<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------- --------
Commission file number 1-7327
WASTE MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-2660763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3003 Butterfield Road,
Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (630) 572-8800
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Shares of Registrant's Common Stock, $1 par value, issued and
outstanding, at October 31, 1997 - 455,024,772
(excluding 10,886,361 shares held in the Waste Management, Inc.
Employee Stock Benefit Trust)
================================================================================
<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....................................................... 3
Consolidated statements of income for the three months and nine months
ended September 30, 1996 and 1997........................................ 5
Consolidated statements of stockholders' equity for the nine months
ended September 30, 1996 and 1997........................................ 6
Consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1997.............................................. 8
Notes to consolidated financial statements................................. 10
Management's discussion and analysis of results of operations and
financial condition...................................................... 20
</TABLE>
PART II. Other Information**
* As amended. See Notes to Consolidated Financial Statements.
** Part II was not amended and, accordingly, is not included herein.
* * * * * *
2
<PAGE>
PART I. FINANCIAL INFORMATION
Waste Management, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(000's omitted)
ASSETS
<TABLE>
<CAPTION>
Restated Restated
----------------- ------------------
December 31, 1996 September 30, 1997
----------------- ------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 323,288 $ 132,523
Short-term investments 319,338 133,461
Accounts receivable, less reserve of
$52,847 in 1996 and $47,182 in 1997 1,650,719 1,518,179
Employee receivables 10,084 8,030
Parts and supplies 135,417 130,476
Costs and estimated earnings in excess
of billings on uncompleted contracts 240,531 181,828
Prepaid expenses 119,273 90,955
----------- -----------
Total Current Assets $ 2,798,650 $ 2,195,452
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, primarily disposal sites $ 4,583,699 $ 4,575,181
Buildings 1,485,045 1,453,550
Vehicles and equipment 7,454,460 7,274,705
Leasehold improvements 85,431 81,867
----------- -----------
$13,608,635 $13,385,303
Less Accumulated depreciation and
amortization (4,810,235) (5,121,684)
----------- -----------
Total Property and Equipment, Net $ 8,798,400 $ 8,263,619
----------- -----------
OTHER ASSETS:
Intangible assets relating to acquired
businesses, net $ 3,871,919 $ 3,627,254
Net assets of continuing businesses
held for sale 227,351 220,419
Sundry, including other investments 1,387,257 935,631
----------- -----------
Total Other Assets $ 5,486,527 $ 4,783,304
----------- -----------
Total Assets $17,083,577 $15,242,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(000's omitted except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Restated Restated
----------------- ------------------
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Portion of long-term debt payable
within one year $ 553,493 $ 385,028
Accounts payable 951,491 726,531
Accrued expenses 1,362,048 1,680,191
Unearned revenue 212,541 214,984
----------- -----------
Total Current Liabilities $ 3,079,573 $ 3,006,734
----------- -----------
DEFERRED ITEMS:
Income taxes $ 562,906 $ 316,804
Environmental liabilities 673,492 774,651
Other 723,112 677,984
----------- -----------
Total Deferred Items $ 1,959,510 $ 1,769,439
----------- -----------
LONG-TERM DEBT, less portion payable
within one year $ 6,971,607 $ 6,405,304
----------- -----------
NET LIABILITIES OF DISCONTINUED
OPERATIONS $ 57,874 $ 65,169
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES $ 1,177,463 $ 1,146,427
----------- -----------
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 887,026 1,012,180
Cumulative translation adjustment (79,213) (210,206)
Retained earnings 3,228,346 3,227,367
----------- -----------
$ 4,543,261 $ 4,536,443
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
Minimum pension liability 18,885 18,885
Restricted stock unearned compensation 2,541 24,715
----------- -----------
Total Stockholders' Equity $ 3,741,761 $ 2,849,302
----------- -----------
Total Liabilities and Stockholders' Equity $17,083,577 $15,242,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Statements of Income
For the Three Months and Nine Months Ended September 30
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Restated Restated
------------------------ ------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE: $2,372,746 $2,351,188 $6,848,219 $6,889,481
---------- ---------- ---------- ----------
Operating expenses $1,716,823 $1,819,467 $4,950,982 $5,232,502
Special charges - 869 - 17,702
Asset impairment loss 1,683 26,226 13,545 79,004
Selling and administrative expenses 264,667 292,171 786,099 799,093
Interest expense 116,364 106,181 336,794 332,379
Interest income (4,999) (6,497) (17,660) (28,928)
Minority interest 28,304 29,423 84,265 84,441
(Income) loss from continuing
operations held for sale, net (3,377) (85) (8,360) 4,045
Sundry income, net (34,280) (7,972) (74,588) (175,804)
---------- ---------- ---------- ----------
Income from continuing operations
before income taxes $ 287,561 $ 91,405 $ 777,142 $ 545,047
Provision for income taxes 132,227 61,604 374,179 316,747
---------- ---------- ---------- ----------
Income from continuing operations $ 155,334 $ 29,801 $ 402,963 $ 228,300
DISCONTINUED OPERATIONS:
Income from operations, less
applicable income taxes and
minority interest of $3,679 and
$10,032 for the 3 months and
9 months, respectively, ended
September 30, 1996 2,569 - 7,788 -
Income (loss) from gain on
disposal or from reserve
adjustment, net of applicable
income taxes and minority
interest of $263 and $25,718
for the 3 months and 9 months,
respectively, ended September 30,
1996, and $320 and $81,753 for
the 3 months and 9 months,
respectively, ended September 30,
1997 (75,420) 204 (55,280) 8,412
---------- ---------- ---------- ----------
NET INCOME $ 82,483 $ 30,005 $ 355,471 $ 236,712
========== ========== ========== ==========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 490,693 455,945 491,712 468,980
---------- ---------- ---------- ----------
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Continuing operations $ 0.32 $ 0.07 $ 0.82 $ 0.49
Discontinued operations (0.15) - (0.10) 0.01
---------- ---------- ---------- ----------
NET INCOME $ 0.17 $ 0.07 $ 0.72 $ 0.50
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.16 $ 0.17 $ 0.47 $ 0.50
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1996
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-In Translation Retained Treasury
Stock Capital Adjustment Earnings Stock
-------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $498,817 $ 438,816 $ (102,943) $3,582,861 $ -
Net income for the period (restated) - - - 355,471 -
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)
Treasury stock received in connection with
exercise of stock options - - - - 791
Tax benefit of non-qualified stock options
exercised - 5,378 - - -
Unearned compensation related to issuance of
restricted stock to employees - - - - -
Earned compensation related to restricted
stock (net of reversals on forfeited shares) - - - - -
Contribution to 1988 Employee Stock
Ownership Plan - - - - -
Treasury stock received as settlement for claims - - - - 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 - - -
Common stock purchased through non-qualified
deferred compensation plan - 6,191 - - -
