. We also paid $133 million in cash dividends based on our quarterly dividend of $0.27 per share. At yesterday's closing stock price, our dividend payment equates to a yield of 3.1%.

Due to the hard work of our 47,000 employees, we produced very strong results during the first half of the year. As David and Larry indicated, we will continue to pursue our pricing and operational excellence strategies. Consequently, we are confident we will meet the upper end of our EPS guidance and achieve our free cash flow guidance.

And finally, some news about our investor relations area. We have recently named [Jim Alderson] as Director, Investor Relations. Jim will be taking over for Greg Nikkel, who was recently named Vice President, Business Development for Waste Management, Recycle America. We congratulate Greg on his promotion and thank him for his contributions to investor relations.

Jim was recently the controller of our California bay market area, and has over 25 years of experience in our industry. He has the strength and qualities we were looking for. Jim will be reporting to our Vice President, Finance, and Treasurer, Cherie Rice who will continue to oversee our investor relations program, as she has done for the last several years. We will be introducing Jim to you at investor meetings during the coming months. For now, Greg will remain your primary contact, as we transition responsibilities to Jim.

And with that, Nicole, let's open the line for questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Scott Levine with JP Morgan.

Good morning.

Good morning.

With regard to the returns for the quarter, obviously a very sizable beat versus street expectations and ours -- Could you characterize whether results were in line, maybe ahead of your internal expectations and whether there has been any change in your view from a macro standpoint, or otherwise, for the back half of the year versus what it was at the time you set initial targets for 2008, earlier this year?

You know Scott, remember last year when we talked about some of the lumpiness that we see from an accounting point of view in our operating results, and we wanted to point out this quarter that we did have some of that lumpiness. We had the benefit of asset sales. We had the risk management benefit this quarter. So we had a couple of things that were a little bit lumpy. But, even on a pure operational basis, this was clearly both a beat of street expectations and certainly in line with our expectations from the year. When we look at it from a macro point of view, what see is that the trends are very positive.

We've been talking, now, for a couple quarters, that we had hoped that we -- we've seen a drop in volumes and that we'll start to see them turn positive. And what we have seen this quarter would show us that those trends are turning slightly positive. Probably not as positive as we thought they would be at the beginning of the year, but turning positive enough that we think it portends a good second half of the year.

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

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

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

This is Larry, Scott. We -- our recycling operations probably added about a penny in earnings.

Great. Thanks guys.

That is year over year.

Penny year over year?

Yeah.

And that is consistent with prior quarters.

Got it. Great. Thanks.

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

Good morning, and congratulations to Greg, hopefully we'll keep in touch. I'll ask a question - Can guys you catch us up on Republic. Let us know what conversations have taken place? Where you are in the process? There's been a lot of press releases between the two companies over the last two weeks, and just want to make sure that we're all on the same page in terms of what conversations have taken place, at what levels, and where you are in the process?

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

And maybe it was just a matter of semantics. In terms of the Hart-Scott-Rodino review that you were looking for, that was -- my understanding was that was primarily to acquire shares in the public market. Is that accurate? That has nothing to do with the review in terms of your assets as an overlap with Republic Services? Is that the correct interpretation?

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

And do you also need regulatory approval to acquire -- outside of the rights offering they announced yesterday, but do you need regulatory approval to acquire shares in the public market?

To go above the $63.1 million, that would be correct.

And those two processes are one in the same, both the review process and acquisition of more than $63 million, it that correct?

That is correct.

Okay. And then, maybe turning my attention back to the quarter. You talked about volume being down 3.8%. I apologize if I missed some numbers. You the said collection was off 5.7% and roll off was off 9%. Is the difference really just the disposal business or is there something else I was missing that was --? Because both of those numbers were below the overall corporate volumes.

Yeah. Obviously, what we had was the positive volume on the landfill side. Which offset -- was negative 5.7% in the collection line of business. Overall, when you look our landfill line of business, it was basically flat.

Two more quick housekeeping questions and I will get back in the queue. Confirming your free cash flow guidance for the year, $1.4 million, does that mean you are confirming CapEx of $1.5 billion?

CapEx we think will be a little bit less than that at this point. On the back of the press release, you will see a reconciliation table, it shows how we get to that. We think, based on where we are, CapEx will be about $1.450 billion.

Okay. I apologize about that. I'll double check. On the last call and previously you talked about an M&A program absent Republic. Are you pursuing both processes simultaneously or have you put your $250 million worth of M&A on the back burner while you explore RSG?

