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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND 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)
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DELAWARE 73-1309529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 FANNIN STREET, SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (713) 512-6200
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
4% Convertible Subordinated Debentures due
2002
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Securities registered pursuant to Section 12(g) of the Act:
5.75% Convertible Subordinated Notes due 2005
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 17, 1999, was approximately $27,437,506,000. The
aggregate market value was computed by using the closing price of the common
stock as of that date on the New York Stock Exchange. (For purposes of
calculating this amount only, all directors and executive officers of the
registrant have been treated as affiliates.)
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at March 17, 1999, was 601,810,986 (excluding 7,892,612 shares held
in the Waste Management, Inc. Employee Stock Benefit Trust).
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT INCORPORATED AS TO
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Proxy Statement for the
1999 Annual Meeting of Stockholders Part III
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......... 30
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 33
Item 6. Selected Financial Data..................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 35
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 49
Item 8. Financial Statements and Supplementary Data................. 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 101
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 101
Item 11. Executive Compensation...................................... 101
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 101
Item 13. Certain Relationships and Related Transactions.............. 101
PART IV
Item 14. Financial Statement Schedules, Exhibits, and Reports on Form
8-K......................................................... 102
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PART I
ITEM 1. BUSINESS.
GENERAL
Waste Management, Inc. ("Waste Management" or the "Company") is a global
leader in providing integrated waste management services. The Company's
principal operations are providing waste management services in North America
(primarily the United States, Canada and Puerto Rico). The waste management
services provided consist of collection, transfer, recycling and resource
recovery services, as well as disposal services, including landfill disposal of
hazardous wastes. In addition, the Company is a leading operator and owner of
waste-to-energy and waste-fuel powered independent power facilities in the
United States. Other North American operations include additional hazardous
waste management services, as well as low-level and other radioactive waste
services. Outside of North America, the Company operates throughout Europe, the
Pacific Rim, South America and other select international markets. Included in
the Company's international operations are the collection and transportation of
solid, hazardous and medical wastes, and the collection, treatment and disposal
of recyclable materials. The Company also operates solid and hazardous waste
landfills, municipal and hazardous waste incinerators, water and wastewater
treatment facilities, hazardous waste treatment facilities and constructs
treatment or disposal facilities for third parties internationally. The
Company's diversified customer base, which was in excess of 30 million customers
as of December 31, 1998, includes commercial, industrial, municipal and
residential customers, other waste management companies, governmental entities
and independent power markets, with no single customer accounting for more than
5% of the Company's operating revenues during 1998. The Company employed
approximately 68,000 people as of December 31, 1998.
The terms "Waste Management" and the "Company" refer to Waste Management,
Inc., a Delaware corporation incorporated on April 28, 1995, and includes its
predecessors, subsidiaries, and affiliates, unless the context requires
otherwise. Waste Management's executive offices are located at 1001 Fannin
Street, Suite 4000, Houston, Texas 77002, and its telephone number is (713)
512-6200. The Company's common stock is listed on the New York Stock Exchange
under the trading symbol "WMI."
INDUSTRY OVERVIEW
The solid waste management industry in North America has historically been
highly fragmented, with a multitude of local private operators and municipal
operators servicing relatively centralized areas. The industry has been
undergoing a period of significant consolidation which continues today. However,
there remain a large number of private operators and municipalities that
continue to account for a significant portion of the North American solid waste
business.
As consolidation in the North American solid waste industry has continued,
many smaller companies face strategic difficulties including economies of scale
and higher costs of capital.
Increases in significant economies of scale, efficient operations and more
readily available capital caused by consolidation have also affected
municipalities, many of which have sold or leased their transfer and disposal
facilities as well as contracted its collection services with private concerns.
Another important factor in the consolidation of the North American solid
waste management industry is government regulation and enforcement, which has
increased the cost of collection and disposal activities throughout North
America. The most significant new legislation was in 1991 when the U.S.
Environmental Protection Agency ("EPA") adopted new regulations pursuant to
Subtitle D of the Resource Conservation and Recovery Act ("RCRA"), governing the
disposal of nonhazardous municipal solid waste. These regulations led to a
variety of requirements applicable to landfill disposal sites, including the
construction of liners and the installation of leachate collection systems,
groundwater monitoring systems, and methane gas recovery systems. The
regulations also required enhanced control systems to monitor more closely the
waste streams being disposed at the landfills, post-closure monitoring of sites
as well as financial assurances that landfill operators will comply with the
stringent regulations. These regulations significantly increased the costs
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of compliance and landfill operations, leading to many closures, especially by
small operators. Additionally, the increased costs associated with constructing
new landfills caused disposal fees to increase. The higher costs associated with
the regulations caused many in the industry to seek consolidation. Larger solid
waste management companies are better able to absorb the increased costs of
constructing new landfills and, because of the economies of scale that are
necessary under the regulations, most new landfills are larger by historical
standards, serving geographic regions rather than small localities.
Many larger solid waste companies have pursued acquisitions to complement
existing businesses or otherwise improve their cost structure and flexibility.
The Company believes waste management companies active in various segments of
the industry will continue to seek vertical integration to enable them to become
more cost-effective and competitive. However, there still exists a large number
of small local and regional companies, municipalities and other governmental
authorities that provide waste services. Many of the smaller companies are able
to effectively compete on the basis of local name recognition as well as cost
structure. Additionally, municipalities and counties can sometimes offer
services at lower direct costs to the customer through the use of tax revenues
and tax-exempt financings. See "Competition."
STRATEGY
Key components of the Company's strategy are:
Growth
Internal Growth
- Increasing revenues through the expansion of existing operations. The
Company continually strives to grow its existing operations by pursuing
new waste volumes and properly pricing its services.
External Growth
- Increasing revenues and enhancing profitability through acquisitions. The
Company continually seeks to expand its services through the acquisition
of additional solid waste management businesses and operations that can
be effectively integrated with the Company's existing operations. These
acquisitions typically involve adding collection operations, transfer
stations, or landfills that are complementary to existing operations and
that permit the Company to implement operating efficiencies and increase
asset utilization.
- Expanding into new markets through acquisitions. The Company also
continues to pursue acquisitions in new markets where the Company
believes it can strengthen its overall competitive position as an
important provider of integrated waste management services. Additionally,
acquisitions are pursued where opportunities exist to apply its operating
and management expertise to enhance the performance of operations
acquired.
- Benefiting from the privatization of solid waste services provided by
municipalities. Municipalities currently provide a large percentage of
the solid waste management services. Due to the capital and regulatory
requirement demands, as well as the economics of the solid waste
industry, certain portions of these services have been privatized each
year. The Company pursues privatization opportunities where it believes
solid waste services can be provided at a profitable level.
Operational Efficiencies
- Increasing productivity and operating efficiencies. The Company seeks to
increase productivity, achieve administrative and operating efficiencies
and improve profitability in existing operations and acquired businesses,
with the objective of becoming the low-cost operator in each of its
markets. Measures taken by the Company in this area include consolidating
and implementing uniform administrative and management systems,
restructuring and consolidating collection routes, improving equipment
utilization, and increasing employee productivity through incentive
compensation and training programs. The Company believes that its ability
to serve markets as a low-cost operator is
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fundamental to achieving sustainable internal growth and to realizing the
benefits of its acquisition activity.
- Focusing on core businesses. The Company intends to focus on its core
businesses, providing waste services including collection, transfer,
disposal (landfill and waste-to-energy), recycling and other
complementary services. The Company has marketed for sale certain
business lines that include services not easily integrated in order to
focus on those businesses that strengthen its overall competitive
position.
- Internalization. The Company strives to strengthen its position in its
existing markets by expanding the scope of services through the
integration of its collection, transfer station, and disposal operations.
Internalization is the disposal of waste collected by the Company at a
facility owned or operated by the Company. Waste that can be internalized
generally has greater profitability than waste that is disposed of at a
third party facility. The utilization of internal disposal capacity is an
integral component of the Company's ability to achieve its financial
goals and objectives.
- Decentralized management. Because the Company believes the solid waste
industry is a local and regional business, the Company is organized based
upon a decentralized management and a streamlined corporate structure.
The Company believes this approach enhances its ability to manage the
local aspects of daily operations and service its customers more
effectively.
Financial Flexibility and Strength
- Preserving the financial foundation. The Company monitors the financial
demands of its existing operations, acquisition activities, and capital
expenditures program in an attempt to maintain its financial flexibility
and strength and its ability to capitalize on future opportunities. In
managing its financial resources, the Company utilizes commercial banks,
equity and debt offerings, and issues equity instruments in certain
acquisitions. The Company believes that its ability to continue as an
industry consolidator is directly related to its ability to maintain its
financial flexibility and strength.
- Maximizing cash flows from operations. The industry in which the Company
operates typically experiences significant positive cash flows from
properly managed operations. The Company believes that it can be the
low-cost service provider and strives to maximize cash flows from its
operations in all markets. The Company expects to use these cash flows,
in part, to continue its growth and believes it can do so without
compromising its financial condition.
The Company's business is subject to extensive foreign, federal, state, and
local regulation and legislative initiatives. Further, in some locations, its
business is subject to environmental regulation, mandatory recycling laws,
prohibitions on the deposit of certain types of waste in landfills, and
restrictions on the flow of solid waste. Because of continuing public awareness
and influence regarding the collection, transfer, and disposal of waste and the
preservation of the environment, and uncertainty with respect to the enactment
and enforcement of future laws and regulations, the Company cannot always
accurately predict the impact that any future regulations or laws may have on
its operations. See "-- Regulation" and "-- Legal Proceedings."
ACQUISITION AND DIVESTITURE ACTIVITY IN 1998
On July 16, 1998, the Company, then known as USA Waste Services, Inc.,
completed a merger with Waste Management, Inc., at which time Waste Management,
Inc. was renamed Waste Management Holdings, Inc. ("WM Holdings") (the "WM
Holdings Merger"). Under the terms of the WM Holdings Merger, the Company issued
0.725 of a share of its common stock for each outstanding share of WM Holdings
common stock. The WM Holdings Merger increased the Company's outstanding shares
of common stock by approximately 354,000,000 shares, and the Company assumed WM
Holdings' stock options equivalent to approximately 16,000,000 underlying shares
of the Company's common stock. Any unvested WM Holdings options issued prior to
March 10, 1998 vested upon consummation of the WM Holdings Merger due to change
of control provisions in the related plans. WM Holdings was previously the
largest publicly traded solid waste company in the U.S., 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. WM Holdings was also a
leading
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developer of facilities for, and provider of services to, the waste-to-energy
and waste-fuel powered independent power markets. On the effective date 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") pursuant to which the Company issued
approximately 24,460,000 shares of its common stock in exchange for all of the
outstanding shares of Eastern (the "Eastern Merger").
On November 30, 1998, the Company acquired the 49% interest of the United
Kingdom operations that were previously owned by Wessex Water Plc for
approximately $342,000,000.
On November 3, 1998, the Company completed the acquisition of the publicly
owned shares of Waste Management International plc, an indirect majority-owned
subsidiary ("WMI plc"). Pursuant to the acquisition, holders of the
approximately 75 million ordinary shares not already owned by the Company
(including those represented by American Depositary Receipts) received
approximately $5.72 for each share held, for a total of approximately
$443,000,000. The Company liquidated WMI plc after the acquisition in an effort
to simplify the corporate structure and provide enhanced tax planning
opportunities. The Company's international operations are now conducted through
Waste Management International BV, a Netherlands corporation ("WM
International").
On June 18, 1998, the Company acquired the solid waste businesses of
American Waste Systems, Inc. ("American Waste") for approximately $150,000,000
in cash. The businesses acquired include three landfills and one collection
operation located in Ohio.
On May 6, 1998, the Company consummated a merger with TransAmerican Waste
Industries, Inc. ("TransAmerican"), pursuant to which the Company issued
approximately 1,975,000 shares of its common stock in exchange for all
outstanding shares of TransAmerican. The businesses acquired include five
collection operations, nine landfills and two transfer stations located
throughout the southern U.S.
On March 31, 1998, the Company acquired all of the outstanding shares of
Wheelabrator Technologies Inc. ("WTI") which it did not already own for
$876,200,000 in cash.
On January 14, 1998, the Company acquired the solid waste divisions of City
Management Holdings Trust ("City Management") for approximately $810,000,000
consisting of cash, and assumed debt. The businesses acquired are primarily
located in Michigan and include collection operations, landfills, and transfer
stations.
In addition to the aforementioned acquisitions, the Company paid an
aggregate of $1,453,880,000 in cash, common stock, and liabilities assumed to
acquire solid waste assets and businesses.
In connection with the WM Holdings Merger and the Eastern Merger, the
Company entered into agreements with the Antitrust Division of the Department of
Justice and several states. Under the terms of the agreements, the Company is
required to divest of future airspace rights and certain waste disposal,
transfer and commercial collection assets. Included in the required divestitures
are landfills in Ohio, Colorado, Michigan, Texas, California, Kentucky, Florida,
New York and Pennsylvania; commercial waste hauling assets in Ohio,
Pennsylvania, Colorado, Michigan, Texas, Kentucky, Oregon, Arizona and Florida;
and certain commercial collection routes in Pennsylvania, New Jersey, New York,
Virginia and Florida.
Additionally, in September 1998, the Company completed the sale of Rust
Environmental & Infrastructure, Inc. ("REI"). The Company sold the environmental
and infrastructure, engineering, and consulting firm for approximately
$68,000,000, subject to certain post-closing adjustments, in furtherance of the
Company's previous decision to sell or otherwise discontinue certain lines of
business of its subsidiary, Rust International, Inc.
RECENT DEVELOPMENTS
In March 1999, the Company entered into an agreement with a subsidiary of
the French conglomerate Vivendi SA to form a non-landfill hazardous waste and
industrial cleaning business joint venture. Under the agreement, the Company
will transfer certain assets of the non-core industrial cleaning and hazardous
waste
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businesses to the joint venture, but will retain its hazardous waste landfill
operations and national and regional account customers.
OPERATIONS
General
The following table reflects the Company's operating revenues for each of
the three years ended December 31, 1998 for each of the Company's principal
lines of business. Additional information regarding the results of operations
for the Company's business lines is included in Note 13 to the Company's
consolidated financial statements included elsewhere herein (in millions).
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YEARS ENDED DECEMBER 31,
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1998 1997 1996
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North American Solid Waste:
Collection................................ $ 6,963.5 $ 6,071.2 $ 5,257.5
Disposal.................................. 3,179.4 2,811.9 2,580.2
Transfer.................................. 1,054.3 814.5 709.1
Recycling and other....................... 669.6 720.0 683.5
Intercompany.............................. (1,646.3) (1,172.7) (1,132.4)
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10,220.5 9,244.9 8,097.9
WM International............................ 1,533.6 1,790.0 1,913.8
Non-solid waste............................. 949.4 937.6 986.9
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Operating revenue........................... $12,703.5 $11,972.5 $10,998.6
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North American Solid Waste Management
Management of the Company's North American solid waste management
operations is primarily achieved through an alignment that currently includes
five geographic areas. Each area is directed by a senior Company officer who is
responsible for oversight of the area's sales and marketing, administration and
finance, operations, and maintenance functions and who typically has a small
staff that works interactively with the corporate office to provide regulatory
compliance and reporting, legal, engineering, internal and external development,
and strategic planning services. Areas are organized into regions which are
managed by a vice-president of the Company. Regions are further organized into
divisions and districts which are led by local managers. Geographically, an area
encompasses several states or provinces and may have up to eight regions, each
of which is responsible for the oversight of several markets. The division or
district manager is responsible for the day-to-day oversight of that local
operation, with direct responsibility for customer satisfaction, employee
motivation, labor and equipment productivity, internal growth, financial
budgets, and profit and loss activity.
Collection. The Company provides different types of solid waste collection
services depending on the customer serviced. Commercial and industrial
collection services are generally performed under one to three-year service
agreements, and fees are determined by such factors as collection frequency,
type of collection equipment furnished by the Company, type and volume or weight
of the waste collected, the distance to the disposal facility, labor cost, and
cost of disposal. Most residential solid waste collection services are performed
under contracts with, or franchises granted by, municipalities or regional
authorities that have granted the Company exclusive rights to service all or a
portion of the homes in their respective jurisdictions. Such contracts or
franchises usually range in duration from one to five years, however, in certain
cases, they have significantly longer terms. Some municipalities have requested
bids on their residential collection contracts based on the volume of waste
collected. Residential collection fees are either paid by the municipalities
from their tax revenues or service charges or are paid directly by the residents
receiving the service.
As part of its services, the Company provides steel containers to most of
its commercial and industrial customers to store solid waste. These containers,
ranging in size from one to 45 cubic yards, are designed to be lifted
mechanically and either emptied into a collection vehicle's compaction hopper or
directly into a disposal
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site in the case of industrial customers. The use of containers enables the
Company to service most of its commercial and industrial customers with
collection vehicles operated by a single employee.
The Company often obtains waste collection accounts through acquisitions.
Once a collection operation is acquired, the Company implements programs
designed to improve equipment utilization, employee productivity, operating
efficiencies, and overall profitability. The Company also solicits commercial
and industrial customers in areas surrounding acquired residential collection
markets as a means of further improving operating efficiencies and increasing
solid waste collection volumes.
The cost of transporting solid waste to a disposal location effectively
constrains where collection operations can be located. In addition, the Company
believes that it is generally preferable for its collection operations to
utilize disposal facilities owned or operated by affiliated parties so that
access can be assured on reasonable terms. The Company's collection operations
internalized approximately 58.5% of disposal costs paid to disposal facilities
for 1998 as compared to 55.7% for 1997. In the remaining markets, waste is
collected and delivered to a municipal, county or privately-owned unaffiliated
landfill or transfer station.
Disposal. Landfills are the primary depository for solid waste. A solid
waste landfill site must have geological and hydrogeological properties and
design features which limit the possibility of water pollution, directly or by
leaching. Solid waste landfill operations, which include carefully planned
excavation, continuous spreading, compacting and covering of solid waste, are
designed to maintain sanitary conditions, insure optimum utilization of the
airspace and prepare the site for ultimate use for other purposes. Solid waste
landfill operations are required to be conducted in accordance with the terms of
permits obtained from various regulatory authorities, which typically
incorporate the requirements of Subtitle D of RCRA or applicable state
requirements, whichever are stricter. These requirements address such matters as
daily volume limitations, placement of daily, interim and final site cover
materials on waste disposed at the site, construction and operation of methane
gas and leachate management systems, periodic groundwater monitoring activity
and final closure requirements and post-closure monitoring and maintenance
activities.
Solid waste landfill customers are charged disposal charges, known as
"tipping fees", based on market factors and the type and volume or weight of
solid waste deposited and the type and size of vehicles used in the conveyance
of solid waste. The ownership or lease of a solid waste landfill enables the
Company to dispose of waste without payment of tipping fees to unaffiliated
parties. The Company's solid waste landfills are also used by unaffiliated waste
collection companies and government agencies. Excluding solid waste landfills
required to be sold as a result of 1998 governmental consent decrees related to
the WM Holdings Merger and the Eastern Merger, the average landfill volume of
the Company's North American sites for the year ended December 31, 1998, was
approximately 414,000 tons per day, and the average remaining life of landfills
owned or operated was approximately 20 years based on remaining permitted
capacity and current average daily disposal volumes.
Suitable solid waste landfill facilities and permission to expand existing
facilities may be difficult to obtain in some areas because of land scarcity,
local resident opposition and governmental regulation. As its existing
facilities become filled in such areas, the Company's solid waste disposal
operations are and will continue to be materially dependent on its ability to
purchase, lease or otherwise obtain operating rights for additional sites or
expansion of existing sites and to obtain the necessary permits from regulatory
authorities to construct and operate them. In addition, there can be no
assurance that additional sites can be obtained or that existing facilities can
continue to be expanded or operated.
The Company develops, operates, and owns waste-to-energy facilities in the
U.S. The Company's waste-to-energy projects use boiler and grate technology and
are capable of processing up to 23,750 tons of solid waste per day. The heat
from this combustion process is converted into high-pressure steam, which
typically is used to generate electricity for sale to public utility companies
under long-term contracts.
The Company also operates secure hazardous waste land disposal facilities.
All of the Company's five secure hazardous waste land disposal facilities in the
U.S. have been issued permits under RCRA. See "Regulation -- RCRA." In general,
the Company's hazardous waste land disposal facilities have received the
necessary permits and approvals to accept hazardous wastes, although some of
such sites may accept only
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certain hazardous wastes. Only hazardous waste in a stable, solid form which
meets applicable regulatory requirements may be buried in the Company's secure
disposal cells. These land disposal facilities are sited, constructed and
operated in a manner designed to provide long-term containment of such waste.
Hazardous wastes may be treated prior to disposal. Physical treatment methods
include distillation, evaporation and separation, all of which effectively
result in the separation or removal of solid materials from liquids. Chemical
treatment methods include chemical oxidation and reduction, chemical
precipitation of heavy metals, hydrolysis and neutralization of acid and
alkaline wastes and essentially involve the transformation of wastes into inert
materials through one or more chemical reaction processes. At two of its
locations, the Company isolates treated hazardous wastes in liquid form by
injection into deep wells. Deep well technology involves drilling wells in
suitable rock formations far below the base of fresh water to a point that is
separated by other substantial geological confining layers. See "Non-Solid Waste
Services -- Chemical Waste Management Services."
To develop a new disposal facility, the Company must expend significant
time and capital resources without any certainty that the necessary permits will
ultimately be issued for such facility or that the Company will be able to
achieve and maintain the desired disposal volume at such facility. If the
inability to obtain and retain necessary permits, the failure of a facility to
achieve the desired disposal volume or other factors cause the Company to
abandon development efforts for a facility, the capitalized development costs of
the facility are charged to expense.
Transfer Stations. A transfer station is a facility located near
residential and commercial collection routes where solid waste is received from
collection vehicles and then transferred to and compacted in large,
specially-constructed trailers for transportation to disposal facilities. This
consolidation reduces costs by improving the utilization of collection personnel
and equipment. Fees are generally based on such factors as the type and volume
or weight of the waste transferred and the transportation distance to disposal
sites. Transfer stations can also be used to facilitate internalizing disposal
costs by giving Company collection operations more cost-effective access to
disposal facilities owned or operated by the Company.
Recycling. The Company provides recycling services in the U.S. and Canada
through its Recycle America(R), Recycle Canada(R) and other programs. Recycling
involves the removal of reusable materials from the waste stream for processing
and sale or other disposition for use in various applications. Participating
commercial and industrial operations use containers to separate recyclable
paper, glass, plastic and metal wastes for collection, processing and sale by
the Company. Fees are determined by such considerations as competition,
frequency of collection, type and volume or weight of the recyclable materials,
degree of processing required, distance the recyclable materials must be
transported and value of the recyclable materials.
As part of its residential solid waste collection services, the Company
engages in curbside collection of recyclable materials from residences in the
U.S. and Canada. Curbside recycling services generally involve the collection of
recyclable paper, glass, plastic and metal waste materials, which may be
separated by residents into different waste containers or commingled with other
recyclable materials. The recyclable materials are then typically deposited at a
local materials recovery facility ("MRF") where they are sorted and processed
for sale.
The prices received by the Company for recyclable materials fluctuate
substantially from quarter to quarter and year to year depending upon domestic
and foreign demand for such materials, the quality of such materials, prices for
new materials and other factors. In some instances, the Company enters into
agreements with customers or the local governments of municipalities in which it
provides recycling services whereby the customers or the governments share in
the gains and losses resulting from fluctuation in prices of recyclable
commodities. These agreements can reduce both the Company's gains and losses
from such fluctuations.
The Company operates over 150 MRFs for the receipt and processing of
recyclable materials. Such processing consists of separating recyclable
materials according to type, and baling or otherwise preparing the separated
materials for sale.
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Energy Recovery. At 65 Company-owned or Company-operated solid waste
landfill facilities, the Company is engaged in methane gas recovery operations.
These operations involve the installation of a gas collection system into a
solid waste landfill facility. Through the gas collection system, gas generated
by decomposing solid waste is collected and transported to a gas-processing
facility at the landfill site. Through physical processes methane gas is
separated from contaminants. The processed methane gas is then generally either
sold directly to industrial users or to an affiliate of the Company which uses
it as a fuel to power electricity generators. Electricity generated by these
facilities is sold, usually to public utilities under long-term sales contracts,
often under terms or conditions which are subject to approval by regulatory
authorities.
Portable Sanitation Services. The Company also provides portable sanitation
services to municipalities and commercial customers. The portable sanitation
services, which are primarily marketed under the Port-O-Let(R) trade name, are
used at numerous special events and public gatherings.
International Waste Management and Related Services
The Company is a leading provider of waste management and related services
internationally, primarily through WM International, which conducts essentially
all of the waste management operations of the Company located outside North
America. WM International's business may broadly be characterized into two areas
of activity, collection services and treatment and disposal services. The bulk
of the Company's international operations and revenues are derived from the
acquisition from 1990 to 1995 of numerous companies and interests in Europe.
Excluding the minority interest buyout of Wessex Water Plc's holdings in the
United Kingdom, WM International has engaged in only a few small acquisitions
since 1995 and has divested of certain operations which do not fit within its
long-term strategy. The Company intends to continue to evaluate its
international operations and may attempt to grow through acquisitions in certain
markets. In addition, the Company may, over time, exit certain markets if it
determines that financial performance in those markets is not acceptable.
While WM International has considerable experience in mobilizing for and
managing foreign projects, its operations continue to be subject generally to
such risks as currency fluctuations and exchange controls, the need to recruit
and retain suitable local labor forces and to control and coordinate operations
in different jurisdictions, changes in foreign laws or governmental policies or
attitudes concerning their enforcement, political changes, local economic
conditions and international tensions. In addition, price adjustment provisions
based on certain formulas or indices may not accurately reflect the actual
impact of inflation on the cost of performance.
Collection. Collection services include collection and transportation of
solid, hazardous and medical wastes and recyclable material from residential,
commercial and industrial customers. The residential solid waste collection
process, as well as the commercial and industrial solid and hazardous waste
collection process, is similar to that utilized by the Company in its North
American operations. Business is obtained through public bids or tenders,
negotiated contracts, and, in the case of commercial and industrial customers,
direct contracts.
Residential solid waste collection is typically performed by WM
International pursuant to municipal contracts. The scope, specifications,
services provided and duration of such contracts vary substantially, with some
contracts encompassing landfill disposal of collected waste, street sweeping and
other related municipal services. Pricing for municipal contracts is generally
based on volume of waste, number and frequency of collection pick-ups, and
disposal arrangements. Longer-term contracts typically have formulas for
periodic price increases or adjustments. WM International also provides curbside
recycling services similar to those provided by the Company's North American
operations.
WM International's commercial and industrial solid and hazardous waste
collection services are generally contracted for by individual establishments.
In addition to solid waste collection customers, WM International provides
services to small quantity waste generators, as well as larger petrochemical,
pharmaceutical and other industrial customers, including collection of
hazardous, chemical or medical wastes or residues. Contract
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terms and prices vary substantially among jurisdictions and types of customer.
WM International also provides commercial and industrial recycling services.
Treatment and Disposal. Treatment and disposal services include processing
of recyclable materials, operation of both solid and hazardous waste landfills,
operation of municipal and hazardous waste incinerators, operation of water and
wastewater treatment facilities, operation of hazardous waste treatment
facilities and construction of treatment or disposal facilities for third
parties. Treatment and disposal services are provided under contracts which may
be obtained through public bid or tender or direct negotiation, and are also
provided directly to other waste service companies.
Once collected, solid waste processed in a MRF may be sold, utilized or
disposed of in various applications. Unprocessed solid wastes, or the portion of
the waste stream remaining after recovery of recyclable materials, require
disposal, which may be accomplished through incineration (in which the energy
value may be recovered in a waste-to-energy facility) or through disposal in a
solid waste landfill. The relative use of landfills versus incinerators differs
from country to country and will depend on many factors, including the
availability of land, geological and hydrogeological conditions, the
availability and cost of technology and capital, and the regulatory environment.
The main determinants of the disposal method are the disposal costs at local
landfills, as incineration is generally more expensive, community preferences
and regulatory provisions.
At present, in most countries in which WM International operates,
landfilling is the predominant disposal method employed. WM International owns
or operates solid waste landfills in Australia, Brazil, Denmark, Germany, Hong
Kong, Italy, New Zealand, Sweden and the United Kingdom. Landfill disposal
agreements may be separate contracts or an integrated portion of collection or
treatment contracts. WM International operates five small, conventional
municipal solid and other waste incineration facilities. Prior to January 1998,
WM International also operated a waste-to-energy incinerator in Hamm, Germany.
In light of the current overcapacity in the German waste-to-energy market and
the pending renegotiation of WM International's disposal contracts with the
local communities, WM International entered into an agreement in April 1997 to
sell the facility. The transaction was completed in January 1998.
WM International owns or operates hazardous waste treatment facilities in
Brazil, Brunei, Finland, Germany, Hong Kong, Indonesia, the Netherlands, Sweden
and the United Kingdom.
Other. Industrial premises, office, street and parking lot cleaning
services are also performed by WM International, along with portable sanitation
services for occasions such as outdoor concerts and special events.
Non-Solid Waste Services
Hazardous Waste Management Services. In addition to the disposal facilities
discussed above, the hazardous wastes handled by the Company include industrial
by-products and residues that have been identified as "hazardous" pursuant to
RCRA, as well as other materials contaminated with a wide variety of chemical
substances.
Hazardous waste may be collected from customers and transported by the
Company or contractors retained by the Company or delivered by customers to
their facilities. Hazardous waste is transported primarily in specially
constructed tankers and semi-trailers, including stainless steel and rubber or
epoxy-lined tankers and vacuum trucks, or in containers or drums on trailers
designed to comply with applicable regulations and specifications of the U.S.
Department of Transportation ("DOT") relating to the transportation of hazardous
materials. The Company also operates several facilities at which waste collected
from or delivered by customers may be analyzed and consolidated prior to further
shipment.
In the U.S., most hazardous wastes generated by industrial processes are
handled "on-site" at the generators' facilities. Since the mid-1970's, public
awareness of the harmful effects of unregulated disposal of hazardous wastes on
the environment and health has led to extensive and evolving federal, state and
local regulation of hazardous waste management activities. The major federal
statutes regulating the management of hazardous wastes or substances include
RCRA, the Toxic Substances Control Act ("TSCA") and the Comprehensive
Environmental Response, Compensation and Liabilities Act of 1980, as amended
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("CERCLA" or "Superfund"), all primarily administered by the EPA. The hazardous
waste management business is heavily dependent upon the extent to which
regulations promulgated under these or similar state statutes and their
enforcement over time effectively require wastes to be specially handled or
managed and disposed of in facilities of the type owned and operated by the
Company. See "Regulation -- Hazardous Waste," "-- RCRA" and "-- Superfund." The
hazardous waste services industry currently has substantial excess capacity
caused by a number of factors, including a decline in environmental remediation
projects generating hazardous waste for off-site treatment and disposal,
continuing efforts by hazardous waste generators to reduce volume and to manage
the wastes on-site, and the uncertain regulatory environment regarding hazardous
waste management and remediation requirements. These factors have led to reduced
demand and increased pressure on pricing for hazardous waste management
services; conditions which the Company expects to continue for the foreseeable
future.
Low-Level and Other Radioactive Waste Services. Radioactive wastes with
varying degrees of radioactivity are generated by nuclear reactors and by
medical, industrial, research and governmental users of radioactive material.
Radioactive wastes are generally classified as either high-level or low-level.
High-level radioactive waste, such as spent nuclear fuel and waste generated
during the reprocessing of spent fuel from nuclear reactors, contains
substantial quantities of long-lived radionuclides and is the ultimate
responsibility of the federal government. Low-level radioactive waste, which
decays more quickly than high-level waste, largely consists of dry compressible
wastes (such as contaminated gloves, paper, tools and clothing), resins and
filters which have removed radioactive contaminants from nuclear reactor cooling
water, and solidified wastes from power plants which have become contaminated
with radioactive substances and irradiated hardware.
The Company's Chem-Nuclear Systems LLC subsidiary ("Chem-Nuclear") provides
comprehensive low-level radioactive waste management services in the U.S.,
consisting of disposal, processing and various other special services. To a
lesser extent, it provides services with respect to radioactive waste that has
become mixed with regulated hazardous waste. Its Barnwell, South Carolina
facility, which has been in operation since 1971, is one of three licensed
commercial low-level radioactive waste disposal facilities in the U.S. A trust
has been established and funded to pay the estimated cost of decommissioning the
Barnwell facility. A second fund, for the extended care of the facility, is
funded by a surcharge on each cubic foot of waste received. Chem-Nuclear may be
liable for additional costs if the extra charges collected to restore and
maintain the facility are insufficient to cover the cost of restoring or
maintaining the site after its closure. The Company does not expect this to have
a material adverse impact on future operating results.
Under state legislation enacted in 1995, the Barnwell site is authorized to
operate until its current permitted disposal capacity is fully utilized.
However, that legislation was attached to a state appropriations bill that
included a provision for a state tax of $235 to be imposed on every cubic foot
of waste disposed of at the Barnwell facility. As a result of decreased disposal
volume and a shortfall in anticipated tax revenue, in June 1997, the State of
South Carolina enacted new legislation requiring that Chem-Nuclear guarantee
certain portions of anticipated tax revenues from the facility. Such reduced
disposal volume and the requirement that Chem-Nuclear fund such tax payments
have caused Chem-Nuclear to review its alternatives with respect to the Barnwell
facility. If Chem-Nuclear determines to close the Barnwell site, there could be
a material adverse affect on the Company's consolidated financial statements.
Chem-Nuclear also processes low-level radioactive waste at its customers'
plants to enable such waste to be shipped in dry rather than liquid form to meet
the requirements for receipt at disposal facilities and to reduce the volume of
waste that must be transported. Processing operations include solidification,
demineralization, dewatering and filtration. Other services offered by
Chem-Nuclear include providing electro-chemical, abrasive and chemical removal
of radioactive contamination, providing management services for spent nuclear
fuel storage pools and storing and incinerating liquid radioactive organic
wastes.
Through its Waste Management Federal Services, Inc. subsidiary, the Company
provides hazardous, radioactive and mixed waste program and facilities
management services, primarily to the U.S. Department of Energy and other
federal government agencies. Such services include waste treatment, storage,
characterization and disposal, and privatization services.
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Independent Power Projects. The Company also operates and, in some cases,
owns independent power projects which either cogenerate electricity and thermal
energy or generate electricity alone for sale to customers, including utilities
and private customers.
COMPETITION
The waste industry is still highly competitive despite the recent
consolidation in the industry. See "Industry Overview." The Company encounters
intense competition, primarily in the pricing and rendering of services, from
various sources in all phases of its operations. The industry is comprised of a
number of companies of various sizes, numerous municipalities and other regional
or multi-governmental authorities, and large commercial and industrial companies
handling their own waste collection or disposal operations. Local governmental
entities are at times able to offer lower direct charges to the customer for the
same service by subsidizing the cost of such services through the use of tax
revenues and tax-exempt financing. Generally, however, municipalities do not
provide significant commercial and industrial collection or waste disposal.
Operating costs, disposal costs, and collection fees vary widely throughout
the geographic areas in which the Company operates. The prices that the Company
charges are determined locally, and typically vary by the volume or weight, type
of waste collected, treatment requirements, risks involved in the handling or
disposing of waste, frequency of collections, distance to final disposal sites,
labor costs and amount and type of equipment furnished to the customer.
Long-term solid waste collection contracts typically contain a formula,
generally based on published price indices, for automatic adjustment of fees.
The Company competes for landfill business on the basis of tipping fees,
geographical location, and quality of operations. The Company's ability to
obtain landfill volume may be limited by the fact that some major collection
companies also own or operate landfills to which they internalize their waste.
The Company competes for collection accounts primarily based on price and the
quality of its services. Intense competition is encountered for both quality of
service and pricing. From time to time, competitors may reduce the price of
their services and accept lower profit margins in an effort to expand or
maintain market share or to successfully obtain competitively bid contracts.
The Company provides residential collection services under a number of
municipal contracts. Such contracts are subject to periodic competitive bidding,
and there is no assurance that the Company will be the successful bidder and
will be able to retain such contracts. If the Company is unable to replace any
contract lost through the competitive bidding process with a comparable contract
within a reasonable time period, the earnings of the Company could be adversely
affected.
Increased public environmental awareness and certain mandated state
regulations have resulted in increased recycling, composting and waste reduction
efforts in many different areas of North America. Such efforts tend to reduce
the amount of solid waste directed to landfills and waste-to-energy facilities.
Although the Company believes that landfills and waste-to-energy facilities will
continue to be the primary depository for solid waste well into the future,
there can be no assurance that recycling, composting, and waste reduction
efforts will not affect future disposal volumes. The effect, if any, on such
volumes could also vary between different geographic regions as well as within
individual market areas in each region.
The Company also encounters intense competition in pricing and rendering of
services in its portable sanitation service business, from numerous large and
small competitors. In addition, the Company's program and facilities management
business encounters intense competition, primarily in pricing, quality and
reliability of services, from various sources in all aspects of its business.
In its hazardous waste management operations, the Company encounters
competition from a number of sources, including several national or regional
firms specializing primarily in hazardous waste management, local waste
management concerns and, to a much greater extent, generators of hazardous
wastes which seek to reduce the volume of or otherwise process and dispose of
such wastes themselves. The basis of competition is primarily technical
expertise and the price, quality and reliability of service.
Similarly, WM International encounters intense competition from local
companies and governmental entities in particular countries, as well as from
major international companies. Pricing, quality of service and
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type of equipment utilized are the primary methods of competition for collection
services, and proximity of suitable treatment or disposal facilities, technical
expertise, price, quality and reliability of services are the primary methods of
competition for treatment and disposal services.
EMPLOYEES
At December 31, 1998, the Company had approximately 68,000 full-time
employees, of which approximately 8,900 were employed in clerical,
administrative, and sales positions, 2,700 in management, and the balance in
collection, disposal, transfer station and other operations. Approximately
19,000 of the Company's employees are covered by collective bargaining
agreements. The Company has not experienced a significant work stoppage, and
management considers its employee relations to be good.
INSURANCE AND FINANCIAL ASSURANCE OBLIGATIONS
The Company carries a broad range of insurance coverages, which management
considers prudent for the protection of the Company's assets and operations.
Some of these coverages are subject to varying retentions of risk by the
Company. At December 31, 1998, the casualty coverages included $2,000,000
primary commercial general liability and $1,000,000 primary automobile liability
(including coverage for pollution exposures arising out of trucking operations)
supported by $400,000,000 in umbrella insurance protection. The property policy
provides insurance coverages for all of the Company's real and personal
property, including California earthquake perils. The Company also carries
$200,000,000 in aircraft liability protection.
The Company maintains workers' compensation insurance in accordance with
laws of the various states and countries in which it has employees. The Company
also currently has an environmental impairment liability ("EIL") insurance
policy for certain of its landfills, transfer stations, and recycling facilities
that provides coverage for property damages and/or bodily injuries to third
parties caused by off-site pollution emanating from such landfills, transfer
stations, or recycling facilities. This policy provides $10,000,000 of coverage
per loss with a $20,000,000 aggregate limit.
Through the date of the WM Holdings Merger, certain of WM Holdings' auto,
general liability and workers compensation risks were self insured up to
$5,000,000 per accident. See Note 17 to the consolidated financial statements of
the Company included elsewhere herein.
To date, the Company has not experienced any difficulty in obtaining
insurance. However, if the Company in the future is unable to obtain adequate
insurance, or decides to operate without insurance, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect upon the Company's financial condition,
results of operations or cash flows. Additionally, continued availability of
casualty and EIL insurance with sufficient limits at acceptable terms is an
important aspect of obtaining revenue-producing waste service contracts. The
Company believes these are appropriate levels for its operations and that such
levels meet applicable requirements of the various states and countries in which
it operates.
Municipal and governmental waste management contracts typically require
performance bonds or bank letters of credit to secure performance. In addition,
the Company is required to provide financial assurance for closure and
post-closure obligations with respect to its landfills. The Company has not
experienced difficulty in obtaining performance bonds or letters of credit for
its current operations. As of December 31, 1998, the Company had provided
letters of credit of approximately $2,089,100,000 and surety bonds of
approximately $521,807,000 to municipalities and other customers and other
regulatory authorities supporting tax-exempt bonds, performance of landfill
final closure and post-closure requirements, insurance contracts, and other
contracts. Continued availability of surety bonds and letters of credit in
sufficient amounts at acceptable rates is an important aspect of obtaining
additional municipal collection contracts and obtaining or retaining disposal
site operating permits.
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REGULATION
General -- Potential Adverse Effect of Government Regulations
The Company's principal business activities are subject to extensive and
evolving federal, state, local and foreign environmental, health, safety, and
transportation laws and regulations. These regulations are administered by the
EPA in the U.S., various other federal, state, and local environmental, zoning,
health, and safety agencies in the U.S. and elsewhere, including the European
Environmental Agency in Europe and various other national agencies outside of
Europe. Many of these agencies periodically examine the Company's operations to
monitor compliance with such laws and regulations.
Generally, the regulatory process requires the Company, and other companies
in the industry, to obtain and retain numerous governmental permits to conduct
various aspects of its operations, any of which may be subject to revocation,
modification or denial. Particularly, the development, expansion, and operation
of landfills and transfer stations are subject to extensive regulations
governing siting, design, operations, monitoring, site maintenance, corrective
action, financial assurance, and final closure and post-closure obligations. In
order to construct, expand, and operate a landfill or transfer station, the
Company must obtain and maintain one or more construction or operating permits
and licenses and, in certain instances, applicable zoning approvals. Obtaining
the necessary permits and approvals in connection with the acquisition,
development, or expansion of a landfill or transfer station is difficult,
time-consuming (often taking two to three years or more), and expensive, and is
frequently opposed by local citizen as well as environmental groups. Once
obtained, operating permits are subject to modification and revocation by the
issuing agency. Compliance with current and future regulatory requirements may
require the Company, as well as others in the waste management industry, from
time to time, to make significant capital and operating expenditures.
For collection operations, regulation takes such forms as licensing
collection vehicles, health and safety requirements, vehicular weight
limitations, and, in certain localities, limitations on weight, area, time, and
frequency of collection.
Federal, state, local and foreign governments have, from time to time,
proposed or adopted other types of laws, regulations, or initiatives with
respect to the environmental services industry, including laws, regulations, and
initiatives to ban or restrict the international, interstate, or intrastate
shipment of wastes, impose higher taxes on out-of-state waste shipments than on
in-state shipments, limit the types of wastes that may be disposed of at
existing landfills, mandate waste minimization initiatives, require recycling
and yard waste composting, reclassify certain categories of nonhazardous waste
as hazardous, and regulate disposal facilities as public utilities. Congress has
from, time to time, considered legislation that would enable or facilitate such
bans, restrictions, taxes, and regulations, many of which could adversely affect
the demand for the Company's services. Similar types of laws, regulations, and
initiatives have also, from time to time, been proposed or adjusted in other
jurisdictions in which the Company operates. The effect of these and similar
laws could be a reduction of the volume of waste that would otherwise be
disposed of in the Company's landfills. The Company makes a continuing effort to
anticipate regulatory, political, and legal developments that might affect its
operations, but it is not always able to do so. The Company cannot predict the
extent to which any legislation or regulation that may be enacted, amended,
repealed, reinterpreted, or enforced in the future may affect its operations.
Such actions could adversely affect the Company's operations or impact the
Company's financial condition or earnings for one or more fiscal quarters or
years.
In 1997, the EPA began requiring federal, state, or local permitting
authorities receiving money from the EPA to consider the discriminatory effects
that may result from permit issuances. The EPA will now entertain challenges to
any such permits on the grounds that the permitted activities, alone or in
conjunction with other permitted activities, subject minority communities to
disparate exposure to pollution. The lack of specific standards in the EPA's
guidance creates significant uncertainty about the effects any such challenges
could have on the Company's ability to obtain or renew necessary permits.
The demand for certain of the services provided by the Company,
particularly its hazardous waste management services, is dependent in part on
the existence and enforcement of federal, state and foreign laws and regulations
which govern the discharge of hazardous substances into the environment and on
the funding
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of agencies and programs under such laws and regulations. Such businesses will
be adversely affected to the extent that such laws or regulations are amended or
repealed, with the effect of reducing the regulation of, or liability for, such
activity, that the enforcement of such laws and regulations is lessened or that
funding of agencies and programs under such laws and regulations is delayed or
reduced. In particular, the EPA continues to consider proposals under RCRA to
redefine the term "hazardous waste" for regulatory purposes. Under some such
proposals, wastes containing minimal concentrations of hazardous substances
would no longer be subject to the stringent record-keeping, handling, treatment
and disposal rules applied to hazardous wastes under RCRA. Other EPA proposals
would cause certain wastes which presently must be managed in facilities
approved under TSCA to be eligible for disposal in facilities not approved under
TSCA. These proposals would, if adopted, reduce the volume of wastes for which
the Company's hazardous waste management services are needed.
In addition to environmental laws and regulations, federal government
contractors, including the Company, are subject to extensive regulation under
the U.S. Federal Acquisition Regulation and numerous statutes which deal with
the accuracy of cost and pricing information furnished to the U.S. government,
the allowability of costs charged to the U.S. government, the conditions under
which contracts may be modified or terminated, and other similar matters.
Various aspects of the Company's operations are subject to audit by agencies of
the U.S. government in connection with its performance of work under such
contracts as well as its submission of bids or proposals to the U.S. government.
Failure to comply with contract provisions or other applicable requirements may
result in termination of the contract, the imposition of civil and criminal
penalties against the Company, or the suspension or debarment of all or a part
of the Company from U.S. government work, which could have a material adverse
impact upon the Company's financial condition or earnings for one or more fiscal
quarters or years. Among the reasons for debarment are violations of various
statutes, including those related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs. Other
governmental authorities have similar suspension and debarment laws or
regulations or regulations which are applicable to their respective
jurisdictions.
Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. During the ordinary course of its operations, the Company
may, from time to time, receive citations or notices from such authorities that
a facility is not in full compliance with applicable environmental or health and
safety regulations. Upon receipt of such citations or notices, the Company will
work with the authorities to address their concerns. Failure to correct the
problems to the satisfaction of the authorities could lead to monetary
penalties, curtailed operations, jail terms, facility closure, or an inability
to obtain permits for additional sites.
As a result of changing government and public attitudes in the area of
environmental regulation and enforcement, management anticipates that
continually changing requirements in health, safety, and environmental
protection laws will require the Company and others engaged in the waste
management industry to continually modify or replace various facilities and
alter methods of operation at costs that may be substantial. The Company's
significant expenditures incurred in the operation of its disposal facilities
relating to complying with the requirements of laws concerning the environment.
These expenditures relate to facility upgrades, corrective actions, and facility
final closure and post-closure care. The majority of these expenditures are made
in the normal course of the Company's business and neither materially adversely
affect the Company's earnings nor place the Company at any competitive
disadvantage. Although the Company, to its knowledge, is currently in compliance
in all material respects with all applicable federal, state, and local laws,
permits, regulations, and orders affecting its operations where noncompliance
would result in a material adverse effect on the Company's financial condition,
results of operations or cash flows, there is no assurance that the Company will
not have to expend substantial amounts for such actions in the future.
The Company expects to grow in part by acquiring existing landfills,
transfer stations, and collection operations. Although the Company conducts due
diligence investigations of the past waste management practices of the
businesses that it acquires, it can have no assurance that, through its
investigation, it will identify all potential environmental problems or risks.
