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Article by DailyStocks_admin    (09-01-08 02:55 AM)

Filed with the SEC from Aug 14 to Aug 20:

Republic Services (RSG)
Microsoft (MSFT) founder Bill Gates raised his stake to 32.75 million shares (17.99%), by buying 4,202,789 through his Cascade Investment firm from Aug. 5 to 12 at prices ranging from $32.81 to $35.18.

BUSINESS OVERVIEW

Company Overview

We are a leading provider of services in the domestic non-hazardous solid waste industry. We provide non-hazardous solid waste collection services for commercial, industrial, municipal and residential customers through 136 collection companies in 21 states. We also own or operate 94 transfer stations, 58 solid waste landfills and 33 recycling facilities.

As of December 31, 2007, our operations were organized into five regions whose boundaries may change from time to time: Eastern, Central, Southern, Southwestern and Western. Each region is organized into several operating areas and each area contains multiple operating locations. Each of our regions and substantially all our areas provide collection, transfer, recycling and disposal services. We believe that this organizational structure facilitates the integration of our operations within each region, which is a critical component of our operating strategy. See Note 10 of the Notes to Consolidated Financial Statements for further discussion of our operating segments.

We had revenue of $3,176.2 million and $3,070.6 million and operating income of $536.0 million and $519.5 million for the years ended December 31, 2007 and 2006, respectively. The $105.6 million, or 3.4%, increase in revenue and the $16.5 million, or 3.2%, increase in operating income from 2006 to 2007 is primarily attributable to the successful execution of our operating and growth strategies described below.

Our presence in high growth markets throughout the Sunbelt, including California, Florida, Georgia, Nevada, North Carolina, South Carolina and Texas, and in other domestic markets that have experienced higher than average population growth during the past several years, supports our internal growth strategy. We believe that our presence in these markets positions our company to experience growth at rates that are generally higher than the industry’s overall growth rate.

We continue to focus on enhancing shareholder value by implementing our financial, operating and growth strategies as described below.

We were incorporated as a Delaware corporation in 1996.

Industry Overview

Based on analysts’ reports and industry trade publications, we believe that the United States non-hazardous solid waste services industry generates annual revenue of approximately $52 billion, of which approximately 58% is generated by publicly owned waste companies, 16% is generated by privately held waste companies, and 26% is generated by municipal and other local governmental authorities. Three companies generate the substantial majority of the publicly owned companies’ total revenue. However, according to industry data, the non-hazardous waste industry in the United States remains highly fragmented as privately held companies and municipal and other local governmental authorities generate approximately 42% of total industry revenue. In general, growth in the solid waste industry is linked to growth in the overall economy, including the level of new households and business formation.

Financial Strategy

Key components of our financial strategy include our ability to generate free cash flow and sustain or improve our return on invested capital. Our definition of free cash flow, which is not a measure determined in accordance with U.S. generally accepted accounting principles, is cash provided by operating activities less purchases of property and equipment, plus proceeds from sales of property and equipment as presented in our consolidated statements of cash flows. We believe that free cash flow is a driver of shareholder value and provides useful information regarding the recurring cash provided by our operating activities after expenditures for property and equipment, net of proceeds from sales of property and equipment. It also demonstrates our ability to execute our financial strategy. Consequently, we have developed incentive programs and we conduct monthly field operating reviews that help focus our entire company on the importance of increasing free cash flow and maintaining and improving returns on invested capital.

The presentation of free cash flow has material limitations. Free cash flow does not represent our cash flow available for discretionary expenditures because it excludes certain expenditures that are required or that we have committed to such as debt service requirements and dividend payments. Our definition of free cash flow may not be comparable to similarly titled measures presented by other companies.

We manage our free cash flow primarily by ensuring that capital expenditures and operating asset levels are appropriate in light of our existing business and growth opportunities and by closely managing our working capital, which consists primarily of accounts receivable and accounts payable.

We have used and will continue to use our cash flow to maximize shareholder value as well as our return on investment. This includes the following:


• Customer Service. We will continue to reinvest in our existing fleet of vehicles, equipment, landfills and facilities to ensure a high level of service to our customers.

• Internal Growth

Price Growth. Growth through price increases is the most cost-effective means of expanding our business. Price increases also allow us to recover historical and current year increases in operating costs which ultimately enhances our operating margins.

Volume Growth. Growth through increases in our customer base and services provided is the most capital efficient means for us to build our business. This includes not only expanding landfill and transfer capacity and investing in trucks and containers, but also includes investing in information tools and training needed to ensure high productivity and quality service throughout all functional areas of our business.


• Market Rationalization. We have and will continue to focus on further strengthening our business platform and improving our business integration. We will also continue to develop and implement strategies that improve the performance of our locations and lines of business that are performing below our company average. To achieve these objectives, we will continue to pursue strategic acquisitions that augment our existing business platform. In addition, we will continue to evaluate opportunities to divest of businesses in markets that have limited potential for vertical integration or inadequate returns on invested capital.

• Share Repurchases. If we are unable to identify opportunities that satisfy our growth strategy, we intend to continue to use our free cash flow to repurchase shares of our common stock at prices that provide value to our stockholders. As of December 31, 2007, we had repurchased a total of 74.8 million shares, or approximately 41% of our common stock outstanding at the commencement of our share repurchase program in 2000, for $2.2 billion. From 2000 through 2007, our board of directors authorized the repurchase of $2.3 billion of our outstanding common stock, of which $136.4 million remained available for repurchases at December 31, 2007. In January 2008, our board of directors authorized the repurchase of an additional $250.0 million of our common stock. We believe that our share repurchase program will continue to enhance shareholder value.

• Dividends. In July 2003, our board of directors initiated a quarterly cash dividend of $.04 per share. The dividend was increased each year thereafter, the latest increase occurring in the third quarter of 2007. Our current quarterly dividend per share is $.17. We may consider increasing our quarterly cash dividend if we believe it will enhance shareholder value.

• Maintain Our Credit Rating. We believe that a key component of our financial strategy includes maintaining an investment grade rating on our senior debt. This has allowed us, and will continue to allow us, to readily access capital markets at competitive rates. As such, we intend to continue to use our free cash flow to repay our borrowings, if appropriate.

For certain risks related to our financial strategy, see Item 1A., “Risk Factors.”

Operating Strategy

We seek to leverage existing assets and revenue growth to increase operating margins and enhance shareholder value. Our operating strategy for accomplishing this goal includes the following:


• utilize the extensive industry knowledge and experience of our executive management team,

• utilize a decentralized management structure in overseeing day-to-day operations,

• integrate waste operations,

• improve operating margins through economies of scale, cost efficiencies and asset utilization,

• achieve high levels of customer satisfaction, and

• utilize business information systems to improve consistency in financial and operational performance.

For certain risks related to our operating strategy, see Item 1A., “Risk Factors.”


• Experienced Executive Management Team. We believe that we have one of the most experienced executive management teams in the solid waste industry.

James E. O’Connor, who has served as our Chief Executive Officer since December 1998, also became our Chairman in January 2003. He worked at Waste Management, Inc. from 1972 to 1978 and from 1982 to 1998. During that time, he served in various management positions, including Senior Vice President in 1997 and 1998, and Area President of Waste Management of Florida, Inc. from 1992 to 1997. Mr. O’Connor has over 33 years of experience in the solid waste industry.

Michael J. Cordesman, who has served as our Chief Operating Officer since March 2002 and also as our President since February 2003, has over 27 years of experience in the solid waste industry. He joined us in June 2001 as our Eastern Region Vice President. From 1999 to 2001, Mr. Cordesman served as Vice President of the Central Region for Superior Services Inc. From 1980 to 1999, he served in various positions with Waste Management, Inc., including Vice President of the Mid-Atlantic Region from 1992 to 1999.

The other corporate officers with responsibility for our operations have an average of over 26 years of management experience in the solid waste industry. Our five regional vice presidents and our 21 area presidents have an average of 26 years of experience in the industry.

In addition, Harris W. Hudson, who has served as our Vice Chairman since our initial public offering in 1998, has over 43 years of experience in the solid waste industry, including 11 years with Waste Management, Inc. and 19 years with private waste collection companies.


