<PAGE> 1
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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 MARCH 31, 1999
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 1-12154
WASTE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-1309529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1001 FANNIN
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(713) 512-6200
(Registrant's telephone number, including area code)
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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at May 4, 1999, was 609,061,119 (excluding 7,892,612 shares held in
the Waste Management, Inc. Employee Stock Benefit Trust and treasury shares of
73,709).
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<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 59,364 $ 86,873
Receivables, net.......................................... 2,373,400 2,385,911
Parts and supplies........................................ 98,612 128,254
Deferred income taxes..................................... 203,295 237,616
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 135,585 127,975
Prepaid expenses and other................................ 286,650 168,163
Current assets held for sale.............................. 371,960 746,605
----------- -----------
Total current assets.............................. 3,528,866 3,881,397
Property and equipment, net................................. 11,532,775 11,637,739
Excess of cost over net assets of acquired businesses,
net....................................................... 6,300,962 6,069,098
Other intangible assets, net................................ 181,648 181,226
Other assets................................................ 1,063,668 945,738
----------- -----------
Total assets...................................... $22,607,919 $22,715,198
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,033,697 $ 1,040,601
Accrued liabilities....................................... 2,112,852 2,287,543
Deferred revenues......................................... 346,089 381,780
Current maturities of long-term debt...................... 556,741 583,742
----------- -----------
Total current liabilities......................... 4,049,379 4,293,666
Long-term debt, less current maturities..................... 10,981,152 11,114,201
Deferred income taxes....................................... 510,714 470,107
Environmental and other liabilities......................... 2,120,661 2,352,652
----------- -----------
Total liabilities................................. 17,661,906 18,230,626
----------- -----------
Minority interest in subsidiaries........................... 115,312 112,076
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value; 1,500,000,000 shares
authorized; 613,906,533 and 608,307,531 shares issued,
respectively........................................... 6,139 6,083
Additional paid-in capital................................ 4,230,256 4,091,525
Retained earnings......................................... 1,430,780 1,066,506
Accumulated other comprehensive income.................... (482,349) (420,804)
Treasury stock at cost, 73,709 and 63,950 shares,
respectively........................................... (3,890) (2,821)
Employee stock benefit trust at market, 7,892,612
shares................................................. (350,235) (367,993)
----------- -----------
Total stockholders' equity........................ 4,830,701 4,372,496
----------- -----------
Total liabilities and stockholders' equity........ $22,607,919 $22,715,198
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 3
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating revenues.......................................... $3,070,635 $2,969,433
---------- ----------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 1,641,323 1,801,261
General and administrative................................ 258,194 349,604
Depreciation and amortization............................. 350,329 356,302
Merger costs.............................................. 33,126 7,602
Loss from continuing operations held for sale, net of
minority interest......................................... -- 2,416
---------- ----------
2,282,972 2,517,185
---------- ----------
Income from operations...................................... 787,663 452,248
---------- ----------
Other income (expense):
Interest expense.......................................... (176,157) (155,531)
Minority interest......................................... (6,462) (25,302)
Interest and other income, net............................ 19,781 76,556
---------- ----------
(162,838) (104,277)
---------- ----------
Income before income taxes.................................. 624,825 347,971
Provision for income taxes.................................. 260,551 166,555
---------- ----------
Net income.................................................. $ 364,274 $ 181,416
========== ==========
Basic earnings per common share............................. $ 0.60 $ 0.32
========== ==========
Diluted earnings per common share........................... $ 0.58 $ 0.31
========== ==========
Weighted average number of common shares outstanding........ 602,522 566,439
========== ==========
Weighted average number of common and dilutive potential
common shares outstanding................................. 642,481 602,990
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER EMPLOYEE
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK
STOCK CAPITAL EARNINGS INCOME STOCK BENEFIT TRUST
------ ---------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998..... $6,083 $4,091,525 $1,066,506 $(420,804) $(2,821) $(367,993)
Common stock options and
warrants exercised,
including tax benefits.... 13 31,695 -- -- -- --
Common stock issued for
acquisitions.............. 1 1,400 -- -- -- --
Cumulative translation
adjustment of foreign
currency statements....... -- -- -- (61,545) -- --
Adjustment of employee stock
benefit trust to market
value..................... -- (17,758) -- -- -- 17,758
Common stock issued for
conversion of subordinated
debt...................... 40 111,651 -- -- -- --
Other........................ 2 11,743 -- -- (1,069) --
Net income................... -- -- 364,274 -- -- --
------ ---------- ---------- --------- ------- ---------
Balance, March 31, 1999........ $6,139 $4,230,256 $1,430,780 $(482,349) $(3,890) $(350,235)
====== ========== ========== ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 364,274 $ 181,416
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 350,329 356,302
Deferred income taxes.................................. 131,990 50,155
Minority interest in subsidiaries...................... 3,210 24,925
Gain on sale of assets................................. (7,004) (54,355)
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
Receivables.......................................... (34,666) 78,521
Prepaid expenses and other........................... (89,247) 23,893
Other assets......................................... 26,683 704
Accounts payable and accrued liabilities............. (48,411) (216,801)
Deferred revenues and other liabilities.............. (335,424) (39,211)
Other, net........................................... 12,570 (5,502)
--------- -----------
Net cash provided by operating activities................... 374,304 400,047
--------- -----------
Cash flows from investing activities:
Short-term investments.................................... (6,466) 56,227
Acquisitions of businesses, net of cash acquired.......... (280,797) (959,629)
Capital expenditures...................................... (281,272) (282,310)
Proceeds from sale of assets.............................. 248,888 329,703
Acquisitions of minority interests........................ -- (876,232)
Other, net................................................ 4,997 (1,548)
--------- -----------
Net cash used in investing activities....................... (314,650) (1,733,789)
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 636,823 2,624,093
Principal payments on long-term debt...................... (746,289) (1,132,764)
Cash dividends............................................ -- (78,598)
Proceeds from sale of treasury stock...................... -- 80,000
Other, net................................................ 24,069 14,112
--------- -----------
Net cash provided by (used in) financing activities......... (85,397) 1,506,843
--------- -----------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,766) (262)
--------- -----------
Increase (decrease) in cash and cash equivalents............ (27,509) 172,839
Cash and cash equivalents at beginning of period............ 86,873 189,942
--------- -----------
Cash and cash equivalents at end of period.................. $ 59,364 $ 362,781
========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net income.................................................. $364,274 $181,416
Other comprehensive income (loss):
Foreign currency translation adjustment................... (61,545) (33,105)
-------- --------
Comprehensive income........................................ $302,729 $148,311
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 7
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated financial statements of Waste Management, Inc.
and subsidiaries (the "Company") presented herein are unaudited. In the opinion
of management, these financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position, results of operations, and cash flows for the periods
presented. The financial statements presented herein should be read in
connection with the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
1. BUSINESS COMBINATIONS
On July 16, 1998, the Company, then known as USA Waste Services, Inc.,
completed a merger accounted for as a pooling of interests with Waste
Management, Inc., which was subsequently renamed Waste Management Holdings, Inc.
("WM Holdings") (the "WM Holdings Merger"). WM Holdings was previously the
largest publicly traded solid waste company in the United States, providing
integrated solid waste management and hazardous waste management services in
North America and comprehensive waste management and related services, including
solid and hazardous waste management services internationally. At the effective
time of the WM Holdings Merger, the Company changed its name to Waste
Management, Inc. On December 31, 1998, the Company consummated a merger with
Eastern Environmental Services, Inc. ("Eastern") (the "Eastern Merger")
accounted for using the pooling of interests method of accounting.
In connection with the WM Holdings Merger and the Eastern Merger, the
Company incurred significant merger costs and unusual items in the third and
fourth quarters of 1998 as described in the Company's 1998 Annual Report on Form
10-K. Additionally, the Company has recorded $33.1 million of merger costs for
the three months ended March 31, 1999, and expects to record approximately $86.0
million throughout the remainder of 1999 for merger costs that are transitional
in nature and not accruable until incurred or committed.
The Company is in the process of terminating the WM Holdings defined
benefit plan as of December 31, 1998 and currently intends to liquidate the
plan's assets and settle its obligations to participants in the third quarter of
1999. The related settlement charge and cash payment is currently estimated to
be approximately $125.0 million. This estimate, however, is subject to final
actuarial determinations, including final employee census data, employee
settlement decisions and existing market conditions, and could be significantly
higher than is currently estimated. In such event, there can be no assurance
that the Company will continue with its current intention to terminate the plan.
Certain WM Holdings' employee stock option plans included change of control
provisions that were activated as a result of the WM Holdings Merger whereby the
option holder received certain put rights that require charges to earnings
through the put periods. To the extent the future market value of the Company's
common stock exceeds $54.34 per share, the Company will be required to record
additional charges to earnings to July 16, 1999, at which time all put rights
expire. The expense related to these stock option put rights has no impact on
stockholders' equity as the offset is a direct increase to additional paid-in
capital, since these put rights will be satisfied by the issuance of common
stock.
Cash payments of $142.0 million were made by the Company during the three
months ended March 31, 1999 related to merger costs recorded in 1998 and 1999
for the WM Holdings Merger and the Eastern Merger.
Merger costs for the WM Holdings Merger and the Eastern Merger include
estimates for anticipated losses related to the sales of assets pursuant to
governmental orders. These anticipated losses have been estimated based on the
Company's assessment of relevant facts and circumstances, including
consideration of the various provisions of asset sale agreements. In certain
instances, the asset sale agreements contain contingencies, the resolution of
which are uncertain and may materially change the proceeds which the Company
will ultimately receive. Accordingly, dependent upon actual future experience
and the resolution of
6
<PAGE> 8
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain contingencies, the amount of losses ultimately recorded by the Company
could materially differ from amounts that have been recorded by the Company.
During the three months ended March 31, 1999, the Company consummated
several acquisitions that were accounted for under the purchase method of
accounting. The total cost of acquisitions for this period was approximately
$346.1 million, which includes cash paid, common stock issued and debt assumed.
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Bank borrowings $ 1,281,580 $ 1,903,100
Commercial paper, average interest of 5.4% in 1999 and 5.7%
in 1998.................................................. 1,469,492 840,108
Senior notes and debentures, interest 6 1/8% to 8 3/4%, due
through 2028............................................. 5,957,823 5,959,884
4% Convertible subordinated notes due 2002................. 535,275 535,275
4 1/2% Convertible subordinated notes due 2001............. 148,370 148,370
5% Convertible subordinated debentures due 2006............ -- 114,445
5.75% Convertible subordinated notes due 2005.............. 455,114 453,680
Tax-exempt and project bonds, principal payable in periodic
installments, maturing through 2021, fixed and variable
interest rates ranging from 3.05% to 9.25% at March 31,
1999..................................................... 1,219,156 1,220,634
Installment loans and notes payable, interest to 14%,
maturing through 2017.................................... 440,802 491,533
Other...................................................... 30,281 30,914
----------- -----------
11,537,893 11,697,943
Less current maturities.................................... 556,741 583,742
----------- -----------
$10,981,152 $11,114,201
=========== ===========
</TABLE>
At March 31, 1999, the applicable interest rate on the Company's $3.0
billion syndicated loan facility (the "Syndicated Facility") was 5.29% and there
were no borrowings outstanding under the Company's $2.0 billion senior revolving
credit facility (the "Credit Facility"). The facility fee was 0.10% and 0.125%
per annum, under the Syndicated Facility and Credit Facility, respectively, at
March 31, 1999. The Company had borrowed $1.025 billion and had issued letters
of credit of $1.09 billion in aggregate under the Syndicated Facility and Credit
Facility at March 31, 1999. The outstanding balance of the Company's two
multi-currency credit facilities as of March 31, 1999, was euro 238.2 million
(equivalent to approximately $256.6 million). The interest rates on the two
outstanding loans under the multi-currency credit facilities at March 31, 1999,
were 5.9% and 3.5%.