As a result, the Company may have acquired, or may in the future acquire,
landfills or other properties or businesses that have unknown environmental
problems and related liabilities. The Company will be subject to similar risks
and uncertainties in connection with the
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acquisition of closed facilities that had been previously operated by businesses
acquired by the Company. The Company seeks to mitigate the foregoing risks by
obtaining environmental representations and indemnities from the sellers of the
businesses that it acquires. However, there can be no assurance that the Company
will be able to rely on any such indemnities if an environmental liability
exists.
Solid Waste
Operating permits are generally required at the state and local level for
landfills, transfer stations and collection vehicles. Operating permits need to
be renewed periodically and may be subject to revocation, modification, denial
or non-renewal for various reasons, including failure of the Company to satisfy
regulatory concerns. With respect to solid waste collection, regulation takes
such forms as licensing of collection vehicles, truck safety requirements,
vehicular weight limitations and, in certain localities, limitations on rates,
area, time and frequency of collection. With respect to solid waste disposal,
regulation covers various matters, including landfill location and design,
groundwater monitoring, gas control, liquid runoff and rodent, pest, litter and
traffic control. Zoning and land use requirements and limitations are
encountered in the solid waste collection, transfer, recycling and energy
recovery and disposal phases of the Company's business. In almost all cases the
Company is required to obtain conditional use permits or zoning law changes in
order to develop transfer station, resource recovery or disposal facilities. In
addition, the Company's disposal facilities are subject to water and air
pollution laws and regulations. Noise pollution laws and regulations may also
affect the Company's operations. Governmental authorities have the power to
enforce compliance with these various laws and regulations and violators are
subject to injunctions, fines and revocation of permits. Private individuals may
also have the right to sue to enforce compliance. Safety standards under the
Occupational Safety and Health Act ("OSHA") are also applicable to the Company's
solid waste and related services operations.
The EPA and various states acting pursuant to EPA-delegated authority have
promulgated rules pursuant to RCRA which serve as minimum requirements for land
disposal of municipal wastes. The rules establish more stringent requirements
than previously applied to the siting, construction, operations, final closure
and post-closure monitoring and maintenance of all but the smallest municipal
waste landfill facilities. The Company does not believe that continued
compliance with the more stringent minimum requirements will have a material
adverse effect on the Company's operations. See also "RCRA" and "Superfund"
below for additional regulatory information.
In March 1996, the EPA issued regulations that require large, municipal
solid waste landfills to install and monitor systems to collect and control
landfill gas. The regulations apply to landfills that are designed to
accommodate 2.5 million cubic meters or more of municipal solid waste and that
accepted waste for disposal after November 8, 1987, regardless of whether the
site is active or closed. The date by which each affected landfill must have
such a gas collection and control system depends on whether the landfill began
operation before or after May 30, 1991. In the U.S., landfills constructed,
reconstructed, modified or first accepting waste after May 30, 1991, generally
must have had systems in place by late 1998. Older landfills are generally
regulated by states and will be required to have landfill gas systems in place
within approximately 30 months of EPA's approval of the state program. Many
state solid waste regulations already require collection and control systems.
Compliance with the new regulations is not expected to have a material adverse
effect on the Company.
Hazardous Waste
The Company is required to obtain federal, state, local and foreign
governmental permits for its hazardous waste treatment, storage and disposal
facilities. Such permits are difficult to obtain, and in most instances,
extensive geological studies, tests and public hearings are required before
permits may be issued. The Company's hazardous waste treatment, storage and
disposal facilities are also subject to siting, zoning and land use
restrictions, as well as to regulations (including certain requirements pursuant
to federal statutes) which may govern operating procedures and water and air
pollution, among other matters. In particular, the Company's operations in the
U.S. are subject to the Safe Drinking Water Act (which regulates deep well
injection), TSCA (pursuant to which the EPA has promulgated regulations
concerning the disposal of
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polychlorinated biphenyls ("PCBs")), the Clean Water Act (which regulates the
discharge of pollutants into surface waters and sewers by municipal, industrial
and other sources) and the Clean Air Act (which regulates emissions into the air
of certain potentially harmful substances). In transportation operations, the
Company is subject to the jurisdiction of the Interstate Commerce Commission and
regulated by the DOT and by regulatory agencies in each state. Employee safety
and health standards under OSHA are also applicable.
All of the Company's hazardous waste treatment, storage or disposal
facilities in the U.S. have been issued permits under RCRA. The regulations
governing issuance of permits contain detailed standards for hazardous waste
facilities on matters such as construction, waste analysis, security,
inspections, training, preparedness and prevention, emergency procedures,
reporting and recordkeeping, final closure and post-closure monitoring and
maintenance. Once issued, a final permit has a maximum fixed term of ten years,
and such permits for land disposal facilities are required to be reviewed five
years from the date of issuance. The issuing agency (either the EPA or an
authorized state) may review or modify a permit at any time during its term.
The Company believes that it maintains each of its operating treatment,
storage or disposal facilities in substantial compliance with the applicable
requirements promulgated pursuant to RCRA. It is possible, however, that the
issuance or renewal of a permit could be made conditional upon the initiation or
completion of modifications or corrective actions at facilities, which might
involve substantial additional capital expenditures. Although the Company
anticipates the reauthorization of each permit at the end of its term if the
facility's operations are in compliance with applicable requirements, there can
be no assurance that such will be the case.
The radioactive waste services of Chem-Nuclear are also subject to
extensive governmental regulation. Due to the extensive geological and
hydrogeological testing and environmental data required, and the complex
political environment, it is difficult to obtain permits for radioactive waste
disposal facilities. Various phases of Chem-Nuclear's low-level radioactive
waste management services are regulated by various state agencies, the U.S.
Nuclear Regulatory Commission (the "NRC") and the DOT. Regulations applicable to
Chem-Nuclear's operations include those dealing with packaging, handling,
labeling and routing of radioactive materials, and prescribe detailed safety and
equipment standards and requirements for training, quality control and
insurance, among other matters. Employee safety and health standards under OSHA
are also applicable.
Waste-to-Energy and Related Services
The Company provides waste-to-energy and related services through its
wholly-owned subsidiary WTI, which is now managed as part of the North American
solid waste management service operations. WTI's business activities are subject
to environmental regulation under federal, state and local laws and regulations.
These regulations include the Clean Air Act, the Clean Water Act and RCRA. The
Company believes that this business is conducted in material compliance with
applicable laws and regulations. There can be no assurance, however, that such
requirements will not change to the extent that it would materially affect the
Company's consolidated financial statements. The Company believes that the air
pollution control systems at certain waste-to-energy facilities owned or leased
for use in these operations most likely will be required to be modified to
comply with more stringent air pollution control standards adopted by the EPA in
December 1995 for large municipal waste combusters. The compliance dates will
vary by facility, but all affected facilities most likely will be required to be
in compliance with the standards by the end of the year 2000. Currently
available technologies are adequate to meet the new standards. Although the
total expenditures required for such modifications are approximately
$200,000,000, they are not expected to have a material adverse effect on the
Company's liquidity or results of operations because provisions in the impacted
facilities' long-term waste supply agreements generally allow the Company to
recover from customers the majority of incremental capital and operating costs.
The customer's share of capital and financing costs is typically recovered over
the remaining life of the waste supply agreements, and pro rata operating costs
are recovered in the period incurred. There can be no assurance, however, the
Company will be able to recover, for each project, all such increased costs from
its customers. Moreover, it is possible that future developments, such as
increasingly strict requirements of environmental laws, and enforcement policies
thereunder, could affect the manner in
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which the Company operates its waste-to-energy projects and conducts its
business, including the handling, processing or disposal of the wastes,
by-products and residues generated thereby.
Also, in May 1994, the U.S. Supreme Court ruled that state and local
governments may not constitutionally restrict the free movement of waste in
interstate commerce through the use of flow control laws. Such laws typically
involve a local government specifying a jurisdictional disposal site for all
solid waste generated within its borders. Since the ruling, several decisions of
state or federal courts have invalidated regulatory flow control schemes in a
number of jurisdictions. Other judicial decisions have upheld non-regulatory
means by which municipalities may effectively control the flow of municipal
solid waste. In addition, federal legislation has been proposed, but not yet
enacted, to effectively grandfather existing flow control mandates. There can be
no assurance that such alternatives to regulatory flow control will in every
case be found lawful or that such legislation will be enacted into law. However,
the Supreme Court's 1994 ruling and subsequent court decisions have not to date
had a material adverse effect on any of the Company's waste-to-energy
operations. In the event that such legislation is not adopted, the Company
believes that affected municipalities will endeavor to implement alternative
lawful means to continue controlling the flow of waste. In view of the uncertain
state of the law at this time, however, the Company is unable to predict whether
such efforts would be successful or what impact, if any, this matter might have
on the Company's waste-to-energy facilities.
The Company's Gloucester County, New Jersey waste-to-energy facility
historically relied on a disposal franchise for substantially all of its supply
of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals
(the "Third Circuit") permanently enjoined the State of New Jersey from
enforcing its franchise system as a form of unconditional solid waste flow
control, but stayed the injunction for so long as any appeals were pending. On
November 10, 1997, the U.S. Supreme Court announced its decision not to review
the Third Circuit decision, thereby ending the stay and, effectively, the
facility's disposal franchise. In response, the Gloucester facility lowered its
prices. In early 1999, the Company entered into an agreement pursuant to which
the Company will operate the Gloucester facility and provide disposal services
under a new service agreement for the next ten years. As part of the agreement,
Gloucester County has agreed to cooperate in a refinancing of the existing
project debt. The refinancing, which is expected to close in the second quarter
of 1999, will settle all disputes and release the existing letters of credit. As
a result of the agreement and refinancing, the Company expects the Gloucester
project to operate profitably, albeit at reduced levels, in the absence of
regulatory control.
The Company's energy facilities in the U.S. are also subject to the
provisions of various energy-related laws and regulations, including the Public
Utility Regulatory Policies Act of 1978 ("PURPA"). The ability of the Company's
waste-to-energy and small power production facilities to sell power to electric
utilities on advantageous terms and conditions and to avoid burdensome public
utility regulation has historically depended, in part, upon the applicability of
certain provisions of PURPA, which generally exempts the Company from state and
federal regulatory control over electricity prices charged by, and the finances
of, the Company and its energy-producing subsidiaries. As state legislatures and
the U.S. Congress have accelerated their consideration of the manner in which
economic efficiencies can be gained by deregulating the electric generation
industry, utilities and others have taken the position that power sales
agreements entered into pursuant to PURPA which provide for rates in excess of
current market rates should be voidable as "stranded assets." The Company's
power production facilities are qualifying facilities under PURPA and depend on
the sanctity of their power sales agreements for their economic viability.
Although a repeal or modification of PURPA is possible within the next two
years, the Company believes that federal law offers strong protection to the
PURPA contracts and recent state and federal agency and court decisions have
unanimously upheld the inviolate nature of these contracts. In addition, state
legislative actions to date have not attempted to abrogate these contracts.
While there is some risk that future utility restructurings, court decisions
and/or legislative or administrative action in this area could have an adverse
effect on the business of the Company, in light of recent developments, the
Company currently believes such risk is remote. In addition, the passage of the
Energy Policy Act of 1992 created an alternative ownership mechanism by which
the Company's future independent power projects would be able to participate in
the electricity generation industry without the burdens of traditional public
utility regulation. For those reasons, the operations of existing
waste-to-energy
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and other small power production facilities business are not currently expected
to be materially and adversely affected if the various benefits of PURPA are
repealed or substantially reduced on a prospective basis. However, the Company
can give no assurances that future utility restructurings, court decisions or
legislative or administrative action in this area will not have a material
adverse impact on its consolidated financial statements.
RCRA
Pursuant to RCRA, the EPA has established and administers a comprehensive,
"cradle-to-grave" system for the management of a wide range of industrial
by-products and residues identified as "hazardous" wastes. States that have
adopted hazardous waste management programs with standards at least as stringent
as those promulgated by the EPA may be authorized by the EPA to administer their
programs in lieu of RCRA.
Under RCRA and federal transportation laws, a transporter must deliver
hazardous waste in accordance with a manifest prepared by the generator of the
waste and only to a treatment, storage or disposal facility having a RCRA permit
or interim status under RCRA. Every facility that treats or disposes of
hazardous wastes must obtain a RCRA permit from the EPA or an authorized state
and must comply with certain operating standards. The RCRA permitting process
involves applying for interim status and also for a final permit. Under RCRA and
the implementing regulations, facilities which have obtained interim status are
allowed to continue operating by complying with certain minimum standards
pending issuance of a permit.
RCRA also imposes restrictions on land disposal of certain hazardous wastes
and prescribes standards for hazardous waste land disposal facilities. Under
RCRA, land disposal of certain types of untreated hazardous wastes has been
banned except where the EPA has determined that land disposal of such wastes and
treatment residuals should be permitted. The disposal of liquids in hazardous
waste land disposal facilities is also prohibited.
The EPA, from time to time, considers fundamental changes to its
regulations under RCRA that could facilitate exemptions from hazardous waste
management requirements, including policies and regulations that could implement
the following changes: redefine the criteria for determining whether wastes are
hazardous; prescribe treatment levels which, if achieved, could render wastes
nonhazardous; encourage further recycling and waste immunization; reduce
treatment requirements for certain wastes to encourage alternatives to
incineration; establish new operating standards for combustion technologies; and
indirectly encourage on-site remediation. To the extent such changes are
adopted, they can be expected to adversely affect the demand for the Company's
hazardous waste management services. In this regard, the EPA has recently
proposed regulations which would have the effect of reducing the volume of waste
classified as hazardous for RCRA regulatory purposes.
In addition to the foregoing provisions, RCRA regulations require the
Company to demonstrate financial responsibility for possible bodily injury and
property damage to third parties caused by both sudden and nonsudden accidental
occurrences. See "-- Insurance and Financial Insurance Obligations." Also, RCRA
regulations require the Company to provide financial assurance that funds will
be available when needed for closure and post-closure care at its waste
treatment, storage and disposal facilities, the costs of which could be
substantial. Such regulations allow the financial assurance requirements to be
satisfied by various means, including letters of credit, surety bonds, trust
funds, a financial (net worth) test and a guarantee by a parent corporation.
Under RCRA regulations, a company must pay the closure costs for a waste
treatment, storage or disposal facility owned by it upon the closure of the
facility and thereafter pay post-closure care costs. If such a facility is
closed prior to its originally anticipated time, it is unlikely that sufficient
funds or reserves will have been accrued over the life of the facility to
provide for such costs, and the owner of the facility could suffer a material
adverse impact as a result. Consequently, it may be difficult to close such
facilities to reduce operating costs at times when, as is currently the case in
the hazardous waste services industry, excess treatment, storage or disposal
capacity exists.
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Superfund
Among other things, Superfund generally provides for the remediation of
sites from which there has been a release or threatened release of a hazardous
substance into the environment. Superfund imposes joint and several liability
for the costs of remediation and for damages to natural resources upon the
present and former owners or operators of facilities or sites from which there
is a release or threatened release of hazardous substances. Waste generators and
waste transporters are also strictly liable. Under the authority of CERCLA,
detailed requirements apply to the manner and degree of remediation of
facilities and sites where hazardous substances have been or are threatened to
be released into the environment.
Liability under CERCLA is not dependent upon the intentional disposal of
"hazardous wastes," as defined under RCRA. It can be founded upon a release or
threatened release, even as a result of lawful, unintentional, and non-negligent
action, of any one of more than 700 "hazardous substances," including very small
quantities of such substances. CERCLA requires the EPA to establish a National
Priorities List ("NPL") of sites at which hazardous substances have been or are
threatened to be released and which require investigation or remediation. The
EPA's primary way of determining whether a site is to be included on the NPL is
the Hazard Ranking System, which evaluates the relative potential for a release
of hazardous substances to pose a threat to human health or the environment
pursuant to a scoring system based on factors grouped into three categories: (1)
likelihood of release, (2) hazardous substance characteristics, and (3)
receptors. As of February 1999, the EPA had proposed or identified approximately
10,000 sites for preliminary assessment. These sites are compiled on the
Comprehensive Environmental Response, Compensation, and Liability Information
System ("CERCLIS") list. The identification of a site on the CERCLIS list
indicates only that the site has been brought to the attention of the EPA and
will undergo an assessment of environmental conditions thereon, but it does not
necessarily mean that an actual health or environmental threat currently exists
or has ever existed.
More than 23% of the sites on the NPL are solid waste landfills. Thus, even
if the Company's landfills have never received "hazardous wastes" as such, one
or more hazardous substances may have come to be located at its landfills.
Because of the extremely broad definition of "hazardous substances," the same is
true of other industrial properties with which the Company or its predecessors
has been, or with which the Company may become, associated as an owner or
operator. Consequently, if there is a release or threatened release of such
substances into the environment from a site currently or previously owned or
operated by the Company, the Company could be liable under CERCLA for the cost
of removing such hazardous substances at the site, remediation of contaminated
soil or groundwater, and for damages to natural resources, even if those
substances were deposited at the Company's facilities before the Company
acquired or operated them. Given the limited amount of EIL insurance maintained
by the Company as compared to the substantial cost of a CERCLA cleanup, a
finding of such liability could have a material adverse impact on the Company's
business and financial condition. See "-- Insurance and Financial Assurance
Obligations."
Under CERCLA, the Company may not be liable for the remediation of a
disposal site that was never owned or operated by the Company ("third party
site") containing hazardous substances transported to such site by the Company
if the site was selected by the generator of the hazardous substance. However,
the Company would be responsible for any hazardous substances during actual
transportation. Also, the Company could be liable under CERCLA for environmental
contamination caused by the release of hazardous substances transported by the
Company where the Company selected the disposal site. CERCLA imposes liability
for certain environmental response measures upon transporters who selected the
disposal site at which a release or threatened release of hazardous substances
occurs. It therefore is common in the solid waste transport business to receive
information requests from the EPA about transporting activities to disposal
sites. The Company has received information requests regarding transporting
activities to its own disposal sites as well as third party sites. The
environmental agencies or other potentially responsible parties could assert
that the Company is liable for environmental response measures arising out of
disposal at a third party site that was selected by the Company, a waste
transporter acquired by the Company, or a waste transporter with whom the
Company contracted.
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Several bills have been introduced in the U.S. Congress to reauthorize and
substantially amend CERCLA. In addition to possible changes in the statute's
funding mechanisms and provisions for allocating cleanup responsibility,
Congress may also fundamentally alter the statute's provisions governing the
selection of appropriate site remedial action. In this regard, new approaches to
cleanup, removal, treatment, and remediation of hazardous substance releases may
be adopted which rely on nationally or site-specific risk based standards. These
types of policy changes could significantly affect the stringency and extent of
site remediation, the types of remediation techniques employed, and the types of
waste management facilities that may be used for the treatment and disposal of
hazardous substances. Congress may additionally consider revision of the
liability imposed by CERCLA on current owners of property for contamination
caused prior to a party's acquisition of a site. This consideration could
potentially reduce responsibility for remediation obligations under CERCLA that
the Company could otherwise incur.
International Waste Management and Related Services
The Company's international operations, which are conducted through WM
International, are subject to the general business, liability, land-use planning
and other environmental laws and regulations of the countries where the services
are performed and, in Europe, to European Union ("EU") regulations and
directives. The degree of local enforcement of applicable laws and regulations
varies substantially between, and even within, the various countries in which WM
International operates. In addition to the statutes and regulations imposed by
national, state or provincial, and municipal or other local authorities, many of
the countries in which WM International operates are members of the EU. The EU
has issued and continues to issue environmental directives and regulations
covering a broad range of environmental matters and has created a European
Environmental Agency responsible for monitoring and collating member state
environmental data. The Single European Act, passed in 1987, established three
fundamental principles to guide the development of future EU environmental law:
(i) the need for preventative action; (ii) the correction of environmental
problems at the source; and (iii) the polluter's liability for environmental
damage.
The Treaty on European Union, signed in December 1991, came into force in
November 1993. Revised in Amsterdam in June 1997, the Treaty now regards
"sustainable development" as a key component of EU policy-making and requires
that environmental protection be integrated into the definition and application
of all EU laws.
The impact of current and future EU legislation will vary from country to
country according to the degree to which existing national requirements already
meet or fall short of the new EU standards and, in some jurisdictions, may
require extensive public and private sector investment and the development and
provision of the necessary technology, expertise, administrative procedures and
regulatory structures. These extensive laws and regulations are continually
evolving in response to technological advances and heightened public and
political concern.
Outside Europe, continuing industrialization, population expansion and
urbanization have caused increased levels of pollution with all of the resultant
social and economic implications. The desire to sustain economic growth and
address historical pollution problems is being accompanied by investments in
environmental infrastructure and the introduction of regulatory standards to
further control industrial activities.
The Company believes that WM International's business is conducted in
material compliance with applicable laws and regulations and does not anticipate
that maintaining such compliance will adversely affect the Company's
consolidated financial statements or operations. There can be no assurance,
however, that such requirements will not change so as to require significant
additional expenditures or operating costs.
State and Local Regulation
The states in which the Company operates have their own laws and
regulations that may be more strict than comparable federal laws and regulations
governing hazardous and nonhazardous solid waste disposal, water and air
pollution, releases and cleanup of hazardous substances and liability for such
matters. The states also have adopted regulations governing the siting, design,
operation, maintenance, final closure, and post-closure maintenance of landfills
and transfer stations. The Company's facilities and operations are likely to be
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subject to many, if not all, of these types of requirements. In addition, the
Company's collection and landfill operations may be affected by the trend in
many states toward requiring the development of waste reduction and recycling
programs. For example, several states have enacted laws that require counties to
adopt comprehensive plans to reduce, through waste planning, composting,
recycling, or other programs, the volume of solid waste deposited in landfills.
Additionally, the disposal of yard waste in solid waste landfills has been
banned in several states. Legislative and regulatory measures to mandate or
encourage waste reduction at the source and waste recycling have also been
considered from time to time by the U.S. Congress and the EPA.
Various states have enacted, or are considering enacting, laws that
restrict the disposal within the state of hazardous and nonhazardous solid waste
generated outside the state. While laws that overtly discriminate against
out-of-state waste have been found to be unconstitutional, some laws that are
less overtly discriminatory have been upheld in court. Additionally, certain
state and local governments have enacted "flow control" regulations, which
attempt to require that all waste generated within the state or local
jurisdiction be deposited at specific disposal sites. In May 1994, the U.S.
Supreme Court ruled that a flow control ordinance was unconstitutional.
Recently, lower courts have refused to overturn locally enacted ordinances which
effectively circumvent the Supreme Court's ruling. Whether these laws will
survive the appellate process is uncertain. From time to time, the U.S. Congress
has considered legislation authorizing states to adopt regulations,
restrictions, or taxes on the importation of extraterritorial waste, and
granting states and local governments authority to enact partial flow control
legislation. To date, such congressional efforts have been unsuccessful. The
U.S. Congress' adoption of such legislation allowing for restrictions on
importation of extraterritorial waste or certain types of flow control, or the
adoption of legislation affecting interstate transportation of waste at the
federal or state level, could adversely affect the Company's solid waste
management services, including collection, transfer, disposal, and recycling
operations, and in particular the Company's ability to expand landfill
operations acquired in certain areas.
Many states and local jurisdictions in which the Company operates have
enacted "fitness" laws that allow agencies having jurisdiction over waste
services contracts or permits to deny or revoke such contracts or permits on the
basis of an applicant's (or permit holder's) compliance history. These laws
authorize the agencies to make determinations of an applicant's fitness to be
awarded a contract or to operate and to deny or revoke a contract or permit
because of unfitness absent a showing that the applicant has been rehabilitated
through the adoption of various operating policies and procedures put in place
to assure future compliance with applicable laws and regulations.
FACTORS INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD-LOOKING STATEMENTS
In the normal course of its business, the Company, in an effort to help
keep its stockholders and the public informed about the Company's operations,
may from time to time issue or make certain statements, either in writing or
orally, that are or contain forward-looking statements, as that term is defined
in the U.S. federal securities laws. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, projected or anticipated benefits from
acquisitions made by or to be made by the Company, or projections involving
anticipated revenues, earnings, or other aspects of operating results. The words
"may," "expect," "believe," "anticipate," "project," "estimate," their opposites
and similar expressions are intended to identify forward-looking statements. The
Company cautions readers that such statements are not guarantees of future
performance or events and are subject to a number of factors that may tend to
influence the accuracy of the statements and the projections upon which the
statements are based, including but not limited to those discussed below. As
noted elsewhere in this report, all phases of the Company's operations are
subject to a number of uncertainties, risks, and other influences, many of which
are outside the control of the Company, and any one of which, or a combination
of which, could materially affect the Company's consolidated financial
statements and operations and whether forward-looking statements made by the
Company ultimately prove to be accurate.
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The following discussion outlines certain factors that could affect the
Company's consolidated financial statements for 1999 and beyond and cause them
to differ materially from those that may be set forth in forward-looking
statements made by or on behalf of the Company:
Potential Difficulties in Continuing to Expand and Manage Growth
The Company has experienced rapid growth, primarily through acquisitions.
The Company's future financial results and prospects depend in large part on its
ability to successfully manage and improve the operating efficiencies and
productivity of these acquired operations. In particular, whether the
anticipated benefits of acquired operations are ultimately achieved will depend
on a number of factors, including the ability of the Company to achieve
administrative cost savings, rationalization of collection routes, insurance and
bonding cost reductions, general economies of scale, and the ability of the
Company, generally, to capitalize on its asset base and strategic position.
Moreover, the ability of the Company to continue to grow will depend on a number
of factors, including competition from other waste management companies,
availability of attractive acquisition opportunities and the ability to mitigate
anti-trust concerns related to acquisitions in several markets, availability of
working capital, ability to maintain margins on existing or acquired operations,
and the management of costs in a changing regulatory environment. There can be
no assurance that the Company will be able to continue to expand and
successfully manage its growth or that the pace of its growth will not adversely
affect its existing or acquired operations.
Potential Risks of Acquisition Strategy
The Company regularly pursues opportunities to expand through the
acquisition of additional waste management businesses and operations that can be
effectively integrated with the Company's existing operations. In addition, the
Company regularly pursues mergers and acquisition transactions, some of which
are significant, in new markets where the Company believes that it can
successfully become a provider of integrated waste management services. As one
of the leading industry consolidators, the Company could announce transactions
with either publicly or privately owned businesses at any time.
The Company's acquisition strategy involves certain potential risks. These
include the risk that the Company may not accurately assess all of the
pre-existing liabilities of acquired companies and that the Company may
encounter unexpected difficulties in successfully integrating the operations of
acquired companies with the Company's existing operations. Although the Company
generally has been successful in implementing its acquisition strategy, there
can be no assurance that attractive acquisition opportunities will continue to
be available to the Company, that the Company will have access to the capital
required to finance potential acquisitions on satisfactory terms, or that any
businesses acquired will prove profitable. Future acquisitions may result in the
incurrence of additional indebtedness or the issuance of additional equity
securities.
International Operations
Operations in foreign countries generally are subject to a number of risks
inherent in any business operating in foreign countries, including political,
social, economic instability, and inflation, general strikes, nationalization of
assets, currency restrictions and exchange rate fluctuations, nullification,
modification or renegotiation of contracts, and governmental regulation, all of
which are beyond the control of the Company. No prediction can be made as to how
existing or future foreign governmental regulations in any jurisdiction may
affect the Company in particular or the waste management industry in general.
Capital Requirements
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
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obtaining additional capital on acceptable terms through such debt incurrences
or issuances of additional equity securities. Additionally, there can be no
assurances that the Company will be successful in renewing its existing credit
facility, which must be renewed annually, or that any such renewal will be on
terms acceptable to the Company. Any failure by the Company to successfully
renew its existing credit facility, or to obtain other financing sources could
have a material adverse effect on the Company's consolidated financial
statements. See Note 5 to the consolidated financial statements included
elsewhere herein.
The Company has historically used variable rate debt under revolving bank
credit arrangements as one method of financing its rapid growth. Although recent
financings by the Company have reduced the amount of variable rate debt as a
percentage of total indebtedness outstanding, the Company intends to continue to
use variable rate debt as a financing alternative. To the extent that variable
interest rates tend to fluctuate as general interest rates change, an increase
in interest rates could have a material adverse effect on the Company's earnings
in the future.
Effect of Competition on Profitability
The waste management industry is highly competitive. In North America, the
industry consists of several large national waste management companies, and
numerous local and regional companies of varying sizes and financial resources.
The Company competes with numerous waste management companies, and with counties
and municipalities that maintain their own waste collection and disposal
operations. These counties and municipalities may have financial competitive
advantages because tax revenues and tax-exempt financing are available to them.
In addition, competitors may reduce their prices to expand sales volume or to
win competitively bid municipal contracts. Profitability may decline because of
the national emphasis on recycling, composting, and other waste reduction
programs that could reduce the volume of solid waste collected or deposited in
disposal facilities.
Although the Company is a leading provider of waste management and related
services outside of North America, the Company does not believe that any
non-governmental entity accounts for a material portion of the very
decentralized, highly fragmented international market. In some markets, however,
the Company competes with substantial companies which hold significant market
shares, particularly in Finland, Germany, the Netherlands, Sweden and the United
Kingdom. The international waste management and related services industry is
highly competitive and certain aspects require substantial human and capital
resources. The Company encounters intense competition from governmental,
quasi-governmental and private sources in all aspects of its international
operations.
Some competitors of the Company in its international operations may have
greater financial resources and may have greater technical resources with
respect to specific matters. Particularly with respect to larger contracts, such
as for city-cleaning services, contracts or bids with respect to the
construction or development of water and wastewater facilities, or permitting
and development of a new treatment facility, waste-to-energy facility,
incinerator or landfill, the Company may be required to commit substantial
resources over a long period of time during the proposal phase without any
assurance of successfully obtaining the contract.
Capitalized Expenditures
In accordance with generally accepted accounting principles, the Company
capitalizes certain expenditures and advances relating to acquisitions, pending
acquisitions, and disposal site development and expansion projects. The Company
expenses indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, as incurred.
The Company's policy is to charge against earnings any unamortized capitalized
expenditures and advances relating to any facility or operation that is
permanently shut down, any pending acquisition that is not consummated, and any
disposal site development or expansion project that is not completed. The charge
against earnings is reduced by any portion of the capitalized expenditure and
advances that the Company estimates will be recoverable, through sale or
otherwise. In future periods, the Company may be required to incur a charge
against earnings in accordance with such policy. Depending on the magnitude of
any such charge, it could have a material adverse effect on the Company's
consolidated financial statements.
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Restrictions and Costs Associated with Government Regulation
The Company's operations are substantially affected by stringent government
regulations at the federal, state and local level in the U.S. and in other
countries. These laws, rules, orders and interpretations govern environmental
protection, health and safety, land use, zoning, and other matters. They may
impose restrictions on operations that could adversely affect the Company's
results of operations and financial condition, such as limitations on the
expansion of waste disposal, transfer or processing facilities, limitations or
bans on disposal of out-of-state waste or certain categories of waste, or
mandates regarding the disposal of solid waste. In order to develop, expand or
operate a landfill or other waste management facility, the Company must obtain
and maintain in effect various facility permits and other governmental
approvals, including those relating to zoning, environmental protection and land
use. These permits and approvals are difficult, time consuming and costly to
obtain, in part because of possible opposition by governmental officials or
citizens. In addition, these permits and approvals may contain conditions that
limit operations and the Company's ability to change the facility.
There can be no assurance that the Company will be successful in obtaining
and maintaining in effect permits and approvals required for the successful
operation and growth of its business, including permits and approvals for the
development of additional disposal capacity needed to replace existing capacity
that is exhausted. The siting, design, operation and closure of landfills are
also subject to extensive regulations. These regulations could also require the
Company to undertake investigatory or remedial activities, to curtail operations
or to close a landfill temporarily or permanently. Future changes in these
regulations may require the Company to modify, supplement, or replace equipment
or facilities at costs which could be substantial.
In the U.S., court decisions have ruled that state and local governments
may not use regulatory flow control laws constitutionally to restrict the free
movement of waste in interstate commerce. The Company cannot predict what
impact, if any, these decisions will have on its disposal facilities.
Potential Environmental Liability and Insurance
The Company could be liable if its disposal facilities and collection
operations cause environmental damage to the Company's properties or to nearby
landowners, particularly as a result of the contamination of drinking water
sources or soil, including damage resulting from conditions existing prior to
the acquisition of such assets or operations. Also, the Company could be liable
for any off-site environmental contamination caused by hazardous substances, the
transportation, disposal or treatment of which was arranged for by the Company
or predecessor owners where the Company is liable as a successor to such prior
owners. Any substantial liability for environmental damage could materially
adversely affect the operating results and financial condition of the Company.
In the ordinary course of its business, the Company may become involved in
a variety of legal and administrative proceedings relating to land use and
environmental laws and regulations. These may include proceedings by foreign,
federal, state or local agencies seeking to impose civil or criminal penalties
on the Company for violations of such laws and regulations, or to impose
liability on the Company under applicable statutes, or to revoke or deny renewal
of a permit; actions brought by citizens groups, adjacent landowners or
governmental agencies opposing the issuance of a permit or approval to the
Company or alleging violations of the permits pursuant to which the Company
operates or laws or regulations to which the Company is subject; and actions
seeking to impose liability on the Company for any environmental damage at its
owned or operated facilities (or at facilities formerly owned by the Company or
its predecessors or facilities at which the Company or its predecessors arranged
for the disposal of hazardous substances) or damage that those facilities or
other properties may have caused to adjacent landowners or others, including
groundwater or soil contamination. The adverse outcome of one or more of these
proceedings could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
During the ordinary course of operations, the Company has from time to time
received, and expects that it may in the future from time to time receive,
citations or notices from governmental authorities that its operations are not
in compliance with its permits or certain applicable environmental or land use
laws and regulations. The Company generally seeks to work with the authorities
to resolve the issues raised by such
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<PAGE> 27
citations or notices. There can be no assurance, however, that the Company will
always be successful in this regard or that such future citations or notices
will not have a materially adverse effect on the Company's financial position,
results of operations or cash flows.
The Company's insurance for environmental liability meets or exceeds
statutory requirements. However, because the Company believes that the cost for
such insurance is high relative to the coverage it would provide, such coverages
are generally maintained at statutorily required levels. Due to the limited
nature of such insurance coverage for environmental liability, if the Company
were to incur liability for environmental damage, such liability could have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
Alternatives to Landfill Disposal and Waste-to-Energy Facilities
Alternatives to disposal, such as recycling and composting, are
increasingly being used. There also has been an increasing trend to mandate
recycling and waste reduction at the source and to prohibit the disposal of
certain types of wastes, such as yard wastes, at landfills or waste-to-energy
facilities. These developments could reduce the volume of waste going to
landfills and waste-to-energy facilities in certain areas, which may affect the
Company's ability to operate its landfills and waste-to-energy facilities at
full capacity, and the prices that can be charged for landfill disposal and
waste-to-energy services.
Dependence on Key Personnel
The Company's business is partially dependent upon the performance of
certain of its executive officers. The Company is particularly dependent upon
John E. Drury, Chief Executive Officer of the Company, because of his knowledge
of the Company's operations as well as his industry experience. The Company has
entered into employment agreements with its executive officers. Notwithstanding
such agreements, there can be no assurance that the Company will be able to
retain such officers or that it will be able to enforce non-compete provisions
that are contained in such agreements in the event of their departure. The loss
of the services of the Company's management could have a material adverse effect
upon the Company. The Company is in the process of establishing a formalized
management succession plan to prepare itself in the event of an unexpected
departure.
Recyclable Materials Price Fluctuations
Recyclable materials processed by the Company for sale include paper,
plastics, aluminum and other commodities which are subject to significant price
fluctuations. These fluctuations will affect the Company's future operating
revenues and income.
Matters Related to WM Holdings Accounting Practices
The U.S. Securities and Exchange Commission has commenced a formal
investigation with respect to WM Holdings' previously filed financial statements
(which were subsequently restated) and the related accounting policies,
procedures and system of internal controls. The Company is fully cooperating
with such investigations. Additionally, several lawsuits and claims have been
filed against WM Holdings and several of its former officers and directors in
connection with the restatement of WM Holdings' financial statements. The
Company is unable to predict the outcome or impact of the investigation or any
previously filed or future lawsuits or claims arising out of the restatement at
this time. See "Legal Proceedings."
Seasonality
The Company's operating revenues are usually lower in the winter months
primarily because the volume of waste relating to construction and demolition
activities usually increases in the spring and summer months, and the volume of
industrial and residential waste in certain regions where the Company operates
usually decreases during the winter months. The Company's first and fourth
quarter results of operations typically reflect this seasonality.
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<PAGE> 28
ITEM 2. PROPERTIES.
The principal property and equipment of the Company consists of land
(primarily disposal sites), buildings, waste treatment or processing facilities
(other than disposal sites) and vehicles and equipment. The Company owns or
leases real property in most locations in which it is doing business. At
December 31, 1998, the Company owned and operated 246 active disposal sites in
North America, which aggregated approximately 119,700 acres of land, including
approximately 28,000 permitted acres for landfill use. Additionally, the Company
operated 32 disposal sites in North America through leasing arrangements, which
aggregated approximately 7,700 total acres, including approximately 2,000 acres
permitted for landfill use as well as operated an additional 27 disposal sites
through agreements with municipalities. At December 31, 1998, pursuant to
certain governmental orders, the Company had for sale, 12 landfill sites,
consisting of approximately 4,700 total acres of which 1,700 were permitted for
landfill utilization. The WM International landfill operations at December 31,
1998, included 39 sites, which aggregated approximately 2,630 total acres,
including approximately 2,045 acres which were permitted for landfill use.
Furthermore, the Company owned or operated through agreements 23 waste-to-energy
facilities in North America. See "Business -- Acquisition Activity and
Divestitures."
The Company leases approximately 193,000 square feet of office space in
Houston, Texas, for its executive offices under leasing arrangements expiring
through 2008. For the year ended December 31, 1998, aggregate annual rental
payments on real estate leased by the Company were approximately $133,002,000.
The Company owns approximately 53,000 items of equipment, including waste
collection vehicles and related support vehicles, as well as bulldozers,
compactors, earth movers, and other related heavy equipment and vehicles used in
landfill operations. The Company has approximately 2,580,000 steel containers in
use, ranging from one to 45 cubic yards, and a number of stationary compactors
and self-dumping hoppers.
The Company believes that its vehicles, equipment, and operating properties
are well maintained and adequate for its current operations. However, the
Company expects to make substantial investments in additional equipment and
property for expansion, for replacement of assets, and in connection with future
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ITEM 3. LEGAL PROCEEDINGS.
A Company subsidiary has been involved in litigation challenging a
municipal zoning ordinance which restricted the height of its New Milford,
Connecticut, landfill to a level below that allowed by the permit previously
issued by the Connecticut Department of Environmental Protection ("DEP").
Although a lower Court had declared the zoning ordinance's height limitation
unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling
and remanded the case for further proceedings in the Superior Court. In November
1995, the Superior Court ordered the subsidiary to apply for all governmental
permits needed to remove all waste above the height allowed by the zoning
ordinance, and the Connecticut Supreme Court has upheld that ruling. In
September 1998, the Company reached a settlement with the town of New Milford,
requiring annual payments to the town for a 25 year period. The settlement
agreement was adopted by the Superior Court, which modified its order by
substituting the payments for the removal of the waste.
In November and December 1997, several alleged purchasers of WM Holdings
securities (including but not limited to WM Holdings common stock), who
allegedly bought their securities between 1996 and 1997, brought 14 purported
class action lawsuits against WM Holdings and several of its former officers in
the U.S. 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. Among other things, the
plaintiffs alleged that WM Holdings employed accounting practices that were
improper and that caused its publicly filed financial statements to be
materially false and misleading. 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 14
putative class actions were consolidated before one judge. On May 29, 1998, the
plaintiffs filed a consolidated amended complaint against WM Holdings and four
of its former officers. The consolidated amended complaint seeks recovery on
behalf of a proposed class of all purchasers of WM Hold-
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<PAGE> 29
ings securities between May 29, 1995, and October 30, 1997. The consolidated
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 establish
a settlement fund of $220,000,000 for the class of open market purchasers of WM
Holdings equity 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 or that, because members of the
class may opt out of the lawsuit, WM Holdings will not be a party to additional
lawsuits or claims brought by individuals.
The Company is aware of another action arising out of the same set of facts
alleging a cause of action under Illinois state law. Additionally, there are
several other actions and claims arising out of the same set of facts, including
one purported class action brought by business owners who received WM Holdings
shares in the sales of their businesses to WM Holdings that alleges breach of
contract causes of action on the basis of allegedly false representation and
warranties. A purported derivative action has also been filed by an alleged
former shareholder 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 matter described in this paragraph. It is not
possible at this time to predict the impact this litigation may have on WM
Holdings or the Company, nor is it possible to predict whether any other suits
or claims arising out of these matters may be brought 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 condition or
results of operations in one or more future periods. WM Holdings intends to
defend itself vigorously in the litigation.
The Company is also aware that the U.S. Securities and Exchange Commission
has commenced a formal investigation with respect to the 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.
On March 12, 1998, a stockholder of WM Holdings filed a purported class
action suit in the Chancery Court of the State of Delaware in the New Castle
County against WM Holdings and certain of its former directors. The complaint
alleges, among other things, that (i) the Merger was the product of unfair
dealing and the price paid to members of the purported class for their WM
Holdings common stock was unfair and inadequate, (ii) the WM Holdings Merger
will prevent members of the purported class from receiving their fair portion of
the value of WM Holdings' assets and business and from obtaining the real value
of their equity ownership of WM Holdings, (iii) defendants breached their
fiduciary duties owed to the members of the purported class by putting their
personal interests ahead of the interests of WM Holdings' public stockholders
and (iv) the members of the class action will suffer irreparable damage unless
the defendants are enjoined from breaching their fiduciary duties. The complaint
seeks equitable relief that would rescind the WM Holdings Merger and monetary
damages from the defendants for unlawfully gained profits and special benefits.
The Company believes the suit to be without merit and intends to contest it
vigorously.
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 relate to
alleged technical violations of licenses or permits pursuant to which the
Company operates or is seeking to operate or laws or regulations to which its
operations are subject or are the result of different interpretations of the
applicable requirements. From time to time, the Company pays fines or penalties
in environmental proceedings relating primarily to waste treatment, storage or
disposal facilities. As of December 31, 1998, two Company
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<PAGE> 30
subsidiaries engaged in providing hazardous waste and municipal solid waste
management services respectively, were each involved in proceedings where it is
believed that sanctions involved may exceed $100,000. 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.
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 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 and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be
substantial.
As of December 31, 1998, 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 to 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 and 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 periodically reviews its role, if any, with respect to each
such site, giving consideration to the nature of the Company's alleged
connection to the location (e.g., owner, operator, transporter or generator),
the extent of the Company's alleged connection to the location (e.g., amount and
nature of waste hauled to the location, number of years of site operation by the
Company or other relevant factors), the accuracy and strength of evidence
connecting the Company to the location, the number, connection and financial
ability of other named and unnamed potentially responsible parties at the
location, and the nature and estimated cost of the likely remedy. Where the
Company concludes that it is probable that a liability has been incurred, a
provision is made in the Company's consolidated financial statements for the
Company's best estimate of the liability based on management's judgment and
experience, information available from regulatory agencies and the number,
financial resources and relative degree of responsibility of other potentially
responsible parties who are jointly and severally liable for remediation of a
specific site, as well as the typical allocation of costs among such parties. If
a range of possible outcomes is estimated and no amount within the range appears
to be a better estimate than any other, then the Company provides for the
minimum amount within the range, in accordance with generally accepted
accounting principles. Amounts recorded are discounted where appropriate. Sites
subject to state action under state laws similar to the federal Superfund
statute are treated by the Company in the same way as NPL sites.
The Company's estimates are subsequently revised, as deemed necessary, as
additional information becomes available. While the Company does not anticipate
that the amount of any such revisions will have a material adverse effect on the
Company's operations or financial condition, the measurement of environmental
liabilities is inherently difficult 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. Such matters could have a material adverse impact on the Company's
consolidated financial statements.
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From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company subsidiary 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 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"), 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 in August 1997. The Company is
attempting to negotiate a resolution with the government which may involve 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 June 1996, an indictment was brought against All-Waste Systems, Inc.
("All-Waste"), an indirect subsidiary of the Company acquired in December 1998
in connection with the Eastern Merger, thirteen other corporations and seven
individuals in the Southern District of New York. In September 1997 nineteen of
the defendants entered guilty pleas and collectively agreed to pay $17,000,000
in restitution to the IRS and Westchester County, fines and civil forfeitures.
All-Waste pled guilty to mail fraud, which arose out of an alleged bid-rigging
scheme for the Town of New Windsor, paid an $85,000 fine and was sentenced to a
five year probation period. The probation period was terminated upon the closing
of the sale of All-Waste to Eastern in June 1998.
In March 1999, the Company was notified that All-Waste, 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 the September 1997 conviction of All-Waste and
activities that occurred prior to 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 judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are
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<PAGE> 32
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 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.
Several purported class action lawsuits and one purported derivative
lawsuit seeking injunctive relief and unspecified money damages were filed in
the Chancery Court in and for New Castle County, Delaware against the Company,
WTI, and individual directors of WTI in connection with the June 20, 1997,
proposal by WM Holdings to acquire all of the shares of WTI common stock which
WM Holdings did not own. WM Holdings subsequently consummated a merger in which
WTI's stockholders received $16.50 in cash per share of WTI's common stock. The
lawsuits, which have since been consolidated into a single action, allege, among
other things, that the defendants breached fiduciary duties to WTI's minority
stockholders because the merger consideration contemplated by the proposal was
inadequate and unfair. The Company believes that the defendants' actions in
connection with the proposal were in accordance with Delaware law and, on that
basis, has agreed to a settlement providing for the dismissal of all of the
lawsuits against all defendants. The settlement agreement with the plaintiffs is
subject to various conditions, including notice to the putative class and
approval by the Court after a hearing.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company during the
fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages, as of March 1, 1999, of the
Company's executive officers (as defined by regulations of the Securities and
Exchange Commission), the positions they hold with the Company, and summaries of
their business experience.
John E. Drury, age 54, has been Chief Executive Officer and a director of
the Company since May 1994 and served as Chairman of the Board from June 1995
until the consummation of the WM Holdings Merger in July 1998. From 1991 to May
1994, Mr. Drury served as a Managing Director of Sanders Morris Mundy Inc., a
Houston based investment banking firm. Prior thereto, Mr. Drury served in
various management capacities at Browning-Ferris Industries ("BFI") including
President and Chief Operating Officer of BFI from 1982 to 1991. Mr. Drury is
also a member of the board of directors of PalEx, Inc.
Rodney R. Proto, age 50, has been President, Chief Operating Officer, and a
director since joining the Company in August 1996. From 1992 to 1996, Mr. Proto
was President, Chief Operating Officer, and a director of Sanifill, Inc.
("Sanifill"). Prior to such time, Mr. Proto was employed by BFI for twelve years
where he served, among other positions, as President of Browning-Ferris
Industries Europe, Inc. from 1987 through 1991 and Chairman of BFI Overseas from
1985 through 1987. Mr. Proto is also a member of the board of directors of
Quanta Services, Inc.
