-----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, SFqNGI9999BentBmjMg3hTwQCtC367G2FLiAXBY/6t0/oZtTwkk5kALDbNrXKrxG VIMa2hlif/zpMJq7wNTdGQ== 0000950131-98-003776.txt : 19980610 0000950131-98-003776.hdr.sgml : 19980610 ACCESSION NUMBER: 0000950131-98-003776 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19980609 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/A SEC ACT: SEC FILE NUMBER: 001-07327 FILM NUMBER: 98644221 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/A 1 FORM 10-Q/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 - ---- 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. Yes X No --- --- Shares of Registrant's Common Stock, $1 par value, issued and outstanding, at July 31, 1997 -- 454,593,714 (excluding 10,886,361 shares held in the Waste Management, Inc. Employee Stock Benefit Trust) ================================================================================ WASTE MANAGEMENT, INC. AND SUBSIDIARIES INDEX ----- PAGE ---- PART I. Financial Information:* Consolidated balance sheets as of December 31, 1996, and June 30, 1997........................................................ 3 Consolidated statements of income for the three months and six months ended June 30, 1996 and 1997......................................... 5 Consolidated statements of stockholders' equity for the six months ended June 30, 1996 and 1997......................................... 6 Consolidated statements of cash flows for the six months ended June 30, 1996 and 1997......................................... 8 Notes to consolidated financial statements................................ 10 Management's discussion and analysis of results of operations and financial condition.............................................. 20 PART II. Other Information** * As amended. See Notes to Consolidated Financial Statements. ** Part II was not amended and, accordingly, is not included herein. ****** 2
PART I. FINANCIAL INFORMATION Waste Management, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) (000's omitted) Assets ------ Restated Restated -------------------- ------------------- December 31, 1996 June 30, 1997 -------------------- ------------------- CURRENT ASSETS: Cash and cash equivalents $ 323,288 $ 435,136 Short-term investments 319,338 145,009 Accounts receivable, less reserve of $52,847 in 1996 and $44,488 in 1997 1,650,719 1,553,507 Employee receivables 10,084 8,847 Parts and supplies 135,417 137,905 Costs and estimated earnings in excess of billings on uncompleted contracts 240,531 258,200 Prepaid expenses 119,273 130,009 ----------- ----------- Total Current Assets $ 2,798,650 $ 2,668,613 ----------- ----------- PROPERTY AND EQUIPMENT, at cost: Land, primarily disposal sites $ 4,583,699 $ 4,525,413 Buildings 1,485,045 1,452,325 Vehicles and equipment 7,454,460 7,216,984 Leasehold improvements 85,431 85,955 ----------- ----------- $13,608,635 $13,280,677 Less - Accumulated depreciation and amortization (4,810,235) (4,963,948) ----------- ----------- Total Property and Equipment, Net $ 8,798,400 $ 8,316,729 ----------- ----------- OTHER ASSETS: Intangible assets relating to acquired businesses, net $ 3,871,919 $ 3,695,473 Net assets of continuing businesses held for sale 227,351 240,515 Sundry, including other investments 1,387,257 951,507 ----------- ----------- Total Other Assets $ 5,486,527 $ 4,887,495 ----------- ----------- Total Assets $17,083,577 $15,872,837 =========== ===========
The accompanying notes are an integral part of these balance sheets. 3
Waste Management, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) (000's omitted except per share amounts) Liabilities and Stockholders' Equity Restated Restated ------------------- ------------------- December 31, 1996 June 30, 1997 ------------------- ------------------- CURRENT LIABILITIES: Portion of long-term debt payable within one year $ 553,493 $ 802,243 Accounts payable 951,491 776,367 Accrued expenses 1,362,048 1,660,173 Unearned revenue 212,541 213,071 ----------- ----------- Total Current Liabilities $ 3,079,573 $ 3,451,854 ----------- ----------- DEFERRED ITEMS: Income taxes $ 562,906 $ 412,220 Environmental liabilities 673,492 729,783 Other 723,112 649,345 ----------- ----------- Total Deferred Items $ 1,959,510 $ 1,791,348 ----------- ----------- LONG-TERM DEBT, less portion payable within one year $ 6,971,607 $ 6,520,035 ----------- ----------- NET LIABILITIES OF DISCONTINUED OPERATIONS $ 57,874 $ 60,014 ----------- ----------- MINORITY INTEREST IN SUBSIDIARIES $ 1,177,463 $ 1,146,670 ----------- ----------- COMMITMENTS AND CONTINGENCIES PUT OPTIONS $ 95,789 $ - ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $1 par value (issuable in series), 50,000,000 shares authorized; none outstanding during the periods $ - $ - Common stock, $1 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 887,026 978,156 Cumulative translation adjustment (79,213) (188,879) Retained earnings 3,228,346 3,276,677 ----------- ----------- $ 4,543,261 $ 4,573,056 Less: Treasury stock; 12,782,864 shares in 1996 and 41,668,633 in 1997, at cost 419,871 1,286,350 1988 Employee Stock Ownership Plan 6,396 3,063 Employee Stock Benefit Trust; 10,886,361 shares in 1996 and 1997, at market 353,807 349,724 Minimum pension liability 18,885 18,885 Restricted Stock unearned compensation 2,541 12,118 ----------- ----------- Total Stockholders' Equity $ 3,741,761 $ 2,902,916 ----------- ----------- Total Liabilities and Stockholders' Equity $17,083,577 $15,872,837 =========== ===========
The accompanying notes are an integral part of these balance sheets. 4 Waste Management, Inc. and Subsidiaries Consolidated Statements of Income For the Three Months and Six Months Ended June 30 (Unaudited) (000's omitted except per share amounts)
Restated Restated ------------------------- ------------------------- Three Months Six Months Ended June 30 Ended June 30 ------------------------- ------------------------- 1996 1997 1996 1997 ---------- ---------- ---------- ---------- REVENUE $2,330,994 $2,333,308 $4,475,473 $4,538,293 ---------- ---------- ---------- ---------- Operating expenses $1,701,441 $1,715,507 $3,234,159 $3,413,035 Special charge - 917 - 16,833 Asset impairment loss 11,744 46,873 11,862 52,778 Selling and administrative expenses 259,611 257,106 521,432 506,922 Interest expense 111,707 111,143 220,430 226,198 Interest income (6,421) (10,069) (12,661) (22,431) Minority interest 29,518 27,943 55,961 55,018 (Income) loss from continuing operations held for sale, net of minority interest (3,811) 4,249 (4,983) 4,130 Sundry income, net (17,623) (32,387) (40,308) (167,832) ---------- ---------- ---------- ---------- Income from continuing operations before income taxes $ 244,828 $ 212,026 $ 489,581 $ 453,642 Provision for income taxes 130,770 127,912 241,952 255,143 ---------- ---------- ---------- ---------- Income from continuing operations $ 114,058 $ 84,114 $ 247,629 $ 198,499 Discontinued operations: Income from operations, less applicable income taxes and minority interest of $1,856 and $6,353 for the 3 months and 6 months, respectively, ended June 30, 1996 842 - 5,219 - Income from gain on disposal or from reserve adjustment, net of applicable income taxes and minority interest of $23,925 and $25,455 for the 3 months and 6 months, respectively, ended June 30, 1996, and $82,080 and $82,073 for the 3 months and 6 months, respectively, ended June 30, 1997 19,670 7,561 20,140 8,208 ---------- ---------- ---------- ---------- NET INCOME $ 134,570 $ 91,675 $ 272,988 $ 206,707 ========== ========== ========== ========== AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 496,031 466,276 492,593 475,498 ========== ========== ========== ========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ 0.23 $ 0.18 $ 0.50 $ 0.42 Discontinued operations 0.04 0.02 0.05 0.01 ---------- ---------- ---------- ---------- NET INCOME $ 0.27 $ 0.20 $ 0.55 $ 0.43 ========== ========== ========== ========== DIVIDENDS DECLARED PER SHARE $ 0.16 $ 0.17 $ 0.31 $ 0.33 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 5 Waste Management, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity For the Six Months Ended June 30, 1996 (Unaudited) (000's omitted except per share amounts)
