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Republic Services, Inc. (NYSE:RSG)

Q3 2007 Earnings Call

November 6, 2007 8:30 am ET

Executives

Jim O'Connor - Chairman and CEO

Tod Holmes - CFO

Analysts

Jagdeep Ghuman - Credit Suisse

Scott Levine - JP Morgan

Bill Fisher - Raymond James

Corey Greendale - First Analysis

Jonathan Ellis - Merrill Lynch

Leone Young - Citigroup

Marshall Reid - Banc of America

Brian Butler - FBR

Operator

Good morning and welcome to the Third Quarter ConferenceCall for Investors in Republic Services. Republic is traded on the New YorkStock Exchange under the symbol RSG. Your host this morning is RepublicChairman and CEO, Jim O'Connor. Today's call is being recorded and allparticipants are in a listen-only mode. There will be a question-and-answer sessionfollowing Republic's summary of quarterly earnings. I will provide you withspecific instructions for questions later in the call.

At this time, it is my pleasure to turn the call over to Mr.O'Connor. Good morning, Mr. O'Connor.

Jim O'Connor

Good morning Dennis, and thank you. Good morning and thankyou for joining us. This is Jim O'Connor and I would like to welcome everyoneto Republic Services' third quarter conference call. This morning, Tod Holmes,our Chief Financial Officer, and Ed Lang, our Treasurer, are joining me as wediscuss our third quarter performance.

I would like to take a moment to remind everyone that someof the information that we will discuss with you today contains forward-lookingstatements, which involve risks and uncertainties and may be materiallydifferent from actual results. Our SEC filings discuss factors that could causeactual results to differ materially from expectations. Additionally, thematerial that we discuss today is time sensitive. If in the future, you listento a rebroadcast or a recording of this conference call, you should besensitive to the date of the original call, which is November 6, 2007. Pleasenote that this call is the property of Republic Services, Incorporated, anyredistribution, retransmission, or rebroadcast of this call in any form withoutthe expressed written consent of Republic Services is strictly prohibited.

During the third quarter, we continued to deliver on pricinginitiatives and margin improvement. Our performance exceeded our originalexpectations and we have increased earnings guidance twice this year. Webelieve the current pricing environment is sustainable and the key results forthe quarter were; Republic's revenue grew 2.4% to $806 million. We achievedinternal growth of 2.9% with 4.9% of price improvement and negative 2% volumegrowth.

Our third quarter volume growth comparison was impacted by aslow-down in the residential housing construction activity and lower landfillvolumes. Price growth continues to be strong. Core price is up 4%. Price is themost important factor driving increased margins and increased return oninvested capital.

Within our landfill business, our core price was upapproximately 3.2% in the quarter. We continue to see sequential improvement inlandfill pricing.

As landfill and residential collection contracts renew, weare seeing consistent price increases and a high level of retention. Thebiggest impact on volume growth was in our temporary roll-off business. Residentialconstruction volumes decreased approximately 12%, which is similar to the firsthalf year performance.

In addition, residential construction related to C&D andspecial waste volumes, we are down at our rentals. We are still experiencinglow single-digit growth in our commercial construction and permanent roll-offvolumes. Despite the net volume reductions, temporary roll-off pricing hasremained stable.

Operating margins, excluding environmental remediationcosts, improved 310 basis points to 20%. This is the first time our marginshave been at this level since the fourth quarter of 2000. We are focused on allcomponents of our cost structure to ensure we remain competitive in ourmarketplace.

Republic had a number of significant achievements in thequarter. Our free cash flow for the second quarter was $60 million. During thequarter, we continued to return cash to our shareholders. In the third quarter,we repurchased 4.2 million shares of stock for $127 million.

Republic has approximately $207 million remaining under theexisting authorization for share repurchase as of September 30th. Since theinception of our share repurchase program in July 2000, we have repurchasedapproximately $2.1 billion of Republic stock, or 40% of our outstanding shares.

During the third quarter, we extended two existing South Florida franchise agreements for up to five yearsat higher pricing. We continue to utilize our return on investment pricing toolon all renewals of franchises and municipal contracts.

And at this time, now I'd like to turn the call over to TodHolmes for our financial review of the third quarter.

Tod Holmes

Thank you, Jim. I'll begin my review of the company'sfinancial results by discussing third quarter revenue.

