美國廢棄物管理公司 (WM) 2008 Q3 法說會逐字稿

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

I would now like to turn the call over to Jim Jim Alderson, Director of Investor Relations. Thank you. Mr. Alderson, you may begin your conference.

Thank you, Nicole. Good morning, everyone, and thank you for joining us. With me this morning are David Steiner, Chief Executive Officer, Larry O'Donnell, President and Chief Operating Officer, and Bob Simpson, Senior Vice President and Chief Financial Officer. David will start things off with a summary of the financial results for the quarter and a review of the details of our revenue growth including price and volume trends. Larry will discuss 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 1:00 p.m. eastern time today, until 5:00 p.m. eastern time on November 13th. 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 800-642-1687 and enter the reservation code 66401070.

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 and detailed in Waste Management's annual report on Form 10K for the year ended December 31, 2007 and in the company's press release this morning. These risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements.

During the course of the presentation 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 nonoperational items, which are also non-GAAP financial measures. David's Larry's and and Bob's comments on these measures will be on an as adjusted basis. We have defined and reconciled those items as part of the earnings press release or the release 8K filed today which can be found on the company's website at www.wm.com.

As I sated 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 30th, 2008, 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 CEO, David Steiner.

Thanks, Jim. Good morning from Houston. I'm pleased to say that because of our disciplined approach to pricing and cost control, we again achieved our primary financial goals of growing our earnings, expanding operating margins and generating strong free cash flow to return to our shareholders. This strategy is working and we intend to maintain it. We exhibited the same disciplines when we withdraw our offer to purchase Republic. With the certainties caused by changes in the credit market, we just did not believe it prudent to move forward with that transaction.

We earned $0.63 per diluted share in this year's third quarter, which is an increase of $0.9 per share. This is also a 16.7% increase in earnings per share, compared with the third quarter of 2007. We increased income from operations as a percent of revenue year-over-year by 60 basis points to 18% in the third quarter of this year. Excluding the impact of rising diesel fuel prices income from operations as a percent of revenue would have expanded by 100 basis points in the third quarter, in line with our full year expectations.

Turning to our revenue performance, we grew revenues by $122 million, or 3.6% in the third quarter of this year over last year's third quarter, with the most significant contributions coming from yield on our collection business, our fuel surcharge, and higher recycling commodity prices. Our total revenue growth from yield in our base business was 2.7% in the third quarter. If you include the benefit of our fuel surcharge program and higher commodity prices, internal revenue growth from yield increased a total 6.5% during the third quarter of 2008.

Our combined revenue growth from yield in the industrial, commercial, and residential lines of our collection business was 3.6% in the third quarter, or 6.9% if we include the effect of our fuel surcharge.

Looking at the commercial collection line of business with the fuel surcharge, yield reached 8.9% in the third quarter of this year. On the same basis, the yield components of internal growth in our residential and rolloff lines of business were 6.2%, and 4.8%, respectively. Without the fuel surcharge in our commercial, residential and rolloff lines, internal revenue growth from yield increased 4.4%, 4.1% and 1.9%, respectively. These levels of revenue growth from higher yields show that we maintained our pricing and fuel surcharge discipline in spite of lower volumes. Again, we intend to maintain that discipline.

During an economic downturn when volumes are declining it becomes even more important to maintain our pricing discipline. As we've seen over the last few years, with a 1% increase in yield we can lose 3% to 5% of our volume and still increase our profits.

Turning to the volume side, internal revenue growth from volumes on base business declined 3.2% in the third quarter of 2008. Most of the volume lost in the quarter was in the collection side of business which fell by 5.4%. Our collection pricing programs, coupled with our operating excellence initiatives, which Larry will speak more about, remain the primary drivers of our earnings growth and margin expansion. The net result is once again higher income from operations and significant margin expansion in our collection line of business, The income from operations from our collection business grew by 7% in the third quarter of this year compared with the same period of 2007. And our income from operations margins in our collection business expanded by 120 basis points.

Turning to yield and volume on the disposal side of our business, we saw a year-over-year increase in third party revenues at our landfills for the second quarter in a row. This was caused by higher yield on MSW, and an increase in special waste volumes. In the third quarter of this year, the internal revenue growth from yield for MSW stood at the highest level we've seen since 2005, which is due to our continued focus on disposal pricing excellence. We expect the momentum to continue as contracts come up for renewal and as we get better information from our new landfill scale house software.