On March 4, 1996, the Company issued $115.0 million of 5% convertible
subordinated debentures, due on March 1, 2006. In March 1999, these debentures
were called by the Company and subsequently converted into equity by the
debenture holders. Approximately 4.0 million shares of the Company's common
stock were issued upon conversion.
7
<PAGE> 9
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The difference in income taxes at the statutory federal income tax rate and
the provision for income taxes for the three months ended March 31, 1999 and
1998, is primarily due to state and local income taxes and non-deductible costs
related to acquired intangibles.
4. EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding at
March 31 of each year to the weighted average number of common shares
outstanding and the weighted average number of common and dilutive potential
common shares outstanding for the respective three month periods for the
purposes of calculating basic and dilutive earnings per common share (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Number of common shares outstanding......................... 605,940 567,269
Effect of using weighted average common shares
outstanding............................................... (3,418) (830)
------- -------
Weighted average number of common shares outstanding........ 602,522 566,439
Dilutive effect of common stock options and warrants........ 9,652 4,880
Diluted effect of convertible subordinated notes and
debentures................................................ 30,307 31,671
------- -------
Weighted average number of common and dilutive potential
common shares outstanding................................. 642,481 602,990
======= =======
</TABLE>
For the three months ended March 31, 1999 and 1998, interest (net of taxes)
of $7.2 million and $7.5 million, respectively, has been added to net income for
the diluted earnings per share calculation.
At March 31, 1999, there were approximately 69.1 million shares of common
stock potentially issuable with respect to stock options, warrants, and
convertible debt, which could dilute basic earnings per share in the future.
5. COMPREHENSIVE INCOME
Comprehensive income represents the change in equity of an enterprise from
transactions and other events and circumstances from nonowner sources and
includes all changes in equity except those resulting from investments by owners
and distributions to owners. The components of accumulated other comprehensive
income are as follows for the periods indicated (in thousands):
<TABLE>
<CAPTION>
FOREIGN MINIMUM ACCUMULATED
CURRENCY PENSION OTHER
TRANSLATION LIABILITY COMPREHENSIVE
ADJUSTMENT ADJUSTMENT INCOME
----------- ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1998....................... $(353,642) $(67,162) $(420,804)
Current-period change.......................... (61,545) -- (61,545)
--------- -------- ---------
Balance, March 31, 1999.......................... $(415,187) $(67,162) $(482,349)
========= ======== =========
</TABLE>
6. ENVIRONMENTAL LIABILITIES
The Company has material financial commitments for the costs associated
with its future obligations for final closure, which is the closure of the final
cell of a landfill, and the regulatory required costs associated with existing
operations at a hazardous waste treatment, storage or disposal facility which
are subject to the Toxic Substances Central Act ("TSCA") or the Resource
Conservation and Recovery Act ("RCRA"), and, also,
8
<PAGE> 10
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the post-closure of such facilities. For landfills, the final closure and
post-closure liabilities are accrued and charged to expense as airspace is
consumed such that the total estimated final closure and post-closure cost will
be fully accrued for each landfill at the time the site discontinues accepting
waste and is closed. Estimates for final closure and post-closure costs are
developed using input from the Company's engineers and accountants and are
reviewed by management (typically not less than once per year).
The Company has also established procedures to evaluate its potential
remedial liabilities at closed sites which it owns or operates, or to which it
transported waste, including 88 sites listed on the Superfund National
Priorities List ("NPL") as of March 31, 1999. 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, a provision is
made in its consolidated financial statements.
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, provide 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 consolidated financial statements,
it is reasonably possible that technological, regulatory or enforcement
developments, the results of environmental studies, the existence and ability of
other potentially responsible parties to contribute to the settlements of such
liabilities, or other factors could necessitate the recording of additional
liabilities which could be material.
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 these claims, it regularly considers settlement
opportunities when appropriate terms are offered. Settlements of $2.6 million
and $4.5 million in the three months ended March 31, 1999 and 1998,
respectively, have been included in operating costs and expenses as an offset to
environmental expenses.
7. COMMITMENTS AND CONTINGENCIES
Financial instruments -- Letters of credit, performance bonds and other
guarantees have been provided by the Company supporting tax-exempt bonds,
performance of final closure and post-closure requirements, insurance policies,
and other contracts. The insurance policies are issued by a wholly-owned
insurance subsidiary of the Company, the sole business of which is to issue such
policies to customers of the Company. Because virtually no claims have been made
against these financial instruments in the past, management does not expect
these instruments will have a material effect on the Company's consolidated
financial statements.
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk, such as bank letters of credit,
performance bonds and other guarantees, which are not reflected in the
consolidated balance sheets. In the Company's experience, virtually no claims
have been made against those financial instruments. Management does not expect
any material losses to result from these off-balance sheet instruments.
Environmental matters -- The Company's operations are intrinsically
connected with the protection of the environment. As such, a significant portion
of the Company's operating costs and capital expenditures could be characterized
as costs of environmental protection. Such costs may increase in the future as a
result of legislation or regulation. However, the Company believes that in
general it tends to benefit when environmental regulation increases, which may
increase the demand for its services, and that it has the resources and
experience to manage environmental risk. See Note 6 for further discussion.
9
<PAGE> 11
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation -- In November and December 1997, several alleged purchasers of
WM Holdings securities (including but not limited to common stock), who
allegedly bought their securities during 1996 and 1997, brought fourteen
purported class action lawsuits against WM Holdings and several of its current
and former officers and directors in the United States District Court for the
Northern District of Illinois. Each of these lawsuits asserted that the
defendants violated the federal securities laws by issuing allegedly false and
misleading statements in 1996 and 1997 about WM Holdings' financial condition
and results of operations. The lawsuits demanded, among other relief,
unspecified compensatory damages, pre- and post-judgement interest, attorneys'
fees and the costs of conducting the litigation. In January 1998, the fourteen
putative class actions were consolidated before one judge. In May 1998, the
plaintiffs filed a consolidated amended complaint against WM Holdings and four
of its former officers as defendants, which was amended in July 1998 to add WM
Holdings' outside auditor and another former officer as additional defendants.
The amended complaint seeks recovery on behalf of a proposed class of all
purchases of WM Holdings' securities between May 29, 1995, and October 30, 1997.
The amended complaint alleges, among other things, that WM Holdings filed false
and misleading financial statements beginning in 1991 and continuing through
October 1997 and seeks recovery for alleged violations of the federal securities
laws between May 1995 and October 1997.
In December 1998, the Company announced an agreement to settle the
consolidated action against all defendants and the establishment of a settlement
fund of $220 million for the class of open market purchasers of WM Holdings
securities between November 3, 1994, and February 24, 1998. The settlement
agreement with the plaintiffs is subject to various conditions, including
preliminary approval by the Court, notice to the class and final approval by the
Court after a hearing. There can be no assurances that the Court will find the
settlement to be fair to the class. Also, because otherwise eligible members of
the class may opt out of the lawsuit, there can be no assurances that WM
Holdings will not be a party to additional lawsuits or claims brought by open
market purchasers of the Company's securities.
One alleged purchaser of WM Holdings' securities has initiated an action
arising out of the same set of facts in Illinois state court alleging violations
of Illinois state law. The same individual, together with two other alleged
purchasers, has initiated another action based on the same set of facts in
federal court in Florida alleging violations of the federal securities laws.
Additionally, there are several other actions and claims that arise out of
the same set of facts that have been brought by business owners who received WM
Holdings common stock in the sales of their businesses to WM Holdings. These
actions and claims, one of which purports to be class action, allege, among
other things, breach of warranty or breach of contract based on WM Holdings'
restatement of earnings in February 1998. In April 1999, courts having
jurisdiction over two such actions, including the purported class action,
granted summary judgement against WM Holdings on the issue of breach of
contract. The extent of damages, if any, in either action has not yet been
determined.
Purported derivative actions have also been filed in Delaware Chancery
Court by alleged former shareholders of WM Holdings against certain former
officers and directors of WM Holdings and nominally against WM Holdings to
recover damages caused to WM Holdings as a result of the consolidated federal
securities class action pending in federal court in the Northern District of
Illinois. The plaintiffs seek to recover from the former officers and directors,
on behalf of WM Holdings, the amounts paid in the federal class action.
It is not possible at this time to predict the impact that the above
lawsuits may have on WM Holdings or the Company, nor is it possible to predict
whether any other suits or claims may arise out of these matters in the future.
However, it is reasonably possible that the outcome of any present or future
litigation may have a material adverse impact on their respective financial
conditions or results of operations in one or more future periods. WM Holdings
intends to defend itself vigorously in all the above matters.
10
<PAGE> 12
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is also aware that the Securities and Exchange Commission has
commenced a formal investigation with respect to WM Holdings' previously filed
financial statements (which were subsequently restated) and related accounting
policies, procedures and system of internal controls. The Company intends to
cooperate with such investigation. The Company is unable to predict the outcome
or impact of this investigation at this time.
In March 1998, a stockholder of WM Holdings filed a purported class action
in the Chancery Court of Delaware against WM Holdings and certain of its former
directors alleging that the WM Holdings Merger was a result of unfair dealing
and that the defendants had breached their fiduciary duties in approving the
merger. The complaint, which sought equitable relief that would have rescinded
the WM Holdings Merger and awarded monetary damages from the defendants for
unlawfully gained profits and special benefits, was dismissed in March 1999.
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment and the potential 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 foreign, 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 related 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
applicable requirements. From time to time, the Company pays fines or penalties
in environmental proceedings relating primarily to waste treatment, storage or
disposal facilities. The Company believes that these matters will not have a
material adverse effect on its results of operations 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.
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's subsidiary 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 sites. Some of such lawsuits may seek to have the Company or its
subsidiaries pay the costs 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 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
factors. Accordingly, it is possible such matters could have a material adverse
impact on the Company's consolidated financial statements.