As Jim indicated, the third quarter revenues rose 2.4% to $806million from $787 million last year, with internal growth of 2.9%. Total pricewas 4.9% with 4% coming from core price, a decrease of 10 basis points orone-tenth of 1% from fuel surcharges, and an increase from environmental feesof one-tenth of 1%, and an increase from commodities of nine-tenths of 1%.

During the quarter, we continued to benefit from our ongoingprice increase strategy in all lines of business. We have been successful in2007, securing price increases to provide adequate returns on our substantialinvestment, and we believe that this trend will continue in the fourth quarterand also throughout 2008.

Our total volume declined 2%. Core volume was down 1.9%, andnon-core volume was down one-tenth of 1%. Divestitures accounted for the remainingfive-tenths of 1% reduction in our revenue.

Third quarter year-over-year margin: Year-over-yearoperating margins decreased by 100 basis points from 16.9% to 15.9%. However,during the third quarter of 2007, we recorded a pre-tax charge of $32.9 millionor 410 basis points related to an increase in cost to remediate landfills in Ohio and California.The charge increased cost of operations by 390 basis points and DD&A by 20basis points. Excluding this charge, the year-over-year operating margins increasedby 310 basis points from 16.9% to 20%.

The key components of our year-over-year margin increase,excluding the landfill charge, are as follows. Truck maintenance, positive 10basis points; health and risk insurance, a negative 50 basis points; fuel, apositive 10 basis points; landfill operating costs, a positive 50 basis points;disposal and subcontracting costs, positive 160 basis points; labor, a positive40 basis points; DD&A, a positive 30 basis points; and SG&A, a positive60 basis points for a total improvement of 310 basis points.

Now let me briefly comment on the components of these year-over-yearmargin change. First: Truck Maintenance during the third quarter of 2007 continuedfocus on cost saving initiatives, coupled with improved pricing resulted in amodest reduction in truck maintenance expense.

Second, Risk and Health Insurance: Insurance expense duringthe third quarter of 2007 was 5.6% of revenues, which was higher in the thirdquarter of 2006 due primarily to higher medical cost. We continue to believethat risk and health insurance cost, as a percentage of revenue, will be in arange of approximately 5.6% to 6%.

Third, Fuel: Our average wholesale price per gallondecreased from $2.80 in the third quarter of '06, to $2.76 in the third quarterof '07. Current fuel prices, however, are approximately $3.16 per gallon. So wewill have a little fourth quarter headwind from fuel.

Fourth, Landfill Operating Expenses: During the thirdquarter, we benefited from lower year-over-year landfill operating cost due tolower C&D volumes and improved pricing. Also during the third quarter of2006, we were beginning to see some higher cost at our County-wide facility.

The fifth is disposal and subcontracting cost. Again this isour largest cost category for which the impact of improved pricing is clearlyvisible. Also dry weather, particularly in the southeast, helped to lowerdisposal cost by about 40 basis points.

Sixth, Labor Cost: During the third quarter we continue tobenefit from modest improvements which, coupled with improved pricing,contributed to our margin growth.

Seventh, DD&A: The decrease in DD&A as a percentageof revenue is due to higher year-over-year revenue and improved pricing.

And finally SG&A. Third quarter SG&A was 9.5% ofrevenues. This decrease in SG&A is due to lower incentive compensationexpense, which is about 50 basis points. We believe that SG&A as apercentage of revenue will be approximately 10% for fiscal 2007.

Looking ahead, as Jim had indicated earlier, we believe thatmargin expansion for fiscal 2007 should be in the range of a 180 basis pointsto a 190 basis points.

Now let's turn our attention to the third quarter operatingincome before depreciation, amortization, depletion and accretion.

Excluding the landfill remediation charges, theyear-over-year operating income before DD&A, increased by $28 million, anincrease of 13.1% from $214 million, or 27.2% in the third quarter of '06 to$242 million or 30% margin in the third quarter of 2007. The last time weachieved 30% EBITDA margins was in the fourth quarter of 2000.

Next, I'll discuss free cash flow. Free cash flow for thethird quarter of 2007 was $60 million. This is based on cash provided byoperating activities of a $127 million less purchases of property and equipmentof $69 million, plus the proceeds from the sale of property and equipment of $2million. And that yields the $60 million of free cash flow.

Our free cash flow for the nine months ended September 30,2007 was $259 million. This is based upon cash provided by operating activitiesof $470 million, plus purchases of property and equipment of $216 million, plusproceeds from the sale of property of $5 million yielding $259 million of freecash flow.