Earl E. DeFrates, age 55, has been Executive Vice President and Chief
Financial Officer since May 1994. From October 1990 to April 1995, he also
served as the Company's Secretary. Mr. DeFrates joined the
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Company as Vice President -- Finance and Chief Financial Officer in October 1990
and was elected Executive Vice President in May 1994. Prior thereto, Mr.
DeFrates was employed by Acadiana Energy Inc. (formerly Tatham Oil & Gas, Inc.)
serving in various officer capacities, including the company's Chief Financial
Officer from 1980 through 1990.
Donald R. Chappel, age 47, has been Senior Vice President -- Operations and
Administration since the consummation of the WM Holdings Merger in July 1998.
Prior thereto, Mr. Chappel held several positions at WM Holdings, including
serving as Acting Chief Financial Officer since October 1997, Vice President --
Financial Services since November 1996 and Vice President and Controller (North
American operations) since August 1995. From 1991 to July 1995, Mr. Chappel was
Vice President and Controller -- West and Mountain Areas of Waste Management of
North America, Inc., and from July to August 1995 served as Vice President and
Controller of Chemical Waste Management, Inc. Prior thereto he had served as
Vice President and Controller -- WMI Urban Services, beginning in June 1987 when
he joined WM Holdings.
Robert P. Damico, age 50, has been Senior Vice President -- Midwest Area
since the consummation of the WM Holdings Merger in July 1998. Prior thereto,
Mr. Damico had served in various capacities at WM Holdings since 1980, including
District Manager, Division Manager and region Manager for the Mountain Region.
David R. Hopkins, age 55, has been Senior Vice President -- International
Operations since November 1998 and has been Chief Executive Officer of WM
International during that same period. Prior thereto, Mr. Hopkins had served as
Vice President, Controller and Chief Accounting Officer of BFI since 1987.
Miller J. Mathews, Jr., age 61, has been the Senior Vice
President -- Southern Area since the consummation of the WM Holdings Merger.
Prior thereto, Mr. Mathews was the Company's Region Vice President -- Southern
Region since 1995 when the waste company which he had owned since 1981, Sunray
Services, Inc., was acquired by the Company.
Ronald H. Jones, age 48, has been Vice President and Treasurer since
joining the Company in June 1995. Prior to joining the Company, Mr. Jones was
employed by Chambers Development Company, Inc. ("Chambers") as Vice President
and Treasurer from July 1992 to June 1995, Director, Corporate Development from
December 1990 to July 1992, and Assistant Vice President -- Finance from July
1989 to December 1990. Prior to joining Chambers, Mr. Jones was a Vice President
and Manager of the Cincinnati regional office engaged in corporate and middle
market lending with Bank of New York (formerly Irving Trust Company) and with
Chase Manhattan Bank.
Susan J. Piller, age 46, has been Senior Vice President -- Employee
Relations since May 1996. Prior to joining the Company, Ms. Piller was with BFI
from 1984 until 1996, where she held various labor and employment positions,
including Vice President -- Employee Relations. Prior thereto, Ms. Piller was
employed by the Houston law firm of Fulbright & Jaworski.
William A. Rothrock, age 46, has been Senior Vice President -- Business
Development of the Company since August 1996. Mr. Rothrock held similar business
development positions with Sanifill from 1990 to 1996 and BFI from 1985 to 1990.
Gregory T. Sangalis, age 43, has been Vice President, General Counsel and
Secretary since April 1995 and Senior Vice President since July 1998. Prior to
joining the Company, Mr. Sangalis was employed by WM Holdings, serving in
various legal capacities since 1986 including Group Vice President and General
Counsel from August 1992 to April 1995. Prior to joining the Company, he was
General Counsel of Peavey Company and had been engaged in the private practice
of law in Minnesota.
Robert G. Simpson, age 47, has been Vice President -- Taxation since
November 1998. From July 1997 to November 1998, Mr. Simpson served as Vice
President and General Manager of Tenneco Inc. and Tenneco Business Services, a
diversified industrial company. From April 1990 to July 1997, Mr. Simpson served
as Vice President -- Tax of Tenneco Inc.
Bruce E. Snyder, age 43, has been Vice President and Chief Accounting
Officer of the Company since July 1992. Prior to joining the Company, Mr. Snyder
was employed by the international accounting firm of
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Coopers & Lybrand L.L.P., serving there since 1989 as an audit manager. From
1985 to 1989, Mr. Snyder held various financial positions with Price Edwards
Henderson & Co., a privately held real estate development and management company
in Oklahoma City, Oklahoma, and its affiliated companies, ultimately serving as
Senior Vice President.
Douglas G. Sobey, age 47, has been Senior Vice President -- Western Area,
since July 1998. From 1996 to July 1998, Mr. Sobey was the Company's Region Vice
President -- Northwest Region. From 1990 to 1996, Mr. Sobey held similar
positions with Sanifill.
David Sutherland-Yoest, age 42, has been Senior Vice President -- Atlantic
Area since July 1998. From August 1996 to July 1998, Mr. Sutherland-Yoest was
the Company's Vice Chairman of the Board and Vice President -- Atlantic Region
and President of Canadian Waste Services, Inc. ("Canadian Waste"). From May 1994
to August 1996, he was President, Chief Operating Officer and a director of the
Company. Prior to joining the Company, he was President, Chief Executive Officer
and a director of Envirofil, Inc. ("Envirofil"). Between 1987 and 1992, Mr.
Sutherland-Yoest served in various capacities at Laidlaw Waste Systems, Inc. and
Browning-Ferris Industries, Ltd.
Charles A. Wilcox, age 46, has been Senior Vice President -- Eastern Area
since July 1998. From August 1996 to July 1998, Mr. Wilcox was Region Vice
President of the Eastern Region. From December 1994 to August 1996, Mr. Wilcox
served as an Executive Vice President of the Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol "WMI." The following table sets forth the range of the
high and low per share sales prices for the common stock as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
First Quarter............................................. $38.88 $28.63
Second Quarter............................................ 39.25 29.50
Third Quarter............................................. 44.13 38.00
Fourth Quarter............................................ 41.75 32.63
1998
First Quarter............................................. $46.88 $34.44
Second Quarter............................................ 50.00 44.69
Third Quarter............................................. 58.19 42.88
Fourth Quarter............................................ 48.88 35.25
1999
First Quarter (through March 17, 1999).................... $52.63 $45.50
</TABLE>
On March 17, 1999, the closing sale price as reported on the NYSE was
$45.88 per share. The number of holders of record of common stock based on the
transfer records of the Company at March 17, 1999, was 32,037.
As of December 31, 1998, the Company is limited in its ability to pay
dividends pursuant to its current credit agreements to amounts not to exceed
$100,000,000 per year. The Company declared cash dividends of $0.01 per share,
or approximately $5,700,000 and $6,100,000 during the third and fourth quarters
of 1998, respectively. See Note 9 to the consolidated financial statements
included elsewhere herein.
33
<PAGE> 36
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information as of December
31, 1998 and 1997, and for each of the years in the three year period ended
December 31, 1998, has been derived from the audited consolidated financial
statements of the Company included elsewhere herein. This information should be
read in conjunction with such consolidated financial statements and related
notes thereto. The selected consolidated financial information as of December
31, 1996, 1995 and 1994, and for each of the years in the two year period ended
December 31, 1995, has been derived from audited consolidated financial
statements, that have been previously included in the Company's reports under
the Exchange Act, restated for certain pooling of interests transactions that
are not included herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues................................ $12,703,469 $11,972,498 $10,998,602 $10,432,775 $ 9,677,048
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Operating (exclusive of depreciation and
amortization shown below)..................... 7,383,751 7,482,273 6,564,234 6,261,745 5,705,355
General and administrative...................... 1,309,936 1,438,501 1,316,480 1,279,719 1,236,765
Depreciation and amortization................... 1,498,712 1,391,810 1,264,196 1,186,492 1,129,890
Merger costs.................................... 1,807,245 112,748 126,626 26,539 3,782
Asset impairments and unusual items............. 864,063 1,771,145 529,768 394,092 122,233
(Income) loss from continuing operations held for
sale, net of minority interest.................. 151 9,930 (315) (25,110) (24,143)
----------- ----------- ----------- ----------- -----------
12,863,858 12,206,407 9,800,989 9,123,477 8,173,882
----------- ----------- ----------- ----------- -----------
Income (loss) from operations..................... (160,389) (233,909) 1,197,613 1,309,298 1,503,166
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense................................ (681,457) (555,576) (525,340) (534,964) (437,946)
Interest income................................. 26,829 45,214 34,603 41,565 47,878
Minority interest............................... (24,254) (45,442) (41,289) (81,367) (126,042)
Other income, net............................... 139,392 127,216 108,645 257,773 113,526
----------- ----------- ----------- ----------- -----------
(539,490) (428,588) (423,381) (316,993) (402,584)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations before
income taxes.................................... (699,879) (662,497) 774,232 992,305 1,100,582
Provision for income taxes........................ 66,923 363,341 486,700 493,375 498,233
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations.......... (766,802) (1,025,838) 287,532 498,930 602,349
Income (loss) from discontinued operations........ -- 95,688 (263,301) 4,863 27,324
Extraordinary item................................ (3,900) (6,809) -- -- --
Accounting change................................. -- (1,936) -- -- (1,281)
----------- ----------- ----------- ----------- -----------
Net income (loss)................................. $ (770,702) $ (938,895) $ 24,231 $ 503,793 $ 628,392
=========== =========== =========== =========== ===========
Basic earnings (loss) per common share:
Continuing operations........................... $ (1.31) $ (1.84) $ 0.54 $ 0.99 $ 1.24
Discontinued operations......................... -- 0.17 (0.49) 0.01 0.06
Extraordinary item.............................. (0.01) (0.01) -- -- --
Accounting change............................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)............................... $ (1.32) $ (1.68) $ 0.05 $ 1.00 $ 1.30
=========== =========== =========== =========== ===========
Diluted earnings (loss) per common share:
Continuing operations........................... $ (1.31) $ (1.84) $ 0.53 $ 0.97 $ 1.23
Discontinued operations......................... -- 0.17 (0.49) 0.01 0.05
Extraordinary item.............................. (0.01) (0.01) -- -- --
Accounting change............................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)............................... $ (1.32) $ (1.68) $ 0.04 $ 0.98 $ 1.28
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................... $ (412,269) $(1,967,278) $ (258,210) $(1,027,093) $ (681,813)
Intangible assets, net............................ 6,250,324 4,848,176 4,681,381 4,329,909 3,661,594
Total assets...................................... 22,715,198 20,156,424 20,727,524 19,950,426 18,124,674
Long-term debt, including current maturities...... 11,697,943 9,479,961 9,064,566 8,404,034 7,677,360
Stockholders' equity.............................. 4,372,496 3,854,929 5,201,610 5,184,104 4,506,454
</TABLE>
34
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion reviews the Company's operations for the three
years ended December 31, 1998, and should be read in conjunction with the
Company's consolidated financial statements and related notes thereto included
elsewhere herein. The Company has restated its previously issued financial
statements for years prior to 1998 to reflect the Eastern Merger accounted for
under the pooling of interests method of accounting.
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 Item 1 of
this report.
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, which was in excess of 30 million customers as of December 31,
1998, includes commercial, industrial, municipal and residential customers,
other waste management companies, governmental entities and independent power
markets, with no single customer accounting for more than 5% of the Company's
operating revenues during 1998.
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 solid
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 at 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 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.
35
<PAGE> 38
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.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the period to
period change in dollars (in thousands) and percentages for the various
consolidated statements of operations line items and for certain supplementary
data.
<TABLE>
<CAPTION>
PERIOD TO PERIOD CHANGE
-----------------------------------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1997 AND
1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues............................... $ 730,971 6.1% $ 973,896 8.9%
---------- -----------
Costs and expenses:
Operating (exclusive of depreciation and
amortization shown below)................... (98,522) (1.3) 918,039 14.0
General and administrative..................... (128,565) (8.9) 122,021 9.3
Depreciation and amortization.................. 106,902 7.7 127,614 10.1
Merger costs................................... 1,694,497 1,502.9 (13,878) (11.0)
Asset impairments and unusual items............ (907,082) (51.2) 1,241,377 234.3
(Income) loss from continuing operations held for
sale, net of minority interest................. (9,779) (98.5) 10,245 3,252.4
---------- -----------
657,451 5.4 2,405,418 24.5
---------- -----------
Income (loss) from operations.................... 73,520 31.4 (1,431,522) (119.5)
---------- -----------
Other income (expense):
Interest expense............................... (125,881) (22.7) (30,236) (5.8)
Interest and other income, net................. (6,209) (3.6) 29,182 20.4
Minority interest.............................. 21,188 46.6 (4,153) (10.1)
---------- -----------
(110,902) (25.9) (5,207) (1.2)
---------- -----------
Income (loss) from continuing operations before
income taxes................................... (37,382) (5.6) (1,436,729) (185.6)
Provision for income taxes....................... (296,418) (81.6) (123,359) (25.3)
---------- -----------
Income (loss) from continuing operations......... 259,036 25.3 (1,313,370) (456.8)
Discontinued operations.......................... (95,688) (100.0) 358,989 136.3
Extraordinary item............................... 2,909 42.7 (6,809) (100.0)
Accounting change................................ 1,936 100.0 (1,936) (100.0)
---------- -----------
Net income (loss)................................ $ 168,193 17.9% $ (963,126) (3,974.8)%
========== ===========
SUPPLEMENTARY DATA:
EBITDA(1)........................................ $ 180,422 15.6% $(1,303,908) (53.0)%
EBITDA, as adjusted(1)(2)........................ 958,058 31.4 (66,164) (2.1)
</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, asset impairments and
unusual items, and (income) loss from continuing operations held for sale,
net of minority interest.
36
<PAGE> 39
The following table presents, for the periods indicated, the percentage
relationship that the various consolidated statements of operations line items
and certain supplementary data bear to operating revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.......................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 58.1 62.5 59.7
General and administrative................................ 10.3 12.0 12.0
Depreciation and amortization............................. 11.8 11.6 11.5
Merger costs.............................................. 14.2 0.9 1.2
Asset impairments and unusual items....................... 6.8 14.8 4.8
(Income) loss from continuing operations held for sale, net
of minority interest...................................... -- 0.1 --
----- ----- -----
101.2 101.9 89.2
----- ----- -----
Income (loss) from operations............................... (1.2) (1.9) 10.8
----- ----- -----
Other income (expense):
Interest expense.......................................... (5.4) (4.6) (4.8)
Interest and other income, net............................ 1.3 1.4 1.4
Minority interest......................................... (0.2) (0.4) (0.4)
----- ----- -----
(4.3) (3.6) (3.8)
----- ----- -----
Income (loss) from continuing operations before income
taxes..................................................... (5.5) (5.5) 7.0
Provision for income taxes.................................. 0.5 3.0 4.4
----- ----- -----
Income (loss) from continuing operations.................... (6.0) (8.5) 2.6
Discontinued operations..................................... -- 0.8 (2.4)
Extraordinary item.......................................... -- (0.1) --
Accounting change........................................... -- -- --
----- ----- -----
Net income (loss)........................................... (6.0)% (7.8)% 0.2%
===== ===== =====
SUPPLEMENTARY DATA:
EBITDA(1)................................................... 10.5% 9.7% 22.4%
EBITDA, as adjusted(1)(2)................................... 31.6 25.5 28.3
</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, asset impairments and
unusual items, and (income) loss from continuing operations held for sale,
net of minority interest.
37
<PAGE> 40
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1998
Operating Revenues
The Company's principal operations are North American solid waste ("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.
The Company's operating revenues increased $730,971,000, or 6.1% in 1998
and $973,896,000, or 8.9% in 1997 as compared to the respective prior years. The
following presents the operating revenues by reportable segment for the
respective years (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NASW.............................. $10,220.5 80.4% $ 9,244.9 77.2% $ 8,097.9 73.6%
WM International.................. 1,533.6 12.1 1,790.0 15.0 1,913.8 17.4
Non-solid waste................... 949.4 7.5 937.6 7.8 986.9 9.0
--------- ----- --------- ----- --------- -----
Operating revenues...... $12,703.5 100.0% $11,972.5 100.0% $10,998.6 100.0%
========= ===== ========= ===== ========= =====
</TABLE>
The increase in the Company's operating revenues for the three years ended
December 31, 1998, 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>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NASW:
Collection...................... $ 6,963.5 58.7% $ 6,071.2 58.3% $ 5,257.5 57.0%
Disposal........................ 3,179.4 26.8 2,811.9 27.0 2,580.2 28.0
Transfer........................ 1,054.3 8.9 814.5 7.8 709.1 7.7
Recycling and other............. 669.6 5.6 720.0 6.9 683.5 7.3
--------- ----- --------- ----- --------- -----
11,866.8 100% 10,417.6 100% 9,230.3 100%
===== ===== =====
Intercompany.................... (1,646.3) (1,172.7) (1,132.4)
--------- --------- ---------
Operating revenues...... $10,220.5 $ 9,244.9 $ 8,097.9
========= ========= =========
</TABLE>
The increase in operating revenues in 1998 for NASW as compared to 1997 is
primarily attributable to the effects of solid waste businesses acquired in
North America and the internal growth of comparable operations. However, these
increases are partially offset by the divestiture of certain solid waste
operations, as well as the impact of the currency translation fluctuations of
the Canadian dollar. Acquisitions of solid waste businesses in North America
during 1998 and the full year effect of such acquisitions completed during 1997
accounted for an increase in operating revenues of approximately $1,155,000,000.
Internal growth for comparable North American collection, transfer, landfill and
recycling services was 5.4%, which was comprised of 1.8% for pricing increases
and 3.6% for volume increases. For the year ended December 31, 1998, 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 1998, internal
growth for comparable NASW operations would have been 5.9% for the period.
The operating revenues for NASW increased in 1997 as compared to 1996
primarily due to the effects of North American solid waste acquisitions and the
internal growth of comparable operations. During 1997, the acquisition of solid
waste businesses in North America and the full year effect of such acquisitions
consummated in 1996 resulted in an increase to operating revenues of
approximately $1,031,049,000. The
38
<PAGE> 41
internal growth of comparable North American collection, transfer, landfill and
recycling services was 3.2% in 1997, consisting of 1.1% for pricing increases
and 2.1% for volume increases. The mix of operating revenues during 1997
reflects an increase in collection operating revenues as a percentage of total
NASW operating revenues. This change in revenue mix is primarily due to the
acquisition of large collection operations during 1997, including the March 1997
acquisition of the Canadian solid waste operations of Allied Waste Services,
Inc.
The operating revenues from WM International decreased approximately
$256,400,000 or 14% and $123,800,000 or 6% during 1998 and 1997 as compared to
the respective prior year. This decrease in 1998 is primarily due to the sale of
certain assets, such as the waste-to-energy facility in Hamm, Germany in January
1998, as well as the expiration of the Buenos Aires, Argentina contract in
February 1998. In 1998 internal growth from WM International reflected a modest
decline. However, operating revenues in 1998 were negatively affected by foreign
currency fluctuations of approximately $53,032,000 as compared to 1997. In 1997,
WM International's operating revenues increased by approximately $60,707,000
from internal growth, which was primarily offset by divestitures of various
operations within France, Spain, Austria and Germany. Additionally, WM
International's operating revenues were negatively impacted in 1997 by
approximately $133,816,000 due to foreign currency translation fluctuations.
Operating revenues for the Company's non-solid waste operations were
substantially consistent for the three years ended December 31, 1998. However,
the Company expects that operating revenues from its non-solid waste operations
will decrease in future periods as the Company is actively marketing certain of
these businesses.
Operating Costs and Expenses (Exclusive of Depreciation and Amortization Shown
Below)
Operating costs and expenses decreased $98,522,000, or 1.3%, in 1998 as
compared to 1997, however, increased $918,039,000, or 14.0% in 1997 as compared
to 1996. As a percentage of operating revenues, operating costs and expenses
increased from 59.7% in 1996 to 62.5% in 1997, however decreased to 58.1% in
1998. Although operating costs and expenses increased in 1998 and 1997
proportionately due to the acquisition activity discussed above, the Company
realized reductions in costs and improvements in operating efficiencies from its
acquisition program, the merger with United Waste Systems, Inc. ("United") in
August 1997, the WM Holdings Merger, as well as experienced continued
improvements in its comparable operations. Most notably, through the WM Holdings
Merger the Company realized a reduction in operating costs and expenses of
approximately $129,000,000 in 1998. Furthermore, the Company noted improvements
in NASW due to the increased utilization of internal disposal capacity from
55.7% in 1997 to 58.5% in 1998. Additionally, certain significant operating
costs and expenses were included in the results of WM Holdings in 1997 that were
not comparable to 1998 or 1996. In 1997, WM Holdings recognized increased
remediation expenses (net of recoveries) of $96,800,000, increased
self-insurance costs of $95,000,000 and several other one-time expenses. The
1997 remediation expense included a charge for the implementation SOP 96-1 of
$49,900,000. The 1997 self-insurance costs were significantly greater than prior
periods due to a change in estimating techniques which required a cumulative
adjustment in that year.
General and Administrative
General and administrative expense decreased $128,565,000, or 8.9% from
1997 to 1998 and increased $122,021,000, or 9.3% from 1996 to 1997. However, as
a percentage of operating revenues, the Company's general and administrative
expense was 10.3% for 1998 and 12.0% for 1997 and 1996. In 1998, the Company's
general and administrative expense included $4,300,000 for the WM Holdings
accounting review and $12,400,000 related to various strategic initiatives that
WM Holdings had been pursuing. In connection with the WM Holdings Merger, the
Company realized a reduction in general and administrative expenses in 1998 of
approximately $131,700,000, of which approximately $51,400,000 was reflected in
the third quarter of 1998 and $80,300,000 in the fourth quarter of 1998.
Negatively impacting the Company's general and administrative expense in 1997
was $39,000,000, or 0.3% of operating revenues, for additional legal expenses
recorded by WM Holdings reflecting changes in estimates of litigation-related
liabilities. After consideration of these items, the Company's general and
administrative expense declined as a percentage of operating
39
<PAGE> 42
revenues from 1996 to 1998 as a result of the Company's ability to integrate
acquisitions and mergers of solid waste businesses without a proportionate
increase in costs.
Depreciation and Amortization
Depreciation and amortization expense increased $106,902,000, or 7.7% in
1998 and $127,614,000, or 10.1% in 1997, as compared to the respective prior
year. As a percentage of operating revenues, depreciation and amortization
expense was 11.5% in 1996, 11.6% in 1997, and increased to 11.8% in 1998.
Effective October 1, 1997, WM Holdings discontinued assigning salvage values to
collection vehicles and containers, and adopted a process that shortened the
estimated useful lives of certain landfills. This change in estimate by the
management of WM Holdings, which continued throughout 1998 and is substantially
consistent with the estimates historically utilized by the Company, increased
depreciation and amortization expense by $46,400,000 in the fourth quarter of
1997. Also contributing to the increase in depreciation and amortization expense
for the three year period ended December 31, 1998 is the effect of acquisitions
of solid waste businesses, increased landfill volumes, and an increased
utilization of internal disposal capacity. The increase in depreciation and
amortization expense in 1998 was in part offset by the discontinuance of
depreciation and amortization during the second six months of 1998 for
non-revenue producing assets held for sale or abandoned in connection with the
WM Holdings Merger and the effect of dispositions of waste management assets.
Merger Costs
In 1998, the Company recorded $1,807,245,000 related to mergers accounted
for as poolings of interests that were consummated during the year. The largest
transactions of 1998 were the WM Holdings Merger and the Eastern Merger which
were consummated on July 16, 1998, and December 31, 1998, respectively. The
Company recorded $1,624,870,000 related to WM Holdings, of which $1,561,915,000
was recorded in the third quarter and $62,955,000 was recorded in the fourth
quarter of 1998, and recorded $165,140,000 in the fourth quarter related to
Eastern (which included approximately $5,000,000 recorded by Eastern for merger
transactions consummated prior to its merger with the Company). Additionally,
the Company recorded approximately $17,235,000 related to other poolings of
interests transactions consummated during 1998.
The following table summarizes the merger costs recorded during the year
related to the WM Holdings Merger and the Eastern Merger as well as charges that
are expected to be recorded in future periods related to these mergers that are
transitional in nature and not accruable until paid or committed (in millions):
<TABLE>
<CAPTION>
WM HOLDINGS EASTERN
------------------------------ ------------------------------
CHARGES IN CHARGES EXPECTED CHARGES IN CHARGES EXPECTED
1998 IN FUTURE PERIODS 1998 IN FUTURE PERIODS
---------- ----------------- ---------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Transaction or deal costs, primarily
professional fees and filing fees........... $ 124.1 $ -- $ 14.3 $ --
Employee severance, separation and
transitional costs.......................... 323.9 28.5 25.5 9.7
Restructuring charges relating to the
consolidation and relocation of operations,
and the transition and implementation of
information systems......................... 166.9 71.8 20.5 3.2
Estimated loss on the sale of:
Assets to comply with governmental orders... 255.0 -- 32.2 --
Duplicate facilities and related leasehold
improvements............................. 188.9 -- 29.3 --
Duplicate revenue producing assets.......... 26.2 -- 32.4 --
Provision for the abandonment of:
Revenue producing assets.................... 126.6 -- 3.0 --
Non-revenue producing assets, consisting of
landfill projects and leasehold
improvements which were determined to be
duplicative assets from the related
merger................................... 263.0 -- 6.5 --
Other assets, consisting primarily of
computer hardware and software costs
which have no future value............... 150.3 -- 1.5 --
-------- ------ ------ -----
Total............................... $1,624.9 $100.3 $165.2 $12.9
======== ====== ====== =====
</TABLE>
40
<PAGE> 43
In 1997, the Company recorded $112,748,000 related to business combinations
completed during the year that were accounted for as poolings of interests. The
largest merger transaction of 1997 was the pooling of interests with United in
the third quarter, in which the Company recorded merger costs of $89,152,000.
The costs related to United included $17,566,000 of transaction costs,
$26,198,000 of severance and other termination benefits, $21,629,000 for the
integration of operations, and $23,759,000 for the disposal of duplicate
facilities and impaired assets as a result of the merger. The Company also
recorded $23,596,000 in 1997 related to the acquisition of other businesses
accounted for as poolings of interests.
In 1996, the Company recorded $126,626,000 related to merger transactions
consummated during the period that were accounted for as poolings of interests.
Of that amount, $35,000,000 related to the merger with Western Waste Industries
("Western") consummated in the second quarter of 1996 and $80,000,000 in
connection with the merger with Sanifill completed in the third quarter of 1996.
The merger costs related to Western included $6,800,000 of transaction costs,
$15,000,000 of severance and other termination benefits, and $13,200,000 of
costs related to integrating operations. The Sanifill merger costs included
$9,500,000 of transaction costs, $20,000,000 of relocation, severance and other
termination benefits, $13,000,000 for the integration of operations, and
$37,500,000 for the disposal of duplicate facilities. Additionally, the Company
recorded $11,626,000 in 1996 related to other poolings of interests
acquisitions.
Asset Impairments and Unusual Items
In 1998, 1997, and 1996, the Company recorded certain charges for asset
impairments and unusual items resulting from reviews of business integration and
operating plans. Such reviews were generally performed in connection with the
Company's merger activities. In addition, the 1997 consolidated financial
statements include a significant accounting charge resulting from a
comprehensive review performed by the management of WM Holdings of its
operations and investments in the fourth quarter of 1997. Similarly, the 1996
consolidated financial statements include accounting charges recorded by WM
Holdings for certain operational and management restructuring activities and
assets that had become impaired.
Fair value for asset impairment losses was determined for landfills,
hazardous waste facilities, recycling investments and other facilities,
primarily based on future cash flow projections discounted back using discount
rates appropriate for the risks involved with the specific assets. For surplus
real estate, market opinions and appraisals were used. In determining fair
values for abandoned projects and vehicles to be sold, recoverable salvage
values were determined using market estimates. Impaired assets to be sold are
primarily businesses to be sold and surplus real estate. The Company provides
for losses in connection with long-term waste service contracts where an
obligation exists to perform services and when it becomes evident the projected
direct and incremental contract costs will exceed the related contract revenues.
In general, these losses relate to contracts with remaining average duration of
five years.
The following is a summary of asset impairments and unusual items that are
reflected in the Company's 1998 consolidated financial statements (in millions):
<TABLE>
<S> <C>
Provision for losses on contractual commitments............. $115.6
Changes in estimates relating to the reassessment of
ultimate losses for certain legal and remediation
issues.................................................... 331.9
Write-down to estimated net sales proceeds of businesses to
be sold................................................... 195.1
Curtailment and settlement costs of terminating the defined
benefit pension plan...................................... 34.7
Compensation charges for the liquidation of WM Holdings'
Supplemental Executive Retirement Plan and other
supplemental plans........................................ 72.2
Put provisions of certain WM Holdings' stock options as a
result of change in control provisions.................... 114.6
------
Total............................................. $864.1
======
</TABLE>
In conjunction with the WM Holdings Merger, the Company decided to
terminate the WM Holdings defined benefit pension plan as of December 31, 1998,
and liquidate the plan's assets and settle its obligations to participants in
1999, except as related to certain employees participating under collective
bargaining
41
<PAGE> 44
agreements, whose benefits were transferred to a newly created plan effective
October 1, 1998. This decision has resulted in a curtailment expense charge in
unusual items of $34,716,000 in 1998, and is currently estimated to result in an
approximate net cash settlement charge in unusual items in the third quarter of
1999 of $125,000,000. The amount of the 1999 settlement is inversely sensitive
to changing interest rates. This sensitivity is approximately $20,000,000 for
every 25 basis point fluctuation in interest rates.
In 1998, the Company increased its reserves for certain legal and
environmental remediation issues as a result of management's emphasis to resolve
and settle certain issues relating primarily to WM Holdings, including a class
action securities litigation against WM Holdings.
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. The charge to pre-tax earnings as a result of these put
rights was $114,600,000 in the third quarter of 1998. 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 through July 16, 1999,
at which time all put rights expire. The expense related to these stock option
put rights has no impact to equity as the offset is a direct increase to
additional paid-in capital, as these put rights will be settled by the issuance
of stock.
The following is a summary of asset impairments and unusual items that are
reflected in the Company's 1997 consolidated financial statements (in millions):
<TABLE>
<S> <C>
Asset impairments:
Landfills, related primarily to management decisions to
abandon expansions and development projects due to
political or competitive factors, which will result in
closure earlier than previously expected (includes
$233.8 for hazardous waste sites)...................... $ 592.9
Hazardous waste facilities, resulting from continuing
market deterioration, increased competition, excess
capacity and changing regulation....................... 131.4
Goodwill, primarily related to landfills and hazardous
waste facilities impaired (including $411.0 related to
hazardous waste business).............................. 433.4
Write-down of WTI long-lived assets, including $47.1
related to a wood waste burning independent power
production facility.................................... 57.2
Recycling investments, related primarily to continued
pricing, overcapacity and competitive factors.......... 21.5
Write-down to estimated net realizable value of trucks to
be sold as a result of new fleet management policy..... 70.9
Write-down to estimated net sales proceeds of businesses
to be sold............................................. 122.2
Abandoned equipment and facilities........................ 37.3
Surplus real estate....................................... 38.2
Provisions for losses on contractual commitments............ 120.2
Severance for terminated employees.......................... 41.6
Special charge for WM International, primarily costs of
demobilization in Argentina following the expiration of
the City of Buenos Aires contract, divestiture or closure
of underperforming businesses (primarily in Italy and
Germany) and abandonment of projects (primarily in
Germany).................................................. 104.3
--------
Total............................................. $1,771.1
========
</TABLE>
42
<PAGE> 45
As a result of WM Holdings' adoption of a new fleet replacement policy in
1997, certain older collection vehicles of WM Holdings became impaired totaling
$70,900,000. This policy change accelerated the replacement of front-end
loaders, rear-end loaders, and roll-off trucks, as well as shortened the
estimated useful lives of such vehicles. The policy change of WM Holdings in
1997 is substantially consistent with that of the Company's that has
historically been in place.
The following is a summary of asset impairments and unusual items that are
reflected in the Company's 1996 consolidated financial statements (in millions):
<TABLE>
<S> <C>
Asset impairments:
Landfills, related primarily to management decisions to
abandon expansion projects due to political or
competitive factors, which will result in closure
earlier than previously expected....................... $ 20.4
Recycling investments, related primarily to pricing,
overcapacity and competitive factors................... 47.8
Other, primarily equipment to be scrapped................. 2.0
Surplus real estate....................................... 1.5
Write-down to estimated net sales proceeds of businesses to
be sold................................................... 28.9
Reserves for certain litigation and for reengineering of
finance and administrative functions...................... 154.1
Provisions for losses on contractual commitments............ 53.6
Western retirement benefits................................. 4.8
Special charge for WM International:
Loss on sale of investment in Wessex Water Plc............ 47.1
Revaluation of investments in France, Austria, and Spain
in contemplation of exiting all or part of these
markets or forming joint ventures and write-off of a
hazardous waste disposal facility in Germany with
volumes adversely affected by regulatory changes....... 169.6
------
Total............................................. $529.8
======
</TABLE>
(Income) Loss from Continuing Operations Held for Sale, Net of Minority
Interest
The Company had operations that were previously classified as
"discontinued" for accounting and financial reporting purposes that were
subsequently reclassified to continuing operations as the respective
dispositions were not completed within one year. The Company has divested of
substantially all of such operations as of September 30, 1998.
Income (Loss) from Operations
Income (loss) from operations was $(160,389,000), $(233,909,000), and
$1,197,613,000 for the years ended December 31, 1998, 1997, and 1996,
respectively, for the reasons discussed above. However, if income (loss) from
operations was adjusted to exclude merger costs, asset impairments and unusual
items, and (income) loss from continuing operations held for sale, then income
from operations would approximate 20%, 14% and 17% of operating revenues for
1998, 1997 and 1996, respectively.
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 for each year from 1996 to 1998 due to increases
in the Company's outstanding indebtedness for each period. Capitalized interest
was $56,873,000, $51,376,000, and $41,501,000 for 1996, 1997 and 1998,
respectively. The decline in the amount of interest capitalized by the Company
over these periods is primarily due to the decline in construction activities.
43
<PAGE> 46
Other income in 1997 includes a gain of $129,000,000 related to the sale of
the Company's investment in ServiceMaster Consumer Services L.P., which occurred
during the first quarter of 1997. Other income in 1998 includes the sale of
certain of the Company's investments and businesses. In January 1998 the Company
recognized a gain of $38,000,000 from the sale of a waste-to-energy facility in
Hamm, Germany.
During 1998, the Company acquired the outstanding minority interest in WTI,
WMI plc as well as the operations in the United Kingdom, which were 49% owned by
Wessex Water Plc. As a result, the minority interest expense will be less
significant to the Company in future periods.
In 1996, minority interest was impacted by approximately $63,800,000 for
the special charges related to WM International discussed above. In 1997,
minority interest was impacted by approximately $27,900,000 related to the WM
International charge and $15,900,000 from the WTI asset impairment loss. The
1998 charges recorded by WM International for asset impairments and unusual
items reduced minority interest expense by approximately $36,800,000.
Provision for Income Taxes
The Company recorded a provision for income taxes of $66,923,000,
$363,341,000, and $486,700,000, for the years ended December 31, 1998, 1997, and
1996, respectively. The primary difference in federal income taxes at the
statutory rate and the provision for income taxes in these years is due to state
and local income taxes, non-deductible merger costs, non-deductible costs
related to acquired intangibles, and minority interest.
Discontinued Operations
The Company recorded $95,688,000 in 1997 and $(263,301,000) in 1996 for the
net results of discontinued operations. See Note 18 of the consolidated
financial statements included herein for additional discussion of discontinued
operations.
Extraordinary Items
During 1998 and 1997, the Company retired certain debt with unfavorable
terms prior to their scheduled maturities. As a result, the Company incurred
prepayment penalties and other fees, as well as charged to expense the remaining
unamortized discounts and debt issuance costs. As such, the Company recorded
these activities as extraordinary items in the respective periods.
Cumulative Effect of Change in Accounting Principle
In the fourth quarter of 1997, the Company began expensing process
reengineering costs in accordance with the Financial Accounting Standards Board
Emerging Issues Task Force Issue No. 97-13. Accordingly, the Company expensed
any amounts previously capitalized, which reduced net income by $1,936,000 in
1997.
Net Income (Loss)
For reasons discussed above, net income (loss) was $(770,702,000) in 1998,
$(938,895,000) in 1997, and $24,231,000 in 1996.
44
<PAGE> 47
Variation in Quarterly Results
Certain charges (and the tax and minority interest effects of such charges)
have significantly affected the quarterly trend analysis of the Company's
operating results for 1998 and 1997. A comparison of the "as reported" and "as
adjusted" quarterly net income (loss) per share for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
AS REPORTED AS ADJUSTED(1)
---------------- ---------------
BASIC DILUTED BASIC DILUTED
------ ------- ----- -------
<S> <C> <C> <C> <C>
1998
First Quarter.................................... $ 0.32 $ 0.31 $0.35 $0.34
Second Quarter................................... 0.42 0.41 0.42 0.41
Third Quarter.................................... (2.11) (2.11) 0.51 0.48
Fourth Quarter................................... 0.11 0.10 0.60 0.58
1997
First Quarter.................................... $ 0.31 $ 0.30 $0.34 $0.33
Second Quarter................................... 0.26 0.25 0.34 0.33
Third Quarter.................................... 0.09 0.09 0.29 0.28
Fourth Quarter................................... (2.34) (2.34) 0.16 0.16
</TABLE>
- ---------------
(1) The "as adjusted" results exclude the pre-tax charges and related tax and
minority interest impacts of merger costs for pooling of interests business
combinations, as well as related charges for asset impairments and unusual
items, and the statement of operations line item income (loss) from
continuing operations held for sale, net of minority interest. Additionally,
the "as adjusted" results exclude discontinued operations, extraordinary
items, and the cumulative effect of change in accounting principle.
Basic and diluted earnings per common share for each of the quarters
presented above is based on the respective weighted average number of common and
diluted potential common shares outstanding for each period and the sum of the
quarters may not necessarily be equal to the full year basic and diluted
earnings per common share amounts.
The Company's business strategy is to continue to grow through
acquisitions. Consequently, future quarterly results could be impacted by
additional merger costs and related expenses associated with such merger and
acquisition activity.
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
$1,360,000,000 at December 31, 1998, and $1,050,000,000 as of March 24, 1999.
As of December 31, 1998, the Company had a working capital deficit of
$412,269,000 (a ratio of current assets to current liabilities of 0.90:1) and a
cash balance of $86,873,000 which compares to a working capital deficit of
$1,967,278,000 (a current ratio of 0.59:1) and a cash balance of $189,942,000 as
of December 31, 1997. The working capital at December 31, 1998, was impacted by
current assets held for sale of $746,605,000 and an increase in current deferred
income tax assets of $181,655,000 as compared to the prior year balance. As of
December 31, 1998, approximately $220,000,000 remained in current liabilities
related to the merger cost recorded in the third and fourth quarters of 1998.
For the year ended December 31, 1998, net cash provided by operating
activities was $1,502,035,000, as compared to $2,065,906,000 in 1997 and
$1,930,956,000 in 1996 and net cash provided by (used in) financing
45
<PAGE> 48
activities was $2,955,796,000 in 1998, as compared to $(444,950,000) in 1997 and
$(192,159,000) in 1996. In 1998, cash generated from operating and financing
activities was primarily used to acquire businesses and outstanding minority
interest positions for $3,619,365,000 and for capital expenditures of
$1,651,489,000. In 1997, capital expenditures of $1,332,207,000 and acquisitions
of businesses and outstanding minority interests of $1,789,580,000 were
primarily financed through net cash from operations of $2,065,906,000 as well as
proceeds from asset sales of $1,496,562,000. Additionally, in 1997 the Company
acquired $1,000,208,000 of its stock and paid cash dividends to its shareholders
of $309,577,000. In 1996, cash from operating activities of $1,930,956,000 and
the sale of assets of $830,773,000 was primarily used for capital expenditures
of $1,519,272,000 and business and minority interest acquisitions of
$851,642,000, treasury stock purchases of $473,560,000 and cash dividends to its
shareholders of $308,265,000.
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 incurrances
or issuances of additional equity securities.
ACQUISITION ACTIVITY IN 1998
On July 16, 1998, the Company completed a merger with WM Holdings. Under
the terms of the WM Holdings Merger, the Company issued 0.725 of a share of its
common stock for each outstanding share of WM Holdings common stock. The WM
Holdings Merger increased the Company's outstanding shares of common stock by
approximately 354,000,000 shares, and the Company assumed WM Holdings' stock
options equivalent to approximately 16,000,000 underlying shares of the
Company's common stock. Any unvested WM Holdings options issued prior to March
10, 1998 vested upon consummation of the WM Holdings Merger due to change of
control provisions in the related plans. WM Holdings was previously the largest
publicly traded solid waste company in the U.S., 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. WM Holdings was also a
leading developer of facilities for, and provider of services to, the
waste-to-energy and waste-fuel powered independent power markets.
On December 31, 1998, the Company consummated the Eastern Merger pursuant
to which the Company issued approximately 24,460,000 shares of its common stock
in exchange for all of the outstanding shares of Eastern.
On November 30, 1998, the Company acquired the 49% interest of the United
Kingdom operations that were previously owned by Wessex Water Plc for
approximately $342,000,000.
On November 3, 1998, the Company completed the acquisition of the publicly
owned shares of WMI plc. Pursuant to the acquisition, holders of the
approximately 75 million ordinary shares not already owned by the Company
(including those represented by American Depositary Receipts) received
approximately $5.72 for each share held, for a total of approximately
$443,000,000. The Company liquidated WMI plc after the acquisition in an effort
to simplify the corporate structure and provide enhanced tax planning
opportunities. The Company's international operations are now conducted through
WM International.
On June 18, 1998, the Company acquired the solid waste businesses of
American Waste for approximately $150,000,000 in cash. The businesses acquired
include three landfills and one collection operation located in Ohio.
On May 6, 1998, the Company consummated a merger with TransAmerican
pursuant to which the Company issued approximately 1,975,000 shares of its
common stock in exchange for all outstanding shares of TransAmerican. The
businesses acquired include five collection operations, nine landfills and two
transfer stations located throughout the southern U.S.
46
<PAGE> 49
On March 31, 1998, the Company acquired all of the outstanding shares of
WTI which it did not already own for $876,200,000 in cash.
On January 14, 1998, the Company acquired the solid waste divisions of City
Management for approximately $810,000,000 consisting of cash and debt assumed.
The businesses acquired are primarily located in the state of Michigan and
include several collection operations, landfills, and transfer stations.
In addition to the aforementioned acquisition transactions, the Company
paid an aggregate of $1,453,880,000 in cash, common stock, and liabilities
assumed to acquire solid waste assets and businesses.
ENVIRONMENTAL MATTERS
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 post-closure of landfills it operates or for which it is
otherwise responsible. 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. The
Company has also established procedures to evaluate its potential remedial
liabilities at closed sites which it owns or operated, or to which it
transported waste, including 88 sites listed on the NPL. The majority of
situations involving NPL sites relate to allegations that subsidiaries of the
Company (or their predecessors) transported waste to the facilities in question,
often prior to the acquisition of such subsidiaries by the Company. In instances
in which the Company has concluded that it is probable that a liability has been
incurred, provision has been made in the 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, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
any such adjustment would be material to its financial statements, it is
reasonably possible that technological, regulatory or enforcement developments,
the results of environmental studies, the existence and ability of other
potentially responsible third parties to contribute to the settlements of such
liabilities, or other factors could necessitate the recording of additional
liabilities which could be material.
While the precise amount of these future costs cannot be determined with
certainty, the Company has estimated that the aggregate cost of environmental
liabilities for all sites owned or operated as of December 31, 1998, will be
approximately $2,929,065,000. As of December 31, 1998 and 1997, the Company had
recorded liabilities of $1,122,099,000 and $1,167,660,000, respectively, for
final closure and post-closure costs of disposal facilities. The difference
between the final closure and post-closure costs accrued at December 31, 1998,
and the total estimated final closure and post-closure costs to be incurred will
be accrued and charged to expense as airspace is consumed such that the total
estimated final closure and post-closure costs to be incurred will be fully
accrued for each landfill at the time the site discontinues accepting waste and
is closed. As of December 31, 1998, the Company also expects to incur
approximately $2,439,000,000 related to future construction activities during
the remaining operating lives of the disposal sites, which are also being
expensed over the useful lives of the disposal sites as airspace is consumed.
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 industrial and
residential waste in certain regions where the Company operates tends to
decrease during the winter months.
47
<PAGE> 50
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 amount charged to expense
during 1998 and 1997, as well as the amounts expected to be charged to expense
in 1999, related to the Year 2000 computer compliance modifications, have not
been material and 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 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 PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("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 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 2000. Management is currently assessing the impact
that the adoption of SFAS No. 133 will have on the Company's consolidated
financial statements.
In April 1998, the Company adopted the American Institute of Certified
Public Accountants Statement of Position 98-5, Accounting for the Costs of
Start-Up Activities ("SOP 98-5"). SOP 98-5 requires all costs of start-up
activities to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Activities related to mergers or
acquisitions are not considered start-up activities, and therefore SOP 98-5 does
not change the accounting for such items. The Company adopted SOP 98-5 in the
third quarter of 1998. The impact of SOP 98-5 was not material to the Company's
consolidated financial position, results of operations and cash flows.
48
<PAGE> 51
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accountants Statements of Position 96-1, Environmental
Remediation Liabilities ("SOP 96-1"). SOP 96-1 provides that environmental
remediation liabilities should be accrued when the criteria of the FASB
Statement of Financial Accounting Standards No. 5, Accounting for Contingencies,
are met. SOP 96-1 also provides that the accrual for such liabilities should
include future costs for those employees expected to devote a significant amount
of time directly to the management of remediation liabilities. The adoption of
SOP 96-1 during 1997 resulted in an increase to operating costs and expenses of
approximately $49,900,000 for that period.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
In the normal course of business, the Company is exposed to market risk,
including changes in interest rates, currency exchange rates, certain commodity
prices and certain equity prices. From time to time, the Company and certain of
its subsidiaries use derivatives to manage some portion of these risks. The
derivatives used are simple agreements which provide for payments based on the
notional amount, with no multipliers or leverage. All derivatives are related to
actual or anticipated exposures of transactions of the Company. While the
Company is exposed to credit risk in the event of non-performance by
counterparties to derivatives, in all cases such counterparties are highly rated
financial institutions and the Company does not anticipate non-performance. The
Company does not hold or issue derivative financial instruments for trading
purposes. The Company monitors its derivative positions by regularly evaluating
the positions at market and by performing sensitivity analyses.
The Company has performed sensitivity analyses to determine how market rate
changes will affect the fair value of the Company's market risk sensitive
derivatives and related positions. Such an analysis is inherently limited in
that it represents a singular, hypothetical set of assumptions. Actual market
movements may vary significantly from the Company's assumptions. The effects of
such market movements may also directly or indirectly affect the Company's
assumptions. The effects of such market movements may also directly or
indirectly affect Company rights and obligations not covered by sensitivity
analysis. Fair value sensitivity is not necessarily indicative of the ultimate
cash flow or earnings effect on the Company from the assumed market rate
movements.
