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Waste Connections, Inc (NYSE:WCN)

Q4 2008 Earnings Call

February 10, 2009 8:30 am ET

Executives

Ron Mittelstaedt - Chairman and CEO

Worthing Jackman - EVP and CFO

Analysts

David Feinberg - Goldman Sachs

Scott Levine - JPMorgan

Corey Greendale - First Analysis

Bill Fisher - Raymond James

Jonathan Ellis - Merrill Lynch

Michael Hoffman - Wunderlich

Justin Maurer - Lord Abbett

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Waste Connections Earnings Conference Call. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Ron Mittelstaedt. Please proceed, sir.

Ron Mittelstaedt

Okay. Thank you, operator, and good morning. I'd like to welcome everyone to our conference call to discuss fourth quarter 2008 results, provide our detailed outlook for the first quarter and the full year for 2009, and comment on the announced agreement to acquire certain divested assets from Republic Services.

I am joined this morning by Steve Bouck, our President, Worthing Jackman, CFO, and several other members of our senior management team.

As stated in our earnings release, we are extremely pleased with our performance in the fourth quarter. The economy fell off a cliff during Q4. But despite the most difficult economic environment we have ever experienced, operating income before depreciation and amortization, excluding acquisition-related costs, as a percentage of revenue, exceeded our expectations by about 100 basis points.

Additionally, free cash flow was a record $48 million or 18.5% of revenue. Most notably, we achieved this record free cash flow in spite of several factors; weaker than expected revenue due to the contracting economy; a 60% decline in recycled commodity revenue due to the precipitous drop in commodity prices; and severe weather conditions in the Pacific Northwest that shut down many of our operations for five to seven days.

In fact, 2008 was a record year for free cash flow in the face of record fuel prices, and a deteriorating macro economy. The recession-resilient nature of our business is best demonstrated through the stability and growth in free cash flow.

Before we get into a more detailed discussion of our performance, our outlook and the announced deal with Republic Services, let me turn the call over to Worthing for our forward-looking disclaimer and other housekeeping items.

Worthing Jackman

Thank you, Ron. Good morning, everyone.

We must inform those listening that certain matters discussed in this conference call are forward-looking statements intended to qualify for the Safe Harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those currently anticipated. These risks and uncertainties are set forth in the company's periodic filings with the Securities and Exchange Commission.

Shareholders, potential investors and other participants are urged to consider these factors carefully in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this conference call, and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

On the call we may discuss non-GAAP measures such as operating income before depreciation and amortization, free cash flow, cash earnings and adjusted cash earnings. Please refer to our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measure. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate such non-GAAP measures differently.

Now, I'll turn the call back over to Ron.

Ron Mittelstaedt

Thank you, Worthing.

As previously stated, we were extremely pleased with how we finished the year. When the economy contracts by the magnitude it did, volumes get impacted. When ice and snow shut down operations for up to a week, volumes also get impacted. This one-two punch along with the precipitous decline in recycled commodity prices in November and lower intermodal cargo activity resulted in weaker than expected revenue.

Though these items impacted revenue, we are pleased to report that continued pricing strength and our unwavering commitment to drive operating improvements in our business resulted in better than expected margins, net income and free cash flow.

Revenue was $259.6 million, up 4.8% over the prior year period. Organic growth was a negative 3.9%, broken down as follows; a positive 5.9% price, a negative 5.8% volume and negative 4% for recycling, intermodal and other services.

Although pricing in the quarter remained consistent with Q3 at 5.9%, the mix between core price and surcharges shifted, not surprisingly, to more core pricing. Core pricing was 5.2%, which is up about 120 basis points from Q3 and consistent with our focus on core price.

Core pricing for the year was about 4.3%. It's important that core pricing increased in Q4 as this was the jumping-off point going into 2009. We expect core pricing to remain strong in 2009, averaging between 4.5% to 5% for the year, with Q1 starting in the range of 5.5% to 6%.

Surcharges in selected markets due to changes in certain costs such as fuel decreased from 1.9% in Q3 to about 0.7% in Q4, due primarily to the lower fuel prices and our shift to hire core pricing in the quarter. We believe surcharges in 2009 will range between a negative 1.5% to a negative 2% to reflect the recent pullback in fuel prices.

We averaged about $3.30 per gallon for fuel in Q4, which was down about $1.15 per gallon sequentially from the third quarter and up $0.05 over the prior year. Fuel, as a percentage of revenue in Q4, increased 50 basis points year-over-year, primarily due to a shift in revenue this year, resulting from declines in lines of business with little to no fuel use, such as recyclable commodity sales.

We averaged about $3.90 per gallon during the full year of 2008. For 2009, we have locked-in almost 75% of our projected fuel needs at about $3.35 per gallon and are currently averaging about $3.05 per gallon when factoring in the remaining gallons purchased at market rates.

This lower price would result in about an $18 million year-over-year reduction in fuel cost. This decrease absorbs the impact of lower surcharges, but the estimated 70 basis point increase in 2009 core pricing reflects the lag over 2008 fuel cost recovery that hurt us in 2008, but will benefit us in 2009.

Regarding fuel hedges, we have taken a multiyear approach to lock-in a portion of our fuel needs at prices below our 2009 hedges. For 2010, we've locked-in about 55% at $3.25 per gallon and we've hedged about 20% of our needs in 2011 and 2012 at $2.95 and $3.05 per gallon respectively.

Back to organic growth. Volume growth in Q4 was a negative 5.8%. As stated in our earnings release, volumes were impacted by the contracting economy, which is best reflected in the negative 5% GDP, excluding inventory builds, recently reported by the government for the fourth quarter.

Severe weather that shutdown many of our operations for up to a week in December in the state of Washington; Washington now accounts for 25% to 30% of our revenue following the LeMay acquisition closed in November.

These influences negatively impacted roll-off and commercial activity, along with associated disposal volumes into our landfills. Roll-off pulls per day in the quarter were down about 12.5% on a same-store basis year-over-year, a continued deterioration from the 6% decline we experienced in the third quarter. Revenue per pull rose about 4% in the quarter. Commercial activity continues to be impacted by customer closures and decreases in service levels.

The volume weakness on the hauling side, along with lower special waste activity and temporary site closures in Washington due to severe weather, negatively impacted disposal volumes in the quarter. Landfill volumes were down about 10.5% year-over-year with about 40% of this coming from sites in the Pacific Northwest, given not only the confluence of these factors up there, but also the decline in special waste activity year-over-year in the quarter.