For the nine-months ended September 30th, 2007 the companyactually took delivery of $184 million of capital. The statement of cash flowshows purchases of property and equipment of $216 million. This differencerepresents property and equipment that the company received during 2006, whatwas paid for during 2007. Hence, there is a slight difference between what yousee on the statement of cash flows and what you see or will see in our 10-Q inthe detail for MD&A on the equipment.

This reclassification on the statement of cash flow is fromcash provided by operating activities to the purchases of property andequipment. So, free cash flow does not change. We believe the free cash flowfor 2007 will be in the range of $320 million to $325 million, which again, wasour increased guidance that we gave in July of 2007.

Items impacting cash balances, during the third quarter of2007, we purchased $4.2 million shares of our common stock for approximately$127 million or $30.30 a share. Actual share account at September 30th, 2007was $187.1 million shares.

Republic's balance sheet remains very strong. At September30th, our accounts receivable balance was $320 million and our day-salesoutstanding were 36 days. Net debt is $1.525 billion, which is up modestly from$1.430 billion at December 31st, 2006 and our net debt-to-total capital atSeptember 30th, 2007 is 54%.

Now, I will turn the call back over to Jim O'Connor.

Jim O'Connor

Thank you, Tod. As you know, we have taken charges twicethis year related to environmental remediation cost. At our Countywide facilityin Ohio,Republic is in compliance with the Findings and Orders set by the Ohio EPA. Inaddition, we are in full compliance with existing permits and licenses issuedto operate the facility today. Our Countywide facility has experienced higher leachate disposal costs as well as a modification to thesite design to isolate the area experiencing a reaction that generates hightemperatures. We have seen settlement, leachatevolume and heat subsiding in this area of the landfill. But not as quickly aswe saw in laboratory work on the materials disposed off at the facility whichwe had forecasted earlier.

Our internal and external landfill engineers have concludeda thorough analysis of the future remediation requirements and reviewed thisinformation with local officials. We believe the additional reserve that wehave booked will cover all future costs. We expect this process to continue forthe next 12 to 18 months.

In California,the accrual is related to higher leachate cost thatwill occur until a new onsite treatment facility is operational in 2009. Therewill be no further accruals related to this site.

From a cash flow perspective, approximately $21 million ofthe $55 million in landfill charges will be spent in 2007. We will spendapproximately $18 million in 2008 and the remaining $16 million will be spentin 2009 and after. Republic has reported earnings per share for the thirdquarter was $0.35, excluding environmental remediation cost, EPS was $0.46,which is an 18% improvement versus the third quarter of 2006.

Our updated EPS guidance for the full year is $1.65 to$1.66, a 19% improvement versus the full year 2006, excluding the remediationcharges recognized this year. We are on track to deliver 180 to 190 basispoints of margin improvement to operating margins. This is consistent with ouroriginal guidance and demonstrates the impact of improved pricing on marginsand returns.

Previously discussed our 2007 business objectives arecentered on improving margins by achieving appropriate price increases tooffset inflationary costs and business risks, improving our market position,standardizing significant business processes and rationalizing our coststructure. I'd like to thank all the employees of Republic Services for theirdedication and hard work which has resulted in another strong performance.

Operator, at this time, I'd like to open the line forquestions.

Question-and-AnswerSession

Operator

Thank you. We will now begin the question-and-answersession. (Operator Instructions). Thank you. Our first question comes fromJagdeep Ghuman with Credit Suisse. You may ask your question.

Jagdeep Ghuman -Credit Suisse

Good morning.

Jim O'Connor

Good morning.

Jagdeep Ghuman -Credit Suisse

Just wondering, could you touch upon on the fuel recoveryside, what percent of your revenue base has some sort of fuel recovery costbuilt-in in terms of contracts?

Tod Holmes

Outside of our municipal contracts and franchise, we gotabout -- and this is approximately about 60% of our revenue we have discretionover. Now, some of that 60%, obviously, we have some contracts signed thatwouldn't allow us necessarily to pass it through, but it's a small percentage.So of that portion of our revenue, we have a high penetration of fuel surchargerecovery, I'd say probably somewhere around 90%.

Jagdeep Ghuman -Credit Suisse

Okay. And within the municipal and the franchise side, it'sbasically built-in via CPI escalator?

Tod Holmes

The majority of them are built into the index that adjuststhe price in the contracts. We do have and have been successful over the lastyear, year and a half, in amending some of our franchise agreements for fuelsurcharge pass-throughs.