Interest Rate Exposure. The Company's exposure to market risk for changes
in interest rates relates primarily to the Company's debt obligations, which are
mainly denominated in U.S. dollars. In addition, interest rate swaps are
generally used to lock-in or limit the variability in the interest expense of
certain floating rate debt obligations. An instantaneous, one percentage point
decline in interest rates across all maturities and applicable yield curves
would increase the fair value of the Company's combined debt and interest rate
swap position at December 31, 1998 and 1997 by approximately $591,000,000 and
$391,000,000, respectively. This analysis does not reflect the effect that
declining interest rates would have on other items such as pension liabilities,
nor the favorable impact they would have on interest expense and cash payments
for interest. As a significant portion of the Company's debt is at fixed rates,
changes in market interest rates would not significantly impact operating
results until and unless such debt would need to be refinanced at maturity.
Currency Rate Exposure. From time to time, the Company and certain of its
subsidiaries have used foreign currency derivatives to seek to mitigate the
impact of translation on foreign earnings and income from foreign investees.
Typically these derivatives have taken the form of purchased put options or
collars. There were no currency derivatives outstanding at December 31, 1998 and
1997, that relate to hedging the translation of foreign earnings.
The Company occasionally incurs currency risk from cross border
transactions. When such transactions are anticipated or committed to, the
Company may enter into forward contracts or purchase options to reduce or
eliminate the related foreign exchange risk. The Company also incurs exchange
rate risk from borrowings denominated in foreign currencies. An instantaneous,
ten percent adverse movement in foreign exchange rates would affect the fair
value of the Company's foreign currency borrowings and foreign exchange hedges
at December 31, 1998 and 1997, by approximately $13,100,000 and $30,000,000,
respectively. The total effect on the Company from movements in exchange rates
will also be influenced by other factors. For example, an
49
<PAGE> 52
increase in the fair value of foreign currency denominated debt caused by
exchange rate movements may be more than offset by an increase in the value of
the Company's net investment in foreign countries.
Commodities Price Exposure. The Company operates a large fleet of vehicles
that require the purchase of a significant amount of fuel. In the past, the
Company has used crude oil collars and swaps as a proxy to seek to mitigate the
risk of fluctuations in fuel prices. The Company's fuel collars consisted of a
call option or "cap" and a corresponding put option at a lower price or "floor."
The cap limits the Company's potential increased operating cost from higher fuel
prices whereas the floor limits the Company's potential cost savings from a
decline in fuel prices. Under its fuel swap agreements, the Company collected
payments from the swap counterparty when fuel prices averaged above a certain
reference price. When prices averaged below said reference prices, the Company
made payments to the counterparty. All of the Company's fuel hedges were cash
settled. Quantities hedged do not exceed committed fuel purchases or anticipated
usage in any period. An instantaneous, ten percent decrease in the applicable
reference price for hedges in place at December 31, 1997, would cause a fair
value loss to the Company of approximately $6,000,000. The Company no longer
uses such commodities and held no fuel collars at December 31, 1998.
Equity Price Exposure. The Company occasionally obtains stock that it holds
for a certain period of time. The Company sometimes seeks to mitigate its market
exposure to such holdings by entering into equity collars. Such a collar
consists of a "cap" that limits the Company's potential for gain from
appreciation in the stock price as well as a "floor" that limits the Company's
loss potential from a decline in the stock price. An instantaneous, ten percent
decline in the price of the shares held by the Company at December 31, 1997,
would decrease the combined fair value of the stock and collar positions by
approximately $2,000,000. The Company had no such equity positions at December
31, 1998.
The Company is also further subject to equity price exposure from Company
debt issues that are convertible into the Company's common stock. These debt
issues had an aggregate carrying value of $1,251,770,000 and $1,249,957,000 as
of December 1998 and 1997, respectively. An instantaneous, ten percent increase
in the Company's stock price on December 31, 1998 and 1997, would increase the
fair value of the Company's convertible debt by approximately $121,000,000 and
$94,000,000, respectively. However, such changes in stock prices would not
impact net income.
See Notes 2 and 8 to the consolidated financial statements included
elsewhere herein for further discussion of the use and accounting for derivative
instruments.
50
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................. 52
Report of Independent Accountants........................ 53
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 54
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996...................... 55
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997, and 1996.......... 56
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996...................... 59
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997, and 1996.......... 60
Notes to Consolidated Financial Statements............... 61
</TABLE>
51
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Waste Management, Inc.:
We have audited the consolidated balance sheets of Waste Management, Inc.
and Subsidiaries (the "Company"), a Delaware corporation, as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, cash flows and comprehensive income for each of the years
in the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
The consolidated financial statements give retroactive effect to the merger
of the companies known prior to July 16, 1998 as USA Waste Services, Inc. and
Waste Management Holdings, Inc., that formed the Company on July 16, 1998, and
the Company's merger with Eastern Environmental Services, Inc. on December 31,
1998. As described in Note 3 to the consolidated financial statements, both
mergers have been accounted for as poolings of interests.
We did not audit the consolidated financial statements of the former USA
Waste Services, Inc. and Subsidiaries as of December 31, 1997 and for each of
the years in the two-year period then ended. Such financial statements, which
are included in the consolidated financial statements of the Company, reflect
total assets and revenues constituting thirty-three percent and twenty-two
percent, respectively, in 1997, and reflect revenues constituting fifteen
percent in 1996, of the related consolidated totals. These financial statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for the former USA Waste
Services, Inc. and Subsidiaries as of December 31, 1997 and for each of the
years in the two-year period then ended is based solely upon the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Waste Management, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for environmental
remediation liabilities.
Arthur Andersen LLP
Houston, Texas
February 25, 1999
52
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of USA Waste Services, Inc.:
We have audited the consolidated balance sheet of USA Waste Services, Inc.
as of December 31, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of USA Waste
Services, Inc. as of December 31, 1997, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
March 16, 1998
53
<PAGE> 56
WASTE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 86,873 $ 189,942
Short-term investments.................................... 1,792 59,296
Accounts receivable, net of allowance for doubtful
accounts of $116,430 and $90,164, respectively.......... 2,245,977 1,976,478
Notes and other receivables............................... 139,934 90,144
Parts and supplies........................................ 128,254 152,702
Deferred income taxes..................................... 237,616 55,961
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 127,975 158,610
Prepaid expenses and other................................ 166,371 153,543
Current assets held for sale.............................. 746,605 --
----------- -----------
Total current assets............................... 3,881,397 2,836,676
Notes and other receivables, net............................ 120,997 128,538
Property and equipment, net................................. 11,637,739 11,188,530
Excess of cost over net assets of acquired businesses,
net....................................................... 6,069,098 4,721,801
Other intangible assets, net................................ 181,226 126,375
Net assets of continuing operations held for sale........... -- 154,384
Other assets................................................ 824,741 1,000,120
----------- -----------
Total assets....................................... $22,715,198 $20,156,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,040,601 $ 1,007,458
Accrued liabilities....................................... 2,287,543 1,897,948
Deferred revenues......................................... 381,780 300,536
Current maturities of long-term debt...................... 583,742 1,598,012
----------- -----------
Total current liabilities.......................... 4,293,666 4,803,954
Long-term debt, less current maturities..................... 11,114,201 7,881,949
Deferred income taxes....................................... 470,107 523,593
Environmental liabilities................................... 971,507 1,038,049
Other liabilities........................................... 1,381,145 943,269
----------- -----------
Total liabilities.................................. 18,230,626 15,190,814
----------- -----------
Minority interest in subsidiaries........................... 112,076 1,110,681
----------- -----------
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; 608,307,531 and 598,677,893 shares issued,
respectively............................................ 6,083 5,987
Additional paid-in capital................................ 4,091,525 3,873,990
Retained earnings......................................... 1,066,506 1,938,027
Accumulated other comprehensive income.................... (420,804) (283,193)
Restricted stock unearned compensation.................... -- (11,102)
Treasury stock at cost, 63,950 and 34,239,062 shares,
respectively............................................ (2,821) (1,369,405)
Employee stock benefit trust at market, 7,892,612
shares.................................................. (367,993) (299,375)
----------- -----------
Total stockholders' equity......................... 4,372,496 3,854,929
----------- -----------
Total liabilities and stockholders' equity......... $22,715,198 $20,156,424
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues.......................................... $12,703,469 $11,972,498 $10,998,602
----------- ----------- -----------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)............................................ 7,383,751 7,482,273 6,564,234
General and administrative................................ 1,309,936 1,438,501 1,316,480
Depreciation and amortization............................. 1,498,712 1,391,810 1,264,196
Merger costs.............................................. 1,807,245 112,748 126,626
Asset impairments and unusual items....................... 864,063 1,771,145 529,768
(Income) loss from continuing operations held for sale, net
of minority interest...................................... 151 9,930 (315)
----------- ----------- -----------
12,863,858 12,206,407 9,800,989
----------- ----------- -----------
Income (loss) from operations............................... (160,389) (233,909) 1,197,613
----------- ----------- -----------
Other income (expense):
Interest expense.......................................... (681,457) (555,576) (525,340)
Interest income........................................... 26,829 45,214 34,603
Minority interest......................................... (24,254) (45,442) (41,289)
Other income, net......................................... 139,392 127,216 108,645
----------- ----------- -----------
(539,490) (428,588) (423,381)
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes..................................................... (699,879) (662,497) 774,232
Provision for income taxes.................................. 66,923 363,341 486,700
----------- ----------- -----------
Income (loss) from continuing operations.................... (766,802) (1,025,838) 287,532
Discontinued operations:
Income from operations of discontinued businesses, net of
applicable income tax and minority interest of $17,490
in 1996................................................. -- -- 22,620
Income (loss) on disposal or from reserve adjustment, net
of applicable income tax and minority interest of
$100,842 in 1997 and $(18,640) in 1996.................. -- 95,688 (285,921)
----------- ----------- -----------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle.................. (766,802) (930,150) 24,231
Extraordinary loss on refinancing or retirement of debt, net
of applicable income tax and minority interest of $2,600
in 1998 and $4,962 in 1997................................ (3,900) (6,809) --
Cumulative effect of change in accounting principle, net of
income tax of $1,100 in 1997.............................. -- (1,936) --
----------- ----------- -----------
Net income (loss)........................................... $ (770,702) $ (938,895) $ 24,231
=========== =========== ===========
Basic earnings (loss) per common share:
Continuing operations..................................... $ (1.31) $ (1.84) $ 0.54
Discontinued operations................................... -- 0.17 (0.49)
Extraordinary item........................................ (0.01) (0.01) --
Cumulative effect of change in accounting principle....... -- -- --
----------- ----------- -----------
Net income (loss)......................................... $ (1.32) $ (1.68) $ 0.05
=========== =========== ===========
Diluted earnings (loss) per common share:
Continuing operations..................................... $ (1.31) $ (1.84) $ 0.53
Discontinued operations................................... -- 0.17 (0.49)
Extraordinary item........................................ (0.01) (0.01) --
Cumulative effect of change in accounting principle....... -- -- --
----------- ----------- -----------
Net income (loss)......................................... $ (1.32) $ (1.68) $ 0.04
=========== =========== ===========
Weighted average number of common shares outstanding........ 584,301 557,675 537,269
=========== =========== ===========
Weighted average number of common and dilutive potential
common shares outstanding................................. 584,301 557,675 546,916
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED RESTRICTED
ADDITIONAL OTHER STOCK 1988 EMPLOYEE
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED STOCK
STOCK STOCK CAPITAL EARNINGS INCOME COMPENSATION OWNERSHIP PLAN
--------- ------ ---------- ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........ $-- $5,127 $2,180,411 $3,493,086 $(129,412) $ -- $(13,062)
Net income.................... -- -- -- 24,231 -- -- --
Cash dividends................ -- -- -- (308,265) -- -- --
Dividends paid to employee
stock benefit trust......... -- -- 6,943 (6,943) -- -- --
Common stock issued upon
exercise of stock options
and grants of restricted
stock (including tax
benefit).................... -- 57 64,766 -- -- -- --
Unearned compensation related
to issuance of restricted
stock to employees.......... -- -- -- -- -- (2,640) --
Earned compensation related to
restricted stock, net of
reversals on forfeited
shares...................... -- -- -- -- -- 99 --
Contribution to 1988 ESOP
(222,605 shares)............ -- -- -- -- -- -- 6,666
Common stock issued for
acquisitions................ -- 155 357,714 (9,944) -- -- --
Common stock issued for
conversion of subordinated
debentures.................. -- 35 59,590 -- -- -- --
United two-for-one stock
split....................... -- 196 (196) -- -- -- --
Temporary equity related to
put options................. -- -- 166,170 -- -- -- --
Proceeds from sale of put
options..................... -- -- 18,845 -- -- -- --
Adjustment of employee stock
benefit trust to market
value....................... -- -- 32,278 -- -- -- --
Adjustment for minimum pension
liability................... -- -- -- -- (7,193) -- --
Cumulative translation
adjustment of foreign
currency statements......... -- -- -- -- 22,664 -- --
Common stock repurchased
(10,432,750 shares)......... -- -- -- -- -- -- --
Other......................... -- 13 14,457 -- -- -- --
--- ------ ---------- ---------- --------- ------- --------
Balance, December 31, 1996...... $-- $5,583 $2,900,978 $3,192,165 $(113,941) $(2,541) $ (6,396)
=== ====== ========== ========== ========= ======= ========
<CAPTION>
EMPLOYEE
TREASURY STOCK
STOCK BENEFIT TRUST
--------- -------------
<S> <C> <C>
Balance, January 1, 1996........ $ (1,895) $(350,151)
Net income.................... -- --
Cash dividends................ -- --
Dividends paid to employee
stock benefit trust......... -- --
Common stock issued upon
exercise of stock options
and grants of restricted
stock (including tax
benefit).................... 55,409 28,622
Unearned compensation related
to issuance of restricted
stock to employees.......... -- --
Earned compensation related to
restricted stock, net of
reversals on forfeited
shares...................... -- --
Contribution to 1988 ESOP
(222,605 shares)............ -- --
Common stock issued for
acquisitions................ 8,177 --
Common stock issued for
conversion of subordinated
debentures.................. -- --
United two-for-one stock
split....................... -- --
Temporary equity related to
put options................. -- --
Proceeds from sale of put
options..................... -- --
Adjustment of employee stock
benefit trust to market
value....................... -- (32,278)
Adjustment for minimum pension
liability................... -- --
Cumulative translation
adjustment of foreign
currency statements......... -- --
Common stock repurchased
(10,432,750 shares)......... (473,560) --
Other......................... (8,562) --
--------- ---------
Balance, December 31, 1996...... $(420,431) $(353,807)
========= =========
</TABLE>
(Continued)
56
<PAGE> 59
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED RESTRICTED
ADDITIONAL OTHER STOCK 1988 EMPLOYEE
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED STOCK
STOCK STOCK CAPITAL EARNINGS INCOME COMPENSATION OWNERSHIP PLAN
--------- ------ ---------- ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997...... $-- $5,583 $2,900,978 $3,192,165 $(113,941) $ (2,541) $(6,396)
Net loss.................... -- -- -- (938,895) -- -- --
Cash dividends.............. -- -- -- (309,577) -- -- --
Dividends paid to employee
stock benefit trust....... -- -- 7,294 (7,294) -- -- --
Common stock issued upon
exercise of stock options
and grants of restricted
stock (including tax
benefit).................. -- 38 71,732 -- -- -- --
Unearned compensation
related to issuance of
restricted stock to
employees................. -- -- -- -- -- (23,444) --
Earned compensation related
to restricted stock, net
of reversals on forfeited
shares.................... -- -- -- -- -- 2,357 --
Reversals of unearned
compensation upon
cancellation of restricted
stock..................... -- -- -- -- -- 12,526 --
Contribution to 1988 ESOP
(213,940 shares).......... -- -- -- -- -- -- 6,396
Common stock issued for
acquisitions.............. -- 146 218,637 1,628 -- -- --
Common stock issued in
public offerings.......... -- 186 580,234 -- -- -- --
Common stock issued for
United stock options...... -- 19 25,809 -- -- -- --
Temporary equity related to
put options............... -- -- 95,789 -- -- -- --
Settlement of put options... -- -- (1,605) -- -- -- --
Adjustment of employee stock
benefit trust to market
value..................... -- -- (54,432) -- -- -- --
Adjustment for minimum
pension liability......... -- -- -- -- 11,492 -- --
Cumulative translation
adjustment of foreign
currency statements....... -- -- -- -- (180,744) -- --
Common stock repurchased
(26,111,795 shares)....... -- -- -- -- -- -- --
Other....................... -- 15 29,554 -- -- -- --
--- ------ ---------- ---------- --------- -------- -------
Balance, December 31, 1997.... $-- $5,987 $3,873,990 $1,938,027 $(283,193) $(11,102) $ --
=== ====== ========== ========== ========= ======== =======
<CAPTION>
EMPLOYEE
TREASURY STOCK
STOCK BENEFIT TRUST
----------- -------------
<S> <C> <C>
Balance, January 1, 1997...... $ (420,431) $(353,807)
Net loss.................... -- --
Cash dividends.............. -- --
Dividends paid to employee
stock benefit trust....... -- --
Common stock issued upon
exercise of stock options
and grants of restricted
stock (including tax
benefit).................. 47,271 --
Unearned compensation
related to issuance of
restricted stock to
employees................. -- --
Earned compensation related
to restricted stock, net
of reversals on forfeited
shares.................... -- --
Reversals of unearned
compensation upon
cancellation of restricted
stock..................... -- --
Contribution to 1988 ESOP
(213,940 shares).......... -- --
Common stock issued for
acquisitions.............. 3,753 --
Common stock issued in
public offerings.......... -- --
Common stock issued for
United stock options...... -- --
Temporary equity related to
put options............... -- --
Settlement of put options... -- --
Adjustment of employee stock
benefit trust to market
value..................... -- 54,432
Adjustment for minimum
pension liability......... -- --
Cumulative translation
adjustment of foreign
currency statements....... -- --
Common stock repurchased
(26,111,795 shares)....... (1,000,208) --
Other....................... 210 --
----------- ---------
Balance, December 31, 1997.... $(1,369,405) $(299,375)
=========== =========
</TABLE>
(Continued)
57
<PAGE> 60
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED RESTRICTED
ADDITIONAL OTHER STOCK
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED
STOCK STOCK CAPITAL EARNINGS INCOME COMPENSATION
--------- ------ ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998.................... $-- $5,987 $3,873,990 $1,938,027 $(283,193) $(11,102)
Net loss.................................. -- -- -- (770,702) -- --
Cash dividends............................ -- -- -- (93,810) -- --
Dividends paid to employee stock benefit
trust................................... -- -- 1,963 (1,963) -- --
Common stock issued upon exercise of stock
options and grants of restricted stock
(including tax benefit)................. -- 44 94,507 -- -- --
Earned compensation related to restricted
stock, net of reversals on forfeited
shares.................................. -- -- -- -- -- 759
Reversals of unearned compensation upon
cancellation of restricted stock........ -- -- -- -- -- 1,134
Accelerated vesting of restricted stock
due to WM Holdings Merger............... -- -- -- -- -- 9,209
Common stock issued for acquisitions...... -- 76 180,051 (6,032) -- --
Common stock issued in public offerings... -- 52 205,811 -- -- --
Put rights on WM Holdings employee stock
options, net of taxes................... -- -- 70,495 -- -- --
Adjustment of employee stock benefit trust
to market value......................... -- -- 68,618 -- -- --
Adjustment for minimum pension
liability............................... -- -- -- -- (59,769) --
Cumulative translation adjustment of
foreign currency statements............. -- -- -- -- (77,842) --
Sale of treasury stock.................... -- -- 3,755 -- -- --
Cancellation of treasury stock............ -- (133) (566,136) -- -- --
Change in Eastern fiscal year............. -- 39 91,294 986 -- --
Conversion of WTI stock options........... -- -- 20,138 -- -- --
Other..................................... -- 18 47,039 -- -- --
--- ------ ---------- ---------- --------- --------
Balance, December 31, 1998.................. $-- $6,083 $4,091,525 $1,066,506 $(420,804) $ --
=== ====== ========== ========== ========= ========
<CAPTION>
EMPLOYEE
TREASURY STOCK
STOCK BENEFIT TRUST
----------- -------------
<S> <C> <C>
Balance, January 1, 1998.................... $(1,369,405) $(299,375)
Net loss.................................. -- --
Cash dividends............................ -- --
Dividends paid to employee stock benefit
trust................................... -- --
Common stock issued upon exercise of stock
options and grants of restricted stock
(including tax benefit)................. 75,212 --
Earned compensation related to restricted
stock, net of reversals on forfeited
shares.................................. -- --
Reversals of unearned compensation upon
cancellation of restricted stock........ -- --
Accelerated vesting of restricted stock
due to WM Holdings Merger............... -- --
Common stock issued for acquisitions...... -- --
Common stock issued in public offerings... -- --
Put rights on WM Holdings employee stock
options, net of taxes................... -- --
Adjustment of employee stock benefit trust
to market value......................... -- (68,618)
Adjustment for minimum pension
liability............................... -- --
Cumulative translation adjustment of
foreign currency statements............. -- --
Sale of treasury stock.................... 725,103 --
Cancellation of treasury stock............ 566,269 --
Change in Eastern fiscal year............. -- --
Conversion of WTI stock options........... -- --
Other..................................... -- --
----------- ---------
Balance, December 31, 1998.................. $ (2,821) $(367,993)
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE> 61
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (770,702) $ (938,895) $ 24,231
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 1,498,712 1,391,810 1,264,196
Deferred income taxes................................... (450,158) (375,543) 189,151
Undistributed earnings of equity investees.............. (3,294) 8,000 (34,200)
Minority interest in subsidiaries....................... 24,254 44,687 42,111
Interest accretion on certain debt...................... 18,023 20,682 22,343
Contribution to 1988 Employee Stock Ownership Plan...... -- 6,396 6,666
Net gain on disposal of assets.......................... (83,503) (133,981) (36,261)
Effect of merger costs, asset impairments and unusual
items................................................. 1,555,000 1,675,247 496,608
Income (loss) on disposal or from reserve adjustment of
discontinued operations, net of tax and minority
interest.............................................. -- (95,688) 285,921
Change in assets and liabilities, net of effects of
acquisitions and divestitures:
Receivables............................................. (185,995) (45,237) (85,279)
Other current assets.................................... (11,235) 68,791 359
Other assets............................................ 135,120 90,614 (122,000)
Accounts payable and accrued liabilities................ (140,613) 228,022 6,814
Deferred revenues and other liabilities................. (16,721) 72,938 (185,088)
Other, net.............................................. (66,853) 48,063 55,384
----------- ----------- -----------
Net cash provided by operating activities........... 1,502,035 2,065,906 1,930,956
----------- ----------- -----------
Cash flows from investing activities:
Short-term investments.................................... 57,509 (117,668) 1,170
Acquisitions of businesses, net of cash acquired.......... (1,946,197) (1,685,415) (509,608)
Capital expenditures...................................... (1,651,489) (1,332,207) (1,519,272)
Proceeds from sale of assets.............................. 545,143 1,496,562 830,773
Other investments......................................... 76,244 (8,877) (16,372)
Acquisition of minority interests......................... (1,673,168) (104,165) (342,034)
Other..................................................... 36,821 (25,758) (35,459)
----------- ----------- -----------
Net cash used in investing activities............... (4,555,137) (1,777,528) (1,590,802)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 6,401,897 4,616,718 4,403,008
Principal payments on long-term debt...................... (4,406,910) (4,378,952) (3,954,584)
Cash dividends............................................ (93,810) (309,577) (308,265)
Net proceeds from issuance of common stock................ 205,863 580,833 --
Proceeds from sale of treasury stock...................... 739,161 -- --
Proceeds from exercise of common stock options and
warrants................................................ 133,119 78,175 119,284
Other distributions to minority shareholders by affiliated
companies............................................... (23,514) (36,341) --
Stock repurchases......................................... -- (1,000,208) (473,560)
Other..................................................... (10) 4,402 21,958
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ 2,955,796 (444,950) (192,159)
----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents............................................... (5,763) (5,788) 2,807
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ (103,069) (162,360) 150,802
Cash and cash equivalents at beginning of year.............. 189,942 352,302 201,500
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 86,873 $ 189,942 $ 352,302
=========== =========== ===========
Supplemental cash flow information:
Cash paid during the year for:
Interest.................................................. $ 651,585 $ 543,969 $ 480,383
Income taxes.............................................. 253,770 410,438 359,795
Non-cash investing and financing activities:
Note receivable from sale of assets....................... 28,571 26,583 27,800
Conversion of subordinated debt to common stock........... 10,086 1,159 62,176
Acquisitions of businesses and development projects:
Liabilities incurred or assumed......................... 432,462 222,536 470,664
Common stock issued..................................... 180,127 251,863 366,046
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
59
<PAGE> 62
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- ----------- -------
<S> <C> <C> <C>
Net income (loss).......................................... $(770,702) $ (938,895) $24,231
--------- ----------- -------
Other comprehensive income (loss):
Foreign currency translation adjustment.................. (77,842) (180,744) 22,664
Minimum pension liability adjustment, net of taxes of
$(46,982) in 1998, $7,347 in 1997, and $(4,599) in
1996.................................................. (59,769) 11,492 (7,193)
--------- ----------- -------
Other comprehensive income (loss).......................... (137,611) (169,252) 15,471
--------- ----------- -------
Comprehensive income (loss)................................ $(908,313) $(1,108,147) $39,702
========= =========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
60
<PAGE> 63
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FINANCIAL STATEMENTS
Business -- Waste Management, Inc. and Subsidiaries (the "Company")
provides integrated waste management services throughout North America
consisting of collection, transfer, disposal (including landfill disposal of
hazardous waste), recycling and resource recovery services as well as other
hazardous waste services, and low-level and other radioactive waste services to
commercial, industrial, municipal and residential customers. Additionally, the
Company is a developer, owner and operator of waste-to-energy and waste-fuel
powered independent power facilities. The Company also operates throughout
Europe, the Pacific Rim, South America and other select international markets.
Internationally, the Company collects and transports solid, hazardous and
medical wastes and recyclables from customers and operates solid and hazardous
waste landfills and municipal and hazardous waste incinerators, water and
wastewater treatment facilities, hazardous waste treatment facilities and
constructs treatment or disposal facilities for third parties.
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of all material intercompany balances and
transactions. Investments in affiliated companies in which the Company owns 50%
or less are accounted for under the equity method or cost method of accounting,
as appropriate.
WM Holdings Merger -- On July 16, 1998, the Company, then known as USA
Waste Services, Inc., completed a merger 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." See Note 3.
Eastern Merger -- On December 31, 1998, the Company consummated a merger
transaction with Eastern Environmental Services, Inc. ("Eastern") accounted for
using the pooling of interests method of accounting. Accordingly, the financial
statements have been restated from previously reported financial statements to
include the accounts and operations of Eastern for all periods presented. See
Note 3.
Use of estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts for certain revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents -- Cash and cash equivalents consist primarily of
cash on deposit, certificates of deposit, money market accounts, and investment
grade commercial paper purchased with original maturities of three months or
less.
Short-term investments -- As part of its cash management program, the
Company from time to time maintains a portfolio of marketable investment
securities. The securities have an investment grade and a term to earliest
maturity generally of less than one year, and include tax exempt securities,
certificates of deposit and Eurodollar time deposits. These securities are
carried at cost, which approximates market.
Short-term investments also include marketable securities classified as
"trading," which are carried at market price with unrealized gains and losses
included in other income in the accompanying consolidated statements of
operations. At December 31, 1998, no "trading" securities were held by the
Company. At December 31, 1997, this category included certain other equity
securities classified as "trading" as well as a related price collar. These
securities and a related collar in 1998 were disposed with no gain or loss.
61
<PAGE> 64
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted funds held by trustees -- Restricted funds held by trustees of
$153,030,000 and $190,030,000 at December 31, 1998 and 1997, respectively, are
included in other non-current assets and consist principally of funds deposited
in connection with landfill final closure and post-closure obligations,
insurance escrow deposits, and amounts held for landfill and other construction
arising from industrial revenue financings. These amounts are principally
invested in fixed income securities of federal, state, and local governmental
entities and financial institutions. The Company considers its landfill final
closure, post-closure, and construction escrow investments to be held to
maturity. At December 31, 1998 and 1997, the aggregate fair value of these
investments approximates their amortized costs, and substantially all of these
investments mature within one year. The Company's insurance escrow funds are
invested in pooled investment accounts that hold debt and equity securities and
are considered to be available for sale. The market value of those pooled
accounts approximates their aggregate cost at December 31, 1998 and 1997.
Concentrations of credit risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company places its cash and
cash equivalents with high quality financial institutions and limits the amount
of credit exposure with any one institution. Concentrations of credit risk with
respect to accounts receivable are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the trade credit risk. At December 31, 1998 and 1997, no single group
or customer represents greater than 10% of total accounts receivable. The
Company controls credit risk through credit approvals, credit limits, and
monitoring procedures. The Company performs credit evaluations for commercial
and industrial customers and performs ongoing credit evaluations of its
customers, but generally does not require collateral to support accounts
receivable.
Derivative financial instruments -- From time to time, the Company uses
derivatives to manage interest rate and currency risk. The Company has, in the
past, engaged in hedging of fuel and equity price risk; however, it had no such
financial instruments outstanding at December 31, 1998. The Company's policy is
to use derivatives for risk management purposes only, and it does not enter into
such contracts for trading purposes. The Company enters into derivatives only
with counterparties which are financial institutions having credit ratings of at
least A- or A3, to minimize credit risk. The amount of gains or losses from the
use of derivative financial instruments have not been and are not expected to be
material to the Company's consolidated financial statements.
Instruments used as hedges must be effective at managing risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values or cash flows
of hedge instruments must have a high degree of inverse correlation with changes
in market values or cash flows of the underlying hedged items. Derivatives that
meet the hedge criteria are accounted for under the deferral or accrual method
as discussed in Note 8.
Property and equipment -- Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance, and repairs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations for the respective period.
Depreciation is provided over the estimated useful lives of the related assets
using the straight-line method. The estimated useful lives for significant
property and equipment categories are as follows (in years):
<TABLE>
<CAPTION>
OCTOBER 1, 1997 PRIOR TO
AND THEREAFTER OCTOBER 1, 1997
--------------- ---------------
<S> <C> <C>
Vehicles......................................... 3 to 10 3 to 12
Machinery and equipment.......................... 3 to 20 3 to 20
Commercial and roll-off containers............... 8 to 12 8 to 20
Buildings and improvements....................... 10 to 40 10 to 40
</TABLE>
62
<PAGE> 65
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of October 1, 1997, and thereafter, the Company assumed no salvage value
for its depreciable North American fixed assets. Prior to October 1, 1997, WM
Holdings assigned salvage value to certain fixed asset categories as described
in Note 4.
Disposal sites are stated at cost and amortized ratably using the
units-of-production method over the estimated useful life of the site as
airspace of the landfill is consumed. For those sites that the Company believes
permit expansion is probable, the expansion airspace and the projected costs
related to developing the expansion airspace is included in the airspace
amortization rate calculation. Disposal site amortization rates are determined
periodically (not less than annually) for each disposal site based on estimates
provided by the Company's engineers and accountants. Disposal site costs include
expenditures for the acquisition of land and related airspace, engineering and
permitting costs, direct site improvement costs, and capitalized interest.
Disposal site amortization rate calculations consider information provided by
aerial and ground surveys and other density measures. Factors in determining
probable expansions on a site-by-site basis include secured rights to required
land, status of legal, environmental, regulatory and political issues, and the
extent to which the permit application process has proceeded.
Business combinations -- The Company assesses each business combination to
determine whether the pooling of interests or the purchase method of accounting
is appropriate. For those business combinations accounted for under the pooling
of interests method, the financial statements are combined with those of the
Company at their historical amounts, and, if material, all periods presented are
restated as if the combination occurred on the first day of the earliest year
presented. For those acquisitions accounted for using the purchase method of
accounting, the Company allocates the cost of the acquired business to the
assets acquired and the liabilities assumed based on estimates of fair values
thereof. These estimates are revised during the allocation period as necessary
when, and if, information regarding contingencies becomes available to define
and quantify assets acquired and liabilities assumed. The allocation period
varies but does not exceed one year. To the extent contingencies such as
preacquisition environmental matters, litigation and related legal fees are
resolved or settled during the allocation period, such items are included in the
revised allocation of the purchase price. After the allocation period, the
effect of changes in such contingencies is included in results of operations in
the periods in which the adjustments are determined. The Company does not
believe potential deviations between its fair value estimates and actual fair
values will be material.
In certain business combinations, the Company agrees to pay additional
amounts to sellers contingent upon achievement by the acquired businesses of
certain negotiated goals, such as targeted revenue levels, targeted disposal
volumes, or the issuance of permits for expanded landfill airspace. Contingent
payments, when incurred, are recorded as purchase price adjustments or
compensation expense, as appropriate, based on the nature of each contingent
payment.
Excess of cost over net assets of acquired businesses -- The excess of cost
over net assets of acquired businesses is amortized on a straight-line basis
over a period not greater than 40 years commencing on the dates of the
respective acquisitions. Accumulated amortization was $813,638,000 and
$703,656,000 at December 31, 1998 and 1997, respectively.
Other intangible assets -- Other intangible assets consist primarily of
customer lists, covenants not to compete, licenses, permits, and contracts.
Other intangible assets are recorded at cost and amortized on a straight-line
basis. Customer lists are generally amortized over five to seven years.
Covenants not to compete are amortized over the term of the agreement, which is
generally three to five years. Licenses, permits, and contracts are amortized
over the shorter of the definitive terms of the related agreements or 40 years.
Accumulated amortization was $113,312,000 and $110,760,000 at December 31, 1998
and 1997, respectively.
Long-lived assets -- Long-lived assets consist primarily of property and
equipment, excess of cost over net assets of acquired businesses, and other
intangible assets. The recoverability of long-lived assets is evaluated at the
operating unit level by an analysis of operating results and consideration of
other significant
63
<PAGE> 66
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
events or changes in the business environment. If an operating unit has
indications of impairment, such as current operating losses, the Company will
evaluate whether impairment exists on the basis of undiscounted expected future
cash flows from operations before interest for the remaining amortization
period. If impairment exists, the carrying amount of the long-lived assets is
reduced to its estimated fair value.
Contracts in process -- Contracts in process relate to contracts involving
a substantial construction component. Such contracts primarily relate to
activities performed by international operations. The status of the Company's
contracts in process as of the dates indicated is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings on uncompleted
contracts........................................ $ 1,312,158 $ 1,511,710
Less billings on uncompleted contracts............. (1,213,795) (1,374,100)
----------- -----------
Total contracts in progress.............. $ 98,363 $ 137,610
=========== ===========
</TABLE>
Contracts in process are included in the accompanying consolidated balance
sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $127,975 $158,610
Billings in excess of costs and estimated earnings on
uncompleted contracts (included in deferred
revenue).............................................. (29,612) (21,000)
-------- --------
Total contracts in process.................... $ 98,363 $137,610
======== ========
</TABLE>
All contracts in process are expected to be billed and collected within
five years.
Income taxes -- Deferred income taxes are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities. Deferred income tax expense represents the change during the period
in the deferred tax assets and deferred tax liabilities, net of the effect of
acquisitions and dispositions. Deferred tax assets include tax loss and credit
carryforwards and are reduced by a valuation allowance if, based on available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Foreign currency -- The functional currency of the majority of the
Company's foreign operations is the local currency of the country in which the
Company operates. Adjustments resulting from the translation of financial
information are included in comprehensive income.
Revenue recognition -- The Company recognizes revenues on service contracts
as services are provided. Amounts billed and collected prior to services being
performed are included in deferred revenues. Results from long-term contracts
involving a substantial construction component are recorded on the
percentage-of-completion basis. Changes in project performance and conditions,
estimated profitability and final contract settlements may result in future
revisions to long-term construction contract costs and income.
Capitalized interest -- Interest is capitalized on certain projects under
development including greenfield landfill projects and probable landfill
expansion projects, and on certain assets under construction, including
operating landfills and waste-to-energy facilities. The capitalization of
interest for operating landfills is based on the costs incurred on discrete cell
construction projects, plus an allocated portion of the common site costs. The
common site costs include the development costs of a greenfield site or the
purchase price of an operating landfill, and the ongoing infrastructure costs
benefiting the life cycle of the landfill. Cell construction costs
64
<PAGE> 67
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include the construction of cell liners and construction of final capping during
the operating life of the site. During 1998, 1997, and 1996, total interest
costs were $722,958,000, $606,952,000, and $582,213,000, respectively, of which
$41,501,000, $51,376,000, and $56,873,000, were capitalized, respectively.
New accounting pronouncements -- In June 1998, the Financial Accounting
Standards Board ("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
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 2000.
Management is currently assessing the impact that the adoption of SFAS No. 133
will have on the Company's consolidated financial statements.
In April 1998, the Company adopted the American Institute of Certified
Public Accountants Statement of Position 98-5, Accounting for the Costs of
Start-Up Activities ("SOP 98-5"). SOP 98-5 requires all costs of start-up
activities to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Activities related to mergers or
acquisitions are not considered start-up activities, and therefore SOP 98-5 does
not change the accounting for such items. The impact of SOP 98-5 was not
material to the Company's consolidated financial statements.
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 96-1, Environmental
Remediation Liabilities ("SOP 96-1"). SOP 96-1 provides that environmental
remediation liabilities should be accrued when the criteria of the FASB
Statement of Financial Accounting Standards No. 5, Accounting for Contingencies
("SFAS No. 5"), are met. SOP 96-1 also provides that the accrual for such
liabilities should include future costs for those employees expected to devote a
significant amount of time directly to the management of remediation
liabilities. The adoption of SOP 96-1 during 1997 resulted in an increase to
operating costs and expenses of approximately $49,900,000 for that period.
3. BUSINESS COMBINATIONS
1998 Poolings of Interests Transactions
On December 31, 1998, the Company consummated a merger with Eastern
accounted for as a pooling of interests (the "Eastern Merger"), and accordingly,
the accompanying consolidated financial statements have been restated to include
the accounts and operations of Eastern for all periods presented. Under the
terms of the Eastern Merger, the Company issued 0.6406 of a share of its common
stock for each share of Eastern outstanding common stock. Prior to the Eastern
Merger, the Company owned approximately 1.3% of Eastern's outstanding shares,
which were canceled on the effective date of the Eastern Merger. The Eastern
Merger increased the Company's outstanding shares of common stock by
approximately 24,460,000 shares, and the Company assumed Eastern's stock options
equivalent to approximately 2,255,000 underlying shares of the Company's common
stock.
The consolidated balance sheets at December 31, 1998 and 1997 reflect the
combining of (i) the Company prior to consummation of the Eastern Merger ("Waste
Management") and (ii) Eastern as of those dates. Combined and separate results
of operations for the two years ended December 31, 1997, and the nine
65
<PAGE> 68
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
months ended September 30, 1998, of Waste Management and Eastern for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
WASTE
MANAGEMENT EASTERN COMBINED
----------- -------- -----------
<S> <C> <C> <C>
Nine months ended September 30, 1998
(unaudited):
Operating revenues.................... $ 9,236,544 $227,821 $ 9,464,365
Income (loss) from continuing
operations before income taxes..... (931,295) 34,121 (897,174)
Net income (loss)..................... (851,670) 17,483 (834,187)
Year ended December 31, 1997:
Operating revenues.................... $11,802,350 $170,148 $11,972,498
Income (loss) from continuing
operations before income taxes..... (668,513) 6,016 (662,497)
Net income (loss)..................... (943,034) 4,139 (938,895)
Year ended December 31, 1996:
Operating revenues.................... $10,874,767 $123,835 $10,998,602
Income (loss) from continuing
operations before income taxes..... 778,069 (3,837) 774,232
Net income (loss)..................... 28,152 (3,921) 24,231
</TABLE>
Prior to December 31, 1997, Eastern reported on a June 30 fiscal year-end.
Therefore, the accounts of Eastern for its 1997 and 1996, fiscal years have been
consolidated with the accounts of the Company as of and for the years ended
December 31, 1997 and 1996, respectively. Operating revenues and net income for
Eastern for the six-month period ended December 31, 1997, were approximately
$119,526,000 and $5,319,000, respectively. Accordingly, an adjustment is
included in the Company's 1998 consolidated financial statements for this
six-month period. In addition, Eastern issued shares of its common stock in
connection with acquisitions and a public offering during the six-month period.
On July 16, 1998, the Company consummated a merger with WM Holdings, which
was accounted for as a pooling of interests and, accordingly, the accompanying
consolidated financial statements include the accounts and operations of WM
Holdings for all periods presented. Under the terms of the WM Holdings Merger,
the Company issued 0.725 of a share of its common stock for each share of WM
Holdings outstanding common stock. The WM Holdings Merger increased the
Company's outstanding shares of common stock by approximately 354,000,000
shares, and the Company assumed WM Holdings' stock options equivalent to
approximately 16,000,000 underlying shares of the Company's common stock. Any
unvested WM Holdings options granted prior to March 10, 1998 vested upon
consummation of the Merger due to change of control provisions.
The results of operations for WM Holdings prior to consummation of the WM
Holdings Merger for the restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED -------------------------
MARCH 31, 1998 1997 1996
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Operating revenues................. $2,131,621 $9,188,582 $9,225,636
Income (loss) from continuing
operations before income taxes... 170,968 (1,053,673) 660,467
Net income (loss).................. 74,417 (1,176,104) (39,307)
</TABLE>
66
<PAGE> 69
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the WM Holdings Merger and the Eastern Merger, the
Company incurred significant charges in the third and fourth quarters of 1998.
Additionally, the Company expects to incur additional costs throughout 1999 that
are transitional in nature and not accruable until incurred or committed. The
table below reflects the amounts charged to merger costs related to the WM
Holdings Merger and the Eastern Merger, as well as merger costs expected to be
incurred in future periods for the respective transactions (in thousands):
<TABLE>
<CAPTION>
WM HOLDINGS EASTERN
------------------------------ ------------------------------
CHARGES IN CHARGES EXPECTED CHARGES IN CHARGES EXPECTED
1998 IN FUTURE PERIODS 1998 IN FUTURE PERIODS
---------- ----------------- ---------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Transaction or deal costs, primarily
professional fees and filing fees..... $ 124,100 $ -- $ 14,300 $ --
Employee severance, separation and
transitional costs.................... 323,900 28,500 25,500 9,700
Restructuring charges relating to the
consolidation and relocation of
operations, and the transition and
implementation of information
systems............................... 166,900 71,800 20,500 3,200
Estimated loss on the sale of:
Assets to comply with governmental
orders............................. 255,000 -- 32,200 --
Duplicate facilities and related
leasehold improvements............. 188,900 -- 29,300 --
Duplicate revenue producing assets.... 26,200 -- 32,400 --
Provision for the abandonment of:
Revenue producing assets.............. 126,600 -- 3,000 --
Non-revenue producing assets,
consisting of landfill projects and
leasehold improvements which were
determined to be duplicative assets
from the related merger............ 263,000 -- 6,500 --
Other assets, consisting primarily of
computer hardware and software
costs which have no future value... 150,300 -- 1,500 --
---------- -------- -------- -------
Total......................... $1,624,900 $100,300 $165,200 $12,900
========== ======== ======== =======
</TABLE>
Included in the charges above, are 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 could 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.
Additionally, the Company recorded merger costs of approximately
$17,235,000 related to other poolings of interests transactions consummated
during 1998.
Furthermore, the Company recorded certain unusual charges of $864,063,000
in 1998 that were primarily, yet indirectly related to the WM Holdings Merger as
discussed in Note 14.
67
<PAGE> 70
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 Pooling of Interests Transactions
On August 26, 1997, the Company consummated a merger with United Waste
Systems, Inc. ("United") accounted for as a pooling of interests (the "United
Merger") and, accordingly, the accompanying consolidated financial statements
include the accounts and operations of United for all periods presented. Under
the terms of the United Merger, the Company issued 1.075 shares of its common
stock for each outstanding share of United common stock. Additionally, at the
effective date of the United Merger, United stock options, whether or not such
stock options had vested or had become exercisable, were canceled in exchange
for shares of the Company's common stock equal in market value to the fair value
of such United stock options, as determined by an independent third party. The
United Merger increased the Company's outstanding shares of common stock by
approximately 51,900,000 shares, which includes approximately 1,900,000 shares
exchanged for the United stock options. In the third quarter of 1997, the
Company incurred approximately $89,152,000 in merger costs associated with the
United Merger. Of this amount, $17,566,000 related to transaction costs,
$26,198,000 for severance and other termination benefits, $21,629,000 for
integration of operations, and $23,759,000 for the disposal of duplicate
facilities and impaired assets as a result of the United Merger. The results of
operations for United prior to consummation of the United Merger for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
Operating revenues................... $216,619 $335,743
Net income........................... 23,849 35,393
</TABLE>
1996 Pooling of Interests Transactions
On August 30, 1996, the Company consummated a merger with Sanifill, Inc.
("Sanifill") accounted for as a pooling of interests (the "Sanifill Merger")
and, accordingly, the accompanying consolidated financial statements include the
accounts and operations of Sanifill for all periods presented. Under the terms
of the Sanifill Merger, the Company issued 1.70 shares of its common stock for
each share of Sanifill outstanding common stock. The Sanifill Merger increased
the Company's outstanding shares of common stock by approximately 43,414,000
shares and the Company assumed Sanifill's options and warrants equivalent to
approximately 4,361,000 underlying shares of the Company's common stock. In the
third quarter of 1996, the Company incurred approximately $80,000,000 in merger
costs associated with the Sanifill Merger. The $80,000,000 of merger costs
includes $9,500,000 of transaction costs, $20,000,000 of relocation, severance,
and other termination benefits, $13,000,000 relating to integrating operations,
and $37,500,000 relating to the disposal of duplicate facilities. The results of
operations for Sanifill prior to consummation of the Sanifill Merger for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
(UNAUDITED)
<S> <C>
Operating revenues.................................. $181,406
Net income.......................................... 18,964
</TABLE>
On May 7, 1996, the Company consummated a merger with Western Waste
Industries ("Western") accounted for as a pooling of interests (the "Western
Merger") and, accordingly, the accompanying consolidated financial statements
include the accounts and operations of Western for all periods presented. Under
the terms of the Western Merger, the Company issued 1.50 shares of its common
stock for each share of Western outstanding common stock. Prior to the Western
Merger, the Company owned approximately 4.1% of Western's outstanding shares
(634,900 common shares), which were canceled on the effective date of the
Western Merger. The Western Merger increased the Company's outstanding shares of
common stock by
68
<PAGE> 71
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 22,028,000 shares and the Company assumed options under Western's
stock option plans equivalent to approximately 5,200,000 underlying Company
shares of common stock. In the second quarter of 1996, the Company incurred
approximately $35,000,000 in merger costs associated with the Western Merger and
approximately $4,800,000 in benefits related to Western's pre-merger retirement
program. The $35,000,000 of merger costs include $6,800,000 of transaction
costs, $15,000,000 of severance and other termination benefits, and $13,200,000
of costs related to integrating operations. The results of operations for
Western prior to consummation of the Western Merger for the restated periods are
as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
------------------
(UNAUDITED)
<S> <C>
Operating revenues................................ $68,441
Net income........................................ 4,703
</TABLE>
1998 and 1997 Purchase Acquisitions and Acquisitions of Minority Interests
On November 30, 1998, the Company acquired the 49% interest of Waste
Management International plc's ("WMI plc") United Kingdom operations that was
previously owned by Wessex Water Plc for 205 million pounds, which is equivalent
to $342,000,000.