• Decentralized Management Structure. We maintain a relatively small corporate headquarters staff, relying on a decentralized management structure to minimize administrative overhead costs and to manage our day-to-day operations more efficiently. Our local management has extensive industry experience in growing, operating and managing solid waste companies and has substantial experience in their local geographic markets. Each regional management team includes a vice president, controller, sales manager, maintenance manager and an operations manager. We believe that our strong regional management teams allow us to more effectively and efficiently drive our company’s initiatives and help ensure consistency throughout our organization. Our regional management teams and our area presidents have extensive authority, responsibility and autonomy for operations within their respective geographic markets. Compensation for our area management teams is primarily based on the improvement in operating income produced and the free cash flow and return on invested capital generated in each manager’s geographic area of responsibility. In addition, through long-term incentive programs, including stock options, we believe we have one of the lowest turnover levels in the industry for our local management teams. As a result of retaining experienced managers with extensive knowledge of and involvement in their local communities, we are proactive in anticipating our customers’ needs and adjusting to changes in our markets. We also seek to implement the best practices of our various regions and areas throughout our operations to improve operating margins.

• Integrated Operations. We seek to achieve a high rate of internalization by controlling waste streams from the point of collection through disposal. We expect that our fully integrated markets generally will have a lower cost of operations and more favorable cash flows than our non-integrated markets. Through acquisitions, landfill operating agreements and other market development activities, we create market-specific, integrated operations typically consisting of one or more collection companies, transfer stations and landfills. We consider acquiring companies that own or operate landfills with significant permitted disposal capacity and appropriate levels of waste volume. We also seek to acquire solid waste collection companies in markets in which we own or operate landfills. In addition, we generate internal growth in our disposal operations by developing new landfills and expanding our existing landfills from time to time in markets in which we have significant collection operations or in markets that we determine lack sufficient disposal capacity. During the three months ended December 31, 2007, approximately 58% of the total volume of waste that we collected was disposed of at landfills we own or operate. In a number of our larger markets, we and our competitors are required to take waste to government-controlled disposal facilities. This provides us with an opportunity to effectively compete in these markets without investing in landfill capacity. Because we do not have landfill facilities or government-controlled disposal facilities for all markets in which we provide collection services, we believe that through landfill and transfer station acquisitions, operating agreements and development we have the opportunity to increase our waste internalization rate and further integrate our operations. By further integrating operations in existing markets through acquisitions, operating agreements and development of landfills and transfer stations, we may be able to reduce our disposal costs.

• Economies of Scale, Cost Efficiencies and Asset Utilization. To improve operating margins, our management focuses on achieving economies of scale and cost efficiencies. The consolidation of acquired businesses into existing operations reduces costs by decreasing capital and expenses used for routing, personnel, equipment and vehicle maintenance, inventories and back-office administration. Generally, we consolidate our acquired administrative centers to reduce our general and administrative costs. Our goal is to maintain our selling, general and administrative costs at approximately 10.0% to 10.5% of revenue, which we feel is appropriate given our existing business platform. In addition, our size allows our company to negotiate volume discounts for certain purchases, including waste disposal rates at landfills operated by third parties. Furthermore, we have taken steps to increase utilization of our assets. For example, to reduce the number of collection vehicles and maximize the efficiency of our fleet, we use a grid productivity program which allows us to benchmark the performance of all of our drivers. In our larger markets, we also use a route optimization program to minimize drive times and improve operating density. By using assets more efficiently, operating expenses can be reduced.

• High Levels of Customer Satisfaction. Our goal of maintaining high levels of customer satisfaction complements our operating strategy. Our personalized sales process is oriented towards maintaining relationships and ensuring that service is being properly provided.

• Utilize Systems to Improve Consistency in Financial and Operational Performance. We continue to focus on systems and training initiatives that complement our operating strategy. These initiatives include customer relationship management, billing, productivity, maintenance, general ledger and human resource systems. These systems provide us with detailed information, prepared in a consistent manner, that allows us to quickly analyze and act upon trends in our business.

For certain risks related to our operating strategy, see Item 1A., “Risk Factors.”

Growth Strategy

Our growth strategy focuses on increasing revenue, gaining market share and enhancing shareholder value through internal growth and acquisitions. For certain risks related to our growth strategy, see Item 1A., “Risk Factors.”


• Internal Growth. Our internal growth strategy focuses on retaining existing customers and obtaining commercial, municipal and industrial customers through our well-managed sales and marketing activities.

Pricing Activities. We seek to secure price increases necessary to offset increased costs and to improve our operating margins. During 2007, we continued to secure broad-based price increases across all lines of our business to offset various escalating capital and operating costs, including fuel. Price increases will remain a major component of our overall future operating strategy.

Long-Term Contracts. We seek to obtain long-term contracts for collecting solid waste in high-growth markets. These include exclusive franchise agreements with municipalities as well as commercial and industrial contracts. By obtaining such long-term agreements, we have the opportunity to grow our contracted revenue base at the same rate as the underlying population growth in these markets. For example, we have secured exclusive, long-term franchise agreements in high-growth markets such as Los Angeles, Orange and Contra Costa Counties in California, Las Vegas, Nevada, Arlington, Texas, and many areas of Florida. We believe that this positions our company to experience internal growth rates that are generally higher than our industry’s overall growth rate. In addition, we believe that by securing a base of long-term recurring revenue in high-growth markets, we are better able to protect our market position from competition and our business may be less susceptible to downturns in economic conditions.

Sales and Marketing Activities. We seek to manage our sales and marketing activities to enable our company to capitalize on our leading position in many of the markets in which we operate. We currently have approximately 500 sales and marketing employees in the field who are compensated using a commission structure that is focused on generating high levels of quality revenue. For the most part, these employees directly solicit business from existing and prospective commercial, industrial, municipal and residential customers. We emphasize our rate and cost structures when we train new and existing sales personnel. In addition, we utilize a customer relationship management system that assists our sales people in tracking leads. It also tracks renewal periods for potential commercial, industrial and franchise contracts.

Development Activities. We seek to identify opportunities to further our position as an integrated service provider in markets where we provide services for a portion of the waste stream. Where appropriate, we seek to obtain permits to build transfer stations and landfills that would provide vertically integrated waste services or expand the service areas for our existing disposal sites. Development projects, while generally less capital intensive, typically require extensive permitting efforts that can take years to complete with no assurance of success. We undertake development projects when we believe there is a reasonable probability of success and where reasonably priced acquisition opportunities are not available.


• Acquisition Growth. During the late 1990s, the solid waste industry experienced a period of rapid consolidation. We were able to grow significantly through acquisitions during this period. However, the rate of consolidation in the industry has slowed considerably. Despite this, we continue to look to acquire businesses that complement our existing business platform. Our acquisition growth strategy focuses on privately held solid waste companies and municipal and other local governmental authorities. We believe that our ability to acquire privately held companies is enhanced by increasing competition in the solid waste industry, increasing capital requirements as a result of changes in solid waste regulatory requirements, and the limited number of exit strategies for these privately held companies’ owners and principals. We also seek to acquire operations and facilities from municipalities that are privatizing, which occurs for many of the same reasons that privately held companies sell their solid waste businesses. In addition, we will continue to evaluate opportunities to acquire operations and facilities that are being divested by other publicly owned waste companies. In sum, our acquisition growth strategy focuses on the following:


• acquiring businesses that position our company for growth in existing and new markets,

• acquiring well-managed companies and, when appropriate, retaining local management, and

• acquiring operations and facilities from municipalities that are privatizing and publicly owned companies that are divesting of assets.

We also seek to acquire landfills, transfer stations and collection companies that operate in markets that we are already servicing in order to fully integrate our operations from collection to disposal. In addition, we have in the past and may continue in the future to exchange businesses with other solid waste companies if by doing so there is a net benefit to our business platform. These activities allow us to increase our revenue and market share, lower our cost of operations as a percentage of revenue, and consolidate duplicative facilities and functions to maximize cost efficiencies and economies of scale.

Operations

Our operations primarily consist of the collection, transfer and disposal of non-hazardous solid waste.

Collection Services. We provide solid waste collection services to commercial, industrial, municipal and residential customers in 21 states through 136 collection companies. In 2007, 75.9% of our revenue was derived from collection services. Within the collection line of business, 33.2% of our revenue is from services provided to municipal and residential customers, 39.2% is from services provided to commercial customers, and 27.6% is from services provided to industrial and other customers.

Our residential collection operations involve the curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Residential solid waste collection services are typically performed under contracts with municipalities, which we generally secure by competitive bid and which give our company exclusive rights to service all or a portion of the homes in their respective jurisdictions. These contracts or franchises usually range in duration from one to five years, although some of our exclusive franchises are for significantly longer periods. Residential solid waste collection services may also be performed on a subscription basis, in which individual households contract directly with our company. The fees received for subscription residential collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and cost of disposal. In general, subscription residential collection fees are paid quarterly in advance by the residential customers receiving the service.