Some of this volume in the Northwest may have shifted into Q1 of this year, as our January volumes were down about 4% adjusted for day count, a nice improvement from where we were at the end of Q4.

I would also note that our negative 5.8% volume growth in Q4 of '08 was comping a strong Q4 '07 where we reported a positive 3.5% organic growth in volume. Comparative volume trends should get sequentially better, though still negative as we move through 2009 and begin to comp the weaker quarters from '08.

One final note on volume. Our exclusive market outperformed our competitive market by a good measure in Q4. Volume losses were between 150 and 200 basis points better than our competitive markets. Again, as a reminder, there is no give-up on price to maintain volumes like there is in competitive markets, another example of one of the benefits of our differentiated strategy and focus on exclusive markets.

Looking at recycling, the precipitous drop in commodity prices in November drove Q4 commodity revenues down about $7 million year-over-year. Paper fibers accounted for about 70% of recycling revenues, up until October of 2008, and then fell off a cliff when demand in Asia evaporated.

The encouraging news now is that OCC prices in January have recovered about 35% from December to approximately $65 per ton. While this is still about 55% below January of 2008, recent pricing trends are moving in the right direction since Q4.

On our previous earnings call we speculated that growing concerns about a deep recession and higher unemployment may have placed the US economy in temporary hibernation and that this cycle would eclipse the depth of the 2001 to 2003 contraction. Unfortunately this has proven true, but it felt as though the economy took another major leg down in the month of November.

We have not stood idly by without taking action. In fact, I'd say it's the combination of our actions and the efforts of our dedicated field employees that have enabled us to manage costs down as the economy plunged, delivering higher than expected margins and generating record free cash flow in the fourth quarter. And it is this continuing focus that positions us well going forward.

Flexing labor down is necessary in declining volume environments. We allowed attrition to reduce our headcount by about 4.5% companywide since October first. We froze salaries for employees at a manager level and above, and generally capped wage increases between 2% and 2.5% for all other non-management employees whose wages were not frozen.

Excluding acquisitions, direct labor costs in Q4 were down about $1.6 million year-over-year or about $6.5 million annual run rate decrease. We estimate that these annual run rate labor savings have now increased to closer to $10 million in Q1.

We would also like to commend our employees for their improvement in safety and risk management. The number of incidents declined in 2007 compared to 2008 on a 9.5% increase in revenue.

We were also successful in closing more outstanding claims in 2008 than the new number of claims incurred in the year. This is especially notable since 100% plus closure rate reduces the number of older outstanding claims that could develop and come back to bite us in the future.

This intense focus on cost control and safety improvements drove better than expected margins in the quarter. Operating income before depreciation and amortization, excluding one-time acquisition-related costs, was $76.6 million or 29.5% of revenue or approximately 100 basis points above the upper end of our original and our revised outlook for the quarter.

On a year-over-year comparison, our margin in Q4 for operating income before depreciation and amortization as a percent of revenue increased 10 basis points, quite remarkable given the headwinds faced during the quarter.

Turning now to acquisitions completed in the quarter, the LeMay acquisition closed November 1 and contributed approximately $13.5 million of revenue in the quarter. This was about $2.5 million less than originally expected in the two-month period, as that operation was impacted by the same factors we previously discussed; a contracting economy, precipitous drop in recycled commodity values and severe weather that temporarily shut down a number of their operations.

Despite that, we are extremely pleased that the operating income before depreciation and amortization met our $4 million expectation on the two-month period, albeit on lower revenue. Put simply, LeMay is meeting our original performance expectations in a weak environment and should exceed such expectations as recycled commodity prices recover or volumes improve.

Also, as announced back in November, we closed the acquisition of two companies in exclusive markets, the Yakima Waste in Washington, and Trashco in Portland with combined annual revenues of approximately $15 million. And finally, we completed the acquisition of an MSW landfill in Pueblo, Colorado, which vertically integrates our asset position in that market, eliminating the longer distance cost of transporting disposal volumes to our landfill in Colorado Springs.

Yesterday afternoon we announced that we have entered into an agreement with Republic Services to acquire certain assets being divested as a result of its recent merger with Allied Waste as required by the Department of Justice. We're extremely pleased today as this announcement culminates a seven-month effort we undertook to position Waste Connections for this opportunity.

Under our agreement with Republic, we will acquire assets in seven markets that include six municipal solid waste landfills, six collection operations totaling about 85 routes and three transfer stations. In a single acquisition, our landfill network jumps from 37 landfills to 43.

We currently estimate that these assets will generate revenue of approximately $110 million and operating income before depreciation, amortization and accretion between $45 million and $47 million. At an approximate $310 million purchase price, the transaction multiple is about 6.7 times operating income before depreciation, amortization and accretion.

Note that this projected financial performance is based upon pro forma results that both we and Republic have created, which incorporate the redirection of RSG controlled waste volumes out of these acquired landfills and into their other sites prior to close. We will look to firm up these numbers over the next 30 days during our upcoming site visits. Our agreement incorporates a mechanism to potentially adjust purchase price, up or down, nominally within a small band once we complete these site visits.

The assets we are acquiring are as follows. In Southern California, we are acquiring the Chiquita Canyon landfill. We estimate initial volume into this site at about 1,500 tons per day of municipal solid waste and another 2,000 tons per day of special and industrial waste. This site is currently permitted to take up to 6,000 tons per day of municipal solid waste.

This asset complements our more distant landfill in Avenal that also attracts waste from the Southern California basin. Capacity constraints in this market are expected to drive tip fees higher over the next several years. For example, Puente Hills, the largest landfill in Southern California, is scheduled to close by 2013, displacing up to 10,000 tons per day that it currently accepts.

In Denver, we are acquiring the Front Range landfill, which sits adjacent from our current landfill within that market. This is a key asset for us in that the market in Denver is the only vertically integrated competitive market where our existing landfill has less than three years of remaining airspace. Front Range was recently awarded an expansion and now has over 80 years of remaining airspace at a projected 1,500 tons per day as well.

In Houston, we are acquiring a 35-route commercial collection operation and a transfer station. We are also acquiring a large municipal solid waste landfill and a smaller full service collection operation south of Houston towards the coast in Angleton. The landfill is the Sea Breeze landfill, which is projected to do about 2,000 tons per day primarily out of Brazoria and Harris counties.