On November 3, 1998, the Company acquired the publicly owned shares of its
subsidiary, WMI plc. Under the agreement, the Company paid approximately
$443,000,000 in the aggregate, to the holders of the approximately 20% of the
outstanding shares of WMI plc not previously owned by WM Holdings and its
subsidiaries. The Company liquidated WMI plc after the acquisition in an effort
to simplify the corporate structure and provide enhanced tax planning
opportunities.
On June 18, 1998, the Company acquired the solid waste businesses of
American Waste Systems, Inc. for approximately $150,000,000 in cash. The
businesses acquired include three landfills and one collection operation located
in Ohio.
On March 31, 1998, the Company acquired the remaining outstanding shares of
Wheelabrator Technologies Inc. ("WTI"), which it did not already own for
$876,200,000 in cash.
On January 14, 1998, the Company acquired the solid waste divisions of City
Management Holdings Trust ("City Management") for approximately $810,000,000
consisting primarily of cash and assumed debt. The businesses acquired include
20 collection operations, ten landfills, and 12 transfer stations, located
primarily in Michigan.
On April 1, 1997, the Company acquired substantially all of the assets of
Mid-American Waste Systems, Inc. for approximately $201,000,000, consisting
primarily of cash and assumed debt. The assets acquired include 11 collection
operations, 11 landfills, six transfer stations, and three recycling operations.
On March 12, 1997, the Company acquired substantially all of the Canadian
solid waste subsidiaries of Allied Waste Industries, Inc. for approximately
$518,000,000 in cash. Those businesses represented 41 collection operations,
seven landfills, and eight transfer stations in Alberta, British Columbia,
Manitoba, Ontario, Quebec, and Saskatchewan.
In addition to the above purchase acquisitions, the Company consummated
numerous other acquisitions that were accounted for under the purchase method of
accounting. Results of operations of companies that were acquired and subject to
purchase accounting are included from the dates of such acquisitions.
The total cost of acquisitions accounted for under the purchase method of
accounting, excluding the purchases of minority interests, was approximately
$2,452,690,000 and $2,150,975,000 in 1998 and 1997, respectively.
69
<PAGE> 72
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma information set forth below assumes acquisitions in 1998 and
1997 accounted for as purchases had occurred at the beginning of 1997. The pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisitions been consummated at that time (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating revenues......................................... $13,137,758 $13,431,884
Income (loss) from continuing operations................... (735,939) (938,850)
Net income (loss).......................................... (739,839) (851,907)
Basic earnings (loss) per common share:
Income (loss) from continuing operations................. (1.25) (1.66)
Net income (loss)........................................ (1.26) (1.51)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations................. (1.25) (1.66)
Net income (loss)........................................ (1.26) (1.51)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land and landfills................................. $ 8,384,077 $ 7,160,129
Vehicles........................................... 2,797,137 2,676,433
Machinery and equipment............................ 3,072,162 3,078,799
Containers......................................... 1,844,904 1,637,023
Buildings and improvements......................... 1,632,006 1,664,572
Furniture and fixtures............................. 505,527 544,035
----------- -----------
18,235,813 16,760,991
Less accumulated depreciation and amortization..... (6,598,074) (5,572,461)
----------- -----------
$11,637,739 $11,188,530
=========== ===========
</TABLE>
Depreciation and amortization expense for property and equipment was
$1,314,568,000, $1,242,061,000 and $1,102,260,000 for 1998, 1997, and 1996,
respectively.
Effective October 1, 1997, the Board of Directors of WM Holdings approved a
revision to WM Holdings' North American collection fleet management policy.
Under the revised policy, WM Holdings replaced front-end loaders after eight
years, and rear-end loaders and roll-off trucks after ten years. The previous
policy was to not replace front-end loaders before they were a minimum of ten
years old and other heavy collection vehicles before they were a minimum of 12
years old. As a result of this decision, the Company recognized an impairment
writedown of $70,900,000 in the fourth quarter of 1997 for those vehicles
scheduled for replacement in the next two years under the new policy.
Depreciable lives were adjusted for the WM Holdings fleet commencing in the
fourth quarter of 1997 to reflect the new policy. Also effective October 1,
1997, WM Holdings reduced depreciable lives on containers from 15 and 20 years
to 12 years, and ceased assigning salvage value in computing depreciation on
North American collection vehicles or containers. These changes in estimates
resulted in an increase in depreciation expense of $33,700,000 in the fourth
quarter of 1997. Upon consummation of the WM Holdings Merger, WM Holdings'
replacement policies were conformed with that of the Company, which are
materially consistent with the revised WM Holdings policy stated above.
70
<PAGE> 73
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also effective October 1, 1997, WM Holdings changed its process of
evaluating the probability that landfill airspace from expansions will be
permitted. This change in estimate decreased the useful lives of certain WM
Holdings landfills and increased depreciation and amortization and the provision
for final closure and post-closure by $15,800,000 in the fourth quarter of 1997.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- ----------
<S> <C> <C>
Bank borrowings............................................. $ 1,903,100 $ 485,500
Commercial paper, average interest of 5.7% in 1998, and 6.1%
in 1997................................................... 840,108 356,327
Senior notes and debentures, interest of 6 1/8% to 8 3/4%,
due 1999 to 2028.......................................... 5,959,884 5,224,119
4% Convertible subordinated notes due 2002.................. 535,275 535,275
4 1/2% Convertible subordinated notes due 2001.............. 148,370 149,500
5% Convertible subordinated debentures due 2006............. 114,445 115,000
5.75% Convertible subordinated notes due 2005............... 453,680 450,182
Tax-exempt and project bonds, principal payable in periodic
installments, maturing through 2021, fixed and variable
interest rates ranging from 3.53% to 9.25% at December 31,
1998...................................................... 1,220,634 1,307,793
Installment loans and notes payable, interest to 14%,
maturing through 2017..................................... 491,533 779,709
Other....................................................... 30,914 76,556
----------- ----------
11,697,943 9,479,961
Less current maturities..................................... 583,742 1,598,012
----------- ----------
$11,114,201 $7,881,949
=========== ==========
</TABLE>
The aggregate estimated payments, including scheduled minimum maturities,
of long-term debt outstanding at December 31, 1998, for the following five years
and thereafter are as follows (in thousands).
<TABLE>
<S> <C>
1999................................................... $ 583,742
2000................................................... 2,706,367
2001................................................... 760,401
2002................................................... 2,394,956
2003................................................... 626,455
Thereafter............................................. 4,626,022
-----------
$11,697,943
===========
</TABLE>
Upon consummation of the WM Holdings Merger, the Company entered into a
$3,000,000,000 syndicated loan facility (the "Syndicated Facility") which was in
addition to the Company's existing $2,000,000,000 senior revolving credit
facility (the "Credit Facility"). The Syndicated Facility requires annual
renewal by the lender and provides for a one-year term option at the Company's
request in the event of non-renewal. The Syndicated Facility is available for
borrowings, including up to $800,000,000 of standby letters of credit and to
support the issuance of commercial paper; accordingly, commercial paper has been
classified as non-current for financial reporting purposes. The applicable
interest rate and facility fee for the Syndicated Facility are similar to those
contained in the Company's then existing Credit Facility (which was amended to
71
<PAGE> 74
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provide for the WM Holdings Merger). The covenant restrictions for the
Syndicated Facility and Credit Facility include, among others, interest coverage
and debt capitalization ratios, and limitations on dividends, additional
indebtedness, liens, and asset sales. The Syndicated Facility and Credit
Facility are used to refinance existing bank loans and letters of credit, to
fund acquisitions, and for working capital purposes. At December 31, 1997, the
committed capacity under the Credit Facility was $2,000,000,000, including
standby letters of credit of up to $650,000,000. At December 31, 1997, the
applicable interest rate was 6.1% per annum and the facility fee was 0.1125% per
annum, with the Company having borrowed $430,000,000 and issued letters of
credit of $467,029,000 under the Credit Facility. Principal reductions are not
required during the five-year term of the Credit Facility, which was entered
into on August 7, 1997. At December 31, 1998, the applicable interest rate on
the syndicated Facility was 5.46% and there were no borrowings outstanding under
the Credit Facility. The facility fee was 0.10% and 0.125% per annum, under the
Syndicated Facility and Credit Facility, respectively, at December 31, 1998. The
Company had borrowed $1,545,000,000 and had issued letters of credit of
$1,253,361,000 under the Syndicated Facility and Credit Facility at December 31,
1998.
In November 1998, the Company entered into two multi-currency credit
facilities totaling EURO 300,000,000, with a syndicate of banks. The facilities
provide for borrowings in several currencies and are renewable annually. The
outstanding balance as of December 31, 1998 was EURO 228,176,000 (equivalent to
$267,400,000). The applicable interest rate is determined by LIBOR or PIBOR plus
margin and mandatory costs as defined per the agreement. The interest rates on
the two outstanding loans at December 31, 1998, were 7.03% and 3.87%.
On July 17, 1998, the Company issued $600,000,000 of 7% senior notes, due
on July 15, 2028 (the "7% Notes") and $600,000,000 of 6 1/8% mandatorily
tendered senior notes, due on July 15, 2011 (the "6 1/8% Notes"). The 7% Notes
are redeemable, in whole or in part, at the option of the Company at any time
and from time to time at the redemption price, as defined in the indenture. The
6 1/8% Notes are subject to certain mandatory tender features as described in
the indenture, which may require the purchase by the Company of a portion of or
all of the outstanding notes on July 15, 2001. The proceeds from the 7% Notes
and 6 1/8% Notes were used to repay outstanding indebtedness under the Company's
bank borrowings. Interest on the 7% Notes and 6 1/8% Notes is payable
semi-annually on January 15 and July 15.
In May 1998, the Company retired approximately $40,000,000 of certain debt
with an average interest rate of 9.0% with proceeds from the Credit Facility. In
connection with this debt retirement, the Company incurred prepayment penalties
and other fees of $1,811,000 and wrote off the remaining unamortized discounts
and debt offering costs of $4,689,000, which were recorded as an extraordinary
item.
On December 17, 1997, the Company issued $350,000,000 of 6 1/2% senior
notes due December 15, 2002, and $150,000,000 of 7 1/8% senior notes due
December 15, 2017. The senior notes constitute senior and unsecured obligations
of the Company ranking equal in right of payment with all other senior and
unsecured obligations of the Company, as defined in the indenture. The 6 1/2%
senior notes due December 15, 2002, are not redeemable. The $150,000,000 of
7 1/8% senior notes due December 15, 2017, are redeemable, in whole or in part,
at the option of the Company at any time and from time to time at a redemption
price defined in the indenture. Interest is payable semi-annually on December 15
and June 15. The proceeds were used to repay debt under the Company's bank
borrowings.
On September 12, 1997, the Company issued $300,000,000 of 7% senior notes
due October 1, 2004, and $300,000,000 of 7 1/8% senior notes due October 1,
2007. The senior notes constitute senior and unsecured obligations of the
Company, ranking equal in right of payment with all other senior and unsecured
obligations of the Company, as defined in the indenture. The senior notes are
redeemable at the option of the Company at any time and from time to time at the
principal amount of such notes, plus accrued interest. Interest is payable
semi-annually on October 1 and April 1. The proceeds were used to repay debt
under the Company's bank borrowings.
72
<PAGE> 75
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During August 1997 and September 1997, the Company prepaid the holders of
certain privately placed senior note an aggregate amount of $182,500,000 with
proceeds from its Credit Facility. Interest on these privately placed senior
notes ranged from 7.29% to 8.44%. In connection with this transaction, the
Company was required to pay prepayment penalties of $7,975,000 and wrote off the
remaining unamortized deferred offering costs of approximately $1,311,000, which
was recorded as an extraordinary item in the third quarter of 1997.
On February 7, 1997, the Company issued $535,275,000 of 4% convertible
subordinated notes, due on February 1, 2002. Interest is payable semi-annually
in February and August. The notes are convertible by the holders into shares of
the Company's common stock at any time at a conversion price of $43.56 per
share. The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined in the indenture. The notes are redeemable after
February 1, 2000 at the option of the Company at 101.6% of the principal amount,
declining to 100.8% of the principal amount on February 1, 2001 and thereafter
until maturity, at which time the notes will be redeemed at par, plus accrued
interest. The proceeds were primarily used to repay debt under the Company's
bank borrowings, to fund acquisitions, and for general corporate purposes.
On June 5, 1996, United issued $150,000,000 of 4 1/2% convertible
subordinated notes, due June 1, 2001. Interest is payable semi-annually in June
and December. The notes are convertible into shares of the Company's common
stock at a conversion price of $30.23 per share. The notes are subordinated in
right of payment to all existing and future senior indebtedness, as defined in
the indenture. The notes are redeemable after June 1, 1999, at the option of the
Company at 101.8% of the principal amount, declining annually to par on June 1,
2001, plus accrued interest.
On March 4, 1996, Sanifill issued $115,000,000 of 5% convertible
subordinated debentures, due on March 1, 2006. Interest is payable semi-annually
in March and September. The debentures are convertible into shares of the
Company's common stock at a conversion price of $28.31 per share. The debentures
are subordinated in right of payment to all existing and future senior
indebtedness, as defined in the indenture. In March 1999, these debentures were
called by the Company and subsequently converted into equity by the debenture
holders. See Note 20.
The 5.75% convertible subordinated notes due 2005 are subordinated to all
existing and future senior indebtedness of the Company. Each note bears cash
interest at the rate of two percent per annum of the $1,000 principal amount at
maturity, payable semi-annually. The difference between the principal amount at
maturity of $1,000 and the $717.80 stated issue price of each note represents
the stated discount. At the option of the holder, each note can be purchased for
cash by the Company on March 15, 2000, at $843.03. Accrued unpaid interest to
those dates will also be paid. The notes will be callable by the Company on and
after March 15, 2000, for cash, at the stated issue price plus accrued stated
discount and accrued but unpaid interest through the date of redemption. In
addition, each note is convertible at any time prior to maturity into
approximately 18.9 shares of the Company's common stock, subject to adjustment
upon the occurrence of certain events. Upon any such conversion, the Company
will have the option of paying cash equal to the market value of the shares
which would otherwise be issuable.
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 or the regulatory required costs associated with existing
operations at a hazardous waste treatment, storage or disposal facility which
are subject to Toxic Substances Central Act ("TSCA") or Subtitle D of the
Resource Conservation and Recovery Act ("RCRA") hazardous waste treatment,
storage, or disposal facility, and post-closure of those 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
73
<PAGE> 76
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 estimates are based on the
Company's interpretation of current requirements and proposed regulatory
changes. In the U.S., the final closure and post-closure requirements are
established under the standards of the U.S. Environmental Protection Agency's
Subtitle C and D regulations, as implemented and applied on a state-by-state
basis. Such costs may increase in the future as a result of legislation or
regulation. Final closure and post-closure accruals consider estimates for the
final cap and cover for the site, methane gas control, leachate management and
groundwater monitoring, and other operational and maintenance costs to be
incurred after the site discontinues accepting waste, which is generally
expected to be for a period of up to thirty years after final site closure. For
purchased disposal sites, the Company assesses and records a final closure and
post-closure liability at the time the Company assumes closure responsibility
based upon the estimated final closure and post-closure costs and the percentage
of airspace utilized as of such date. Thereafter, the difference between the
final closure and post-closure costs accrued and the total estimated closure and
post-closure costs to be incurred is accrued and charged to expense as airspace
is consumed. Such costs for foreign landfills are estimated based on compliance
with local laws, regulations and customs. For other facilities, final closure
and post-closure costs are determined in consideration of regulatory
requirements.
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 December 31, 1998. 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. The Company routinely
reviews and evaluates sites that require remediation, including NPL sites,
giving consideration to the nature (e.g., owner, operator, transporter, or
generator), and the extent (e.g., amount and nature of waste hauled to the
location, number of years of site operation by the Company, or other relevant
factors) of the Company's alleged connection with the site, the accuracy and
strength of evidence connecting the Company to the location, the number,
connection and financial ability of other named and unnamed potentially
responsible parties ("PRPs"), and the nature and estimated cost of the likely
remedy. Cost estimates are based on management's judgment and experience in
remediating such sites for the Company as well as for unrelated parties,
information available from regulatory agencies as to costs of remediation, and
the number, financial resources and relative degree of responsibility of other
PRPs who are jointly and severally liable for remediation of a specific site, as
well as the typical allocation of costs among PRPs. These estimates are
sometimes a range of possible outcomes. In such cases, the Company provides for
the amount within the range which constitutes its best estimate. If no amount
within the range appears to be a better estimate than any other amount, then the
Company provides for the minimum amount within the range in accordance with the
SFAS No. 5. The Company believes that it is "reasonably possible," as that term
is defined in SFAS No. 5 ("more than remote but less than likely"), that its
potential liability, at the high end of such ranges, would be approximately
$233,000,000 higher on a discounted basis in the aggregate than the estimate
that has been recorded in the consolidated financial statements as of December
31, 1998.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult, and the ultimate
outcome may differ from current estimates. However, the Company believes that
its extensive experience in the environmental services business, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
any such adjustment would be material to its consolidated financial statements,
it is reasonably possible that technological, regulatory or enforcement
developments, the results of environmental studies, the existence and ability of
other PRPs to
74
<PAGE> 77
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contribute to the settlements of such liabilities, or other factors could
necessitate the recording of additional liabilities which could be material.
Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated at 2% (3% at December 31,
1997) until expected time of payment and then discounted to present value at
5.5% (6% at December 31, 1997). The portion of the Company's recorded
environmental liabilities that is not inflated or discounted was approximately
$492,339,000 and $344,700,000 at December 31, 1998 and 1997, respectively. Had
the Company not discounted any portion of its liability, the amount recorded
would have been increased by approximately $308,262,000 at December 31, 1998.
The Company's liabilities for final closure, post-closure monitoring and
environmental remediation costs were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current portion, included in accrued liabilities..... $ 150,592 $ 129,611
Non-current portion.................................. 971,507 1,038,049
---------- ----------
Total recorded............................. 1,122,099 $1,167,660
==========
Amount to be provided over remaining life of active
sites, including discount of $308,262 related to
recorded amounts................................... 1,806,966
----------
Expected aggregate environmental liabilities based on
current cost....................................... $2,929,065
==========
</TABLE>
Anticipated payments (based on current costs) of environmental liabilities
at December 31, 1998, are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................... $ 150,592
2000.................................................... 101,499
2001.................................................... 73,053
2002.................................................... 57,216
2003.................................................... 47,415
Thereafter.............................................. 2,499,290
----------
Total......................................... $2,929,065
==========
</TABLE>
In addition to the amounts above, at a certain site, the Company has
perpetual care obligations aggregating approximately $1,527,000 per year.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company subsidiary having allegedly owned,
operated or transported waste to a disposal facility which is alleged to have
contaminated the environment or, in certain cases, conducted environmental
remediation activities at such sites. While the Company believes it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to a number of factors, and it is possible such
matters could have a material adverse impact on the Company's earnings for one
or more quarters or years.
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
75
<PAGE> 78
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pursuing such claims, it regularly considers settlement opportunities when
appropriate terms are offered. Settlements to date ($46,600,000 in 1998,
$94,300,000 in 1997, and $60,300,000 in 1996) have been included in operating
costs and expenses as an offset to environmental expenses.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company using
available market information and commonly accepted valuation methodologies.
However, considerable judgement is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company or holders of the
instruments could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material effect on the
estimated fair values. The fair value estimates presented herein are based on
information available to management as of December 31, 1998 and 1997. Such
amounts have not been revalued since those dates, and current estimates of fair
value may differ significantly from the amounts presented herein.
The carrying values of cash and cash equivalents, short-term investments,
restricted funds held by trustees, trade accounts receivable, trade accounts
payable, financial instruments included in notes and other receivables,
financial instruments included in other assets, and derivative financial
instruments approximate their fair values principally because of the short-term
maturities of these instruments.
The fair values of the Company's outstanding indebtedness is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1998 1997
----------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Senior notes and debentures.......... $5,959,884 $6,202,556 $5,224,119 $5,345,490
4% Convertible subordinated notes due
2002............................... 535,275 641,795 535,275 592,148
4 1/2% Convertible subordinated notes
due 2001........................... 148,370 232,985 149,500 214,906
5% Convertible subordinated
debentures due 2006................ 114,445 188,489 115,000 170,631
5.75% Convertible subordinated notes
due 2005........................... 453,680 442,928 450,182 467,821
Tax-exempt and project bonds......... 1,220,634 1,320,841 1,307,793 1,371,871
Other borrowings..................... 3,265,655 3,303,520 1,698,092 1,706,129
</TABLE>
8. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate agreements -- The Company and its subsidiaries have entered
into interest rate swap agreements to balance fixed and floating rate debt in
accordance with management's criteria. The agreements are contracts to exchange
fixed and floating interest rate payments periodically over a specified term
without the exchange of the underlying notional amounts. The agreements provide
only for the exchange of interest on the notional amounts at the stated rates,
with no multipliers or leverage. Differences paid or received are accrued in the
consolidated financial statements as a part of interest expense on the
underlying debt over the
76
<PAGE> 79
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
life of the agreements and the swap is not recorded on the balance sheet. As of
December 31, 1998, interest rate agreements in notional amounts and with terms
as set forth in the following table were outstanding:
<TABLE>
<CAPTION>
NOTIONAL
CURRENCY AMOUNT RECEIVE PAY DURATION OF AGREEMENTS
- -------- ----------- -------- -------- ----------------------
<S> <C> <C> <C> <C>
U.S. Dollar................ 50,000,000 Floating Fixed June 1997 to June 1999
U.S. Dollar................ 24,000,000 Floating Fixed November 1994 to September 1999
U.S. Dollar................ 15,000,000 Floating Fixed November 1996 to November 1999
Dutch Guilder.............. 115,000,000 Floating Fixed November 1996 to January 2000
German Deutschemark........ 150,000,000 Floating Fixed March 1996 to January 2000
French Franc............... 200,000,000 Fixed Floating December 1998 to December 2002
U.S. Dollar................ 33,750,000 Floating Fixed January 1998 to January 2003
U.S. Dollar................ 23,772,000 Floating Fixed April 1997 to April 2012
</TABLE>
Currency agreements -- From time to time, the Company and certain of its
subsidiaries use foreign currency derivatives to seek to mitigate the impact of
translation on foreign earnings and income from foreign investees. Typically
these have taken the form of purchased put options or collars. The Company
receives or pays, based on the notional amount of the option, the difference
between the average exchange rate of the hedged currency against the base
currency and the average (strike price) contained in the option. Complex
instruments involving multipliers or leverage are not used. Although the purpose
for using such derivatives is to mitigate currency risk, they do not qualify for
hedge accounting under generally accepted accounting principles and,
accordingly, must be adjusted to market value at the end of each accounting
period with gains or losses included in other income. There were no currency
derivatives of this type outstanding at December 31, 1998. From time to time,
the Company also uses foreign currency forward contracts to hedge committed
transactions when the terms of such a transaction are known and there is a high
probability that the transaction will occur.
Commodity agreements -- Prior to the WM Holdings Merger, WM Holdings
utilized derivatives to seek to mitigate the impact of fluctuations in the price
of fuel used by its vehicles. Quantities hedged did not exceed anticipated fuel
purchases in any period. Gains or losses were recognized in operating expenses,
as cost of fuel purchases, when paid or received. The primary instruments used
were collars, swaps and swaptions. Collars consist of the purchase of call
options along with a corresponding sale of put options at a lower price, with
the effect of establishing a "cap" and a "floor" with respect to the price of
specified quantities of fuel. A swap is an agreement with a counterparty whereby
WM Holdings would pay a fixed price and would receive a floating price for
specified quantities during a given period. In a swaption, WM Holdings would be
paid a premium by the counterparty for the right, but not the obligation, at the
end of the option period (usually 90 to 180 days) to enter into a swap with
respect to a specified quantity in a given period in the future. All such
derivatives were terminated following the WM Holdings Merger, and no fuel
hedging transactions were outstanding at December 31, 1998.
9. CAPITAL STOCK
The Board of Directors is authorized to issue preferred stock in series,
and with respect to each series, to fix its designation, relative rights
(including voting, dividend, conversion, sinking fund, and redemption rights),
preferences (including dividends and liquidation), and limitations. The Company
currently has no issued or outstanding preferred stock.
In June 1998, Eastern completed the registration and sale of 8,625,000
shares of its common stock at $26.375 per share (equivalent to 5,525,175 shares
of the Company's common stock at $41.17 per share). This public offering
included the sale of 500,000 shares of Eastern common stock by selling
shareholders (equivalent to 320,300 shares of the Company's common stock). The
net proceeds after deducting fees and
77
<PAGE> 80
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related costs, were approximately $205,000,000 and were primarily used to repay
debt under Eastern's credit facility and for general corporate purposes.
As a condition to completing the WM Holdings Merger, during June 1998, WM
Holdings sold 20,000,000 shares of its common stock from its treasury
(equivalent to 14,500,000 shares of the Company's common stock) in an offering
to the public. The net proceeds of approximately $607,000,000 were used by WM
Holdings to retire outstanding debt under its credit facilities.
In June 1997, prior to the WM Holdings Merger, the Company acquired a
majority of the Canadian solid waste businesses of WM Holdings in a purchase
business combination for consideration that included 1,705,757 shares of the
Company's common stock. WM Holdings sold its shares of the Company's common
stock on the open market during December 1997 for approximately $65,000,000.
Because the WM Holdings Merger was accounted for as a pooling of interests, WM
Holdings' sale of its shares of the Company's common stock is treated as an
equity offering to the public for financial accounting and reporting purposes.
On March 3, 1997, prior to its becoming a wholly-owned subsidiary of the
Company, United completed a public offering in which it issued 3,450,000 shares
of its common stock, priced at $36.50 per share (equivalent to 3,708,750 shares
of the Company's common stock, priced at $33.95 per share). The net proceeds of
approximately $119,000,000 were used to repay debt under United's credit
facility, to fund acquisitions, and for general corporate purposes.
On February 7, 1997, the Company completed a public offering of 11,500,000
shares of its common stock, priced at $35.125 per share. The net proceeds of
approximately $387,438,000 were primarily used to repay bank borrowing.
In February 1997, the board of directors of WM Holdings authorized the
repurchase of up to 50,000,000 shares of its own common stock (equivalent to
36,250,000 shares of the Company's common stock) in the open market, in
privately negotiated transactions, or through issuer tender offers. WM Holdings
repurchased 30,000,000 shares of its own common stock (equivalent to 21,750,000
shares of the Company's common stock) through a "Dutch auction" tender offer in
the second quarter of 1997.
During 1994 through 1996, WM Holdings sold put options on 42,300,000 shares
of its common stock (equivalent to 30,700,000 shares of the Company's common
stock). The put options gave the holders the right at maturity to require WM
Holdings to repurchase shares of its common stock at specified prices. Proceeds
from the sale of put options were credited to additional paid-in capital. The
amount WM Holdings would be obligated to pay to repurchase shares of its common
stock if all outstanding put options were exercised was reclassified to a
temporary equity account. In the event the options were exercised, WM Holdings
had the right to pay the holder in cash the difference between the strike price
and the market price of WM Holdings' shares, in lieu of repurchasing the stock.
Options on 32,500,000 shares expired unexercised, as the price of WM Holdings'
stock was in excess of the strike price at maturity. WM Holdings repurchased
3,100,000 shares of its common stock at a cost of $107,500,000, and 6,700,000
options were settled for cash of $13,600,000. There were no put options
outstanding at and subsequent to December 31, 1997.
As of December 31, 1998, the Company is limited in its ability to pay
dividends pursuant to its current credit agreements of amounts not to exceed
$100,000,000 per year. The Company declared cash dividends of approximately
$93,810,000, $309,577,000, and $308,265,000, to its shareholders during 1998,
1997, and 1996, respectively. Based on the Company's weighted average common
shares outstanding, the cash dividends per common share are $0.16, $0.56, and
$0.57 for the years ended December 31, 1998, 1997, and 1996, respectively.
78
<PAGE> 81
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK OPTIONS AND WARRANTS
In accordance with the Company's 1990 Stock Option Plan (the "1990 Plan"),
options to purchase 900,000 shares of the Company's common stock may be granted
to officers, directors, and key employees. In accordance with the Company's 1993
Stock Option Incentive Plan, as amended (the "1993 Plan"), options to purchase
26,500,000 shares of the Company's common stock may be granted to officers,
directors, and key employees. Options are granted under both the 1990 Plan and
the 1993 Plan at an exercise price which equals or exceeds the fair market value
of the common stock on the date of grant, with various vesting periods, and
expire up to ten years from the date of grant. No options are available for
future grant under the 1990 Plan.
Under the Company's 1996 Stock Option Plan for Non-Employee Directors
("1996 Directors Plan"), its directors who are not officers, full-time
employees, or consultants of the Company receive an annual grant of 12,500
options on each January 1 (amended to 10,000 options effective January 1, 1999).
In accordance with the 1996 Directors Plan, options to purchase up to 1,400,000
shares of the Company's common stock may be granted, with five year vesting
periods (amended to one year effective January 1, 1999), and expiration dates
ten years from the date of grant. Options may be granted at an exercise price
which equals fair market value of the common stock on the date of grant.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123").
SFAS No. 123 prescribes a fair value based method of determining compensation
expense related to stock-based awards granted to employees. The recognition
provisions of SFAS No. 123 are optional; however, entities electing not to adopt
the recognition provisions of SFAS No. 123 are required to make disclosures of
pro forma net income and earnings per share as if the recognition provisions of
SFAS No. 123 had been applied, as well as disclosures regarding assumptions
utilized in determining the pro forma amounts. The Company did not adopt the
recognition provisions of SFAS No. 123, however, the required disclosures are
included below.
Stock options granted by the Company in 1998, 1997, and 1996 have ten year
terms. Stock options granted by Eastern and Western became fully vested upon
consummation of the respective mergers. Stock options granted by Sanifill
continue to vest under varying vesting periods ranging from immediate vesting to
five years following the date of grant. At the effective date of the United
Merger, United stock options, whether or not such stock options had vested or
had become exercisable, were canceled in exchange for shares of the Company's
common stock equal in market value to the fair value of such United stock
options, as determined by an independent third party. Stock options granted by
WM Holdings prior to March 10, 1998, became fully vested upon consummation of
the WM Holdings Merger, and certain of those include put provision benefits for
up to a one year period from the date of the WM Holdings Merger (See Note 14).
WM Holdings options granted after March 10, 1998, continue to vest in accordance
with their original vesting schedule of 3 years.
79
<PAGE> 82
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes common stock option and warrant transactions
under the aforementioned plans and various predecessor plans for 1998, 1997, and
1996:
<TABLE>
<CAPTION>
OPTIONS AND WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
----------- ----------------
(IN 000'S)
<S> <C> <C>
Outstanding at December 31, 1995.................. 33,728 $25.00
Granted......................................... 12,368 28.17
Assumed in acquisitions......................... 373 24.94
Exercised....................................... (7,411) 16.31
Forfeited....................................... (1,147) 44.03
------
Outstanding at December 31, 1996.................. 37,911 27.13
Granted......................................... 10,424 35.20
Exercised....................................... (8,023) 17.26
Forfeited....................................... (2,681) 43.99
------
Outstanding at December 31, 1997.................. 37,631 30.46
Granted......................................... 10,645 43.92
Assumed in acquisitions......................... 1,986 36.77
Exercised....................................... (8,593) 34.17
Forfeited....................................... (859) 45.33
------
Outstanding at December 31, 1998.................. 40,810 32.72
======
Exercisable at December 31, 1996.................. 20,546 27.20
Exercisable at December 31, 1997.................. 20,440 30.34
Exercisable at December 31, 1998.................. 23,994 29.25
</TABLE>
The common stock options and warrants outstanding at December 31, 1998,
include approximately 21,247,000, common stock options and warrants granted by
Western, Sanifill, United, WM Holdings, and Eastern, of which approximately
17,470,000 are exercisable.
The weighted average fair value of common stock options and warrants
granted during 1998, 1997 and 1996 were $18.61, $11.92 and $9.59, respectively.
The fair value of each common stock option or warrant granted to employees or
directors by the Company during 1998, 1997 and 1996 is estimated utilizing the
Black-Scholes option-pricing model. The following weighted average assumptions
were used: dividend yield of 0% to 2%, risk-free interest rates which vary for
each grant and range from 5.06% to 7.67%, expected life of three to seven years
for all grants, and stock price volatility primarily ranging from 25.2% to 31.3%
for all grants.
Outstanding and exercisable stock options and warrants at December 31,
1998, were as follows (in thousands):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------- ------------------------------
OPTIONS AND WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS AND WEIGHTED AVERAGE
EXERCISE PRICE WARRANTS EXERCISE PRICE REMAINING TERM WARRANTS EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.25 to $ 10.00....... 3,428 $ 6.71 3.1 years 3,426 $ 6.71
$10.01 to $ 20.00....... 5,885 13.84 5.8 years 4,845 13.47
$20.01 to $ 30.00....... 6,985 24.82 7.0 years 3,793 24.19
$30.01 to $ 40.00....... 10,156 35.06 8.1 years 3,583 35.88
$40.01 to $ 50.00....... 9,274 45.20 6.5 years 6,907 44.48
$50.01 to $140.16....... 5,082 55.57 7.6 years 1,440 59.73
------ ------
$ 2.25 to $140.16....... 40,810 32.72 6.7 years 23,994 29.25
====== ======
</TABLE>
80
<PAGE> 83
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company applied the recognition provisions of SFAS No. 123, the
Company's net income (loss) and earnings (loss) per common share for 1998, 1997,
and 1996 would approximate the pro forma amounts shown below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Net income (loss):
As reported............................... $(770,702) $(938,895) $24,231
Pro forma................................. (833,014) (978,831) (1,042)
Basic earnings (loss) per common share:
As reported............................... (1.32) (1.68) 0.05
Pro forma................................. (1.43) (1.76) --
Diluted earnings (loss) per common share:
As reported............................... (1.32) (1.68) 0.04
Pro forma................................. (1.43) (1.76) --
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts.
Beginning in 1996, WM Holdings made grants of restricted stock.
Compensation expense for grants of restricted shares was recognized ratably over
the vesting period (generally five to ten years) and amounted to approximately
$759,000 in 1998 through the date of the WM Holdings Merger, and $2,400,000 and
$100,000 in 1997 and 1996, respectively. The unamortized restricted stock of
$9,209,000 vested upon consummation of the WM Holdings Merger, and accordingly
was included in merger costs in 1998.
In September 1998, two senior executives were granted an aggregate of
1,700,000 shares under the 1993 Plan. The options granted vest according to
certain performance goals in lieu of the normal vesting schedules. All such
options fully vest no later than eight years from the date of grant.
11. EMPLOYEE BENEFIT PLANS
Principally through the USA Waste Services, Inc. Employee's Savings Plan,
the Waste Management Retirement Savings Plan, and the Wheelabrator-Rust Savings
and Retirement Plan, the Company has established qualified defined contribution
retirement plans covering substantially all domestic employees other than those
employees who are covered under collective bargaining agreements which do not
provide for coverage under the plans. In previous years, certain of the plans
provided for annual contributions by the Company as determined by their
respective boards of directors. In 1998, the primary feature of plans covering
the majority of participants was the Company match of employee contributions of
amounts as specified in the applicable plan.
Effective January 1, 1999, the Waste Management Retirement Savings Plan and
the Wheelabrator-Rust Savings and Retirement Plan were merged into the USA Waste
Services, Inc. Employee's Savings Plan, which was then renamed the Waste
Management Retirement Savings Plan ("Savings Plan"). The Savings Plan covers
employees (except those working subject to a collective bargaining agreement
which do not provide for coverage under the plans) following a 90 day waiting
period after hire, and allows eligible employees to contribute up to 15% of
their annual compensation, as limited by IRS regulations. Under the Savings
Plan, the Company matches employee contributions up to 3% of their eligible
compensation, and matches 50% of employee contributions in excess of 3% but less
than 6% of eligible compensation. Both employee and Company contributions vest
immediately. Charges to operations for these plans were $69,721,000, $42,335,000
and $29,648,000 during 1998, 1997 and 1996, respectively.
81
<PAGE> 84
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's foreign subsidiaries participate in both defined
benefit and defined contribution retirement plans for its employees in those
countries. The projected benefit obligation, plan assets and unfunded liability
of the defined benefit plans are not material. In addition to the pension plan
for certain employees under collective bargaining agreements established at the
end of 1998 (see below), other Company subsidiaries participate in various
multi-employer pension plans covering certain employees not covered under the
Company's pension plan. These multi-employer plans are generally defined benefit
plans; however, in many cases, specific benefit levels are not negotiated with
or known by the employer contributors. Contributions of $25,800,000, $18,600,000
and $16,500,000 for subsidiaries' defined benefit plans were made and charged to
income in 1998, 1997 and 1996, respectively.
The Company had a qualified defined benefit pension plan for all eligible
non-union domestic employees of WM Holdings which, as discussed below, was
terminated as of December 31, 1998 in conjunction with the WM Holdings Merger.
Throughout the life of the plan, benefits were based on the employee's years of
service and compensation during the highest five consecutive years out of the
last ten years of employment. The Company's funding policy was to contribute
annually an amount determined in consultation with its actuaries, approximately
equal to pension expense, except as may be limited by the requirements of the
Employee Retirement Income Security Act ("ERISA"). An actuarial valuation report
was prepared for the plan as of September 30 each year and used, as permitted by
the FASB's Statement of Financial Accounting Standards No. 87, Employers
Accounting for Pensions ("SFAS No. 87"), for the year-end disclosures.
In conjunction with the WM Holdings Merger, the Company decided to
terminate the defined benefit pension plan as of December 31, 1998, and
liquidate the plan's assets and settle its obligations to participants in 1999,
except as related to certain employees participating under collective bargaining
agreements, whose benefits were transferred to a newly created plan effective
October 1, 1998. As required under the FASB's Statement of Financial Accounting
Standard No. 88, Employer's Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, this decision has
resulted in a curtailment expense charge in unusual items of $34,716,000 in
1998, and is currently estimated to result in an approximate net cash settlement
charge in unusual items in 1999 of $125,000,000. To the extent that this
termination benefit has not yet been charged to expense and funded, additional
minimum pension liability has been recorded as a charge to other comprehensive
income. The Company expects to record this amount in 1999, at which time it will
result in an adjustment to other comprehensive income. The amount of the 1999
settlement is inversely sensitive to changing interest rates. This sensitivity
is approximately $20,000,000 for every 25 basis point fluctuation in interest
rates.
Also in conjunction with the WM Holdings Merger, the Company has terminated
certain non-qualified supplemental benefit plans for certain officers and
non-officer managers, the most significant plan being the Supplemental Executive
Retirement Plan (collectively the "Supplemental Plans"). The curtailment and
settlement loss related to these plans of $61,987,000 was recorded in unusual
items in 1998. A substantial portion of these benefits was paid to participants
by December 31, 1998, and unpaid amounts are accrued at December 31, 1998.
WM Holdings and certain of its subsidiaries provided post-retirement health
care and other benefits to eligible employees. In conjunction with the WM
Holdings Merger, the Company has decided to limit participation in these plans
to participating retired employees as of December 31, 1998.
82
<PAGE> 85
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and the fair value of assets over the two-year period ending
December 31, 1998, and a statement of the funded status as of December 31 of
both years (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
period............................... $ 328,892 $257,677 $ 64,482 $ 59,126
Service cost............................ 17,892 14,720 1,783 1,212
Interest cost........................... 23,944 20,877 4,535 4,538
Plan participants' contributions........ -- -- 300 721
Amendments.............................. 23,372 3,060 (24,188) 3,890
Actuarial (gain) loss................... 90,346 44,654 4,651 (230)
Benefits paid........................... (11,928) (12,096) (1,925) (4,775)
Curtailments............................ 52,209 -- 4,085 --
Settlements............................. (52,959) -- -- --
--------- -------- -------- --------
Benefit obligation at end of period..... $ 471,768 $328,892 $ 53,723 $ 64,482
========= ======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning
of period............................ $ 264,870 $193,722 $ -- $ --
Actual return on plan assets............ 29,310 50,357 -- --
Employer contributions.................. 89,985 32,887 1,625 4,054
Plan participants' contributions........ -- -- 300 721
Benefits paid........................... (11,928) (12,096) (1,925) (4,775)
Settlements............................. (52,959) -- -- --
--------- -------- -------- --------
Fair value of plan assets at end of
period............................... $ 319,278 $264,870 $ -- $ --
========= ======== ======== ========
Funded status:
Funded status at December 31............ $(152,490) $(64,022) $(53,723) $(64,482)
Unrecognized transition (asset)
obligation........................... (1,430) (2,860) -- (73)
Unrecognized net actuarial (gain)
loss................................. 123,554 67,176 469 (8,640)
Unrecognized prior service cost......... (10) 953 (20,576) 3,890
--------- -------- -------- --------
Net amount recognized................... $ (30,376) $ 1,247 $(73,830) $(69,305)
========= ======== ======== ========
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31 of both years (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Prepaid benefit cost...................... $ 8,220 $ 32,139 $ -- $ --
Accrued benefit liability................. (38,596) (30,892) (73,830) (69,305)
Minimum pension liability................. (118,871) (10,139) -- --
Intangible asset.......................... -- 1,184 -- --
Accumulated other comprehensive income
before tax benefit...................... 118,871 8,955 -- --
--------- -------- -------- --------
Net amount recognized..................... $ (30,376) $ 1,247 $(73,830) $(69,305)
========= ======== ======== ========
</TABLE>
83
<PAGE> 86
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the components of net periodic benefit cost
for the years ended 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost:
Service cost....................... $ 17,892 $ 14,720 $ 15,309 $1,783 $1,212 $1,118
Interest cost...................... 23,944 20,877 16,610 4,535 4,538 4,375
Expected return on plan assets..... (20,954) (17,084) (13,818) -- -- --
Amortization of transition asset... (1,430) (1,430) (1,430) -- -- --
Amortization of prior-service
cost............................ (35) 202 621 278 -- --
Amortization of net (gain) loss.... 8,450 4,772 3,609 (445) (253) (313)
-------- -------- -------- ------ ------ ------
Net periodic benefit cost.......... 27,867 22,057 20,901 6,151 5,497 5,180
Curtailment loss (included in asset
impairments and unusual
items).......................... 53,208 -- -- -- -- --
Settlement loss (included in asset
impairments and unusual
items).......................... 43,495 -- -- -- -- --
-------- -------- -------- ------ ------ ------
Net periodic benefit cost after
curtailments and settlements.... $124,570 $ 22,057 $ 20,901 $6,151 $5,497 $5,180
======== ======== ======== ====== ====== ======
</TABLE>
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table (weighted average assumptions as of
December 31):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- --------------
1998 1997 1998 1997
------ ------ ----- -----
<S> <C> <C> <C> <C>
Discount rate.................................. 6.25% 7.25% 6.50% 7.00%
Expected return on plan assets................. 9.00% 9.00% n/a n/a
Rate of compensation........................... 3.50% 3.50% n/a n/a
</TABLE>
The principal element of the Other Benefits referred to above is the
post-retirement health care plan. Participants in the WM Holdings plan
contribute to the cost of the benefit, and for retirees since January 1, 1992,
the Company's contribution is capped at between $0 and $600 per month per
retiree, based on years of service. For measurement purposes, a 7.1% annual rate
of increase in the per capita cost of covered health care claims was assumed for
1998 (being an average of the rate used by all plans); the rate was assumed to
decrease to 6% in 2001 and remain at that level thereafter. A 1% change in
assumed health care cost trend rates would have the following effects (in
thousands):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest components of
net periodic post-retirement health care benefit
cost................................................ $ 290 $ (273)
Effect on the health care component of the accumulated
post-retirement benefit obligation.................. $3,938 $(3,673)
</TABLE>
In 1998, WM Holdings merged the Employee Stock Ownership Plan that was
initially established for eligible WM Holdings' employees in 1988 into its
Retirement Savings Plan. During 1994, WM Holdings established an Employee Stock
Benefit Trust ("Trust") and sold 12,600,000 shares of its treasury stock to the
Trust in return for a 30-year, 7.33% note with interest payable quarterly and
principal due at maturity. WM Holdings has agreed to contribute to the Trust
each quarter funds sufficient, when added to dividends on the shares held by the
Trust, to pay interest on the note as well as principal outstanding at maturity.
At the direction of an administrative committee, the trustee will use the shares
or proceeds from the sale of shares to
84
<PAGE> 87
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pay employee benefits, and to the extent of such payments by the Trust, the
Company will forgive principal and interest on the note. The shares of common
stock issued to the Trust are not considered to be outstanding in the
computation of earnings per share until the shares are utilized to fund
obligations for which the trust was established. Changes in the market value of
these shares are reflected as adjustments in additional paid-in capital.
12. INCOME TAXES
For financial reporting purposes, income (loss) from continuing operations
before income taxes, showing domestic and international sources, is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Domestic................................... $(896,875) $(865,783) $757,537
International.............................. 196,996 203,286 16,695
--------- --------- --------
Income (loss) from continuing
operations..................... $(699,879) $(662,497) $774,232
========= ========= ========
</TABLE>
The provision for income taxes on continuing operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal.................................. $ 356,056 $ 569,935 $216,814
State.................................... 88,484 83,592 57,860
Foreign.................................. 72,541 85,357 22,875
--------- --------- --------
517,081 738,884 297,549
--------- --------- --------
Deferred:
Federal.................................. (463,635) (369,408) 86,654
State.................................... (51,889) (27,271) 26,936
Foreign.................................. 65,366 21,136 75,561
--------- --------- --------
(450,158) (375,543) 189,151
--------- --------- --------
Provision for income taxes....... $ 66,923 $ 363,341 $486,700
========= ========= ========
</TABLE>
85
<PAGE> 88
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The federal statutory rate is reconciled to the effective rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Income taxes (benefit) at federal statutory
rate............................................ (35.00)% (35.00)% 35.00%
State and local income taxes, net of federal
income tax benefit.............................. 3.23 5.51 7.11
Nondeductible costs relating to acquired
intangibles..................................... 16.85 30.88 7.55
Nondeductible merger costs........................ 8.22 1.40 1.33
Writedown of investments in subsidiary............ -- 6.46 7.66
Minority interest................................. 0.82 2.40 1.87
Gain on sale of foreign subsidiary................ -- -- 2.26
Deferred tax valuation and other tax reserves..... 8.79 40.11 0.90
Federal tax on foreign income..................... 4.35 0.30 1.20
Nonconventional fuel tax credit................... (3.61) (2.80) (1.99)
Other............................................. 5.91 5.59 (0.07)
------ ------ -----
Provision for income taxes...................... 9.56% 54.85% 62.82%
====== ====== =====
</TABLE>
The components of the net deferred tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss, capital loss and tax credit
carryforwards................................. $ 322,129 $ 287,384
Environmental and other reserves................. 670,502 754,195
Reserves not deductible until paid............... 178,608 291,168
----------- -----------
Subtotal................................. 1,171,239 1,332,747
Deferred tax liabilities:
Property, equipment, intangible assets, and
other......................................... (1,072,138) (1,567,579)
Valuation allowance................................ (331,592) (232,800)
----------- -----------
Net deferred tax liabilities............. $ (232,491) $ (467,632)
=========== ===========
</TABLE>
At December 31, 1998, the Company's subsidiaries have approximately
$200,599,000 of federal net operating loss ("NOL") carryforwards, $1,007,749,000
of state NOL carryforwards, and $598,930,000 of foreign NOL carryforwards.