Adjustment of Employee Stock Benefit Trust
to market value - 36,360 - - -
Cumulative translation adjustment of foreign
currency statements - - 2,598 - -
-------- ---------- ----------- ---------- ----------
Balance, September 30, 1996 (restated) $507,102 $ 681,594 $ (100,345) $3,702,056 $ 331,213
======== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1988
Employee Employee Restricted
Stock Stock Minimum Stock -
Ownership Benefit Pension Unearned
Plan Trust Liability Compensation
--------- -------- --------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 13,062 $350,151 $ 11,692 $ -
Net income for the period (restated) - - - -
Cash dividends ($.47 per share) - - - -
Dividends paid to Employee Stock Benefit Trust - - - -
Stock repurchase (11,100,000 shares) - - - -
Stock issued upon exercise of stock options - (28,622) - -
Treasury stock received in connection with
exercise of stock options - - - -
Tax benefit of non-qualified stock options
exercised - - - -
Unearned compensation related to issuance of
restricted stock to employees - - - 2,640
Earned compensation related to restricted
stock (net of reversals on forfeited shares) - - - (33)
Contribution to 1988 Employee Stock
Ownership Plan (5,000) - - -
Treasury stock received as settlement for claims - - - -
Common stock issued upon conversion of
Liquid Yield Option Notes - - - -
Stock issued for acquisitions - - - -
Temporary equity related to put Options - - - -
Proceeds from sale of put options - - - -
Common stock purchased through non-qualified
deferred compensation plan - - - -
Adjustment of Employee Stock Benefit Trust
to market value - 36,360 - -
Cumulative translation adjustment of foreign
currency statements - - - -
--------- -------- --------- ------------
Balance, September 30, 1996 (restated) $ 8,062 $357,889 $ 11,692 $ 2,607
========= ======== ========= ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1997
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-In Translation Retained Treasury
Stock Capital Adjustment Earnings Stock
-------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $507,102 $ 887,026 $ (79,213) $3,228,346 $ 419,871
Net income for the period (restated) - - - 236,712 -
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)
Compensation paid with stock options - 701 - - -
Tax benefit of non-qualified stock options
exercised - 2,578 - - -
Unearned compensation related to issuance of
restricted stock to employees - - - - -
Earned compensation related to restricted
stock (net of reversals on forfeited shares) - - - - -
Contribution to 1998 Employee Stock
Ownership Plan - - - - -
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) - - -
Common stock purchased through non-qualified
deferred compensation plan - 2,072 - - -
Adjustment of Employee Stock Benefit Trust
to market value - 26,535 - - -
Cumulative translation adjustment of
foreign currency statements - - (130,993) - -
-------- ---------- ----------- ---------- ----------
Balance, September 30, 1997 (restated) $507,102 $1,012,180 $ (210,206) $3,227,367 $1,261,803
======== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1988
Employee Employee Restricted
Stock Stock Minimum Stock -
Ownership Benefit Pension Unearned
Plan Trust Liability Compensation
--------- -------- --------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 6,396 $353,807 $ 18,885 $ 2,541
Net income for the period (restated) - - - -
Cash dividends ($.50 per share) - - - -
Dividends paid to Employee Stock Benefit Trust - - - -
Stock repurchase (30,000,000 shares) - - - -
Stock issued upon exercise of stock options
and grant of restricted stock - - - -
Compensation paid with stock options - - - -
Tax benefit of non-qualified stock options
exercised - - - -
Unearned compensation related to issuance of
restricted stock to employees - - - 23,444
Earned compensation related to restricted
stock (net of reversals on forfeited shares) - - - (1,270)
Contribution to 1988 Employee Stock
Ownership Plan (5,000) - - -
Treasury stock received as settlement for claims - - - -
Common stock issued upon conversion of
Liquid Yield Option Notes - - - -
Stock issued for acquisitions - - - -
Temporary equity related to put Options - - - -
Settlement of put options - - - -
Common stock purchased through non-qualified
deferred compensation plan - - - -
Adjustment of Employee Stock Benefit Trust
to market value - 26,535 - -
Cumulative translation adjustment of
foreign currency statements - - - -
--------- -------- --------- ------------
Balance, September 30, 1997 (restated) $ 1,396 $380,342 $ 18,885 $ 24,715
========= ======== ========= ============
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Restated
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period $ 355,471 $ 236,712
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 801,798 762,405
Provision for deferred income taxes 148,994 (254,803)
Undistributed earnings of equity investee (26,029) 9,369
Minority interest in subsidiaries 86,070 84,024
Interest on Liquid Yield Option Notes (LYONs) and Subordinated Notes 16,662 15,810
Contribution to 1988 Employee Stock Ownership Plan 5,000 5,000
Special charges - 17,702
Asset impairment loss 13,545 79,004
Income on disposal of discontinued operations or reserve adjustments,
net of tax and minority interest 55,280 (8,412)
Gain on disposition of businesses and assets (14,202) (176,906)
Changes in assets and liabilities, excluding effects of acquired or
divested companies:
Receivables, net (56,705) 37,187
Other current assets (6,764) 29,357
Sundry other assets 70,424 (30,110)
Accounts payable (207,059) (201,365)
Accrued expenses and unearned revenue 101,536 444,291
Deferred items (188,618) (18,214)
Other, net 964 (709)
----------- -----------
Net cash provided by operating activities $ 1,156,367 $ 1,030,342
----------- -----------
Cash flows from investing activities:
Short-term investments $ 12,046 $ (107,011)
Capital expenditures (815,634) (585,000)
Proceeds from asset monetization program 332,199 1,375,506
Cost of acquisitions, net of cash acquired (64,561) (42,252)
Other investments (84,717) (2,386)
Acquisition of minority interests (336,431) (67,605)
----------- -----------
Net cash obtained from (used for) investing activities $ (957,098) $ 571,252
----------- -----------
Cash flows from financing activities:
Cash dividends $ (231,074) $ (232,248)
Proceeds from issuance of indebtedness 2,143,465 947,249
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 stockholders 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 $ (117,464) $(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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
Waste Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Restated
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $320,133 $316,569
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 90,582 22,268
Fair market value of Company stock issued for acquired businesses 229,828 2,695
Marketable securities received from sale of discontinued operations and
Disposition of certain businesses -- 152,170
======== ========
The 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
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tables in millions)
The financial statements included herein have been prepared by Waste
Management, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. A complete presentation of the
Company's financial statements, including the related notes (as restated; see
Note 1), for the year ended December 31, 1996, is included in the Company's
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. This includes a summary of the
Company's accounting policies. The financial information included herein
reflects, in the opinion of the Company, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, 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.