In Lubbock, Texas, we are acquiring a seven route commercial collection operation that is about 50% larger than our existing collection operation in Lubbock. Given the market overlap, we may need to sell some of our routes from our existing collection operation in that market to address any concerns by the Department of Justice.

In Greenville and Spartanburg, South Carolina, we are acquiring an integrated commercial collection transfer and municipal solid waste landfill operation. The transfer station sits right between Greenville and Spartanburg and feeds the Anderson landfill, which is projected to do about 800 tons per day.

In Charlotte, North Carolina, we are acquiring a commercial collection and a transfer operation, along with a municipal solid waste landfill, as well as the Peachland collection operation which sits southeast of the city towards the South Carolina border. The landfill is the Anson County landfill, which is projected to do about 1,000 tons per day.

And finally, we are acquiring the (inaudible) landfill in Flint, Michigan. This site is projected to do about 2,000 tons per day and has the shortest remaining permit of capacity of the landfills being acquired at approximately 10 years. Closing of this transaction is subject to customary conditions, including regulatory approval and receipt of certain governmental and third-party consents. We currently anticipate closing in the early part of Q2.

Republic is required to sell assets in several other markets, and we remain in discussions with them to potentially acquire additional divestiture assets. Away from Republic, the current pace of acquisition dialogue within our existing footprint suggests we should comfortably close our traditional $40 million to $60 million of acquired annualized revenue during 2009. The new markets we will enter with the announced Republic Service transaction expand the list of potential acquisition candidates that fit our strategic profile.

And now, I'd like to pass the call to Worthing to review more in-depth the financial highlights of the fourth quarter and provide you a detailed outlook for Q1 of 2009 as well as the full year.

Worthing Jackman

Okay, Ron. You can breathe now. All right. Thank you, Ron.

In the fourth quarter, revenue increased 4.8% to $259.6 million, and operating income before depreciation and amortization, excluding $1.5 million of acquisition-related costs, increased 5.2% to $76.6 million.

As a percentage of revenue, operating income before depreciation and amortization for the quarter was 29.5% of revenue, a 10 basis point increase over the year ago period. Margins held up in the period as continued strength in pricing helped offset the impact from declines in higher margin landfill revenue and recycled commodity sales.

The following line items in the quarter moved a notable amount year-over-year as a percentage of revenue. Insurance costs declined about 160 basis points from a combination of reduced incident frequency and a reduction in actuarial expected development costs for outstanding claims.

SG&A, net of the $1.5 million of acquisition-related costs rose about 80 basis points, primarily due to increased incentive and equity-based compensation costs. And fuel costs, as Ron noted, increased about 50 basis points due both to a change in revenue mix and higher average year-over-year fuel prices.

Acquisitions closed since the year ago period accounted for about a 10 basis points impact to reported year-over-year margins in the current year period.

For full year 2008, operating income before depreciation and amortization, again, excluding the $1.5 million of acquisition-related costs, was $311.9 million or 29.7% of revenue, which compares to $292.9 million or 30.6% of revenue in the year ago period.

Fuel expense as a percentage of revenue increased 205 basis points to about 8.2% of revenue in 2008. We were able to offset over 55% of this margin hit as reported margins declined 90 basis points year-over-year. On a reported basis, the following line items in the full year moved a notable amount year-over-year as a percentage of revenue to help offset this reported margin hit from fuel.

Insurance costs declined about 50 basis points, again, due to reduced incident frequency and reduction in actuarial expected development costs for outstanding claims, but partially offset by increased medical costs.

Third-party transfer, intermodal, drayage, and pass-through revenue expense declined about 30 basis points given a shift in revenue mix and strong core price increases. Fleet maintenance and repairs declined 25 basis points and direct labor and supervisory costs declined about 20 basis points.

Turning back to fourth quarter results, depreciation and amortization expenses increased about $2.8 million year-over-year to a little more than 9.9% of revenue in the current quarter, up almost 70 basis points from the prior year due to an increase in depreciation dollar expense on a top-line weakened by hits from contracting economy and precipitous drop in recycling revenues.

A 35 basis point increase in amortization of intangibles as a percentage of revenue was offset by an equivalent reduction in depletion expense on lower disposable volumes.

Net interest expense in the quarter remained relatively constant year year-over-year as a $2.2 million increase in interest expense was offset by a similar increase in interest income on higher cash balances as we wait to deploy excess capital on pending acquisitions.

We ended the quarter with about $835 million of outstanding debt and $265 million of cash. Our leverage ratio ended the year at about 2.4 times debt to EBITDA. And net debt, which is debt less cash, was about $570 million or about 1.7 times debt to EBITDA.

In light of the current state of the capital markets, we believe that we are well positioned as our earliest debt maturity isn't until 2011, and we expect to retire that obligation through excess free cash flow, if necessary.

Over 90% of our debt is either fixed or hedged to a fixed rate, and when you include non-cash amortization of financing fees and non-cash impact previously discussed in our quarterly disclosures, impact of FSP number APB 14-1 related to convert accounting, our current all-in effective GAAP borrowing costs is about 5.75%, but our cash interest borrowing costs is about 4.95%.

In addition to our available cash balance, we had about $360 million of available capacity under our credit facilities at yearend. We have an $845 million credit facility that expires a little more than 3.5 years from now in September 2012.

Additionally borrowings under this facility will reduce our average borrowing rates, as the current price for incremental borrowings is at LIBOR plus 47.5 basis points or an interest rate of about 1%.

Our effective tax rate in the quarter was 28.3% compared to 39.2% in the year ago period. Our tax provision in the current year period was reduced by an approximate $3.9 million adjustment in deferred tax liabilities, primarily resulting from a reduction in our estimated state tax rate following the LeMay acquisition. Adjusting out this reduction, our effective rate in the quarter was about 38.4%.

Both earnings per share and adjusted cash EPS in the quarter were $0.34. As highlighted in our earnings release, GAAP EPS included a rounded $0.03 net benefit from the lower tax accrual offset slightly by acquisition related costs, but it also included a $0.03 impact from non-cash items related to equity-based compensation costs and amortization of acquisition-related intangibles.

As noted throughout 2008 and going forward, we highlight such non-cash items since new acquisitions and the recently enacted changes in accounting principles increased non-cash expenses and weigh on reported EPS, but will have no impact on free cash flow.