Volumes also improved in our special waste line of business. Our recycling operations were benefited by $12 million in the third quarter from higher recycling commodity prices. However, recent volatility in the commodity markets leads us to expect to receive no year-over-year benefit from recycling in the fourth quarter. In fact, our year-over-year earnings per share could fall by as much as $0.03 as a result of the volatility in the commodity market. The recycling commodity prices are really the only significant effect we've seen from the economy. Our solid waste volumes continue to run at about the same pace they have all year. This shows the recession resistant nature of our business. With over $3 billion of public sector business and our strong residential business we expect to get through a recession much better than other industries.

So, we are very pleased with our third quarter results, not only because we accomplished our primary financial goals but also because it shows the strength of our people and our business, and validates our strategy to maintain our pricing discipline and control our operating costs.

When we look at our full year guidance, if we look just at our solid waste business, we would fully expect to exceed our previously announced range of $2.19 to $2.23 per share because our volumes have held up very well. However, there are a number of uncertainties outside of our solid waste business. Two weeks ago, when 90 day LIBOR was approaching 5%, we estimated that we would have a $0.03 negative impact from interest expense in the fourth quarter. 90 day LIBOR has stabilized since then and we now don't expect such a dramatic result. Just in the last few weeks we've seen the paper markets experience the same type of volatility. And, as of today, we expect up to a $0.03 negative earnings effect from our recycling operations. Our assumption is that those markets will not stabilize like the LIBOR rates. But we certainly can't predict market swings in such a volatile market.

So, if we didn't see all the volatility, we would fully expect to exceed the upper end of our full year guidance because our solid waste business, again, continues to perform well.. However, given the uncertainties, we just did not think it would be prudent to specify a new range for our full year guidance at this time.

So, although nobody is certain what the economy will do over the next 18 months, I am certain what Waste Management will do. Waste Management will continue to focus on pricing excellence and operational excellence. Waste Management will continue to focus on growing earnings, expanding margins, and generating strong free cash flow. And we at Waste Management will continue to see opportunities, because we believe that companies that are the strongest going into an economic downturn will emerge from the downturn even stronger. With our solid balance sheet and our cash generating capabilities, we believe that we're well positioned to provide a solid investment for our shareholders.

With that I will turn it 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 third quarter of 2008 were $2.221, an increase of $78 million from the third quarter of 2007. These increases were primarily from higher fuel and commodity prices and labor disruption costs. Operating expense as a percent of revenue were 63% in the third quarter of 2008. Same as in the third thinker of 2007, the same as in the third quarter of 2007.

During the third quarter of this year, we had a labor disruption in Milwaukee that cost us $26 million. $19.5 million of that was related to our withdrawal of the Milwaukee bargaining unit from the Teamsters Central States Pension Plan and the institution of a 401(k) plan for our Milwaukee employees. We've requested our Milwaukee bargaining unit to withdraw from the Teamsters Central States Pension Plan because the plan is in critical underfunded status.

In the third quarter of 2007, we had a labor disruption in Oakland. Excluding the impact of the labor disruption cost in both quarters, and higher diesel fuel and recycling prices in the third quarter of this year, operating costs in the third quarter of 2008 would have been $46 million lower than they were for the same period last year.

Excluding these costs and their associated revenue, operating expenses as a percent of revenue would have stood at 61.1% in the third quarter of this year, or a decrease of 120 basis points compared with the third quarter of last year.

I'm pleased with the disciplined approach exhibited by our team in managing our controllable operating costs during the quarter. Our continued progress on our operational excellence initiatives, and the recovery of our higher costs through our pricing excellence and fuel surcharge programs, were the primary drivers of the continued improvements in our operating results. As a percent of revenue, our labor and benefits costs improved by almost 75 basis points during the third quarter of this year, compared to the same quarter last year, after adjusting for impacts of labor disruptions in both quarters.

On an absolute dollar basis, net of these labor disruption costs, we reduced our labor and employee benefits cost by $6 million when compared with the third quarter of 2007. We reduced our driver hours by about 585,000 hours in the third quarter of this year compared to the same period in 2007. Just over 50% of this reduction was due to our field managers flexing down our labor costs as volumes have declined, with the remainder due to divestitures.