The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under the Comprehensive Environmental Response, Compensation and
Liabilities Act of 1980, as amended ("CERCLA" or "Superfund"). The majority of
these proceedings are based on allegations that certain subsidiaries of the
Company (or their predecessors) transported hazardous substances to the sites in
question, often prior to acquisition of such subsidiaries by the Company. Such
proceedings arising under Superfund typically involve numerous waste generators
and other waste transportation and disposal companies
11
<PAGE> 13
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and seek to allocate or recover costs associated with site investigation and
cleanup, which costs could be substantial.
As of March 31, 1999, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 88 locations
listed on the NPL. Of the 88 NPL sites at which claims have been made against
the Company, 17 are sites which the Company has come to own over time. All of
the NPL sites owned by the Company were initially sited by others as land
disposal facilities. At each of the 17 owned facilities, the Company is working
in conjunction with the government to characterize or remediate identified site
problems. In addition, at these 17 facilities, the Company has either agreed
with other legally liable parties on an arrangement for sharing the costs of
remediation or is pursuing resolution of an allocation formula. The 71 NPL sites
at which claims have been made against the Company and which are not owned by
the Company are at different procedural stages under Superfund. At some of these
sites, the Company's liability is well defined as a consequence of a
governmental decision as to the appropriate remedy of an agreement among liable
parties as to the share each will pay for implementing that remedy. At others
where no remedy has been selected or the liable parties have been unable to
agree on an appropriate allocation, the Company's future costs are uncertain.
The Company has been advised by the U.S. Department of Justice that Laurel
Ridge Landfill, Inc., a wholly-owned subsidiary of the Company as a result of
the Company's acquisition of United Waste Systems, Inc. ("United") in August
1997, is a target of a federal investigation relating to alleged violations of
the Clean Water Act at the Laurel Ridge Landfill in Kentucky. The investigation
relates to a period prior to the Company's acquisition of United. The Company is
attempting to negotiate a resolution with the government which may include a
guilty plea to a criminal misdemeanor, a fine and in-kind services. The Company
believes that the ultimate outcome of this matter will not have a material
adverse effect on the Company's consolidated financial statements.
In March 1999, the Company was notified that All-Waste Systems, Inc.
("All-Waste") and two other indirect subsidiaries acquired in the Eastern
Merger, as well as a current employee of the Company, were suspended from future
contracting with any agency in the executive branch of the U.S. Government
pending proceedings. The suspension and potential debarment are based on a
September 1997 conviction of All-Waste of mail fraud and other activities that
occurred prior to the ownership of the entities by Eastern. The Company is
attempting to remove the three entities from the suspension and proposed
debarment list. The Company believes that the ultimate outcome of this matter
will not have a material adverse effect on the Company's consolidated financial
statements.
In February 1999, a San Bernardino County, California grand jury returned
an amended felony indictment against the Company, certain of its subsidiaries
and their current or former employees, and a County employee. The proceeding is
based on events that allegedly occurred prior to the WM Holdings Merger in
connection with a WM Holdings landfill development project. The indictment
includes allegations that certain of the defendants engaged in conduct involving
fraud, wiretapping, theft of a trade secret and manipulation of computer data,
and that they engaged in a conspiracy to do so. If convicted, the most serious
of the available sanctions against the corporate defendants would include
substantial fines and forfeitures. The Company believes that meritorious
defenses exist to each of the allegations, and the defendants are vigorously
contesting them. The Company believes that the ultimate outcome of this matter
will not have a material adverse effect on the Company's consolidated financial
statements.
The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior Court in Hudson County, New
Jersey. In this action, the Company is seeking a declaratory judgement that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to recover
defense costs and other damages incurred as a result of the assertion of
environmental
12
<PAGE> 14
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities against the Company or its subsidiaries for events occurring over at
least the last 25 years at approximately 140 sites and the defendant insurance
carriers' denial of coverage of such liabilities. While the Company has reached
settlements with some of the carriers, the remaining defendants have denied
liability to the Company and have asserted various defenses, including that
environmental liabilities of the type for which the Company is seeking relief
are not risks covered by the insurance policies in question. The remaining
defendants are contesting these claims vigorously. Discovery is nearly complete
as to the 12 sites in the first phase of the case and discovery is expected to
continue for several years as to the remaining sites. Currently, trial dates
have not been set. The Company is unable at this time to predict the outcome of
this proceeding. No amounts have been recognized in the Company's consolidated
financial statements for potential recoveries.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. While the outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty, the Company believes that
these matters will not have a material adverse effect on its consolidated
financial statements.
Tax Matters -- During the first quarter of 1995, WMI Sellbergs AB, a
Swedish subsidiary, received an assessment from the Swedish Tax Authority of
approximately 417 million Krona (approximately $50.5 million based on current
exchange rates) plus interest from the date of the assessment, relating to a
transaction completed in 1990. On November 4, 1998, the County Court of the
County of Stockholm ruled in favor of WMI Sellbergs AB. However, the Swedish Tax
Authority has appealed that decision. The Company believes that all appropriate
tax returns and disclosures were properly filed at the time of the transaction
and intends to vigorously contest the appeal.
8. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and derivatives used for hedging
purposes. SFAS No. 133 requires that entities recognize all derivative financial
instruments as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for the Company in its first fiscal quarter in 2000. Management is currently
assessing the impact that the adoption of SFAS No. 133 will have on the
Company's consolidated financial statements.
9. ASSETS HELD FOR SALE
The Company is disposing of certain assets to comply with governmental
orders related to the mergers and certain other assets as a result of
implementing the business strategy related to the WM Holdings Merger. These
businesses' results of operations are fully included in revenues and expenses in
the accompanying statements of operations, and generated third party operating
revenues of approximately $103.3 million and earnings before interest and taxes
of approximately $6.3 million in 1999. In addition, as a result of the WM
Holdings Merger and Eastern Merger, various real estate became duplicative and
surplus, and will be sold. The Company has recorded charges to write down these
assets to fair value, less costs to sell. These charges are based on estimates
and certain contingencies that could materially differ from actual results and
resolution of any such contingencies.
10. SEGMENT AND RELATED INFORMATION
The Company's North American solid waste management operation is its
principal reportable segment. This segment provides integrated waste management
services consisting of collection, transfer, disposal (solid waste landfill,
hazardous waste landfill and waste-to-energy), recycling, and other services
provided to commercial, industrial, municipal and residential customers. Similar
operations in markets outside of North
13
<PAGE> 15
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
America are disclosed as a separate segment. The Company's other reportable
segment consists of non-solid waste services, aggregated as a single segment for
this reporting presentation. The non-solid waste segment includes other
hazardous waste services such as chemical waste management services and
low-level and other radioactive waste services, the Company's independent power
projects, and other non-solid waste services to commercial, industrial and
government customers, and includes certain business lines that are being
actively marketed.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. Prior period information has been
restated to conform to the segments described above, which are based on the
structure and internal organization of the Company as of March 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN WM NON-SOLID CORPORATE
SOLID WASTE INTERNATIONAL WASTE FUNCTIONS(A) TOTAL
-------------- ------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Three Months Ended:
March 31, 1999
Net operating revenues(b)..... $2,511,533 $371,091 $188,011 $ -- $3,070,635
Earnings before interest and
taxes (EBIT)(c)............ 758,928 35,447 26,542 (128) 820,789
Three Months Ended:
March 31, 1998
Net operating revenues(b)..... $2,396,794 $368,552 $204,087 $ -- $2,969,433
Earnings before interest and
taxes (EBIT)(c)............ 494,116 28,220 13,355 (73,425) 462,266
</TABLE>
- ---------------
(a) Corporate functions include the corporate treasury function (except for
limited amounts of locally negotiated and managed project debt),
administration of corporate tax function, the corporate insurance function
and management of closed landfill and related insurance recovery functions,
along with other typical administrative functions.
(b) Non-Solid Waste revenues are net of inter-segment revenue with North
American Solid Waste of $27.1 million and $18.2 million in the first quarter
of 1999 and 1998, respectively. There are no other significant sales between
segments.
(c) For those items included in the determination of EBIT, (the earnings
measurement used by management to evaluate operating performance) the
accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies included in the
Company's 1998 Annual Report on Form 10-K for the year ended December 31,
1998.
The reconciliation of total EBIT reported above to net income is as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
EBIT, as reported above..................................... $820,789 $462,266
(Plus) less:
Merger costs.............................................. 33,126 7,602
Loss from continuing operations held for sale, net........ -- 2,416
Interest expense.......................................... 176,157 155,531
Minority interest......................................... 6,462 25,302
Interest and other income, net............................ (19,781) (76,556)
-------- --------
Income before income taxes.................................. 624,825 347,971
Provision for income taxes.................................. 260,551 166,555
-------- --------
Net income.................................................. $364,274 $181,416
======== ========
</TABLE>
14
<PAGE> 16
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
On April 22, 1999, the Company announced that it had given notice of
redemption on all outstanding 4 1/2% convertible subordinated notes due 2001,
with principal amount at maturity equal to recorded liability at March 31, 1999.
Redemption is scheduled to occur on June 1, 1999. The redemption price is 101.8%
per $1,000 in aggregate principal amount of the notes together with accrued
interest thereon to the redemption date. Interest due on June 1, 1999 will be
paid to holders of the notes on record as of May 15, 1999. The notes are
convertible, at the holder's option, into shares of the Company's common stock
at the rate of approximately 33.08 shares of common stock for each $1,000
principal amount of notes. The right to convert the notes into shares of the
Company's common stock will terminate after the close of business on May 24,
1999.
In the first quarter of 1999, various international subsidiaries of the
Company entered into agreements to acquire certain businesses in Denmark,
Australia and New Zealand. In the second quarter of 1999, a certain class of
shares of the Danish company was acquired for approximately $68.0 million,
representing 66% of its share capital. In addition, the Company anticipates its
international subsidiaries will complete the acquisitions of the Australian and
New Zealand businesses during the latter part of the second quarter of 1999, for
approximately $160.0 million, however these acquisitions are subject to due
diligence efforts and regulatory approval.
15
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion reviews the Company's operations for the three
months ended March 31, 1999 and 1998, and should be read in conjunction with the
Company's condensed consolidated financial statements and related notes thereto
included elsewhere herein as well as the Company's consolidated financial
statements and related notes thereto included the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
The following discussion includes statements that are forward-looking in
nature. Whether such statements ultimately prove to be accurate depends upon a
variety of factors that may affect the business and operations of the Company.
Certain of these factors are discussed under "Business -- Factors Influencing
Future Results and Accuracy of Forward-Looking Statements" included in Part I,
Item 1 of the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
INTRODUCTION
The Company is a global leader in providing integrated waste management
services. In North America, the Company provides solid waste management services
throughout the U.S., as well as in Canada and Puerto Rico, including collection,
transfer, recycling and resource recovery services, and disposal services,
including the landfill disposal of hazardous wastes. In addition, the Company is
a leading developer, operator and owner of waste-to-energy facilities in the
U.S. The Company also engages in other hazardous waste management services
throughout North America, as well as low-level and other radioactive waste
services. Internationally, the Company operates throughout Europe, the Pacific
Rim, South America and other select international markets. Included in the
Company's international operations is the collection and transportation of
solid, hazardous and medical wastes and recyclable materials and the treatment
and disposal of recyclable materials. The Company also operates solid and
hazardous waste landfills, municipal and hazardous waste incinerators, water and
waste water treatment facilities, hazardous waste treatment facilities,
waste-fuel powered independent power facilities, and constructs treatment or
disposal facilities for third parties internationally. The Company's diversified
customer base includes commercial, industrial, municipal and residential
customers, other waste management companies, governmental entities and
independent power markets.