The financial statements included herein are filed as part of a Quarterly
Report on Form 10-Q/A to the Securities and Exchange Commission, which amends
(for the restatements and reclassifications discussed in Note 1) the previous
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997
filed November 14, 1997. For subsequent updates and information regarding
certain pending transactions and events discussed in this Report and any
additional developments occurring subsequent to November 14, 1997, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, and
its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998,
and its Reports on Form 8-K dated January 5, January 29, February 24, March 11
and May 15, 1998 and the Form S-4 Registration Statement of USA Waste Services,
Inc. filed with the Securities and Exchange Commission on June 5, 1998 with
respect to the proposed merger transaction between the Company and USA Waste
Services, Inc.
Note 1--Restatements and Reclassifications
In its 1997 Report on Form 10-K, the Company has restated and reclassified
its previously reported financial results for 1992 through 1997. Unaudited
quarterly financial data for 1996 and the first three quarters of 1997 have also
been restated and reclassified. Except as otherwise stated herein, all
information presented in this Report on Form 10-Q/A includes all such
restatements and reclassifications.
As a result of a comprehensive review begun in the third quarter of 1997,
the Company determined that certain items of expense were incorrectly reported
in previously issued financial statements. These principally relate to vehicle,
equipment and container depreciation expense, capitalized interest
10
<PAGE>
and income taxes. With respect to depreciation, the Company determined that
incorrect vehicle and container salvage values had been used, and errors had
been made in the expense calculations. The Company also concluded that
capitalized interest relating to landfill construction projects had been
misstated. On January 1, 1995, the Company changed its accounting for
capitalized interest, but the cumulative "catch-up" charge was not properly
recorded in the 1995 financial statements, and errors were made in applying the
new method in subsequent years. Accordingly, capitalized interest for the
interim periods from 1995 through the third quarter of 1997 has been restated.
The prior period restatements also include earlier recognition of certain
asset value impairments (primarily related to land, landfill and recycling
investments) and of environmental liabilities (primarily related to remediation
and landfill closure and postclosure expense accruals including restatement of
purchase accounting).
The effect of such reclassifications, and the restatements discussed above
on the income statement line items for the third quarters and related years to
date, is shown in the following table. The Company's reclassifications and
restatements for the first quarters of 1996 and 1997 were indicated in the
Company's Report on Form 10-Q for the quarter ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
--------------------- ---------------------
Previously As Previously As
Reported Restated Reported Restated
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue $2,372.7 $2,372.7 $6,848.2 $6,848.2
Operating expenses 1,630.5 1,716.8 4,744.6 4,951.0
Special charges - - - -
Asset impairment loss - 1.7 - 13.5
Selling and administrative expenses 240.4 264.7 733.0 786.1
Interest, net 84.9 111.4 260.3 319.1
Minority interest 32.1 28.3 90.7 84.3
Income from continuing operations held for sale - (3.4) - (8.4)
Sundry income (23.5) (34.3) (62.2) (74.6)
Provision for income tax 168.1 132.2 443.7 374.2
-------- -------- -------- --------
Income from continuing operations $ 240.2 $ 155.3 $ 638.1 $ 403.0
Discontinued operations 5.0 (72.8) 15.3 (47.5)
-------- -------- -------- --------
Net income $ 245.2 $ 82.5 $ 653.4 $ 355.5
======== ======== ======== ========
Average common and common equivalent shares
outstanding 490.7 490.7 491.7 491.7
======== ======== ======== ========
Earnings per common and common equivalent share--
Continuing operations $ 0.49 $ 0.32 $ 1.30 $ 0.82
Discontinued operations 0.01 (0.15) 0.03 (0.10)
-------- -------- -------- --------
Net income $ 0.50 $ 0.17 $ 1.33 $ 0.72
======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
---------------------- ----------------------
Previously As Previously As
Reported Restated Reported Restated
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $2,351.2 $2,351.2 $6,876.8 $6,889.5
Operating expenses 1,839.2 1,819.5 5,096.2 5,232.5
Special charges - 0.9 - 17.7
Asset impairment loss - 26.2 - 79.0
Selling and administrative expenses 266.5 292.2 781.5 799.1
Interest, net 92.3 99.7 281.4 303.5
Minority interest 30.4 29.4 86.1 84.5
(Income) loss from continuing operations held for
sale - (0.1) - 4.0
Sundry income (8.1) (8.0) (174.5) (175.8)
Provision for income tax 67.7 61.6 389.3 316.7
-------- -------- -------- --------
Income from continuing operations $ 63.2 $ 29.8 $ 416.8 $ 228.3
Discontinued operations - 0.2 0.8 8.4
-------- -------- -------- --------
Net income $ 63.2 $ 30.0 $ 417.6 $ 236.7
======== ======== ======== ========
Average common and common equivalent shares
outstanding 455.9 455.9 469.0 469.0
======== ======== ======== ========
Earnings per common and common equivalent share--
Continuing operations $ 0.14 $ 0.07 $ 0.89 $ 0.49
Discontinued operations - - - 0.01
-------- -------- -------- --------
Net income $ 0.14 $ 0.07 $ 0.89 $ 0.50
======== ======== ======== ========
</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 Nine Months Ended
September 30 September 30
------------------------ ------------------------
1996 1997 1996 1997
------ ------- ------ --------
<S> <C> <C> <C> <C>
Currently payable $ 67.4 $104.2 $225.2 $ 571.5
Deferred 64.8 (42.6) 149.0 (254.8)
------ ------ ------ -------
$132.2 $ 61.6 $374.2 $ 316.7
====== ====== ====== =======
</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 Acquisitions and Divestitures
During the nine months ended September 30, 1996, the Company and its
principal subsidiaries acquired 74 businesses for $64.6 million in cash (net of
cash acquired) and notes, $38.2 million of debt assumed, and 7,958,163 shares of
the Company's common stock. These acquisitions were accounted for as purchases.