Lower workers compensation and auto and general liability costs help drive a 35 basis point improvement in risk management cost as a percent of revenue compared to prior year quarter. We improved our total recordable injury rate to 3.6 in the third quarter of this year, an 18% improvement compared to the same period in 2007. We are very pleased with this achievement which shows that our focus on safety protects the communities that we serve while generating 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 third quarter 2007 results included a favorable adjustment to those liabilities of $3 million. With the improvements we continue to make in safety, we expect to receive additional benefits in future quarters but can't predict when or to what extent that might happen.

Transfer and disposal expenses, which include those costs that our collection companies pay to third party landfills and transfer stations, improved by over 80 basis points as a percent of revenue in the third quarter of 2008. Our maintenance and repair costs improved by over 30 basis points as a percent of revenue in the third quarter of this year compared to the third quarter of last year. The efforts we have made to standardize our fleet and to institute a solid preventive maintenance program have helped to offset the higher costs we've seen in labor rates, steel parts and in oil based supplies such as lubricants.

Higher direct diesel fuel costs caused an increase of over 150 basis points in operating expense as a percent of revenue. Diesel fuel prices very very volatile, rising sharply at the beginning of the quarter and falling sharply as the quarter ended. Fuel costs rose on average by about a $1.45 per gallon, or about 50% in the third quarter of 2008 compared with the third quarter of 2007. These higher diesel fuel costs caused our direct fuel costs to increase by $69 million, and our indirect fuel costs, charged to us by our subcontract transfer station haulers, to increase by $14 million, for a total increase of $83 million. This additional cost was fully offset by our fuel surcharge recovery.

Due to the higher recycling commodity prices in the third quarter of 2008, our cost of goods sold category increased by about 70 basis points, due primarily to higher recycling rebates to our customers. While this negatively impacted our reported operating expenses as a percent of revenue, the overall impact on our recycling earnings and returns is positive.

I'm pleased with the progress we continue to make. As David discussed, the business is defensive in nature and has strong recession resistant qualities. Coupled with the disciplined approach our team as shown in controlling our costs and executing our operational improvement and pricing strategies, we remain confident that we will continue to make progress on our primary goals of generating strong free cash flow, growing earnings and expanding margins. I expect the strength of our company and the talent and discipline of our 45,000 employees will enable us to emerge from the current economic environment as an even stronger company.

With that I will turn the call over to Bob.

Thank you, Larry. SG&A expenses were 10.5% of revenue during the third quarter of 2008, which was in line with our expectations and a 20 basis point improvement when compared with the prior year quarter. Our year-over-year costs increased $4 million in the third quarter of 2008 compared with the third quarter of 2007 primarily due to the costs associated with our proposal to acquire Republic. Depreciation and amortization expense for the third quarter was down $5 million when compared with the third quarter of 2007. The year-over-year decline is generally due to the impacts of lower landfill volumes. However, in the quarter we did recognize a $6 million landfill amortization charge for revisions of closure and post closure estimates.

As a percent of revenue, depreciation and amortization expense was 9.2% compared with 9.7% in the prior year quarter. Interest expense was $114 million in the third quarter of this year, a $14 million decrease from 2007. This decrease is due primarily to the lower interest rate environment that existed during the quarter. Interest income decreased $5 million year-over-year in the third quarter of this year due primarily to a decrease in the average investment balance compared with the prior year.

Moving to income taxes, in the third quarter of 2008 our effective tax rate was 39.3% which includes a approximately $4 million of income tax benefits from return to accrual adjustments. In the third quarter of 2007, we realized $14 million of income tax benefits resulting in an effective tax rate of 36.1%. We expect our effective tax rate for the remainder of the year to be approximately 40%.

Total reported debt increased by $36 million at the end of the quarter compared with the end of the second quarter of this year. However our debt to total capital ratio decreased over the same period from 59.5%, to 58.8%. We generated strong cash from operations during the third quarter. Our free cash flow was $524 million for the quarter, down slightly from the prior year period primarily due to a planned increase in fleet purchases. For the first nine moths of the year, we generated $1.2 billion in free cash flow so we are on the way to achieving our full year target.

As we said in our second quarter call, we've ceased purchasing our shares in the open market when we made our proposal to acquire Republic Services. We therefore only repurchased approximately 260,000 shares for $9 million during the third 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 more than 3.6%.

We have senior notes totaling $386 million that mature in November of this year. and a $350 million letter of credit facility that must be replaced in December. Our intention is to refinance the note and replace the credit facility, but if credit market difficulties prevent us from accomplishing these objectives on acceptable terms, we have over $650 million in cash currently available, as well as almost $900 million in unused capacity on our revolving credit facility. These are unprecedented times in the credit markets but we are not as dependant on these markets as many other companies. We have a number of options available to us and we continue to generate strong cash flow from our operations. One of the great things about Waste Management is our ability to produce consistent strong free cash flow year after year.