In our commercial and industrial collection operations, we supply our customers with waste containers of varying sizes. We also rent compactors to large waste generators. Commercial collection services are generally performed under one- to three-year service agreements, and fees are determined by considerations such as the following:


• market factors,

• collection frequency,

• type of equipment furnished,

• the type and volume or weight of the waste collected,

• the distance to the disposal facility, and

• the cost of disposal.

We rent waste containers to construction sites and also provide waste collection services to industrial and construction facilities on a contractual basis with terms ranging from a single pickup to one year or longer. Our construction services are provided to the commercial construction and home building sectors. We collect the containers or compacted waste and transport the waste either to a landfill or a transfer station for disposal.

Also, we provide recycling services in certain markets in compliance with local laws or the terms of our franchise agreements. These services include the curbside collection of residential recyclable waste and the provision of a variety of recycling services to commercial and industrial customers.

Transfer and Disposal Services. We own or operate 94 transfer stations. We deposit waste at these transfer stations, as do other private haulers and municipal haulers, for compaction and transfer to trailers for transport to disposal sites or recycling facilities. As of December 31, 2007, we owned or operated 58 landfills, which had 9,707 permitted acres and total available permitted and probable expansion disposal capacity of approximately 1.7 billion in-place cubic yards. The in-place capacity of our landfills is subject to change based on engineering factors, requirements of regulatory authorities, our ability to continue to operate our landfills in compliance with applicable regulations, and our ability to successfully renew operating permits and obtain expansion permits at our sites. Some of our landfills accept non-hazardous special waste, including utility ash, asbestos and contaminated soils. See Item 2., “Properties.”

Most of our existing landfill sites have the potential for expanded disposal capacity beyond the currently permitted acreage. We monitor the availability of permitted disposal capacity at each of our landfills and evaluate whether to pursue expansion at a given landfill based on estimated future waste volumes and prices, market needs, remaining capacity and likelihood of obtaining an expansion. To satisfy future disposal demand, we are currently seeking to expand permitted capacity at certain of our landfills. However, no assurances can be made that all proposed or future expansions will be permitted as designed.

Recycling Facilities and Other Services. We have 33 materials recovery facilities and other recycling operations. These facilities sort recyclable paper, aluminum, glass and other materials. Most of these recyclable materials are internally collected by our residential collection operations. In some areas, we receive commercial and industrial solid waste that is sorted at our facilities into recyclable materials and non-recyclable waste. The recyclable materials are salvaged, repackaged and sold to third parties and the non-recyclable waste is disposed of at landfills or incinerators.

We provided remediation and other heavy construction services primarily through our subsidiary located in Missouri. We sold this subsidiary during the fourth quarter of 2005 because it did not complement our core business strategy.

Our Texas-based compost, mulch and soil business at which yard, mill and other waste was processed, packaged and sold as various products was sold during the fourth quarter of 2007 because it did not complement our core business strategy.

Sales and Marketing

We seek to provide quality services that will enable our company to maintain high levels of customer satisfaction. We derive our business from a broad customer base, which we believe will enable our company to experience stable growth. We focus our marketing efforts on continuing and expanding business with existing customers, as well as attracting new customers.

We employ approximately 500 sales and marketing employees. Our sales and marketing strategy is to provide high-quality, comprehensive solid waste collection, recycling, transfer and disposal services to our customers at competitive prices. We target potential customers of all sizes, from small quantity generators to large “Fortune 500” companies and municipalities.

Most of our marketing activity is local in nature. However, we also provide a corporate accounts program in response to the needs of some of our customers.

We generally do not change the tradenames of the local businesses we acquire, and therefore we do not operate nationally under any one mark or tradename. Rather, we often rely on the goodwill associated with the acquired companies’ local tradenames as used in each geographic market in which we operate.

Customers

We provide services to commercial, industrial, municipal and residential customers. No one customer has individually accounted for more than 10% of our consolidated revenue or of our reportable segment revenue in any of the last three years.

Competition

We operate in a highly competitive industry. Entry into our business and the ability to operate profitably in the industry requires substantial amounts of capital and managerial experience.

Competition in the non-hazardous solid waste industry comes from a few large, national publicly owned companies, including Waste Management, Inc. and Allied Waste Industries, Inc., several regional publicly and privately owned solid waste companies, and thousands of small privately owned companies. Some of our competitors have significantly larger operations and may have significantly greater financial resources than we do. In addition to national and regional firms and numerous local companies, we compete with municipalities that maintain waste collection or disposal operations. These municipalities may have financial advantages due to the availability of tax revenue and tax-exempt financing.

We compete for collection accounts primarily on the basis of price and the quality of our services. From time to time, our competitors may reduce the price of their services in an effort to expand market share or to win a competitively bid municipal contract. Our ability to increase prices in certain markets may be impacted by the pricing policies of our competitors. This may have an impact on our future revenue and profitability.

In each market in which we own or operate a landfill, we compete for landfill business on the basis of disposal costs, geographic location and quality of operations. Our ability to obtain landfill business may be limited by the fact that some major collection companies also own or operate landfills to which they send their waste. There also has been an increasing trend at the state and local levels to mandate waste reduction at the source and to prohibit the disposal of certain types of waste, such as yard waste, at landfills. This may result in the volume of waste going to landfills being reduced in certain areas, which may affect our ability to operate our landfills at their full capacity or affect the prices that we can charge for landfill disposal services. In addition, most of the states in which we operate landfills have adopted plans or requirements that set goals for specified percentages of certain solid waste items to be recycled.

Seasonality and Severe Weather

Our operations can be adversely affected by periods of inclement or severe weather which could increase the volume of waste collected under our existing contracts (without corresponding compensation), delay the collection and disposal of waste, reduce the volume of waste delivered to our disposal sites, or delay the construction or expansion of our landfill sites and other facilities.

Regulation

Our facilities and operations are subject to a variety of federal, state and local requirements that regulate the environment, public health, safety, zoning and land use. Operating and other permits, licenses and other approvals are generally required for landfills and transfer stations, certain solid waste collection vehicles, fuel storage tanks and other facilities that we own or operate, and these permits are subject to revocation, modification and renewal in certain circumstances. Federal, state and local laws and regulations vary, but generally govern wastewater or stormwater discharges, air emissions, the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous waste, and the remediation of contamination associated with the release or threatened release of hazardous substances. These laws and regulations provide governmental authorities with strict powers of enforcement, which include the ability to revoke or decline to renew any of our operating permits, obtain injunctions, or impose fines or penalties in the case of violations, including criminal penalties. The U.S. Environmental Protection Agency and various other federal, state and local environmental, public and occupational health and safety agencies and authorities administer these regulations, including the Occupational Safety and Health Administration of the U.S. Department of Labor.

We strive to conduct our operations in compliance with applicable laws and regulations. However, in the existing climate of heightened environmental concerns, from time to time, we have been issued citations or notices from governmental authorities that have resulted in the need to expend funds for remedial work and related activities at various landfills and other facilities. There is no assurance that citations and notices will not be issued in the future despite our regulatory compliance efforts. We have established final capping, closure, post-closure and remediation liabilities that we believe, based on currently available information, will be adequate to cover our current estimates of regulatory costs. However, we cannot assure you that actual costs will not exceed our reserves.

Federal Regulation. The following summarizes the primary environmental, public and occupational health and safety-related statutes of the United States that affect our facilities and operations:

(1) The Solid Waste Disposal Act, as amended, including the Resource Conservation and Recovery Act. RCRA and its implementing regulations establish a framework for regulating the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous solid waste, and require states to develop programs to ensure the safe disposal of solid waste in sanitary landfills.

Subtitle D of RCRA establishes a framework for regulating the disposal of municipal solid waste. Regulations under Subtitle D currently include minimum comprehensive solid waste management criteria and guidelines, including location restrictions, facility design and operating criteria, final capping, closure and post-closure requirements, financial assurance standards, groundwater monitoring requirements and corrective action standards, many of which had not commonly been in effect or enforced in the past in connection with municipal solid waste landfills. Each state was required to submit to the U.S. EPA a permit program designed to implement Subtitle D regulations by April 9, 1993. All of the states in which we operate have implemented permit programs pursuant to RCRA and Subtitle D. These state permit programs may include landfill requirements which are more stringent than those of Subtitle D. Our failure to comply with the environmental requirements of federal, state and local authorities at any of our locations may lead to temporary or permanent loss of an operating permit.