12
<PAGE>
During the nine months ended September 30, 1997, the Company and its
principal subsidiaries acquired 27 businesses for $42.3 million in cash (net of
cash acquired) and notes, $15.8 million 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.
On June 20, 1997, the Company announced an offer to acquire, for $15 per
share in cash, all of the outstanding shares of Wheelabrator Technologies Inc.
("WTI") it did not already own. At the time, the Company owned approximately
67% of the 156.6 million outstanding WTI shares. The offer was subject to
approval by a committee of independent WTI directors and the holders of a
majority of the outstanding WTI shares, other than those held by the Company
voting on it at a special meeting of WTI stockholders called for that purpose.
Several lawsuits were filed seeking relief as to the transaction.
During the first nine months of 1997, 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 1997, 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 1997 sold its business in Spain for 9.9 million pounds, or
approximately $16.3 million.
Note 4--Discontinued Operations
In the fourth quarter of 1995, the Board of Directors of Rust International
Inc. ("Rust"), a subsidiary owned 60% by the Company and 40% by WTI, approved a
plan to sell or otherwise discontinue Rust's process engineering, construction,
specialty contracting and similar lines of business. During the second quarter
of 1996, the sale of the industrial process engineering and construction
businesses, based in Birmingham, Alabama, was completed.
During the fourth quarter of 1996, WTI sold its water process systems and
equipment manufacturing businesses. WTI had also entered into an agreement to
sell its water and wastewater facility operations and privatization business,
which was sold in the second quarter of 1997. As of September 30, 1996, Rust
sold its industrial scaffolding business and began implementing plans to exit
its remaining international engineering and consulting business. The Company
recorded a fourth quarter 1996 provision for loss of $360.0 million before tax
and minority interest in connection with the planned divestiture of these
businesses, and other businesses subsequently reclassified to continuing
operations (see discussion below).
The discontinued businesses have been segregated and the accompanying
consolidated balance sheets, statements of income and related footnote
information have been restated. Revenues from the discontinued businesses were
$195.1 million for the three months and $602.5 million for the nine months ended
September 30, 1996, and $17.2 million for the three months and $81.9 million for
the nine months ended September 30, 1997. The decreases in revenue during the
periods primarily reflect the sales of certain of the discontinued businesses.
As required by Accounting Principles Board Opinion No. 30, results of their
operations in 1997 were included in the reserve for loss on disposition provided
previously. Such results were not material.
13
<PAGE>
At December 31, 1996, management also classified as discontinued and
planned to sell Rust's domestic environmental and infrastructure engineering and
consulting business and Chemical Waste Management, Inc.'s ("CWM") high organic
waste fuel blending services business. In 1997, management reclassified the CWM
business back into continuing operations, and classified certain of its sites as
operations held for sale. The Rust disposition was not completed within one
year, and, accordingly, this business has been reclassified back into continuing
operations, as operations held for sale, at December 31, 1997, in accordance
with generally accepted accounting principles, although management is continuing
its efforts to market its investment in this business. Because these businesses
were reclassified to continuing operations, the remaining provision for loss on
disposal ($95 million after tax -- $87 million related to Rust and $8 million
related to CWM) was reversed in discontinued operations and an impairment loss
for Rust of $122.2 million was recorded in continuing operations in the fourth
quarter of 1997. Prior-year financial statements were restated. Information
regarding the businesses reclassified as continuing operations held for sale for
the first nine months is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- ---------------------
1996 1997 1996 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Results of operations-
Revenue $93.4 $95.5 $275.2 $270.6
Income (loss) before tax after
minority interest 3.4 0.1 8.4 (4.0)
Net income (loss) 1.7 (0.2) 4.7 (3.5)
===== ===== ====== ======
</TABLE>
The net assets of these businesses are included in Net Assets of Continuing
Businesses Held for Sale in the accompanying balance sheet.
Note 5--Asset Impairment Loss
The Company recorded asset impairment losses of $1.7 million and $26.2
million in the third quarter of 1996 and 1997, respectively. The 1996 amount was
primarily related to real estate assets identified as surplus and designated to
be sold. The 1997 amount was primarily related to the write-off of an operating
landfill that closed unexpectedly in the quarter ($12.8 million) and a goodwill
write-off attributable to industrial cleaning business enterprise goodwill no
longer realizable, as a result of exiting certain areas of this business.
In the first nine months of 1996 and 1997, asset impairment losses were
$13.5 million and $79.0 million respectively. Amounts prior to the third
quarters were primarily related to writedown of unsuccessful landfill
development or expansion projects for both 1996 and 1997.