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

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the q-and-a roster. Your first question comes from the line of Scott Levine with JPMorgan.

Good morning, guys. With regard to the capex, it came in a little bit below what we were looking for in the third thinker. I'm not sure if I heard whether you guys discussed what your plans were for this year and/or whether you were going to look to come in perhaps below what your prior expectations where there, and if so, what adjustments you would be looking to make within the budge.

Our capex spending for the full year will be a little bit under what we previously forecasted. But I will tell you we haven't made a concerted effort to cut capex back, especially in the areas of fleet. We continue to spend in that area. However, in landfill construction and in other areas where the economy has caused some lower volumes or our pricing efforts have caused lower volumes, we certainly have cut back on our capex spending. We still think the guidance we gave in the second quarter is still where we want to be, our targeted free cash flow, $1.4 billion.

Then on the SG&A side, 10.5% of sales here, could you give us some thoughts with regard to where you guys think you can get ultimately get to on the G&A side, and also let us know on the technology side what investments you're currently making, onboard computing or otherwise.

Our long-term goal, which I'm reminded constantly reminded by my boss, is not that long-term, is to get our SG&A as a percent of revenue to something under 9%. We've been making investments in a number of areas to help accomplish that, and I certainly would expect us to be down significantly in the coming years. We will give guidance for 2009 when we get to that point in February.

One last one, what things or assurances would you give folks, who are looking at the way competition and pricing evolved during the last downturn? Obviously there are differences between this one and that one, our expectations, but what differences in the current operating environment give you confidence that at a minimum operating dynamics and competition will remain much more rational today than they were five or six years ago?

I can't speak for what the competition does, all I can do is speak for what Waste Management does. It's what we said in the script. We recognize that this company -- two-fold. One is that return on invested capital is the most important metric that our shareholders value. Secondly, that you get huge leverage out of pricing. When 100% of your price falls to the bottom line but only somewhere between 15% and 35% of your volume falls to the bottom line, the leverage means that you can, for every 1% price increase you can lose 3% to 5% of the volume. That's exactly what we've seen over the last flew years. Our company has come to understand the great leverage on pricing and what that means to profits. So speaking for Waste Management, that's what gives us the resolve to make it through this downturn continuing to maintain our pricing.

The second thing, Scott, is that so far our volumes have held up fairly well through the downturn. We certainly will maintain our pricing discipline. We don't have any intention to change that.

One last one, if I could sneak one in, as well. On the recycling side, if you can give us sense here in terms of the conservative cut you're using, or some of the mechanics or computation that goes into that $0.03 estimate and what variables or hedging strategies you are using, or maybe looking to implement.

Yes. Scott, when we look at the recycling business what we've seen just in the last couple of weeks is just a tremendous volatility in the recycling commodity prices. What we did is we just looked at, given what those prices are today, what impact would that have. Who's to say what those commodity prices are going to do through the rest of the quarter. That's our best estimate based on what we saw as prices are currently. What we saw, those that were in the business back in the '90s, I mean it took months for the price to go down as fast, to drop the way it did, and here it's taking just a matter of weeks. Now, as David mentioned, LIBOR rates have been pretty volatile. and they've recovered, so does that mean this is going to be, it dropped fast, it's going to recover quickly? It's just really hard to say. But we thought it was prudent to at least let people know we are watching this, we are looking at it and taking appropriate action.

Understood, thanks.

Your next question comes from the line of Nicole DeBlase with Deutsche Bank.

Couple of questions for you. Was hoping you could give an update on your free cash flow deployment strategy given that the Republic deal is not going to happen.

Nicole, obviously in our mind, the best investment we can make right now is not in someone else's business, it's in our own business. When we look at our share price, we certainly think it is something we would like to invest in. On the other hand, you've got this volatility in the credit markets that has created a lot of uncertainty. Once the credit market sorts themselves out, once we get through this refinancing in November and the facility in December, then we can make a determination as to how we redeploy our cash. But at the current time we are not in the market repurchasing our shares.

Okay, got it, thanks for that. And then if you could give an update on the wheel abrader business. I know you guys were bidding for a few RFPs there.