The Company's operating revenues from waste management operations consist
primarily of fees charged for its collection and disposal services. Operating
revenues for collection services include fees from residential, commercial,
industrial, and municipal collection customers. A portion of these fees are
billed in advance; a liability for future service is recorded upon receipt of
payment and operating revenues are recognized as services are actually provided.
Fees for residential and municipal collection services are normally based on the
type and frequency of service. Fees for commercial and industrial services are
normally based on the type and frequency of service and the volume of waste
collected. The Company's operating revenues from its disposal operations consist
of disposal fees (known as tipping fees) charged to third parties and are
normally billed monthly or semi-monthly. Tipping fees are based on the volume or
weight of waste being disposed of the Company's disposal facilities. Fees are
charged at transfer stations based on the volume or weight of waste deposited,
taking into account the Company's cost of loading, transporting, and disposing
of the solid waste at a disposal site. Intercompany revenues between the
Company's operations have been eliminated in the consolidated financial
statements presented elsewhere herein.
Operating expenses from waste management operations include direct and
indirect labor and the related taxes and benefits, fuel, maintenance and repairs
of equipment and facilities, tipping fees paid to third party disposal
facilities, property taxes, and accruals for future landfill final closure and
post-closure costs. Certain direct development expenditures are capitalized and
amortized over the estimated useful life of a site as capacity is consumed, and
include acquisition, engineering, upgrading, construction, capitalized interest,
and permitting costs. All indirect development expenses, such as administrative
salaries and general corporate overhead, are expensed in the period incurred.
General and administrative costs include management salaries, clerical and
administrative costs, professional services, facility rentals, and related
insurance costs, as well as costs related to the Company's marketing and sales
force.
16
<PAGE> 18
RESULT OF OPERATIONS
The following table presents, for the periods indicated, the period to
period change in dollars (in thousands) and percentages for the various
condensed consolidated statements of operations line items and for certain
supplementary data.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
CHANGE FOR THE
THREE MONTHS ENDED
MARCH 31,
1999 AND 1998
------------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.......................................... $ 101,202 3.4%
---------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... (159,938) (8.9)
General and administrative................................ (91,410) (26.1)
Depreciation and amortization............................. (5,973) (1.7)
Merger costs.............................................. 25,524 335.8
Loss from continuing operations held for sale, net of
minority interest......................................... (2,416) (100.0)
---------
(234,213) (9.3)
---------
Income from operations...................................... 335,415 74.2
---------
Other income (expense):
Interest expense.......................................... (20,626) (13.3)
Minority interest......................................... 18,840 74.5
Interest and other income, net............................ (56,775) (74.2)
---------
(58,561) (56.2)
---------
Income before income taxes.................................. 276,854 79.6
Provision for income taxes.................................. 93,996 56.4
---------
Net income.................................................. $ 182,858 100.8%
=========
SUPPLEMENTARY DATA:
EBITDA(1)................................................... $ 329,442 40.7%
EBITDA, as adjusted(1)(2)................................... 352,550 43.1
</TABLE>
- ---------------
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
(2) The EBITDA "as adjusted" excludes merger costs and loss from continuing
operations held for sale (net of minority interest).
17
<PAGE> 19
The following table presents, for the periods indicated, the percentage
relationship that the various condensed consolidated statements of operations
line items and certain supplementary data bear to operating revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1999 1998
----- -----
<S> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.......................................... 100.0% 100.0%
----- -----
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 53.5 60.7
General and administrative................................ 8.4 11.8
Depreciation and amortization............................. 11.4 12.0
Merger costs.............................................. 1.0 0.3
Loss from continuing operations held for sale, net of
minority interest......................................... -- --
----- -----
74.3 84.8
----- -----
Income from operations...................................... 25.7 15.2
----- -----
Other income (expense):
Interest expense.......................................... (5.7) (5.2)
Minority interest......................................... (0.2) (0.9)
Interest and other income, net............................ 0.6 2.6
----- -----
(5.3) (3.5)
----- -----
Income before income taxes.................................. 20.4 11.7
Provision for income taxes.................................. 8.5 5.6
----- -----
Net income.................................................. 11.9% 6.1%
===== =====
SUPPLEMENTARY DATA:
EBITDA(1)................................................... 37.1% 27.2%
EBITDA, as adjusted(1)(2)................................... 38.1 27.6
</TABLE>
- ---------------
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
(2) The EBITDA "as adjusted" excludes merger costs and loss from continuing
operations held for sale (net of minority interest).
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Operating Revenues
The Company's principal operations are North American solid waste
management ("NASW"), which include all solid waste activities, such as
collection, transfer operations, recycling and disposal. The NASW disposal
operations encompass solid waste and hazardous waste landfills, as well as
waste-to-energy facilities. In addition, the Company operates outside of North
America in activities similar to its NASW operations ("WM International").
Furthermore, the Company performs certain non-solid waste services such as
hazardous waste management, low-level and other radioactive waste management,
high organic waste fuels blending, on-site industrial cleaning services, and
waste fuel powered independent power facilities.
18
<PAGE> 20
For the three months ended March 31, 1999, the Company's operating revenues
increased $101.2 million or 3.4% in 1999 as compared to the corresponding prior
year period. The following table presents the operating revenues by reportable
segment for the respective quarters (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C> <C> <C>
NASW............................................. $2,511.5 81.8% $2,396.7 80.7%
WM International................................. 371.1 12.1 368.6 12.4
Non-solid waste.................................. 188.0 6.1 204.1 6.9
-------- ------ -------- -----
Operating revenues............................. $3,070.6 100.0% $2,969.4 100.0%
======== ====== ======== =====
</TABLE>
The increase in the Company's operating revenues for the quarter ended
March 31, 1999 is primarily due to NASW operations. The following table presents
the Company's mix of operating revenues from NASW for the respective periods
(dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C> <C> <C>
NASW:
Collection..................................... $1,789.3 60.5% $1,635.3 60.0%
Disposal....................................... 758.6 25.7 675.0 24.8
Transfer....................................... 265.6 9.0 238.5 8.8
Recycling and other............................ 143.2 4.8 176.5 6.4
-------- ----- -------- -----
2,956.7 100.0% 2,725.3 100.0%
===== =====
Intercompany................................... (445.2) (328.6)
-------- --------
Operating revenues.......................... $2,511.5 $2,396.7
======== ========
</TABLE>
The increase in operating revenues in the first quarter of 1999 for NASW,
as compared to the prior year period, is primarily attributable to the effects
of solid waste businesses acquired in North America and the internal growth of
comparable operations. Acquisitions of solid waste businesses in North America
during 1999 and the full year effect of such acquisitions completed during 1998
accounted for an increase in operating revenues of approximately $148.0 million
for the three months ended March 31, 1999 as compared to the prior year period.
Internal growth for comparable North American collection, transfer, landfill and
recycling services was 5.1%, which was comprised of 2.6% for pricing increases
and 2.5% for volume increases.
For the three months ended March 31, 1999, the NASW operating revenues were
negatively impacted by the lower prices received for recyclable materials, which
can fluctuate substantially from period to period. Had the pricing for
recyclable materials remained constant during 1999, internal growth for
comparable NASW operations would have been 6.0% for the quarter.
Operating revenues for the three months ended March 31, 1999, from WM
International were substantially consistent with the prior year period while
operating revenues from certain of the Company's non-solid waste operations were
negatively impacted by stronger than expected seasonal declines. The Company
expects that operating revenues from its non-solid waste operations will
decrease in future periods as the Company has entered into agreements to sell
certain of these businesses.
Operating Costs and Expenses (Exclusive of Depreciation and Amortization Shown
Below)
Operating costs and expenses decreased $159.9 million or 8.9% in the first
quarter of 1999 as compared to the first quarter of 1998. As a percentage of
operating revenues, operating costs and expenses decreased from 60.7% to 53.5%
for the respective quarters. The Company realized reductions in costs and
improvements in operating efficiencies from its acquisition program, the WM
Holdings Merger and the Eastern Merger, and it experienced continued
improvements in its comparable operations. Additionally, the Company realized
improvements in NASW due to the increased utilization of internal disposal
capacity, which is measured as a
19
<PAGE> 21
percentage of total disposal costs, from 56.1% in the first quarter of 1998 to
63.2% in the first quarter of 1999. Most notably, through the WM Holdings Merger
and Eastern Merger, the Company realized a reduction in operating costs and
expenses of approximately $122.0 million for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998.
General and Administrative
General and administrative expenses decreased $91.4 million, or 26.1% in
the first quarter of 1999 as compared to the prior year period. As a percentage
of operating revenues, the Company's general and administrative expenses was
8.4% for the first quarter of 1999 as compared to 11.8% for the first quarter of
1998. The Company's general and administrative expense declined as a percentage
of operating revenues from the first quarter of 1998 to the first quarter of
1999 as a result of the Company's integration of acquisitions and mergers of
solid waste businesses without a proportionate increase of costs.
The most significant contribution to the reduction in operating costs and
expenses as a percentage of operating revenues was the realized synergies from
the WM Holdings Merger and the Eastern Merger, of approximately $90.0 million
for the three months ended March 31, 1999 as compared to the prior year period.
Depreciation and Amortization
Depreciation and amortization expense decreased $6.0 million, or 1.7% for
the quarter ended March 31, 1999, as compared to the respective prior year
period. As a percentage of operating revenues, depreciation and amortization
expense was 11.4% for the three months ended March 31, 1999 and 12.0% for the
three months ended March 31, 1998. The decrease in depreciation and amortization
as a percentage of operating revenues is primarily due to the improved
utilization of equipment through internal growth as well as the discontinuance
of depreciation and amortization on non-revenue producing assets held for sale
or abandoned in connection with the WM Holdings Merger and the Eastern Merger.
Merger Costs and Unusual Items
In connection with the WM Holdings Merger and the Eastern Merger, the
Company incurred significant merger costs and unusual items in the third and
fourth quarters of 1998 as described in the Company's 1998 Annual Report on Form
10-K. Additionally, the Company recorded $33.1 million of merger costs for the
three months ended March 31, 1999, and expects to record approximately $86.0
million throughout the remainder of 1999 for merger costs that are transitional
in nature and not accruable until incurred or committed.
The Company is in the process of terminating the WM Holdings defined
benefit plan as of December 31, 1998 and currently intends to liquidate the
plan's assets and settle its obligations to participants in the third quarter of
1999. The related settlement charge and cash payment is currently estimated to
be approximately $125.0 million. This estimate, however, is subject to final
actuarial determinations, including final employee census data, employee
settlement decisions and existing market conditions, and could be significantly
higher than is currently estimated. In such event, there can be no assurance
that the Company will continue with its current intention to terminate the plan.