Additional Cumulative Common Paid-In Translation Retained Treasury Stock Capital Adjustment Earnings Stock -------- ---------- ----------- ---------- ---------- Balance, January 1, 1996 $498,817 $ 438,816 $(102,943) $3,582,861 $ - Net income for the period (restated) - - - 272,988 - Cash dividends ($.31 per share) - - - (153,222) - Dividends paid to Employee Stock Benefit Trust - 3,460 - (3,460) - Stock repurchase (5,000,000 shares) - - - - 168,305 Stock issued upon exercise of stock options 217 (7,332) - - (25,617) Treasury stock received in connection with exercise of stock options - - - - 791 Tax benefit of non-qualified stock options exercised - 4,999 - - - Contribution to 1988 Employee Stock Ownership Plan - - - - - Treasury stock received as settlement for claims - - - - 2,400 Common stock issued upon conversion of Liquid Yield Option Notes 107 1,893 - - - Common stock issued for acquisitions 7,957 226,222 - - - Common stock purchased through non-qualified deferred compensation plan - 6,123 - - - Temporary equity related to put options - (135,957) - - - Proceeds from sale of put options - 14,774 - - - Adjustment of Employee Stock Benefit Trust to market value - 34,999 - - - Cumulative translation adjustment of Foreign currency statements - - (5,587) - - -------- ---------- ----------- ---------- ---------- Balance, June 30, 1996 (restated) $507,098 $ 587,997 $ (108,530) $3,699,167 $ 145,879 ======== ========== =========== ========== ==========
1988 Employee Employee Stock Stock Minimum Ownership Benefit Pension Plan Trust Liability --------- -------- --------- Balance, January 1, 1996 $ 13,062 $350,151 $ 11,692 Net income for the period (restated) - - - Cash dividends ($.31 per share) - - - Dividends paid to Employee Stock Benefit Trust - - - Stock repurchase (5,000,000 shares) - - - Stock issued upon exercise of stock options - (28,622) - Treasury stock received in connection with exercise of stock options - - - Tax benefit of non-qualified stock options exercised - - - Contribution to 1988 Employee Stock Ownership Plan (3,333) - - Treasury stock received as settlement for claims - - - Common stock issued upon conversion of Liquid Yield Option Notes - - - Common stock issued for acquisitions - - - Common stock purchased through non-qualified deferred compensation plan - - - Temporary equity related to put options - - - Proceeds from sale of put options - - - Adjustment of Employee Stock Benefit Trust to market value - 34,999 - Cumulative translation adjustment of Foreign currency statements - - - --------- -------- --------- Balance, June 30, 1996 (restated) $ 9,729 $356,528 $ 11,692 ========= ======== =========
The accompanying notes are an integral part of this statement. 6 Waste Management, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity For the Six Months Ended June 30, 1997 (Unaudited) (000's omitted except per share amounts)
Additional Cumulative Common Paid-In Translation Retained Treasury Stock Capital Adjustment Earnings Stock -------- ---------- ----------- ---------- ---------- Balance, January 1, 1997 $507,102 $ 887,026 $ (79,213) $3,228,346 $ 419,871 Net income for the period (restated) - - - 206,707 - Cash dividends ($.33 per share) - - - (154,784) - Dividends paid to Employee Stock Benefit Trust - 3,592 - (3,592) - Stock repurchase (30,000,000 shares) - - - - 902,629 Stock issued upon exercise of stock options and grant of restricted stock - (5,976) - - (35,951) Compensation paid with stock Options - 701 - - - Tax benefit of non-qualified stock options exercised - 1,950 - - - Unearned compensation related to issuance of restricted stock to employees - - - - - Earned compensation related to restricted stock (net of reversals on forfeited shares) - - - - - Contribution to 1988 Employee Stock Ownership Plan - - - - - Treasury stock received as settlement for claims - - - - 141 Common stock issued upon conversion of Liquid Yield Option Notes - (124) - - (340) Temporary equity related to put options - 95,789 - - - Settlement of put options - (1,605) - - - Common stock purchased through Non-qualified deferred Compensation plan - 1,387 - - - Adjustment of Employee Stock Benefit Trust to market value - (4,083) - - - Unrealized loss on securities to be sold - (501) - - - Cumulative translation adjustment of foreign currency statements - - (109,666) - - -------- ---------- ----------- ---------- ---------- Balance, June 30, 1997 (restated) $507,102 $ 978,156 $ (188,879) $3,276,677 $1,286,350 ======== ========== =========== ========== ==========
1988 Employee Employee Restricted Stock Stock Minimum Stock - Ownership Benefit Pension Unearned Plan Trust Liability Compensation --------- -------- --------- ------------ Balance, January 1, 1997 $ 6,396 $353,807 $ 18,885 $ 2,541 Net income for the period (restated) - - - - Cash dividends ($.33 per share) - - - - Dividends paid to Employee Stock Benefit Trust - - - - Stock repurchase (30,000,000 shares) - - - - Stock issued upon exercise of stock options and grant of restricted stock - - - - Compensation paid with stock Options - - - - Tax benefit of non-qualified stock options exercised - - - - Unearned compensation related to issuance of restricted stock to employees - - - 10,001 Earned compensation related to restricted stock (net of reversals on forfeited shares) - - - (424) Contribution to 1988 Employee Stock Ownership Plan (3,333) - - - Treasury stock received as settlement for claims - - - - Common stock issued upon conversion of Liquid Yield Option Notes - - - - Temporary equity related to put options - - - - Settlement of put options - - - - Common stock purchased through Non-qualified deferred Compensation plan - - - - Adjustment of Employee Stock Benefit Trust to market value - (4,083) - - Unrealized loss on securities to be sold - - - - Cumulative translation adjustment of foreign currency statements - - - - --------- -------- --------- ------------ Balance, June 30, 1997 (restated) $ 3,063 $349,724 $ 18,885 $ 12,118 ========= ======== ========= ============
The accompanying notes are an integral part of this statement. 7 Waste Management, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30 (Unaudited) (000's omitted)