All of our planned landfill expansions and new landfill development projects have been engineered to meet or exceed Subtitle D requirements. Operating and design criteria for existing operations have been modified to comply with these regulations. Compliance with Subtitle D regulations has resulted in increased costs and may in the future require substantial additional expenditures in addition to other costs normally associated with our waste management activities.

(2) The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. CERCLA, among other things, provides for the cleanup of sites from which there is a release or threatened release of a hazardous substance into the environment. CERCLA may impose strict joint and several liability for the costs of cleanup and for damages to natural resources upon current owners and operators of a site, parties who were owners or operators of a site at the time the hazardous substances were disposed of, parties who transported the hazardous substances to a site and parties who arranged for the disposal of the hazardous substances at a site. Under the authority of CERCLA and its implementing regulations, detailed requirements apply to the manner and degree of investigation and remediation of facilities and sites where hazardous substances have been or are threatened to be released into the environment. Liability under CERCLA is not dependent on the existence or disposal of only “hazardous wastes” but can also be based upon the existence of small quantities of more than 700 “substances” characterized by the U.S. EPA as “hazardous,” many of which may be found in common household waste.

Among other things, CERCLA authorizes the federal government to investigate and remediate sites at which hazardous substances have been or are threatened to be released into the environment or to order (or offer an opportunity to) persons potentially liable for the cleanup of the hazardous substances to do so. In addition, the U.S. EPA has established a National Priorities List of sites at which hazardous substances have been or are threatened to be released and which require investigation or cleanup.

Liability under CERCLA is not dependent on the intentional disposal of hazardous waste. It can be founded upon the release or threatened release, even as a result of unintentional, non-negligent or lawful action, of thousands of hazardous substances, including very small quantities of such substances. Thus, even if our landfills have never knowingly received hazardous waste as such, it is possible that one or more hazardous substances may have been deposited or “released” at our landfills or at other properties which we currently own or operate or may have owned or operated. Therefore, we could be liable under CERCLA for the cost of cleaning up such hazardous substances at such sites and for damages to natural resources, even if those substances were deposited at our facilities before we acquired or operated them. The costs of a CERCLA cleanup can be very expensive. Given the difficulty of obtaining insurance for environmental impairment liability, such liability could have a material impact on our business, financial condition or results of operations.

(3) The Federal Water Pollution Control Act of 1972, as amended. This Act regulates the discharge of pollutants from a variety of sources, including solid waste disposal sites, into streams, rivers and other waters of the United States. Point source runoff from our landfills and transfer stations that is discharged into surface waters must be covered by discharge permits that generally require us to conduct sampling and monitoring, and, under certain circumstances, reduce the quantity of pollutants in those discharges. Storm water discharge regulations under this Act require a permit for certain construction activities and discharges from industrial operations and facilities, which may affect our operations. If a landfill or transfer station discharges wastewater through a sewage system to a publicly owned treatment works, the facility must comply with discharge limits imposed by that treatment works. In addition, states may adopt groundwater protection programs under this Act or the Safe Drinking Water Act that could affect solid waste landfills. Furthermore, development which alters or affects wetlands must generally be permitted prior to such development commencing, and certain mitigation requirements may be required by the permitting agencies.

(4) The Clean Air Act, as amended. The Clean Air Act imposes limitations on emissions from various sources, including landfills. In March 1996, the U.S. EPA promulgated regulations that require large municipal solid waste landfills to install landfill gas monitoring systems. These regulations apply to landfills that commenced construction, reconstruction or modification on or after May 30, 1991, and, principally, to landfills that can accommodate 2.5 million cubic meters or more of municipal solid waste. The regulations apply whether the landfill is active or closed. The date by which each affected landfill is required to have a gas collection and control system installed and made operational varies depending on calculated emission rates at the landfill. Many state regulatory agencies also currently require monitoring systems for the collection and control of certain landfill gas.

(5) The Occupational Safety and Health Act of 1970, as amended. This Act authorizes the Occupational Safety and Health Administration of the U.S. Department of Labor to promulgate occupational safety and health standards. A number of these standards, including standards for notices of hazardous chemicals and the handling of asbestos, apply to our facilities and operations.

State Regulation. Each state in which we operate has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. States also have adopted regulations governing the design, operation, maintenance and closure of landfills and transfer stations. Our facilities and operations are likely to be subject to these types of requirements. In addition, our solid waste collection and landfill operations may be affected by the trend in many states toward requiring the development of solid waste reduction and recycling programs. For example, several states have enacted laws that require counties or municipalities to adopt comprehensive plans to reduce, through solid waste planning, composting, recycling or other programs, the volume of solid waste deposited in landfills. Additionally, laws and regulations restricting the disposal of certain waste in solid waste landfills, including yard waste, newspapers, beverage containers, unshredded tires, lead-acid batteries and household appliances, have been promulgated in several states and are being considered in others. Legislative and regulatory measures to mandate or encourage waste reduction at the source and waste recycling also are or have been under consideration by the U.S. Congress and the U.S. EPA, respectively.

In order to construct, expand and operate a landfill, one or more construction or operating permits, as well as zoning and land use approvals, must be obtained. These permits and approvals may be difficult and time-consuming to obtain and to operate in compliance with, are often opposed by neighboring landowners and citizens’ groups, may be subject to periodic renewal, and are subject to modification, non-renewal and revocation by the issuing agency. In connection with our acquisition of existing landfills, it may be and on occasion has been necessary for our company to expend considerable time, effort and money to bring the acquired facilities into compliance with applicable requirements and to obtain the permits and approvals necessary to increase their capacity.

Many of our facilities own and operate underground storage tanks which are generally used to store petroleum-based products. These tanks are generally subject to federal, state and local laws and regulations that mandate their periodic testing, upgrading, closure and removal, and that, in the event of leaks, require that polluted groundwater and soils be remediated. We believe that all of our underground storage tanks currently meet all applicable regulations. If underground storage tanks we own or operate leak, and the leakage migrates onto the property of others, we could be liable for response costs and other damages to third parties. We are unaware of facts indicating that issues of compliance with regulations related to underground storage tanks will have a material adverse effect on our financial condition, results of operations or cash flows.

CEO BACKGROUND

Michael J. Cordesman, age 60, was named President and Chief Operating Officer in February 2003. From March 2002 until February 2003, he served as our Vice President and Chief Operating Officer. Mr. Cordesman served as our Eastern Region Vice President from June 2001 until February 2003. From 1999 to 2001, Mr. Cordesman served as Vice President of the Central Region for Superior Services, Inc. From 1980 until 1999, Mr. Cordesman served in various positions with Waste Management, Inc. including Vice President of the Mid-Atlantic Region from 1992 until 1999.

Tod C. Holmes, age 59, was named Senior Vice President and Chief Financial Officer in August 1998. Mr. Holmes served as our Vice President — Finance from June 1998 until August 1998 and as Vice President of Finance of our former parent company’s Solid Waste Group from January 1998 until June 1998. From 1987 to 1998, Mr. Holmes served in various positions with Browning-Ferris Industries, Inc., including Vice President, Investor Relations from 1996 to 1998, Divisional Vice President, Collection Operations from 1995 to 1996, Divisional Vice President and Regional Controller — Northern Region from 1993 to 1995, and Divisional Vice President and Assistant Corporate Controller from 1991 to 1993.

David A. Barclay, age 45, was named Senior Vice President, General Counsel and Assistant Secretary in August 1998. Mr. Barclay served as Senior Vice President and General Counsel of our former parent company’s Solid Waste Group from March 1998 until July 1998. From January 1997 to February 1998, Mr. Barclay was Vice President and Associate General Counsel of our former parent company.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview of Our Business

We are a leading provider of non-hazardous solid waste collection and disposal services in the United States. We provide solid waste collection services for commercial, industrial, municipal and residential customers through 136 collection companies in 21 states. We also own or operate 94 transfer stations, 58 solid waste landfills and 33 recycling facilities.

We generate revenue primarily from our solid waste collection operations. Our remaining revenue is from other services including landfill disposal, recycling, compost, mulch and soil operations.

