-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4H03dFpZwBaYi9HgApC1SJLlurDFy5z780lXPSyOV6lg1VoHWFvsmHgGW/NYIw4 mt8FHxfvmJSdAC9QWoG1KA== 0000950131-97-006860.txt : 19971117 0000950131-97-006860.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950131-97-006860 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE MANAGEMENT INC /DE/ CENTRAL INDEX KEY: 0000104938 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 362660763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07327 FILM NUMBER: 97721542 BUSINESS ADDRESS: STREET 1: 3003 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6305728800 MAIL ADDRESS: STREET 1: 3003 BUTTERFIELD ROAD CITY: OAKBROOK STATE: IL ZIP: 60523 FORMER COMPANY: FORMER CONFORMED NAME: WASTE MANAGEMENT INC DATE OF NAME CHANGE: 19930527 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to COMMISSION FILE NUMBER 1-7327 WASTE MANAGEMENT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2660763 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3003 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 572-8800 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. X YES NO SHARES OF REGISTRANT'S COMMON STOCK, $1 PAR VALUE, ISSUED AND OUTSTANDING, AT OCTOBER 31, 1997 -- 455,024,772 (EXCLUDING 10,886,361 SHARES HELD IN THE WASTE MANAGEMENT, INC. EMPLOYEE STOCK BENEFIT TRUST) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [THIS PAGE INTENTIONALLY LEFT BLANK] 2 WASTE MANAGEMENT, INC. AND SUBSIDIARIES INDEX
PAGE ---- PART I. Financial Information: Consolidated balance sheets as of December 31, 1996 and September 30, 1997..................................................................... 4 Consolidated statements of income (as revised) for the three months and nine months ended September 30, 1996 and 1997.............................................. 6 Consolidated statements of stockholders' equity (as revised) for the nine months ended September 30, 1996 and 1997................................. 7 Consolidated statements of cash flows (as revised) for the nine months ended September 30, 1996 and 1997........................................ 9 Notes to consolidated financial statements................................ 10 Management's discussion and analysis of results of operations and financial condition...................................................... 18 PART II. Other Information................................................ 26
* * * * * * 3 PART I. FINANCIAL INFORMATION WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($000'S OMITTED) ASSETS
DECEMBER SEPTEMBER 31, 1996 30, 1997 ----------- ----------- Current Assets: Cash and cash equivalents.......................... $ 323,288 $ 132,523 Short-term investments............................. 341,338 83,461 Accounts receivable, less reserve of $47,523 in 1996 and $39,285 in 1997.......................... 1,681,817 1,571,476 Employee receivables............................... 10,084 8,030 Parts and supplies................................. 142,417 137,476 Costs and estimated earnings in excess of billings on uncompleted contracts.......................... 240,531 181,828 Prepaid expenses................................... 353,749 350,045 ----------- ----------- Total Current Assets............................. $ 3,093,224 $ 2,464,839 ----------- ----------- Property and Equipment, at cost: Land, primarily disposal sites..................... $ 5,019,065 $ 5,112,779 Buildings.......................................... 1,495,252 1,468,832 Vehicles and equipment............................. 7,520,902 7,357,606 Leasehold improvements............................. 85,998 83,159 ----------- ----------- $14,121,217 $14,022,376 Less--Accumulated depreciation and amortization...... (4,399,508) (4,646,147) ----------- ----------- Total Property and Equipment, Net................ $ 9,721,709 $ 9,376,229 ----------- ----------- Other Assets: Intangible assets relating to acquired businesses, net............................................... $ 3,885,293 $ 3,663,872 Sundry, including other investments................ 1,452,057 1,007,722 Net assets of discontinued operations.............. 214,309 180,058 ----------- ----------- Total Other Assets............................... $ 5,551,659 $ 4,851,652 ----------- ----------- Total Assets................................... $18,366,592 $16,692,720 =========== ===========
The accompanying notes are an integral part of these balance sheets. 4 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($000'S OMITTED EXCEPT PER SHARE AMOUNTS) LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER SEPTEMBER 31, 1996 30, 1997 ----------- ----------- Current Liabilities: Portion of long-term debt payable within one year.. $ 553,493 $ 385,028 Accounts payable................................... 948,350 723,388 Accrued expenses................................... 1,324,324 1,544,248 Unearned revenue................................... 212,541 214,985 ----------- ----------- Total Current Liabilities........................ $ 3,038,708 $ 2,867,649 ----------- ----------- Deferred Items: Income taxes....................................... $ 1,011,593 $ 881,670 Environmental liabilities.......................... 543,723 549,191 Other.............................................. 641,918 647,150 ----------- ----------- Total Deferred Items............................. $ 2,197,234 $ 2,078,011 ----------- ----------- Long-Term Debt, less portion payable within one year. $ 6,971,607 $ 6,405,304 ----------- ----------- Minority Interest in Subsidiaries.................... $ 1,186,955 $ 1,157,590 ----------- ----------- Commitments and Contingencies........................ $ $ ----------- ----------- Put Options.......................................... $ 95,789 $ -- ----------- ----------- Stockholders' Equity: Preferred stock, $l par value (issuable in series); 50,000,000 shares authorized; none outstanding during the periods................................ $ -- $ -- Common stock, $l par value; 1,500,000,000 shares authorized; 507,101,774 shares issued in 1996 and 1997.............................................. 507,102 507,102 Additional paid-in capital......................... 864,730 987,111 Cumulative translation adjustment.................. (79,213) (210,206) Retained earnings.................................. 4,363,754 4,543,700 ----------- ----------- $ 5,656,373 $ 5,827,707 Less: Treasury stock; 12,782,864 shares in 1996 and 40,862,713 in 1997, at cost................... 419,871 1,261,803 1988 Employee Stock Ownership Plan............... 6,396 1,396 Employee Stock Benefit Trust; 10,886,361 shares in 1996 and 1997, at market..................... 353,807 380,342 ----------- ----------- Total Stockholders' Equity....................... $ 4,876,299 $ 4,184,166 ----------- ----------- Total Liabilities and Stockholders' Equity..... $18,366,592 $16,692,720 =========== ===========
The accompanying notes are an integral part of these balance sheets. 5 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (AS REVISED) FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) (000'S OMITTED EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1996 1997 1996 1997 ---------- ---------- ---------- ---------- Revenue........................ $2,372,746 $2,351,189 $6,848,219 $6,876,806 ---------- ---------- ---------- ---------- Operating expenses........... $1,651,420 $1,839,212 $4,774,464 $5,096,228 Selling and administrative expenses.................... 264,947 266,491 774,594 781,445 Interest expense............. 107,448 98,477 310,045 309,512 Interest income.............. (4,999) (6,201) (17,660) (28,079) Minority interest............ 29,533 30,435 85,894 86,111 Sundry income, net........... (35,869) (8,122) (80,162) (174,554) ---------- ---------- ---------- ---------- Income from continuing operations before income taxes....................... $ 360,266 $ 130,897 $1,001,044 $ 806,143 Provision for income taxes... 144,991 67,696 408,614 389,316 ---------- ---------- ---------- ---------- Income from continuing operations.................. $ 215,275 $ 63,201 $ 592,430 $ 416,827 Income from discontinued businesses, less applicable income taxes and minority interest of $28,961 and $63,245 for the three months and nine months ended September 30, 1996, respectively, and $78,400 for the nine months ended September 30, 1997.......... 26,377 -- 54,736 810 ---------- ---------- ---------- ---------- Net Income..................... $ 241,652 $ 63,201 $ 647,166 $ 417,637 ========== ========== ========== ========== Average Common and Common Equivalent Shares Outstanding. 490,693 455,945 491,712 468,980 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share Continuing operations.......... $ 0.44 $ 0.14 $ 1.21 $ 0.89 Discontinued operations........ 0.05 -- 0.11 -- ---------- ---------- ---------- ---------- Net Income..................... $ 0.49 $ 0.14 $ 1.32 $ 0.89 ========== ========== ========== ========== Dividends Declared Per Share... $ 0.16 $ 0.17 $ 0.47 $ 0.50 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. These state- ments of income have been revised for certain reclassifications and adjust- ments. See Note 1. 6 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (AS REVISED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
1988 EMPLOYEE EMPLOYEE ADDITIONAL CUMULATIVE STOCK STOCK COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST -------- ---------- ----------- ---------- -------- --------- -------- Balance, January 1, 1996................... $498,817 $422,801 $(102,943) $4,486,877 $ -- $13,062 $350,151 Net income for the period................. -- -- -- 647,166 -- -- -- Cash dividends ($.47 per share)................. -- -- -- (231,074) -- -- -- Dividends paid to Employee Stock Benefit Trust.................. -- 5,202 -- (5,202) -- -- -- Stock repurchase (11,100,000 shares).... -- -- -- -- 359,172 -- -- Stock issued upon exercise of stock options................ 217 (8,323) -- -- (31,149) -- (28,622) Treasury stock received in connection with exercise of stock options................ -- -- -- -- 791 -- -- Tax benefit of non- qualified stock options exercised.............. -- 5,378 -- -- -- -- -- Contribution to 1988 Employee Stock Ownership Plan......... -- -- -- -- -- (5,000) -- Treasury stock received as settlement for claims................. -- -- -- -- 2,450 -- -- Common stock issued upon conversion of Liquid Yield Option Notes..... 111 1,968 -- -- -- -- -- Stock issued for acquisitions........... 7,957 221,820 -- -- (51) -- -- Temporary equity related to put options......... -- (42,180) -- -- -- -- -- Proceeds from sale of put options............ -- 16,362 -- -- -- -- -- Adjustment of Employee Stock Benefit Trust to market value........... -- 36,360 -- -- -- -- 36,360 Cumulative translation adjustment of foreign currency statements.... -- -- 2,598 -- -- -- -- -------- -------- --------- ---------- -------- ------- -------- Balance, September 30, 1996................... $507,102 $659,388 $(100,345) $4,897,767 $331,213 $ 8,062 $357,889 ======== ======== ========= ========== ======== ======= ========
The accompanying notes are an integral part of this statement. This statement of stockholders' equity has been revised for certain reclassifications and adjustments. See Note 1. 7 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (AS REVISED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
1988 EMPLOYEE EMPLOYEE ADDITIONAL CUMULATIVE STOCK STOCK COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST -------- ---------- ----------- ---------- ---------- --------- -------- Balance, January 1, 1997................... $507,102 $864,730 $ (79,213) $4,363,754 $ 419,871 $ 6,396 $353,807 Net income for the period................. -- -- -- 417,637 -- -- -- Cash dividends ($.50 per share)................. -- -- -- (232,248) -- -- -- Dividends paid to Employee Stock Benefit Trust.................. -- 5,443 -- (5,443) -- -- -- Stock repurchase (30,000,000 shares).... -- -- -- -- 902,961 -- -- Stock issued upon exercise of stock options and grant of restricted stock....... -- (5,040) -- -- (56,640) -- -- Tax benefit of non- qualified stock options exercised.............. -- 2,578 -- -- -- -- -- Contribution to 1988 Employee Stock Ownership Plan......... -- -- -- -- -- (5,000) -- Treasury stock received as settlement for claims................. -- -- -- -- 141 -- -- Common stock issued upon conversion of Liquid Yield Option Notes..... -- (262) -- -- (778) -- -- Stock issued for acquisitions........... -- (1,057) -- -- (3,752) -- -- Temporary equity related to put options......... -- 95,789 -- -- -- -- -- Settlement of put options................ -- (1,605) -- -- -- -- -- Adjustment of Employee Stock Benefit Trust to market value........... -- 26,535 -- -- -- -- 26,535 Cumulative translation adjustment of foreign currency statements.... -- -- (130,993) -- -- -- -- -------- -------- --------- ---------- ---------- ------- -------- Balance, September 30, 1997................... $507,102 $987,111 $(210,206) $4,543,700 $1,261,803 $ 1,396 $380,342 ======== ======== ========= ========== ========== ======= ========
The accompanying notes are an integral part of this statement. This statement of stockholders' equity has been revised for certain reclassifications and adjustments. See Note 1. 8 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AS REVISED) FOR THE NINE MONTHS ENDED SEPTEMBER 30 INCREASE (DECREASE) IN CASH (UNAUDITED) ($000'S OMITTED)