Restated -------------------------- 1996 1997 ----------- ------------ Cash flows from operating activities: Net income for the period $ 272,988 $ 206,707 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 529,726 499,234 Provision for deferred income taxes 84,237 (212,160) Undistributed earnings of equity investee (17,539) 10,385 Minority interest in subsidiaries 57,302 54,569 Interest on Liquid Yield Option Notes (LYONs) and Subordinated Notes 11,234 10,976 Contribution to 1988 Employee Stock Ownership Plan 3,333 3,333 Special charges - 16,833 Asset impairment loss 11,862 52,778 Income on disposal of discontinued operations or reserve adjustments, net of tax and minority interest (20,140) (8,208) Gain on disposition of businesses and assets - (171,194) Changes in assets and liabilities, excluding effects of acquired or divested companies: Receivables, net (26,941) 49,904 Other current assets (37,931) (43,588) Sundry other assets 58,878 (44,167) Accounts payable (116,620) (152,753) Accrued expenses and unearned revenue (68,138) 456,282 Deferred items (55,655) (133,511) Other, net 9,499 (22,931) ----------- ------------ Net cash provided by operating activities $ 696,095 $ 572,489 ----------- ------------ Cash flows from investing activities: Short-term investments $ 8,371 $ (139,990) Capital expenditures (553,901) (347,204) Proceeds from asset monetization program 146,901 1,329,284 Cost of acquisitions, net of cash acquired (57,911) (34,800) Other investments (21,089) (5,300) Acquisition of minority interests (329,653) (67,625) ----------- ------------ Net cash obtained from (used for) investing activities $ (807,282) $ 734,365 ----------- ------------ Cash flows from financing activities: Cash dividends $ (153,222) $ (154,784) Proceeds from issuance of indebtedness 1,360,627 529,450 Repayments of indebtedness (906,535) (677,692) Proceeds from exercise of stock options, net 46,333 29,975 Contributions from minority interests 3,680 - Other distributions to minority stockholders by affiliated companies (8,761) (17,721) Stock repurchases (168,305) (902,629) Proceeds from sale of put options 14,774 - Settlement of put options - (1,605) ----------- ------------ Net cash obtained from (used for) financing activities $ 188,591 $(1,195,006) ----------- ------------ Net increase in cash and cash equivalents $ 77,404 $ 111,848 Cash and cash equivalents at beginning of period 169,541 323,288 ----------- ------------ Cash and cash equivalents at end of period $ 246,945 $ 435,136 =========== ============
The accompanying notes are an integral part of these statements. 8 Waste Management, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30 (Unaudited) (000's omitted)
Restated ___________________________ 1996 1997 ___________ ___________ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 209,195 $ 215,222 Income taxes, net of refunds received 147,372 210,984 Supplemental schedule of noncash investing and financing activities: LYONs converted into common stock of the Company $ 2,000 $ 216 Liabilities assumed in acquisitions of businesses 89,352 15,402 Fair market value of Company stock issued for acquired Businesses 234,179 - Marketable securities received from sale of discontinued Operations - 63,967
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. The accompanying notes are an integral part of these statements. 9 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tables in millions) The financial statements included herein have been prepared by Waste Management, Inc. (the "Company) 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. A complete presentation of the Company's financial statements, including the related notes, (as restated; see Note 1) for the year ended December 31, 1996 is included in the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. This includes a summary of the Company's accounting policies. The financial information included herein reflects, in the opinion of the Company, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations 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. The financial statements included herein are filed as part of a Quarterly Report on Form 10-Q/A to the Securities and Exchange Commission, which amends (for the restatements and reclassifications discussed in Note 1) the previous Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 filed August 8, 1997. For subsequent updates and information regarding certain pending transactions and events discussed in this Report and any additional developments occurring subsequent to August 8, 1997, see the Company's Annual Report on Form 10-K for the year ended December 31, 1997, its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, and its Reports on Form 8-K dated January 5, January 29, February 24, March 11 and May 15, 1998 and the Form S-4 Registration Statement of USA Waste Services, Inc. filed with the Securities and Exchange Commission on June 5, 1998 with respect to the proposed merger transaction between the Company and USA Waste Services, Inc. Note 1 - Restatements and Reclassifications - In its 1997 Report on Form 10-K, the Company has restated and reclassified its previously reported financial results for 1992 through 1997. Unaudited quarterly financial data for 1996 and the first three quarters of 1997 have also been restated and reclassified. Except as otherwise stated herein, all information presented in this Report on Form 10-Q/A includes all such restatements and reclassifications. As a result of a comprehensive review begun in the third quarter of 1997, the Company determined that certain items of expense were incorrectly reported in previously issued financial statements. These principally relate to vehicle, 10 equipment and container depreciation expense, capitalized interest and income taxes. With respect to depreciation, the Company determined that incorrect vehicle and container salvage values had been used, and errors had been made in the expense calculations. The Company also concluded that capitalized interest relating to landfill construction projects had been misstated. On January 1, 1995, the Company changed its accounting for capitalized interest, but the cumulative "catch-up" charge was not properly recorded in the 1995 financial statements, and errors were made in applying the new method in subsequent years. Accordingly, capitalized interest for the interim periods from 1995 through the third quarter of 1997 has been restated. The prior period restatements also include earlier recognition of certain asset value impairments (primarily related to land, landfill and recycling investments) and of environmental liabilities (primarily related to remediation and landfill closure and post-closure expense accruals including restatement of purchase accounting). The effect of such reclassifications, and the restatements discussed above on the income statement line items for the second quarters and related year-to-date periods, is shown in the following table. The Company's reclassifications and restatements for the first quarters of 1996 and 1997 were indicated in the Company's Report on Form 10-Q for the quarter ended March 31, 1998.