Operator

Thank you. Our next question comes from Scott Levine with JPMorgan. You may ask your question.

Scott Levine - JPMorgan

Good morning.

Jim O'Connor

Good morning, Scott

Scott Levine - JPMorgan

Regarding the quarter, could you comment on what the volumeenvironment roundup is looking like as the quarter progress? Were things fairlyeven moving through the quarter into October, or was there any appreciablechange?

Jim O'Connor

No. I think year-over-year we're still seeing the same sortsof impacts from the residential construction business. We're seeing temporaryvolumes of anywhere from 10% to 15%. I think, in the third quarter compprobably, we're seeing probably the largest impact resulting from our Florida operations,where we've seen significant impacts on the construction business. But again,all reported within that 10% to 15% drop, but the majority of it is beingexperienced in Florida.

C&D volumes at landfills are down a comparablepercentage on a year-over-year basis. Third quarter, we're down about 12% orso. But again, we've not seen anything. So I guess when we look at it, we'd saythat the economy is still pretty resilient on our other lines of business andwe're experiencing growth. And sequentially, quarter-to-quarter, on C&Dlandfill volumes in our landfills, we're seeing it to be relatively flat.

Scott Levine - JPMorgan

Okay, one follow-up on landfill pricing. Sounds like you'reencouraged by what you're seeing there as well. I was wondering if you couldcomment a little bit more in detail regarding some of the markets you flaggedas focal areas in the Midwest, perhaps in a more competitive urban markets youmentioned in the last call?

Jim O'Connor

Yeah. We still haven't seen much movement in the Canadianwaste pricing. I mean when we look at pricing in Toronto,the independent transfer stations in Torontohave a huge spread over transportation and disposal into the US. And we havebeen trying to eat away at some of that because, again, these are risk assetsand there is a lack of volume in Canada for these kinds of waste.

So we haven't seen much price movement there. We've beentrying to move it up in this quarter. We have got a little bit of resistance.The other market was in our Eastern Kentucky operations, predominantly in Louisville, and we haveto see much landfill pricing movement in that particular market.

Operator

Thank you. Our next question comes from Bill Fisher withRaymond James. You may ask your question.

Bill Fisher - RaymondJames

Hi. Good morning

Jim O'Connor

Good morning, Bill

Bill Fisher - RaymondJames

Jim, I'm just following up on landfill volumes. As you lookout the next few quarters or so on a year-over-year basis, do you start hittingeasier comps from the C&D side, do you anniversary some of the moves, Ithink, you made on special waste, or just what are some of the moving partsthere, basically does that become less of a drag?

Jim O'Connor

Yeah. I think it will become less of a drag as we get into'08, I mean, obviously, unless the economy takes another downturn. But we'restarting to see it flattened out, and maybe even see some modification into thefourth quarter of this year, or some lowering of that in the fourth quarter.But I think, yes, we'll see the comps getting better next year.

Bill Fisher - RaymondJames

Okay. And just a follow-up for Tod actually, can you give asense of where the growth or new cap spending will be on '07, and basically ifvolumes stay soft, do you see CapEx being the same or lower in '08, or how dowe kind of think about that?

Tod Holmes

We're not going to comment on '08. We're in the process ofputting together our 2008 business plan. But I would say that our 2007 capitalspending is similar to what we said in our July call, which is in that range ofabout $295 million to $300 million.

Operator

Thank you. Our next question comes from Corey Greendale withFirst Analysis. You may ask your question.

Corey Greendale -First Analysis

Hi. Good morning.

Jim O'Connor

Good morning, Corey.

Corey Greendale -First Analysis

A question for Tod, I was hoping you could elaborate a littlemore on what helped SG&A in the quarter and whether the dollar amount is agood run rate to use going forward?

Tod Holmes

Yeah. Again, in our notes, I think we talked about a 10% runrate on a go-forward basis. Obviously, when we took this charge, it had animpact on incentive compensations for the company. So there's probably about 50to 60 basis points of impact in SG&A as a result of the reduction in theaccrual for incentive compensation.

Corey Greendale -First Analysis

Okay. And Jim, on the uses of cash side, you've already donemore repurchases than at least I have been expecting for the year. Can you justtalk a little bit about maybe first of all would you still be more on Q4potentially, and second of all any meaningful change in kind of the thoughtsabout the uses of cash?