1996 1997 ---------- ----------- Cash flows from operating activities: Net income for the period........................... $ 647,166 $ 417,637 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................... 700,952 649,172 Provision for deferred income taxes............... 208,465 (134,530) Minority interest in subsidiaries................. 92,874 86,511 Interest on Liquid Yield Option Notes (LYONs) and WMI Subordinated Notes........................... 8,422 13,069 Gain on disposition of assets and businesses...... (86,588) (182,766) Contribution to 1988 Employee Stock Ownership Plan............................................. 5,000 5,000 Changes in assets and liabilities, excluding effects of acquired companies: Receivables, net.................................. (60,980) 28,218 Other current assets.............................. (13,205) 22,224 Sundry other assets............................... (16,699) 35,057 Accounts payable.................................. (205,074) (201,365) Accrued expenses and unearned revenue............. 91,620 358,910 Deferred items.................................... (198,348) (34,810) Other, net........................................ 15,682 (709) ---------- ----------- Net cash provided by operating activities............ $1,189,287 $ 1,061,618 ---------- ----------- Cash flows from investing activities: Short-term investments.............................. $ 12,046 $ (57,011) Capital expenditures................................ (855,109) (616,824) Proceeds from asset monetization program............ 389,867 1,369,296 Cost of acquisitions, net of cash acquired.......... (64,561) (42,252) Other investments................................... (144,070) (45,628) Acquisition of minority interests................... (336,431) (67,605) ---------- ----------- Net cash provided by (used for) investing activities. $ (998,258) $ 539,976 ---------- ----------- Cash flows from financing activities: Cash dividends...................................... $ (231,074) $ (232,248) Proceeds from issuance of indebtedness.............. 2,151,705 947,249 Repayments of indebtedness.......................... (1,732,553) (1,625,677) Proceeds from exercise of stock options, net........ 50,874 51,600 Contributions from minority interests............... 3,700 -- Other distributions to minority shareholders by affiliated companies............................... (9,066) (28,717) Stock repurchases................................... (359,172) (902,961) Proceeds from sale of put options................... 16,362 -- Settlement of put options........................... -- (1,605) ---------- ----------- Net cash used for financing activities............... $ (109,224) $(1,792,359) ---------- ----------- Net increase (decrease) in cash and cash equivalents. $ 81,805 $ (190,765) Cash and cash equivalents at beginning of period..... 169,541 323,288 ---------- ----------- Cash and cash equivalents at end of period........... $ 251,346 $ 132,523 ========== =========== The Company considers cash and cash equivalents to include currency on hand, demand deposits with banks and short-term investments with maturities of less than three months when purchased. Supplemental disclosure of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized.............. $ 285,383 $ 289,188 Income taxes, net of refunds received............. $ 250,420 $ 391,818 Supplemental schedule of noncash investing and financing activities: LYONs converted into common stock of the Company.... $ 2,079 $ 516 Liabilities assumed in acquisitions of businesses... $ 102,982 $ 28,268 Fair market value of Company stock issued for acquired businesses................................ $ 229,828 $ 2,695 Marketable securities received from sale of discontinued operations and disposition of certain businesses......................................... $ -- $ 152,170
The accompanying notes are an integral part of these statements. These statements of cash flows have been revised for certain reclassifications and adjustments. See Note 1. 9 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ($000'S OMITTED IN ALL TABLES) The financial statements included herein have been prepared by Waste Management, Inc. ("WMI" or the "Company") (formerly WMX Technologies, Inc.) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial information included herein reflects, in the opinion of the Company, all adjustments (which, subject to the discussion below under the caption "Revisions," include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosures of contingencies. Future events could alter such estimates in the near term. See "Management's Discussion and Analysis-- Outlook" herein. NOTE 1--REVISIONS The Company has reclassified or adjusted certain items included in its previously reported 1997 and 1996 financial statements. These changes have been made in connection with studies initiated by management in the third quarter of 1997. Results from the first phase of this work were reviewed by the Audit Committee of the Board of Directors in November 1997. This work is ongoing under the active oversight of the Audit Committee. For further information see "Management's Discussion and Analysis--Outlook" herein. The Consolidated Statements of Cash Flows (As Revised) for the fourth quarter of 1996 will include reclassifications similar to those in the nine month period ended September 30, 1996. A comparison of the previously reported and revised Consolidated Statements of Income for the three and nine month periods ended September 30, 1996 and 1997 follows. See Note 14 for revised financial data by quarter. Except as otherwise expressly stated in these Notes, all financial information in this Report is presented inclusive of such changes. CONSOLIDATED STATEMENTS OF INCOME (AS REVISED) (000'S OMITTED EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1996 1996 ---------------------- ---------------------- PREVIOUSLY PREVIOUSLY REPORTED AS REVISED REPORTED AS REVISED ---------- ---------- ---------- ---------- Revenue........................ $2,372,746 $2,372,746 $6,848,219 $6,848,219 ---------- ---------- ---------- ---------- Operating expenses............. $1,630,518 $1,651,420 $4,744,622 $4,774,464 Selling and administrative expenses...................... 240,383 264,947 732,934 774,594 Interest expense............... 89,948 107,448 278,045 310,045 Interest income................ (4,999) (4,999) (17,660) (17,660) Minority interest.............. 32,155 29,533 90,756 85,894 Sundry income, net............. (23,540) (35,869) (62,254) (80,162) ---------- ---------- ---------- ---------- Income from continuing operations before income taxes......................... $ 408,281 $ 360,266 $1,081,776 $1,001,044 Provision for income taxes..... 168,117 144,991 443,699 408,614 ---------- ---------- ---------- ---------- Income from continuing operations.................... $ 240,164 $ 215,275 $ 638,077 $ 592,430 Income from discontinued operations.................... 5,042 26,377 15,349 54,736 ---------- ---------- ---------- ---------- Net income..................... $ 245,206 $ 241,652 $ 653,426 $ 647,166 ========== ========== ========== ========== Average common and common equivalent shares outstanding. 490,693 490,693 491,712 491,712 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share Continuing operations.......... $ 0.49 $ 0.44 $ 1.30 $ 1.21 Discontinued operations........ 0.01 0.05 0.03 0.11 ---------- ---------- ---------- ---------- Net Income..................... $ 0.50 $ 0.49 $ 1.33 $ 1.32 ========== ========== ========== ==========
10 CONSOLIDATED STATEMENTS OF INCOME (AS REVISED) (000'S OMITTED EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1997 1997 ---------------------- ---------------------- PREVIOUSLY PREVIOUSLY REPORTED AS REVISED REPORTED AS REVISED ---------- ---------- ---------- ---------- Revenue........................ $2,351,189 $2,351,189 $6,876,806 $6,876,806 ---------- ---------- ---------- ---------- Operating expenses............. $1,674,910 $1,839,212 $4,860,742 $5,096,228 Selling and administrative expenses...................... 256,291 266,491 740,620 781,445 Interest expense............... 98,477 98,477 296,762 309,512 Interest income................ (6,201) (6,201) (28,079) (28,079) Minority interest.............. 30,435 30,435 86,511 86,111 Sundry income, net............. (6,920) (8,122) (7,568) (174,554) ---------- ---------- ---------- ---------- Income from continuing operations before income taxes......................... $ 304,197 $ 130,897 $ 927,818 $ 806,143 Provision for income taxes..... 132,096 67,696 397,281 389,316 ---------- ---------- ---------- ---------- Income from continuing operations.................... $ 172,101 $ 63,201 $ 530,537 $ 416,827 Income from discontinued operations.................... -- -- -- 810 ---------- ---------- ---------- ---------- Net income..................... $ 172,101 $ 63,201 $ 530,537 $ 417,637 ========== ========== ========== ========== Average common and common equivalent shares outstanding. 455,945 455,945 468,980 468,980 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share Continuing operations.......... $ 0.38 $ 0.14 $ 1.13 $ 0.89 Discontinued operations........ -- -- -- -- ---------- ---------- ---------- ---------- Net Income..................... $ 0.38 $ 0.14 $ 1.13 $ 0.89 ========== ========== ========== ==========
NOTE 2--INCOME TAXES The following table sets forth the provision for income taxes for continuing operations for the three months and nine months ended September 30, 1996 and 1997:
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED 30 SEPTEMBER 30 ------------------ ------------------- 1996 1997 1996 1997 -------- -------- -------- --------- Currently payable.................. $ 60,936 $ 94,883 $200,731 $ 524,428 Deferred........................... 84,249 (26,994) 208,465 (134,530) Amortization of deferred investment credit............................ (194) (193) (582) (582) -------- -------- -------- --------- $144,991 $ 67,696 $408,614 $ 389,316 ======== ======== ======== =========
The negative deferred tax provision for the three months and nine months ended September 30, 1997, is primarily due to previously deferred taxes becoming payable as a result of the Company's asset monetization program. NOTE 3--BUSINESS COMBINATIONS During 1996, the Company and its principal subsidiaries acquired 83 businesses for $104,778,000 in cash (net of cash acquired) and notes, $39,446,000 of debt assumed, and 8,210,568 shares of the Company's common stock. These acquisitions were accounted for as purchases. During the nine months ended September 30, 1997, the Company and its principal subsidiaries acquired 27 businesses for $42,252,000 in cash (net of cash acquired) and notes, $15,756,000 of debt assumed, and 121,551 shares of the Company's common stock. These acquisitions were accounted for as purchases. The pro forma effect of the acquisitions made during 1996 and 1997 is not material. 11 On June 20, 1997, the Company announced an offer to acquire, for $15 per share in cash, all of the outstanding shares of Wheelabrator Technologies Inc. ("WTI") it does not already own. The Company currently owns approximately 67% of the 156.6 million outstanding WTI shares. The offer is subject to approval by a committee of independent WTI directors and the holders of a majority of the outstanding WTI shares, other than those held by the Company voting on it at a special meeting of WTI stockholders to be called for that purpose. Several lawsuits have also been filed which seek, among other things, to enjoin the proposed transaction. NOTE 4--BUSINESS DIVESTITURES In the first nine months of this year, the Company has divested 17 solid waste operations in North America for a total price of $284.1 million. The largest of these transactions was the sale of most of its Canadian operations. In June, the Company's Waste Management International plc ("WM International") subsidiary completed the sale of substantially all of its remaining operations in France for 67.5 million pounds, or approximately $112 million, and in July sold its business in Spain for 9.9 million pounds, or approximately $16.3 million. NOTE 5--DISCONTINUED OPERATIONS In line with the Company's strategy to focus on waste management services, other industry segments, including the engineering, construction and consulting businesses and industrial scaffolding business of Rust International Inc. ("Rust") and the water businesses of WTI have been classified as discontinued operations. The discontinued businesses have been segregated from continuing operations in the accompanying balance sheets and statements of income. Revenue from the discontinued businesses was $122.3 million for the three months and $363.7 million for the nine months ended September 30, 1997, and $317.9 million and $1,087.5 million for the comparable periods in 1996. The decline relates primarily to businesses sold in the interim. Net income from the discontinued operations for the three months and nine months ended September 30, 1997, was not material and was included in the reserve for loss on disposition provided previously. Results of operations for the three months and nine months ended September 30, 1996 included $22.1 million and $46.1 million of after tax gains on sales of discontinued operations. The 1997 results included $0.8 million of after tax gains on sales of discontinued operations of a WTI water business. As of September 30, 1997, the principal remaining businesses to be disposed of are Rust Environment and Infrastructure Inc. and Matrix Engineering Inc. If not disposed of by December 31, 1997, generally accepted accounting principles would require the financial statements to be restated to reflect such businesses as a continuing operation unless sufficient evidence indicates such disposition would be accomplished in early 1998. Revenues for the nine months ended September 30, 1996 and 1997 were $236.0 million and $241.6 million, respectively. NOTE 6--ACCOUNTING PRINCIPLES In February 1997, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 128, "Earnings Per Share" ("EPS"). This statement supersedes Accounting Principles Board Opinion No. 15. Primary EPS is replaced by Basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. In addition, Fully Diluted EPS is replaced with Diluted EPS, which gives effect to all common shares that would have been outstanding if all dilutive potential common shares (relating to such things as the exercise of stock options and conversion of convertible debt) had been issued. FAS No. 128 is effective for interim and annual periods ending after December 15, 1997. Earlier application is not permitted, but when the opinion becomes effective, all prior periods presented must be restated. EPS 12 computed in accordance with FAS No. 128 for the three months and nine months ended September 30, 1996 and 1997, would have been as follows:
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER SEPTEMBER 30 30 ----------- ----------- 1996 1997 1996 1997 ----- ----- ----- ----- Continuing Operations-- Basic.............................................. $0.44 $0.14 $1.21 $0.89 Diluted............................................ $0.43 $0.14 $1.18 $0.88 Discontinued Operations-- Basic.............................................. $0.05 $ -- $0.11 $ -- Diluted............................................ $0.05 $ -- $0.11 $ --
In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive Income" and FAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." Both statements are effective for fiscal years beginning after December 15, 1997. FAS 130 requires only a different format for presentation of information already included in the Company's financial statements. FAS 131 modifies and expands required segment disclosure but does not affect accounting principles and, accordingly, will not require any change to reported financial position, results of operations or cash flows, although additional segment disclosure will likely be required in both interim and annual financial statements. NOTE 7--DERIVATIVE FINANCIAL INSTRUMENTS From time to time, the Company and certain of its subsidiaries use derivatives to manage interest rate, currency and commodity (fuel) risk. The Company's policy is to use derivatives for risk management purposes only, and it does not enter into such contracts for trading purposes. The Company enters into derivatives only with counterparties which are financial institutions having credit ratings of at least A- or A3, to minimize credit risk. The amount of derivatives outstanding at any one point in time and gains or losses from their use have not been and are not expected to be material to the Company's financial statements. Instruments used as hedges must be effective at managing risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must have a high degree of inverse correlation with changes in market values or cash flows of underlying hedged items. Derivatives that meet the hedge criteria are accounted for under the deferral or accrual method, except for currency agreements as discussed below. If a derivative does not meet or ceases to meet the aforementioned criteria, or if the designated hedged item ceases to exist, then the Company subsequently uses fair value accounting for the derivative, with gains or losses included in sundry income. If a derivative is terminated early, any gain or loss, including amounts previously deferred, is deferred and amortized over the remaining life of the terminated contract or until the anticipated transaction occurs. Interest Rate Agreements. Certain of the Company's subsidiaries have entered into interest rate swap agreements to balance fixed and floating rate debt in accordance with management's criteria. The agreements are contracts to exchange fixed and floating interest rate payments periodically over a specified term without the exchange of the underlying notional amounts. The agreements provide only for the exchange of interest on the notional amounts at the stated rates, with no multipliers or leverage. Differences paid or received are accrued in the financial statements as a part of interest expense on the underlying debt over the life of the agreements and the swap is not marked to market. Currency Agreements. From time to time, the Company and certain of its subsidiaries use foreign currency derivatives to seek to mitigate the impact of translation on foreign earnings and income from foreign investees. Typically these have taken the form of purchased put options or offsetting put and call options with different strike prices. The Company receives or pays, based on the notional amount of the option, the difference between the average exchange rate of the hedged currency against the base currency and the average (strike price) 13 contained in the option. Complex instruments involving multipliers or leverage are not used. Although the purpose for using such derivatives is to mitigate currency risk, they do not qualify for hedge accounting under generally accepted accounting principles and accordingly, must be adjusted to market value at the end of each accounting period with gains or losses included in income. The Company sometimes also uses foreign currency forward contracts to hedge committed transactions when the terms of such a transaction are known and there is a high probability that the transaction will occur. Gains or losses on forward contracts pertaining to such transactions are deferred until the designated transaction is completed. The impact of the forward contract is then included with the results of the underlying transaction in the financial statements. Commodity Agreements. The Company utilizes derivatives to seek to mitigate the impact of fluctuations in the price of fuel used by its vehicles. Quantities hedged do not exceed committed fuel purchases or anticipated usage and accordingly, gains and losses in the hedge positions are deferred and recognized in operating expenses as fuel is purchased. NOTE 8--ENVIRONMENTAL REMEDIATION LIABILITIES The Company has established procedures to evaluate its potential environmental remediation liabilities at sites which it owns or operates, or to which it transported waste. While the Company believes that it has adequately provided for all of its material existing environmental remediation liabilities, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could necessitate the recording of additional liabilities which could be material. For further discussion, see Note 13 and "Management's Discussion and Analysis--Outlook" herein. NOTE 9--STOCKHOLDERS' EQUITY The Boards of Directors of WMI and WTI have authorized their respective companies to repurchase shares of their own common stock (up to 50 million shares in the case of WMI and 30 million shares in the case of WTI) in the open market, in privately negotiated transactions, or through issuer tender offers. These programs extend into 1998. During the 1997 second quarter, WMI purchased 30 million of its shares in a "Dutch Auction" tender offer; it has not repurchased any other shares during 1997. WTI repurchased 5.1 million of its shares in open market transactions during the first six months of 1997; however, in light of the WMI offer to acquire its remaining public shares, WTI has suspended its repurchase activity. In connection with its authorized repurchase program, WMI periodically sells put options on its common stock. The put options give the holders the right at maturity to require the Company to repurchase its shares at specified prices. Proceeds from the sale of the options are credited to additional paid-in capital. In the event the options are exercised, the Company may elect to pay the holder in cash the difference between the strike price and the market price of the Company's shares in lieu of repurchasing the stock. In February 1997, options on 1.9 million shares were exercised, and the Company elected to settle them for $1.6 million in cash. One million options expired unexercised as the price of the Company's stock was in excess of the strike price at maturity. At September 30, 1997, no put options were outstanding, although the Company may sell such options in the future. NOTE 10--COMMITMENTS AND CONTINGENCIES During the first quarter of 1995, WM International received an assessment from the Swedish Tax Authority of approximately 417 million Krona (approximately $55 million) plus interest from the date of the assessment, relating to a transaction completed in 1990. WM International believes that all appropriate tax returns and disclosures were filed at the time of the transaction and intends to vigorously contest the assessment. A Company subsidiary has been involved in litigation challenging a municipal zoning ordinance which restricted the height of its New Milford, Connecticut landfill to a level below that allowed by the permit previously issued by the Connecticut Department of Environmental Protection ("DEP"). Although a lower court 14 had declared the zoning ordinance's height limitation unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling and remanded the case for further proceedings in the Superior Court. In November 1995, the Superior Court ordered the subsidiary to apply to the DEP for permission to remove all waste above the height allowed by the zoning ordinance, and the Connecticut Supreme Court has upheld that ruling. The Company believes that the removal of such waste is an inappropriate remedy and is seeking an alternative resolution to the issue, but is unable to predict the outcome. Depending upon the nature of any plan eventually approved by applicable regulatory authorities for removing the waste, the actual volume of waste to be moved, and other currently unforeseeable factors, the subsidiary could incur costs which would have a material adverse impact on the Company's financial condition and results of operations in one or more future periods. In May 1994, the U.S. Supreme Court ruled that state and local governments may not constitutionally restrict the free movement of trash in interstate commerce through the use of regulatory flow control laws. Such laws typically involve a local government specifying a jurisdictional disposal site for all solid waste generated within its borders. Since the ruling, several decisions of state or federal courts have invalidated regulatory flow control schemes in a number of jurisdictions. Other judicial decisions have upheld nonregulatory means by which municipalities may effectively control the flow of municipal solid waste. In addition, federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. There can be no assurance that such alternatives to regulatory flow control will in every case be found to be lawful or that such legislation will be enacted into law. The Supreme Court's 1994 ruling and subsequent court decisions have not to date had a material adverse effect on any of the Company's operations. Federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. In the event that such legislation is not adopted, the Company believes that affected local governmental bodies may endeavor to implement alternative lawful means to continue controlling the flow of waste. In view of the uncertain state of the law at this time, however, the Company is unable to predict whether such efforts will be attempted and, if attempted, whether such efforts would be successful or what impact, if any, this matter might have on the Company's disposal facilities, particularly WTI's trash-to-energy facilities. WTI's Gloucester County, New Jersey, facility relies on a disposal franchise for substantially all of its supply of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals ("Third Circuit") permanently enjoined the State of New Jersey from enforcing its franchise system as a form of unconstitutional solid waste flow control, but stayed the injunction for so long as any appeals were pending. On November 10, 1997, the United States Supreme Court announced its decision not to review the Third Circuit decision, thereby ending the stay. The State had continued to enforce flow control during the stay period. Under the reimbursement agreement between the project company that owns the Gloucester facility and the bank that provides credit support to the project, the termination of the waste franchise constitutes an event of default. WTI and the credit support bank are presently discussing the consequences of these developments. The New Jersey legislature has been considering various legislative solutions, including a bill to authorize counties and county authorities to implement a constitutionally permissible system of "economic flow control" designed to recover waste disposal costs previously