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

Can you make any comments about the pipeline? And then I'll turn it over.

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

Great. I will turn it over.

Thank you.

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

Good morning.

Good morning, Corey.

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

Yeah, Corey, it looks like we have a pretty good pipeline of special waste projects. We saw that in the second quarter and it looks like the projects that we have got -- that we are working on, should continue, and most of them should continue in the third quarter with a pretty good pipeline.

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

Obviously, as we look at the reported numbers, we do not see reported numbers for our nonpublic competition, but, I think, as we've seen in the past, we are certainly seeing some of that flow over to the nonpublic competition. But the other thing we think we have seen is that, given the economic conditions and given the high price of fuel, that those local competitors are really starting to feel the pinch right now, and, the good news is, what we are starting to see is that in reaction to high fuel, many of them are starting to raise their prices. Given that, we would expect those losses to moderate in the future.

Okay. And then last quarter, I think you commented that you were still seeing more commercial accounts upsizing service levels than downsizing, but the lines were getting closer together. Have the lines crossed? Are you seen more downsizing than upsizing? Or is that trend continuing? Where is that at?

No, they have not crossed. We're still seeing more upsizing than downsizing. And again, it is slightly less than it was last year, but it is still more increases in services than net decreases in services. So we think that is certainly a positive fact.

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

Again, we need to have those very discussions. That is exactly the type of thing we would like to sit down with Republic and start to discuss. Because certainly we are looking to do a transaction with the cooperation of Republic. So I look forward to having those very discussions and finding out what the roles are, not only at the highest level at Republic, but at every level of the employees at Republic.

Thanks very much and nice job on the quarter.

Thank you.

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

Good morning.

Hi, Bill.

Just a question on landfill pricing. I can -- in the release you mentioned the MSW, third party pricing was up. I may have missed it, but do you have what the percentage was?

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

Kind of, roughly, what percentage increase is that?

What we are talking about is, as we renew contracts and spot rates, in the 7% to 10% range.

Okay. That much. Okay. And just on the fuel on the landfills -- you have a good mix of landfills that are, say, within the city limits and your competitor may be 50 miles away or so. With fuel going up, do you have a surcharge at the landfill on third party customers or can you start raising prices reflecting that kind of advantage you have there?

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

Is that something, on that piece of it, is that something you are in the early stages on, given the more recent moves in fuel?

Yeah, you know, what we do, both at the landfill and at the collection line of business, what we are constantly doing is punching in the numbers that we use to get the proper returns on our assets. And fuel is one of those factors. And so we are constantly going in and updating our database. Obviously, when you have a fuel spike like this, it lags a little bit. So, we need to -- I just had a conversation with the head of our sales group, Dave Aardsma, last week, to let's go through and make sure that all of our cost models are updated for the spike in fuel. So you have hit the nail right on the head.

Okay. Great. Thank you.

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

Thanks. Good morning, guys.

Good morning.

I wanted to talk a little bit about use of cash. I realize you were retiring a note this quarter, so perhaps that creates some skew, but share buy-backs were below what we were originally modeling, I think most investors were anticipating -- Can you talk a little about to what extent the proposed acquisition of Republic may be impacting your plans for share buy-backs or debt pay downs over the next few quarters?

Sure can, Jonathan. We have some debt coming due at the end of the year and we expect to deal with that in the ordinary course. With respect to share repurchases, we are not making any share repurchases at this time and we will revisit that as things move forward.

Okay. And if we could talk a little bit about volumes overall -- What I am trying to reconcile, here, is if you look at total volumes - year over year change in volumes for the Company - they were down in the second quarter, roughly consistent with the pace of your declines in the first quarter. Having said that, roll off volumes were pretty consistent with where they were last quarter, and landfill volumes actually improved -- So I am trying to figure out where incremental the weaknesses have come from, given that, as said, total year over year volume declines were pretty consistent with last quarter.

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

Just to be clear, the commercial business did not really contribute to the incremental volume loss, it was almost entirely from the residential

It was slightly from the commercial. Commercial was slightly steeper at negative 4.4% than last quarter, but the biggest portion would be from the residential side.

Okay. Thank you. Just on the pricing side -- Can you quantify what was the impact of environmental fees on your IRG from yield, during the quarter?

We had a benefit this quarter of about $15 million from the environmental fee. That is the year over year increase in what we got.

Okay.

The grand total that we got this quarter was about $46 million.