Certain WM Holdings' employee stock option plans included change of control
provisions that were activated as a result of the WM Holdings Merger whereby the
option holder received certain put rights that require charges to earnings
through the put periods. To the extent the future market value of the Company's
common stock exceeds $54.34 per share, the Company will be required to record
additional charges to earnings to July 16, 1999, at which time all put rights
expire. The expense related to these stock option put rights has no impact to
stockholders' equity as the offset is a direct increase to additional paid-in
capital, since these put rights will be satisfied by the issuance of common
stock.
Cash payments of $142.0 million were made by the Company during the three
months ended March 31, 1999, related to merger costs recorded in 1998 for the WM
Holdings Merger and the Eastern Merger.
Merger costs for the WM Holdings Merger and the Eastern Merger include
estimates for anticipated losses related to the sales of assets pursuant to
governmental orders. These anticipated losses have been
20
<PAGE> 22
estimated based on the Company's assessment of relevant facts and circumstances,
including consideration of the various provisions of asset sale agreements. In
certain instances, the asset sale agreements contain contingencies, the
resolution of which are uncertain and may materially change the proceeds which
the Company will ultimately receive. Accordingly, dependent upon actual future
experience and the resolution of certain contingencies, the amount of losses
ultimately recorded by the Company could materially differ from the amounts
recorded by the Company.
For the three months ended March 31, 1998, the Company recorded $7.6
million of merger costs related to other poolings of interest transactions
consummated during the quarter.
Loss from Continuing Operations Held for Sale (Net of Minority Interest)
The Company had operations that were previously classified as discontinued
operations for accounting and financial reporting purposes that were
subsequently reclassified to continuing operations as of December 31, 1997 as
the dispositions were not completed within one year. The Company continued its
efforts to market these businesses and had divested of substantially all of such
operations as of September 30, 1998.
Income from Operations
Income from operations was $787.7 million and $452.2 million for the three
months ended March 31, 1999 and 1998, respectively. As a percentage of operating
revenues, income from operations, exclusive of merger costs and loss from
continuing operations held for sale (net of minority interest) increased from
15.6% to 26.7% for the three months ended March 31, 1998 and 1999, respectively.
The increase in operating margins as a percentage of operating revenues is
primarily due to internal growth, tuck-in acquisitions, merger synergies,
productivity enhancements, and increased waste internalization.
Other Income and Expenses
Other income and expenses consists of interest expense, interest income,
other income and minority interest. Although the Company has experienced lower
borrowing rates as compared to prior years, interest costs, which includes
amounts capitalized, increased from 1998 to 1999 due to increases in the
Company's outstanding indebtedness for each period. Capitalized interest was
$11.1 million and $10.0 million for the three months ended March 31, 1999 and
1998, respectively. In January 1998, the Company recognized a gain of $38.0
million from the sale of a waste-to-energy facility in Hamm, Germany.
During 1998, the Company acquired the outstanding minority interest in
Wheelabrator Technologies Inc., Waste Management International plc, and the
operations in the United Kingdom which were 49% owned by Wessex Water Plc. As a
result, the minority interest expense is less significant to the Company in 1999
than the amount recognized in the first quarter of 1998.
Provision for Income Taxes
The Company recorded a provision from income taxes of $260.6 million and
$166.6 million for the three months ended March 31, 1999 and 1998, respectively.
The difference in federal income taxes at the federal statutory rate and the
provision for income taxes for the three months ended March 31, 1999 is
primarily due to state and local income taxes and non-deductible costs related
to acquired intangibles.
Net Income
For the three months ended March 31, 1999 and 1998, net income was $364.3
million and $181.4 million or $0.58 and $0.31 per share on a diluted basis,
respectively. Excluding the net income effects of charges for merger costs and
loss from continuing operations held for sale of $19.3 million and $17.7 million
for the three months ended March 31, 1999 and 1998, respectively, diluted
earnings per share was $0.61 and $0.34 for the three months ended March 31, 1999
and 1998, respectively.
21
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in an industry that requires a high level of capital
investment. The Company's capital requirements primarily stem from (i) its
working capital needs for its ongoing operations, (ii) capital expenditures for
cell construction and expansion of its disposal sites, as well as new trucks and
equipment for its collection operations, and (iii) business acquisitions. The
Company's strategy is to meet these capital needs first from internally
generated funds and secondly from various financing sources available to the
Company, including the incurrence of debt and the issuance of its common stock.
It is further part of the Company's strategy to minimize working capital while
maintaining available commitments under bank credit agreements to fund any
capital needs in excess of internally generated cash flow. The Company had
unused and available credit capacity under its domestic bank facilities of $1.4
billion at March 31, 1999.
As of March 31, 1999, the Company had a working capital deficit of $520.5
million (a ratio of current assets to current liabilities of 0.87:1) and a cash
balance of $59.4 million which compares to a working capital deficit of $412.3
million (a current ratio of 0.90:1) and a cash balance of $86.9 million as of
December 31, 1998. For the three months ended March 31, 1999, net cash provided
by operating activities was $374.3 million, as compared to $400.0 million for
the comparable prior year period and net cash used by financing activities was
$85.4 million in 1999, as compared to amounts provided of $1.5 billion in 1998.
In the three months ended March 31, 1999, cash used to acquire businesses for
$280.8 million, capital expenditures of $281.3 million and debt reduction of
approximately $109.5 million were primarily financed by cash from operating
activities and proceeds from sale of assets of $248.9 million. In the three
months ended March 31, 1998, capital expenditures of $282.3 million and
acquisitions of businesses and outstanding minority interests of $1.8 billion
were primarily financed through net cash from operations as well as net cash
from financing activities.
The Company expects to generate sufficient cash flow from its operations in
1999 to cover its anticipated cash needs for capital expenditures and
acquisitions. If the Company's cash flow from operations during 1999 is less
than currently expected, or if the Company's capital requirements increase,
either due to strategic decisions or otherwise, the Company may elect to incur
future indebtedness or issue equity securities to cover any additional capital
needs. However, there can be no assurance that the Company will be successful in
obtaining additional capital on acceptable terms through such debt incurrences
or issuances of additional equity securities.
RECENT DEVELOPMENTS
On April 22, 1999, the Company announced that it had given notice of
redemption on all outstanding 4 1/2% convertible subordinated notes due 2001,
with principal amount at maturity equal to recorded liability at March 31, 1999.
Redemption is scheduled to occur on June 1, 1999. The redemption price is 101.8%
per $1,000 in aggregate principal amount of the notes together with accrued
interest thereon to the redemption date. Interest due on June 1, 1999 will be
paid to holders of the notes on record as of May 15, 1999. The notes are
convertible, at the holder's option, into shares of the Company's common stock
at the rate of approximately 33.08 shares of common stock for each $1,000
principal amount of notes. The right to convert the notes into shares of the
Company's common stock will terminate after the close of business on May 24,
1999.
During April 1999, Moody's Investors Service raised the Company's senior
debt rating to Baa(2) from Baa(3), the subordinated debt to Baa(3) from Baa(1),
and the commercial paper rating to Prime-2 from Prime-3.
Late in the first quarter of 1999, various international subsidiaries of
the Company made agreements to acquire certain businesses in Denmark, Australia
and New Zealand. Early during the second quarter of 1999, a certain class of
shares of the Danish company was acquired for approximately $68.0 million,
representing 66% of its share capital. In addition, the Company anticipates its
international subsidiaries will complete the acquisitions of the Australian and
New Zealand businesses during the latter part of the second quarter of 1999, for
approximately $160.0 million, however these acquisitions are subject to due
diligence efforts and regulatory approval.
22
<PAGE> 24
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter
months. This is generally reflected in the Company's first quarter and fourth
quarter operating results. This is primarily attributable to the fact that (i)
the volume of waste relating to construction and demolition activities tends to
increase in the spring and summer months and (ii) the volume of residential
waste in certain regions where the Company operates tends to decrease during the
winter months.
The Company believes that inflation and changing prices have not had, and
are not expected to have, any material adverse effect on the results of
operations in the near future.
YEAR 2000 DATE CONVERSION
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive data by the Company's computerized
information systems. In 1997, the Company began to modify its North American
computer information systems to ensure proper processing of transactions
relating to the Year 2000 and beyond and completed the majority of the required
modifications to its critical business systems in use in North America during
1998. The Company expects to have all of such modifications completed during the
third quarter of 1999. For WM International, systems supplied by an outside
vendor are used for critical operations. That vendor has supplied the Company
with Year 2000 compliant versions, deployment of which is largely completed. The
Company expects that the systems used by WM International will be fully Year
2000 compliant during the third quarter of 1999. The amounts charged to expense
during the first quarter of 1999 related to the Year 2000 compliance
modifications have not been material and any additional charges in 1999 are not
expected to be material to the Company's financial position, results of
operations or cash flows.
In addition to its critical business systems, the Company has addressed the
issue of the Year 2000 impact on certain of its embedded technologies.
Incinerators and monitoring wells both have computer chips embedded within them,
and the Company has undertaken to upgrade those chips to avoid any
malfunctioning of the chips as a result of the Year 2000. The Company expects
such upgrades to be complete by the end of 1999. The Company is also taking
steps to resolve Year 2000 compliance issues that may be created by customers,
suppliers and financial institutions with whom the Company does business,
However, there can be no guarantee that the systems of other entities will be
converted timely.
The Company is in the process of establishing a worst case scenario and
written contingency plan to address any issues that could arise should the
Company or if any of its suppliers or customers not be prepared to accommodate
Year 2000 issues timely. The Company believes that in an emergency it could
revert to the use of manual systems that do not rely on computers and could
perform the minimum functions required to provide information reporting to
maintain satisfactory control of the business. Should the Company have to
utilize manual systems, it is uncertain that it could maintain the same level of
operations, and this could have a material adverse impact on the business. The
Company intends to maintain constant surveillance on this situation and will
develop such contingency plans as are required by the changing environment.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivatives used for hedging purposes. SFAS No. 133 requires that entities
recognize all derivative financial instruments as either assets of liabilities
in the statement of financial position and measure these instruments as fair
value. SFAS No. 133 is effective for the Company in its first fiscal quarter in
2000. Management is currently assessing the impact that the adoption of SFAS No.
133 will have on the Company's consolidated financial statements.
23
<PAGE> 25
PART II.
ITEM 1. LEGAL PROCEEDINGS.
In addition to previously disclosed litigation against WM Holdings, three
alleged purchasers of WM Holdings' securities have initiated an action in
federal court in Florida against WM Holdings and several of its current and
former officers and directors asserting the defendants violated the federal
securities laws by issuing allegedly false and misleading statements in 1996 and
1997 about WM Holdings' financial condition and results of operations.