incurred in reliance on the State's franchise system. WTI currently believes that, through either legislative action or a project recapitalization, the Gloucester project can be restructured to operate profitably in the absence of regulatory flow control. As the states and U.S. Congress have accelerated their consideration of ways in which economic efficiencies can be gained by deregulating the electric generation industry, some have argued that over-market power sales agreements entered into pursuant to the Public Utilities Regulatory Policies Act of 1978 ("PURPA") should be voidable as "stranded assets." WTI's 25 power production facilities are qualifying facilities under PURPA and depend on the sanctity of their power sales agreements for their economic viability. Recent state and federal agency and court decisions have unanimously upheld the inviolate nature of these contracts. WTI believes that 15 federal law offers strong protections to its PURPA contracts. However, there is a risk that future utility restructurings, court decisions or legislative or administrative action in this area will have a material adverse effect on its business. WM International operates facilities in Hong Kong which are owned by the Hong Kong government. On July 1, 1997, control of the Hong Kong government transferred to the People's Republic of China. WM International is unable to predict what impact, if any, this change will have on its operations in Hong Kong. At September 30, 1997, WM International had identifiable assets of $191.3 million related to its Hong Kong operations which generated pretax income of approximately $15.3 million in calendar 1996 and $19.1 million in the first nine months of 1997. From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company subsidiary's having owned, operated or transported waste to a disposal facility which is alleged to have contaminated the environment, or, in certain cases, conducted environmental remediation activities at such sites. Some of these lawsuits may seek to have the Company or its subsidiaries pay the cost of groundwater monitoring and health care examinations of allegedly affected persons for a substantial period of time, even where no actual damage is proven. While the Company believes that it has meritorious defenses to these lawsuits, their ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs' circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other things. Accordingly, it is reasonably possible that such matters could have a material adverse impact on the Company's earnings for one or more fiscal quarters or years. In the ordinary course of conducting its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust and environmental matters and commercial disputes. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on earnings for a particular quarter or year. The Company believes it has adequately provided for such matters in its financial statements and does not believe that their outcome, individually or in the aggregate, will have a material adverse impact on its business or financial condition. In November 1997, the Company and several of its current and former officers were named defendants in several purported class action lawsuits in the United States District Court for the Northern District of Illinois. The lawsuits have been brought under federal securities laws by alleged purchasers of Company securities and allege that the Company made material misstatements and failed to state information necessary to make statements made not misleading and engaged in improper accounting practices with respect to the Company's reporting of its results of operations during 1996 and 1997 and the value of its property and assets. The lawsuits seek, among other relief, compensatory damages and attorney fees and other costs of conducting the lawsuits. The Company is reviewing these complaints. NOTE 11--DEBT In July 1997, the Company issued $300,000,000 of 6 5/8% Notes due July 15, 2002, at a price of 99.882%. The Notes are not redeemable prior to maturity. NOTE 12--LEGAL MATTERS See Part II of this Form 10-Q for a discussion of legal matters. 16 NOTE 13--THIRD QUARTER 1997 CHARGE The third quarter of 1997 includes a $173.3 million pretax charge to operating expenses ($108.9 million after tax) recorded in connection with the first phase of the Company's comprehensive study of its waste management services operations (see "Management's Discussion and Analysis--Outlook"). This charge includes $72.3 million related to increasing self insurance reserves primarily necessitated by management decisions which have accelerated or will accelerate the claims reporting and payment process and reduced the discount rate used to calculate the reserve. The remaining $101 million relates to increased remediation reserves of $45 million related to specific sites, $26 million for the expected cost of certain legal matters, and $30 million for assets written off. The near term cash impact of these items, net of anticipated proceeds from asset sales, is not expected to be significant. NOTE 14--UNAUDITED QUARTERLY COMPARATIVE FINANCIAL DATA (AS REVISED) The following sets forth comparative financial data as revised for each of the quarters in the year ended December 31, 1996 and in the nine months ended September 30, 1997:
1996 1997 ---------------------------------------------------------- ---------------------------------------------- YEAR TO Q1 Q2 Q3 Q4 FULL YEAR Q1 Q2 Q3 DATE ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- INCOME STATEMENT Revenue............ $2,144,479 $2,330,994 $2,372,746 $2,338,751 $9,186,970 $2,198,308 $2,327,309 $2,351,189 $6,876,806 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating expenses. $1,487,149 $1,635,895 $1,651,420 $1,608,252 $6,382,716 $1,617,803 $1,639,213 $1,839,212 $5,096,228 Special charge..... -- -- -- 471,635 471,635 -- -- -- -- Selling & admin. expenses.......... 258,563 251,084 264,947 281,915 1,056,509 261,204 253,750 266,491 781,445 Interest expense... 99,806 102,791 107,448 116,713 426,758 107,599 103,436 98,477 309,512 Interest income.... (6,240) (6,421) (4,999) (9,977) (27,637) (12,092) (9,786) (6,201) (28,079) Minority interest.. 26,454 29,907 29,533 (42,367) 43,527 27,762 27,914 30,435 86,111 Sundry income, net. (22,835) (21,458) (35,869) (33,578) (113,740) (133,894) (32,538) (8,122) (174,554) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations before income taxes..... $ 301,582 $ 339,196 $ 360,266 $ (53,842) $ 947,202 $ 329,926 $ 345,320 $ 130,897 $ 806,143 Provision for income taxes...... 124,008 139,615 144,991 107,042 515,656 151,514 170,106 67,696 389,316 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations ...... $ 177,574 $ 199,581 $ 215,275 $ (160,884) $ 431,546 $ 178,412 $ 175,214 $ 63,201 $ 416,827 Discontinued operations, net of tax & minority interest.......... 5,469 22,890 26,377 7,011 61,747 -- 810 -- 810 Provision for loss on disposal, net of tax & minority interest.......... -- -- -- (301,208) (301,208) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income........ $ 183,043 $ 222,471 $ 241,652 $ (455,081) $ 192,085 $ 178,412 $ 176,024 $ 63,201 $ 417,637 ========== ========== ========== ========== ========== ========== ========== ========== ========== Shares outstanding. 489,913 496,031 490,693 485,895 490,263 484,719 466,276 455,945 468,980 ========== ========== ========== ========== ========== ========== ========== ========== ========== EARNINGS PER SHARE, AS REVISED Continuing operations........ $ 0.36 $ 0.40 $ 0.44 $ (0.33) $ 0.88 $ 0.37 $ 0.38 $ 0.14 $ 0.89 Discontinued operations Income from operations....... 0.01 0.05 0.05 0.01 0.12 -- -- -- -- Provision for loss............. -- -- -- (0.62) (0.61) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total............. $ 0.37 $ 0.45 $ 0.49 $ (0.94) $ 0.39 $ 0.37 $ 0.38 $ 0.14 $ 0.89 ========== ========== ========== ========== ========== ========== ========== ========== ========== EARNINGS PER SHARE, AS PREVIOUSLY REPORTED Continuing operations........ $ 0.37 $ 0.44 $ 0.49 $ (0.33) $ 0.97 $ 0.37 $ 0.39 $ 0.38 $ 1.13 Discontinued operations Income from operations....... 0.01 0.01 0.01 -- 0.03 -- -- -- -- Provision for loss............. -- -- -- (0.62) (0.61) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total............. $ 0.38 $ 0.45 $ 0.50 $ (0.95) $ 0.39 $ 0.37 $ 0.39 $ 0.38 $ 1.13 ========== ========== ========== ========== ========== ========== ========== ========== ==========
17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: (TABLES IN MILLIONS) Summary Waste Management, Inc. (formerly WMX Technologies, Inc., referred to herein together with its subsidiaries as "WMI" or the "Company") has reclassified or adjusted certain items of income and expense included in its previously reported 1997 and 1996 financial statements. These changes have been made in connection with studies initiated by Company management in the third quarter of 1997. Results from the first phase of this work were reviewed by the Audit Committee of the Board of Directors in November 1997, resulting in a $108.9 million after-tax charge in the 1997 third quarter. For further information, see the Notes to Consolidated Financial Statements and "Outlook" herein. Except as otherwise stated herein, all financial information in this Report is presented inclusive of such changes. For the three months ended September 30, 1997, the Company had income from continuing operations of $63.2 million, or $0.14 per share, versus $215.3 million, or $0.44 per share, in the comparable quarter of 1996. Revenue from continuing operations was $2.35 billion in the 1997 quarter compared with $2.37 billion in the year-earlier quarter. Net income was $0.14 per share for the three months ended September 30, 1997, compared with $0.49 for the same three months in 1996. Nine-month 1997 income from continuing operations was $416.8 million, or $0.89 per share, on revenue of $6.88 billion. For the first nine months of 1996, income from continuing operations was $592.4 million, or $1.21 per share, on revenue of $6.85 billion. Net income was $0.89 per share for the first nine months of 1997, compared with $1.32 per share for the first nine months of 1996. Results for the nine months ended September 30, 1997 include the Company's share ($10.4 million after tax and minority interest, or $0.02 per share) of a special charge recorded by OHM Corporation, in which the Company's Rust International Inc. ("Rust") subsidiary has an approximately 37% equity interest. During the first nine months of 1997, as part of a strategic initiative outlined earlier in the year, the Company monetized $1.4 billion through the sale of non-core and non-integrated assets, including $41.7 million during the third quarter. The Company sold its investment in ServiceMaster Limited Partnership ("ServiceMaster") and its Waste Management International plc ("WM International") subsidiary sold its investment in Wessex Water plc ("Wessex"). Its Wheelabrator Technologies Inc. ("WTI") subsidiary sold its water and wastewater facility operations and privatization business to United States Filter Corporation ("U.S. Filter") for 2.3 million shares of U.S. Filter stock (which it subsequently sold--see "Sundry Income, Net"). Waste Management of North America, Inc. ("WMNA") divested 17 solid waste operations in North America, including the sale of most of its Canadian operations, for a total price of approximately $284.1 million. In Europe, WM International sold substantially all of its operations in France and Spain for approximately $131.0 million. In accordance with its strategic plan, the Company in May of 1997 completed a Dutch Auction tender offer by repurchasing 30 million of its outstanding shares for $30 a share. Also in May 1997, the Board of Directors approved an increase in the Company's quarterly dividend from $0.16 to $0.17 per share. The Company has five primary operating subsidiaries. WMNA provides integrated solid waste management services in North America and manages the industrial cleaning services business owned by Rust. Chemical Waste Management, Inc. ("CWM") provides chemical waste treatment, storage, disposal and related services and furnishes low-level radioactive waste management and disposal services in North America. WTI is engaged in the ownership and operation of trash-to-energy, waste-fuel powered independent power, and biosolids pelletizer facilities, as well as providing biosolids land application services. WM International provides comprehensive waste management and related services outside North America, with operations in seven countries in Europe, five countries in Asia, and Argentina (see "Outlook" herein), Australia, Brazil, Israel and New Zealand. The Company considers its operations to be part of a single industry segment--waste management services--and reports accordingly. 18 The other services formerly provided by the Company have been classified as discontinued operations in the accompanying financial statements. The discussion and analysis relates to the Company's continuing operations. Revenue Consolidated revenue for the three months and nine months ended September 30, 1997, compared with the same periods in 1996, is shown in the table which follows. Revenue data set forth below has been adjusted to reflect reclassifications among revenue classifications. Consolidated revenue amounts have not changed.