Note 6--Accounting Principles
Effective January 1, 1996, the Company adopted Financial Accounting
Standard ("FAS") No. 121, "Accounting for the Impairment of long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The adoption of this statement
did not have a material impact on the financial statements.
FAS No. 123, "Accounting for Stock-Based Compensation," also became
effective in 1996. However, FAS No. 123 permitted compensation to continue to
14
<PAGE>
be accounted for under Accounting Principles Board Opinion No. 25, and the
Company elected to follow this alternative.
Effective January 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." SOP 96-1 provides that environmental remediation
liabilities should be accrued when the criteria of FAS No. 5, "Accounting for
Contingencies," are met. It also provides that the accrual for such liabilities
should include future costs for those employees expected to devote a significant
amount of time directly to the management of remediation liabilities. The
adoption of SOP 96-1 reduced 1997 pretax income in the first quarter of 1997 by
$49.9 million.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
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 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 Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1996 1997 1996 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Basic:
Continuing operations $ 0.32 $0.07 $ 0.82 $0.49
Discontinued operations (0.15) - (0.10) 0.01
------ ----- ------ -----
Net income $ 0.17 $0.07 $ 0.72 $0.50
====== ===== ====== =====
Diluted:
Continuing operations $ 0.31 $0.07 $ 0.81 $0.48
Discontinued operations (0.14) - (0.09) 0.01
------ ----- ------ -----
Net income $ 0.17 $0.07 $ 0.72 $0.49
====== ===== ====== =====
</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.
Note 7--Environmental Liabilities
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment. As such, a significant
portion of the Company's operating costs and capital expenditures could be
characterized as costs of environmental protection. Such costs may increase in
the future as a result of legislation or regulation; however, the Company
15
<PAGE>
believes that in general it tends to benefit when government regulation
increases, which may increase the demand for its services, and that it has the
resources and experience to manage environmental risk.
As part of its ongoing operations, the Company provides for estimated
closure and postclosure monitoring costs over the operating life (including
likely expansions) of disposal sites as airspace is consumed. The Company has
also established procedures to evaluate its potential remedial liabilities at
closed sites which it owns or operated, or to which it transported waste,
including sites listed on the Superfund National Priority List ("NPL"). The
majority of situations involving NPL sites relate to allegations that
subsidiaries of the Company (or their predecessors) transported waste to the
facilities in question, often prior to the acquisition of such subsidiaries by
the Company. Where the Company concludes that it is probable that a liability
has been incurred, provision is made in the financial statements.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. Carriers involved in these matters have typically denied
coverage and are defending against the Company's claims. While the Company is
vigorously pursuing such claims, it regularly considers settlement opportunities
when appropriate terms are offered. Settlements for the first nine months of
1996 and 1997 were $39.0 million and $13.0 million, respectively (which included
settlements in the third quarter of 1997 for $2.2 million), and have been
included in operating expenses as a reduction to environmental remediation
expenses.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult, and the ultimate
outcome may differ from current estimates. However, the Company believes that
its extensive experience in the environmental services business, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
any such adjustment would be material to its financial statements, it is
reasonably possible that technological, regulatory or enforcement developments,
the results of environmental studies or other factors could necessitate the
recording of additional liabilities which could be material.
Note 8--Stockholders' Equity
The Company and WTI were authorized by their respective Boards of Directors
to repurchase shares of their own common stock (up to 50 million shares in the
case of the Company and 30 million shares in the case of WTI) in the open
market, in privately negotiated transactions, or through issuer tender offers.
During the 1997 second quarter, the Company 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
Company's offer to acquire its remaining public shares, WTI suspended its
repurchase activity in the second quarter of 1997.
The Company has periodically sold put options on its common stock. The put
options give the holders the right at maturity to require the Company to
repurchase its shares at specified prices. Proceeds from the sale of the options
are credited to additional paid-in capital. In the event the options
16
<PAGE>
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.
Note 9--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 had declared the zoning ordinance's height limitation
unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling
and remanded the case for further proceedings in the Superior Court. In November
1995, the Superior Court ordered the subsidiary to apply to the DEP for
permission to remove all waste above the height allowed by the zoning ordinance,
and the Connecticut Supreme Court has upheld that ruling. Depending upon the
nature of any plan eventually approved by applicable regulatory authorities for
removing the waste, the actual volume of waste to be moved, and other currently
unforeseeable factors, the subsidiary could incur costs which would have a
material adverse impact on the Company's financial condition and results of
operations in one or more future periods.
In May 1994, the U.S. Supreme Court ruled that state and local governments
may not constitutionally restrict the free movement of trash in interstate
commerce through the use of 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.
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
17
<PAGE>
event of default. WTI and the credit support bank are presently discussing the
consequences of these developments. The New Jersey legislature has considered
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.
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse effect on any of the Company's operations. Federal
legislation has been considered, but not yet enacted, to effectively grandfather
existing flow control mandates. In the event that legislation to effectively
grandfather existing flow control mandates is not adopted, the Company believes
that affected 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.
As the states and U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market power sales agreements
entered into pursuant to the Public Utilities Regulatory Policies Act of 1978
("PURPA") should be voidable as "stranded assets." WTI's 25 power production
facilities are qualifying facilities under PURPA and depend on the sanctity of
their power sales agreements for their economic viability. Recent state and
federal agency and court decisions have unanimously upheld the inviolate nature
of these contracts. WTI believes that federal law offers strong protections to
its PURPA contracts. However, there is a risk that future utility
restructurings, court decisions or legislative or administrative action in this
area will have a material adverse effect on its business.
WM International operates facilities in Hong Kong which are owned by the
Hong Kong government. On July 1, 1997, control of the Hong Kong government
transferred to the People's Republic of China. WM International is unable to
predict what impact, if any, this change will have on its operations in Hong
Kong. At 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'
18
<PAGE>
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.