Okay. Great. And then just on pricing related to roll off business -- If I have my numbers here correct, I know you mentioned roll off pricing was up about 2.9% this quarter. I think last quarter it was up closer to 4%. Is there anything that is going on there in terms of mix or other considerations leading to deceleration of roll off pricing?

Yes. The difference is slight enough that we certainly don't look at it and say "let's dig into the details and find out exactly what is causing it." Certainly, we have made it clear to our field management, and I think they certainly understand, that we're going to continue to push price. In a quarter where we basically got 3% price and negative 9% volume, we still showed increasing profits in the roll off line of business. So, suffice it to say, the strategy has not changed. We will continue to push price in every instance. We will make sure, when you have a trade off where you can get 1% price and lose 3% volume and still make more money, raising prices makes sense.

I certainly don't indicate that this is the beginning of a trend. I certainly believe it is an anomaly based on just year over year pricing.

Just a last question for me. On the landfill side, you mentioned volumes were flat. Can you quantify the change in volumes for MSW, C&D, and special waste?

For MSW we were down about 3.7% in the quarter. C&D, down about 9%. Obviously, that is a good trend. It is still negative, but it's a good trend that shows that we think we are coming out of the trough on C&D. And on special waste, we were actually up about 10.3%.

Thanks, guys.

Thank you.

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

Good morning.

Good morning.

Would you be willing to give us your thoughts on your revenue guidance, maybe not explicitly changing it , but trends or perhaps how that compares to your thinking at the beginning of the

Obviously, Leone, when we look at it, we look at it from a price and volume point of view. When we look at the volume guidance that we gave at the beginning of the year, the negative 2.5% to 3%, volumes are certainly slightly lower than we expected, but we like the positive trends we are seeing. And if those positive trends continue, we expect to have a very good second half of the year.

Terrific. So if we then look at your confidence in maybe the upper end of the guidance, I presume, given the strength in the second quarter, that really reflects, then, more conservatism as well as stopping the share repurchase program? There is no other trend of note you're highlighting there?

I would agree with that.

Okay. Thank you.

Thank you.

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

Good morning, guys.

Hi, Brian.

A question -- just a question on the third party disposal and I apologize if I missed this. But third party disposal was an improvement on a margin side. What was driving that?

The pricing program. The pricing program is the primary driver. Now, you know, obviously, at the landfill, the incremental costs -- we've talked about it all year that when you have negative volume, you have huge fixed costs there. So you certainly get some benefit by the increased volumes in the landfill from an operating costs point of view, but the primary driver continues to be our pricing program.

Okay. And then just on the Republic acquisition talk. You suggested that you are looking for a proposal that works best for Waste Management and Republic. I take that as meaning you are less likely to pursue any type of hostile acquisition strategy? Is that fair to say?

I think it is too early to speculate, Brian, as to what path this will take. But we certainly hope that the path it will take is one where we can cooperate to put the best proposal in front of the Republic shareholders that we possibly can.

Do you guys currently now own any shares of Republic?

We do not currently now own any shares of Republic.

Great. Thanks a lot.

Thank you.

Your final question comes from the line of David Feinburg with Goldman Sachs.

Hi, I'm back in the queue. Some more questions on Republic. Can you discuss or talk about your ability or your appetite to use equity in the transaction? Previously you only mentioned use of debt.

Yes. Again, David, what we are trying to do here is to address all of the concerns that have been raised by the Republic board and obviously we will address those in due course. I think it is a little bit early to speculate as to how that will shape up.

Okay. And a question from my high yield team, here. Any interest -- not any interest. Would the company consider going to high yield status with the new proposal or is investment grade one of the tenets of any deal?

Yes. We've certainly made it very clear that it is our intention to maintain our investment grade rating.

Two more quick ones. You talked about not having discussions with Republic. Have you have active discussions, though, with the rating agencies?

We have had discussions with the rating agencies.

And any feed back from them?

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

Understood. And last question, given all the moving parts here, whether it is Allied Republic, or Waste's bid for Republic, any evidence of higher attrition through any of the three companies? Or are you having to work hard to retain people? Are there opportunities to pick up good talent regardless of what happens?

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

Thank you very much.

Thank you.

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

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

Thank you for participating in today's Waste Management second quarter 2008 earnings release. This call will be available for replay today through 11:59 pm Eastern Standard Time today, through 11:59 pm Eastern Standard Time on Wednesday, August 13, 2008. The conference ID number is 53383277. Again, the conference ID number for the replay is 53383277. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. You may now disconnect.