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED SEPTEMBER 30 30 ----------------------------- ----------------------------- PERCENTAGE PERCENTAGE 1996 1997 INCR/(DECR) 1996 1997 INCR/(DECR) -------- -------- ----------- -------- -------- ----------- WMNA Residential........... $ 323.2 $ 326.0 .9% $ 962.0 $ 972.3 1.1% Commercial............ 409.4 397.5 (2.9) 1,208.6 1,197.2 (0.9) Rolloff and industrial........... 337.6 332.8 (1.4) 969.5 958.8 (1.1) Disposal, transfer and other................ 425.7 433.8 1.9 1,149.5 1,154.9 0.5 -------- -------- -------- -------- Total WMNA.......... $1,495.9 $1,490.1 (0.4) $4,289.6 $4,283.2 (0.1) WM International........ 482.3 432.4 (10.3) 1,413.0 1,353.2 (4.2) WTI..................... 242.7 249.9 3.0 706.6 754.1 6.7 All other, including eliminations........... 151.8 178.8 439.0 486.3 -------- -------- -------- -------- Total............... $2,372.7 $2,351.2 (0.9)% $6,848.2 $6,876.8 0.4% ======== ======== ===== ======== ======== ====
Excluding the impact of divestitures, net of acquisitions, consolidated revenue grew 2.7% in the third quarter and 2.4% in the first nine months of 1997 compared with the same periods in 1996. Revenue from WM International in 1997 has been negatively impacted by currency translation, as discussed below. WMNA had year-over-year third quarter revenue growth of 0.7% from price and 2.1% from volume in 1997. These increases were more than offset by divestitures, net of acquisitions, which had a negative 3.2% impact. Results in the third quarter were aided slightly by improvement in recycled commodity prices, which had been declining in the first six months of the year, although the total volume of recycled material declined, due primarily to the second quarter divestiture of the Canadian operations. WM International, a U.K. corporation which maintains its accounts in pounds sterling, has been adversely impacted by the strength of the pound against other world currencies. Excluding the impact of translation, WM International revenue declined 1% in the third quarter and increased 2.2% for the first nine months of 1997 compared with the same periods in 1996. The third quarter of 1997 was adversely impacted by reduced landfill volumes in Italy, resulting from delays in obtaining expected permit extensions, and the absence of construction revenue on the West Kowloon transfer station in Hong Kong, which was completed in the second quarter of 1997. WTI's 1997 revenue included $12.8 million in the third quarter and $47.0 million for the nine months of construction revenue related to the retrofit of the Pinellas County, Florida, trash-to-energy facility and construction of a biosolids compost facility for Burlington County, New Jersey. No similar construction revenue was earned in 1996. New industrial co-generation facilities acquired in 1996 contributed revenue growth of $4.1 million for the third quarter and $14.3 million for the first nine months of 1997. WTI is attempting to leverage its energy plant operating capabilities and project financing expertise by owning and/or operating power plants for industrial customers. WTI's other revenue decreased during the quarter and nine-month periods of 1997 19 compared with 1996, as divestitures of biosolids land spreading operations and lower air business revenue offset revenue growth at existing energy plants and revenue from a second pelletizer facility in Baltimore, Maryland, which began commercial operations during the third quarter. Operating Expenses Operating expenses as a percentage of revenue were 78.2% in the third quarter and 74.1% for the first nine months of 1997, compared with 69.6% and 69.7% in the same periods of 1996. Below is an analysis indicating amounts affecting comparability between periods:
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED 30 SEPTEMBER 30 ------------------ ------------------ 1996 1997 1996 1997 -------- -------- -------- -------- Operating expenses..................... $1,651.4 $1,839.2 $4,774.5 $5,096.2 Environmental reserve adjustments net of insurance claim settlements........ 15.0 -- 50.0 29.5 Reserve reversals in the second quarter of 1996............................... -- -- 7.8 -- Asset write-offs and reserves established related to the industrial services business in the third quarter of 1996............................... (17.3) -- (17.3) -- Asset write-offs and reserves established related to the WMNA business in the first quarter of 1997. -- -- -- (70.2) Asset write-offs and reserves established in the third quarter of 1997.................................. -- (173.3) -- (173.3) -------- -------- -------- -------- Operating expenses excluding items affecting comparability............... $1,649.1 $1,665.9 $4,815.0 $4,882.2 ======== ======== ======== ========
The third quarter 1997 write-offs and reserve increases of $173.3 million include $72.3 million related to increasing self insurance reserves primarily necessitated by management decisions which have accelerated or will accelerate the claims reporting and payment process and reduced the discount rate used to calculate the reserves. The remaining $101.0 million relates to increased remediation reserves of $45 million related to specific sites, $26 million for the expected cost of certain legal matters, and $30 million for assets written off. The near term cash impact of these items, net of anticipated proceeds from asset sales, is not expected to be significant. Excluding the amounts affecting comparability of expense amounts discussed above, the resulting operating expenses as a percentage of revenue would have been 70.9% in the third quarter and 71.0% for the nine months of 1997, compared with 69.5% and 70.3% in the same periods of 1996. This increase in 1997 operating expenses as a percent of revenue is primarily due to the decline in hazardous waste disposal margins, related to reduced industry volumes and disposal pricing, offset by divestitures of lower margin operations and productivity improvements throughout the WMNA collection operations. WTI's operating expenses increased as a percentage of revenue primarily due to the impact of construction revenue, which has low associated margin. WM International's operating expense increases resulted from higher waste taxes, lower volumes in Italy due to landfill permit delays, and continued economic weakness in Germany. 20 Selling and Administrative Expenses Selling and administrative expenses for the three months ended September 30 were 11.3% of revenue in 1997 compared with 11.2% in 1996, and for the nine- month periods were 11.4% in 1997 and 11.3% in 1996. Below is an analysis indicating amounts affecting comparability between periods:
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 ------------- ------------- 1996 1997 1996 1997 ------ ------ ------ ------ Selling and administrative expenses......... $264.9 $266.5 $774.6 $781.4 Reserve reversals in the second quarter of 1996....................................... -- -- 8.5 -- Asset write-offs and reserves established related to the WMNA business in the first quarter of 1997............................ -- -- -- (15.5) ------ ------ ------ ------ Selling and administrative expenses, excluding items affecting comparability.... $264.9 $266.5 $783.1 $765.9 ====== ====== ====== ======
Excluding the amounts affecting comparability of expense amounts discussed above, the resulting selling and administrative expenses as a percentage of revenue would have been 11.3% in the third quarter and 11.1% for the first nine months of 1997, compared with 11.2% and 11.4% in the same periods of 1996. Selling and administrative expenses at WTI and WM International declined as a percentage of revenue for both the third quarter and the nine months of 1997 compared with the same periods in 1996. Interest Expense The following table sets forth the components of interest expense for the three months and nine months ended September 30, 1997 and 1996:
THREE MONTHS NINE MONTHS -------------- -------------- 1996 1997 1996 1997 ------ ------ ------ ------ Interest expense incurred................. $126.0 $112.9 $363.3 $353.8 Capitalized interest...................... (18.5) (14.4) (53.3) (44.3) ------ ------ ------ ------ Interest expense.......................... $107.5 $ 98.5 $310.0 $309.5 ====== ====== ====== ======
Interest expense decreased for both the three-month and nine-month periods ended September 30, 1997, compared with the prior year, as a result of lower average debt levels in 1997. Short- and long-term debt totaled $6.8 billion at September 30, 1997 compared with $7.5 billion at year-end 1996. The debt reduction, primarily at WM International, was funded by cash flow from operations and proceeds from the asset monetization program. Interest rates have increased slightly in the current year, and capitalized interest is lower in 1997 than in the prior year due to lower capital spending. Sundry Income, Net Below is a summary of major components in sundry income, net:
THREE MONTHS NINE MONTHS ---------- ------------ 1996 1997 1996 1997 ----- ---- ----- ------ Gain on sale of investments/businesses........... $20.6 $5.7 $23.1 $175.2 Equity income.................................... 13.7 1.3 49.2 (6.3) Other various.................................... 1.6 1.1 7.9 5.7 ----- ---- ----- ------ Sundry income, net............................... $35.9 $8.1 $80.2 $174.6 ===== ==== ===== ======
Third quarter and nine-month 1996 amounts include equity income from ServiceMaster and Wessex, both of which were sold in 1997, and gains on the sale of investments that did not recur in 1997. The third quarter of 21 1997 includes a $4.5 million pretax gain recognized by WTI on the disposition of U.S. Filter stock received in connection with the sale of its water and wastewater facilities and operations and privatization businesses. Nine-month 1997 amounts reflect a gain of $129 million recognized on the disposition of the ServiceMaster shares during the first quarter of 1997 partially offset by the Company's 37% share of the special charge recorded by OHM Corporation which was approximately $10.4 million. In addition, the nine-month 1997 period includes a $32.6 million pretax gain relating to the sale of the majority of the Company's Canadian operations. The Company does not expect sundry income, net, to be significant during the remainder of 1997. Income Taxes The Company's effective tax rate (provision for income taxes divided by pretax income before minority interest) for the third quarter was 42.0% in 1997 and 37.2% in 1996, and for the nine months was 43.6% in 1997 and 37.6% in 1996. WM International's tax rate is adversely impacted by the loss of the equity income from Wessex, which carried little, if any, additional tax, and will fluctuate with the mix of earnings among countries. U.S. taxes have increased as a result of an increase in permanent differences (expenses not deductible for income tax purposes). The large tax rate increase in the first nine months of 1997 is primarily a result of taxes on the gains on sales of the ServiceMaster shares and the Canadian operations. Discontinued Operations In line with the Company's strategy to focus on waste management services, the other services formerly provided have been classified as discontinued operations in the accompanying financial statements. Revenues of discontinued operations were $122.3 million for the three months and $363.7 million for the nine months ended September 30, 1997, versus $317.9 million and $1,087.5 million for the comparable periods in 1996, with the decline relating primarily to businesses sold in the interim. Net income from the discontinued operations for the three months and nine months ended September 30, 1997, for those businesses not yet sold was not material and was included in the reserve for loss on disposition provided previously. Results of operations for the three months and nine months ended September 30, 1996 included $22.1 million and $46.1 million of after tax gains on sales of discontinued operations. The 1997 results included $0.8 million of after-tax gains on sales of discontinued operations of a WTI water business. As of September 30, 1997, the principal remaining businesses to be disposed of are Rust Environment and Infrastructure Inc. and Matrix Engineering Inc. If not disposed of by December 31, 1997, generally accepted accounting principles would require the financial statements to be restated to reflect such businesses as a continuing operation unless sufficient evidence indicates such dispositions would be accomplished in early 1998. Revenues for the nine months ended September 30, 1996 and 1997 were $236.0 million and $241.6 million, respectively. Accounting Principles In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per Share" ("EPS"). This Statement supersedes Accounting Principles Board Opinion No. 15. Primary EPS is replaced by Basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. In addition, Fully Diluted EPS is replaced with Diluted EPS, which gives effect to all common shares that would have been outstanding if all dilutive potential common shares (relating to such things as the exercise of stock options and conversion of convertible debt) had been issued. FAS No. 128 is effective for interim and annual periods ending after December 15, 1997. Earlier application is not permitted, but when the Statement becomes effective all prior periods presented must be restated. EPS computed in accordance with FAS No. 128 for the quarter and nine months ended September 30, 1997 and 1996, is presented in Note 6 to the Consolidated Financial Statements. 