The wheel abrader business, just like our solid waste business, continues to perform very well. We do have a few bids in, both domestically and internationally. And we expect to win our fair share. When you look at the volatility in the credit market, the good news about those bids is twofold. One, most of those bids are not financed by us, they would be financed by the municipality. They are what we call "design, build and operate" bids, not "design, build, own and operate" builds. So the financing comes from others sources. And, two, to the extent that those projects carry forward, those are three to five year time horizons before you're spending significant amounts of money. So we don't think that the credit market volatility will have any effect on it, and the business continues to perform very well.

Great, and one more, if I may. Looking in to 2009, some of your competitors have talked about volumes could get potentially get worse given the economic outlook. How much fat remains for you guys to trim, not just on the SG&A line but also on the COGS line going into 2009? And would you guys potentially do some restructuring?

One thing that we demonstrated, as you've seen volumes decline, we've done a really good job of flexing down our costs. We put tools out into the field so they can plan their labor needs based on what we see in the way of volumes. I would expect we would continue to use those tools that are out there and continue to flex down if that's what volumes do. I think we demonstrated the ability to do that and we would continue to do that going forward.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Jonathan Ellis with Merrill Lynch.

Good morning, guys. You mentioned the collection volumes were down 5.4%, if I had it correctly. But you didn't provide any details specific on each market. Could you walk through residential, commercial and roll off and what the volume declines were in each of those markets?

Yes, absolutely In the commercial line we saw volume losses pretty consistent with what we've seen in the past at 4% negative for the quarter. In the industrial line, they were negative 8.6%. We said before that we thought that the industrial line has sort of troughed out. It's still at a negative rate but we're not seeing it decline sharply. And that's what we've seen for the last few quarters. We've seen it running anywhere between 8.5% to 9.5%. The other thing I think gives us some encouragement that we've seen a trough in industrial volumes is that C&D volumes actually were pretty good this quarter at negative 4%. They've been running more in the negative 15% to 25%. So we think we've seen a trough in the industrial volumes. And on the residential side we were down 3.9%.

If I do a comparison of the collection and disposal volumes it seems like there was much more of a moderation on the landfill side this quarter. Volumes were down relative to the collection side, where volumes are still down at roughly the same pace they were in past quarters. Can you talk a little bit about why perhaps your volume declined on the landfill side, maybe moderating more than volume declines on the collection side.

Yes, and the one thing I could tell you that is not happening is that we're are not dropping price, as we said. On the MSW line, it's the highest pricing we've seen since 2005. Quite frankly, when you look at it, obviously we have very well positioned assets. When you have well positioned assets and fuel costs are very high, people are going to come more to your landfill than they're going to go to more distant landfills. And on the special waste side, frankly I think we have the best sales force in the business. So we've done a great job of making sure we get those jobs at good prices.

Great. If we could talk quickly about your recycling business and specifically as we look out into 2009, and I know you're not going to provide formal guidance until your fourth quarter call, but based on the assumptions you have for the $0.03 impact in the fourth quarter, is it safe to assume a similar impact through at least the first three quarters of next year. And specifically what I'm asking about is will price be the only factor there, or perhaps will you strategically make some changes so that your volume trends differ in the recycling business going into next year.

Jonathan, we are going to look at the whole business model. With the way these commodity prices are going, obviously rebates are going to have to change dramatically from where they have been in the past. We are going to be taking a look at that. The good news is, we've made investments in equipment to really ensure that we've got great quality in our outbound tons. I think what you're going to see is through this period of time, those smaller players that haven't been making investments, they are going to have a really hard time making it because those tons, they are going to have a hard time moving them at all. Where, at least what we've got, we've got high quality tons, we've got outlets that in the past we really only were focused on serving North America. Now we've got outlets all over the world for our materials. We are going to take a look at our whole operating model and make sure we are making the best decisions going forward.

Great. And just my final question, given the precipitous decline in diesel prices over the last few weeks, at what point would you possibly consider looking into hedging or floor purchase agreements?

We are fully hedged on our fuel surcharge program. So we don't see a need to go out and hedge fuel. But what we have done is started to look at those markets to understand how those would affect our business. We don't currently have plans to hedge. But for the first time -- I think you hit a great point -- for the first time we're actually looking at it to see if it makes sense. But we don't currently have plans to do any.

Thanks guys.

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

Hello?

Hey, Brian.

Question on when you look at Allied Republic deal, now that you've backed away from looking to purchase Republic, do you see any divestiture opportunities that you guys would be interested in that might spin off from that?