Jim O'Connor

Well, we are going to go into the market on an opportunisticbasis. Basically a query, we accelerated the purchasing as well as the Section16 officers bought stock when the market got pressure in early August, and thestock dropped into the $28 to $29 range. So we are going continue to beopportunistic in our approach to buying, and Tod and Ed Lang meet or converseevery morning to determine what our position is in the market today. So wecompleted every share repurchase and we've got through '08 to do that, so weare going to continue to look at the market and again buy accordingly.

Tod Holmes

I think the broader question of what do we do with the cashin terms of the cash strategy, it's essentially unchanged from what we hadarticulated and what the Board had directed us towards in July, which was,share repurchase continues to be the corner stone for cash distributionstrategy, although we'd obviously move the dividend up. So we continue tobelieve that in today's market that these stock prices given the marginexpansion that we have seen and the opportunity we believe in the sector, theshare repurchase should capture substantial value for our shareholders.

Operator

Thank you. Our next question comes from Jonathan Ellis withMerrill Lynch may ask question.

Jonathan Ellis -Merrill Lynch

Thank you. Good morning guys.

Jim O'Connor

Good morning Jonathan.

Tod Holmes

Good morning.

Jonathan Ellis -Merrill Lynch

Just want to talk about overall pricing. I think lastquarter you had talked about expectations for a 4.5% core price growth for fullyear 2007. Wondered if you could talk a little bit about your expectations nowand if that's changed at all with the factors on the deviation?

Tod Holmes

I think may be that we weren't clear Jonathan. I thoughtthat 4.5% was total, but what we are seeing in price is very consistent withwhat we have seen in prior quarters. And again our view, I think as we’vealways articulated and as we are seeing, is to try to move pricing outsomewhere around 100 basis points above CPI, and we are able to do a little bitmore than that currently and of course we have a little bit of benefit fromcommodities stepping up this year in the total price at least.

But I would say that certainly that 4% range is and the coreprice is achievable.

Jim O'Connor

Yeah. I think right now we are literally experiencing thatthe CPI got 2.8%, so we are 120 basis points above that on the core business.And I think it's evident in what we've earlier said that we can expand marginsand we are expanding margins absent the charge of 180 basis points to 190 basispoints and are still on the track to do that.

Jonathan Ellis -Merrill Lynch

Great. And then my other question is, can you just talk specificallyabout the commercial collection market, either announcing terms where pricingis now or may be directionally, how it's faired versus where it was lastquarter?

Tod Holmes

Jonathan, first of all, in terms of the volume of thatbusiness is continuing to grow modestly, I'd say in that 1% to 2% range. Whenyou look at the pricing side of the equation, where we see the mid single-digittypes of increases. And we are holding the business; we don't see any change inour defection. So as we move forward, we think that's the appropriate place tobe.

Jim O'Connor

Right I mean I think the key part to that is that we aregetting price and the defection rates are flat. So again, and they've been flatfor the last I think six or seven quarter. So, that tells me that the market isexcepting the prices and the sector is still strong and is looking still tomove price out.

Operator

Thank you. (Operator Instructions). Our next question comesfrom Leone Young with Citi, you may ask your question.

Leone Young - Citigroup

Yes, good morning, nice quarter.

Jim O'Connor

Thank you.

Leone Young -Citigroup

Obviously, the gross margin was very strong, and as youtalked about due to price. But if you look at that gross margin, is thereanything in there that you would consider somewhat unsustainable besides fuel?

Tod Holmes

Well, I think, we talked about the SG&A in the quarter,so, certainly year-to-date the SG&A is appropriate. The quarter SG&Awas again probably by the 50 to 60 basis point benefit. The other point that Iwould make would be on our disposal side, and we articulated this, I believe inJuly, and continue to see it. The drought down here in the southeast part ofthe country is giving us the benefit in disposal by 40 basis points. So I thinkthose are the two unique items that we've got when we look at the margins.

Leone Young -Citigroup

There is a follow-up to that. If oil prices stay or dieselprices stay where they are do you have a ballpark sense of how that couldpressure margins in the fourth quarter?

Jim O'Connor

Obviously they are moving up. There will be some pressure,but I don't think they are going to be material. We've got the recovery, butthe recovery is mostly dollar for dollar. We are staying right now top of thatLeone, and we are going to still stay with our forecast have been improving themargins upwards to 150 to 200 basis points, right in that range.

Operator

Thank you. Our next question comes from Marshall Reid withBanc of America. You may ask your question.