Three Months Six Months Ended June 30, 1996 Ended June 30, 1996 ------------------------ ------------------------ Previously Previously Reported As Restated Reported As Restated ---------- ----------- ---------- ----------- Revenue $ 2,331.0 $ 2,331.0 $ 4,475.5 $ 4,475.5 Operating expenses 1,619.3 1,701.4 3,114.1 3,234.2 Special charges - - - - Asset impairment loss - 11.7 - 11.9 Selling and administrative expenses 246.7 259.6 492.6 521.4 Interest, net 87.9 105.3 175.4 207.8 Minority interest 31.4 29.5 58.6 55.9 Income from continuing operations held for sale - (3.8) - (5.0) Sundry income (21.4) (17.6) (38.7) (40.3) Provision for income tax 149.4 130.8 275.6 242.0 ---------- ----------- ---------- ----------- Income from continuing operations $ 217.7 $ 114.1 $ 397.9 $ 247.6 Discontinued operations 5.3 20.5 10.3 25.4 ---------- ----------- ---------- ----------- Net income $ 223.0 $ 134.6 $ 408.2 $ 273.0 ========== =========== ========== =========== Average common and common equivalent shares outstanding 496.0 496.0 492.6 492.6 ========== =========== ========== =========== Earnings per common and common equivalent share -- Continuing operations $ 0.44 $ 0.23 $ 0.81 $ 0.50 Discontinued operations 0.01 0.04 0.02 0.05 ---------- ----------- ---------- ----------- Net income $ 0.45 $ 0.27 $ 0.83 $ 0.55 ========== =========== ========== ===========
11
Three Months Six Months Ended June 30, 1997 Ended June 30, 1997 ------------------------ ------------------------ Previously Previously Reported As Restated Reported As Restated ---------- ----------- ---------- ----------- Revenue $2,327.3 $2,333.3 $4,525.6 $4,538.3 Operating expenses 1,639.2 1,715.5 3,257.0 3,413.0 Special charges - 0.9 - 16.8 Asset impairment loss - 46.9 - 52.8 Selling and administrative expenses 253.8 257.1 515.0 506.9 Interest, net 93.6 101.1 189.1 203.8 Minority interest 27.9 28.0 55.7 55.1 Loss from continuing operations held for sale - 4.2 - 4.1 Sundry income (32.5) (32.4) (166.4) (167.8) Provision for income tax 170.1 127.9 321.6 255.1 -------- -------- -------- -------- Income from continuing operations $ 175.2 $ 84.1 $ 353.6 $ 198.5 Discontinued operations 0.8 7.6 0.8 8.2 -------- -------- -------- -------- Net income $ 176.0 $ 91.7 $ 354.4 $ 206.7 ======== ======== ======== ======== Average common and common equivalent shares outstanding 466.3 466.3 475.5 475.5 ======== ======== ======== ======== Earnings per common and common equivalent share -- Continuing operations $ 0.38 $ 0.18 $ 0.74 $ 0.42 Discontinued operations - 0.02 0.01 0.01 -------- -------- -------- -------- Net income $ 0.38 $ 0.20 $ 0.75 $ 0.43 ======== ======== ======== ========
Note 2 - Income Taxes - The following table sets forth the provision for income taxes for continuing operations for the three months and six months ended June 30, 1996 and 1997:
Three Months Six Months Ended June 30 Ended June 30 ------------------------------ ----------------------------- 1996 1997 1996 1997 ------- -------- ------- ------- Currently payable $ 93.5 $ 327.6 $ 157.8 $ 467.3 Deferred 37.3 (199.7) 84.2 (212.2) ------- -------- -------- ------- $ 130.8 $ 127.9 $ 242.0 $ 255.1 ======= ======== ======== =======
The negative deferred tax provision for the three months and six months ended June 30, 1997, is primarily due to previously deferred taxes becoming payable as a result of the Company's asset monetization program. Note 3 - Business Acquisitions and Divestitures - During the six months ended June 30, 1996, the Company and its principal subsidiaries acquired 67 businesses for $57.9 million in cash (net of cash acquired) and notes, $34.9 million of debt assumed, and 8.0 million shares of the Company's common stock. These acquisitions were accounted for as purchases. 12 During the six months ended June 30, 1997, the Company and its principal subsidiaries acquired 20 businesses for $34.8 million in cash and notes and $14.5 million of debt assumed. These acquisitions were accounted for as purchases. The pro forma effect of the acquisitions made during 1996 and 1997 is not material. 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 did not already own. At the time, the Company owned approximately 67% of the 156.6 million outstanding WTI shares. The offer was 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 called for that purpose. Several lawsuits were filed seeking relief as to the transaction. The Company divested nine North American solid waste businesses in the second quarter of 1997 for a price of $234.0 million. The largest of these transactions was the sale of most of its Canadian operations. During the first six months of 1997, the Company has divested 17 solid waste operations in North America for a total price of $265.0 million. In Europe, the Company's Waste Management International plc ("WM International") subsidiary completed in June 1997, the sale of substantially all of its remaining operations in France for 67.5 million pounds, or approximately $112.0 million, and subsequent to June 30, 1997, sold its business in Spain. Note 4 - Discontinued Operations - In the fourth quarter of 1995, the Board of Directors of Rust International Inc. ("Rust"), a subsidiary owned 60% by the Company and 40% by WTI, approved a plan to sell or otherwise discontinue Rust's process engineering, construction, specialty contracting and similar lines of business. During the second quarter of 1996, the sale of the industrial process engineering and construction businesses, based in Birmingham, Alabama, was completed. During the fourth quarter of 1996, WTI sold its water process systems and equipment manufacturing businesses. WTI had also entered into an agreement to sell its water and wastewater facility operations and privatization business, which was sold in the second quarter of 1997. As of September 30, 1996, Rust sold its industrial scaffolding business and began implementing plans to exit its remaining international engineering and consulting business. The Company recorded a fourth-quarter 1996 provision for loss of $360.0 million before tax and minority interest in connection with the planned divestiture of these businesses, and other businesses subsequently reclassified to continuing operations (see discussion below). The discontinued businesses have been segregated and the accompanying consolidated balance sheets, statements of income and related footnote information have been restated. Revenues from the discontinued businesses were $208.8 million for the three months and $407.4 million for the six months ended June 30, 1996, and $13.8 million for the three months and $64.7 million for the six months ended June 30, 1997. The decreases in revenue during the periods primarily reflect the sales of certain of the discontinued businesses. As required by Accounting Principles Board Opinion No. 30, results of their operations in 1997 were included in the reserve for loss on disposition provided previously. Such results were not material. At December 31, 1996, management also classified as discontinued and planned to sell Rust's domestic environmental and infrastructure engineering and consulting business and Chemical Waste Management, Inc.'s ("CWM") high organic waste fuel blending services business. In 1997, management reclassified the CWM business back into continuing operations, and classified certain of its sites as 13 operations held for sale. The Rust disposition was not completed within one year, and, accordingly, this business has been reclassified back into continuing operations, as operations held for sale, at December 31, 1997, in accordance with generally accepted accounting principles, although management is continuing its efforts to market its investment in this business. Because these businesses were reclassified to continuing operations, the remaining provision for loss on disposal ($95 million after tax -- $87 million related to Rust and $8 million related to CWM) was reversed in discontinued operations and an impairment loss for Rust of $122.2 million was recorded in continuing operations in the fourth quarter of 1997. Prior year financial statements were restated. Information regarding the businesses reclassified as continuing operations held for sale for the first six months is as follows:
Three Months Six Months Ended June 30 Ended June 30 ------------------------- ------------------------- 1996 1997 1996 1997 ------ ------- ------- ------- Results of operations - Revenue $ 91.9 $ 92.3 $ 181.8 $ 175.1 Income (loss) before tax after minority interest 3.8 (4.2) 5.0 (4.1) Net income (loss) 2.4 (3.1) 3.0 (3.3)
The net assets of these businesses are included in Net Assets of Continuing Businesses held for sale in the accompanying balance sheet. Note 5 - Asset Impairment Loss - In the second quarter of 1996, the Company recorded impairment losses of $11.7 million. This primarily related to the abandonment of landfill expansion projects. In the second quarter of 1997, the Company recorded impairment losses of $46.9 million. This primarily related to two operating landfill sites that became impaired during the second quarter as a result of declining market conditions and divestiture efforts. The impairment losses for the six months ended June 30, 1997 included $5.9 million of goodwill related to exiting certain areas of business. Note 6 - Accounting Principles - Effective January 1, 1996, the Company adopted Financial Accounting Standard ("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of this statement did not have a material impact on the financial statements. FAS No. 123, "Accounting for Stock-Based Compensation," also became effective in 1996. However, FAS No. 123 permitted compensation to continue to be accounted for under Accounting Principles Board Opinion No. 25, and the Company elected to follow this alternative. Effective January 1, 1997, the Company adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." SOP 96-1 provides that environmental remediation liabilities should be accrued when the criteria of FAS No. 5, "Accounting for Contingencies," are met. It also provides that the accrual for such liabilities should include future costs for those employees expected to devote a significant amount of time directly to the management of remediation liabilities. The adoption of SOP 96-1 reduced 1997 pretax income in the first quarter of 1997 by $49.9 million. 14 In February 1997, the Financial Accounting Standards Board ("FASB") issued FAS No. 128, "Earnings Per Share". 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 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 computed in accordance with FAS No. 128 for the three months and six months ended June 30, 1996 and 1997, would have been as follows:
Three Months Six Months Ended June 30 Ended June 30 ---------------------- ------------------------ 1996 1997 1996 1997 -------- -------- -------- --------- Basic - Continuing operations $ 0.23 $ 0.18 $ 0.50 $ 0.42 Discontinued operations 0.04 0.01 0.05 0.01 ------- ------- ------- ------- Net income $ 0.27 $ 0.19 $ 0.55 $ 0.43 ======= ======= ======= ======= Diluted - Continuing operations $ 0.23 $ 0.18 $ 0.50 $ 0.41 Discontinued operations 0.04 0.01 0.05 0.01 ------- ------- ------- ------- Net income $ 0.27 $ 0.19 $ 0.55 $ 0.42 ======= ======= ======= =======
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 and cash flows. Note 7 - Environmental Liabilities - The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation; however, the Company believes that in general it tends to benefit when government regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. As part of its ongoing operations, the Company provides for estimated closure and post-closure monitoring costs over the operating life (including likely expansions) of disposal sites as airspace is consumed. The Company has also established procedures to evaluate its potential remedial liabilities at closed sites which it owns or operated, or to which it transported waste, including sites listed on the Superfund National Priority List ("NPL"). The majority of situations involving NPL sites relate to allegations that 15 subsidiaries of the Company (or their predecessors) transported waste to the facilities in question, often prior to the acquisition of such subsidiaries by the Company. Where the Company concludes that it is probable that a liability has been incurred, provision is made in the financial statements. The Company has filed suit against numerous insurance carriers seeking reimbursement for past and future remedial, defense and tort claim costs at a number of sites. Carriers involved in these matters have typically denied coverage and are defending against the Company's claims. While the Company is vigorously pursuing such claims, it regularly considers settlement opportunities when appropriate terms are offered. Settlements for the first six months of 1996 and 1997 were $39.0 million and $10.8 million, respectively (which included settlements in the second quarter of 1997 for $10.4 million), and have been included in operating expenses as a reduction to environmental remediation expenses. Estimates of the extent of the Company's degree of responsibility for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult, and the ultimate outcome may differ from current estimates. However, the Company believes that its extensive experience in the environmental services business, as well as its involvement with a large number of sites, provides a reasonable basis for estimating its aggregate liability. As additional information becomes available, estimates are adjusted as necessary. While the Company does not anticipate that any such adjustment would be material to its financial statements, 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. Note 8 - Stockholders' Equity - The Company and WTI were authorized by their respective Boards of Directors to repurchase shares of their own common stock (up to 50 million shares in the case of the Company and 30 million shares in the case of WTI) in the open market, in privately negotiated transactions, or through issuer tender offers. During the 1997 second quarter, the Company repurchased 30 million of its shares with its "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 Company's offer to acquire its remaining public shares, WTI suspended its repurchase activity in the second quarter of 1997. The Company has periodically sold 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; 1.0 million options expired unexercised as the price of the Company's stock was in excess of the strike price at maturity. At June 30, 1997, no put options were outstanding. Note 9 - Commitments and Contingencies - During the first quarter of 1995, Waste Management International plc ("WM International") received an assessment from the Swedish Tax Authority of approximately 417 million Krona (approximately $60 million) plus interest from 16 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 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. 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 flow control laws. Such laws typically involve a municipality specifying the 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. WTI's Gloucester County, New Jersey, facility relies on a disposal franchise for substantially all of its supply of municipal solid waste. In July 1996, a Federal District Court permanently enjoined the State of New Jersey from enforcing its solid waste regulatory flow control system, which was held to be unconstitutional, but stayed the injunction for as long as its ruling is on appeal plus an additional period of two years to enable the State to devise an alternative nondiscriminatory approach. On May 1, 1997, the Third Circuit Court of Appeals affirmed the District Court's ruling that the New Jersey flow control system was unconstitutional, but vacated the two year "post appeal" stay. However, the Appeals Court granted a continued stay for so long as any appeals were pending. The State indicated that it will continue to enforce flow control during the appeal process. The New Jersey legislature has considered a bill to authorize counties and authorities, including the Gloucester County Improvement Authority, which administers WTI's franchise there, to implement a constitutionally permissible system of "economic flow control" designed to recover waste disposal costs incurred in reliance on the State's franchise system. 