Free cash flow was $48 million in the quarter or 18.5% of revenue. For the full year, free cash flow increased 44.2% to $153.2 million or 14.6% of revenue. We are extremely pleased with this record free cash flow performance as we believe it to be the primary driver for creating shareholder value.

Free cash flow reached $2.14 per share in 2008, despite the economic headwinds and other challenges Ron discussed. Free cash flow of $2.14 per share in 2008 was about 45% higher than our $1.48 reported earnings per share. This contrast in free cash flow versus reported earnings should continue in 2009.

As noted in our earnings release, our outlook for 2009 assumes three increases in non-cash items; first, an estimated $8 million increase in amortizing intangibles associated with the LeMay acquisition completed last November and the Republic transaction announced yesterday; second, an approximate $4.5 million increase in interest expense resulting from the enactment on January 1 of FSP APB 14-1 related to convert accounting; and finally, an estimated $2 million increase in equity-based compensation costs.

These items will collectively result in about $0.22 non-cash impact to reported EPS in 2009 or up to $0.03 a share per quarter higher than in 2008.

In addition, the implementation of SFAS 141R on January 1 requires us to expense all acquisition-related costs going forward rather than capitalizing third-party costs such as attorneys, consultants, and advisors under prior GAAP. This change will result in a lower contribution to reported earnings from an acquisition in its initial year as related transaction costs flow through the income statement in the reported period the deal closes.

It will also increase volatility of reported results in any given quarter depending on acquisition activity. We will highlight such costs when appropriate to improve comparability of period to period operating results.

I will now review our outlook for the first quarter of 2009 and the full year. Before I do, I'd like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our Safe Harbor statement and our various SEC filings. We encourage investors to review these factors carefully.

Our outlook assumes no change in the current economic environment. We feel this approach is both prudent and conservative given the expected protracted downturn in the economy. Our outlook also excludes the impact of any acquisitions that may close and any expensing of related transactions costs resulting from the adoption of SFAS 141R.

Finally, we have not incorporated any contributions from RSG divestitures in the first quarter period, as we have assumed that that transaction closes April 1. The contribution from that transaction is reflected in our full year outlook. If this timing were to slip minimally, we will update the impact of full year guidance on our next quarterly earnings call.

First, looking at revenue, revenue in the first quarter is estimated between $264 million and $266 million, up about 6% over Q1 2008. We expect all-in pricing growth of about 4% with core pricing between 5.5% and 6% and surcharges between a negative 1.5% and a negative 2%.

Volume growth is forecasted at about a negative 5% and recycling, intermodal and other is expected to be about a negative 4%.

Operating income before depreciation and amortization is estimated between $76.5 million and $77.5 million, reflecting a margin of about 29%.

Depreciation and amortization costs is expected to be about 10% of revenue, about 90 basis points of which is related to non-cash amortization of intangibles.

Operating income for the first quarter is estimated at about 19% of revenue.

GAAP net interest expense is estimated at about $11.3 million; again, this includes non-cash items. We estimate approximately $12.5 million of expense partially offset by about $1.2 million of interest income. This GAAP expense also includes a little more than $1.1 million non-cash expense related to the convert and $0.5 million of non-cash amortization of financing fees.

The sequential reduction in interest income is primarily due to declining short term reinvestment rates that limit what we can earn on our excess cash while we wait to deploy it.

Turning now to our outlook for the full year 2009, revenue is estimated at approximately $1.2 billion, up about 14.5% over 2008. As Ron noted earlier, we expect core pricing of about 4.5% to 5% and surcharges between a negative 1.5% and a negative 2%.

Volume growth is forecasted between a negative 3% and negative 4% and recycling, intermodal and other is expected to be about a negative 2.5%.

Operating income before depreciation, amortization and accretion is estimated at about 31% of revenue.

Depreciation and amortization is estimated to be about 10.5% of revenue. This increase over the 9.3% rate in 2008 is due not only to the higher amortization of intangibles previously discussed but also due to the significantly higher depletion rates at close associated with certain of the Republic landfills being acquired.

The depletion rate on certain of these assets will decline once expansions that are currently being pursued are either deemed probable or finally received. We estimate D&A as a percentage of revenue for the assets being acquired from Republic to initially be between 18% and 20% of acquired revenue.

Operating income for the full year is estimated at about 20.5% of revenue and our GAAP net interest expense is estimated at about $48.5 million. Again, this includes two non-cash items of about $4.5 million associated with the change in convert accounting and $2 million for amortization of financing costs.

Our effective tax rate is assumed to be approximately 38% for the full year with Q1, Q2 and Q4 estimated at about 38.8%. We estimate our Q1 and full year diluted share count to be about 81 million shares or about 19% and 13.5% higher than in Q1 2008 and the full year 2008 respectively, as a result of our common stock offering that closed on September 30, 2008.

At the risk of stating the obvious, this higher share count will reduce year-over-year EPS comparisons in the first quarter while we wait to deploy the excess capital raised in that financing. With yesterday's Republic announcement it looks as though that drag from excess capital should end after Q1.

Finally, looking at the components of free cash flow, net cash provided by operating activities for the full year is estimated at approximately 24.5% of revenue. Capital expenditures are estimated at about $125 million, and this amount assumes about $15 million of CapEx related to the assets being acquired from Republic.

At $110 million of CapEx, excluding acquired RSG assets, CapEx in 2009 will be down from 2008. And 2008, of course, was down from 2007, and this is another example of how we can flex down spending in a weak economy and of the resilience in our free cash flow.

Now let me turn the call back over to Ron for some final remarks before Q&A.

Ron Mittelstaedt

Okay. Thank you, Worthing. In closing, again, we are extremely pleased with our results in Q4 and all of 2008. Not only did we post record results in an extremely difficult environment, we kept our eyes on the future to position the company for continued growth and shareholder value creation.

We opportunistically expanded our credit facility, issued long-term notes and raised almost $400 million in equity during turbulent capital markets in the belief that the strong gets stronger in periods such as we are in today. The Republic deal and other potential acquisitions that may be completed in the year would not have been possible without this foresight.

One final nostalgic note, somewhat linked to growth, we are relocating our corporate office later this month. Our new space, which should accommodate us up to about $3 billion in revenue, contains larger state-of-the-art employee training and meeting facilities.

This will be the fourth time since our founding in 1997 that we have relocated the corporate office, and the company's revenue has more than doubled while at each location. So the good news is we are moving once again.