Our revenue from collection operations consists of fees we receive from commercial, industrial, municipal and residential customers. Our residential and commercial collection operations in some markets are based on long-term contracts with municipalities. We generally provide industrial and commercial collection services to individual customers under contracts with terms up to three years. Our revenue from landfill operations is from disposal or tipping fees charged to third parties. In general, we integrate our recycling operations with our collection operations and obtain revenue from the sale of recyclable materials. No one customer has individually accounted for more than 10% of our consolidated revenue or of our reportable segment revenue in any of the last three years.

The cost of our collection operations is primarily variable and includes disposal, labor, self-insurance, fuel and equipment maintenance costs. It also includes capital costs for equipment and facilities. We seek operating efficiencies by controlling the movement of waste from the point of collection through disposal. During the three months ended December 31, 2007 and 2006, approximately 58% and 56%, respectively, of the total volume of waste we collected was disposed of at landfills we own or operate.

Our landfill costs include daily operating expenses, costs of capital for cell development, costs for final capping, closure and post-closure, and the legal and administrative costs of ongoing environmental compliance. Daily operating expenses include leachate treatment and disposal, methane gas and groundwater monitoring and system maintenance, interim cap maintenance, and costs associated with the application of daily cover materials. We expense all indirect landfill development costs as they are incurred. We use life cycle accounting and the units-of-consumption method to recognize certain direct landfill costs related to cell development. In life cycle accounting, certain direct costs are capitalized, and charged to expense based on the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a site including excavation, natural and synthetic liners, construction of leachate collection systems, installation of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other costs associated with the acquisition and development of the site. Obligations associated with final capping, closure and post-closure are capitalized, and amortized on a units-of-consumption basis as airspace is consumed.

Cost and airspace estimates are developed at least annually by engineers. These estimates are used by our operating and accounting personnel to adjust our rates used to expense capitalized costs. Changes in these estimates primarily relate to changes in costs, available airspace, inflation and applicable regulations. Changes in available airspace include changes in engineering estimates, changes in design and changes due to the addition of airspace lying in expansion areas that we believe have a probable likelihood of being permitted.

Our operations are managed and reviewed through five regions that we designate as our reportable segments. From 2005 to 2007, revenue increased in all of our regions due to the successful execution of our pricing strategy.

2007 compared to 2006:


• Revenue in our Eastern Region increased during 2007 compared to 2006 due to price increases in all lines of business and an increase in the price of commodities. This increase in revenue was partially offset by lower volumes in the industrial collection line of business primarily due to less temporary work, and lower landfill volumes. These lower volumes resulted from less favorable weather conditions and a general slowdown in residential construction during 2007.

Operating margins in the Eastern Region decreased from 16.2% to 11.5% primarily because of a $44.6 million charge to operating expenses and a $1.5 million charge to selling, general and administrative expenses associated with environmental conditions at our Countywide Recycling and Disposal Facility in East Sparta, Ohio. Excluding these expenses, operating margins increased from 16.2% in 2006 to 19.4% in 2007, primarily due to higher revenue, lower disposal costs, and lower truck and equipment maintenance costs.


• Revenue in our Central Region increased during 2007 compared to 2006 due to price increases in all lines of business and an increase in the price of commodities. This increase in revenue was partially offset by lower volumes in the commercial collection, industrial collection and landfill lines of business. Lower volumes in the collection lines of business are primarily due to less favorable weather conditions during 2007 and a general slowdown in economic conditions. Lower landfill volumes are primarily due to our decision to limit our acceptance of certain waste streams.

Operating margins in our Central Region increased due to higher revenue, lower disposal costs and adjustments to landfill amortization expense associated with SFAS 143. This increase in operating margins was partially offset by increases in risk insurance and landfill operating costs.


• In our Southern Region, price increases in all lines of business, increases in the price of commodities, and increases in commercial collection, residential collection and landfill volumes resulted in an increase in revenue during 2007 compared to 2006. This increase in revenue was partially offset by lower industrial collection volumes. These lower volumes are primarily due to a general slowdown in residential construction in 2007, and hurricane-related work that was performed during 2006.

Operating margins in our Southern Region increased primarily due to higher revenue, lower disposal costs due to drier weather, lower truck and equipment maintenance costs, and lower labor costs.


• Our Southwestern Region benefited from price increases in all lines of business and volume increases in the commercial collection, industrial collection and landfill lines of business. This increase in revenue was partially offset by a decrease in residential collection volumes. This decrease in residential collection volumes is primarily due to the city of Houston assuming responsibility for collecting municipal solid waste.

The increase in operating margins in our Southwestern Region is primarily due to higher revenue and lower selling, general and administrative costs. This increase in operating margins was partially offset by higher disposal and truck maintenance costs.


• In our Western Region, price increases in all lines of business, volume increases in the residential collection line of business and an increase in commodity prices resulted in an increase in revenue during 2007 compared to 2006. This increase in revenue was partially offset by a decrease in industrial collection and landfill volumes resulting from a general slowdown in residential construction in 2007.

Operating margins in our Western Region decreased because of an $8.1 million increase in landfill operating costs and a $5.2 million increase in SFAS 143 amortization expense associated with environmental conditions at our closed disposal facility in Contra Costa County, California. Excluding these expenses, operating margins increased from 23.3% in 2006 to 24.0% in 2007, primarily due to higher revenue and an increase in the price of commodities.

• The decrease in operating costs for Corporate Entities from 2006 to 2007 is due to a $4.3 million reduction to our allowance for doubtful accounts recorded during 2007 as a result of refining our estimate of our allowance based on our historical collection experience, which was partially offset by increases in operating costs associated with the expansion of our business.

2006 compared to 2005 :


• Revenue in our Eastern Region increased during 2006 compared to 2005 due to price increases in our collection and landfill lines of business and due to increased volumes in our industrial collection and landfill businesses. This increase in revenue was partially offset by decreased volume in our commercial and residential collection businesses and by the sale of our operations in western New York during the three months ended March 31, 2005. Operating margins decreased from 2005 to 2006 due to higher landfill operating and fuel costs partially offset by higher revenue.

• In our Central Region, revenue increased during 2006 compared to 2005 due to price increases in our collection and landfill lines of business and volume growth in our landfill line of business arising from favorable economic conditions. Operating margins decreased primarily due to increased third-party hauling costs associated with our company assuming responsibility for hauling waste from the city of Toronto to one of our landfills in Michigan. This increase in costs was partially offset by adjustments to landfill amortization expense associated with SFAS 143.

• Our operations in the Southern Region experienced the greatest margin improvement of all of our segments because of price increases and volume growth in our collection and landfill lines of business. Operating margins increased because of an increase in revenue arising from favorable economic conditions, partially offset by higher fuel costs and adjustments to landfill amortization expense associated with SFAS 143. Operating margins also improved during 2006 because of higher costs incurred during the fourth quarter of 2005 related to hurricane clean-up.

• In our Southwestern Region, revenue increased due to price increases and volume growth in our collection and landfill lines of business, partially offset by the sale of our remediation and heavy construction services business during the fourth quarter of 2005. The increase in operating margins from 2005 to 2006 is attributable to an increase in revenue arising from improving economic conditions, partially offset by higher fuel costs and adjustments to landfill amortization expense associated with SFAS 143.

• In our Western Region, revenue increased due to price increases and volume growth in our collection and landfill lines of business. Operating margins decreased from 2005 to 2006 because of higher fuel, labor and insurance costs, partially offset by an increase in revenue during 2006 and adjustments for landfill amortization expense associated with SFAS 143.

• The increase in operating costs for Corporate Entities from 2005 to 2006 is due to the expansion of our business, incremental costs associated with our adoption of SFAS 123(R), additional costs associated with our 401(k) plan resulting from an increase in the employer’s matching contribution percentage and an increase in other incentive compensation.

2007 Financial Objectives

In February 2007, we publicly announced our objectives for the year. These objectives included the following:


• Generating free cash flow (a non-GAAP measure) in excess of 100% of net income, or approximately $315 million. In July 2007, we increased our range of anticipated free cash flow to approximately $320 to $325 million.

• Using our free cash flow to repurchase our common stock under our existing $250.0 million share repurchase program and to continue to pay quarterly cash dividends.

• Generating diluted earnings per share of $1.50 to $1.52. We updated our earnings per share guidance in July 2007 to a new range of $1.59 to $1.62 per diluted share and in October 2007 to a new range of $1.65 to $1.66 per diluted share (excluding the $54.9 million of charges, or $.18 per diluted share, we recorded in 2007 related to our Countywide and Contra Costa County facilities).