Yes, certainly. I think there is going to be a lot of opportunities in the next year as we see the economy turn down, not just the Republic asset, but in all areas of our business. I think there is going to be huge opportunities. Having said that, our multiples come down, so the multiples we're going to pay are going to come down. But we fully expect to take advantage of any opportunities that we can find to purchase great assets.

Okay, and on the pricing and the rule of thumb of 1% price offsets 3% volume, is there some point where if volumes remain negative long enough that fixed costs catch up and that rule breaks down? And how close, or what's the best way to think about how close we might be to that, or how long that would have to occur in order to happen.

We have not specifically -- again, you raise a great point -- we haven't specifically looked at where that point turns. But when you've got a business the size of ours it's a long way away from where we are today.

Two more, but this one's an easy one. On price, could you break out price like you did volume for the segments?

Absolutely and we mentioned it in the script.

If it's in the script, that's okay.

Yes, both with and without the fuel surcharge.

Last one on the commodities. Have you, or do you currently look at hedging any of the commodity exposure on that piece, or would you consider doing that in the future?

Probably -- just opposite of the oil hedging question -- probably not a great time to hedge when you're at a 3 year trough. We have some of our older volumes hedged. We also have floor pricing on a lot of our contracts. Certainly hedging can smooth out volatility, but I think the last thing you'd want to do is hedge in a market that is as volatile as it is today.

Thanks a lot.

Thank you.

Your last question from the line of David Feinberg with Goldman Sachs.

Hi, it's Chris Hussey calling for David. Question, maybe you could help us out in thinking about the cyclicality. There have been some markets in the United States that have been arguably in recession for a year or longer. California would come to mind. How is your business in California held up cyclically, competitive dynamic, et cetera, if we were to just narrow in on that to be maybe an example of what the entire country could look like in 2009.

That's a good question. I would probably only refine it a little bit and that is to say let's take a look at California and Florida. Because California is largely a franchise business for us. California has actually held up very well. On the other hand, Florida isn't as predominantly franchised. There's plenty of franchises there but not as much as California. What you've seen is the landfill volumes drop dramatically in south Florida.

When we look at it, certainly those are two areas of the country, when times are good you're going to do really well, and when times are bad you're not going to do as well. It's why, frankly, we look at our business model as the best business model. We have a $3 billion in franchise business, we have great residential businesses, but we also have a lot of open market businesses. So when times are good we are going to do great. When times are not so good we've got that solid bedrock of franchise business to fall back on.

Same with the geography. We've got a national scope of geography. When the times are going good in places like Florida and Las Vegas and California, our Midwestern group didn't look so great. But right now our Midwestern group looks wonderful because they never went through the dramatic upturn so they're not going through as dramatic of a downturn. It's why we think our business model works the best. To have diversity in business, both franchise and open market, and to have diversity in geography, we think pays off in the long return. It certainly doesn't sometimes doesn't pay off in the short run but it always pays off in the long run.

Do you think Florida is down so much that it actually stabilizes from here or do you think it takes another leg down?

That's a good question, I wish I could predict that. But certainly if I look at it from a rolloff volume point of view, it's hard to imagine it getting much worse. We might have said that a year ago, too. But when you look at the overall volumes from the roll offline line of business, and C&D, you have seen it start to trough. And in the C&D case it started to come back a little bit. It's like anything else, cycles happen, there is going to be downturns, there's going to be upturns. As sure as I'm sitting here I can promise you that at some point in time it will turn and we are going to be well poised to take advantage when it does.

Thank you, guys.

I will now turn the call over to David Steiner for any closing remarks.

Thank you. So in summary we had another great quarter. Our business continues to perform very well. But sometimes we get so focused on our business that we forget that life isn't just about business, it's about people. And the financial turmoil that's affected the financial industry cost our industry one of its best, Leone Young. And I want to speak on behalf of all of us here at Waste Management when I say we will certainly miss her expertise and her counsel but she will always have our friendship. Thank you for joining us and we look forward to seeing you on the road over the next few weeks.

Thank you for participating in today's Waste Management conference call. This call will be available for replay beginning at 1:00 p.m. Eastern standard time today through 11:59 p.m. Eastern standard time on Thursday November 13th 2008. The conference ID number for the replay is 64401070. Again the conference ID number for the replay is 66401070. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Again, thank you for your participation in today's conference call. You may now disconnect.