Marshall Reid - Bancof America

Good morning.

Jim O'Connor

Good morning, Marshall.

Marshall Reid - Bancof America

You talked about renewing contracts at higher prices. Canyou just talk about maybe what kind of price increases you're seeing onrenewals? And I assume, also, you guys were out bidding for new business. Howdoes pricing compare on new business?

Jim O'Connor

Well, I mean, obviously, when we're out looking at newbusiness in the competitive marketplaces, let's say in our commercialindustrial lines, we're moving our pricing up as we're moving pricing out. Sowhen we look at same store sales or pricelist year-over-year, we're movingthose prices up as we're moving price out in the marketplace. So that will beone part of my responsibility.

As we get into the municipal and franchise markets, we'reable to renegotiate price increases, because I think when you look at theexpectations within the sector for higher returns and better pricing, themarket's moving up. The contracts that were renewed had anywhere from highsingle digit to low double-digit price increases only because the surroundingmarketplaces had moved up. So, again, when you look at return expectation,we're seeing returns in bidding and bids upwards to anywhere from 17% to 19%returns on average over the term of the contract.

I think another factor is fuel. So depending on when thatcontract was originally bid and the terms for fuel escalation, most of thecontracts had just a CPI in there, they needed to be reset for the much higherfuel cost that we see today than we saw four or five years ago. So that's alsobeen a factor moving the price up.

Marshall Reid - Bancof America

Okay. And just a follow-up on temporary roll off. Youmentioned price is stable. How sustainable is that given volume losses in amarket, say, like Florida?And is it possible you guys are losing a little share by holding a line onprice in a temporary roll-off?

Jim O'Connor

We don't believe we are. I mean, from our fieldreconnaissance, it says we're not. I think those are probably better questionsasked of our competitors than us. Based on our reconnaissance, we'd say no.

And is it sustainable? As I've said when we've been outseeing investors, and then out to conferences, if there was going to be animpact we would have seen it by now. And the volume decrease here that we'reexperiencing today is just as strong as the commercial decrease we saw back in2001. So there has been no move to market share. We get the isolated blips, butagain it's the nature of our business, but nothing material or nothinguniversally across the company. So we feel, yes, it is sustainable.

Now again, that depends on how bad the rest of the economymay get if anybody breaks ranks. But I just don't see that happening. It's toohard to recuperate the price. We've had now almost six years to start torecuperate temporary roll off prices. And I think we're not about to want togive those up at this particular stage.

Operator

Thank you our last question of the day comes from BrianButler with FBR. You may ask your question.

Brian Butler - FBR

Good morning.

Jim O'Connor

Good morning, Brian.

Brian Butler - FBR

Just on the C&D volumes, especially I guess on theresidential side, can you put an historical perspective, kind of where the levelsare, I mean way back to 2005 levels or somewhere in between, just help me outwith that.

Jim O'Connor

You mean on the pricing or a volume standpoint?

Brian Butler - FBR

Really on the volumes side.

Jim O'Connor

Well, our business has grown steadily and dramatically overa two or three-year period. So I would think that our volumes are still,particularly with commercial construction being so strong, holding up abovewhere they were two or three years ago. And I would think that the same sort ofsituation applies on a unit pricing basis because of, again, the higher fuelcosts, the higher steel costs that goes into the containers and trucks andequipment.

Brian Butler - FBR

Okay. And then just a follow-up on the acquisition kind ofmarket, are you seeing any more or less competition for assets out there, andcould you comment possibly on what kind of evaluations you're seeing there oranything, is it starting to look less expensive, more expensive?

Jim O'Connor

During the quarter we may have brought a few million dollarsworth of work. There is really not much on the market. So it's a little hard toget a sense of what the pricing is. But again, we're going to stick to ourpricing disciplines and the financial criterion that we've set for ourselves fiveor six years ago on return on investment and internal rate of return. But no,we don't see the multiples coming down the ones that we are talking to there.They are probably right in that 5 to 5.5 to 7 range, depending on whether it'sa fully integrated asset or a tuck-in.

Okay, operator. I think that will conclude today's call. Iwould like to thank everyone for joining us today. I'd like to remind everyonethat a recording of this call is available today and tomorrow by calling203-369-0082. Additionally, recording of the call will be available onRepublic's website at www.republicservices.com.

Thank you for spending time with us today and have a greatday.

Operator

Thank you. At this time, that does conclude today'sconference. All parties may disconnect.

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