Foreign NOL carryforwards of approximately $535,530,000 may be carried forward
indefinitely; the remaining NOL carryforwards have expiration dates through
2013. The Company's subsidiaries have $16,062,000 of alternative minimum tax
credit carryforwards that may be used indefinitely; state tax credit
carryforwards of $5,039,000; federal investment tax credit carryforwards of
$381,000; and foreign tax credit carryforwards of $32,614,000. Valuation
allowances have been established for uncertainties in realizing the benefit of
tax loss and credit carryforwards. While the Company expects to realize the
deferred tax assets, net of the valuation allowances, changes in estimates of
future taxable income or in tax laws may alter this expectation.
During 1997, the valuation allowance increased approximately $101,056,000,
composed of increases to allowances due to the uncertainty of realizing
alternative minimum tax credits, tax benefits from certain asset impairment
writedowns (primarily land), foreign tax credits, and NOL carryforwards
partially offset by reductions in allowances attributable primarily to foreign
net operating loss carryforwards. In 1998, the
86
<PAGE> 89
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
valuation allowance increased approximately $98,792,000 primarily due to the
uncertainty of realizing foreign NOL carryforwards.
The Company does not provide for U.S. income taxes on unremitted earnings
of foreign subsidiaries as it is the present intention of management to reinvest
the unremitted earnings in its foreign operations. Unremitted earnings of
foreign subsidiaries are approximately $498,000,000 at December 31, 1998. It is
not practicable to determine the amount of U.S. income taxes that would be
payable upon remittance of the assets that represent those earnings.
13. SEGMENT AND RELATED INFORMATION
The Company's North American solid waste management operations represents
80.5% of operating revenues, 98.7% of earnings before interest and tax ("EBIT"),
and 77.3% of total assets in 1998, and is the Company's principal reportable
segment under Statement of Financial Accounting Standards No. 131, Disclosure
about Segments of an Enterprise and Related Information ("SFAS No. 131"). 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 miscellaneous services to commercial,
industrial, municipal and residential customers in North America. Similar
operations in international markets outside of North 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
as permitted under SFAS No. 131. 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 business lines that are being actively
marketed. No single customer accounted for as much as 10% of consolidated
revenue in any year.
Certain of the services provided by the Company are subject to extensive
and evolving federal, state, and local environmental laws and regulations in the
U.S. and elsewhere that have been enacted in response to technological advances
and the public's increased concern over environmental issues. Refer to Notes 6
and 17 for a further discussion of regulatory issues.
Summarized financial information concerning the Company's reportable
segments for the respective years ended December 31, 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 December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL NON-SOLID CORPORATE
SOLID WASTE WASTE SERVICES WASTE FUNCTIONS(A) TOTAL
-------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Net operating revenues(b)... $10,220,478 $1,533,635 $ 949,356 $ -- $12,703,469
Earnings before interest and
taxes (EBIT)(c), (d)..... 2,478,733 132,937 103,443 (204,043) 2,511,070
Depreciation and
amortization............. 1,241,330 169,051 43,579 44,752 1,498,712
Capital expenditures........ 1,438,458 166,035 34,605 12,391 1,651,489
Total assets(d)............. 17,553,957 3,107,968 1,003,035 1,050,238 22,715,198
1997
Net operating revenues(b)... $ 9,244,910 $1,789,988 $ 937,600 $ -- $11,972,498
Earnings before interest and
taxes (EBIT)(c), (d)..... 1,790,027 187,619 96,082 (413,814) 1,659,914
Depreciation and
amortization............. 1,086,547 181,353 55,258 68,652 1,391,810
Capital expenditures........ 1,128,904 150,908 29,337 23,058 1,332,207
Total assets(d)............. 15,067,951 3,055,634 1,222,464 810,375 20,156,424
</TABLE>
87
<PAGE> 90
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL NON-SOLID CORPORATE
SOLID WASTE WASTE SERVICES WASTE FUNCTIONS(A) TOTAL
-------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1996
Net operating revenues(b)... $ 8,097,860 $1,913,793 $ 986,949 $ -- $10,998,602
Earnings before interest and
taxes (EBIT)(c), (d)..... 1,654,154 216,198 132,267 (148,927) 1,853,692
Depreciation and
amortization............. 949,570 195,944 52,631 66,051 1,264,196
Capital expenditures........ 1,248,623 214,103 27,769 28,777 1,519,272
Total assets(d)............. 13,938,513 4,103,273 2,118,313 567,425 20,727,524
</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 $122,400,000, $86,400,000 and $69,100,000 in 1998,
1997 and 1996, 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.
(d) There are no material asymmetrical allocations of EBIT versus assets
between segments or corporate. Certain asset impairments and unusual items
reported in the reconciliation of EBIT to reported net income below,
however, have resulted in adjustments to assets ultimately reflected on
segment balance sheets. Assets are net of inter-segment receivables and
investments.
The reconciliation of total EBIT reported above to net income is as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
EBIT, as reported above.................. $2,511,070 $ 1,659,914 $1,853,692
(Plus) less:
Merger costs........................... 1,807,245 112,748 126,626
Asset impairments and unusual items.... 864,063 1,771,145 529,768
Income (loss) from continuing
operations held for sale............ 151 9,930 (315)
Interest expense....................... 681,457 555,576 525,340
Interest income........................ (26,829) (45,214) (34,603)
Minority interest...................... 24,254 45,442 41,289
Other income, net...................... (139,392) (127,216) (108,645)
---------- ----------- ----------
Income (loss) from continuing operations
before income taxes.................... (699,879) (662,497) 774,232
Provision for income taxes............... 66,923 363,341 486,700
---------- ----------- ----------
Income (loss) from continuing
operations............................. (766,802) (1,025,838) 287,532
Discontinued operations.................. -- (95,688) 263,301
Extraordinary loss....................... 3,900 6,809 --
Cumulative effect of change in accounting
principle.............................. -- 1,936 --
---------- ----------- ----------
Net income (loss).............. $ (770,702) $ (938,895) $ 24,231
========== =========== ==========
</TABLE>
88
<PAGE> 91
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign operations in 1998 were conducted in seven countries in Europe,
seven countries in the Pacific Rim, Canada, Mexico, Brazil, Israel and
Argentina. Operating revenues and property and equipment (net) relating to the
Company's operations by significant geographic area is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
United States....................... $10,681,924 $ 9,707,546 $ 8,897,002
Europe.............................. 1,264,209 1,406,026 1,523,347
Canada.............................. 425,531 412,633 150,837
Other foreign....................... 331,805 446,293 427,416
----------- ----------- -----------
Total....................... $12,703,469 $11,972,498 $10,998,602
=========== =========== ===========
Property and equipment, net:
United States....................... $ 9,785,845 $ 9,187,923 $ 9,385,496
Europe.............................. 841,418 903,174 1,135,720
Canada.............................. 840,887 906,142 231,928
Other foreign....................... 169,589 191,291 212,797
----------- ----------- -----------
Total....................... $11,637,739 $11,188,530 $10,965,941
=========== =========== ===========
</TABLE>
The Company operates facilities in Hong Kong which are owned by the Hong
Kong government. The Hong Kong economy has been impacted by the economic
uncertainty associated with many of the countries in the region. High and
volatile interest rates have resulted from speculation regarding its currency.
The Company also has operations in Indonesia, Thailand and Brazil. These
countries have experienced illiquidity, volatile currency exchange rates and
interest rates, and reduced economic activity. The Company will be affected for
the foreseeable future by economic conditions in this region, although it is not
possible to determine the extent of such impact. At December 31, 1998, the
Company has $114,749,000 revenue, $41,403,000 property and equipment, net, and
$104,103,000 total investment in the above Asian countries (including Hong
Kong). The Company has a total investment of $38,900,000 in Brazil which is
primarily investments accounted for under the equity method of accounting.
Income from continuing operations before income taxes from Hong Kong was
$21,200,000 in 1998. Income from Indonesia, Thailand and Brazil has not been
significant to date.
14. ASSET IMPAIRMENTS AND UNUSUAL ITEMS
In 1998, 1997, and 1996, the Company recorded certain charges for asset
impairments and unusual items resulting from reviews of business integration and
operating plans. Such reviews were generally performed in connection with the
Company's merger activities. In addition, the 1997 consolidated financial
statements include a significant accounting charge resulting from a
comprehensive review performed by the management of WM Holdings of its
operations and investments in the fourth quarter of 1997. Similarly, the 1996
consolidated financial statements include accounting charges recorded by WM
Holdings for certain operational and management restructuring activities and
assets that had become impaired.
Fair values for asset impairment losses was determined for landfills,
hazardous waste facilities, recycling investments and other facilities,
primarily based on future cash flow projections discounted back using discount
rates appropriate for the risks involved with the specific assets. For surplus
real estate, market opinions and appraisals were used. In determining fair
values for abandoned projects and vehicles to be sold, recoverable salvage
values were determined using market estimates. Impaired assets to be sold are
primarily businesses to be sold (see Note 18) and surplus real estate. The
Company provides for losses in connection with long-term waste service contracts
where an obligation exists to perform services and when it becomes
89
<PAGE> 92
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
evident the projected direct and incremental contract costs will exceed the
related contract revenues. In general, these losses relate to contracts with
remaining average duration of five years.
The following is a summary of asset impairments and unusual items that are
reflected in the Company's consolidated financial statements for the year ended
December 31, 1998 (in millions):
<TABLE>
<S> <C>
Provision for losses on contractual commitments............. $115.6
Changes in estimates relating to the reassessment of
ultimate losses for certain legal and remediation
issues.................................................... 331.9
Write-down to estimated net sales proceeds of businesses to
be sold................................................... 195.1
Curtailment and settlement costs of terminating the defined
benefit pension plan (Note 11)............................ 34.7
Compensation charges for the liquidation of WM Holdings'
Supplemental Executive Retirement Plan (Note 11) and other
supplemental plans........................................ 72.2
Put provisions of certain WM Holdings' stock options as a
result of change in control provisions.................... 114.6
------
Total............................................. $864.1
======
</TABLE>
In 1998, the Company increased its reserves for certain legal and
environmental remediation issues as a result of management's emphasis to resolve
and settle certain issues relating primarily to WM Holdings, including a class
action securities litigation against WM Holdings.
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. The charge to pre-tax earnings as a result of these put
rights was $114,600,000 in the third quarter of 1998. 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 through July 16, 1999,
at which time all put rights expire. The expense related to these stock option
put rights has no impact to equity as the offset is a direct increase to
additional paid-in capital, as these put rights will be satisfied by the
issuance of stock.
90
<PAGE> 93
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of asset impairments and unusual items reflected
in the Company's consolidated financial statements for the year ended December
31, 1997 (in millions):
<TABLE>
<S> <C>
Asset impairments:
Landfills, related primarily to management decisions to
abandon expansions and development projects due to
political or competitive factors, which will result in
closure earlier than previously expected (includes
$233.8 for hazardous waste sites)...................... $ 592.9
Hazardous waste facilities, resulting from continuing
market deterioration, increased competition, excess
capacity and changing regulation....................... 131.4
Goodwill, primarily related to landfills and hazardous
waste facilities impaired (including $411.0 related to
hazardous waste business).............................. 433.4
Write-down of WTI long-lived assets, including $47.1
related to a wood waste burning independent power
production facility.................................... 57.2
Recycling investments, related primarily to continued
pricing, overcapacity and competitive factors.......... 21.5
Write-down to estimated net realizable value of trucks to
be sold as a result of new fleet management policy
(Note 4)............................................... 70.9
Write-down to estimated net sales proceeds of businesses
to be sold (Note 18)................................... 122.2
Abandoned equipment and facilities........................ 37.3
Surplus real estate....................................... 38.2
Provisions for losses on contractual commitments............ 120.2
Severance for terminated employees.......................... 41.6
Special charge for WM International, primarily costs of
demobilization in Argentina following the expiration of
the City of Buenos Aires contract, divestiture or closure
of underperforming businesses (primarily in Italy and
Germany) and abandonment of projects (primarily in
Germany).................................................. 104.3
--------
Total............................................. $1,771.1
========
</TABLE>
91
<PAGE> 94
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of asset impairments and unusual items reflected
in the Company's consolidated financial statements for the year ended December
31, 1996 (in millions):
<TABLE>
<S> <C>
Asset impairments:
Landfills, related primarily to management decisions to
abandon expansion projects due to political or
competitive factors, which will result in closure
earlier than previously expected....................... $ 20.4
Recycling investments, related primarily to pricing,
overcapacity and competitive factors................... 47.8
Other, primarily equipment to be scrapped................. 2.0
Surplus real estate....................................... 1.5
Write-down to estimated net sales proceeds of businesses to
be sold................................................... 28.9
Reserves for certain litigation and for reengineering of
finance and administrative functions...................... 154.1
Provisions for losses on contractual commitments............ 53.6
Western retirement benefits................................. 4.8
Special charge for WM International:
Loss on sale of investment in Wessex Water Plc............ 47.1
Revaluation of investments in France, Austria, and Spain
in contemplation of exiting all or part of these
markets or forming joint ventures and write-off of a
hazardous waste disposal facility in Germany with
volumes adversely affected by regulatory changes....... 169.6
--------
Total............................................. $ 529.8
========
</TABLE>
15. EARNINGS PER SHARE
The following reconciles the number of common shares outstanding at
December 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 purposes of calculating basic and dilutive
earnings per common share, respectively (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Number of common shares outstanding............. 600,351 556,546 541,071
Effect of using weighted average common shares
outstanding................................... (16,050) 1,129 (3,802)
------- ------- -------
Weighted average number of common shares
outstanding................................... 584,301 557,675 537,269
Dilutive effect of common stock options and
warrants...................................... -- -- 9,647
------- ------- -------
Weighted average number of common and dilutive
potential common shares outstanding........... 584,301 557,675 546,916
======= ======= =======
</TABLE>
Diluted earnings per common share for the years ended December 31, 1998,
1997, and 1996 has been calculated excluding the effects of the Company's
convertible subordinated notes and debentures as inclusion of such items would
be anti-dilutive for these periods.
At December 31, 1998, there were approximately 73,600,000 common shares
potentially issuable with respect to stock options, warrants, and convertible
debt, which could dilute basic earnings per share in the future.
92
<PAGE> 95
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
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, 1996.............. $ (95,056) $(18,885) $(113,941)
Current-period change................. (180,744) 11,492 (169,252)
--------- -------- ---------
Balance, December 31, 1997.............. (275,800) (7,393) (283,193)
Current-period change................. (77,842) (59,769) (137,611)
--------- -------- ---------
Balance, December 31, 1998.............. $(353,642) $(67,162) $(420,804)
========= ======== =========
</TABLE>
17. COMMITMENTS AND CONTINGENCIES
Operating leases -- The Company leases many of its operating and office
facilities for various terms. Lease expense aggregated $194,846,000,
$189,873,600, and $186,270,000 during 1998, 1997 and 1996, respectively. These
amounts include rents under long-term leases, short-term cancelable leases and
rents charged as a percentage of revenue, but are exclusive of financing leases
capitalized for accounting purposes.
The long-term rental obligations as of December 31, 1998, are due as
follows (in thousands):
<TABLE>
<S> <C>
First year............................................... $ 142,397
Second year.............................................. 133,069
Third year............................................... 127,206
Fourth year.............................................. 155,341
Fifth year............................................... 104,568
Sixth through tenth years................................ 431,114
Eleventh year and thereafter............................. 143,004
----------
$1,236,699
==========
</TABLE>
Financial instruments -- Letters of credit, performance bonds and other
guarantees have been provided by the Company supporting tax-exempt bonds,
performance of final landfill closure and post-closure requirements, insurance
contracts, and other contracts. Total letters of credit, performance bonds,
insurance policies, and other guarantees outstanding at December 31, 1998,
aggregated approximately $3,940,719,000. The insurance policies are issued by a
wholly-owned insurance company subsidiary, the sole business of which is to
issue such policies to customers of the Company and its subsidiaries. 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. Such financial instruments are to be valued based
on the amount of exposure under the instrument and the likelihood of performance
being required. 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.
93
<PAGE> 96
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental matters -- The continuing business in which the Company is
engaged is intrinsically connected with the protection of the environment. As
such, a significant portion of the Company's operating costs and capital
expenditures could be characterized as costs of environmental protection. Such
costs may increase in the future as a result of legislation or regulation,
however, the Company believes that in general it tends to benefit when
environmental regulation increases, which may increase the demand for its
services, and that it has the resources and experience to manage environmental
risk.
As part of its ongoing operations, the Company provides for estimated final
closure and post-closure monitoring costs over the estimated operating life of
disposal sites as airspace is consumed. The Company has also established
procedures to evaluate potential remedial liabilities at closed sites which it
owns or operated or to which it transported, waste including 88 sites listed on
the NPL as of December 31, 1998. Where the Company concludes that it is probable
that a liability has been incurred, provision is made in the 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 industry, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
any such adjustment would be material to its financial statements, it is
reasonably possible that technological, regulatory or enforcement developments,
the results of environmental studies, the existence and ability of other
potentially responsible third parties to contribute to the settlements of such
liabilities, or other factors could necessitate the recording of additional
liabilities which could be material.
Litigation -- In November and December 1997, several alleged purchasers of
WM Holdings securities (including but not limited to WM Holdings common stock),
who allegedly bought their securities between 1996 and 1997, brought 14
purported class action lawsuits against WM Holdings and several of its former
officers 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.
Among other things, the plaintiffs alleged that WM Holdings employed accounting
practices that were improper and that caused its publicly filed financial
statements to be materially false and misleading. 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 14 putative class actions were consolidated before one judge.
On May 29, 1998, the plaintiffs filed a consolidated amended complaint against
WM Holdings and four of its former officers. The consolidated amended complaint
seeks recovery on behalf of a proposed class of all purchasers of WM Holdings
securities between May 29, 1995, and October 30, 1997. The consolidated 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 $220,000,000 for the class of open market
purchasers of WM Holdings equity 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 or
that, because members of the class may opt out of the lawsuit, WM Holdings will
not be a party to additional lawsuits or claims brought by individuals.
The Company is aware of another action arising out of the same set of facts
alleging a cause of action under Illinois state law. Additionally, there are
several other actions and claims arising out of the same set of
94
<PAGE> 97
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facts, including one purported class action brought by business owners who
received WM Holdings shares in the sales of their businesses to WM Holdings that
alleges breach of contract causes of action on the basis of allegedly false
representation and warranties. A purported derivative action has also been filed
by an alleged former shareholder 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 matter described in this
paragraph. It is not possible at this time to predict the impact this litigation
may have on WM Holdings or the Company nor is it possible to predict whether any
other suits or claims arising out of these matters may be brought 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
condition or results of operations in one or more future periods. WM Holdings
intends to defend itself vigorously in the litigation.
The Company is also aware that the Securities and Exchange Commission has
commenced a formal investigation with respect to the 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.
On March 12, 1998, a stockholder of WM Holdings filed a purported class
action suit in the Chancery Court of the State of Delaware in the New Castle
County against WM Holdings and certain of its former directors. The complaint
alleges, among other things, that (i) the Merger was the product of unfair
dealing and the price paid to members of the purported class for their WM
Holdings common stock was unfair and inadequate, (ii) the WM Holdings Merger
will prevent members of the purported class from receiving their fair portion of
the value of WM Holdings' assets and business and from obtaining the real value
of their equity ownership of WM Holdings, (iii) defendants breached their
fiduciary duties owed to the members of the purported class by putting their
personal interests ahead of the interests of WM Holdings' public stockholders
and (iv) the members of the class action will suffer irreparable damage unless
the defendants are enjoined from breaching their fiduciary duties. The complaint
seeks equitable relief that would rescind the WM Holdings Merger and monetary
damages from the defendants for unlawfully gained profits and special benefits.
The Company believes the suit to be without merit and intends to contest it
vigorously.
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 relate to alleged technical violations of licenses or permits
pursuant to which the Company operates or is seeking to operate or laws or
regulations to which its operations are subject or are the result of different
interpretations of the applicable requirements. From time to time, the Company
pays fines or penalties in environmental proceedings relating primarily to waste
treatment, storage or disposal facilities. 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 subsidiary's having owned, operated or
transported waste to a disposal facility which is alleged to have contaminated
the environment or, in certain cases, conducted environmental remediation
activities at 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
95
<PAGE> 98
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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, 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 in August 1997. 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 June 1996, an indictment was brought against All-Waste Systems, Inc.
("All-Waste"), an indirect subsidiary of the Company acquired in December 1998
in connection with the Eastern Merger, thirteen other corporations and seven
individuals in the Southern District of New York. In September 1997 nineteen of
the defendants entered guilty pleas and collectively agreed to pay $17,000,000
in restitution to the IRS and Westchester County, fines and civil forfeitures.
All-Waste pled guilty to mail fraud, which arose out of an alleged bid-rigging
scheme for the Town of New Windsor, paid an $85,000 fine and was sentenced to a
five year probation period. The probation period was terminated upon the closing
of the sale of All-Waste to Eastern in June 1998.
In March 1999, the Company was notified that 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 the September 1997 conviction of
All-Waste and activities that occurred prior to 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 judgment 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 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
96
<PAGE> 99
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. See
Note 6.
Several purported class action lawsuits and one purported derivative
lawsuit seeking injunctive relief and unspecified money damages were filed in
the Chancery Court in and for New Castle County, Delaware against the Company,
WTI, and individual directors of WTI in connection with the June 20, 1997,
proposal by WM Holdings to acquire all of the shares of WTI common stock which
WM Holdings did not own. WM Holdings subsequently consummated a merger in which
WTI's stockholders received $16.50 in cash per share of WTI's common stock. The
lawsuits, which have since been consolidated into a single action, allege, among
other things, that the defendants breached fiduciary duties to WTI's minority
stockholders because the merger consideration contemplated by the proposal was
inadequate and unfair. The Company believes that the defendants' actions in
connection with the proposal were in accordance with Delaware law and, on that
basis, has agreed to a settlement providing for the dismissal of all of the
lawsuits against all defendants. The settlement agreement with the plaintiffs is
subject to various conditions, including notice to the putative class and
approval by the Court after a hearing.
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 417,000,000 Krona (approximately $52,000,000) 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.
Insurance -- The Company carries a broad range of insurance coverages,
which management considers prudent for the protection of the Company's assets
and operations. Some of these coverages are subject to varying retentions of
risk by the Company. The casualty policies provide for $2,000,000 per occurrence
coverage for primary commercial general liability and $1,000,000 per accident
coverage primary automobile liability (including coverage for pollution exposure
arising out of trucking operations) supported by $400,000,000 in umbrella
insurance protection. The property policy provides insurance coverage for all of
the Company's real and personal property on a replacement cost basis, including
California earthquake perils. The Company also carries $200,000,000 in aircraft
liability protection.
The Company maintains workers' compensation insurance in accordance with
laws of the various states and countries in which it has employees. The Company
also currently has an environmental impairment liability ("EIL") insurance
policy for certain of its landfills, transfer stations, and recycling facilities
that provides coverage for property damages and/or bodily injuries to third
parties caused by off-site pollution emanating from such landfills, transfer
stations, or recycling facilities. At December 31, 1998, this policy provides
$10,000,000 of coverage per loss with a $20,000,000 aggregate limit.
97
<PAGE> 100
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Through the date of the WM Holdings Merger, certain of WM Holdings' auto,
general liability, environmental impairment liability, and workers' compensation
risks were self-insured up to $5,000,000 per accident. For such programs, a
provision was made in each accounting period for estimated losses, including
losses incurred but not reported, and the related reserves are adjusted as
additional claim information becomes available. Claim reserves are discounted at
5.5% and 6% at December 31, 1998 and 1997, respectively. The self-insurance
reserve included in the accompanying consolidated balance sheets is $277,400,000
and $226,700,000 at December 31, 1998 and 1997, respectively.
To date, the Company has not experienced any difficulty in obtaining
insurance. However, if the Company in the future is unable to obtain adequate
insurance, or decides to operate without insurance, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows. Additionally, continued availability of
casualty and EIL insurance with sufficient limits at acceptable terms is an
important aspect of obtaining revenue-producing waste service contracts.
18. ASSETS AND OPERATIONS HELD FOR SALE
Assets Held for Sale
The Company is disposing of certain assets to comply with governmental
orders related to the WM Holdings Merger and Eastern Merger 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 $372,596,000 and
earnings before interest and taxes of approximately $20,600,000 in 1998. In
addition, as a result of the WM Holdings Merger, various real estate became
duplicative and surplus, and will be sold. As discussed in Notes 3 and 14, 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.
Operations Held for Sale
In the fourth quarter of 1995, the Company approved a plan to sell or
otherwise discontinue the process engineering, construction, specialty
contracting and similar lines of business of Rust International, Inc. ("Rust"),
a subsidiary owned 60% by WM Holdings and 40% by WTI. At December 31, 1996,
management also classified as discontinued and planned to sell Rust's domestic
environmental and infrastructure engineering and consulting business and
Chemical Waste Management, Inc.'s ("CWM") high organic waste fuel blending
services business. Also, WTI classified certain of its water process systems and
equipment manufacturing businesses (sold in 1996) and its water and wastewater
facility operations and privatization business (sold in 1997) as discontinued
businesses in 1996. Operating revenues from the discontinued business were
$84,800,000 in 1997, and $734,500,000 in 1996. Results of their operations in
1997 were included in the reserve for loss on disposition provided previously,
and such results were not material.
In 1997, management reclassified the CWM business back into continuing
operations, and classified certain of its sites as operations held for sale. The
Rust dispositions were not completed within one year, and accordingly, this
business was reclassified back into continuing operations held for sale, at
December 31, 1997, though management continued its efforts to market these
businesses. Because these business were reclassified to continuing operations,
the remaining provision for loss on disposal ($95,000,000 after
tax -- $87,000,000 related to Rust and $8,000,000 related to CWM) was reversed
in discontinued operations and an impairment loss for Rust of $122,200,000 was
recorded in continuing operations in the fourth quarter of 1997. Prior year
financial statements were restated. The majority of these assets were sold
during the second and third quarters of 1998, respectively, for amounts
approximately equal to their recorded net book values. Information
98
<PAGE> 101
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
regarding the businesses presented in the consolidated statement of operations
as net assets of continuing operations held for sale is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating revenues........................... $238,108 $350,400 $361,500
Income (loss) before tax after minority
interest................................... (151) (9,930) 315
Net income (loss)............................ (376) (6,700) 100
</TABLE>
The remaining assets and liabilities of these businesses were not material
at December 31, 1998. At December 31, 1997, related amounts are included in net
assets of continuing operations held for sale (long-term) in the accompanying
consolidated balance sheets, and consists of the following (including 73,300,000
of surplus real estate) (in thousands):
<TABLE>
<S> <C>
Current assets.......................................... $ 118,600
Land, property and equipment and other noncurrent
assets................................................ 238,000
Current liabilities..................................... (41,000)
Noncurrent liabilities.................................. (161,216)
---------
Net assets of continuing operations held for sale....... $ 154,384
=========
</TABLE>
19. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED
The following table summarizes the unaudited consolidated quarterly results
of operations for 1998 and 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Operating revenues................. $2,969,433 $3,250,731 $3,244,201 $3,239,104
Operating income(loss)............. 452,248 569,247 (1,545,744) 363,860
Income (loss) from continuing
operations...................... 181,416 246,770 (1,258,473) 63,485
Net income (loss).................. 181,416 242,870 (1,258,473) 63,485
Earnings (loss) from continuing
operations per common share:
Basic........................... 0.32 0.43 (2.11) 0.11
Diluted......................... 0.31 0.42 (2.11) 0.10
Earnings (loss) per common share:
Basic........................... 0.32 0.42 (2.11) 0.11
Diluted......................... 0.31 0.41 (2.11) 0.10
1997
Operating revenues................. $2,699,541 $3,031,015 $3,154,383 $3,087,559
Operating income(loss)............. 337,229 471,707 284,836 (1,327,681)
Income (loss) from continuing
operations...................... 170,419 137,117 56,511 (1,389,885)
Net income (loss).................. 171,066 144,678 50,422 (1,305,061)
Earnings (loss) from continuing
operations per common share:
Basic........................... 0.31 0.25 0.10 (2.50)
Diluted......................... 0.30 0.24 0.10 (2.50)
Earnings (loss) per common share:
Basic........................... 0.31 0.26 0.09 (2.34)
Diluted......................... 0.30 0.25 0.09 (2.34)
</TABLE>
99
<PAGE> 102
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Basic and diluted earnings per common share for each of the quarters
presented above is based on the respective weighted average number of common and
dilutive potential common shares outstanding for each period and the sum of the
quarters may not necessarily be equal to the full year basic and diluted
earnings per common share amounts.
Amounts presented above are restated for certain pooling of interests
transactions as discussed in Note 3, and are different from amounts originally
reported. The results of operations for 1998 and 1997 include certain charges
for merger costs, asset impairments and unusual items, as disclosed in Notes 3
and 14. In 1998, such charges were $7,602,000, $7,361,000, $2,231,116,000, and
$425,229,000 in the first, second, third, and fourth quarters, respectively.
Such items charged to expense in the first, second, third and fourth quarters of
1997 were $27,660,000, $52,922,000, $158,113,000 and $1,645,198,000,
respectively.
20. SUBSEQUENT EVENTS
Financing Transactions
In March 1999 the Company called its 5% convertible subordinated debentures
(due March 1, 2006). These debentures were subsequently converted into shares of
the Company's stock by the debentures holders. If the subordinated debenture
conversion occurred on January 1, 1998, diluted earnings per share would have
been increased by $0.01 for 1998.
100
<PAGE> 103
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under the caption
"Election of Directors" in the Company's definitive Proxy Statement for its 1999
Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1999 Proxy Statement"), and is
incorporated herein by reference. Information concerning the executive officers
of the Company is set forth above under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the caption
"Election of Directors -- Executive Compensation" in the 1999 Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the caption
"Election of Directors -- Beneficial Ownership of Waste Management Common Stock"
in the 1999 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the caption
"Election of Directors -- Certain Relationships and Related Transactions" in the
1999 Proxy Statement and is incorporated herein by reference.
101
<PAGE> 104
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements:
Report of Independent Public Accountants
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is
not significant or is included in the financial statements or notes thereto, or
is not applicable.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of June 22, 1996,
by and among the Registrant, Quatro Acquisition Corp. and
Sanifill, Inc. [Incorporated by reference to Annex A in
the Registrant's Registration Statement on Form S-4, File
No. 333-08161].
2.2 -- Amendment No. 1, dated as of July 18, 1996, to Agreement
and Plan of Merger, by and among the Registrant, Quatro
Acquisition Corp. and Sanifill, Inc. [Incorporated by
reference to Annex A in the Registrant's Registration
Statement on Form S-4, File No. 333-08161].
2.3 -- Agreement and Plan of Merger, dated as of April 13, 1997,
by and among the Registrant, Riviera Acquisition
Corporation and United Waste Systems, Inc. [Incorporated
by reference to Appendix A in the Registrant's
Registration Statement on Form S-4, File No. 333-31979].
2.4 -- Agreement and Plan of Merger, dated March 10, 1998, by
and among the Registrant, Dome Merger Subsidiary, Inc.
and Waste Management, Inc. [Incorporated by reference to
Exhibit 99.1 of the Registrant's Current Report on Form
8-K dated March 10, 1998].
2.5 -- Agreement and Plan of Merger, dated as of February 16,
1998, by and among the Registrant, C&S Ohio Corp. and
American Waste Services, Inc. [Incorporated by reference
to Exhibit 10.70 to American Waste Services' Current
Report on Form 8-K, dated February 6, 1998].
2.6 -- Agreement and Plan of Merger, dated as of August 16,
1998, by and among the Registrant, Ocho Acquisition
Corporation and Eastern Environmental Services, Inc.
[Incorporated by reference to Annex A in the Registrant's
Registration Statement on Form S-4, File No 333-64239].
</TABLE>
102
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
2.7 -- Scheme of Arrangement between Waste Management
International plc and the Holders of the Scheme Shares
dated September 7, 1998 [Incorporated by reference to the
Registrant's Schedule 13E-3 Transaction Statement dated
September 7, 1998]
2.8 -- Agreement and Plan of Merger by and among the Registrant,
TransAmerican Acquisition Corp., and TransAmerican Waste
Industries, Inc. dated January 1998 [Incorporated by
reference to the Registrant's Registration Statement on
Form S-4, File No. 333-49253]
2.9 -- Agreement and Plan of Merger by and among Waste
Management, Inc., WMI Merger Sub, Inc. and Wheelabrator
Technologies Inc. dated December 8, 1997 [Incorporated by
reference to Exhibit A of WTI's Proxy Statement on
Schedule 14A filed on March 3, 1998]
3.1 -- Restated Certificate of Incorporation, as amended
[Incorporated by reference to Exhibit 3.2 of the
Registrant's current Report on Form 8-K dated July 16,
1998].
3.2 -- Bylaws [Incorporated by reference to Exhibit 3.2 to the
Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-4, File No. 33-60103].
4.1 -- Specimen Stock Certificate.
4.2 -- Indenture for Subordinated Debt Securities dated February
1, 1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated February 7, 1997].
4.3 -- Supplemental Indenture, dated as of August 26, 1997,
among the Registrant, United Waste Systems, Inc. and
Bankers Trust Company relating to United Waste Systems,
Inc.'s 4 1/2% Convertible Subordinated Notes due June 1,
2001 [Incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K dated August 26,
1997].
4.4 -- Indenture for Senior Debt Securities dated September 10,
1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated September 10, 1997].
10.1 -- 1990 Stock Option Plan [Incorporated by reference to
Exhibit 10.1 of the Registrant's Annual report on Form
10-K for the year ended December 31, 1990].
10.2 -- Conformed copy of 1993 Stock Incentive Plan, as amended
and restated.
10.3 -- Conformed copy of 1996 Stock Option Plan for Non-Employee
Directors, as amended.
10.4 -- Envirofil, Inc. 1993 Stock Incentive Plan [Incorporated
by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, File No. 33-84990].
10.5 -- Western Waste Industries Amended and Restated 1983
Incentive Stock Option Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-02181].
10.6 -- Western Waste Industries 1983 Non-Qualified Stock Option
Plan [Incorporated by reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-8, File No.
333-02181].
10.7 -- Western Waste Industries 1992 Option Plan [Incorporated
by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8, File No. 333-02181].
</TABLE>
103
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.8 -- Sanifill, Inc. 1994 Long-Term Incentive Plan
[Incorporated by reference to Exhibit 99.1 of the
Registrant's Registration Statement on Form S-8, File No.
333-08161].
10.9 -- Sanifill, Inc. 1989 Stock Option Plan [Incorporated by
reference to Exhibit 99.2 of the Registrant's
Registration Statement on Form S-8, File No. 333-08161].
10.10 -- Waste Management, Inc. 1997 Equity Incentive Plan
[Incorporated by reference to Exhibit A to Waste
Management Holdings' Proxy Statement for its 1997 Annual
Meeting of Shareholders].
10.11 -- WMX Technologies, Inc. 1996 Replacement Stock Option Plan
[Incorporated by reference to Exhibit 4.13 to Waste
Management Holdings' Registration Statement on Form S-8,
File No. 333-01325].
10.12 -- WMX Technologies, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.31 to Waste
Management Holdings' Registration Statement on Form S-1,
File No. 33-44849].
10.13 -- WMX Technologies, Inc. 1992 Stock Option Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.23 to Waste Management Holdings' 1996 Annual
Report on Form 10-K].
10.14 -- Waste Management, Inc. 1982 Stock Option Plan, as amended
to March 11, 1988 [Incorporated by reference to Exhibit
10.3 to Waste Management Holdings' 1988 Annual Report on
Form 10-K].
10.15 -- Wheelabrator Technologies Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.45 to the 1991
Annual Report on Form 10-K of Wheelabrator Technologies
Inc.].
10.16 -- Wheelabrator Technologies Inc. 1988 Stock Plan for
Executive Employees of WTI and its Subsidiaries
[Incorporated by reference to Exhibit 28.1 to Amendment
No. 1 to the Registration Statement of Wheelabrator
Technologies Inc. on Form S-8, File No. 33-31523].
10.17 -- Chemical Waste Management, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.19 to the 1991
Annual Report on Form 10-K of Chemical Waste Management,
Inc.].
10.18 -- 1991 Stock Option Plan for Non-Employee Directors of
Wheelabrator Technologies, Inc. [Incorporated by
reference to Exhibit 19.04 WTI's Quarterly Report for the
quarterly period ended June 30, 1991].
10.19 -- Amendments dated as of September 7, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.20 -- Amendment dated as of November 1, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.04 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.21 -- Amendment dated as of November 1, 1990 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.03 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.22 -- Amendment dated as of December 6, 1991 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.01 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
</TABLE>
104
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.23 -- Amendment dated as of December 6, 1991 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.24 -- 1997 Employee Stock Purchase Plan [Incorporated by
reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1997].
10.25 -- 401(k) Restoration Plan [Incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997].
10.26 -- TransAmerican Waste Industries, Inc. Amended and Restated
1990 Stock Incentive Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.27 -- TransAmerican Waste Industries, Inc. 1997 Non-Employee
Director Stock Option Plan [Incorporated by reference to
Exhibit 99.2 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.28 -- Eastern Environmental Services, Inc. 1997 Stock Option
Plan [Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.29 -- Eastern Environmental Services, Inc. Amended and Restated
1996 Stock Option Plan [Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-8, File No. 333-70055].
10.30 -- Eastern Environmental Services, Inc. 1991 Stock Option
Plan [Incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.31 -- Form of Employment Agreement by and between the
Registrant and its Executive Officers.
10.32 -- Second Amended and Restated Revolving Credit Agreement,
dated as of July 16, 1998 among the Registrant, Bank of
America National Trust and Savings Association, Morgan
Guaranty Trust Company of New York and other financial
institutions [Incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Form 10-Q/A for
the quarterly period ended June 30, 1998].
10.33 -- Loan Agreement dated as of July 16, 1998, among the
Registrant, Bank of America National Trust and Savings
Association, Chase Bank of Texas, N.A., Deutsche Bank AG,
New York Branch, Morgan Guaranty Trust Company of New
York and other financial institutions [Incorporated by
reference to Exhibit 10.4 of the Registrant's Quarterly
Report on Form 10-Q/A for the quarterly period ended June
30, 1998].
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule.
27.2 -- Restated Financial Data Schedule.
27.3 -- Restated Financial Data Schedule.
</TABLE>
105
<PAGE> 108
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the Registrant's file number under that Act
is 1-12154. Waste Management Holdings' file number under the Exchange Act is
1-7327, Chemical Waste Management, Inc.'s file number is 1-9253 and
Wheelabrator Technologies Inc.'s file number is 0-14246.
(b) Reports on Form 8-K:
During the last quarter of the period covered by this report, the Company
filed a Current Report on Form 8-K dated October 8, 1998 to report the Company's
public announcement reaffirming its earnings outlook for the second half of 1998
and for 1999.
106
<PAGE> 109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASTE MANAGEMENT, INC.
By: /s/ JOHN E. DRURY
----------------------------------
John E. Drury,
Chief Executive Officer
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN E. DRURY Chief Executive Officer and March 30, 1999
- ----------------------------------------------------- Director (Principal Executive
John E. Drury Officer)
/s/ RODNEY R. PROTO President, Chief Operating Officer March 30, 1999
- ----------------------------------------------------- and Director
Rodney R. Proto
/s/ EARL E. DEFRATES Executive Vice President and Chief March 30, 1999
- ----------------------------------------------------- Financial Officer (Principal
Earl E. DeFrates Financial Officer)
/s/ BRUCE E. SNYDER Vice President and Chief March 30, 1999
- ----------------------------------------------------- Accounting Officer (Principal
Bruce E. Snyder Accounting Officer)
/s/ H. JESSE ARNELLE Director March 30, 1999
- -----------------------------------------------------
H. Jesse Arnelle
/s/ PASTORA SAN JUAN CAFFERTY Director March 30, 1999
- -----------------------------------------------------
Pastora San Juan Cafferty
/s/ RALPH F. COX Director March 30, 1999
- -----------------------------------------------------
Ralph F. Cox
/s/ RICHARD J. HECKMANN Director March 30, 1999
- -----------------------------------------------------
Richard J. Heckmann
/s/ RODERICK M. HILLS Director March 30, 1999
- -----------------------------------------------------
Roderick M. Hills
</TABLE>
107
<PAGE> 110
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD D. KINDER Director March 30, 1999
- -----------------------------------------------------
Richard D. Kinder
/s/ ROBERT S. MILLER Non-Executive Chairman of the March 30, 1999
- ----------------------------------------------------- Board and Director
Robert S. Miller
/s/ PAUL M. MONTRONE Director March 30, 1999
- -----------------------------------------------------
Paul M. Montrone
/s/ JOHN C. POPE Director March 30, 1999
- -----------------------------------------------------
John C. Pope
/s/ STEVEN G. ROTHMEIER Director March 30, 1999
- -----------------------------------------------------
Steven G. Rothmeier
/s/ RALPH V. WHITWORTH Director March 30, 1999
- -----------------------------------------------------
Ralph V. Whitworth
/s/ JEROME B. YORK Director March 30, 1999
- -----------------------------------------------------
Jerome B. York
</TABLE>
108
<PAGE> 111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the financial statements of Waste Management, Inc. and Subsidiaries included in
this Annual Report on Form 10-K and have issued our report thereon dated
February 25, 1999, in which we expressed an unqualified opinion based upon our
audits and the report of other auditors. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. Schedule II has been subjected to
the auditing procedures applied in the audit of the basic financial statements,
and in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Houston, Texas
February 25, 1999
S-1
<PAGE> 112
WASTE MANAGEMENT, INC.
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
(IN THOUSANDS)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ACCOUNTS EFFECT OF
BALANCE CHARGED WRITTEN OFF/ FOREIGN BALANCE
BEGINNING TO USE OF CURRENCY END OF
OF YEAR INCOME RESERVE OTHER(A) TRANSLATION YEAR
--------- -------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
1996 -- Reserve for doubtful accounts(B)(C)....... $ 84,615 $ 60,505 $ (74,507) $6,294 $ (245) $ 76,662
1997 -- Reserve for doubtful accounts(B)(C)....... 76,662 69,592 (56,586) 7,336 (2,605 94,399
1998 -- Reserve for doubtful accounts(B)(C)....... 94,399 70,727 (51,657) 4,164 1,284 118,917
1996 -- Merger and restructuring accruals(D)...... 28,936 106,600 (65,693) -- -- 69,843
1997 -- Merger and restructuring accruals(D)...... 69,843 160,528 (109,039) -- -- 121,332
1998 -- Merger and restructuring accruals(D)...... 121,332 675,200 (536,401) -- 1,106 261,237
</TABLE>
- ---------------
(A) Reserves for doubtful accounts of business combinations accounted for as
purchases.
(B) Includes reserves for doubtful long-term notes receivable.
(C) Excludes discontinued operations.
(D) Accruals are included in accrued liabilities and other liabilities. These
accruals represent transaction or deal costs, employee severance,
separation and transitional costs and restructuring charges.
S-2
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of June 22, 1996,
by and among the Registrant, Quatro Acquisition Corp. and
Sanifill, Inc. [Incorporated by reference to Annex A in
the Registrant's Registration Statement on Form S-4, File
No. 333-08161].
2.2 -- Amendment No. 1, dated as of July 18, 1996, to Agreement
and Plan of Merger, by and among the Registrant, Quatro
Acquisition Corp. and Sanifill, Inc. [Incorporated by
reference to Annex A in the Registrant's Registration
Statement on Form S-4, File No. 333-08161].
2.3 -- Agreement and Plan of Merger, dated as of April 13, 1997,
by and among the Registrant, Riviera Acquisition
Corporation and United Waste Systems, Inc. [Incorporated
by reference to Appendix A in the Registrant's
Registration Statement on Form S-4, File No. 333-31979].
2.4 -- Agreement and Plan of Merger, dated March 10, 1998, by
and among the Registrant, Dome Merger Subsidiary, Inc.
and Waste Management, Inc. [Incorporated by reference to
Exhibit 99.1 of the Registrant's Current Report on Form
8-K dated March 10, 1998].
2.5 -- Agreement and Plan of Merger, dated as of February 16,
1998, by and among the Registrant, C&S Ohio Corp. and
American Waste Services, Inc. [Incorporated by reference
to Exhibit 10.70 to American Waste Services' Current
Report on Form 8-K, dated February 6, 1998].
2.6 -- Agreement and Plan of Merger, dated as of August 16,
1998, by and among the Registrant, Ocho Acquisition
Corporation and Eastern Environmental Services, Inc.
[Incorporated by reference to Annex A in the Registrant's
Registration Statement on Form S-4, File No 333-64239].
2.7 -- Scheme of Arrangement between Waste Management
International plc and the Holders of the Scheme Shares
dated September 7, 1998 [Incorporated by reference to the
Registrant's Schedule 13E-3 Transaction Statement dated
September 7, 1998]
2.8 -- Agreement and Plan of Merger by and among the Registrant,
TransAmerican Acquisition Corp., and TransAmerican Waste
Industries, Inc. dated January 1998 [Incorporated by
reference to the Registrant's Registration Statement on
Form S-4, File No. 333-49253]
2.9 -- Agreement and Plan of Merger by and among Waste
Management, Inc., WMI Merger Sub, Inc. and Wheelabrator
Technologies Inc. dated December 8, 1997 [Incorporated by
reference to Exhibit A of WTI's Proxy Statement on
Schedule 14A filed on March 3, 1998]
3.1 -- Restated Certificate of Incorporation, as amended
[Incorporated by reference to Exhibit 3.2 of the
Registrant's current Report on Form 8-K dated July 16,
1998].
3.2 -- Bylaws [Incorporated by reference to Exhibit 3.2 to the
Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-4, File No. 33-60103].
4.1 -- Specimen Stock Certificate.
4.2 -- Indenture for Subordinated Debt Securities dated February
1, 1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated February 7, 1997].
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
4.3 -- Supplemental Indenture, dated as of August 26, 1997,
among the Registrant, United Waste Systems, Inc. and
Bankers Trust Company relating to United Waste Systems,
Inc.'s 4 1/2% Convertible Subordinated Notes due June 1,
2001 [Incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K dated August 26,
1997].
4.4 -- Indenture for Senior Debt Securities dated September 10,
1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated September 10, 1997].
10.1 -- 1990 Stock Option Plan [Incorporated by reference to
Exhibit 10.1 of the Registrant's Annual report on Form
10-K for the year ended December 31, 1990].
10.2 -- Conformed copy of 1993 Stock Incentive Plan, as amended
and restated.
10.3 -- Conformed copy of 1996 Stock Option Plan for Non-Employee
Directors, as amended.
10.4 -- Envirofil, Inc. 1993 Stock Incentive Plan [Incorporated
by reference to Exhibit 4.1 of the Registrant's
Registration Statement on form S-8, File No. 33-84990.
10.5 -- Western Waste Industries Amended and Restated 1983
Incentive Stock Option Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-02181].
10.6 -- Western Waste Industries 1983 Non-Qualified Stock Option
Plan [Incorporated by reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-8, File No.
333-02181].
10.7 -- Western Waste Industries 1992 Option Plan [Incorporated
by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8, File No. 333-02181].
10.8 -- Sanifill, Inc. 1994 Long-Term Incentive Plan
[Incorporated by reference to Exhibit 99.1 of the
Registrant's Registration Statement on Form S-8, File No.
333-08161].
10.9 -- Sanifill, Inc. 1989 Stock Option Plan [Incorporated by
reference to Exhibit 99.2 of the Registrant's
Registration Statement on Form S-8, File No. 333-08161].
