<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
* * * * * *
3
<PAGE>
PART I. FINANCIAL INFORMATION
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($000'S OMITTED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ========= ========== ======== ======= ========
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ========= ========== ========== ======= ========
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1996
---------------------- ----------------------
PREVIOUSLY PREVIOUSLY
REPORTED AS REVISED REPORTED AS REVISED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (AS REVISED)
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1997
---------------------- ----------------------
PREVIOUSLY PREVIOUSLY
REPORTED AS REVISED REPORTED AS REVISED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER NINE MONTHS ENDED
30 SEPTEMBER 30
------------------ -------------------
1996 1997 1996 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
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
======== ======== ======== =========
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
THREE
MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30 30
----------- -----------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
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 $ --
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1996 1997
---------------------------------------------------------- ----------------------------------------------
YEAR TO
Q1 Q2 Q3 Q4 FULL YEAR Q1 Q2 Q3 DATE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
17
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED SEPTEMBER
30 30
----------------------------- -----------------------------
PERCENTAGE PERCENTAGE
1996 1997 INCR/(DECR) 1996 1997 INCR/(DECR)
-------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
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%
======== ======== ===== ======== ======== ====
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER NINE MONTHS ENDED
30 SEPTEMBER 30
------------------ ------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------- -------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
-------------- --------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
THREE
MONTHS NINE MONTHS
---------- ------------
1996 1997 1996 1997
----- ---- ----- ------
<S> <C> <C> <C> <C>
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
===== ==== ===== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
WASTE MANAGEMENT, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
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
</TABLE>
- --------
*Exhibits not listed are inapplicable.
28
<PAGE>
EXHIBIT 3
WASTE MANAGEMENT, INC.
______________________________
BY-LAWS
______________________________
Amended and Restated as of: November 4, 1997
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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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
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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
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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.
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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
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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.
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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
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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.
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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
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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
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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
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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.
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT 12
WASTE MANAGEMENT, INC.
Ratio of Earnings to Fixed Charges
(Unaudited)
(millions of dollars, except ratio)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
----------------------
1996(1) 1997(1)
--------- ---------
<S> <C> <C>
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
</TABLE>
- ---------------
(1) As revised. See "Notes to Consolidated Financial Statements - Revisions."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> 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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 132,523
<SECURITIES> 83,461
<RECEIVABLES> 1,610,761
<ALLOWANCES> 39,285
<INVENTORY> 0
<CURRENT-ASSETS> 2,464,839
<PP&E> 14,022,376
<DEPRECIATION> 4,646,147
<TOTAL-ASSETS> 16,692,720
<CURRENT-LIABILITIES> 2,867,649
<BONDS> 6,405,304
0
0
<COMMON> 507,102
<OTHER-SE> 3,677,064
<TOTAL-LIABILITY-AND-EQUITY> 16,692,720
<SALES> 0
<TOTAL-REVENUES> 6,876,806
<CGS> 0
<TOTAL-COSTS> 5,096,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,309
<INTEREST-EXPENSE> 309,512
<INCOME-PRETAX> 806,143
<INCOME-TAX> 389,316
<INCOME-CONTINUING> 416,827
<DISCONTINUED> 810
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 417,637
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.00
</TABLE>