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 considered, but not yet enacted, to effectively grandfather existing flow control mandates. In the event that legislation to effectively grandfather existing flow control mandates is not adopted, the Company believes that affected municipalities will 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 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. 17 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 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 June 30, 1997, WM International had identifiable assets of $269.3 million related to its Hong Kong operations which generated pretax income of approximately $15.3 million in calendar 1996 and $13.4 million in the first six 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. For subsequent updates and information regarding the above issues or any additional developments occurring subsequent to August 8, 1997, see the Company's Annual Report on Form 10-K for the year ended December 31, 1997, its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, 18 and its Reports on Form 8-K dated January 5, January 29, February 24, March 11 and May 15, 1998 and the Form S-4 Registration Statement of USA Waste Services, Inc. filed with the Securities and Exchange Commission on June 5, 1998 with respect to the proposed merger transaction between the Company and USA Waste Services, Inc. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Tables in millions) RESULTS OF OPERATIONS: As more fully described in Note 1 to the Consolidated Financial Statements, certain financial information in this Report has been restated and reclassified to correct previously issued financial statements. Except as otherwise stated herein, all information presented in this Quarterly Report on Form 10-Q/A includes such restatements and reclassifications. For subsequent updates and information regarding certain pending transactions and events discussed in this Quarterly Report on Form 10-Q/A and any additional developments occurring subsequent to August 8, 1997, see the Company's Annual Report on Form 10-K for the year ended December 31, 1997, its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, and its Reports on Form 8-K dated January 5, January 29, February 24, March 11 and May 15, 1998 and the Form S-4 Registration Statement of USA Waste Services, Inc. filed with the Securities and Exchange Commission on June 5, 1998 with respect to the proposed merger transaction between the Company and USA Waste Services, Inc. Consolidated - - --------------- For the three months ended June 30, 1997, Waste Management, Inc. and its subsidiaries (the "Company") had net income from continuing operations of $84.1 million, or $.18 per share, versus $114.1 million, or $.23 per share in the comparable quarter in 1996. Revenue from continuing operations was $2.33 billion in both the current-year and the year-earlier quarters. Net income was $.20 per share for the three months ended June 30, 1997, compared with $.27 for the same three months in 1996. Six-month 1997 net income from continuing operations was $198.5 million, or $.42 per share, on revenue of $4.54 billion. For the first six months of 1996, income from continuing operations was $247.6 million, or $.50 per share, on revenue of $4.48 billion. Net income was $206.7 for the first six months of 1997, compared with $273.0 for the first six months of 1996. Results for the three-month and six-month periods ended June 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 ("OHM"), an environmental remediation services business, in which the Company's Rust International Inc. ("Rust") subsidiary held an approximately 37% equity interest. In February 1997, the Company articulated a comprehensive set of strategic initiatives, including returning its focus to waste management services in domestic and selected international markets where the Company holds or can develop a strong competitive position, and a financial strategy focused on generating cash and using that cash for the benefit of stockholders. The increased cash flow is to come from the divestiture of non-core or non- integrated assets, reduction of capital expenditures, control of costs, and improved return on the asset base. During the first six months of 1997, the Company and its subsidiaries monetized $1.3 billion of non-core and non- integrated assets, including the investments in Wessex Water Plc ("Wessex") and ServiceMaster Limited Partnership ("ServiceMaster"). 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. 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 20 price of $265 million. In Europe, the Company's Waste Management International plc ("WM International") subsidiary completed in June 1997 the sale of substantially all of its operations in France, for approximately $112 million, and subsequent to June 30, 1997 sold its business in Spain. During the first quarter of 1997, the Company announced a Dutch auction tender offer which culminated in May with its repurchasing 30 million of its outstanding shares for $30 a share. On May 9, 1997, the Board of Directors approved an increase in the 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 eight countries in Europe, five countries in Asia, and Argentina, 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. Certain other services formerly provided by Rust have been classified as discontinued operations or continuing operations held for sale in the accompanying financial statements and have been or are in process of being sold. The discussion which follows relates to the Company's continuing operations. Revenue - - --------- Consolidated revenue for the three months and six months ended June 30, 1997, compared with the same periods in 1996, is shown in the table which follows:
Three Months Ended June 30 Six Months Ended June 30 ---------------------------------- ---------------------------------- Percentage Percentage Increase/ Increase/ 1996 1997 (Decrease) 1996 1997 (Decrease) --------- --------- ---------- --------- --------- ---------- North America - WMNA - Residential $ 326.4 $ 327.3 0.3% $ 638.8 $ 646.3 1.2% Commercial 405.2 400.1 (1.3) 799.2 799.7 0.1 Rolloff and industrial 332.0 327.0 (1.5) 631.8 626.0 (0.9) Disposal, transfer & other 400.3 398.5 (0.5) 723.8 721.0 (0.4) --------- --------- --------- --------- Total WMNA $ 1,463.9 $ 1,452.9 (0.8) $ 2,793.6 $ 2,793.0 - CWM 132.8 126.3 (4.9) 258.0 242.3 (6.1) Rust 76.3 80.4 5.4 141.6 152.3 7.6 WTI 244.4 256.1 4.8 463.9 504.3 8.7 WM International 477.0 463.6 (2.8) 930.7 920.8 (1.1) Eliminations (63.4) (46.0) (112.3) (74.4) --------- --------- --------- --------- Total $ 2,331.0 $ 2,333.3 0.1% $ 4,475.5 $ 4,538.3 1.4% ========= ========= ========== ========= ========= ==========