For subsequent updates and information regarding the above issues or any
additional developments occurring subsequent to November 14, 1997, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, its
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, and
its Reports on Form 8-K dated January 5, January 29, February 24, March 11 and
May 15, 1998 and the Form S-4 Registration Statement of USA Waste Services, Inc.
filed with the Securities and Exchange Commission on June 5, 1998 with respect
to the proposed merger transaction between the Company and USA Waste Services,
Inc.
Note 10--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.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Tables in millions)
Results of Operations:
As more fully described in Note 1 to the Consolidated Financial Statements,
certain financial information in this Report has been restated and reclassified
to correct previously issued financial statements. Except as otherwise stated
herein, all information presented in this Quarterly Report on Form 10-Q/A
includes such restatements and reclassifications. For subsequent updates and
information regarding certain pending transactions and events discussed in this
Quarterly Report on Form 10-Q/A and any additional developments occurring
subsequent to November 14, 1997, see the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, its Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998, and its Reports on Form 8-K dated January
5, January 29, February 24, March 11 and May 15, 1998 and the Form S-4
Registration Statement of USA Waste Services, Inc. filed with the Securities and
Exchange Commission on June 5, 1998 with respect to the proposed merger
transaction between the Company and USA Waste Services, Inc.
Consolidated
For the three months ended September 30, 1997, Waste Management, Inc. (the
"Company") had income from continuing operations of $29.8 million, or $0.07 per
share, versus $155.3 million, or $0.32 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 $0.07
per share for the three months ended September 30, 1997, compared with $0.17 for
the same three months in 1996.
Nine-month 1997 income from continuing operations was $228.3 million, or
$0.49 per share, on revenue of $6.89 billion. For the first nine months of 1996,
income from continuing operations was $403.0 million, or $0.82 per share, on
revenue of $6.85 billion. Net income was $0.50 per share for the first nine
months of 1997, compared with $0.72 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 ("OHM"), an environmental remediation
services business, in which the Company's Rust International Inc. ("Rust")
subsidiary held 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 $46.2 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
20
<PAGE>
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 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.
Certain other services formerly provided by Rust have been classified as
discontinued operations or continuing operations held for sale 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------- ----------------------------------
Percentage Percentage
Increase/ Increase/
1996 1997 (Decrease) 1996 1997 (Decrease)
--------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
North America
WMNA
Residential $ 323.2 $ 326.0 0.9% $ 962.1 $ 972.3 1.1%
Commercial 409.4 397.5 (2.9) 1,208.6 1,197.2 (0.9)
Rolloff and
Industrial 337.7 332.8 (1.5) 969.5 958.8 (1.1)
Disposal,
Transfer
and other 425.7 433.9 1.9 1,149.4 1,154.9 0.5
-------- -------- -------- --------
Total WMNA $1,496.0 $1,490.2 (0.4%) $4,289.6 $4,283.2 (0.1%)
CWM 145.4 137.1 (5.7) 403.4 379.4 (5.9)
Rust 66.2 84.7 27.9 207.7 237.1 14.2
WTI 242.7 249.9 3.0 706.6 754.1 6.7
WM International 482.3 432.4 (10.3) 1,413.0 1,353.2 (4.2)
Eliminations (59.8) (43.1) (172.1) (117.5)
-------- -------- -------- --------
Total $2,372.8 $2,351.2 (0.9%) $6,848.2 $6,889.5 0.6%
======== ======== ===== ======== ======== ====
</TABLE>
21
<PAGE>
Total revenue for the quarter ended September 30, 1997, was down $21.6 million
or about 1% compared with the third quarter a year ago. When divestitures of
$85.5 million, net of acquisitions, are factored out, revenue increased about
2.7% versus the same period in 1996. Viewed on this basis, relatively strong
growth in the WMNA business was offset by weak hazardous waste pricing and
volumes and currency translation issues in WM International. For the nine months
ended September 30, 1997, total revenue increased $41.3 million or less than 1%.
The overall revenue impact of dispositions, net of acquisitions, was a reduction
of $135.3 million for the nine months of 1997. Before the impact of these
divestitures, consolidated revenue increased by $176.6 million or 2.6% versus
the first nine months of 1996. WMNA revenue was down approximately $6 million in
the third quarter of 1997 compared with 1996. The bulk of the $85.4 million of
divested revenue impacted WMNA, particularly in the commercial and industrial
lines of business. WMNA revenues were helped in the quarter by an increase in
the amount of recycling processing fees earned, as well as the prices the
Company receives for recycled materials it collects. For the nine months ending
September 30, WMNA revenue was virtually the same as the nine month period in
1996. The majority of the $135.4 million year-to-date divestiture impact was
related to WMNA revenues.
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 currency 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 permit extensions, and the absence of construction revenue
on the West Kowloon transfer station in Hong Kong, which was completed in the
second quarter.
WTI revenues increased $7.2 million or about 3% in the third quarter of 1997
versus the same period of 1996. For the nine months ending September 30, 1997
revenues were up $47.5 million or almost 7% over the nine months of 1996. The
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 its Pinellas
County, Florida, trash-to-energy facility and construction of a biosolids
compost facility for Burlington County, New Jersey. No similar construction
revenue was earned 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.
Operating Expenses
Consolidated operating expenses increased $102.6 million or 6.0% in the
third quarter of 1997 versus 1996, and increased as a percent of revenue from
72.4% to 77.4%. Operating expenses in both years' quarters were impacted by
changes in estimates and accounting principles. Remediation expenses, net of
insurance recoveries impacted the third quarter of 1997 by $34.2 million,
compared with $16.9 million in the same period in 1996. In the third quarters of
1997 and 1996, losses incurred and accrued provisions for loss-making contracts
impacted expenses by $6.4 million and $12.7 million respectively. The third
quarter 1997 expenses were impacted by a self-insurance expense increase of
$59.9 million. This increase resulted from changes in estimating techniques and
changes in estimates related to growth of prior years' claims.