22 In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive Income" and FAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." Both Statements are effective for fiscal years beginning after December 15, 1997. FAS No. 130 requires only a different format for presentation of information already included in the Company's financial statements. FAS No. 131 modifies and expands required segment disclosure but does not affect accounting principles, and accordingly, will not require any change to reported financial position, results of operations or cash flows, although additional segment disclosure will likely be required in both interim and annual financial statements. Derivatives From time to time, the Company and certain of its subsidiaries use derivatives to manage currency, interest rate, and commodity (fuel) risk. Derivatives used are simple agreements which provide for payments based on the notional amount with no multipliers or leverage. The Company's use of derivatives has not been and is not expected to be material with respect to financial condition or results of operations. For further discussion of the Company's use of and accounting for derivatives, see Note 7 to Consolidated Financial Statements. Environmental Remediation Liabilities The Company has established procedures to evaluate its potential environmental remediation liabilities at sites which it owns or operated, or to which it transported waste. While the Company believes that it has adequately provided for all of its material existing environmental remediation liabilities, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could necessitate the recording of additional liabilities which could be material. For further discussion, see Note 13 to Consolidated Financial Statements and "Outlook" herein. FINANCIAL CONDITION: Liquidity and Capital Resources The Company had a working capital deficit of $402.8 million at September 30, 1997, compared with working capital of $54.5 million at December 31, 1996. In connection with its strategy to maximize cash flow, the Company has placed emphasis on minimizing working capital, because it operates in a service industry with neither significant inventory nor seasonal variation in receivables and thus is typically not adversely affected by reducing working capital. Cash and marketable securities declined $448.6 million, as the year- end 1996 amounts included the investment in Wessex sold during the first quarter of 1997 and higher-than-normal cash balances held in anticipation of the Dutch Auction issuer tender offer. Accounts receivable declined $110.3 million from increased emphasis on collection, particularly in WM International. Current debt has decreased $168.5 million as the Company reduced its outstanding commercial paper balance. In conjunction with its strategic focus, the Company generated $1,581.8 million of "owners' cash flow" (which it defines as cash flow from operating activities, less capital expenditures and dividends, plus proceeds from asset monetization) during the nine months ended September 30, 1997. Included in this total is $1,369.3 million (before tax) of proceeds from asset monetization. Through the Dutch Auction, $900.0 million of this owners' cash flow was returned to shareholders. Acquisitions and Capital Expenditures Capital expenditures, excluding property and equipment of purchased businesses, were $616.8 million for the nine months ended September 30, 1997, and $855.1 million for the comparable period in 1996. In addition, the Company and its principal subsidiaries spent $58.0 million in cash and debt (including debt assumed) and 121,551 shares of WMI common stock on acquisitions in 1997, compared with $102.7 million and 8.0 million shares of WMI common stock during the first nine months of 1996. 23 Capital Structure Although the Company has placed increasing emphasis on generating owners' cash flow during the past two years, a substantial portion of such cash has been returned to stockholders through stock repurchases. However, during the first nine months of 1997, total debt declined $734.8 million from December 31, 1996. Cash and marketable securities decreased $448.6 million during the period, as discussed above. On June 20, 1997, the Company announced an offer to acquire, for $15 per share in cash, all of the outstanding shares of WTI that it does not already own. The Company currently owns approximately 67% of the 156.6 million outstanding WTI shares. The offer is subject to approval by a committee of independent WTI directors and by the holders of a majority of the outstanding WTI shares, other than those held by the Company, voting on it at a special meeting of WTI stockholders to be called for that purpose. Several lawsuits have also been filed which seek, among other things, to enjoin the proposed transaction. The Boards of Directors of WMI and WTI have authorized their respective companies to repurchase shares of their own common stock (up to 50 million shares in the case of WMI and 30 million shares in the case of WTI) in the open market, in privately negotiated transactions, or through issuer tender offers. These programs extend into 1998. During the 1997 second quarter, WMI purchased 30 million of its shares through the Dutch Auction; it has not repurchased any other shares during 1997. WTI repurchased 5.1 million of its shares in open market transactions during 1997; however, in light of the WMI offer to acquire its remaining public shares, WTI has suspended its repurchase activity and did not repurchase any shares in the third quarter. In connection with its authorized repurchase program, WMI periodically sells put options on its common stock. These options give the holder the right at maturity to require the Company to repurchase its shares at specified prices. There were no put options outstanding at September 30, 1997, although the Company may sell such options in the future. RISKS AND UNCERTAINTIES: See "Commitments and Contingencies" in the Notes to Consolidated Financial Statements for a description of certain contingent liabilities relating to the Company and its subsidiaries. OUTLOOK: The Company continues to experience a very competitive pricing environment, although WMNA did achieve volume growth in the third quarter of 1997 and its net new customer percentage increased each month in the quarter. WM International learned in late September that its joint venture company's bid to continue to provide waste collection and cleaning services to the City of Buenos Aires, Argentina, was unsuccessful. WM International's results also continue to be adversely affected by the strength of the British pound against the currencies of the other countries in which it operates. WTI expects a decline in profitability in 1998 at its Shasta, California facility, where it will begin to receive significantly lower, avoided cost-based electric rates, and New York Organic Fertilizer Company, where it has been awarded a 15-year contract renewal at lower anticipated revenue. A comprehensive study of the Company's North American operations was initiated by Company management during the third quarter 1997 and includes a review of the Company's operating assets, investments and liabilities to determine whether their carrying values and stated amounts are appropriate in light of the Company's changing operational strategies and changing industry conditions. The Audit Committee is actively overseeing the financial and accounting implications of this review, which may result in a modification of certain of the Company's accounting policies and practices to reflect these strategies and industry conditions. Results from the first phase of this work were reviewed by the Audit Committee in November 1997, resulting in a $108.9 million after-tax charge in the 1997 third quarter. For further information, see Note 13 to Consolidated Financial Statements herein. These reviews are to be completed during the fourth quarter of 1997. The Company expects 24 that the results of these reviews will require a fourth quarter charge which will be material to its results of operations and stockholders' equity. It is also possible that the reviews could result in a change to previously reported results. In view of these factors, the Company is unable to provide guidance on expectations for 1997 results. On November 11, 1997, as part of the ongoing study, the Board of Directors approved plans to eliminate a total of approximately 1,200 operations management and support positions as part of an organizational restructuring and cost control program in the Company's North American waste services operations. This workforce reduction is expected to reduce annual costs by approximately $100 million. It is anticipated that this reduction in force will require a charge to earnings in the fourth quarter estimated at $30 million to $50 million. The Board also approved plans to centralize most of the Company's North American purchasing activity at its corporate headquarters and to adopt a new fleet management strategy. FORWARD-LOOKING INFORMATION: Except for historical data, the information contained herein constitutes forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors, including the ability of the Company to meet price increase and new business goals, fluctuation in recyclable commodity prices, weather conditions, slowing of the overall economy, increased interest costs arising from a change in the Company's leverage, failure of the Company's plans to produce the cost savings anticipated by the Company, the timing and magnitude of capital expenditures, inability to obtain or retain permits necessary to operate disposal or other facilities or otherwise complete project development activities, inability to complete contemplated dispositions of Company businesses and assets at anticipated prices and terms, the cost and timing of stock repurchase programs, and the results of the ongoing review of North American operating assets, investments and liabilities and the Company's accounting policies and practices in light of operational changes. The Company makes no commitment to disclose any revisions to forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. 25 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment, and the potential exists for the unintended or unpermitted discharge of materials into the environment. In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the federal, state and local level, including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendants together with the Company or one or more of its subsidiaries, or both. In the majority of the situations where proceedings are commenced by governmental authorities, the matters involved relate to alleged technical violations of licenses or permits pursuant to which the Company operates or is seeking to operate or laws or regulations to which its operations are subject, or are the result of different interpretations of the applicable requirements. From time to time the Company pays fines or penalties in environmental proceedings relating primarily to waste treatment, storage or disposal facilities. Subject to the discussion set forth above under "Commitments and Contingencies" in the Notes to Consolidated Financial Statements concerning a Company subsidiary's New Milford, Connecticut landfill, the Company believes that these matters will not have a material adverse effect on its results of operation or financial condition. However, the outcome of any particular proceeding cannot be predicted with certainty, and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation at any time. In November 1997, the Company and several of its current and former officers were named defendants in several purported class action lawsuits in the United States District Court for the Northern District of Illinois. The lawsuits have been brought under federal securities laws by alleged purchasers of Company securities and allege that the Company made material misstatements and failed to state information necessary to make statements made not misleading and engaged in improper accounting practices with respect to the Company's reporting of its results of operations during 1996 and 1997 and the value of its property and assets. The lawsuits seek, among other relief, compensatory damages and attorney fees and other costs of conducting the lawsuits. The Company is reviewing these complaints. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. The exhibits to this report are listed in the Exhibit Index elsewhere herein. (b) Reports on Form 8-K. During the period covered by this Quarterly Report on Form 10-Q, the Company filed reports on Form 8-K as follows: (i) A report dated July 13, 1997 concerning the appointment of Ronald T. LeMay as the Company's Chairman, President and Chief Executive Officer in place of Dean L. Buntrock and the election of Mr. LeMay to the Company's Board of Directors. (ii) A report dated July 22, 1997 concerning the Company's results of operations for the three and six months ended June 30, 1997. (iii) A report dated August 8, 1997 concerning the Company's signing a five-year employment agreement with Ronald T. LeMay as its Chairman and Chief Executive Officer and certain related agreements. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Waste Management, Inc. /s/ Donald R. Chappel ------------------------------------- Donald R. Chappel Vice President and Acting Chief Financial Officer November 14, 1997 27 WASTE MANAGEMENT, INC. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 None 3 By-Laws of the registrant, as amended and restated as of No- vember 4, 1997 4 None 10 None 11 None 12 Computation of Ratios of Earnings to Fixed Charges 15 None 18 None 19 None 22 None 23 None 24 None 27 Financial Data Schedule 99 None