Additionally, there are several other actions and claims that arise out of
the same set of facts that have been brought by business owners who received WM
Holdings common stock in the sales of their businesses to WM Holdings. These
actions and claims, one of which purports to be class action, allege, among
other things, breach of warranty or breach of contract based on WM Holdings'
restatement of earnings in February 1998. In April 1999, courts having
jurisdiction over two such actions, including the purported class action,
granted summary judgement against WM Holdings on the issue of breach of
contract. The extent of damages, if any, in either action has not yet been
determined.
It is not possible at this time to predict the impact that the above
lawsuits may have on WM Holdings or the Company, nor is it possible to predict
whether any other suits or claims may arise out of these matters in the future.
However, it is reasonably possible that the outcome of any present or future
litigation may have a material adverse impact on their respective financial
conditions or results of operations in one or more future periods. WM Holdings
intends to defend itself vigorously in all the above matters.
In March 1998, a stockholder of WM Holdings filed a purported class action
in the Chancery Court of Delaware against WM Holdings and certain of its former
directors alleging that the WM Holdings Merger was a result of unfair dealing
and that the defendants had breached their fiduciary duties in approving the
merger. The complaint, which sought equitable relief that would have rescinded
the WM Holdings Merger and awarded monetary damages from the defendants for
unlawfully gained profits and special benefits, was dismissed in March 1999.
In the ordinary course of conducting its business activities, the Company
becomes involved in judicial and administrative proceedings involving
governmental authorities at the foreign, 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 related 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 applicable requirements. From time to time, the Company pays
fines or penalties in environmental proceedings relating primarily to waste
treatment, storage or disposal facilities. As of March 31, 1998, there were
three proceedings involving Company subsidiaries where the sanctions involved
could potentially exceed $100,000. One of these matters was resolved early in
the second quarter of 1999, resulting in a penalty of $150,000 plus attorney's
fees. The Company believes that any such fines or penalties will not have a
material adverse effect on its results of operations 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.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business, some of which are addressed elsewhere in this report or in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission. While the outcome of any
particular lawsuit or governmental investigation cannot be predicted with
certainty, the Company believes that these matters will not have a material
adverse effect on its consolidated financial statements.
24
<PAGE> 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.1 -- 1998 Waste Management, Inc. Directors' Deferred
Compensation Plan.
10.2 -- 1999 Waste Management, Inc. Directors' Deferred
Compensation Plan.
12 -- Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities and Exchange Act of 1934, the Registrant's file number under that
Act is 1-12154.
(b) Reports on Form 8-K:
During the first quarter of 1999, the Company filed no reports on Form 8-K.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: /s/ EARL E. DEFRATES
----------------------------------
Earl E. DeFrates
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ BRUCE E. SNYDER
----------------------------------
Bruce E. Snyder
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: May 13, 1999
26
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.1 -- 1998 Waste Management, Inc. Directors' Deferred
Compensation Plan.
10.2 -- 1999 Waste Management, Inc. Directors' Deferred
Compensation Plan.
12 -- Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities and Exchange Act of 1934, the Registrant's file number under that
Act is 1-12154.
<PAGE> 1
EXHIBIT 10.1
1998 WASTE MANAGEMENT, INC. DIRECTORS'
DEFERRED COMPENSATION PLAN
ARTICLE I.
PURPOSES OF PLAN AND DEFINITIONS
1.1 PURPOSE
Waste Management, Inc. (the "Company"), hereby sets forth the terms of
the 1998 Waste Management, Inc. Directors' Deferred Compensation Plan for the
purpose of attracting and retaining nonemployee directors (the "Directors") of
the Company with outstanding competence and ability, to stimulate the active
interest of such persons in the development and financial success of the
Company, to further the identity of interests of such Directors with those of
the Company's stockholders generally, and to reward such Directors for
outstanding performance.
1.2 DEFINITIONS
(a) BENEFICIARY means the person or persons designated by the
Director, as provided in Section 4.4, to receive any payments
otherwise due the Director under this Plan in the event of the
Director's death.
(b) BOARD OF DIRECTORS or BOARD means the Board of Directors of
the Company, including the Board of Directors of Waste
Management, Inc. prior to acquisition by U.S.A. Waste
Services, Inc. ("Old Waste Management, Inc.").
(c) CASH COMPENSATION means all of the cash compensation payable
to a Director, for service on the Board, including annual
retainer, meeting, and other fees.
(d) CODE means the Internal Revenue Code of 1986, as amended.
(e) COMMITTEE means the Compensation and Stock Incentive Plan
Committee of the Board as is designated by the Board.
(f) COMMON STOCK means the Company's common stock, $.01 par value.
(g) COMPANY means Waste Management, Inc., a Delaware corporation,
formerly U.S.A. Waste Services, Inc.
(h) CREDIT DATE means the date upon which a Director's
compensation is credited to his or her Phantom Stock Account
pursuant to Section 3.3 of this Plan.
(i) DETERMINATION DATE means the date on which payment of a
Director's compensation is made, as determined in accordance
with Section 4.1.
(j) DIRECTOR or ELIGIBLE DIRECTOR means the specific members of
the Board of the Company who are listed on Exhibit A attached
hereto.
(k) EFFECTIVE DATE means June 1, 1998.
<PAGE> 2
(l) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended from time to time.
(m) FAIR MARKET VALUE of a share of Common Stock means, as of a
particular date, the average of the prices at which the sales
of Common Stock were made on the New York Stock Exchange for
the immediately preceding five (5) days on which there were
such sales. FAIR MARKET VALUE of a Phantom Stock Unit shall be
deemed to be equal to the Fair Market Value of one share of
Common Stock.
(n) PHANTOM STOCK ACCOUNT means the bookkeeping account maintained
for each Director to record certain amounts deferred by the
Director in accordance with Article III hereof.
(o) PHANTOM STOCK UNIT means a unit equal to one share of Common
Stock issued and outstanding as of the Effective Date of the
Plan (as adjusted pursuant to Section 3.5), utilized for the
purpose of measuring the benefits payable under Section 4.2.
(p) PLAN means the 1998 Waste Management, Inc. Directors' Deferred
Compensation Plan, as amended from time to time.
(q) VALUATION DATE means each day on which a sale or sales of the
Common Stock on the New York Stock Exchange is reported or a
quotation for the Common Stock is available.
ARTICLE II.
ADMINISTRATION OF THE PLAN
2.1 COMMITTEE
This Plan shall be administered by the Committee. The Committee shall
consist of at least two members of the Board.
2.2 COMMITTEE'S POWERS
Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all actions
that are specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. The Committee shall also have full
and exclusive power to interpret this Plan and to adopt such rules, regulations,
and guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the Company and
in keeping with the objectives of this Plan. The Committee may elect to defer,
or waive any restriction or other provision of this Plan; provided, however,
that the Committee shall not waive any restriction or other provision of this
Plan or take any other action that would cause any benefits provided to a
Director hereunder to be deemed "derivative securities" within the meaning of
Section 16 of the Exchange Act or the rules and regulations promulgated
thereunder (including, but not limited to,
2
<PAGE> 3
Rule 16a-1(c) or any successor rule). The Committee may correct any defect or
supply any omission or reconcile any inconsistency in this Plan in the manner
and to the extent the Committee deems necessary or desirable to carry it into
effect.
2.3 COMMITTEE DETERMINATIONS CONCLUSIVE
Any decision of the Committee in the interpretation and administration
of this Plan shall lie within its sole and absolute discretion and shall be
final, conclusive, and binding on all parties concerned.
2.4 COMMITTEE LIABILITY
No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of Section
2.5 of this Plan shall be liable for anything done or omitted to be done by him
or her, by any member of the Committee, or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his or
her own willful misconduct or as expressly provided by statute.
2.5 DELEGATION OF AUTHORITY
The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Company its duties under this Plan pursuant to such
conditions or limitations as the Committee may establish.
ARTICLE III.
ACCOUNTS
3.1 ESTABLISHMENT OF ACCOUNTS
The Company shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") which will from time to time reflect the name of each
Director, the number of Phantom Stock Units credited to such Director pursuant
to Section 3.2, and the Fair Market Value of that number of Phantom Stock Units
credited to the Director determined as of the Credit Date.
3.2 AMOUNT OF DEFERRAL
The unpaid Cash Compensation payable to the Director for serving on the
Company's Board of Directors (including service on the Board for Old Waste
Management, Inc.) for committee fees for Board service from June 1, 1998 to
December 31, 1998 and unpaid retainer for September 1, 1998 to December 31,
1998, shall be deferred in accordance with the terms herein. Such Cash
Compensation (including unpaid retainer) shall be credited to his or her Phantom
Stock Account. Such Phantom Stock Account shall consist of a number of Phantom
Stock Units having a Fair Market Value on the Credit Date equal to the dollar
amount of fees the Director would otherwise be paid in cash for services from
the Effective Date through December 31, 1998.
3
<PAGE> 4
3.3 CREDITING OF DEFERRED AMOUNTS
The Director's Cash Compensation shall be credited to his or her
Director's Phantom Stock Account as of the date otherwise payable (the "Credit
Date").
3.4 DIVIDENDS
As of each date that dividends are paid with respect to Common Stock, a
Director who has any outstanding Phantom Stock Units credited to his or her
Phantom Stock Account shall have an additional amount credited to his or her
Phantom Stock Account equal to the a number of Phantom Stock Units having a Fair
Market Value equal to the dollar amount of dividends paid per share of Common
Stock multiplied by the number of Phantom Stock Units credited to the Director's
Phantom Stock Account as of the payment date of such dividend.
3.5 ADJUSTMENTS
(a) EXERCISE OF CORPORATE POWERS. The existence of this Plan and
any outstanding Phantom Stock Units credited hereunder shall
not affect in any manner the right or power of the Company or
its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds.
debentures, preferred or prior preference stock (whether or
not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding
of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) RECAPITALIZATIONS, REORGANIZATIONS AND OTHER ACTIVITIES. In
the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in
shares of Common Stock or other stock split, then (i) the
number of Phantom Stock Units and (ii) the appropriate Fair
Market Value and other price determinations for such Phantom
Stock Units shall each be proportionately adjusted by the
Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another
corporation or entity, the adoption by the Company of any plan
of exchange affecting the Common Stock or any distribution to
holders of Common Stock of securities or property (other than
normal cash dividends or dividends payable in Common Stock),
the Board shall make appropriate adjustments to (i) the number
of Phantom Stock Units and (ii) the appropriate Fair Market
Value and other price determinations for such Phantom Stock
Units to give effect to such transaction; provided that such
adjustments shall only be such as are necessary to preserve,
without increasing, the value of such units. In the event of a
corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the
4
<PAGE> 5
Board shall be authorized to issue or assume units by means of
substitution of new units, as appropriate, for previously
issued units or an assumption of previously issued units as
part of such adjustment.
ARTICLE IV.