We appreciate your time today, and I will now turn the call over to the operator to open up the lines for your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Feinberg from Goldman Sachs.

David Feinberg - Goldman Sachs

Good morning, everyone.

Ron Mittelstaedt

Good morning.

David Feinberg - Goldman Sachs

If I heard the guidance correctly, I think you are looking for 5% volume declines in the first quarter, but to exit the time year at a run rate or for the full year 2009 of a 3% to 4% decline in volumes. Was that correct?

Worthing Jackman

That is correct. We were expecting a sequential better second half than the first half, especially in the fourth quarter as we comp a difficult fourth quarter of 2008.

David Feinberg - Goldman Sachs

I guess my question is what gets you confident in the back half; is it just the comps, is it looking at past cycles and how these things play out, do you get any sort of visibility from customers, what is it you are looking at?

Worthing Jackman

I would not judge it on past cycles. This is a unique cycle. It is more the confidence in comping primarily, again, in our exclusive markets, comping the difficult fourth quarter in 2008.

David Feinberg - Goldman Sachs

And the January trends, I just want to make sure I understood you correctly, the 4% decline that I think Ron referenced in his script, that relates specifically to Washington state, correct?

Worthing Jackman

The 4% was system-wide. The landfill volume declined in the month of January on a day count adjusted basis.

David Feinberg - Goldman Sachs

Any indication how February is shaping up? I know we are only 10 days into it.

Worthing Jackman

No, I haven't come up (inaudible) February.

David Feinberg - Goldman Sachs

And one question as it relates to the Republic divestitures of assets; so you have made the announcement on this first round of assets, any expectation on timing when the other ones would come up for sale or when you or Republic would be comfortable making an announcement?

Ron Mittelstaedt

Number one, David, as far as any others, the vast majority of the assets that fit our model and our footprint were in the larger bundle of assets that Republic packaged that we have just announced. They are packaging other assets and individual bundles for the remaining markets that they have.

I think they told me that they still hope to complete those or announce those sometime at the end of Q1 or the beginning of Q2 with all of them closing before the end of Q2.

David Feinberg - Goldman Sachs

One last question on pricing: As it relates to your competitive markets, not your franchise, any indication of year-over-year base price declines? In other words, is it becoming that competitive that year-over-year you're getting base price declines due to competitive pressures?

Ron Mittelstaedt

No, we are not really seeing that, as we said. The good news is that price is holding up. If anything, the core price has moved up nominally. There are pockets where that is not completely true, but on the aggregate in our competitive footprint pricing is at or ahead of last year.

David Feinberg - Goldman Sachs

Wonderful. I will turn it over. Thank you.

Worthing Jackman

Thank you.

Operator

Your next question comes from the line of Scott Levine from JPMorgan.

Scott Levine - JPMorgan

Good morning, guys.

Worthing Jackman

Good morning, Scott.

Scott Levine - JPMorgan

Regarding the mix of competitive versus franchise, I think pro forma for LeMay you guys are moving into the high 50% franchise. Could you talk a little about what you look like post the Republic acquisition era, and then what are your thoughts on whether that mix will hold from there forward with the acquisition pipeline you see outside of Republic?

Ron Mittelstaedt

Yes. Scott, the Republic deal really will not move the needle much. I mean, you take $110 million of revenue on $1.2 billion; it's 8% or 9% increase in total revenues. The largest piece of that is in California at Chiquita; by far the largest piece. So I think when you do the math it might move us from 57%, 58% down to maybe 55% to 56% mathematically post Republic deal in terms of exclusive markets.

And then, as far as in the backlog, I would tell that you currently the backlog is more weighted to our exclusive markets. That could change somewhat post Republic deal, as we look to do some tuck-ins around some of those newly acquired markets, but I would tell you I think staying between 55% and 58% this year is highly likely.

Scott Levine - JPMorgan

Okay. And I think, Ron, you mentioned in the past, looking at the acquisition activity into economic slowdowns, you have seen a bit of a slowdown in prior downturns. However, it sounds like you expect outside of Republic the typical acquisition year. Could you tell us maybe what is a little bit different about the environment now that gives you that level of confidence?

Ron Mittelstaedt

Obama. One word. The fear by the private sector of what the current White House intends to do to capital gains. That is just purely and simply the answer.

Scott Levine - JPMorgan

Okay. And then, turning to volume outlook, could you comment on maybe any differences you are seeing across your geographic footprint? Are you seeing a slowdown broaden across your footprint, or are you still seeing more acute weakness in the same types of markets you have seen looking back the last couple of quarters?

Ron Mittelstaedt

Yes. The reality is that the weakness is broad based and there is no geography that is immune. It spread relatively quickly. It was mostly on the West Coast and a few parts of the Southeast at the end of Q3 of last year, and then just a rapid decline in Q4 across all of our geography.

If there is any silver lining, and I think it is far too early to say that, last time in the 2001 to 2003 contraction, our Midwest and Plain states went into the contraction first and they came out of it first. In Q4 and in Q1 so far, our Plain states are showing the least decline, and they had the highest decline going into it.

So we don't think that means anything because the numbers are very close to each other geographically, but it's very broad based.

Scott Levine - JPMorgan

Got it, okay. One last one, if I may. Following up on the question that was asked about franchise versus competitive market pricing, do you have those numbers or could you say roughly about franchise, was it double, less than double, what you saw, or the reverse being true with the competitive markets? Do you have percentage price growth in each of those two?

Worthing Jackman

Yes. I will link it back. It is almost the inverse of volumes. We said volumes were weaker in our competitive markets, but the converse is true. Pricing was stronger in our competitive markets in Q4. And, again, we said volumes held up relatively better in the franchise markets and franchise markets were below the corporate average in Q4.

Scott Levine - JPMorgan

Great. Thanks. Nice quarter.

Ron Mittelstaedt

Thank you.

Operator

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

Corey Greendale - First Analysis

Good morning.

Ron Mittelstaedt

Hi, Corey.

Corey Greendale - First Analysis

I also wanted to ask you about the franchise versus competitive markets. I understand what the numbers are, but can you just talk about how it is that that is true? You think just logically that smaller companies would be hurting for volumes, would be lowering price, so are you not seeing that, or are you seeing that and you are just not following and willing to give up volumes, so you do not have to lower price?