10.10 -- Waste Management, Inc. 1997 Equity Incentive Plan
[Incorporated by reference to Exhibit A to Waste
Management Holdings' Proxy Statement for its 1997 Annual
Meeting of Shareholders].
10.11 -- WMX Technologies, Inc. 1996 Replacement Stock Option Plan
[Incorporated by reference to Exhibit 4.13 to Waste
Management Holdings' Registration Statement on Form S-8,
File No. 333-01325].
10.12 -- WMX Technologies, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.31 to Waste
Management Holdings' Registration Statement on Form S-1,
File No. 33-44849].
10.13 -- WMX Technologies, Inc. 1992 Stock Option Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.23 to Waste Management Holdings' 1996 Annual
Report on Form 10-K].
10.14 -- Waste Management, Inc. 1982 Stock Option Plan, as amended
to March 11, 1988 [Incorporated by reference to Exhibit
10.3 to Waste Management Holdings' 1988 Annual Report on
Form 10-K].
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.15 -- Wheelabrator Technologies Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.45 to the 1991
Annual Report on Form 10-K of Wheelabrator Technologies
Inc.].
10.16 -- Wheelabrator Technologies Inc. 1988 Stock Plan for
Executive Employees of WTI and its Subsidiaries
[Incorporated by reference to Exhibit 28.1 to Amendment
No. 1 to the Registration Statement of Wheelabrator
Technologies Inc. on Form S-8, File No. 33-31523].
10.17 -- Chemical Waste Management, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.19 to the 1991
Annual Report on Form 10-K of Chemical Waste Management,
Inc.].
10.18 -- 1991 Stock Option Plan for Non-Employee Directors of
Wheelabrator Technologies, Inc. [Incorporated by
reference to Exhibit 19.04 WTI's Quarterly Report for the
quarterly period ended June 30, 1991].
10.19 -- Amendments dated as of September 7, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.20 -- Amendment dated as of November 1, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.04 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.21 -- Amendment dated as of November 1, 1990 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.03 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.22 -- Amendment dated as of December 6, 1991 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.01 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.23 -- Amendment dated as of December 6, 1991 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.24 -- 1997 Employee Stock Purchase Plan [Incorporated by
reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1997].
10.25 -- 401(k) Restoration Plan [Incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997].
10.26 -- TransAmerican Waste Industries, Inc. Amended and Restated
1990 Stock Incentive Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.27 -- TransAmerican Waste Industries, Inc. 1997 Non-Employee
Director Stock Option Plan [Incorporated by reference to
Exhibit 99.2 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.28 -- Eastern Environmental Services, Inc. 1997 Stock Option
Plan [Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.29 -- Eastern Environmental Services, Inc. Amended and Restated
1996 Stock Option Plan [Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-8, File No. 333-70055].
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
10.30 -- Eastern Environmental Services, Inc. 1991 Stock Option
Plan [Incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.31 -- Form of Employment Agreement by and between the
Registrant and its Executive Officers.
10.32 -- Second Amended and Restated Revolving Credit Agreement,
dated as of July 16, 1998 among the Registrant, Bank of
America National Trust and Savings Association, Morgan
Guaranty Trust Company of New York and other financial
institutions [Incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Form 10-Q/A for
the quarterly period ended June 30, 1998].
10.33 -- Loan Agreement dated as of July 16, 1998, among the
Registrant, Bank of America National Trust and Savings
Association, Chase Bank of Texas, N.A., Deutsche Bank AG,
New York Branch, Morgan Guaranty Trust Company of New
York and other financial institutions [Incorporated by
reference to Exhibit 10.4 of the Registrant's Quarterly
Report on Form 10-Q/A for the quarterly period ended June
30, 1998].
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule.
27.2 -- Restated Financial Data Schedule.
27.3 -- Restated Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the Registrant's file number under that Act
is 1-12154. Waste Management Holdings' file number under the Exchange Act is
1-7327, Chemical Waste Management, Inc.'s file number is 1-9253 and
Wheelabrator Technologies Inc.'s file number is 0-14246.
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
057591
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $.01 PER SHARE
NUMBER
WM [GRAPHIC] SHARES
CUSIP 94106L 10 9
THIS CERTIFICATE IS TRANSFERABLE IN
CHICAGO, IL OR NEW YORK, NY SEE REVERSE FOR CERTAIN DEFINITIONS
WASTE MANAGEMENT, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
CERTIFICATE OF STOCK
Waste Management, Inc. ("Corporation") transferable on the books of the Corporation by the holder hereof in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are
issued and shall be subject to all of the provisions of the Certificate of Incorporation of the Corporation and of the amendments
therein, to all of which the holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
[SEAL]
Dated:
/s/ [ILLEGIBLE]
CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
/s/ [ILLEGIBLE] TRANSFER AGENT
SECRETARY AND REGISTRAR
BY /s/ [ILLEGIBLE]
[WASTE MANAGEMENT LOGO] AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
[WASTE MANAGEMENT, INC. LOGO]
The Corporation will furnish, without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests may be made to the Corporation's Secretary at the
principal office of the Corporation
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint ___________________________________________, Attorney,
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated _______________________________
X ___________________________________________
(SIGNATURE)
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
X ___________________________________________
(SIGNATURE)
___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
___________________________________________
SIGNATURE(S) GUARANTEED BY:
___________________________________________
<PAGE> 1
EXHIBIT 10.2
WASTE MANAGEMENT, INC.
1993 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED)
JULY 6, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I. GENERAL.........................................................................1
Section 1.1. Purpose.............................................................1
Section 1.2. Administration......................................................1
Section 1.3. Eligibility for Participation.......................................2
Section 1.4. Types of Awards Under Plan..........................................2
Section 1.5. Aggregate Limitation on Awards......................................2
Section 1.6. Effective Date and Term of Plan.....................................3
ARTICLE II. STOCK OPTIONS..................................................................4
Section 2.1. Award of Stock Options..............................................4
Section 2.2. Stock Option Agreements.............................................4
Section 2.3. Stock Option Price..................................................4
Section 2.4. Term and Exercise...................................................4
Section 2.5. Manner of Payment...................................................4
Section 2.6. Delivery of Shares..................................................5
Section 2.7. Death, Retirement and Termination of Employment of Optionee.........5
Section 2.8. Tax Election........................................................5
Section 2.9. Effect of Exercise..................................................6
ARTICLE III. INCENTIVE STOCK OPTIONS.......................................................6
Section 3.1. Award of Incentive Stock Options....................................6
Section 3.2. Incentive Stock Option Agreements...................................6
Section 3.3. Incentive Stock Option Price........................................6
Section 3.4. Term and Exercise...................................................6
Section 3.5. Maximum Amount of Incentive Stock Option Grant......................7
Section 3.6. Death of Optionee...................................................7
Section 3.7. Retirement or Disability............................................7
Section 3.8. Termination for Other Reasons.......................................7
Section 3.9. Applicability of Stock Options Sections.............................7
ARTICLE IV. RELOAD OPTIONS.................................................................8
Section 4.1. Authorization of Reload Options.....................................8
Section 4.2. Reload Option Amendment.............................................8
Section 4.3. Reload Option Price.................................................8
Section 4.4. Term and Exercise...................................................8
Section 4.5. Termination of Employment...........................................8
Section 4.6. Applicability of Stock Options Sections.............................9
ARTICLE V. ALTERNATE APPRECIATION RIGHTS...................................................9
Section 5.1. Award of Alternate Appreciation Rights..............................9
Section 5.2. Alternate Appreciation Rights Agreement.............................9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.3. Exercise............................................................9
Section 5.4. Amount of Payment...................................................9
Section 5.5. Form of Payment.....................................................9
Section 5.6. Effect of Exercise..................................................10
Section 5.7. Termination of Employment, Retirement, Death or Disability..........10
ARTICLE VI. LIMITED RIGHTS.................................................................10
Section 6.1. Award of Limited Rights.............................................10
Section 6.2. Limited Rights Agreement............................................10
Section 6.3. Exercise Period.....................................................10
Section 6.4. Amount of Payment...................................................10
Section 6.5. Form of Payment.....................................................11
Section 6.6. Effect of Exercise..................................................11
Section 6.7. Retirement or Disability............................................11
Section 6.8. Death of Optionee or Termination for Other Reasons..................11
Section 6.9. Termination Related to a Change in Control..........................11
ARTICLE VII. SUBSTITUTION AWARDS...........................................................12
ARTICLE VIII. BONUS STOCK AWARDS...........................................................12
Section 8.1. Award of Bonus Stock................................................12
Section 8.2. Stock Bonus Agreements..............................................12
ARTICLE IX. MISCELLANEOUS..................................................................12
Section 9.1. General Restriction.................................................12
Section 9.2. Non-Assignability...................................................13
Section 9.3. Withholding Taxes...................................................13
Section 9.4. Right to Terminate Employment.......................................13
Section 9.5. Non-Uniform Determination...........................................13
Section 9.6. Rights as a Shareholder.............................................13
Section 9.7. Definitions.........................................................14
Section 9.8. Leaves of Absence...................................................15
Section 9.9. Newly Eligible Employees............................................15
Section 9.10. Adjustments.........................................................15
Section 9.11. Changes in the Company's Capital Structure..........................16
Section 9.12. Change in Control...................................................17
Section 9.13. Amendment of the Plan...............................................18
Section 9.14. Effective Date......................................................18
</TABLE>
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<PAGE> 4
WASTE MANAGEMENT, INC.
1993 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. Purpose. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the employees and
consultants of Waste Management, Inc. and its Subsidiaries and Affiliates
(collectively referred to as the "Company") with the shareholders to generate an
increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide employees and consultants with a proprietary ownership
interest in the Company commensurate with Company performance, as reflected in
increased shareholder value; (3) maintain competitive compensation levels
thereby attracting and retaining highly competent and talented employees and
consultants; and (4) provide an incentive to employees and consultants for
continuous employment with or services to the Company.
Section 1.2. Administration.
(a) The Plan shall be administered by a committee of non-employee
directors appointed by the Board of Directors of the Company (the "Committee"),
as constituted from time to time.
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the employees and consultants or classes of
employees of and consultants to the Company eligible to participate
in the Plan;
(ii) grant awards ("Awards") provided in the Plan in such
form and amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions,
not inconsistent with this Plan, upon any such Award as the Committee
shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument, or
other document executed in connection with the Plan; adopt, amend, and
rescind rules and regulations relating to the Plan; and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
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(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be final,
conclusive, and binding upon all persons, including the Company, any
participant, any stockholder of the Company, and any employee or consultant. A
majority of the members of the Committee may determine its actions and fix the
time and place of its meetings. No member of the Committee shall be liable for
any action taken or decision made in good faith relating to the Plan or any
Award thereunder.
Section 1.3. Eligibility for Participation. Participants in the Plan
("Participants") shall be selected by the Committee from the employees of and
consultants to the Company who are responsible for or contribute to the
management, growth, success and, profitability of the Company. In making this
selection and in determining the form and amount of Awards, the Committee shall
consider any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company, and past and potential
contributions to the Company's profitability and growth.
Section 1.4 Types of Awards Under Plan. Awards under the Plan may be
in the form of any one or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options, as described in Article IV;
(iv) Alternate Appreciation Rights, as described in
Article V;
(v) Limited Rights, as described in Article VI;
(vi) Alternate Stock Awards, as described in Article VII;
and/or
(vii) Stock Bonus Awards, as described in Article VIII.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Committee, and not inconsistent with this Plan.
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock $.01 par value, of
the Company ("Common Stock"). Subject to the further provisions of this Section
1.5 and Section 9.10, the maximum number of shares of Common Stock which may be
issued under the Plan shall be 26,500,000.
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(b) For purposes of calculating the maximum number of shares of
Common Stock that may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when cash
is used as full payment for shares issued upon exercise of a Stock
Option, Incentive Stock Option, or Reload Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an exercise
of Alternate Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if
any, withheld for tax withholding requirements) shall be counted when
shares of Common Stock or another Award under the Plan are used or
withheld as full or partial payment for shares issued upon exercise of
a Stock Option, Incentive Stock Option, or Reload Option;
provided, however, in all events the maximum number of shares of Common Stock
that may be issued pursuant to Incentive Stock Options is 26,500,000.
(c) In addition to shares of Common Stock actually issued pursuant
to the exercise of Stock Options, Incentive Stock Options, Reload Options, or
Alternate Appreciation Rights, there shall be deemed to have been issued a
number of shares equal to the number of shares of Common Stock in respect of
which Limited Rights (as described in Article VI) shall have been exercised.
(d) Shares tendered by a Participant or withheld as payment for
shares issued upon exercise of a Stock Option, Incentive Stock Option, or Reload
Option shall be available for issuance under the Plan. Any shares of Common
Stock subject to a Stock Option, Incentive Stock Option, or Reload Option that
for any reason is terminated unexercised or expires shall again be available for
issuance under the Plan, but shares subject to a Stock Option, Incentive Stock
Option, or Reload Option that are not issued as a result of the exercise of
Limited Rights shall not again be available for issuance under the Plan.
(e) The maximum number of shares of Common Stock with respect to
which any Participant may receive Awards in any calendar year is 1,500,000.
Section 1.6. Effective Date and Term of Plan.
(a) The Plan became effective on the date it was approved by the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1993 Annual Meeting of shareholders of the
Company.
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(b) No Awards shall be made under the Plan after the tenth
anniversary of the effective date of this Plan; provided, however, that the Plan
and all Awards made under the Plan prior to such date shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Committee may from time to
time, and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any Participant in the Plan
one or more options to purchase the number of shares of Common Stock ("Stock
Options") allotted by the Committee. The date a Stock Option is granted shall
mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a Participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of the Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Committee may from time to time determine.
Section 2.3. Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. Term and Exercise. A Stock Option shall not be exercisable
prior to six months from the date of its grant unless a shorter period is
provided by the Committee or by another Section of this Plan, and may be
exercised during the period established by the Committee, but not after ten
years from the date of grant thereof (the "Option Term"). No Stock Option shall
be exercisable after the expiration of its Option Term.
Section 2.5. Manner of Payment. Each Award Agreement providing for
Stock Options shall set forth the procedure governing the exercise of the Stock
Option granted thereunder, and shall provide that, upon such exercise in respect
of any shares of Common Stock subject thereto, the Optionee shall pay to the
Company, in full, the Option Price for such shares with cash, which may be
pursuant to a "cashless-broker" exercise pursuant to procedures established by
the Committee from time to time, or with previously owned Common Stock, or at
the discretion of the Committee, in whole or in part with, the surrender of
another Award under the Plan, the withholding of shares of Common Stock issuable
upon exercise of such Stock Option, other property, or any combination thereof
(each based on the Fair Market Value of such Common Stock, Award or other
property on the date the Stock Option is exercised as determined by the
Committee).
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Section 2.6. Delivery of Shares. As soon as practicable after receipt
of payment, the Committee shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
Section 2.7. Death, Retirement and Termination of Employment of
Optionee. Unless otherwise provided in an Award Agreement or otherwise agreed to
by the Committee:
(a) Upon the death of the Optionee, any rights to the extent
exercisable by the Optionee on the date of termination of employment or
consulting, as the case may be, may be exercised by the Optionee's estate, or by
a person who acquires the right to exercise such Stock Option by bequest or
inheritance or by reason of the death of the Optionee, provided that such
exercise occurs within both the remaining effective term of the Stock Option and
one year after the Optionee's death. The provisions of this Section shall apply
notwithstanding the fact that the Optionee's employment may have terminated
prior to death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Committee), the
Optionee may, within 36 months from the date of termination, exercise any Stock
Options to the extent such Stock Options are exercisable on the date of such
termination of employment.
(c) Except as provided in Subsections (a) and (b) of this Section
2.7, or except as otherwise determined by the Committee, all Stock Options shall
terminate three months after the date of the termination of the Optionee's
employment or consulting, as the case may be, and shall be exercisable during
such period only to the extent exercisable on the date of termination of
employment or consulting.
Section 2.8. Tax Election. Recipients of Stock Options who are
directors or executive officers of the Company or who own more than 10% of the
Common Stock of the Company ("Section 16(a) Option Holders") at the time of
exercise of a Stock Option may elect, in lieu of paying to the Company an amount
required to be withheld under applicable tax laws in connection with the
exercise of a Stock Option in whole or in part, to have the Company withhold
shares of Common Stock having a fair market value equal to the amount required
to be withheld. Such election may not be made prior to six months following the
grant of the Stock Option, except in the event of a Section 16(a) Option
Holders's death or disability. The election may be made at the time the Stock
Option is exercised by notifying the Company of the election, specifying the
amount of such withholding and the date on which the number of shares to be
withheld is to be determined ("Tax Date"), which shall be either (i) the date
the Stock Option is exercised or (ii) a date six months after the Stock Option
was granted, if later. The number of shares of Common Stock to be withheld to
satisfy the tax obligation shall be the amount
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<PAGE> 9
of such tax liability divided by the fair market value of the Common Stock on
the Tax Date (or if not a business day, on the next closest business day). If
the Tax Date is not the exercise date, the Company may issue the full number of
shares of Common Stock to which the Section 16(a) Option Holders is entitled,
and such option holder shall be obligated to tender to the Company on the Tax
Date a number of such shares necessary to satisfy the withholding obligation.
Certificates representing such shares of Common Stock shall bear a legend
describing such Section 16(a) Option Holders obligation hereunder.
Section 2.9. Effect of Exercise. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock purchased
pursuant to said option unless otherwise agreed by the Committee in an Award
Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Committee may, from
time to time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any employee of The Company
or a Subsidiary one or more "incentive stock options" (intended to qualify as
such under the provisions of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Stock Options") to purchase the number of
shares of Common Stock allotted by the Committee. The date an Incentive Stock
Option is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of shares to a participant pursuant to the
Plan.
Section 3.2. Incentive Stock Option Agreements. The grant of an
Incentive Stock Option shall be evidenced by a written Award Agreement, executed
by the Company and the holder of an Incentive Stock Option (the "Optionee"),
stating the number of shares of Common Stock subject to the Incentive Stock
Option evidenced thereby, and in such form as the Committee may from time to
time determine.
Section 3.3. Incentive Stock Option Price. The Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be at least 100% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted; provided, however, the Option Price per
share of Common Stock deliverable upon the exercise of an Incentive Stock Option
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company and its subsidiaries shall be at least 110% of
the fair market value of a share of Common Stock on the date the Incentive Stock
Option is granted.
Section 3.4. Term and Exercise. Each Incentive Stock Option shall not
be exercisable prior to six months from the date of its grant unless a shorter
period is provided by the Committee or another Section of this Plan, and may be
exercised during the period established by the Committee, but not after ten
years from the date of grant thereof (the "Option Term"). No Incentive Stock
Option shall be exercisable after the expiration of its Option Term.
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Section 3.5. Maximum Amount of Incentive Stock Option Grant. To the
extent that the aggregate Fair Market Value (determined at the time the
respective Incentive Stock Option is granted) of Common Stock with respect to
which Incentive Stock Options granted are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans of
the Company and its parent and subsidiary corporations exceeds $100,000, such
Incentive Stock Options shall be treated as Options which do not constitute
Incentive Stock Options.
Section 3.6. Death of Optionee. Unless otherwise provided in an Award
Agreement:
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable by the Optionee on the date of termination of employment may be
exercised by the Optionee's estate or by a person who acquires the right to
exercise such Incentive Stock Option by bequest or inheritance or by reason of
the death of the Optionee, provided that such exercise occurs within both the
remaining option term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement, upon the termination of the Optionee's employment by reason of
permanent disability or retirement (as each is determined by the Committee), the
Optionee may, within 36 months from the date of such termination of employment,
exercise any Incentive Stock Options to the extent such Incentive Stock Options
were exercisable at the date of such termination of employment. Notwithstanding
the foregoing, the tax treatment available pursuant to Section 422 of the Code
upon the exercise of an Incentive Stock Option will not be available to an
Optionee who exercises any Incentive Stock Options more than (i) 12 months after
the date of termination of employment due to permanent disability or (ii) three
months after the date of termination of employment due to retirement.
Section 3.8. Termination for Other Reasons. Except as provided in
Sections 3.6 and 3.7 or except as otherwise determined by the Committee, all
Incentive Stock Options shall terminate three months after the date of the
termination of the Optionee's employment and shall be exercisable during such
period only to the extent exercisable on the date of termination of employment.
Section 3.9. Applicability of Stock Options Sections. Sections 2.5,
Manner of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect
of Exercise,
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applicable to Stock Options, shall apply equally to Incentive Stock Options.
Such Sections are incorporated by reference in this Article III as though fully
set forth herein.
ARTICLE IV. RELOAD OPTIONS
Section 4.1. Authorization of Reload Options. Concurrently with or
subsequent to the award of Stock Options to any Participant in the Plan, the
Committee may authorize reload options ("Reload Options") to purchase shares of
Common Stock. The number of Reload Options shall equal (i) the number of shares
of Common Stock used to pay the exercise price of the underlying Stock Options
or Incentive Stock Options and (ii) to the extent authorized by the Committee,
the number of shares of Common Stock withheld by the Company in payment of the
exercise price underlying the Stock Option or Incentive Stock Option or used to
satisfy any tax withholding requirement incident to the exercise of the
underlying Stock Options or Incentive Stock Options. The grant of a Reload
Option will become effective upon the exercise of underlying Stock Options,
Incentive Stock Options, or Reload Options through the use of shares of Common
Stock held by the Optionee or the withholding of shares by the Company in
payment of the exercise price of the underlying Stock Option or Incentive Stock
Option held by the Optionee. Notwithstanding the fact that the underlying option
may be an Incentive Stock Option, a Reload Option is not intended to qualify as
an "incentive stock option" under Section 422 of the Code.
Section 4.2. Reload Option Amendment. Each Award Agreement shall state
whether the Committee has authorized Reload Options with respect to the Stock
Options and/or Incentive Stock Options covered by such Award Agreement. Upon the
exercise of an underlying Stock Option, Incentive Stock Option, or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Award Agreement in such form as the Committee shall approve.
Section 4.3. Reload Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the Fair Market
Value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
Section 4.4. Term and Exercise. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Stock Option
and/or Incentive Stock Option.
Section 4.5. Termination of Employment. Unless otherwise determined by
the Committee in an Award Agreement or otherwise, no additional Reload Options
shall be granted to Optionees when Stock Options, Incentive Stock Options,
and/or Reload Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
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Section 4.6. Applicability of Stock Options Sections. Sections 2.5,
Manner of Payment; 2.6 Delivery of Shares; 2.7, Death, Retirement and
Termination of Employment of Optionee; 2.8, Tax Elections; and 2.9, Effect of
Exercise, applicable to Stock Options, shall apply equally to Reload Options.
Such Sections are incorporated by reference in this Article IV as though fully
set forth herein.
ARTICLE V. ALTERNATE APPRECIATION RIGHTS
Section 5.1. Award of Alternate Appreciation Rights. Concurrently with
or subsequent to the award of any Stock Option, Incentive Stock Option, or
Reload Option to purchase one or more shares of Common Stock, the Committee may,
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share of
Common Stock covered by an Option, a related alternate appreciation right
permitting the Optionee to be paid the appreciation on the Option in lieu of
exercising the Option ("Alternate Appreciation Right").
Section 5.2. Alternate Appreciation Rights Agreement. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 5.3. Exercise. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Section 5.4 and 5.5. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
Section 5.4. Amount of Payment. The amount of payment to which an
Optionee shall be entitled upon the exercise of each Alternate Appreciation
Right shall be equal to 100% of the amount, if any, by which the Fair Market
Value of a share of Common Stock on the exercise date exceeds the Option Price
per share on the Option related to such Alternate Appreciation Right. A Section
16(a) Option Holder may elect to withhold shares of Common Stock issued under
this Section to pay taxes as described in Section 2.8.
Section 5.5. Form of Payment. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 5.4
by the Fair Market Value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
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Section 5.6. Effect of Exercise. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, Reload Options, and Limited Rights, if any, related to said
Alternate Appreciation Rights.
Section 5.7. Termination of Employment, Retirement, Death or
Disability. Unless otherwise provided in an Award Agreement or agreed to by the
Committee:
(a) Upon termination of the Optionee's employment (including
employment as a director of the Company after an Optionee terminates
employment as an employee of the Company) by reason of permanent
disability or retirement (as each is determined by the Committee) or
consulting, the Optionee may, within six months from the date of such
termination, exercise any Alternate Appreciation Rights to the extent
such Alternate Appreciation Rights are exercisable during such
six-month period.
(b) Except as provided in Section 5.7(a), all Alternate
Appreciation Rights shall terminate three months after the date of the
termination of the Optionee's employment, consulting or upon the death
of the Optionee.
ARTICLE VI. LIMITED RIGHTS
Section 6.1. Award of Limited Rights. Concurrently with or subsequent
to the award of any Stock Option, Incentive Stock Option, Reload Option, or
Alternate Appreciation Right, the Committee may, subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock covered by an
Option, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the Option in lieu of
exercising the Option ("Limited Right").
Section 6.2. Limited Rights Agreement. Limited Rights granted under the
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
Section 6.3. Exercise Period. Limited Rights are exercisable in full
for a period of seven months following the date of a Change in Control of the
Company (the "Exercise Period"); provided, however, that Limited Rights may not
be exercised under any circumstances until the expiration of the six-month
period following the date of grant.
Section 6.4. Amount of Payment. The amount of payment to which an
Optionee shall be entitled upon the exercise of each Limited Right shall be
equal to 100% of the amount, if any, which is equal to the difference between
the Option Price per share of Common Stock covered by the related Option and the
Market Price of a share of such Common Stock. "Market Price" is defined to be
the greater of (i) the highest price per
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<PAGE> 14
share of the Company's Common Stock paid in connection with any Change in
Control and (ii) the highest price per share of the Company's Common Stock
reflected in the consolidated trading tables of The Wall Street Journal
(presently the New York Stock Exchange - Composite Transactions) during the
60-day period prior to the Change in Control.
Section 6.5. Form of Payment. Payment of the amount to which an
Optionee is entitled upon the exercise of Limited Rights, as determined pursuant
to Section 6.4, shall be made solely in cash.
Section 6.6. Effect of Exercise. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, Reload Options, and Alternate
Appreciation Rights, if any, related to such Limited Rights shall cease to be
exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Stock
Options, Incentive Stock Options, Reload Options, and Alternate Appreciation
Rights, if any, related to such Limited Rights, the Limited Rights granted with
respect thereto terminate to the extent of the number of shares as to which the
related options and Alternate Appreciation Rights were exercised or terminated.
Section 6.7. Retirement or Disability. Upon termination of the
Optionee's employment (including employment as a director of the Company after
an Optionee terminates employment as an employee of the Company) by reason of
permanent disability or retirement (as each is determined by the Committee) or
consulting, the Optionee may, within six months from the date of such
termination, exercise any Limited Right to the extent such Limited Right is
exercisable during such six-month period.
Section 6.8. Death of Optionee or Termination for Other Reasons. Except
as provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all Limited Rights granted under the Plan shall terminate upon the
termination of the Optionee's employment, consulting or upon the death of the
Optionee.
Section 6.9. Termination Related to a Change in Control. The
requirement that an Optionee be terminated by reason of retirement or permanent
disability or be employed by the Company at the time of exercise pursuant to
Sections 6.7 and 6.8, respectively, is waived during the Exercise Period as to
an Optionee who (i) was employed by the Company at the time of the Change in
Control and (ii) is subsequently terminated by the Company other than for just
cause or who voluntarily terminates if such termination was the result of a good
faith determination by the Optionee that as a result of the Change in Control he
is unable to effectively discharge his present duties or the duties of the
position which he occupied just prior to the Change in Control. As used herein
"just cause" shall mean willful misconduct or dishonesty or conviction of or
failure to contest prosecution for a felony, or excessive absenteeism unrelated
to illness.
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ARTICLE VII. SUBSTITUTION AWARDS
Section 7.1. Awards may be granted under the Plan from time to time in
substitution for stock options held by individuals employed by corporations who
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company, or the acquisition by the Company of the
assets of the employing corporation, or the acquisition by the Company of stock
of the employing corporation with the result that such employing corporation
becomes a Subsidiary or an Affiliate.
ARTICLE VIII. BONUS STOCK AWARDS
Section 8.1. Award of Bonus Stock. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any Participant in the Plan shares of
Common Stock ("Stock Bonus"). A Stock Bonus shall vest (i) in the case of
performance-based vesting criteria, no sooner than one year following the date
of the Stock Bonus grant, and (ii) in the case of time-based vesting criteria,
no sooner than one-third of the grant on each subsequent anniversary of the date
of grant. Notwithstanding the foregoing, the Committee may grant a fully vested
Stock Bonus in lieu of an earned cash bonus.
Section 8.2. Stock Bonus Agreements. The grant of a Stock Bonus shall
be evidenced by a written Award Agreement, executed by the Company and the
recipient of a Stock Bonus, in such form as the Committee may from time to time
determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
ARTICLE IX. MISCELLANEOUS
Section 9.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject to or related thereto upon any securities exchange or under any
state or federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the grantee of an Award with respect
to the disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
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Section 9.2. Non-Assignability. Except as provided below, no Award
under the Plan shall be assignable or transferable by the recipient thereof,
except by will or by the laws of descent and distribution, and during the life
of the recipient, such Award shall be exercisable only by such person or by such
person's guardian or legal representative.
Notwithstanding the foregoing, as provided by the Committee in an
Award Agreement, Awards (other than Incentive Stock Options) may be transferred
(in whole or in part in a form approved by the Company) by a Participant to (i)
the spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of the Immediate
Family Members and, if applicable, the Participant, or (iii) a partnership in
which such Immediate Family Members and, if applicable, the Participant are the
only partners. Following any such transfer, the Award shall continue to be
subject to the same terms and conditions as were applicable to the Award
immediately prior to the transfer. A transferee of an Award may not transfer the
Award except to an Immediate Family Member or the Participant.
Section 9.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificates for such shares.
Alternatively, the Company may issue or transfer such shares of the Company net
of the number of shares sufficient to satisfy the withholding tax requirements.
For withholding tax purposes, the shares of Common Stock shall be valued on the
date the withholding obligation is incurred.
Section 9.4. Right to Terminate Employment. Nothing in the Plan or in
any agreement entered into pursuant to the Plan shall confer upon any
Participant the right to continue in the employment of, or consulting to, the
Company or effect any right which the Company may have to terminate the
employment or consulting relationship of such Participant.
Section 9.5. Non-Uniform Determination. The Committee's determinations
under the Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
Section 9.6. Rights as a Shareholder. The recipient of any Award under
the Plan shall have no right as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
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<PAGE> 17
Section 9.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Subsidiary" means any corporation of which, at the time
more than 50% of the shares entitled to vote generally in an election
of directors are owned directly or indirectly by the Company or any
subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with the Company.
(c) "Fair Market Value" as of any date and in respect or any
share of Common Stock means the lowest reported trading price on such
date or on the next business day, if such date is not a business day,
of a share of Common Stock reflected in the consolidated trading tables
of The Wall Street Journal (presently the New York Stock Exchange -
Composite Transactions) or any other publication selected by the
Committee, provided that, if shares of Common Stock shall not have been
quoted on the New York Stock Exchange for more than 10 days immediately
preceding such date or if deemed appropriate by the Committee for any
other reason, the fair market value of shares of Common Stock shall be
as determined by the Committee in such other manner as it may deem
appropriate. In no event shall the Fair Market Value of any share of
Common Stock be less than its par value.
(d) "Option" means Stock Option, Incentive Stock Option, or
Reload Option.
(e) "Option Price" means the purchase price per share of the
Common Stock deliverable upon the exercise of a Stock Option, Incentive
Stock Option, or Reload Option.
(f) "Change in Control" means the occurrence, at any time
during the specified term of an Option granted under the Plan, of any
of the following events:
(i) The Company is merged or consolidated or
reorganized into or with another corporation or other legal
person (an "Acquiror") and as a result of such merger,
consolidation or reorganization less than 75% of the
outstanding voting securities or other capital interests of
the surviving, resulting or acquiring corporation or other
legal person are owned in the aggregate by the stockholders of
the Company, directly or indirectly, immediately prior to such
merger, consolidation or reorganization, other than the
Acquiror or any corporation or other legal person controlling,
controlled by or under common control with the Acquiror;
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(ii) The Company sells all or substantially all of
its business and/or assets to an Acquiror, of which less than
75% of the outstanding voting securities or other capital
interests are owned in the aggregate by the stockholders of
the Company, directly or indirectly, immediately prior to such
sale, other than any corporation or other legal person
controlling, controlled by or under common control with the
Acquiror;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), disclosing that any
person or group (as the terms "person" and "group" are used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act and
the rules and regulations promulgated thereunder) has become
the beneficial owner (as the term "beneficial owner") is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 20% or more of the
issued and outstanding shares of voting securities of the
Company; or
(iv) During any period of two consecutive years,
individuals who at the beginning of any such period constitute
the directors of the Company cease for any reason to
constitute at least a majority thereof unless the election, or
the nomination for election by the Company's stockholders, of
each new director of the Company was approved by a vote of at
least two-thirds of such directors of the Company then still
in office who were directors of the Company at the beginning
of any such period.
Section 9.8. Leaves of Absence. The Committee shall be entitled to
make such rules, regulations, and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
Section 9.9. Newly Eligible Employees. The Committee shall be entitled
to make such rules, regulations, determinations and awards as it deems
appropriate in respect of any employee who becomes eligible to participate in
the Plan or any portion thereof after the commencement of an award or incentive
period.
Section 9.10. Adjustments. In any event of any change in the
outstanding Common Stock by reason of a stock dividend or distributions,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Committee may appropriately adjust the number of shares
of Common Stock that may be issued under the
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<PAGE> 19
Plan, the number of shares of Common Stock subject to Options theretofore
granted under the Plan, and any and all other matters deemed appropriate by the
Committee.
Section 9.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options, Alternative
Appreciation Rights, or Limited Rights shall not affect in any way 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 Company's capital structure or its business, or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting
the Common Stock or the rights thereof, 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,
whether of a similar character or otherwise.
(b) If, while there are outstanding Options, the Company
shall effect a subdivision or consolidation of shares or other increase
or reduction of the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or property,
then (i) in the event of an increase in the number of such shares
outstanding, the number of shares of Common Stock then subject to
Options hereunder shall be proportionately increased; and (ii) in the
event of a decrease in the number of such shares outstanding the number
of shares then available for Option hereunder shall be proportionately
decreased.
(c) After a merger of one or more corporations into the
Company, or after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving corporation,
each holder of an outstanding Option shall, at no additional cost, be
entitled upon exercise of such Option to receive (subject to any
required action by stockholders) in lieu of the number of shares as to
which such Option shall then be so exercisable, the number and class of
stock or other securities to which such holder would have been entitled
to receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation,
such holder had been the holder of record of a number of shares of the
Company equal to the number of shares as to which such Option had been
exercisable.
(d) If the Company is merged into or consolidated with
another corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company sells or
otherwise disposes of substantially all of its assets to another
corporation or other entity while unexercised Options remain
outstanding, then the Committee may direct that any of the following
shall occur:
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<PAGE> 20
(i) If the successor entity is willing to assume
the obligation to deliver shares of stock or securities after
the effective date of the merger, consolidation or sale of
assets, as the case may be, each holder of an outstanding
Option shall be entitled to receive, upon the exercise of
such Option and payment of the Option Price, in lieu of
shares of Common Stock, such shares of stock or other
securities as the holder of such Option would have been
entitled to receive had such Option been exercised immediately
prior to the consummation of such merger, consolidation or
sale, and any related Alternate Appreciation Right and Limited
Right associated with such Option shall apply as nearly as
practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such
merger, consolidation or sale of assets.
(ii) The Committee may waive any limitations set
forth in or imposed pursuant to this Plan or any Award
Agreement with respect to such Option and any related
Alternate Appreciation Right or Limited Option such that such
Option and related Alternate Appreciation Right and Limited
Right shall become exercisable prior to the record or
effective date of such merger, consolidation or sale of
assets.
(iii) The Committee may cancel all outstanding
Options and Alternate Appreciation Rights (but not Limited
Rights) as of the effective date of any such merger,
consolidation, or sale of assets provided that prior notice of
such cancellation shall be given to each holder of an Option
at least 30 days prior to the effective date of such merger,
consolidation, or sale of assets, and each holder of an Option
shall have the right to exercise such Option and any related
Alternate Appreciation Right in full during a period of not
less than 30 days prior to the effective date of such merger,
consolidation, or sale of assets. No action taken by the
Committee under this subsection shall have the effect of
terminating, and nothing in this subsection shall permit the
Committee to terminate, any Limited Right held by an Optionee.
(c) Except as herein provided, the issuance by the
Company of Common Stock or any other shares of capital stock or
services convertible into shares of capital stock, for cash property,
labor done or other consideration, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of
shares of Common Stock then subject to outstanding Options.
Section 9.12. Change in Control. Any Award granted under the Plan prior
to the date of a Change in Control shall be immediately exercisable in full on
such date, without regard to any times of exercise established under its Award
Agreement; provided, however, in no event shall Stock Options or Incentive Stock
Options be exercisable after the tenth anniversary of their respective grant
dates.
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Section 9.13. Amendment of the Plan.
(a) The Committees may without further action by the
shareholders and without receiving further consideration from the
Participants, amend this Plan or condition or modify Awards under this
Plan in response to changes in securities or other laws or rules,
regulations or regulatory interpretations thereof applicable to this
Plan or to comply with stock exchange rules or requirements.
(b) The Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, except that
without shareholder approval the Committee may not (i) increase the
maximum number of shares of Common Stock which may be issued under the
Plan (other than increases pursuant to Section 9.10), (ii) extend the
period during which any Award may be granted or exercised, (iii) extend
the term of the Plan, (iv) change the class of eligible Participants in
the Plan, or (v) materially increase benefits available to Participants
under the Plan if such increase would require shareholder approval
pursuant to the listed company rules of the New York Stock Exchange,
Inc. as such rules may be amended from time to time. The termination or
any modification or amendment of the Plan, except as provided in
subsection (a), shall not, without the consent of a Participant, affect
his or her rights under an Award previously granted to him or her.
Section 9.14. Effective Date. The Plan, as amended as of July 6, 1998,
shall become effective as of July 6, 1998.
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<PAGE> 1
EXHIBIT 10.3
WASTE MANAGEMENT, INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED - NOVEMBER 10, 1998)
CONFORMED COPY
1. PURPOSE. The principal purpose of this 1996 Stock Option Plan for
Non-Employee Directors (the "Plan") is to benefit WASTE MANAGEMENT, INC. (the
"Company") and its subsidiaries through offering its directors who are not
officers or full-time employees of the Company or any of its subsidiaries an
opportunity to become holders of stock in the Company, thereby giving them a
stake in the growth and prosperity of the Company, in order to enable them to
represent the viewpoint of other stockholders of the Company more effectively
and to encourage them to continue serving as directors of the Company.
2. ADMINISTRATION. The Plan shall be administered by the Executive
Committee of the Board of Directors (the "Committee"), whose interpretation of
the terms and provisions of the Plan and whose determination of matters
pertaining to options granted under the Plan shall be final and conclusive."
3. ELIGIBILITY. Options shall be granted under this Plan only to
members of the Board of Directors who are not officers or full-time employees of
the Company or any of its subsidiaries (each such director receiving options
granted under the Plan and each other person entitled to exercise an option
granted under the Plan is referred to herein as an "Optionee").
4. GRANT OF OPTIONS. (a) An option under which a total of 10,000
shares of the common stock of the Company may be purchased from the Company
shall be automatically granted to each eligible director of the Company on the
first business day of January of each year in which such eligible director is
still serving as a director (whether or not such director's term has been
continuous). Notwithstanding the foregoing, the Committee may provide for an
annual option grant for the purchase of a different number of Company shares and
for such additional grants to eligible persons under this Plan as the Committee
may in its discretion determine. The aggregate number of shares which shall be
available to be so optioned under this Plan shall be 1,400,000 shares. Such
number of shares, and the number of shares subject to options outstanding under
the Plan, shall be subject in all cases to adjustment as provided in Paragraph
10 hereof. No option shall be granted under the Plan subsequent to January 1,
2006.
(b) Notwithstanding any of the foregoing to the contrary, in the event
an option expires or is terminated or canceled unexercised as to any shares of
common stock, such released shares may again be the subject of an option granted
under the Plan. Shares subject to options may be made available from unissued or
reacquired shares of common stock.
(c) Nothing contained in the Plan or in any option granted pursuant
thereto shall in itself confer upon any Optionee any right to continue serving
as a director of the Company or interfere in any way with any right of the Board
of Directors or stockholders of the Company to remove such director pursuant to
the restated certificate of incorporation or by-laws of the Company or
applicable law.
<PAGE> 2
5. OPTION PRICE. Subject to adjustment under Paragraph 10 hereof, the
option price shall be the fair market value, on the date as of which the option
is granted, of the stock subject to the option, which shall be, for purposes of
this Paragraph, the lowest trading price of the Company's common stock on the
New York Stock Exchange Composite Tape (as reported in The Wall Street Journal,
Southwest Edition) (or, if the Company's common stock is not then traded on the
New York Stock Exchange, on the principal market where such common stock is
actively traded) on the date as of which the option is granted.
6. DURATION OF OPTIONS; VESTING. Subject to the provisions of
Paragraph 8 hereof, each option shall be for a term of ten years. Each option
shall become exercisable with respect of 100% of the total number of shares
subject to the option on the first anniversary of the date of grant.
7. EXERCISE OF OPTION. (a) An option may be exercised by giving
written notice to the Company, attention of the Secretary, specifying the number
of shares to be purchased, accompanied by the full purchase price for the shares
to be purchased in cash, by check, or a "cashless-broker" exercise pursuant to
procedures established by the Committee from time to time, by a promissory note
in the form specified by the Company and payable to the Company 15 business days
after the date of exercise of the option, by shares of the Company's common
stock or by a combination of these methods of payment. For this purpose, the per
share value of the Company's common stock shall be the fair market value on the
date of exercise (or if the date of exercise is not a trading day on the trading
day next preceding the date of exercise), which shall be, for purposes of this
Paragraph, the average of the highest and lowest sales price of the Company's
common stock on the New York Stock Exchange Composite Tape (as reported in The
Wall Street Journal, Southwest Edition) (or, if the Company's common stock is
not then traded on the New York Stock Exchange, on the principal market where
such common stock is actively traded) on such date.
(b) At the time of any exercise of any option, the Company may, if it
shall determine it necessary or desirable for any reason, require the Optionee
(or his or her heirs, legatees or legal representatives, as the case may be) as
a condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the Optionee upon his or her exercise of part or all of the option and a stop
transfer order may be placed with the transfer agent. Each option shall also be
subject to the requirement that, if at any time the Company determines, in its
discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state, federal
or foreign law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in consideration with, the issue
or purchase of shares thereunder, the option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company.
8. TERMINATION-EXERCISE THEREAFTER. (a) In the event an Optionee
ceases to be a director of the Company for any reason other than death,
permanent disability, resignation or
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<PAGE> 3
retirement, such Optionee's option shall expire and all rights to purchase
shares pursuant thereto shall terminate immediately.
(b) In the event of death, permanent disability (as the term is defined
in the Social Security Act, as now in effect or as it shall be subsequently
amended), resignation or retirement, the vesting of any unvested options shall
accelerate and such options may be exercised in full by the Optionee or, if the
Optionee is not living, by the Optionee's heirs, legatees, or legal
representatives, as the case may be, at any time during its specified term after
the date of death, permanent disability, resignation or retirement.
9. TRANSFERABILITY. (a) Except as provided in subparagraph (b) below,
no Option will be transferable by an Optionee other than by will or the laws of
descent and distribution and Options will be exercisable during the lifetime of
the Optionee only by the Optionee or by the Optionee's legal representative.
(b) Notwithstanding the foregoing, Options may be transferred (in whole
or in part in a form approved by the Company) by an Optionee to (i) the spouse,
children or grandchildren of the Optionee ("Immediate Family Members"), (ii) a
trust or trusts for the exclusive benefit of the Immediate Family Members and,
if applicable, the Optionee, or (iii) a partnership in which such Immediate
Family Members and, if applicable, the Optionee are the only partners. Following
any such transfer, the Option shall continue to be subject to the same terms and
conditions as were applicable to the Option immediately prior to the transfer. A
transferee of an Option may not transfer the Option except to an Immediate
Family Member or the Optionee.
10. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
Company's outstanding common stock is changed by any stock dividend, stock split
or combination of shares, the number of shares subject to the Plan and to
options granted thereunder shall be proportionately adjusted, (b) in the event
of any merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted on an equitable basis as
determined by the Board of Directors, for each share of common stock then
subject to the Plan and for each share of common stock then subject to an option
granted under the Plan, the number and kind of shares of stock, other
securities, cash or other property to which the holders of common stock of the
Company will be entitled pursuant to the transaction, and (c) in the event of
any other relevant change in the capitalization of the Company, the Board of
Directors shall provide for an equitable adjustment in the number of shares of
common stock then subject to the Plan and to each share of common stock then
subject to an option granted under the Plan. In the event of any such
adjustment, the exercise price per share shall be proportionately adjusted.
11. CHANGE IN CONTROL. (a) Any option granted under the Plan prior to
the date of a "Change in Control" shall be immediately exercisable in full on
such date, without regard to any times of exercise established under the
Paragraph 6 hereof. The term "Change in Control" shall mean the occurrence, at
any time during the specified term of an option granted under the Plan, of any
of the following events:
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<PAGE> 4
(i) The Company is merged or consolidated or reorganized
into or with another corporation or other legal person (an "Acquiror")
and as a result of such merger, consolidation or reorganization less
than 75% of the outstanding voting securities or other capital
interests of the surviving, resulting or acquiring corporation or other
legal person are owned in the aggregate by the stockholders of the
Company, directly or indirectly, immediately prior to such merger,
consolidation or reorganization, other than the Acquiror or any
corporation or other legal person controlling, controlled by or under
common control with the Acquiror;
(ii) The Company sells all or substantially all of its
business and/or assets to an Acquiror, of which less than 75% of the
outstanding voting securities or other capital interests are owned in
the aggregate by the stockholders of the Company, directly or
indirectly, immediately prior to such sale, other than any corporation
or other legal person controlling, controlled by or under common
control with the Acquiror;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), disclosing that any person or group (as the terms
"person" and "group" are used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act and the rules and regulations promulgated
thereunder) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 20% or more of the issued and
outstanding shares of voting securities of the Company; or
(iv) During any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of the
Company cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new director of the Company was approved by a
vote of at least two-thirds of such directors of the Company then still
in office who were directors of the Company at the beginning of any
such period.
12. AMENDMENT OF PLAN. The Board of Directors of the Company or any
authorized committee thereof may amend or discontinue the Plan at any time,
provided, however, that the Plan may not be amended more than once every six
months except to comport with the changes in the Internal Revenue Code, the
Employee Retirement Income Security Act of 1976, as amended, or the rules and
regulations under each, and provided further, that no such amendment or
discontinuance shall (a) without the consent of the Optionee change or impair
any option previously granted, or (b) without the approval of the holders of a
majority of the shares of voting common stock of the Company which are present
or represented at a duly held stockholders' meeting, (i) increase the maximum
number of shares which may be purchased by all eligible directors pursuant to
the Plan, (ii) change the purchase price, or (iii) change the option period or
increase the time limitations on the grant of options.
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<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and _____________________ (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of _____________, 19____, as follows:
1. EMPLOYMENT.
The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT.