21 Total revenue for the quarter ended June 30, 1997, was essentially flat compared with the second quarter a year ago. The overall revenue impact of dispositions, net of acquisitions, was a reduction of approximately $45 million in the quarter. For the six months ended June 30, 1997, total revenue increased $62.8 million or 1.4%. WMNA revenue was down approximately $11 million in the second quarter of 1997 compared with 1996. When divestitures of approximately $40 million, net of acquisitions, are factored out, revenue increased about 2% versus the same period in 1996. Excluding the effect of divestitures, commercial and industrial sales remained flat, while the residential line of business, as well as recycling processing and recycled commodity sales showed increases. The company believes it is still feeling the effect of customer losses in its commercial and industrial lines of business as a result of aggressive price increases implemented during the second and third quarters of 1996. For the six months ending June 30, WMNA revenue was virtually flat, including the impact of over $40 million of divestitures, net of acquisitions. The residential line-of- business showed encouraging gains as several new municipal bids were awarded to the company during the first six months of 1997. 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. Year over year revenue growth, in U.S. dollars excluding currency translation, of 3.1% in the second quarter and 3.7% for the six months ended June 30, 1997, was more than offset by foreign currency translation losses of 5.9% in the quarter and 4.8% for the six months. WTI 1997 revenue included $18.3 million in the second quarter and $34.2 million for the six months of construction revenue related to the retrofit of its 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 during the first half of 1996. Revenue growth of $3.8 million for the second quarter and $10.2 million for the first six months of 1997, compared with 1996, related to new industrial cogeneration plants (so- called "inside-the-fence" facilities) acquired in 1996. WTI's other revenue decreased during the quarter and six-month periods of 1997 compared with 1996, due to divestitures of biosolids land spreading operations and a slight decline in revenue from trash deliveries offsetting contractual price escalation. Operating Expenses - - -------------------- Consolidated operating expenses increased $14.1 million or less than 1% in the second quarter of 1997 versus 1996, and increased as a percent of revenue from 73.0% to 73.5%. The slight increase as a percentage of revenue is primarily the result of the impact of construction revenue at WTI which carries virtually no profit. Operating expenses in both years' quarters were impacted by changes in estimates and accounting principles. Remediation expenses, net of insurance recoveries increased $15.6 million in the second quarter of 1997 from the same period in 1996. In the second quarters of 1996 and 1997, losses incurred and accrued provisions for loss-making contracts impacted expenses by $17.8 million and $6.9 million respectively. Various other asset disposals and write-downs affected the second quarter of 1996 by $5.8 million, and the second quarter of 1997 by $2.4 million. For the six months ended June 30, 1997, consolidated operating expenses increased $178.9 million, or 5.5% versus the same six month period of 1996. 22 As a percentage of revenue, operating expenses increased from 72.3% to 75.2%. Although operating expenses as a percentage of expense were increased due to WTI construction revenue and weakness in the hazardous waste business, the majority of the actual expense increase was due to changes in estimates and accounting principles. Remediation expenses, net of insurance recoveries, increased $103.4 million for the six months of 1997 versus the same period of 1996. Remediation expenses in 1997 were impacted $49.9 million as a result of implementation of SOP 96-1, and $44.8 million related to changes in remediation cost estimates at several disposal sites. During the first six months of 1996, remediation expenses were decreased by $39 million of insurance recoveries, offset by $19.5 million of additional expenses related to changes in cost estimates. Other items affecting the six months of 1996 operating expenses include $17.8 million related to losses incurred and accrued provisions for loss-making contracts, and $6.5 million related to various other asset disposals and write-downs. The six months of 1997 operating expenses were affected by $10.8 million relating to loss-making contracts, and $13.7 million of asset write-downs, primarily recycling-related assets. Selling and Administrative Expenses - - ------------------------------------- Consolidated selling and administrative expenses declined $2.5 million or about 1% in the quarter ended June 30, 1997 compared with the same quarter in 1996. As a percent of revenue, these expenses were 11.0% of revenue in the current year quarter versus 11.1% in the year-ago quarter. For the six months ended June 30, selling and administrative expenses were 11.2% of revenue in 1997 compared with 11.7% in 1996, and declined $14.5 million in absolute terms. The 1996 second quarter expenses were impacted by $8.0 of asset write-downs, primarily related to information systems assets. The Company continues to focus on increasing sales and administrative productivity through various initiatives, and reducing these expenses as a result of these efforts. Special Charge - - ---------------- In the first six months of 1997, the Company had special charges totaling $16.8 million for employee severance. This primarily reflected a $15.9 million charge taken in the first quarter of 1997 related to certain severed officers of the Company, including its chief executive at the time. Asset Impairment Loss - - ----------------------- In the second quarter of 1996, the Company recorded impairment losses of $11.7 million. This primarily related to the abandonment of landfill expansion projects. In the second quarter of 1997, the Company recorded impairment losses of $46.9 million. This primarily related to two operating landfill sites that became impaired during the second quarter as a result of declining market conditions and divestiture efforts. The impairment losses for the six months ended June 30, 1997, included $5.9 million of goodwill relating to exiting certain areas of business. Interest, net - - --------------- The following table sets forth the components of consolidated interest, net, for the three months and six months ended June 30, 1996 and 1997: 23
Three Months Six Months Ended June 30 Ended June 30 ------------------------ ------------------------ 1996 1997 1996 1997 ------ ------ ------ ------ Interest expense $119.8 $118.0 $236.2 $239.7 Interest income (6.4) (10.1) (12.6) (22.4) Capitalized interest (8.1) (6.8) (15.8) (13.5) ------ ------ ------ ------ Interest expense, net $105.3 $101.1 $207.8 $203.8 ====== ====== ====== ======
Net interest expense was relatively unchanged between years for both the three- month and six-month periods ended June 30. Although net debt declined slightly from December 31, 1996 to June 30, 1997, it increased in the interim due to cash required to complete the Dutch auction. Interest rates have also increased slightly in 1997, and net interest expense was adversely impacted by the mix of debt between the domestic entities and WM International. Sundry Income (Expense), net - - ------------------------------ Below is a summary of major components in sundry income, net:
Three Months Six Months Ended June 30 Ended June 30 ------------------------ ------------------------ 1996 1997 1996 1997 ------ ------ ------ ------ Gain on sale of investments/businesses $ - $ 42.2 $ - $171.2 Equity income 14.1 (11.3) 33.9 (9.9) Other 3.5 1.5 6.4 6.5 ----- ------ ----- ------ Sundry income, net $17.6 $ 32.4 $40.3 $167.8 ===== ====== ===== ======