Worthing Jackman

With regards to franchise markets or competitive markets?

Corey Greendale - First Analysis

Competitive markets.

Worthing Jackman

Yes. On competitive markets, again, our strategy is looking at secondary and suburban markets where we can get a good asset position. When you have a good asset position, you are able to move price without as much risk of losing volume relative to more competitive urban markets when pushing price in this kind of environment has a much more pronounced impact on volumes.

Ron Mittelstaedt

I would say the other thing with regard to that, Corey, is that to take volumes for a private, smaller competitor in a competitive market, you need capital. And the reality is that they have no access to it at this point in time. So, as far as additional trucks, additional containers, those kinds of things, that is just locked down for most players right now.

Corey Greendale - First Analysis

Okay. Can you speak to your commercial business; just what volumes did in that part of the business and to what extent you are seeing people downsizing their service levels?

Ron Mittelstaedt

Well, we saw a reasonably pronounced increase in Q4 that has continued into Q1 in our small container service which is our commercial rear load and our commercial front load service. We measure that monthly, and it definitely started to jump downward in September and through Q4, both service decreases, customers going to a lower service frequency and business closures, bankruptcies and business closures.

Anecdotally, I will also tell that you that historically in this sector, at the end of downturns; I don't know how long that you would pronounce the end, but that is when we have seen the largest acceleration into service decreases and business closures. It is sort of the last quartile of the contractions we have seen in the past.

Corey Greendale - First Analysis

Okay. And then, I just had a question about the Republic acquisition. First of all, can you give us any indication of the magnitude of the assets that you are still discussing with them? I was just wondering on the CapEx for 2009, if there is anything unusual in that related to the Republic assets or if the $125 million is a good base line to model from going forward?

Ron Mittelstaedt

Number one, as far as the CapEx, I think the $125 million is a decent number to model from going forward. There will be some larger than normal permitting costs at some of the sites over the next few years. That could affect that number from a baseline standpoint. We would call that out in any given quarter or year, however.

As far as the first comment, I would rather not comment on what we are not in discussion. I mean, we have announced $45 million to $47 million approximately of EBITDA. I think the entirety of what Republic was looking to sell was $70 million to $75 million of EBITDA, and we have said that much of that does not fit our strategy or our footprint.

So, obviously, the number is well south of the difference between $70 million, $75 million and $45 million.

Corey Greendale - First Analysis

Great. Thank you.

Operator

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

Bill Fisher - Raymond James

Good morning.

Ron Mittelstaedt

Good morning, Bill.

Bill Fisher - Raymond James

Just to follow-up to clarify on the landfill volume, I think you said, that it was down 4% in January. Was the overall volume down roughly 5%?

Worthing Jackman

No. Volume in January was down slightly less than 5%.

Bill Fisher - Raymond James

Okay. And just on the Republic landfill site, you mentioned Chiquita as an example, but to the extent you have daily or annual limits, would you characterize it like are you at 60% of capacity, the potential there that you could fill in overtime with open market or tuck-ins or whatnot; if you could give color on that?

Ron Mittelstaedt

I have not looked at it specifically in total that way, but I would estimate that that number is somewhere between 50% and 60% of where the sites are relative to their daily caps or their weekly, in some cases, caps right now.

Bill Fisher - Raymond James

Okay. Great. Actually just one other for Worthing, on your free cash estimate does that include the IRS ruling, and if not, what kind of magnitude could that have?

Worthing Jackman

It does not include the IRS ruling; do not want to be presumptuous about getting it. If we do get it, that would reduce cash tax in the period that we receive it by $11 million to $12 million.

Bill Fisher - Raymond James

Okay, great. Thank you.

Ron Mittelstaedt

Thanks, Bill.

Operator

And your next question is from the line of Jonathan Ellis from Merrill Lynch.

Jonathan Ellis - Merrill Lynch

Thanks and good morning, guys.

Worthing Jackman

Hey, good morning, Jon.

Jonathan Ellis - Merrill Lynch

Wanted to talk first about just landfill pricing in your competitive markets. Obviously, you touched on volumes, but could you talk a little about pricing both for MSW, C&D, and also special waste?

Ron Mittelstaedt

Yes, John, I would say that there has not been any material change in landfill pricing from our standpoint. Again, in our model, that is not nearly as big an overall price driver as it is on the collection side relative to the competitive market peer group we have.

But landfill pricing has remained in that 2% to 3% range on MSW. It has come down somewhat in C&D. And special waste, it really has remained fairly consistent across all our geographies. Obviously, on an individual job basis, that can move 10% to 20% because they are singular project jobs by geography, but overall, very consistent throughout 2008 and into the first quarter of 2009. Having said that, very, very limited special waste projects are being bid on in Q1.

Jonathan Ellis - Merrill Lynch

Sure. And just to clarify, you said C&D pricing coming down. Is that a deceleration, or it is actually a year-over-year declines you are seeing there now?

Ron Mittelstaedt

I would say that that is a deceleration, not year-over-year decline.

Jonathan Ellis - Merrill Lynch

Okay. All right, great. Just on fuel surcharge vis-à-vis core pricing, it looks like you were fairly successful in the quarter in converting some of that fuel surcharge into core pricing. As you look out into 2009, is there an expectation that there's going to be further opportunities to the extent there is surcharge fees still left out there to convert those into core price or basically whatever you have converted as of 4Q is going to have some flow through to 2009, but that is really the extent of it.

Ron Mittelstaedt

Yeah, I would say that the latter part of what you said is most accurate. We did most of that conversion in Q4 when there was some decline in the fuel pricing. There will be some that is left in Q1, but I would expect it to, assuming fuel stabilizes at these levels, I would expect you to see the reduction or the conversion in Q1, and then stabilize for the balance of the year at approximately that level.

Jonathan Ellis - Merrill Lynch

Okay.

Worthing Jackman

Hey, Jon, just one other item of color here. And as you move through 2009 on the core pricing side, you should expect that core pricing starts declining sequentially as we move throughout the year because as you get, especially, in the second half of the year, you are comping quarters in the prior year which are much higher on a dollar revenue basis.

But most, again, the core price has also been done. And so the same dollar impact on quarter-to-quarter basis becomes a lower percentage basis year-over-year as you move through with the higher denominator.