- -------- *Exhibits not listed are inapplicable. 28 EX-3 2 WASTE MANAGEMENT, INC. BY-LAWS EXHIBIT 3 WASTE MANAGEMENT, INC. ______________________________ BY-LAWS ______________________________ Amended and Restated as of: November 4, 1997 ARTICLE I OFFICES Section 1. Delaware Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the Village of Oak Brook, State of Illinois, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. Annual meetings of stockholders shall be held on the second Friday in May if not a legal holiday, and if a legal holiday, then on the next business day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which the stockholders shall elect directors as provided in the restated certificate of incorporation, and transact such other business as may properly be brought before the annual meeting (a) in accordance with applicable statutes, (b) by or at the direction of the board of directors or (c) by any stockholder (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the 1 procedures set forth in this Section 2. For business properly to be brought before an annual meeting of stockholders by a stockholder pursuant to this Section 2, the stockholder must have given timely notice thereof in proper written form to the secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public announcement of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. To be in proper written form, a stockholder's notice to the secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of capital stock of the Corporation which are owned by the stockholder as of the record date for the annual meeting; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of the stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. The chairman of the annual meeting shall have the sole authority to determine whether business was properly brought before the annual meeting in accordance with the provisions of this Section 2 and, if the chairman should determine that such business was not so properly brought, he or she shall so declare to the annual meeting, and any such business not properly brought before the annual meeting shall not be transacted. For purposes of this Section 2, "public announcement" shall mean disclosure in a press release issued to one or more national financial or general news services, including without limitation the Dow Jones News Service or Associated Press, or in a document 2 publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Section 3. Annual Meeting Notice. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than 60 days before the date of the meeting. Section 4. Stockholder Meeting List. The secretary of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present for any purpose germane to the meeting. Section 5. Inspectors. The board of directors shall, in advance of any meeting of stockholders, appoint one or more inspectors of election and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If any inspector or alternate so appointed shall be unwilling or unable to serve, the chairman of the meeting shall appoint the necessary inspector or inspectors. The inspectors so appointed, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors shall: (a) determine the number of shares of capital stock of the Corporation outstanding and the voting power of each; (b) determine the shares represented at the meeting, the existence of a quorum, and the validity of proxies and ballots; (c) count and tabulate all votes and ballots; (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots; and (f) do such acts as are proper to conduct the election or vote with fairness to all 3 stockholders. The date and time of the opening and closing of the polls for each matter upon which stockholders will vote at a meeting shall be announced at the meeting, and no ballots, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls. No director or candidate for the office of director shall act as an inspector of election of directors. Inspectors need not be stockholders. Section 6. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the restated certificate of incorporation, may be called by the chairman of the board, the president or the secretary or by resolution of the board of directors, subject to the provisions of Article Sixth of the restated certificate of incorporation, and shall be called by the chairman of the board, president or secretary at the request in writing of a majority of the board of directors, subject to the provisions of Article Sixth of the restated certificate of incorporation. Section 7. Special Meeting Notice. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 8. Special Meeting Purpose. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 9. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the restated certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is 4 for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. Voting. (a) When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question (other than the election of directors) brought before such meeting, unless the question is one upon which by express provision of the General Corporation Law of the State of Delaware or of the restated certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. (b) Each share of common stock shall entitle the holder thereof to one vote, in person or by proxy, at any and all meetings of the stockholders of the Corporation, on all propositions before the meeting. No proxy shall be voted or acted upon after three years from its date unless the proxy provides for a longer period. Section 11. Meeting Procedure. The chairman of any meeting of stockholders shall have full and complete authority over matters of procedure and there shall be no appeal from the ruling of the chairman. If disorder or any other event should arise which prevents continuation of the legitimate business of the meeting, the chairman may announce the adjournment of the meeting; and upon his or her doing so, the meeting is immediately adjourned. The chairman may ask or require anyone who is not a bona fide stockholder or holder of a valid proxy, or who is disrupting or inhibiting the orderly conduct of the meeting, to leave the meeting. ARTICLE III BOARD OF DIRECTORS Section 1. Number. The number of directors which shall constitute the whole board shall be not less than five nor more than fifteen, and shall be determined from time to time by a resolution adopted by the vote of a majority of the then number of directors constituting the 5 whole board. Only directorships with terms expiring in any year (as provided in Article Fifth of the restated certificate of incorporation) shall be filled at the annual meeting of stockholders in that year. Directors shall be at least 21 years of age and need not be stockholders. Section 2. Election, Term and Vacancies. At each meeting of stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes cast shall be elected directors. Each director shall serve until the annual meeting of stockholders for the year in which his term expires and until his successor is duly elected and qualified, subject, however, to his prior death, retirement, resignation or removal for cause. Should a vacancy occur or be created, whether arising through death, retirement, resignation or removal of a director for cause, or through an increase in the number of directors of any class, such vacancy shall be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director so elected to fill a vacancy shall serve for the then present term of office of the class of directors to which he was elected. Subject to the provisions of Article IX of these by-laws, if there are no directors in office, then an election may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. Nominations. Nominations for any election of a director may be made by the board of directors, a committee appointed by the board or by any stockholder entitled to vote generally in the election of directors (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the procedures set forth in this Section 3. All nominations by stockholders must be made pursuant to timely notice in proper written form to the secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more 6 than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public announcement of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. To be in proper written form, such stockholder's notice shall set forth in writing (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is or would be required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder and such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder, (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that is or would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Notwithstanding anything in this Section 3 to the contrary, in the event that the number of directors to be elected to the board of directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased board of directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 3 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business 7 on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. At the request of the board of directors, any person nominated by the board, or a committee appointed by the board, for election as a director shall furnish to the secretary of the Corporation the information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 3, and the defective nomination shall thereupon be disregarded. For purposes of this Section 3, "public announcement" shall mean disclosure in a press release issued to one or more national financial or general news services, including without limitation the Dow Jones News Service or Associated Press, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Section 4. Powers. The business of the Corporation shall be managed by its board of directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the restated certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. Section 5. Place of Meetings. The board of directors of the Corporation and committees thereof may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. Regular Meetings. Regular meetings of the board of directors or any committee thereof may be held without notice at such time and at such place as shall from time to time be determined by the board or such committee. Section 7. Special Meetings. Special meetings of the board or committees thereof may be called by the chairman of the board or, in the case of a committee meeting, by the committee chairman on one day's notice to each director, either personally or by mail, telegram, telex, or facsimile transmission; special meetings of the board shall be called by the chairman of the board or secretary in like manner and on one day's notice on the written request of two directors. 8 Section 8. Quorum. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the restated certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Written Consent. Unless otherwise restricted by the restated certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Telephonic Meetings. Unless otherwise restricted by the restated certificate of incorporation, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, provided, however, that in the event of the absence or disqualification of any member and alternate member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member or alternate member. Any such committee, to the extent provided in the 9 resolution designating such committee and not limited by the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. A resolution passed by a majority of the whole board which designates a committee or committees as provided above may be amended or repealed only by a majority of the whole board. Unless its authorizing resolution otherwise specifies, two members of a committee shall be required to constitute a quorum, except that only one member shall be required in the case of any committee having only one member. Section 12. Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 13. Compensation. The directors may be paid their expenses if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors, a stated salary as director, or any combination thereof. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like expenses and compensation for attending committee meetings. Section 14. Resignation. A resignation of a director shall be effective upon receipt by the chairman of the board of a signed written notice of such resignation, or, should such notice contain a specified date of resignation, at such specified date. No acceptance by the board of directors is required for such resignation to be effective. 10 ARTICLE IV NOTICES Section 1. Form and Timing. Whenever any notice is required to be given to any director or stockholder pursuant to the provisions of the General Corporation Law of the State of Delaware, the restated certificate of incorporation, these by-laws or the resolutions or other governing provisions of a committee of the board of directors, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given on the second business day next following the day when the same shall be deposited in the United States mail. Notice to a director may also be given by telegram addressed to such director at such address, and such notice shall be deemed to be given on the business day next following the day of the delivery of such notice for transmission to such director. Notice to a director may also be given by telex or facsimile transmission to such number as shall appear on the records of the Corporation as the number of such director and shall be deemed to be given on the day of transmission. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of the General Corporation Law of the State of Delaware, the restated certificate of incorporation, these by-laws or the resolutions or other governing provisions of a committee of the board of directors, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance by a person at a meeting shall constitute a waiver of the required notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. Number and Qualifications. The officers of the Corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, one or more vice presidents (the number and designation thereof to be determined by the board of directors), a secretary, a treasurer, a controller, a general counsel, and such assistant secretaries, assistant treasurers or other officers, including, without limitation, one or more vice chairmen of the board, as may be elected or 11 appointed by the board of directors. Any number of offices may be held by the same person, unless the restated certificate of incorporation or these by-laws otherwise provide. Section 2. Annual Election. The board of directors, at its meeting held in conjunction with or after each annual meeting of stockholders, shall choose a chairman of the board, a president, one or more vice presidents, a secretary, a treasurer, a controller, a general counsel and may choose one or more vice chairmen of the board, assistant officers or other officers as it may deem advisable. Section 3. Appointment of Other Officers. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. Compensation. The salaries and other compensation of all officers (other than assistant officers, unless the board otherwise determines) and agents of the Corporation elected by the board shall be as fixed by the board of directors. Section 5. Term, Removal and Vacancies. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer or agent elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors. Section 6. Chairman of the Board. The chairman of the board shall be the chief executive officer of the Corporation, and shall preside at all meetings of the stockholders and the board of directors. He or she may sign certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these by-laws to some other officer or agent of the Corporation. He or she shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the board of directors are carried into effect. 