• Growing revenue from core operations by approximately 4.0% to 4.5%, with approximately 3.0% to 3.5% attributable to price increases and 1% attributable to volume growth. In July 2007, we updated our core revenue growth guidance to approximately 3.0%, with approximately 4.5% attributable to price growth (excluding commodities), while volume was expected to decline approximately 1.5%.

• Purchasing approximately $310 million of property and equipment, net of sales of property and equipment. In July 2007, we reduced this to $295 million.

2007 Business Performance

During 2007, we met or exceeded our financial objectives.

During 2007, we generated free cash flow of $374.9 million (consisting of cash provided by operating activities of $661.3 million, less purchases of property and equipment of $292.5 million, plus proceeds from sales of property and equipment of $6.1 million).

In July 2007, our board of directors authorized the repurchase of an additional $250.0 million of our company stock. During 2007, we used our free cash flow to repurchase 11.1 million shares of our common stock, or 5.7% of our outstanding shares, for $362.8 million. Also, during the third quarter of 2007, our board of directors increased our quarterly dividend to $.17 per share.

During 2007, we generated diluted earnings per share of $1.51. Excluding pre-tax charges of $54.9 million ($33.8 million, or $0.18 per diluted share, net of tax) related to our Countywide and Contra Costa County facilities and a pre-tax gain of $12.5 million ($5.0 million, or $0.03 per diluted share, net of tax) related to the sale of our compost, mulch and soil business in Texas, our diluted earnings per share would have been $1.66.

Our internal growth from core operations for 2007, excluding commodities, divestitures, taxes and non-core operations, was 3.1%, with 4.6% from price increases offset by a 1.5% decline in volume. During 2007, our revenue growth from core pricing continued to benefit from a broad-based pricing initiative which we started during the fourth quarter of 2003. The broad-based price increases we secured offset various escalating capital and operating costs, including fuel costs. During 2007, we experienced lower industrial collection and landfill volumes primarily resulting from the slowdown in residential construction.

Excluding the $54.9 million of charges we recorded during 2007 related to our Countywide and Contra Costa County facilities, our operating margins increased by 1.7% from 16.9% in 2006 to 18.6% in 2007. During 2007, improved pricing and continued focus on productivity improvements offset higher fuel and insurance costs.

2008 Financial Objectives

Our financial objectives for 2008 assume no deterioration or improvement in the overall economy from that experienced during the fourth quarter of 2007. Specific guidance is as follows:


• We expect to generate free cash flow in excess of net income, or approximately $340 to $350 million.

• We anticipate using our free cash flow to continue to repurchase shares of our common stock under our existing $250 million share repurchase program and a new $250.0 million repurchase program authorized by our board of directors in January 2008. We also anticipate using our free cash flow to continue to pay quarterly cash dividends.

• We anticipate diluted earnings of $1.78 to $1.82 per share.

• We anticipate operating margins of approximately 19.0%.

• We are targeting internal growth from core operations to be approximately 2.0% to 3.5%, with approximately 3.5% to 4.0% attributable to core price increases, while the change in volume is expected to be down .5% to 1.5%.

• We anticipate purchasing approximately $325 million of property and equipment, net of sales of property and equipment.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview of Our Business
We are a leading provider of non-hazardous solid waste collection and disposal services in the United States. We provide solid waste collection services for commercial, industrial, municipal and residential customers through 136 collection companies in 21 states. We also own or operate 93 transfer stations, 58 solid waste landfills and 33 recycling facilities.
We generate revenue primarily from our solid waste collection operations. Our remaining revenue is from other services including landfill disposal and recycling.

Our revenue from collection operations consists of fees we receive from commercial, industrial, municipal and residential customers. Our residential and commercial collection operations in some markets are based on long-term contracts with municipalities. We generally provide industrial and commercial collection services to individual customers under contracts with terms up to three years. Our revenue from landfill operations is from disposal or tipping fees charged to third parties. In general, we integrate our recycling operations with our collection operations and obtain revenue from the sale of recyclable materials. No one customer has individually accounted for more than 10% of our consolidated revenue or of our reportable segment revenue in any of the periods presented.
The cost of our collection operations is primarily variable and includes disposal, labor, self-insurance, fuel and equipment maintenance costs. It also includes capital costs for equipment and facilities. We seek operating efficiencies by controlling the movement of waste from the point of collection through disposal. During the six months ended June 30, 2008 and 2007, approximately 59% and 58%, respectively, of the total volume of waste we collected was disposed of at landfills we own or operate.
Our landfill costs include daily operating expenses, costs of capital for cell development, costs for final capping, closure and post-closure, and the legal and administrative costs of ongoing environmental compliance. Daily operating expenses include leachate treatment and disposal, methane gas and groundwater monitoring and system maintenance, interim cap maintenance, and costs associated with the application of daily cover materials. We expense all indirect landfill development costs as they are incurred. We use life cycle accounting and the units-of-consumption method to recognize certain direct landfill costs related to cell development. In life cycle accounting, certain direct costs are capitalized, and charged to expense based on the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a site including excavation, natural and synthetic liners, construction of leachate collection systems, installation of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other costs associated with the acquisition and development of the site. Obligations associated with final capping, closure and post-closure are capitalized and amortized on a units-of-consumption basis as airspace is consumed. Cost and airspace estimates are developed at least annually by engineers. These estimates are used by our operating and accounting personnel to adjust our rates used to expense capitalized costs. Changes in these estimates primarily relate to changes in costs, timing of payments, available airspace, inflation and applicable regulations. Changes in available airspace include changes in engineering estimates, changes in design and changes due to the addition of airspace lying in expansion areas that we believe have a probable likelihood of being permitted.
If there is a significant change in the facts and circumstances related to a landfill during the year, we will review our calculations for the landfill as soon as practical after the significant change has occurred. During the six months ended June 30, 2007, we reviewed our landfill retirement obligations for certain of our landfills and recorded an increase of $5.0 million in amortization expense. We conduct our annual reviews of our landfill asset retirement obligations during the fourth quarter of each year.

Our operations are managed and reviewed through four regions that we designate as our reportable segments. During the three months ended March 31, 2008, we consolidated our Southwestern operations into our Western Region. The historical operating results of our Southwestern operations have been consolidated into our Western Region to provide financial information that reflects our current approach to managing our operations. Significant changes in the revenue and operating margins of our reportable segments for the six month period ended June 30, 2008 compared to the six month period ended June 30, 2007 are discussed below:
• Revenue in our Eastern Region increased during 2008 compared to 2007 due to price increases in all lines of business and increases in the prices of commodities. This increase in revenue was partially offset by lower volumes in the industrial collection line of business, primarily due to less temporary work, and lower transfer station volumes due to less construction activity. Residential volumes were also slightly lower in our Eastern Region during 2008 compared to 2007.

Operating margins in our Eastern Region decreased to 8.0% in 2008 from 12.0% in 2007. Operating expenses include a charge of $34.0 million recorded during the six months ended June 30, 2008 related to estimated costs to comply with Final Findings and Orders issued by the Ohio Environmental Protection Agency in response to environmental conditions at the Countywide facility. Operating income for the six months ended June 30, 2007 includes a $21.3 million charge to operating expenses, including a $2.1 million increase in landfill amortization expense associated with environmental conditions at Countywide. Excluding these expenses in the respective periods, operating margins increased to 19.7% in 2008 from 19.4% in 2007. This increase in operating margins is primarily due to higher revenue partially offset by an increase in fuel costs.

• Revenue in our Central Region increased during 2008 compared to 2007 due to price increases in all lines of business and an increase in the prices of commodities. This increase in revenue was partially offset by lower industrial collection, transfer station and landfill volumes due to a slowdown in commercial and residential construction.

Operating margins in our Central Region increased due to higher revenue, lower landfill operating costs, lower labor costs and lower depreciation, amortization, depletion and accretion costs. These reductions in costs were partially offset by higher fuel costs.

• In our Southern Region, price increases in all lines of business and an increase in residential collection volumes resulted in an increase in revenue during 2008 compared to 2007. This increase in revenue was partially offset by lower industrial collection, transfer station and landfill volumes, primarily due to a general economic slowdown.

Operating margins in our Southern Region decreased slightly due to higher fuel costs partially offset by higher revenue, lower disposal costs and lower insurance costs.