Jonathan Ellis - Merrill Lynch

Right. Okay, great. And just on the outlook for the year, on price and volume, I know you gave some kind of qualitative commentary on the competitive versus franchise market in 4Q, but would you be willing to offer for your 2009 outlook? What your underlying assumptions are for price and volume in competitive versus franchise markets?

Ron Mittelstaedt

Yes, I would say that our current expectation, and I say that because much of it is done, but our current expectation is that our franchise is between 3% and 3.5% all in and that our competitive is between 5.5% and 6.5%.

Jonathan Ellis - Merrill Lynch

And on the volume side?

Ron Mittelstaedt

On the volume side, I don't have specifics, but I can tell you that our exclusive has about one-third less decline.

Jonathan Ellis - Merrill Lynch

Okay. Great. And then just my final question. With respect to the RSG assets that you have announced for purchase, where you do have some existing overlap, what kind of cost savings are you factoring into your 2009 outlook?

Ron Mittelstaedt

None.

Jonathan Ellis - Merrill Lynch

Okay. Great. Thanks, guys.

Worthing Jackman

All right.

Operator

Your next question comes from the line of Michael Hoffman from Wunderlich.

Michael Hoffman - Wunderlich

Hi, guys.

Worthing Jackman

Good morning.

Ron Mittelstaedt

Hey, Michael.

Michael Hoffman - Wunderlich

Wunderlich, but whatever. So a couple questions. On CapEx growth versus maintenance on the CapEx on the 125, can you give us a sense of that?

Worthing Jackman

Yes. If you look at it, probably 8.5% of CapEx, as a percentage of revenue, is maintenance CapEx. There were a couple of one-time items in the year including the completion of a facility being built out for LeMay. There is another start-up capital for a contract that we are commencing in Washington. So, if you strip those items out and strip out the RSG, you are about 8.5% of revenue.

Michael Hoffman - Wunderlich

Okay. Then are you seeing any benefits from lower aggregates prices and steel prices, yet, in your thinking about your capital spending or is that something that iss yet to come, too?

Ron Mittelstaedt

We really have not seen much there, Michael. We saw a little bit of come down in the middle part of 2008 in those areas on some of our construction, but the vast majority of our construction is airspace. And so really, the impact there is to the geosynthetics as a petroleum-based product. We do not have a lot of cement or a lot of aggregates or steel in our construction costs.

Worthing Jackman

Yes. We started seeing some better bids on the excavation side within landfills. Well, obviously from equipment, both the yellow iron and trucks, the prices in the used market and the auction markets have come way down as excess capacity has been put on the market.

And as you have seen a lot of companies canceling a lot of new orders, it is just continued to put additional used supply and un-bought that new inventory on the market at lower prices.

Michael Hoffman - Wunderlich

Okay. Share buyback, you put it on hold with LeMay and Republic. The big chunks of this are behind you. Where is your head on the buyback?

Worthing Jackman

Well, our head is still getting some clarity around how much more we will be spending in capital and acquisitions in the year. We will balance that obviously with continued look at the buybacks as we move throughout the year, as well.

We still have about $80 million to $90 million of remaining capacity through 2009 on our pre-approved buyback program. But I would say right now, much like in 2008, we are preserving capital for acquisitions.

Michael Hoffman - Wunderlich

Interestingly enough, on a relative basis, your company is trading at the lowest premium spread as it has ever, I think, experienced. So on a make versus buy you are pretty cheap.

Worthing Jackman

We do similar analysis, Michael.

Michael Hoffman - Wunderlich

Just to dig a little bit deeper on the volume issues that have been discussed, am I right thinking that sort of the front-end loader side is down in the 2 to 5 range when you look at a container where roll-off's the bigger play, so that is 10 to 20. And then your landfill is a blend of the impact of third-party front-end loader and an impact of third-party roll-off?

Ron Mittelstaedt

I think all of that is a fair assumption, Michael. I mean using roll-offs down 10 to 20, it was, I think, the number you said. I would tell that you that that is right in the range of what we are at least seeing in January, probably closer to that, 14% to 18% range in most markets on at least a pull basis, not a revenue basis, but a pull basis.

On a revenue basis, it is a little less than that, because revenue per pull has still remained positive year-over-year and sequentially. And, yes, I would say that your number is a little high on the commercial reduction. We are not quite seeing that type of a macro decline yet. So all in, I think you are close.

Michael Hoffman - Wunderlich

Okay. And then with the service agreement changes and some closures, bankruptcies, have you seen an uptick in your bad debt allowance?

Worthing Jackman

We have seen a nominal uptick. Q4 was the highest we've seen in all of 2008. And we've incorporated a higher run rate of bad debt expense in our outlook for 2009.

Michael Hoffman - Wunderlich

Okay. And then one other question on the behavior in markets, specifically it is the competitive markets. Some of our network shows that the independents seem to be predisposed that the major landfill owners, predominantly public companies, are going to raise landfill pricing and they are going to pass it through. Do you see anything to indicate that that is not the case?

Ron Mittelstaedt

We have not seen anything to indicate that is not the case.

Michael Hoffman - Wunderlich

Okay. If you go to the Justice Department decree for Republic, one of the things that was in the bundle was the San Francisco landfill. So that is the obvious sort of open question of, is that something you would be interested in, and therefore that is one of the things to continue a dialog about?

Ron Mittelstaedt

Yes, I think you are speaking of the Potrero Hills Landfill in Fairfield in Northern California, and that was in a singular bundle. It was not in the packaged larger asset bundle. That was a request, I believe, by the California AG of Republic and the Justice Department. And so that is why that was not in the bundle.

That was not something [real] or Republic chose to remove. It was something that was requested in the process. So that is an asset that we are taking a look at and would fit our strategy and we would have interest in, obviously, under the right structure.

Michael Hoffman - Wunderlich

Okay. And then is there anything that you had to buy because you had to take the bundle that you might consider selling? I mean, Flint comes to mind, for instance.

Ron Mittelstaedt

Yes, you and all two people that remain there, yes, I would say that Flint, obviously, would not have been an optimal choice for us. But the reality is, is that it is a good site. It is performing well. It has a mix of municipal solid waste, special as well as Canadian flows that are not subject to any type of restriction between the US and Canada because of the type of waste it takes. It is exempt from that, so, we believe that we can make that a very successful site.

I and our COO, Darrell Chambliss, have a lot of experience operating in Flint and Michigan, so we know the market well. So, yes, while it would not have been our first choice, it is one we are very committed to and we can make very successful, we believe.