PAYMENTS
4.1 PERIOD OF DEFERRAL
The Director shall receive the Fair Market Value of his or her Phantom
Stock Account when such Director has resigned, been removed or otherwise
terminated all service as a member of the Board of Directors of the Company. The
effective date of such Director's termination as a member of the Board shall be
the Director's Determination Date. In the event of the death of a Director prior
to his termination of service as a member of the Board, such Director's date of
death shall be his or her Determination Date.
4.2 PAYMENT OF AMOUNTS IN PHANTOM STOCK ACCOUNT
As of the Determination Date, the aggregate Fair Market Value on the
Valuation Date coinciding with or immediately preceding the Determination Date
of that number of Phantom Stock Units then credited to a Director's Phantom
Stock Account (the "Total Deferred Unit Amount") shall be calculated.
4.3 FORM OF PAYMENT
Payment to a Director of his or her Total Deferred Unit Amount shall be
made in cash in a lump sum as soon as administratively feasible, but not later
than sixty (60) days following the Determination Date, except in the case of the
death of a Director, as provided below.
4.4 DEATH PRIOR TO PAYMENT
In the event that a Director dies prior to payment pursuant to the
Plan, any such unpaid amounts, shall be paid to the Director's designated
Beneficiary in a lump sum within sixty (60) days following the Company's
notification of the Director's death. If no Beneficiary has been designated,
such payment shall be made to the Director's estate. A beneficiary designation,
or revocation of a prior beneficiary designation, shall be effective only if it
is made in writing on a form provided by the Company, signed by the Director and
received by the Committee.
4.5 PAYMENTS TO MINORS AND INCOMPETENTS
Should the Director become incompetent or should the Director designate
a Beneficiary who is a minor or incompetent, the Company shall be authorized to
pay such funds to a parent or guardian of such minor or incompetent, or directly
to such minor or incompetent, whichever manner the Committee shall determine in
its sole discretion.
5
<PAGE> 6
ARTICLE V.
MISCELLANEOUS
5.1 UNFUNDED PLAN
Nothing contained herein shall be deemed to create a trust of any kind
or create any fiduciary relationship. This Plan shall be unfunded. Any funds
invested hereunder shall continue for all purposes to be part of the general
funds of the Company. To the extent that a Director acquires a right to receive
payments from the Company under the Plan, such right shall not be greater than
the right of any unsecured general creditor of the Company and such right shall
be an unsecured claim against the general assets of the Company. Although
bookkeeping accounts may be established with respect to Directors who are
entitled to rights under this Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash or rights thereto, nor shall
this Plan be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash or rights
thereto to be granted under this Plan. Any liability or obligation of the
Company to any Director with respect to cash or rights thereto under this Plan
shall be based solely upon any contractual obligations that may be created by
this Plan, and no such liability or obligation of the Company shall be deemed to
be secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board nor the Committee shall be required to give
any security or bond for the performance of any obligation that may be created
by this Plan.
5.2 TITLE TO FUNDS REMAINS WITH COMPANY
Amounts credited to each Director's Phantom Stock Account shall not be
specifically set aside or otherwise segregated, but will be combined with
corporate assets. Title to such finds will remain with the Company and the
Company's only obligation will be to make timely payments to Directors in
accordance with the Plan.
5.3 STATEMENT OF ACCOUNT
A statement will be furnished to each Director not less often than
annually and shall reflect the balance of the Director's Phantom Stock Account
as of the preceding December 31.
5.4 ASSIGNABILITY
Except as provided in Section 4.4, no right to receive payment
hereunder shall be transferable or assignable by a Director except by will or
the laws of decent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Any attempted
assignment of any benefit under this Plan in violation of this Section 5.4 shall
be null and void.
5.5 AMENDMENT, MODIFICATION, SUSPENSION, OR TERMINATION
The Board may amend, modify, suspend, or terminate this Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by
6
<PAGE> 7
law, except that no amendment, modification, or termination shall, without the
consent of the Director, impair the rights of any Director to the balance in
such Director's Phantom Stock Account as of the date of such amendment,
modification, or termination. The Board may at any time and from time to time
delegate to the Committee any or all of its authority under this Section 5.5.
5.6 GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
hereto, to the extent not otherwise governed by mandatory provisions of the Code
or the securities laws of the United States, shall be governed by and construed
in accordance with the laws of the State of Texas.
5.7 EFFECTIVE DATE
The Plan shall be effective as of the Effective Date.
7
<PAGE> 8
EXHIBIT A
LIST OF DIRECTORS ELIGIBLE FOR
THE
1998 WASTE MANAGEMENT, INC.
DIRECTORS' COMPENSATION PLAN
H. JESSEE ARNELLE
RODERICK M. HILLS
ROBERT S. MILLER
JOHN C. POPE
STEVEN G. ROTHMEIER
8
<PAGE> 1
EXHIBIT 10.2
1999 WASTE MANAGEMENT, INC. DIRECTORS'
DEFERRED COMPENSATION PLAN
ARTICLE I.
PURPOSES OF PLAN AND DEFINITIONS
1.1 PURPOSE
Waste Management, Inc. (the "Company"), hereby establishes the 1999
Waste Management, Inc. Directors' Deferred Compensation Plan for the purpose of
providing nonemployee directors ("Directors") of the Company the opportunity to
defer all or a portion of their cash compensation, to attract and retain
Directors with outstanding competence and ability, to stimulate the active
interest of such persons in the development and financial success of the
Company, to further the identity of interests of such Directors with those of
the Company's stockholders generally, and to reward such Directors for
outstanding performance.
1.2 DEFINITIONS
(a) BENEFICIARY means the person or persons designated by the
Participant, as provided in Section 4.4, to receive any
payments otherwise due the Participant under this Plan in the
event of the Participant's death.
(b) BOARD OF DIRECTORS or BOARD means the Board of Directors of
the Company.
(c) CASH COMPENSATION means all of the cash compensation payable
to a Participant, for service on the Board, including annual
retainer, meeting, and other fees.
(d) CODE means the Internal Revenue Code of 1986, as amended.
(e) COMMITTEE means the Compensation and Stock Incentive Plan
Committee of the Board as is designated by the Board.
(f) COMMON STOCK means the Company's common stock, $.01 par value.
(g) COMPANY means Waste Management, Inc, a Delaware corporation,
formerly known as U.S.A. Waste Services, Inc..
(h) DETERMINATION DATE means the date on which payment of a
Participant's deferred compensation is made, as determined in
accordance with Section 4.1.
(i) DIRECTOR or ELIGIBLE DIRECTOR means each member of the Board
of the Company who is not a full-time employee of the Company
and who receives compensation for services as a director.
(j) EFFECTIVE DATE means January 1, 1999.
(k) ELECTION DATE means the date on which the Director makes an
election to defer receipt of all or a portion of Cash
Compensation pursuant to the terms of the Plan.
<PAGE> 2
(l) ELECTION EFFECTIVE DATE means the date upon which a
Participant's deferred compensation is credited to his or her
Phantom Stock Account pursuant to Section 3.3 of this Plan.
(m) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended from time to time.
(n) FAIR MARKET VALUE of a share of Common Stock means, as of a
particular date, the lowest reported trading price of a share
of Common Stock on the New York Stock Exchange, or if no sales
occurred on such day, then on the last day on which there were
such sales. FAIR MARKET VALUE of a Phantom Stock Unit shall be
deemed to be equal to the Fair Market Value of one share of
Common Stock.
(o) PARTICIPANT means an Eligible Director of the Company who
elects to participate in the Plan.
(p) PHANTOM STOCK ACCOUNT means the bookkeeping account maintained
for each Participant to record certain amounts deferred by the
Participant in accordance with Article III hereof.
(q) PHANTOM STOCK UNIT means a unit equal to one share of Common
Stock issued and outstanding as of the Effective Date of the
Plan (as adjusted pursuant to Section 3.5), utilized for the
purpose of measuring the benefits payable under Section 4.2.
(r) PLAN means the 1999 Waste Management, Inc. Directors' Deferred
Compensation Plan, as amended from time to time.
(s) VALUATION DATE means each day on which a sale or sales of the
Common Stock on the New York Stock Exchange is reported or a
quotation for the Common Stock is available.
ARTICLE II.
ADMINISTRATION OF THE PLAN
2.1 COMMITTEE
This Plan shall be administered by the Committee. The Committee shall
consist of at least two members of the Board.
2.2 COMMITTEE'S POWERS
Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all actions
that are specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. The Committee shall also have full
and exclusive power to interpret this Plan and to adopt such rules, regulations,
and guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the Company and
in keeping with the objectives of this Plan. The Committee may, in its
discretion, determine the eligibility of
2
<PAGE> 3
individuals to participate herein, determine the amount of Cash Compensation a
Participant may elect to defer, or waive any restriction or other provision of
this Plan; provided, however, that the Committee shall not waive any restriction
or other provision of this Plan or take any other action that would cause any
benefits provided to a Participant hereunder to be deemed "derivative
securities" within the meaning of Section 16 of the Exchange Act or the rules
and regulations promulgated thereunder (including, but not limited to, Rule
16a-1(c) or any successor rule). The Committee may correct any defect or supply
any omission or reconcile any inconsistency in this Plan in the manner and to
the extent the Committee deems necessary or desirable to carry it into effect.
2.3 COMMITTEE DETERMINATIONS CONCLUSIVE
Any decision of the Committee in the interpretation and administration
of this Plan shall lie within its sole and absolute discretion and shall be
final, conclusive, and binding on all parties concerned.
2.4 COMMITTEE LIABILITY
No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of Section
2.5 of this Plan shall be liable for anything done or omitted to be done by him
or her, by any member of the Committee, or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his or
her own willful misconduct or as expressly provided by statute.
2.5 DELEGATION OF AUTHORITY
The Committee may delegate to the Chief Executive Officer or to other
senior officers of the Company its duties under this Plan pursuant to such
conditions or limitations as the Committee may establish.
ARTICLE III.
ACCOUNTS
3.1 ESTABLISHMENT OF ACCOUNTS
The Company shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") which will from time to time reflect the name of each
Participant, the number of Phantom Stock Units credited to such Participant
pursuant to Section 3.2, and the Fair Market Value of that number of Phantom
Stock Units credited to the Participant determined as of the Election Effective
Date.
3.2 AMOUNT OF DEFERRAL
A Participant may elect to defer receipt of one hundred (100%) percent
or fifty (50%) percent of the Cash Compensation payable to the Participant for
serving on the Company's Board of Directors for each calendar year for which
such deferral is elected. The amount deferred shall be credited to his or her
Phantom Stock Account. If a Participant chooses to receive a credit to his or
her Phantom Stock Account, a number of Phantom Stock Units having a
3
<PAGE> 4
Fair Market Value on the Election Effective Date equal to the dollar amount of
fees the Participant elects to forgo in exchange for Phantom Stock Units shall
be credited to such account.
3.3 CREDITING OF DEFERRED AMOUNTS
One half of any Cash Compensation credited to a Participant's Phantom
Stock Account shall be credited to such account on the fifteenth (15th) day of
January of the affected calendar year and the other half shall be credited on
the fifteenth (15th) day of July of the affected calendar year. For example, if
a Participant effectively elects to defer $10,000 of Cash Compensation for the
1999 calendar year, $5,000 shall be credited to the Phantom Stock Account on
January 15, 1999 and $5,000 shall be credited to such account on July 15, 1999.