• Excluding a decrease in revenue due to the sale of our Texas-based compost, mulch and soil business in November 2007 in our Western Region, price increases in all lines of business, volume increases in our commercial collection line of business and an increase in the prices of commodities resulted in an increase in revenue during 2008 compared to 2007. This increase in revenue was partially offset by a decrease in industrial collection, residential collection, transfer station and landfill volumes resulting from a general economic slowdown.

Operating margins in our Western Region decreased to 16.5% in 2008 from 22.0% in 2007. Operating expenses include a charge of $34.0 million recorded during the six months ended June 30, 2008 related to estimated remediation costs to comply with a Consent Decree and Settlement Agreement signed with the U.S. EPA, the Bureau of Land Management and Clark County, Nevada related to the Sunrise Landfill. Excluding this charge, operating margins increased to 22.6% in 2008. This increase is due primarily to an adjustment to landfill amortization expense associated with SFAS 143 recorded during 2007. This increase is also partially due to lower costs of goods sold due to the sale of our Texas-based compost, mulch and soil business, lower landfill operating costs, and lower insurance costs during 2008. This reduction in costs was partially offset by an increase in fuel costs.
Business Combinations
We make decisions to acquire or invest in businesses based on financial and strategic considerations. Businesses acquired are accounted for under the acquisition method of accounting and are included in our Unaudited Condensed Consolidated Financial Statements from the date of acquisition.
We acquired various solid waste businesses, including a transfer station in California, during the six months ended June 30, 2008. The aggregate purchase price we paid in these transactions was $12.2 million in cash.

Proposed Merger with Allied Waste Industries, Inc.: On June 22, 2008, we entered into an Agreement and Plan of Merger with Allied Waste Industries, Inc. The completion of the merger is subject to certain terms and conditions, including, but not limited to, approval of the transaction by our shareholders as well as Allied’s shareholders, regulatory approval from the Department of Justice, and receipt of a credit rating for the combined company classifying its senior unsecured debt as investment grade. The merger agreement also contains other terms and conditions that are customary for a merger of equals transaction. At the effective time of the merger, each share of Allied common stock outstanding will be converted into .45 shares of our common stock. We expect to issue approximately 195.5 million shares of our common stock to Allied shareholders in the transaction. Mr. James E. O’Connor, currently Chairman of the Board of Directors and Chief Executive Officer of our company, and Mr. Tod C. Holmes, currently Chief Financial Officer of our company, will continue in their present positions with the combined company. The transaction is expected to close in the fourth quarter of 2008.
See Note 4, Business Combinations, of the Notes to our Unaudited Condensed Consolidated Financial Statements for further discussion of business combinations.
Consolidated Results of Operations
Our net income was $40.7 million, or $.22 per diluted share, for the three months ended June 30, 2008, as compared to $87.2 million, or $.45 per diluted share, for the three months ended June 30, 2007. Our net income was $116.8 million, or $.63 per diluted share, for the six months ended June 30, 2008, as compared to $141.1 million, or $.72 per diluted share, for the six months ended June 30, 2007.
During the three months ended March 31, 2007, we recorded a pre-tax charge of $22.0 million ($13.5 million, or $.07 per diluted share, net of tax) related to estimated costs we believed would be required to comply with Final Findings and Orders issued by the Ohio Environmental Protection Agency in response to environmental conditions at the Countywide Recycling and Disposal Facility in East Sparta, Ohio. We have complied with and will continue to comply with the F&Os. However, even though indications existed that the reaction had begun to subside, we nevertheless agreed with the OEPA to take certain additional remedial actions at Countywide. Consequently, during the three months ended September 30, 2007, we recorded an additional pre-tax charge of $23.3 million ($14.4 million, or $.08 per diluted share, net of tax).
During the three months ended June 30, 2008, we received additional orders from the OEPA. We also entered into an Agreed Order on Consent with the U.S. EPA requiring the reimbursement of costs incurred by the U.S. EPA and requiring us to take additional remedial actions. The AOC became effective on April 17, 2008 and we are complying with the terms of the AOC. Based upon current information and engineering analyses and discussions with the OEPA and U.S. EPA subsequent to the signing of the above-mentioned agreement, we recorded an additional pre-tax charge of $34.0 million ($21.8 million, or $.12 per diluted share, net of tax) during the three months ended June 30, 2008. While we are vigorously pursuing financial contributions from third parties for our costs to comply with the F&Os and the additional remedial actions, we have not recorded any receivables for potential recoveries.
Also during the three months ended June 30, 2008, we recorded a pre-tax charge of $35.0 million ($22.0 million, or $.12 per diluted share, net of tax) related to estimated costs to comply with a Consent Decree and Settlement Agreement with the U.S. EPA, the Bureau of Land Management and Clark County, Nevada related to the Sunrise Landfill.

During the three months ended March 31, 2007, we recorded a charge of $4.2 million, or approximately $.02 per diluted share, in our provision for income taxes related to the resolution of various income tax matters. During the three months ended June 30, 2007, we recorded a benefit of $5.0 million, or approximately $.03 per diluted share, in our provision for income taxes related to the resolution of various tax matters, which effectively closed the Internal Revenue Service’s audits of our consolidated tax returns for fiscal years 2001 through 2004.

During the six months ended June 30, 2008, our revenue growth from core pricing continued to benefit from a broad-based pricing initiative which we started during the fourth quarter of 2003. We anticipate that we will continue to realize this benefit throughout 2008. During the six months ended June 30, 2008, we experienced negative core volume growth due primarily to less temporary construction work.
Cost of Operations. Cost of operations was $577.5 million and $1,054.0 million for the three and six months ended June 30, 2008, versus $497.9 million and $986.3 million for the comparable 2007 periods. Cost of operations as a percentage of revenue was 69.8% and 65.6% for the three and six months ended June 30, 2008, versus 61.6% and 62.7% for the comparable 2007 periods. The increase in cost of operations in aggregate dollars and as a percentage of revenue for the three and six months ended June 30, 2008 versus the comparable 2007 periods is primarily a result of the $34.0 million charge we recorded during the six months ended June 30, 2008 for remediation costs related to Sunrise Landfill and the $32.1 million and $18.0 million of charges we recorded during the six months ended June 30, 2008 and 2007, respectively, related to estimated costs to comply with Final Findings and Orders issued by the Ohio and U.S. Environmental Protection Agencies in response to environmental conditions at the Countywide facility.

CONF CALL

James O'Connor - Chairman and Chief Executive Officer

Good morning, and thank you all for joining us. This is Jim O'Connor and I would like to welcome everyone to Republic Services second quarter conference call. Tod Holmes, our Chief Financial Officer and Ed Lang, our Treasurer are joining me as we discuss our second quarter performance.

I would like to take a moment to remind everyone that some of the information that we discuss on today's call contains forward-looking statements, which involves risks and uncertainties, and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.

Additionally, the material that we discuss today is time-sensitive. If in the future, you listen to a rebroadcast or recording of the conference call, you should be sensitive to the date of the original call, which is July 25, 2008. Please note that this call is the property of Republic Services Incorporated. Any redistribution, retransmission, or rebroadcast of this call, in any form without the express written consent of Republic Services is strictly prohibited.

Yesterday, Waste Management filed an 8-K regarding their intent to acquire Republic Services. As we stated in our response, we believe our merger with Allied Waste is in the best interest of our stockholders because it creates significant value generating opportunities. I will have no further comment regarding Waste Management's proposal, including in the Q&A portion of this call.

During the second quarter, we continue to deliver on our pricing initiative, which has offset significantly higher fuel costs. We believe current pricing environment is sustainable across all lines of business. Key results in the quarter, Republic had revenue growth of 2.4%, to $828 million. We achieved internal growth of 3.9%, with 7% of price improvement and volume decline of 3.1%.

Our second quarter volume decline was affected by the slow down in residential housing construction activity. C&D volumes in our temporary roll-off business and third party C& D volumes at our transfer stations and landfills continue to be weak.

Price growth continues to be strong. Core prices up 4.1%. Pricing is the most important factor for covering rising costs and improving return on investor capital. Within our landfill, our core price was up approximately 3.7% in the quarter. We continue to see sequential improvement in landfill pricing, particularly in our MSW volumes.

The landfill business is capital intensive and requires continued focus on pricing in order to achieve appropriate risk adjusted returns. As landfill and residential contracts renew, we are seeing consistent price increases at high levels of retention and we continue to utilize our return on investment pricing tools, on renewals and franchises, and municipal contracts.

The biggest impact on our volume was in our temporary roll-off business which decreased approximately 16%. The decrease is primarily due to the weakening of the residential construction volumes and is similar to the trend we have experienced during the past three quarter. Additionally, construction related landfill volumes are down 16%.