Michael Hoffman - Wunderlich

Okay. And then do you have any exposure to the Smurfit bankruptcy vis-à-vis your recycling?

Ron Mittelstaedt

Yes

Michael Hoffman - Wunderlich

No?

Ron Mittelstaedt

Yes, we do.

Worthing Jackman

While we have exposure to it, we are not expecting an impact in Q1. As you look at that relationship, they act more as a broker for us, and brokerage relationships generally are protected in the bankruptcy filing. And so, most of our outstanding receivables have actually been collected.

Michael Hoffman - Wunderlich

Cool. And lastly, can you talk a little bit of any of the key triggers that are driving incentive comp in 2009, such things that we can look at, what are your measures, what you manage, and influencing behavior?

Ron Mittelstaedt

Michael, we really have not changed. We've made some nominal tweaks to it for 2009. Our incentive comp is weighted, but it is tied most heavily to free cash flow, second to operating income, third to EBITDA, and fourth to capital deployed relative to plan. So if you look at those four measures, what it is really saying is, it is tied to return on invested capital, and what is the trajectory of returns against the investment basis we have. So that is really how it is measured.

At the field level, we have put some additional incentives this year for organic volume growth, trying to do whatever we can with the discipline of pricing staying in place to pursue some additional bid works, some additional special waste work to minimize negative volumes, but, we are heavy cash focused and return on capital focus. That just has not changed.

Michael Hoffman - Wunderlich

Okay. Great. Nice quarter, guys, thanks.

Ron Mittelstaedt

Thank you.

Operator

And your next question comes from the line of Justin Maurer from Lord Abbett.

Justin Maurer - Lord Abbett

Good morning, guys. Worthing, on the interest expense income, obviously you explained the delta between what you are paying and what you are earning, but I think you guys, if you go back to when you raised the money, you thought that between the capital raised plus the debt capacity it might give you about a $900 million war chest.

And maybe, correct me if I'm wrong, between what you just bought or are buying from RSG plus a little more, you are only getting to about half of what you thought maybe was on the list. Are there other assets of size, as opposed to the normal tuck-in type stuff you guys are doing, that make sense there, or would you contemplate doing something with that excess cash potentially?

Ron Mittelstaedt

Justin this is Ron. I think what you are referring to is the following. And I think your numbers are relatively accurate. It is just that there are some assumptions that have changed. When we did the capital raise in September, the end of September, what we said is that it was our belief that Republic would divest somewhere between $100 million and $150 million of EBITDA, so the midpoint of that was $125 million of EBITDA, and that based on the overlap analysis we had done, that about two-thirds of that $100 million to $125 million in divestitures or expected divestitures would fit our model. So that left you a number between, call it $75 million and $100 million of EBITDA.

What has changed is that Republic did a very good job in its process with the Justice Department, and I think is divesting only about $75 million to $80 million of total EBITDA, not $100 million to $150 million. Then you take a look at that and I think still north of that two-thirds, will ultimately fit our profile. We've announced $45 million of that, and have said that there are others that potentially do that.

So if we were to get to the $55 million to $65 million number, not that we will, but if we were able to pick some additional amount that made sense to us from Republic, and get to that, that would be likely the totality out of Republic. So, no, there are not other larger pieces that are out there, either from Republic or third parties that we're missing. It's that the number that they were required to divest was dramatically lower.

Justin Maurer - Lord Abbett

Right. So I guess that being the case, though, and even take the high-end of that, say just throw out a number, even with some smaller type stuff you guys would normally do, say $70 million, and you are paying seven times, so you are close to, call it $500 million, you still have $400 million of excess capacity. Now, granted, in this day and age, the more the better, right? But I'm just wondering, particularly with the, "dilution," just simply on the interest expense/income line, fortuitously I guess, you guys raised it at a price higher than where the stock is trading, so it would be accretive on that basis to do that. Right?

Ron Mittelstaedt

Usually not the reason you sell equity, but I think what we would say, Justin, is we believe that over the course of the first two quarters and at most into the third quarter that any outsized acquisition opportunities, be they sort of one-off or out of Republic, we will have visibility on and know.

Once we know that then the deployment of additional capital to both buyback as well as potentially the dividend, once, if there is any clarity on the tax treatment of dividend, we would obviously make that decision, because debt reduction in this environment, we do not have a leverage issue, so that is not where it would be. So, obviously, the uses of cash would be in buyback first, then dividend second.

Worthing Jackman

And Justin, I will remind everyone that in the fourth quarter and with the announced RSG deal, so given the acquisitions we have already closed and the upcoming RSG deal, we would have deployed about $650 million of capital since our equity raise in late September, and we're sitting still with about $300 million plus of capacity to spend which gets us to $900 million, plus you've got the free cash flow of about $170 million on top of that. So we are still sitting with almost a $0.5 billion of capacity, including the forecasted free cash flow in 2009, despite spending $650 million since the equity offering in late September.

Ron Mittelstaedt

Because that included also what we have spent on LeMay, which was known at the time of the equity offering but not yet spent.

Justin Maurer - Lord Abbett

Right. Okay. Just on the converts, what is your effective interest rate now on the convert?

Worthing Jackman

Well the cash interest is 3.75%, which gets to you to about $7.5 million of cash outflow. Then on top of that you have got the $4.5 million of non-cash on the change in accounting, and you have got about $1 million of amortization of financing costs on that. So you add another $5.5 million of non-cash outflow on top of that and that's about 2.75% on top of the 3.75%, so special the all-in rate in the P&L is about 6.5%.

Justin Maurer - Lord Abbett

So it doesn't make sense, and in fact, it looks like it is trading a little bit above par, so it doesn't make sense to do anything with that then.

Worthing Jackman

I think if we saw any appreciable dip below par we would look at that.

Justin Maurer - Lord Abbett

Okay. Thanks, guys.

Ron Mittelstaedt

Thanks, Justin.

Operator

We have no further questions at this time.

Ron Mittelstaedt

Okay. Well, if there are no further questions, on behalf of our entire Management team, we appreciate your listening and interest in our call today. Worthing, Steve, and I will be in the office for three to four hours today before heading out traveling. If there are any direct questions that we did not cover that we are allowed to answer under Regulation FD and Regulation G we will be happy to do so. Thank you.

We look forward to speaking with you at upcoming investor conferences or on our next quarterly call.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You can now disconnect. Have a good day.

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