12 Section 7. Vice Chairman (or Vice Chairmen) of the Board. In the absence of the chairman of the board or in the event of his or her inability or refusal to act, the vice chairman of the board, if any (or in the event there may be more than one vice chairman of the board, the vice chairman of the board, in the order designated, or in the absence of any designation, then in the order of their election), shall perform the duties of the chairman of the board, and when so acting, shall have all the powers of and be subject to all the restrictions upon the chairman of the board. He or she may sign certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these by- laws to some other officer or agent of the Corporation. The vice chairmen of the board shall perform such other duties and have such other powers as the board of directors or the chairman of the board may from time to time prescribe. Section 8. President. The president may sign certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these by- laws to some other officer or agent of the Corporation. In the absence of the chairman of the board and the vice chairman (or, if there by more than one, the vice chairmen) of the board, or in the event of their inability or refusal to act, the president shall perform the duties of the chairman of the board, and when so acting, shall have all the powers of and be subject to all the restrictions upon the chairman of the board. The president shall perform such other duties and have such other powers as the board of directors or the chairman of the board may from time to time prescribe. Section 9. Vice Presidents. In the absence of the president or in the event of his or her inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and 13 be subject to all the restrictions upon the president. A vice president who is appointed as such with respect to a particular area of responsibility or function of the Corporation shall, subject to the authority of the chairman and the president, perform all duties and have all authority pertaining to the general and active management of such area or function and shall see that all orders and resolutions of the board of directors pertaining to such area or function are carried into effect. The vice presidents shall perform such other duties and have such other powers as the board of directors, the chairman of the board or the president may from time to time prescribe. Section 10. Secretary. The secretary shall: (a) keep the minutes of stockholders, board of directors and board of directors committee meetings in one or more books provided for the purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is necessary or desirable; (d) keep or cause to be kept a register of the mailing address of each stockholder which shall be furnished to the secretary or any transfer agent of the Corporation by such stockholder; (e) have authority to sign with the chairman of the board, a vice chairman of the board, the president, or a vice president, certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the board of directors; (f) have general charge of the stock transfer books of the Corporation; (g) attest to the genuineness of the signature on behalf of the Corporation of any officer or agent of the Corporation on any deeds, mortgages, bonds, contracts or other instruments; (h) certify the authenticity of any instrument or record of the Corporation; and (i) in general perform all duties incident to the office of secretary and such other duties as the board of directors, the chairman of the board or the president may from time to time prescribe. Section 11. Treasurer. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. He or she shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation, and the deposit of all moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with resolutions of the board of directors; (b) have authority to sign with the chairman of the board, a vice chairman of the 14 board, the president or a vice president, certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the board of directors; and (c) in general perform all the duties incident to the office of treasurer and such other duties as the board of directors, the chairman of the board or the president may from time to time prescribe. Section 12. Controller. The controller shall be the principal accounting officer of the Corporation and shall supervise the preparation and maintenance, on a current basis, of such accounting books, records and reports as may be necessary for directors, officers and employees of the Corporation to discharge their duties or as may be required by law. In general he or she shall perform all duties incident to the office of controller and other duties as the board of directors, the chairman of the board or the president may from time to time prescribe. Section 13. General Counsel. The general counsel shall be the chief legal adviser of the Corporation as to all matters affecting the Corporation or its business. In general he or she shall perform all the duties incident to the office of general counsel and such other duties as the board of directors, the chairman of the board or the president may from time to time prescribe. Section 14. Assistant Secretaries and Assistant Treasurers. The assistant secretaries as thereunto authorized by the board of directors may sign with the chairman of the board, a vice chairman of the board, the president, or a vice president certificates for shares of the Corporation, the issue of which shall have been authorized by a resolution of the board of directors, may attest to the genuineness of the signature on behalf of the Corporation of any officer or agent of the Corporation on any deeds, mortgages, bonds, contracts or other instruments and may certify the authenticity of any instrument or record of the Corporation. The assistant treasurers may sign with the chairman of the board, a vice chairman of the board, the president or a vice president, certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers in general shall perform such duties as from time to 15 time may be prescribed by the secretary or the treasurer, respectively, or by the board of directors, the chairman of the board or the president. ARTICLE VI CAPITAL STOCK Section 1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the chairman or a vice chairman of the board, the president or a vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation, representing the number of shares owned by him or her in the Corporation. The board of directors may by resolution, subject to applicable provisions of the General Corporation Law of the State of Delaware, determine that some or all of any or all classes or series of stock shall be uncertificated shares. Section 2. Facsimile Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificates to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation bond in such sum as it may direct as indemnity or otherwise indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 16 Section 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon delivery to the Corporation or the transfer agent of the Corporation of proper evidence of succession, assignment or authority to transfer any uncertificated shares of the Corporation, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto and cancel the old certificate, if the shares are represented by a certificate, and record the transaction upon its books. Section 5. Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 6. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to vote as such owner and to receive notices in respect of meetings of stockholders and other matters, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the General Corporation Law of the State of Delaware. 17 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the restated certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the restated certificate of incorporation. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate or as may be designated pursuant to procedures approved by the board of directors. Section 4. Fiscal Year. The fiscal year of the Corporation begins on the first day of January and ends on the last day of December in each calendar year. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 6. Indemnification. Each person who at any time is or shall have been a director, officer or employee of the Corporation, or is or shall have been serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, and his or her heirs, executors and administrators, shall be indemnified by the Corporation in accordance with and to the full extent authorized by the General Corporation Law of the State of Delaware, as may be amended from time to time. The foregoing right of indemnification 18 shall not be deemed exclusive of other rights to which any director, officer, employee, agent or other person may be entitled in any capacity as a matter of law or under any by-law, agreement, vote of stockholders or directors, or otherwise. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against or incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this by-law or the General Corporation Law of the State of Delaware. 19 ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed, or new by-laws may be adopted, by the stockholders or by the board of directors if such business is properly brought before any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if, in the case of a special meeting, notice of such alteration, amendment, repeal or adoption of new by-laws is contained in the notice of such special meeting. ARTICLE IX EMERGENCY BY-LAWS Section 1. Emergency Management Committee. The board of directors, by resolution, may provide for an Emergency Management Committee and appoint or designate the manner in which membership of the Committee shall be determined. To the extent provided in said resolution, such Committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the Corporation, and shall thereby be deemed to constitute the board of directors of the Corporation, only during any interval commencing when the board of directors shall be unable to function by reason of vacancies occurring due to death, incapacity or catastrophe or other similar emergency condition and there shall be no member or members of the board remaining and able to fill such vacancies pursuant to Section 2 of Article III hereof and terminating when a board of directors has been elected by the stockholders of the Corporation and shall have been duly qualified. Notwithstanding the foregoing, such Committee shall, during the time it is authorized to function as provided herein, have the power to appoint such temporary officers to fill existing vacancies as the circumstances may require and to authorize the seal of the Corporation to be affixed to all papers which may require it. Section 2. Meetings, Quorum and Vacancies. The Emergency Management Committee shall meet as promptly as possible after the occurrence of the event herein described which would activate the Committee and at such subsequent time or times as it may designate until a board of directors 20 has been duly elected by the stockholders and qualified. Such Committee shall make its own rules of procedure except to the extent otherwise provided by resolution of the board. A majority of the Committee shall constitute a quorum. Any vacancy occurring in said Committee caused by resignation, death or other incapacity shall be filled by a majority of the remaining members of the Committee and any member so chosen shall serve until a board of directors has been duly elected by the stockholders and qualified. Section 3. Powers of Chairman. During such times as the Emergency Management Committee shall be required to function pursuant to the provisions hereof, the chairman of said Committee shall function as and have the powers of the chief executive officer of the Corporation and shall preside at all meetings of the stockholders and the Emergency Management Committee. The chairman of the Emergency Management Committee shall have and exercise, subject to the direction of the Emergency Management Committee, general charge and supervision over the business and affairs of the Corporation. Section 4. Other By-Law Provisions. To the extent not inconsistent with the provisions of this Article IX, all other provisions of these by-laws shall remain in effect during the interval in which the Emergency Management Committee shall be required to function pursuant to the provisions hereof. 21 EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 WASTE MANAGEMENT, INC. Ratio of Earnings to Fixed Charges (Unaudited) (millions of dollars, except ratio)
Nine Months Ended September 30 ---------------------- 1996(1) 1997(1) --------- --------- Income From Continuing Operations Before Income Taxes, Undistributed Earnings from Affiliated Companies and Minority Interest.................. $ 1,060.9 898.6 Interest Expense................................... 363.3 353.8 Capitalized Interest............................... (53.3) (44.3) One-Third of Rents Payable in the Next Year........ 39.3 35.7 --------- --------- Income From Continuing Operations Before Income Taxes, Undistributed Earnings from Affiliated Companies, Minority Interest, Interest and One-Third of Rents............................... $ 1,410.2 $ 1,243.8 ========= ========= Interest Expense................................... $ 363.3 $ 353.8 One-Third of Rents Payable in the Next Year........ 39.3 35.7 --------- --------- Interest Expense plus One-Third of Rents........... $ 402.6 $ 389.5 ========= ========= Ratio of Earnings to Fixed Charges................. 3.50 to 1 3.19 to 1
- --------------- (1) As revised. See "Notes to Consolidated Financial Statements - Revisions." EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1997 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 132,523 83,461 1,610,761 39,285 0 2,464,839 14,022,376 4,646,147 16,692,720 2,867,649 6,405,304 0 0 507,102 3,677,064 16,692,720 0 6,876,806 0 5,096,228 0 21,309 309,512 806,143 389,316 416,827 810 0 0 417,637 0.89 0.00
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