Despite the net volume reductions, temporary roll-off pricing has remained stable. We continued to adjust our work force and capital spending to reflect lower activity in our temporary roll-off line of business. By making these adjustments we have maintained our labor productivity.

Operating margins, adjusted for the remediation expenses for the second quarter were 18.6. Yield cost increased 220 basis points compared to the second quarter of 2007. We remain focused on all the components of our cost structure to be sure we remain competitive in our market places.

Republic's had a number of significant achievements in the quarter. Our free cash flow, for the second quarter was $82 million. We believe our full year cash flow performance will be at the high end of our guidance of $340 million to $350 million, excluding merger related costs.

During the quarter, we continued to return our cash to our shareholders. In the second quarter, we repurchased approximately 1.3 million shares of stock for $41 million. Republic discontinued the share repurchase program during the second quarter, when it appeared that we would come to an agreement in our merger negotiations with Allied Waste.

Our Board has approved a 12% increase in our quarterly dividend, beginning in October. The new quarterly dividend is $0.19 per share. We've increased our dividend every year, since we initiated the dividend five years ago.

And, at this time, I'd like to turn the call over to Tod Holmes, for a financial review of the second quarter. Tod?

Tod C. Holmes - Senior Vice President and Chief Financial Officer

Thank you, Jim. I'll begin the review of the company's financial results by discussing revenue.

Second quarter 2008 revenue rose by 2.4%, greater than $28 million from $808 million last year. And as Jim indicated internal growth was a positive 3.9%.

Our total price was 7%, with a 4.1% increase from core price, a 1.9% increase from fuel surcharges, a 0.4% increase for environment fees, and a 0.6% increase from commodity improvement.

During the quarter, Republic continues to benefit from its ongoing price increase strategy, and discipline in all lines of the business. Second quarter core volume, declined 3.4%, while the land fill volume was down 5%, and temporary roll off volume was down 16%.

Divestitures and non-core operations accounting for the remaining 1.2% reduction in our revenue, and primarily relate to our divestiture of Levco [ph] business in the fourth quarter of 2007.

Second year... excuse me, second quarter year-over-year operating margins, what we see here year-over-year operating margins decreased by 440 basis points from 18.9% to 14.5%. However, this is due to a unique circumstance. During the second quarter of 2008, we recorded a pre-tax charge of $34 million related to estimated cost complied [ph] with orders issued by the Ohio and U.S. EPAs, and refunds to environmental conditions at out Countywide land fill. Excluding this charge, operating margins for the second quarter were 18.6%.

Peak components of our year-over-year operating margin change are as follows. The charge associated with Countywide, negative 410 basis points. Our truck maintenance improved positive 20 basis points. Higher fuel costs were a negative 220 basis point impact on margin for the quarter. Disposal and subcontracting costs, positive 80 basis points; our labor, positive 60 basis points; land fill operating costs, excluding Countywide positive, 50 basis points; our DD&A, positive 30 basis points; and SG&A, a negative 50 basis points for a total of negative 444 basis points.

Now, let briefly comment on the components of these margin change. First truck maintenance, again, during the second quarter of 2008, the company's continued to focus on preventative maintenance and cost saving initiatives, and improved pricing resulted in a reduction in truck maintenance expense as a percentage of revenue.

Next is fuel, Republic's average wholesale price per gallon increased from $2.69 a gallon in the second quarter of '07, to $4.23 in the second quarter of 2008. And current fuel prices are approximately $4.56 per gallons for Republic.

Third, our disposable and subcontracting costs, again this is our largest cost category for which the impact of improved pricing is clearly visible.

Next and fourth is labor. During the second quarter, we continued to benefit from productivity improvements, which contributed to our margin growth, and it's particularly important to note, in the roll-off construction area, we're able to maintain our productivity, despite the housing slowdown.

Now fifth, land fill and operating costs, lower land fill volumes, and continued focus on cost savings helped reduce land fill operating expense. Sixth, DD&A. The decrease in DD&A as a percentage of revenue is again primarily due to improved pricing.

And finally SG&A; year-over-year SG&A as a percentage of revenue was unchanged at 9.9%, excluding the Countywide charge. We had also a $4 million reduction in our allowance for doubtful accounts, which is a benefit in the second quarter of 2007. And that was a function of the excellent account receivable working capital management that our entire field organization delivers.

Despite a year-to-date 200 basis point increase in fuel expense, we continue to believe that operating margins in fiscal 2008 will be at or slightly higher than those of the prior year, excluding the remediation charge at Countywide and the increase in fuel expense. Year-over-year gross operating profit increased by 220 basis points from 28.4% to 30.6%.

Next I'll discuss our free cash flow. Again as Jim indicated, free cash flow for the second quarter was $82 million. This is based on cash from operating activities of a $164 million, less the purchases of property and equipment, we paid in cash of $84 million plus proceeds from the sale of old equipment of $2 million, for a net of $82 million free cash flow.

For the six months ended June 30 free cash flow was $149 billion... $149 million excuse me. Cash from operation was $311, purchases of property and equipment was $65 million... $165 million and we received $3 million from the proceeds of the sales of equipment. As you are aware, earlier this year Congress passed the Economic Stimulus Act of 2008. This act allows companies to purchase new equipment and deduct an additional 50% of the cost of equipment in the 2008 tax returns.

We believe this will save Republic approximately $25 million of cash during 2008. However, we currently anticipate increasing our current capital expenditures in 2008, to pre-buy 2008 and 2009 trucks, prior to new diesel engine requirements effective January 1, 2010.

Therefore we remain comfortable with our cash flow guidance of $350 million, which is at the high end of our range from our original guidance for cash flows. And again, this guidance excludes merger related costs. And let me talk just briefly about items that impact cash balances. During the second quarter, Jim indicated we repurchased $1.3 million shares for about $41 million or about $30 at may be $0.03 a share.

Republic's actual share count on June 30, 2008 was 181.9 million shares. And as Jim indicated in June, after announcing our agreement to merge with Allied, we suspended the share repurchase program.

Republic's balance sheet remains very strong. At June 30 accounts receivable was $320 million, day sales outstanding was 35 days, which is consistent with the second quarter of last year, despite a weakening economic environment.

Republic's net debt is $1.5 billion, which is up slightly from 1.45 billion at December 31, and our net debt to total capital at June 30 is 54%.

Now, let me turn the call back over to Jim.

James E. O'Connor - Chairman of the Board, Chief Executive Officer

Thank you Tod. Republic's CPS for the second quarter was $0.46 excluding remediation cost, which is 2% improvement versus the second quarter of 2007.

We would like to reiterate our current earnings guidance of the $1.78 to a $1.82 of earnings per share for the full year 2008, excluding remediation costs. We provided 2008 cash flow guidance of $340 million to $350 million and as Tod said we believe that will be at the high end of this guidance, even though we will increase our capital spending for collection vehicles to take advantage of bonus depreciation.

We also expect operating margins to be at or above the full year 2007 results, excluding remediation costs. Again, 2008 business objectives continue to be focused on improving margins by achieving appropriate price increases to offset inflationary costs and business risks, improving our market position, standardizing significant business processes, maximizing efficiency of service delivery and customer service and rationalizing our cost structure.

On June 22nd Republic signed a definite merger agreement with Allied Waste. This agreement was signed after an extensive and cooperative due diligence process, that identified the benefits and the risks associated with this transaction. This thoughtful process, clearly, identified a $150 million in tangible near-term synergies that can be delivered to Republic and Allied shareholders.

Last week, 40 key managers met in Florida to begin the process of developing integration plans, along with extracting synergies of a $150 million. I have instructed our combined teams to complete this process by October first. Our companies have the best management team in the industry, scalable systems and a commitment to meet and exceed expectations.

I'd like to thank the managers from Allied Waste and Republic, who participated in the planning process, and will continue to participate in the planning process for their hard work and commitment.

We have received strong support from this transaction from investors who trust us over the years. Due to its financial discipline, due to our financial discipline, best-in-class information technology, and strong management team, Republic has provided the highest total return to shareholders during the past 10 years of the three largest companies.

I'm committed to bringing the same discipline to Republic Services post merger. Recently, Republic Services celebrated its 10 year anniversary as a publicly traded company. I want to thank all the Republic employees who have contributed to the effort of making Republic the best performing company in the solid waste industry.

With that operator, at this time, I'd like to open the call for questions.

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