3.4 DIVIDENDS
As of each date that dividends are paid with respect to Common Stock, a
Participant who has any outstanding Phantom Stock Units credited to his or her
Phantom Stock Account shall have an additional amount credited to his or her
Phantom Stock Account equal to the a number of Phantom Stock Units having a Fair
Market Value equal to the dollar amount of dividends paid per share of Common
Stock multiplied by the number of Phantom Stock Units credited to the
Participant's Phantom Stock Account as of the payment date of such dividend.
3.5 ADJUSTMENTS
(a) EXERCISE OF CORPORATE POWERS. The existence of this Plan and
any outstanding Phantom Stock Units credited hereunder shall
not affect in any manner the right or power of the Company or
its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds.
debentures, preferred or prior preference stock (whether or
not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding
of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) RECAPITALIZATIONS, REORGANIZATIONS AND OTHER ACTIVITIES. In
the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in
shares of Common Stock or other stock split, then (i) the
number of Phantom Stock Units and (ii) the appropriate Fair
Market Value and other price determinations for such Phantom
Stock Units shall each be proportionately adjusted by the
Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another
corporation or entity, the adoption by the Company of any plan
of exchange affecting the Common Stock or any distribution to
holders of Common Stock of securities or property (other than
normal cash dividends or dividends payable in Common Stock),
the Board shall make appropriate adjustments to (i) the number
of Phantom Stock Units and
4
<PAGE> 5
(ii) the appropriate Fair Market Value and other price
determinations for such Phantom Stock Units to give effect to
such transaction; provided that such adjustments shall only be
such as are necessary to preserve, without increasing, the
value of such units. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board shall be authorized
to issue or assume units by means of substitution of new
units, as appropriate, for previously issued units or an
assumption of previously issued units as part of such
adjustment.
ARTICLE IV.
PAYMENTS
4.1 PERIOD OF DEFERRAL
A Participant may elect that payment of the Cash Compensation deferred
under the Plan be made on any date specified on the deferral election form (the
"Determination Date"), provided that such date does not exceed ten (10) years
from the Election Date. In the event of the death of a Director prior to the
date specified on the deferral election form, such Director's date of death
shall be his or her Determination Date.
4.2 PAYMENT OF AMOUNTS IN PHANTOM STOCK ACCOUNT
As of the Determination Date, the aggregate Fair Market Value on the
Valuation Date coinciding with or immediately preceding the Determination Date
of that number of Phantom Stock Units then credited to a Participant's Phantom
Stock Account (the "Total Deferred Unit Amount") shall be calculated.
4.3 FORM OF PAYMENT
Payment to a Participant of his of her Total Deferred Unit Amount shall
be made in cash in a lump sum as soon as administratively feasible, but not
later than sixty (60) days following the Determination Date, except in the case
of the death of the Participant.
4.4 DEATH PRIOR TO PAYMENT
In the event that a Participant dies prior to payment pursuant to the
Plan, any such unpaid amounts, shall be paid to the Participant's designated
Beneficiary in a lump sum within sixty (60) days following the Company's
notification of the Participant's death. If no Beneficiary has been designated,
such payment shall be made to the Participant's estate. A beneficiary
designation, or revocation of a prior beneficiary designation, shall be
effective only if it is made in writing on a form provided by the Company,
signed by the Participant and received by the Committee.
5
<PAGE> 6
4.5 PAYMENTS TO MINORS AND INCOMPETENTS
Should the Participant become incompetent or should the Participant
designate a Beneficiary who is a minor or incompetent, the Company shall be
authorized to pay such funds to a parent or guardian of such minor or
incompetent, or directly to such minor or incompetent, whichever manner the
Committee shall determine in its sole discretion.
ARTICLE V.
ELECTING DEFERRALS
5.1 MANNER OF ELECTING DEFERRAL
Each election made by a Participant to defer Cash Compensation under
the Plan (i) shall take the form of a written document (provided by the Company)
signed by the Participant and filed with the Committee, (ii) shall designate the
calendar year for which the deferral is made and the period of deferral, and
(iii) cannot be revoked or modified if either (a) the proposed revocation or
modification applies to amounts deferred with respect to a calendar year which
has already commenced at the time such revocation or modification is proposed to
be effected, or (b) the Committee determines in its sole discretion that the
proposed revocation or modification could cause any benefits provided to a
Participant hereunder to be treated as "derivative securities" within the
meaning of Section 16 of the Exchange Act or the rules and regulations
promulgated thereunder (including, but not limited to, Rule 16a-1(c) or any
successor rule).
5.2 ELECTION BY A NEW DIRECTOR
An election to defer Cash Compensation under the Plan may be made by a
new Director of the Company within thirty (30) days after election to the
Company's Board of Directors and shall apply to Cash Compensation payable after
the date of such election.
ARTICLE VI.
MISCELLANEOUS
6.1 UNFUNDED PLAN
Nothing contained herein shall be deemed to create a trust of any kind
or create any fiduciary relationship. This Plan shall be unfunded. Any funds
invested hereunder shall continue for all purposes to be part of the general
funds of the Company. To the extent that a Participant acquires a right to
receive payments from the Company under the Plan, such right shall not be
greater than the right of any unsecured general creditor of the Company and such
right shall be an unsecured claim against the general assets of the Company.
Although bookkeeping accounts may be established with respect to Participants
who are entitled to rights under this Plan, any such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash or rights
thereto, nor shall this Plan be construed as providing for such segregation, nor
shall the Company, the Board or the Committee be deemed to be a trustee of any
cash or rights thereto to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to cash or rights
thereto under this Plan shall be based solely upon any contractual obligations
that may be created by this Plan, and no such liability or obligation of the
Company
6
<PAGE> 7
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.
6.2 TITLE TO FUNDS REMAINS WITH COMPANY
Amounts credited to each Participant's Phantom Stock Account shall not
be specifically set aside or otherwise segregated, but will be combined with
corporate assets. Title to such finds will remain with the Company and the
Company's only obligation will be to make timely payments to Participants in
accordance with the Plan.
6.3 STATEMENT OF ACCOUNT
A statement will be furnished to each Participant not less often than
annually and shall reflect the balance of the Participant's Phantom Stock
Account as of the preceding December 31.
6.4 ASSIGNABILITY
Except as provided in Section 4.4, no right to receive payment
hereunder shall be transferable or assignable by a Participant except by will or
the laws of decent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Any attempted
assignment of any benefit under this Plan in violation of this Section 6.4 shall
be null and void.
6.5 AMENDMENT, MODIFICATION, SUSPENSION, OR TERMINATION
The Board may amend, modify, suspend, or terminate this Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law, except that no amendment, modification, or
termination shall, without the consent of the Participant, impair the rights of
any Participant to the balance in such Participant's Phantom Stock Account as of
the date of such amendment, modification, or termination. The Board may at any
time and from time to time delegate to the Committee any or all of its authority
under this Section 6.5.
6.6 GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
hereto, to the extent not otherwise governed by mandatory provisions of the Code
or the securities laws of the United States, shall be governed by and construed
in accordance with the laws of the State of Texas.
6.7 EFFECTIVE DATE
The Plan shall be effective as of the Effective Date.
7
<PAGE> 8
APPENDIX A
AMENDMENT TO THE
1999 WASTE MANAGEMENT, INC.
DIRECTORS' COMPENSATION PLAN
WHEREAS, the Board of Directors has resolved that the 1998 Plan should
be merged into the 1999 Plan and that each Director who was an Eligible Director
under the 1998 Plan should have his or her Phantom Stock Account merged with his
or her Phantom Stock Account in the 1999 Plan subject to the restrictions on
distribution set forth in the 1998 Plan;
NOW, THEREFORE, the 1999 Plan is hereby amended to provide as follows:
1. Any Director who has a Phantom Stock Account pursuant to the 1998 Plan,
and who is also a Participant in the 1999 Plan shall have his or her
Phantom Stock Accounts merged into one Phantom Stock Account (the "Merged
Phantom Stock Account") which shall be subject to all the terms and
conditions of the 1999 Plan except as provided below.
2. The portion of the Merged Phantom Stock Account that is attributable to
the Phantom Stock Units acquired by any Director under the terms of the
1998 Plan (including any reinvestment of dividends with respect to such
Phantom Stock Units pursuant to Section 3.4 of the 1998 Plan) shall remain
subject to (i) the definition of "Fair Market Value" under Section 1.2(m)
of the 1998 Plan and (ii) the restrictions on distribution set forth in
Section 4.1 of the 1998 Plan.
3. One or more subaccounts may be maintained if determined by the Committee
of the 1999 Plan to be advisable to facilitate the implementation of the
merger of the 1998 Plan into the 1999 Plan.
4. In the event that any beneficiary designations made by a Director pursuant
to the 1998 Plan conflict with the beneficiary designations made by such
Director pursuant to the 1999 Plan, the designations pursuant to the 1999
Plan shall control unless revoked prior to the Director's death.
5. To the extent possible, the terms of the 1998 Plan shall be construed as
consistent with the terms of the 1999 Plan, however, in the event of a
conflict, the terms of the 1999 Plan shall control except as provided in
this Appendix A.
<PAGE> 1
EXHIBIT 12
WASTE MANAGEMENT, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Income before income taxes and minority interests $ 631,287 $ 373,273
------------ ------------
Fixed charges deducted from income:
Interest expense 176,157 155,531
Implicit interest in rents 19,899 15,945
------------ ------------
196,056 171,476
------------ ------------
Earnings available for fixed charges $ 827,343 $ 544,749
============ ============
Interest expense $ 176,157 $ 155,531
Capitalized interest 11,110 9,979
Implicit interest in rents 19,899 15,945
------------ ------------
Total fixed charges $ 207,166 $ 181,455
============ ============
Ratio of earnings to fixed charges 4.0 x 3.0 x
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 59,364
<SECURITIES> 8,270
<RECEIVABLES> 2,498,384
<ALLOWANCES> 124,984
<INVENTORY> 0
<CURRENT-ASSETS> 3,528,866
<PP&E> 18,424,652
<DEPRECIATION> 6,891,877
<TOTAL-ASSETS> 22,607,919
<CURRENT-LIABILITIES> 4,049,379
<BONDS> 10,981,152
0
0
<COMMON> 6,139
<OTHER-SE> 4,824,562
<TOTAL-LIABILITY-AND-EQUITY> 22,607,919
<SALES> 3,070,635
<TOTAL-REVENUES> 3,070,635
<CGS> 1,641,323
<TOTAL-COSTS> 2,282,972
<OTHER-EXPENSES> 13,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,157
<INCOME-PRETAX> 624,825
<INCOME-TAX> 260,551
<INCOME-CONTINUING> 364,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364,274
<EPS-PRIMARY> .60
<EPS-DILUTED> .58
</TABLE>