22
<PAGE>
For the nine months ended September 30, 1997 consolidated operating expenses
increased $281.5 million, or 5.7% versus the same nine month period of 1996. As
a percentage of revenue, operating expenses increased from 72.3% to 75.9%. The
increase in operating expenses as a percentage of revenue was impacted by
weakness in hazardous waste volumes and pricing, higher waste taxes and lower
volumes in WM International operations, and the impact of WTI construction
revenue, which carries a high level of operating expenses as a percentage of
revenue. The majority of the actual expense increase, however, was due to
changes in estimates and accounting principles. Remediation expenses, net of
insurance recoveries increased $120.7 million for the nine months of 1997 versus
the same period of 1996. Remediation expenses in 1997 were impacted $49.9
million as a result of implementation of SOP 96-1, and $80.8 million related to
changes in remediation cost estimates at several disposal sites. During the
first nine months of 1996, remediation expenses were decreased by $39 million of
insurance recoveries, offset by $36.4 million of additional expenses related to
changes in cost estimates. Other items affecting the nine months of 1996
operating expenses include $30.5 million related to losses incurred and accrued
provisions for loss-making contracts, and $6.9 million related to various other
asset disposals and write-downs. The nine months of 1997 operating expenses were
affected by $59.9 million relating to self-insurance expense resulting from
changes in estimating techniques and increased growth of prior years' claims.
This same period was also impacted by $17.3 million of loss-making contracts,
and $14.0 million of asset write-downs.
Selling and Administrative Expenses
Consolidated selling and administrative expenses increased $27.5 million in the
quarter ended September 30, 1997 compared with the same quarter in 1996. As a
percentage of revenue, these expenses were 11.2% in the current year quarter
versus 12.4% in the year-ago quarter. The third quarter of 1997 included $25.6
million related to additional expenses reflecting changes in estimates of
litigation-related liabilities. For the nine months ended September 30, selling
and administrative expenses were 11.6% of revenue in 1997 compared with 11.5% in
1996, increasing $13.0 million in absolute terms. Selling and administrative
expenses for this nine month period of 1996 were impacted by $11.7 million of
asset write-downs primarily related to information systems assets, and
adjustments to receivables. This same period of 1997 was impacted by $25.6
million of litigation-related legal expenses.
Asset Impairment Loss
The Company recorded asset impairment losses of $1.7 million and $26.2
million in the third quarter of 1996 and 1997, respectively. The 1996 amount was
primarily related to real estate properties identified as surplus and designated
to be sold. The 1997 amount was primarily related to the write-off of an
operating landfill that closed unexpectedly in the quarter ($12.8 million) and a
goodwill write-off attributable to industrial cleaning business enterprise
goodwill no longer realizable, as a result of exiting certain areas of this
business.
In the first nine months of 1996 and 1997, asset impairment losses were
$13.5 million and $79.0 million respectively. Amounts prior to the third
quarters were primarily related to writedown of unsuccessful landfill
development or expansion projects for both 1996 and 1997.
23
<PAGE>
Special Charge
In the first nine months of 1997, the Company had special charges totaling
$17.7 million for employee severance. This primarily reflected a $15.9 million
charge taken in the first quarter of 1997 related to certain severed officers of
the Company, including its chief executive at the time.
Interest Expense
The following table sets forth the components of interest expense for the
three months and nine months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
Three Months Nine Months
------------------------------ ------------------------------
1996 1997 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest expense incurred $125.5 $112.4 $361.7 $352.0
Capitalized interest (9.1) (6.2) (24.9) (19.6)
------ ------ ------ ------
Interest expense $116.4 $106.2 $336.8 $332.4
====== ====== ====== ======
</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 $14.2 $ 5.7 $14.2 $176.9
Equity income 13.0 1.3 46.9 (8.6)
Other 7.1 1.0 13.5 7.5
----- ----- ----- ------
Sundry income, net $34.3 $ 8.0 $74.6 $175.8
===== ===== ===== ======
</TABLE>
Third quarter and nine-month 1996 amounts include equity income from
ServiceMaster and Wessex, both of which were sold in 1997. Equity income in the
second quarter of 1997 was reduced by $10.4 million as a result of a special
charge recorded by OHM. Gains on the sale of investments for the third quarter
of 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 and a $32.6 million pretax
gain relating to the sale of the majority of the Company's Canadian operations
in the second quarter of 1997.
24
<PAGE>
Income Taxes
The Company's effective tax rate (provision for income taxes divided by
pretax income before minority interest) for the third quarter was 51.0% in 1997
and 41.9% in 1996, and for the nine months was 50.3% in 1997 and 43.4% 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, asset impairment losses and other changes in
income mix.
Discontinued Operations
See Note 4 to the Consolidated Financial Statements for discussion of
discontinued operations.
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.
See Note 6 to the Consolidated Financial Statements for discussion of other
accounting principles.
Derivatives
From time to time, the Company and certain of its subsidiaries use
derivatives to manage currency, interest rate and commodity (fuel) risk.
Derivatives used are simple agreements which provide for payments based on the
notional amount with no multipliers or leverage. The Company's use of
derivatives has not been and is not expected to be material with respect to
financial condition or results of operations. For further discussion of the
Company's use of and accounting for derivatives, see the Company's Notes to
Consolidated Financial Statements for the year ended December 31, 1996 included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
Environmental Liabilities
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment. As such, a significant portion
of the Company's operating costs and capital expenditures could be
25
<PAGE>
characterized as costs of environmental protection. As part of its ongoing
operations, the Company provides for estimated closure and postclosure
monitoring costs over the life of disposal sites as airspace is consumed. The
Company has also established procedures to evaluate its potential remedial
liabilities at closed sites which it owns or operated, or to which it
transported waste. While the Company believes that it has adequately provided
for its environmental liabilities, it is reasonably possible that technological,
regulatory or enforcement developments, the results of environmental studies or
other factors could necessitate the recording of additional liabilities which
could be material. For further discussion, see Note 7 to the Consolidated
Financial Statements.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. Carriers involved in these matters have typically denied
coverage and are defending against the Company's claims. While the Company is
vigorously pursuing such claims, it regularly considers settlement opportunities
when appropriate terms are offered. Settlements for the first nine months of
1996 and 1997 were $39.0 million and $13.0 million, repectively (which included
settlements in the third quarter of 1997 of $2.2 million), and have been
included in operating expenses as a reduction to environmental remediation
expenses.