Equity income in the first six months of 1996 included income from ServiceMaster and Wessex investments of $31.9 million. These investments were sold in the first quarter of 1997 with no equity income recorded in 1997 for Wessex or ServiceMaster. Equity income in the second quarter of 1997, was reduced by $10.4 million as a result of a special charge recorded by OHM. Gains on sale of investments/businesses consist of $129 million in the first quarter of 1997 from the sale of the Company's investment in ServiceMaster, $32.6 million from the sale of Canadian operations and the balance related to gains on sales of North American solid waste businesses. Income Taxes - -------------- The Company's effective income tax rates before minority interest for the first six months of 1996 and 1997 were 44.4% and 50.2%, respectively. The fluctuations between periods are primarily due to the large shifts in the source of taxable income attributable to numerous divestiture gains or losses, asset impairment losses and other changes in income mix. Discontinued Operations - ----------------------- See Note 4 to the Consolidated Financial Statements for discussion. 24 Accounting Principles - - ----------------------- In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per Share." 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 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 computed in accordance with FAS No. 128 for the quarter and six months ended June 30, 1997 and 1996, is presented in Note 6 to the Consolidated Financial Statements. See Note 6 to the Consolidated Financial Statements for discussion of other accounting principles. 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 the Company's Notes to Consolidated Financial Statements for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Environmental Liabilities - - --------------------------- The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. As part of its ongoing operations, the Company provides for estimated closure and post-closure monitoring costs over the life of disposal sites as airspace is consumed. The Company has also established procedures to evaluate its potential remedial liabilities at closed sites which it owns or operated, or to which it transported waste. While the Company believes that it has adequately provided for its environmental 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 7 to the Consolidated Financial Statements. The Company has filed suit against numerous insurance carriers seeking reimbursement for past and future remedial, defense and tort claim costs at a number of sites. Carriers involved in these matters have typically denied coverage and are defending against the Company's claims. While the Company is vigorously pursuing such claims, it regularly considers settlement opportunities when appropriate terms are offered. Settlements for the first six months of 1996 and 1997 were $39.0 million and $10.8 million, respectively (which included settlements in the second quarter of 1997 of $10.4 million), and have been included in operating expenses as a reduction to environmental remediation expenses. 25 FINANCIAL CONDITION: Liquidity and Capital Resources - --------------------------------- The Company had a working capital deficit of $783.2 million at June 30, 1997, compared with a working capital deficit of $280.9 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 reducing working capital typically does not adversely affect operations. The Company generated $1,399.8 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 six months ended June 30, 1997. Included in this total is $1,329.3 million of proceeds from asset monetization. Through the Dutch auction tender offer, $900 million of this owners' cash flow was returned to Company stockholders during 1997. Acquisitions and Capital Expenditures - - --------------------------------------- Capital expenditures, excluding property and equipment of purchased businesses, were $347.2 million for the six months ended June 30, 1997, and $553.9 million for the comparable period in 1996. In addition, the Company and its principal subsidiaries spent $34.8 million on acquisitions in 1997 compared with $92.8 million in cash and debt (including debt assumed) and 8.0 million shares of the Company's common stock during the first six months of 1996. 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 six months of 1997, total debt declined $202.8 million from December 31, 1996. Cash and marketable securities decreased $62.5 million in the first six months of 1997 to $580.1 million as a result of the Dutch auction tender offer. 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. At the time, the Company owned approximately 67% of the 156.6 million outstanding WTI shares. The offer was subject to the 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 called for that purpose. Several lawsuits were also filed seeking relief as to the proposed transaction. The Company and WTI were authorized by their respective Boards of Directors to repurchase shares of their own common stock (up to 50 million shares in the case of the Company and 30 million shares in the case of WTI) in the open market, in privately negotiated transactions, or through issuer tender offers. During the 1997 second quarter, the Company purchased 30 million of its shares through the 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 offer to acquire its remaining public shares, WTI has suspended its repurchase activity. The Company periodically sold put options on its common stock. These options give the holders the right at maturity to require the Company to repurchase 26 its shares at specified prices. There were no put options outstanding at June 30, 1997. Risks and Uncertainties - - ------------------------- See "Commitments and Contingencies" in Note 9 to the Consolidated Financial Statements for a description of certain contingent liabilities relating to the Company and its subsidiaries. Outlook - - --------- While the Company expected revenue and earnings to be flat in 1997 compared with 1996, second quarter results were below management's expectations. WMNA continued to experience a very difficult pricing environment. While it had success obtaining and renewing residential contracts, renewals in many cases were at lower prices. Disposal pricing was very competitive for both special and solid wastes. Hazardous waste landfill prices continued to be flat to weaker. WM International was adversely affected by the strength of the British pound against the currencies in the other countries where it operated. 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 sales goals, changes in the price of recyclable commodities, weather conditions, slowing of the overall economy, higher interest rates, failure of the Company's restructuring and reengineering plans to produce the anticipated cost savings, the inability to complete the divestiture of discontinued businesses or the monetization of other assets at appropriate prices and terms, and the cost and timing of stock repurchase programs. 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. 27 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 June 8, 1998 28 EX-12 2 SUBSIDIARIES EXHIBIT 12 WASTE MANAGEMENT, INC. Ratio of Earnings to Fixed Charges (Unaudited) (millions of dollars, except ratio)
Restated --------------------------- Six Months Ended June 30 --------------------------- 1996 1997 --------- --------- Income from continuing operations before income taxes, undistributed earnings from affiliated companies and minority interest $ 528.0 $ 519.0 Interest expense 236.2 239.7 Capitalized interest (15.8) (13.5) One-third of rents payable in the next year 26.9 24.4 --------- --------- Income from continuing operations before income taxes, undistributed earnings from affiliated companies, minority interest, interest and one-third of rents $ 775.3 $ 769.6 ========= ========= Interest expense 236.2 239.7 One third of rents payable in the next year 26.9 24.4 --------- --------- Interest expense plus one-third of rents $ 263.1 $ 264.1 ========= ========= Ratio of earnings to fixed charges 2.95 to 1 2.91 to 1
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1996 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 246,945 5,878 1,966,336 64,357 0 2,874,469 13,760,341 4,642,164 18,233,500 3,253,120 7,123,055 0 0 507,098 3,654,806 18,233,500 0 4,475,473 0 3,246,021 0 14,896 220,430 489,581 241,952 247,629 25,359 0 0 272,988 0.55 0.00
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 435,136 145,009 1,597,995 44,488 0 2,668,613 13,280,677 4,963,948 15,872,837 3,451,854 6,520,035 0 0 507,102 2,395,814 15,872,837 0 4,538,293 0 3,482,646 0 14,718 226,198 453,642 255,143 198,499 8,208 0 0 206,707 0.43 0.00
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