Financial Condition:
Liquidity and Capital Resources
The Company had a working capital deficit of $811.3 million at September
30, 1997, compared with a working capital deficit of $280.9 million at December
31, 1996. In connection with its strategy to maximize cash flow, the Company has
placed emphasis on minimizing working capital, because it operates in a service
industry with neither significant inventory nor seasonal variation in
receivables and thus is typically not adversely affected by reducing working
capital. Cash and marketable securities declined $376.6 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 $132.5 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.
The Company generated $1,588.6 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 $1,375.5 million (before tax) of
proceeds from asset monetization. Through the Dutch auction tender offer, $900.0
million of this owners' cash flow was returned to Company stockholders.
Acquisitions and Capital Expenditures
Capital expenditures, excluding property and equipment of purchased
businesses, were $585.0 million for the nine months ended September 30, 1997,
and $815.6 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 the Company's common stock on acquisitions
in 1997, compared with $102.7 million and 8.0 million shares of the Company's
common stock during the first nine months of 1996.
26
<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 Company 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 $376.6 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. At the time, the Company owned approximately 67% of the 156.6 million
outstanding WTI shares. The offer was subject to approval by a committee of
independent WTI directors and 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 called for that purpose. Several lawsuits were also
filed seeking relief as to the proposed transaction.
The Company and WTI were authorized by their respective Boards of Directors
to repurchase shares of their own common stock (up to 50 million shares in the
case of the Company and 30 million shares in the case of WTI) in the open
market, in privately negotiated transactions, or through issuer tender offers.
These programs extend into 1998. During the 1997 second quarter, the Company
purchased 30 million of its shares through the Dutch auction tender offer; it
has not repurchased any other shares during 1997. WTI repurchased 5.1 million of
its shares in open market transactions during 1997; however, in light of the
Company 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, the Company
periodically sold 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.
Risks and Uncertainties:
See Note 9 to the 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 at its New
York Organic Fertilizer Company facility, where it has been awarded a 15-year
contract renewal at lower anticipated revenue.
27
<PAGE>
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. These reviews are to be completed during the
fourth quarter of 1997. The Company expects that the results of these reviews
will require a fourth quarter charge which will be material to its results of
operations and stockholders' equity. See Note 1 to the consolidated financial
statements with respect to previously reported results.
On November 11, 1997, 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.
28
<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
June 8, 1998
29
<PAGE>
WASTE MANAGEMENT, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------------
Number Description
- ------------- -----------
<S> <C>
2 None
3 By-Laws of the registrant, as amended and restated as of November 4, 1997 (incorporated by
reference to Exhibit 3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 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
27.1 Financial Data Schedule September 30, 1997 Restated
27.2 Financial Data Schedule September 30, 1996 Restated
99 None
</TABLE>
*Exhibits not listed are inapplicable.
30
<PAGE>
WASTE MANAGEMENT, INC.
Ratio of Earnings to Fixed Charges
(Unaudited)
(millions of dollars, except ratio)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------
1996 1997
---------- ---------
<S> <C> <C>
Income from continuing operations before income
taxes, undistributed earnings from affiliated
companies and minority interest $ 835.4 $ 638.9
Interest expense 361.7 352.0
Capitalized interest (24.9) (19.6)
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 $ 1,211.5 $ 1,007.0
========== =========
Interest expense $ 361.7 $ 352.0
One-third of rents payable in the next year 39.3 35.7
---------- ---------
Interest expense plus one-third of rents $ 401.0 $ 387.7
========== =========
Ratio of earnings to fixed charges 3.02 to 1 2.60 to 1
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS RESTATED 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 FIANCIAL STATEMENTS AND THE
FOOTNOTES THERETO.
</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> 133,461
<RECEIVABLES> 1,565,361
<ALLOWANCES> 47,182
<INVENTORY> 0
<CURRENT-ASSETS> 2,195,452
<PP&E> 13,385,303
<DEPRECIATION> 5,121,684
<TOTAL-ASSETS> 15,242,375
<CURRENT-LIABILITIES> 3,006,734
<BONDS> 6,405,304
0
0
<COMMON> 507,102
<OTHER-SE> 2,342,200
<TOTAL-LIABILITY-AND-EQUITY> 15,242,375
<SALES> 0
<TOTAL-REVENUES> 6,889,481
<CGS> 0
<TOTAL-COSTS> 5,329,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,334
<INTEREST-EXPENSE> 332,379
<INCOME-PRETAX> 545,047
<INCOME-TAX> 316,747
<INCOME-CONTINUING> 228,300
<DISCONTINUED> 8,412
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 236,712
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 30, 1996 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANCIAL STATEMENTS AND THE
FOOTNOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 251,346
<SECURITIES> 4,224
<RECEIVABLES> 2,003,330
<ALLOWANCES> 67,559
<INVENTORY> 0
<CURRENT-ASSETS> 2,904,051
<PP&E> 13,809,052
<DEPRECIATION> 4,819,345
<TOTAL-ASSETS> 18,077,213
<CURRENT-LIABILITIES> 3,222,074
<BONDS> 7,226,448
0
0
<COMMON> 507,102
<OTHER-SE> 3,571,842
<TOTAL-LIABILITY-AND-EQUITY> 18,077,213
<SALES> 0
<TOTAL-REVENUES> 6,848,219
<CGS> 0
<TOTAL-COSTS> 4,964,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,275
<INTEREST-EXPENSE> 336,794
<INCOME-PRETAX> 777,142
<INCOME-TAX> 374,179
<INCOME-CONTINUING> 402,963
<DISCONTINUED> (47,492)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,471
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.00
</TABLE>