The period of Executive's employment under this Agreement shall begin as of
_____________, 19____, and shall be for continuously renewing [five (5)] [three
(3)] year terms, unless Executive's employment is terminated in accordance with
Section 5 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as ___________________, and report to
____________________. In such capacity, Executive shall perform such
duties as may be assigned to Executive from time to time by the Board
of Directors of the Company or the Chief Executive Officer of the
Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and
energies to the business of the Company, and/or its affiliated
corporations, and perform the duties under this Agreement to the best
of Executive's abilities. Executive may make and manage his personal
investments, provided such investments in other activities do not
violate, in any material respect, the provisions of Section 8 of this
Agreement.
(c) Executive shall (i) comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) comply with the
Company's rules, procedures, policies, requirements, and directions;
and (iii) not engage in any other business or employment without the
written consent of the Company except as otherwise specifically
provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of ($________) dollars per
year or such higher rate as may be determined from time to time by the
Company ("Base Salary"). Such Base Salary shall be paid in accordance
with the Company's standard payroll practice for senior executives.
<PAGE> 2
(b) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
for the ordinary and necessary business expenses incurred by Executive
in the performance of the duties hereunder in accordance with the
Company's customary practices applicable to senior executives,
provided that such expenses are incurred and accounted for in
accordance with the Company's policy.
(c) BENEFIT PLANS. Executive shall be eligible to participate in or
receive benefits under any pension plan, profit sharing plan, medical
and dental benefits plan, life insurance plan, short-term and
long-term disability plans, supplemental and/or incentive compensation
plans, or any other fringe benefit plan, generally made available by
the Company to [senior executives] [executive working pursuant to this
form of Agreement (hereinafter referred to as "similarly situated
executives")].
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable
legal, accounting and other advisory fees) incurred by the Executive
to (i) defend the validity of this Agreement, (ii) contest any
determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Executive under this Agreement,
(iii) determine in any tax year of the Executive, the tax consequences
to the Executive of any amount payable (or reimbursable) under Section
7(b) or 7(c) hereof, or (iv) prepare responses to an Internal Revenue
Service audit of, and to otherwise defend, his personal income tax
return for any year which is the subject of any such audit, or an
adverse determination, administrative proceedings or civil litigation
arising therefrom that is occasioned by or related to any audit by the
Internal Revenue Service of the Company's income tax returns, are,
upon written demand by the Executive, to be promptly advanced or
reimbursed to the Executive, or paid directly, on a current basis, by
the Company or its successors.
5. TERMINATION OF EMPLOYMENT.
Executive's employment hereunder may be terminated under the following
circumstances:
(a) DEATH. Executive's employment hereunder shall terminate upon
Executive's death.
(b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled". For purposes of
this Agreement, Executive shall be "Totally Disabled" if Executive is
physically or mentally incapacitated so as to render Executive
incapable of performing Executive's usual and customary duties under
this Agreement. Executive's receipt of disability benefits under the
Company's long-term disability plan or receipt of Social Security
disability benefits shall be deemed conclusive evidence of Total
Disability for purpose of this Agreement; provided, however, that in
the absence of Executive's receipt of such long-term disability
benefits or Social Security benefits, the Company's Board of Directors
may, in its reasonable discretion (but based upon appropriate medical
evidence), determine that Executive is Totally Disabled.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time after
providing written notice to Executive.
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<PAGE> 3
(i) For purposes of this Agreement, the term "Cause" shall mean
any of the following: (A) conviction of a crime (including
conviction on a nolo contendere plea) involving a felony or,
in the good faith judgment of the Company's Board of
Directors, fraud, dishonesty, or moral turpitude; (B)
deliberate and continual refusal to perform employment duties
reasonably requested by the Company or an affiliate after
thirty (30) days' written notice by certified mail of such
failure to perform, specifying that the failure constitutes
cause (other than as a result of vacation, sickness, illness
or injury); (C) fraud or embezzlement determined in
accordance with the Company's normal, internal investigative
procedures consistently applied in comparable circumstances;
(D) gross misconduct or gross negligence in connection with
the business of the Company or an affiliate which has
substantial effect on the Company or the affiliate; or (E)
breach of any of the covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for
Cause if the Company determines that the individual engaged
in an act constituting Cause at any time prior to a payment
date for an award, regardless of whether the individual
terminates employment voluntarily or is terminated
involuntarily, and regardless of whether the individual's
termination initially was considered to have been for Cause.
(iii) Any determination of Cause under this Agreement shall be made
by resolution of the Company's Board of Directors adopted by
the affirmative vote of not less than a majority of the
entire membership of the Board of Directors at a meeting
called and held for that purpose and at which Executive is
given an opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice
to the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time after
providing written notice to Executive.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) TERMINATION BY REASON OF DEATH. In the event that Executive's
employment is terminated by reason of Executive's death, the Company
shall pay the following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of death, any accrued but unpaid expenses required
to be reimbursed under this Agreement; a pro-rata "bonus" or
incentive compensation payment to the extent payments are
awarded similarly situated executives and paid at the same
time as similarly situated executives are paid; and any
vacation accrued to the date of death.
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<PAGE> 4
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof, as determined and paid in accordance with the
terms of such plans, policies and arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's death) which would have been
payable to Executive if Executive had continued in employment
until the end of the current Employment Term. Such amount
shall be paid in a single lump sum cash payment within thirty
(30) days after Executive's death.
[(iv) As of the date of termination by reason of Executive's death,
stock options awarded to Executive shall be fully vested and
Executive's estate or beneficiary shall have up to one (1)
year from the date of death to exercise all such options.]
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Executive's employment is terminated by reason of Executive's Total
Disability as determined in accordance with Section 5(b), the Company
shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination. Executive shall also be
eligible for a pro-rata bonus or incentive compensation
payment to the extent such awards are made to similarly
situated executives for the year in which Executive is
terminated.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) The Base Salary (at the rate in effect as of the date of
Executive's Total Disability) which would have been payable
to Executive if Executive had continued in active employment
until the end of the current Employment Term. Payment shall
be made at the same time and in the same manner as such
compensation would have been paid if Executive had remained
in active employment until the end of such period.
[(iv) As of the date of termination by reason of Executive's total
disability, Executive shall be fully vested in all stock
option awards and Executive shall have up to one (1) year
from the date of termination by reason of total disability to
exercise all such options.]
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), the
Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination.
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<PAGE> 5
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
terminates employment pursuant to Section 5(d), and other than for a
resignation tendered pursuant to Section 7 of this Agreement, the
Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that
Executive's employment is terminated by the Company pursuant to
Section 5(e) for reasons other than death, Total Disability or Cause,
the Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An annual amount equal to 75 percent (75%) of the average of
Executive's "Total Annual Direct Compensation" for the two
highest of the three most recent calendar years prior to
Executive's termination. Such annual amount shall be paid
during the five (5) year period beginning on the date of
Executive's termination and shall be paid at the same time
and in the same manner as Base Salary would have been paid if
Executive had remained in active employment until the end of
such period. For purposes of this Agreement, the term "Total
Annual Direct Compensation" means the total of the Base
Salary and other cash compensation payable to Executive
attributable to a calendar year (A) including any cash
compensation which would have been payable for such year but
for Executive's election to defer payment of such
compensation and (B) excluding any amounts recognized as
compensation as a result of Executive's exercise of a stock
option or receipt of a stock award.
(iv) The Company completely at its expense will continue for
Executive and Executive's spouse and dependents, all health
benefit plans, programs or arrangements, whether group or
individual, in which Executive was entitled to participate at
any time during the twelve-month period prior to the date of
termination, until the earliest to occur of (A) [five]
[three] years after the date of termination; (B) Executive's
death (provided
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<PAGE> 6
that benefits payable to Executive's beneficiaries shall not
terminate upon Executive's death); or (C) with respect to any
particular plan, program or arrangement, the date Executive
becomes covered by a comparable benefit by a subsequent
employer. In the event that Executive's continued
participation in any such plan, program, or arrangement of
the Company is prohibited, the Company will arrange to
provide Executive with benefits substantially similar to
those which Executive would have been entitled to receive
under such plan, program, or arrangement, for such period.
(v) Except to the extent prohibited by law, Executive will be
100% vested in all benefits, awards, and grants accrued but
unpaid as of the date of termination under any pension plan,
profit sharing plan, supplemental and/or incentive
compensation plans, and stock option plans in which Executive
was a participant as of the date of termination. [Executive
shall have one (1) year from the date of termination to
exercise stock options.] [Executive shall be able to exercise
stock options for the life of the award.] Executive shall
also be eligible for a bonus or incentive compensation
payment, to the extent payments are made to similarly
situated executives, pro-rated for the year in which the
Executive is terminated.
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under
this Agreement, under the terms of any incentive compensation,
employee benefit, or fringe benefit plan applicable to Executive at
the time of Executive's termination or resignation of employment,
Executive shall have no right to receive any other compensation, or to
participate in any other plan, arrangement or benefit, with respect to
future periods after such termination or resignation.
(g) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event
that the Company, in its sole discretion determines that, without the
Company's express written consent, Executive has
(i) directly or indirectly engaged in, assisted or have any
active interest or involvement whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public
company), partner, proprietor, or any type of principal
whatsoever, in any person, firm, or business entity which is
directly or indirectly competitive with the Company or any of
its affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm,
or business entity which is directly or indirectly
competitive with the Company or any of its affiliates (A)
solicited or accepted from any person or entity who is or was
a client of the Company during the term of Executive's
employment hereunder or during any of the twelve calendar
months preceding or following the termination of Executive's
employment any business for services similar to those
rendered by the Company, (B) requested or advised any present
or future customer of the Company to withdraw, curtail or
cancel its business dealings with the Company, or (C)
requested or advised any employee of the Company to terminate
his or her employment with the Company;
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<PAGE> 7
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement.
Such suspension or termination of benefits shall be in addition to and
shall not limit any and all other rights and remedies that the Company
may have against Executive.
7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE FOLLOWING
CHANGE IN CONTROL.
(a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event
a "Change in Control" occurs, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated from
employment with the Company at any time prior to the six (6) month
anniversary of the date of the Change in Control following the
occurrence of any of the following events:
(i) without Executive's express written consent, the assignment
to Executive of any duties inconsistent with Executive's
positions, duties, responsibilities and status with the
Company immediately before a Change in Control, or a change
in Executive's reporting, responsibilities, titles or offices
as in effect immediately before a Change in Control, or any
removal of Executive from, or any failure to re-elect
Executive to, any of such positions, except in connection
with the termination of Executive's employment as a result of
death, or by the Company for Disability or Cause, or by
Executive other than for the reasons described in this
Section 7(a);
(ii) a reduction by the Company in Executive's Base Salary as in
effect immediately before a Change in Control plus all
increases therein subsequent thereto;
(iii) the failure of the Company substantially to maintain and to
continue Executive's participation in the Company's benefit
plans as in effect immediately before a Change in Control and
with all improvements therein subsequent thereto (other than
those plans or improvements that have expired thereafter in
accordance with their original terms), or the taking of any
action which would materially reduce Executive's benefits
under any of such plans or deprive Executive of any material
fringe benefit enjoyed by Executive immediately before a
Change in Control, unless such reduction or termination is
required by law;
[(iv) the failure of the Company to pay Executive with an
appropriate adjustment to compensation, such as a lump sum
relocation bonus, salary adjustment and/or housing allowance
so that Executive can purchase comparable primary housing if
required to relocate (it being the intention of this Section
7[a][iv] to keep the Executive "whole" if required to
relocate). In this regard, comparable housing shall be
determined by comparing factors such as location (taking into
account, by way of example, items such as the value of the
surrounding neighborhood, reputation of the public school
district, if applicable, security and proximity to
Executive's place of work), quality of construction, design,
age, size of the housing and the ratio of the monthly
payments including principle, interest, taxes and insurance,
to the
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<PAGE> 8
Executive's take-home-pay, to housing most recently owned by
Executive prior to, or as of the effective date of the change
of control;]
[(iv) the change of Executive's principal place of employment to a
location more than fifty (50) miles from such principal place
of employment, except for required travel on the Company's
business to an extent substantially consistent with
Executive's business travel obligations immediately before a
Change in Control;]
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of
Executive's compensation deferred under any plan, agreement
or arrangement of or with the Company, within seven (7) days
of the date such compensation is due; or
(vi) the failure by the Company to obtain an assumption of, and
agreement to perform the obligations of the Company under
this Agreement by any successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates
employment pursuant to Section 7(a), the Company shall pay the
following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof, shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times
Executive's "base amount" within the full meaning of Section
280G of the Internal Revenue Code. Such amount shall be paid
to Executive in a single lump sum cash payment within five
(5) business days after the effective date of Executive's
resignation.
(iv) Executive will be 100% vested in all benefits, awards, and
grants (including stock option grants) accrued but unpaid as
of the date of termination under any non-qualified pension
plan, supplemental and/or incentive compensation or bonus
plans, in which Executive was a participant as of the date of
termination. Executive shall also be eligible for a bonus or
incentive compensation payment (the "bonus payment"), payable
at 100% of the maximum bonus available to Executive,
pro-rated as of the effective date of the termination. The
bonus payment shall be payable within five (5) days after the
effective date of Employee's termination. [Employee shall
have until the expiration date shown on the stock option
award in which to exercise the options which have vested
pursuant to this section.]
Except as may be provided under this Section 7 or under the terms of
any incentive compensation, employee benefit, or fringe benefit plan
applicable to Executive at the time of Executive's resignation from
employment, Executive shall have no right to receive any
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<PAGE> 9
other compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such resignation or
termination.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
portion of the benefits payable under this Agreement, and any other
payments and benefits under any other agreement with, or plan of the
Company to or for the benefit of the Executive (in aggregate, "Total
Payments") constitute an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code (the "Code"), then the
Company shall pay the Executive as promptly as practicable following
such determination an additional amount (the "Gross-up Payment")
calculated as described below to reimburse the Executive on an
after-tax basis for any excise tax imposed on such payments under
Section 4999 of the Code. The Gross-up Payment shall equal the amount,
if any, needed to ensure that the net parachute payments (including
the Gross-up Payment) actually received by the Executive after the
imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes,
had the Total Payments not been subject to the taxes imposed by
Section 4999. For purposes of this calculation, it shall be assumed
that the Executive's tax rate will be the maximum federal rate to be
computed with regard to Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as
to the amount of the Gross-up Payment, if any, the Company shall
select a law firm or accounting firm from among those regularly
consulted (during the twelve-month period immediately prior to a
Change-in-Control) by the Company regarding federal income tax matters
and such law firm or accounting firm shall determine the amount of
Gross-up Payment and such determination shall be final and binding
upon the Executive and the Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any
person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, of any securities of the
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming
the beneficial owner, directly or indirectly, of securities
of the Company representing 25 percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) As a result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were directors immediately
before the transaction shall cease to constitute a majority
of the Board of Directors of the Company or any successor to
the Company.
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<PAGE> 10
8. RESTRICTIVE COVENANTS
(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and during
the period that payments are made to Executive pursuant to Section 6
of this Agreement, Executive will not engage in, assist, or have any
active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public company),
partner, proprietor or any type of principal whatsoever in any person,
firm, or business entity which, directly or indirectly, is engaged in
the same business as that conducted and carried on by the Company,
without the Company's specific written consent to do so. Executive
further agrees that for a period of one (1) year after the date
payments made to Executive pursuant to Section 6 of this Agreement
cease, or for a period of two (2) years following the date of
termination, whichever is later, Executive will not, directly or
indirectly, within 75 miles of any operating location of any affiliate
of the Company, engage in, assist, or have any active interest or
involvement, whether as an employee, agent, consultant, creditor,
advisor, officer, director, stockholder (excluding holding of less
than 1% of the stock of a public company), partner, proprietor or any
type of principal whatsoever in any person, firm, or business entity
which, directly or indirectly, is engaged in the same business as that
conducted and carried on by the Company or any of its affiliated
companies, without the Company's specific written consent to do so.
(b) NON-SOLICITATION. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for a
period of one (1) year after the date payments made to Executive
pursuant to Section 6 of this Agreement cease, or two (2) years after
the date of termination of the Executive's employment, whichever date
is later, whether such termination is voluntary or involuntary by
wrongful discharge, or otherwise, Executive will not directly or
indirectly (i) induce any customers of the Company or corporations
affiliated with the Company to patronize any similar business which
competes with any material business of the Company; (ii) canvass,
solicit or accept any similar business from any customer of the
Company or corporations affiliated with the Company; (iii) directly or
indirectly request or advise any customers of the Company or
corporations affiliated with the Company to withdraw, curtail or
cancel such customer's business with the Company; [or] (iv) directly
or indirectly disclose to any other person, firm or corporation the
names or addresses of any of the customers of the Company or
corporations affiliated with the Company[. or; (v) individually or
through any person, firm, association or corporation with which
Executive is now or may hereafter become associated, cause, solicit,
entice, or induce any present or future employee of the Company, or
any corporation affiliated with the Company to leave the employ of the
Company, or such other corporation to accept employment with, or
compensation from, the Executive or any such person, firm, association
or corporation without the prior written consent of the Company.]
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall
not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including,
without limitation, the repetition or distribution of derogatory
rumors, allegations, negative reports or comments) which are
disparaging, deleterious or damaging to the integrity, reputation or
good will of the Company, its management, or of management of
corporations affiliated with the Company.
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<PAGE> 11
(d) PROTECTED INFORMATION. Executive recognizes and acknowledges that
Executive has had and will continue to have access to various
confidential or proprietary information concerning the Company and
corporations affiliated with the Company of a special and unique value
which may include, without limitation, (i) books and records relating
to operation, finance, accounting, sales, personnel and management,
(ii) policies and matters relating particularly to operations such as
customer service requirements, costs of providing service and
equipment, operating costs and pricing matters, and (iii) various
trade or business secrets, including customer lists, route sheets,
business opportunities, marketing or business diversification plans,
business development and bidding techniques, methods and processes,
financial data and the like (collectively, the "Protected
Information"). Executive therefore covenants and agrees that Executive
will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly
disclose to any other person or organization (except as authorized by
the Company) any of the Protected Information.
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive
agrees that any breach by Executive of any of the covenants set forth
in Section 8 hereof during Executive's employment by the Company,
shall be grounds for immediate dismissal of Executive and forfeiture
of any accrued and unpaid salary, bonus, commissions or other
compensation of such Executive as liquidated damages, which shall be
in addition to and not exclusive of any and all other rights and
remedies the Company may have against Executive.
(b) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
covenants set forth in Section 8 hereof will cause irreparable damage
to the Company with respect to which the Company's remedy at law for
damages will be inadequate. Therefore, in the event of breach of
anticipatory breach of the covenants set forth in this section by
Executive, Executive and the Company agree that the Company shall be
entitled to the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity; (i) injunctions,
both preliminary and permanent, enjoining or restraining such breach
or anticipatory breach and Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent
jurisdiction; and (ii) recovery of all reasonable sums expended and
costs, including reasonable attorney's fees, incurred by the Company
to enforce the covenants set forth in this section.
(c) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
constitute a series of separate covenants, one for each applicable
State in the United States and the District of Columbia, and one for
each applicable foreign country. If in any judicial proceeding, a
court shall hold that any of the covenants set forth in Section 8
exceed the time, geographic, or occupational limitations permitted by
applicable laws, Executive and the Company agree that such provisions
shall and are hereby reformed to the maximum time, geographic, or
occupational limitations permitted by such laws. Further, in the event
a court shall hold unenforceable any of the separate covenants deemed
included herein, then such unenforceable covenant or covenants shall
be deemed eliminated from the provisions of this Agreement for the
purpose of such proceeding to the extent necessary to permit the
remaining separate
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<PAGE> 12
covenants to be enforced in such proceeding. Executive and the Company
further agree that the covenants in Section 8 shall each be construed
as a separate agreement independent of any other provisions of this
Agreement, and the existence of any claim or cause of action by
Executive against the Company whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Company of any of the covenants of Section 8.
10. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.
If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and
expenses of experts, etc.) incurred by Executive in connection with any such
dispute or any litigation, (a) provided that Executive shall repay any such
amounts paid or advanced if Executive is not the prevailing party with respect
to any dispute or litigation arising under Sections 5c or 8 of this Agreement,
or (b) regardless of whether Executive is the prevailing party in a dispute or
in litigation involving any other provision of this Agreement, provided that
the court in which such litigation is first initiated determines with respect
to this obligation, upon application of either party hereto, Executive did not
initiate frivolously such litigation. Under no circumstances shall Executive be
obligated to pay or reimburse the Company for any attorneys' fees, costs or
expenses incurred by the Company. The provisions of this Section 10 shall
survive the expiration or termination of this Agreement and of Executive's
employment hereunder.
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement
to any third party other than Executive's immediate family, attorney,
accountants, or other consultants or advisors or except as may be required by
any governmental authority.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant
to a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.
Page 12 of 14
<PAGE> 13
14. ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive, and shall be assignable by the Company only to any
financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
(the provisions of this sentence also being applicable to any successive such
transaction).
15. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company. It may not be amended except by a written agreement
signed by both parties.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws
of the State of __________________ applicable to agreements made and to be
performed in that State, without regard to its conflict of laws provisions.
17. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Company:
Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive:
At the address for Executive set forth below
Page 13 of 14
<PAGE> 14
18. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a
waiver thereof or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Agreement.
(b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
this Agreement is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such
term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
(c) HEADINGS. Section headings are used herein for convenience of
reference only and shall not affect the meaning of any provision of
this Agreement.
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of
the singular shall be deemed to include the plural and vice versa.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, and such counterparts will together constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
WASTE MANAGEMENT, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Date:
---------------------------------
EXECUTIVE
- --------------------------------------
Date:
---------------------------------
Address:
------------------------------
- --------------------------------------
Page 14 of 14
<PAGE> 1
EXHIBIT 12.1
Waste Management, Inc.
Computation of Ratio Earnings to Fixed Charges
(in thousands, except ratios)
(unaudited)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) from continuing operations before income
taxes, undistributed earnings from affiliated companies,
and minority interest $ (678,919) $ (609,024) $ 781,365
---------- ---------- ----------
Fixed charges deducted from income:
Interest expense 681,457 555,576 525,340
Implicit interest in rents 79,108 58,869 58,949
---------- ---------- ----------
760,565 614,445 584,289
---------- ---------- ----------
Earnings available for fixed charges $ 81,646 $ 5,421 $1,365,654
========== ========== ==========
Interest expense $ 681,457 $ 555,576 $ 525,340
Capitalized interest 41,501 51,376 56,873
Implicit interest in rents 79,108 58,869 58,949
========== ========== ==========
Total fixed charges $ 802,066 $ 665,821 $ 641,162
========== ========== ==========
Ratio of earnings to fixed charges n/a (1) n/a (2) 2.1x
========== ========== ==========
</TABLE>
(1) The ratio of earnings to fixed charges for 1998 was less than a
one-to-one ratio. Additional earnings available for fixed charges of
$720,420,000 were needed to have a one-to-one ratio. The earnings
available for fixed charges were negatively impacted by merger cost of
$1,807,245,000 and unusual items of $864,063,000 related primarily to
the mergers between Waste Management, Inc. and Waste Management
Holdings, Inc. in July 1998, and Waste Management, Inc. and Eastern
Environmental Services, Inc. in December 1998.
(2) The ratio of earnings to fixed charges for 1997 was less than a
one-to-one ratio. Additional earnings available for fixed charges of
$660,399,000 were needed to have a one-to-one ratio. The earnings
available for fixed charges were negatively impacted by merger costs of
$112,748,000 (primarily related to the United Waste Systems, Inc.
merger in August 1997), and asset impairments and unusual items of
$1,771,145,000. The asset impairment and unusual items of
$1,771,145,000 primarily related to a comprehensive review performed by
Waste Management Holdings, Inc. of its operating assets and
investments.
<PAGE> 1
EXHIBIT 21.1
WASTE MANAGEMENT, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
---- ----------------
<S> <C>
1420 Chestnut Avenue Associates NJ
1420 Chestnut Avenue LLC NJ
40th Street, Inc. FL
709292 Alberta Ltd. AB
730810 Alberta Ltd. AB
740922 Alberta Ltd. AB
762570 Alberta Ltd. AB
A..C.T.S. B.V. NETHERLANDS
A.S.P.I.C.A. S.r.1. ITALY
A-1 Compaction, Inc. NY
Dba United Waste Systems of West Michigan
AB Gosta M. Skoglund SWEDEN
Action Portables, Inc. CA
Advanced Environmental Technical Services L.L.C. DE
Affordable Recycling Systems, Inc. NY
Afvalstoffen Terminal Mocrdijk B.V. NETHERLANDS
Akron Regional Landfill, Inc. OH
Alabama Waste Disposal Solutions, L.L.C. AL
Alaska Landfills, Inc. AK
Alliance Sanitary Landfill, Inc. PA
All-Waste Recycling, Inc. NY
All-Waste Systems, Inc. NY
Amador County Environmental Services, Inc. CA
American Landfill Gas Co. OH
American Landfill, Inc. OH
American Waste Control of New York, Inc. NY
Anchorage Refuse, Inc. AK
Anderson Landfill, Inc. DE
Anderson-Cottonwood Disposal Services, Inc. CA
Anthony Dally & Sons, Inc. PA
APEX Waste Services, Inc. PA
ARB Enterprises, Inc. NY
Arden Landfill, Inc. (fka William H. Martin) PA
Arrow Refuse, Inc. AK
Art Spert Disposal, LLC NY
Art-Jo Co. NJ
Aseo S.A. ARGENTINA
Atascadero Waste Alternatives, Inc. CA
Atlantic of New York, Inc. DE
Atlantic Transportation Services, Inc. DE
Atlantic Waste Collection, Inc. DE
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Atlantic Waste Disposal, Inc. DE
Automated Container Recovery, Inc. CT
Automated Recycling Technologies, Inc. (25%) NJ
Automated Salvage Transport, Inc. CT
Auxiwaste SA (FRANCE) FRANCE
Avenal Waste Alternatives, Inc. CA
AW Bryant Ltd. NEW ZEALAND
Azusa Land Reclamation Company, Inc. (fka American Sheds) CA
B&E Cartage, Inc. WV
B&L Disposal Co. NV
B. Holmes (Graded Paper) Ltd. UNITED KINGDOM
B.C. Environmental Enterprises, Inc. OH
B.C.D. Disposal, Inc. PA
Bad Bins Ltd. NEW ZEALAND
Baltimore Environmental Recovery Group, Inc. MD
Baltimore Refuse Energy Systems Company, Limited Partnership
Bayside of Marion, Inc. FL
Belpar Chemical Services, Inc. WV
Bensinger, Inc. TX
Big Valley Transport, Inc. WV
Bio-Energy Partners IL
Biosolids Reuse Management (JV) CA
Blandfill, Inc. (fka United Waste Landfill of UT) UT
Bluegrass Containment, Inc. KY
Bolton Road Landfill, Inc. DE
Boothscreek Sanitation, Inc. WV
Bosarge & Edmonds Contractors, Inc. MS
Dba Robo
Boudin's Waste & Recycling, Inc. MS
Braddon Enterprises, Inc. WV
Brand Construction Services, Inc. DE
Brazoria County Recycling Center, Inc. TX
BCRC
Brazoria County Recycling Center
USA Brazoria County Landfill
WRS Transfer Station
Brem-Air Disposal, Inc. OR
Brent Run Landfill, Inc. DE
Bridgeport Resco Company L.P.
Brushy Island Landfill, L.L.C. DE
Burnsville Sanitary Landfill, Inc. MN
C&D Sanitation and Recycling, LLC CT
C&L Disposal Company, Inc. CA
Caire's CKC Enterprises, Inc. CA
Cal Sanitation Services, Inc. CA
A-1 Sanitation
Cal Sierra Disposal, Inc. CA
Cal Sierra Transfer, Inc. CA
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
California Asbestos Monofill, Inc. CA
CAM
California Waste Recycling Systems, Inc. CA
California Waste Systems, Inc. CA
Campbell Wells Norm Corporation LA
Canadian Waste Services Holdings, Inc. ON
Canadian Waste Services, Inc. ON
635952 Ontario Inc. ON
1263404 Ontario Inc. ON
3368084 Canada Inc. ON
Arthur Richer & Fils Inc. ON
Bestan Inc. ON
Key Disposal, LTD. CDN
Intersan Inc. CDN
Location Sanico Ltee
Dechex Ltee
Centre de Tri Transit (1) Inc./Transit
Sorting Center (1) Inc.
Canterbury Waste Services Ltd. NEW ZEALAND
Capital Sanitation Company NV
Caramella-Ballardini, Ltd. NV
Cardinal Ridge Development, Inc. OH
Carmel Marina Corporation CA
Carolina Grading, Inc. SC
CDF Consolidated Corporation IL
Dba Rolling Kleen Disposal
Dba Southern Illinois Transfer Station
Cedar Hammock Refuse Disposal Corporation FL
Waste Management of Manatee County
Waste Management of Sarasota County
Cedar Ridge Landfill, Inc. DE
Central Disposal Systems, Inc. IA
Central Missouri Landfill, Inc. MO
Ceriani Cave ITALY
Chadwick Road Landfill, Inc. GA
Dba Chadwick Road Landfill
Chambers Development Company, Inc. DE
Monroeville Landfill
North Huntington Hauling
Chambers Enterprises, Inc. PA
Chambers International, Inc. DE
Chambers Development Europe B.V. FOR
Chambers Europe B.V. FOR
Chambers Medical Technologies of South Carolina, Inc. SC
MedTec
Medical Technologies
Chambers Medical Technologies, Inc. PA
Chambers of Delaware, Inc. DE
Chambers of Massachusetts, Inc. MA
Chambers of Mississippi, Inc. MS
Chambers of New Jersey, Inc. NJ
Chambers Services, Inc. NY
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Chemical Waste Management de Mexico, S.A. de C.V. MEXICO
Chemical Waste Management Ltd. NEW ZEALAND
Chemical Waste Management of Indiana, L.L.C. DE
Chemical Waste Management of New Jersey, Inc. NJ
Chemical Waste Management of Pennsylvania, Inc. DE
Chemical Waste Management of the Northwest, Inc. WA
Chemical Waste Management, Inc. DE
Trade Waste Incineration
Chem-Nuclear Systems, LLC DE
Cheshire Sanitation, Inc. NH
Harris Trucking
Tri-State Rubbish
Chesser Island Road Landfill, Inc. GA
Chiquita Canyon Landfill, Inc. (fka Laidlaw W. S. (Chiquita) CA
CID Landfill, Inc. NY
CID MRRF, Inc. DE
CID Refuse Service, Inc. NY
City Disposal Services, Inc. DE
City Environmental Services Landfill, Inc. of Florida FL
City Environmental Services Landfill, Inc. of Hastings MI
City Environmental Services of West Michigan
City Express
Hastings Sanitary Service
Lubbers Resource Systems
City Environmental Services Landfill, Inc. of Lapeer MI
Pioneer Rock Landfill
City Environmental Services Landfill, Inc. of Panama City MI
City Environmental Services Landfill, Inc. of Saginaw MI
Saginaw Valley Landfill
City Environmental Services, Inc. of Arecibo MI
City Environmental Services, Inc. of Mid-Michigan MI
CES-Saginaw
CES- West Branch
City Express
City Environmental Services, Inc. of Northern Michigan MI
City Express
City Environmental Services, Inc. of Romulus MI
City Express
Seagate Recycling
Seagate Sanitation Services
City Environmental Services, Inc. of Waters MI
City Environmental, Inc. DE
City Management Corporation MI
Adam Refuse
Brent Run
CES - Montrose
City Disposal System
City Environment
City Environmental Contracting
City Environmental
City Environmental Services East
City Environmental Services of Montrose
City Environmental Services of Joilet
City Equipment Company
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
City Express
City Liquid Treatment and Processing
City Municipal Services
City Recycling Center
City Sand & Landfill
City Waste Systems
D&J Refuse Company
G&G Disposal
Gary's Disposal
J.L. Smith Refuse Service
M&M Contracting of Michigan
M&M Holding Company, Inc.
Metro Waste Systems
Michigan City Management Corporation
Moore's Disposal
People's Garbage
People's Garbage Disposal
People's Garbage Disposal of Midland/Gladwin
Pollard Disposal
Premier Steel
Raska Disposal
Seymour Road Demolition
Seymour Road Landfill
Soave-Volpe Hauling
Trashbusters Transfer Station, Ltd.
United Machinery Movers and Erectors
Universal Waste & Transit
Whitefeather Development Company
Clarfield Recycling Ltd. UNITED KINGDOM
Clayton-Ward Company, Inc. CA
Clearview Environmental Landfill, Inc. MS
Cleburne Landfill Company Corp. AL
Cleburne Landfill Corporation MI
Clements Waste Services, Inc. PA
Cloverdale Disposal, Inc. CA
CNS Holdings, Inc. DE
CNSI Sub, Inc. DE
Coast Waste Management, Inc. CA
Cocopah Landfill, Inc. (fka Southern Sanitation, Inc.) CA
Codemonte Srl ITALY
Colorado Landfill, Inc. DE
Columbia County Drop Off Box, Inc. OR
Forest Grove Disposal Service
AC Trucking
Colusa Solid Waste & Recycling, Inc. CA
Condusa Srl ITALY
Connecticut Valley Sanitary Waste Disposal, Inc. MA
Conservation Services, Inc. CO
Container Recycling Alliance, L.P. DE
Contractor Container Corporation MI
Copper Mountain Landfill, Inc. (fka Copper State Recycling) AZ
Corgest Srl ITALY
Corning Disposal Service, Inc. CA
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Corti Fillippo Spa ITALY
Coshocton Landfill, Inc. OH
Cougar Landfill, Inc. (fka Cougar Holdings) TX
Countryside Landfill, Inc. IL
County-Wide Disposal, Inc. CA
Cunningham Properties Limited ONTARIO
Cuyahoga Landfill, Inc. (fka CRSL) DE
CWM Cement, Inc. DE
CWM Chemical Services, L.L.C. DE
CWM Resource Recovery, Inc. OH
D&D Container Services Company, Inc. UT
Dafter Sanitary Landfill, Inc. MI
Dakota Landfill, Inc. (fka Big Dipper Enterprises) ND
Dakota Resource Recovery, Inc. MN
United Waste Transfer
Dauphin Meadows Landfill, Inc. PA
Davie Disposal Systems, Inc. NE
Decker Disposal, Inc. FL
Deep Valley Landfill, Inc. DE
Deer Track Park Landfill, Inc. (fka Sanifill of WI, Inc.) DE
Advance Service Corp.
DeLand Landfill, Inc. DE
Delaware Recyclable Products, Inc. DE
Deponie Bentheim Entsorgung Verwaltungsgeskellscaft mbH GERMANY
Dickinson Landfill, Inc. DE
Disposal Service, Inc. NV
Disposal Services Medical Waste
Disposal Service, Inc. WV
Diversified Scientific Services, Inc. TN
Domenick Pucillo Disposal, Inc. NJ
Donno Company, Inc. NY
Drake's Sanitation, Inc. AK
Duluth Waste Marketing, Inc. MN
Durachem Limited Partnership MD
Eager Beaver Sanitary Service, Inc. OR
Earthcorp, L.L.C. DE
Earthmovers Landfill, L.L.C. DE
East Columbia C&D Landfill, Inc. SC
(fka TNT Sands, Inc.)
East Liverpool Landfill, Inc. OH
Eastern Container Corporation DE
Eastern Environmental Services of Florida, Inc. FL
Eastern Environmental Services of Indiana, Inc. DE
Eastern Environmental Services, Inc. DE
Eastern of Georgia, Inc. (formerly Pearless Waste Industries) DE
Eastern Recycling of NJ, Inc, DE
Eastern Transfer of New York, Inc. DE
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Eastern Waste of Bethlehem, Inc. DE
Eastern Waste of LI, Inc. DE
Eastern Waste of New York, Inc. DE
Eastern Waste of NJ, Inc. DE
Eastern Waste of Pennsylvania, Inc. DE
Eastern Waste of West Virginia, Inc. DE
EC Waste, Inc. PR
Eco West Corporation MT
Ecoadda ITALY
Ecocamuna Spa ITALY
Ecocentro s.p.a. ITALY
Eco-Consult s.r.l. ITALY
Ecol S.A. ARGENTINA
Ecologia meridoionale Srl ITALY
Ecologica Srl ITALY
Ecology Systems, Inc. NJ
Ecolombardia 21 Srl ITALY
Ecopi Srl ITALY
Ecoserve Limited HONG KONG
Ecoservice Srl ITALY
Ecoservizi S.p.A. ITALY
Ecovision B.V. NETHERLANDS
EESI Charter, Inc. DE
Egdemere Development, Inc. NY
Eksjo Rehallning AB SWEDEN
El Coqui de San Juan PR
El Coqui Landfill Company, Inc. PR
El Coqui Waste Disposal, Inc. DE
El Coqui Waste Disposal, Inc. PR
EC Waste, Inc. PR
El Dorado Disposal Service, Inc. CA
Elk River Landfill, Inc. MN
Elme Transport AB SWEDEN
EMICA S.r.1. ITALY
EMIG Trailer Sales, Inc. PA
Empire Wrecking Corporation NJ
Envirofil, Inc. DE
Enviroland, Incorporated MI
Environmental Control, Inc. NM
Environmental Management Systems, Inc. (MI) MI
Sumpter II Corp.
Environmental Technologies China Ltd. HONG KONG
Environmental Transfer Corp. NJ
Environmental Transfer Corporation DE
Enviropace Ltd. HONG KONG
Equipment Credit Corporation DE
ERC Landfill, Inc. (fka Environmental Restoration) OH
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
ESG Entsorgungswirtschaft Soest GmbH GERMANY
Esposito Srl ITALY
Ever Ready Drop Box CA
Evergreen Landfill, Inc. DE
Farmer's Landfill, Inc. MO
Feather River Disposal, Inc. CA
Fernley Disposal, Inc. NV
Churchill County Refuse Service
Fernley Sanitation
FFF, Inc. MN
Fibre Fuel Limited UNITED KINGDOM
First Waste Ltd. (Guernsey) UNITED KINGDOM
Fourth Avenue Holdings FL
Frank Stamato & Co. NJ
Freeth & Brocks Bins Ltd. NEW ZEALAND
Front Range Landfill, Inc. (fka Sanifill of CO) DE
Best Trash
City Disposal
ERD Landfill
Franklin Street Transfer
Frontier Environmental, Inc. FL
Future-Tech Environmental Services, Inc. CA
G.C. Environmental, Inc. TX
G.I. Industries, Inc. UT
G.S.A. Scarl Srl ITALY
GA Landfills, Inc. DE
Gallia Landfill, Inc. DE
Garnet of Maryland, Inc. MD
Gebr. Van Vliet B.V. NETHERLANDS
Gedis Srl ITALY
General Nuclear Systems, Inc. DE
General Sanitation Corporation FL
Georgia Waste Systems, Inc. GA
B.J. Recycling and Disposal Facility
Chapman Waste Disposal
Rolling Hills Recycling and Disposal Facility
Waste Management of Augusta- Aiken
Waste Management of Atlanta
Waste Management of Macon
GES Gesallschaft zur Entdorgung von Sekundaerrohstoffen mbH GERMANY
Gesam Gestione Servizi Ambientali S.p.A. ITALY
Gestion Des Rebuts D.M.P. Inc. QUEBEC
WMI Mauricie Bois- Franc
WMI Parc Hirondelles
Gestioni Ambientali, Srl ITALY
GI Industries, Inc. UT
Glegg Industries, Inc. ONTARIO
Glenn County Disposal Service, Inc. CA
Glen's Sanitary Landfill, Inc. MI
Graham Road Recycling & Disposal Facility, Inc. (Sanifill of WA) WA
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Grand Blanc Landfill, Inc. MI
Grand Central Sanitary Landfill, Inc. PA
Greater Manchester Sites Ltd. UNITED KINGDOM
Green Valley Landfill Limited HONG KONG
Greenfield WMI Transfer Limited HONG KONG
Greenhills Landfill Restoration Limited HONG KONG
Grupo WMX, S.A. De C.V. MEXICO
Guang Jia Environmental Protection Co. Ltd. HONG KONG
Guyan Transfer and Sanitation Service, Inc. WV
H.B.J.J., Incorporated CA
H.S.S. Inc. NJ
Ham Lake Haulers, Inc. MN
Hamm's Sanitation, Inc. NJ
Harford Disposal, Inc. MD
Harper Employment Services, Inc. MI
Harris Sanitation, Inc. FL
Harwood Landfill, Inc. (fka PST Reclamation) MD
Hedco Landfill Limited UNITED KINGDOM
Hillsboro Landfill, Inc. OR
Hillside Maintenance Corporation NJ
Hite Construction, Inc. AK
Hollander Industriediensten Amsterdam BV NETHERLANDS
Hollister Disposal, Inc. CA
Holyoke Sanitary Landfill, Inc. MA
Hoot Landfill, L.L.C. DE
Hudson Jersey Sanitation Co. NJ
Ibka Miljoservice A/S DENMARK
Ichochema B.V. NETHERLANDS
Icopower B.V. NETHERLANDS
Icosloop B.V. NETHERLANDS
Icotech NETHERLANDS
Icova B.V. NETHERLANDS
Icova Maltha Glasracylcing B.V. NETHERLANDS
IGM S.p.A. ITALY
IN Landfills, L.L.C. DE
Independent Disposal Services, Inc. CA
Independent Sanitation Company NV
Incline Sanitation
Interport Paper Company Limited UNITED KINGDOM
Interstate Recycling Corporation NJ
IRA S.r.1. ITALY
J Bar J Land, Inc. NE
J&S Sanitation, Inc. PA
J. van Loenen en Zonen B.V. NETHERLANDS
Jaarstveld Groen En Milieu B.V. NETHERLANDS
Jahner Sanitation, Inc. ND
Jay County Landfill, L.L.C. IN
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
Jefferson County Landfill, L.L.C. DE
John B. & Sons, Inc. NJ
John Smith Landfill, Inc. CA
Johnson Canyon Road Disposal Site, Inc. CA
Jolon Road Landfill Corporation CA
Jones Sanitation, L.L.C. DE
Junker Sanitation Services, Inc. MN
United Waste Systems of Minnesota
Jydsk Milijoservice A/S DENMARK
K and W Landfill, Inc. MI
KAB-WMI Sdn. Bhd MALAYSIA
Kahle Landfill, Inc. MO
Keene Road Landfill, Inc. FL
Kelley Run Hauling, Inc. DE
Kelly Run Sanitation, Inc. PA
Kennedy & Donkin (Middle East) Limited CYPRUS
Kennedy & Donkin Africa (Botswana) Partnership BOTSWANA
Kennedy & Donkin Africa (Malawi) Partnership MALAWI
Kennedy & Donkin Building Services Limited UNITED KINGDOM
Kennedy & Donkin Generation & Industrial Limited UNITED KINGDOM
Kennedy & Donkin Information Systems Ltd. UNITED KINGDOM
Kennedy & Donkin International Ltd. HONG KONG
Kennedy & Donkin Ltd. UNITED KINGDOM
Kennedy & Donkin Malaysia Ltd. DE
Kennedy & Donkin Overseas Ltd. UNITED KINGDOM
Kennedy & Donkin Power Ltd. UNITED KINGDOM
Kennedy & Donkin Quality Engineering UNITED KINGDOM
Kennedy & Donkin Systems Control Ltd. UNITED KINGDOM
Kennedy & Donkin Transportation Ltd. UNITED KINGDOM
Ken's Pickup Service, Inc. MI
United Waste Systems of Northern Michigan
Kershaw County Landfill, Inc. SC
(fka USA Waste Kershaw County, Landfill, Inc.)
Kimmins Recycling Corporation FL
King George Landfill, Inc. (fka Garnet of VA) VA
Klamath Disposal, Inc. OR
Klok Containers B.V. NETHERLANDS
Knutson Material Recovery Facility, Inc. MN
Knutson Services, Inc. MN
Knutson Kleen Sweep
L&K Debris Box Service CA
L & K Disposal
L&M Landfill, Inc. DE
Laidlaw Waste Systems (Valley View), L.L.C. DE
Land Reclamation Company, Inc. DE
Kestrel Hawk Park Landfill
Landfill of Union County, L.L.C. DE
Landfill Services of Charleston, Inc. (fka WVA Waste Services) WV
Landfill Systems, Inc. NM
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
Landfill Systems
Larry's Sanitary Service, Inc. CA
Lassen Waste Lines, Inc. CA
Lassen Waste Systems, Inc. CA
Laurel Highlands Landfill, Inc. PA
Laurel Ridge Landfill, L.L.C. DE
LCS Services, Inc. WV
LCS Landfill
North Mountain Landfill
Leroy Brown Landfill, Inc. (fka Envirofil of IL) IL
Lewis Road Disposal Site, Inc. CA
LFG Production (Partnership) DE
LG-Garnet of Maryland JV DC
(LG Industries, Inc. owns 50 % and LG-Garnet of Maryland Joint
Venture owns 50%)
DC U line Transfer
Liberty Landfill, L.L.C. DE
Liquid Waste Management, Inc. CA
Living Earth Joint Venture Company Ltd. NEW ZEALAND
Ljungby Renhallning & Transport AB SWEDEN
Ljusne Renhallnings AB SWEDEN
Local Sanitation of Rowan County, L.L.C. DE
Lo-Cost Waste Disposal, Inc. ALBERTA
Lodi Sanitary City Disposal Co., Inc. CA
Longview Group, Inc. DE
Longview of Buchanan County, Inc. MO
Longview of Kansas City, Inc. MO
Longview of Livingston County, Inc. MO
Longview of Mercer County I, Inc. NJ
Longview of Mercer County, Inc. NJ
Longview of Mid-Missouri, Inc. MO
Longview of Ocean County, Inc. NJ
Longview of Pettis County, Inc. MO
Longview of St. Joseph, Inc. MO
Loristan Services Limited UNITED KINGDOM
M&O Waste Management Limited Partnership IL
M.P.S. Medical Package Service srl ITALY
M.S.T.S. , Limited Partnership DE
M.S.T.S., Inc. DE
Maack Enterprises NV
Mahoning Landfill, Inc. OH
Malardalens Tankservice AB SWEDEN
Manliba SA ARGENTINA
Maplewood Landfill, Inc. (fka Chambers Energy) VA
Marangi Brothers, Inc. NJ
Mashor & Reym Charters Sdn. Bhd Brunei NETHERLANDS
Mashor Reym Sdn Shd Malaysia NETHERLANDS
Mashr & Reym Charters Sdn Bhd BRUNEI
</TABLE>
<PAGE> 12
<TABLE>
<S> <C>
Massachusetts Refusetech, Inc. DE
McDaniel Landfill, Inc. ND
McGinnes Industrial Maintenance Corp. TX
Meadowfill Landfill, Inc. DE
Megastock, Ltd. UNITED KINGDOM
Michigan Environs, Inc. MI
United Waste Systems of Menominee
Mid Valley Portable Storage, Inc. CA
Middle Island Enterprises, Inc. WV
Middlemass Holdings Pty Limited AUSTRALIA
Middlemass Industrial Services Pty Limited AUSTRALIA
Midwest Transport, Inc. WI
Minneapolis Refuse, Incorporated (23.826%-owned) MN
Missouri Disposal Partners, L.P. IL
M-L Commercial Garbage Service, Inc. WV
M-Land Corp NY
Monmouth Processing Company NJ
Moor Refuse, Inc. CA
Mountain Indemnity Insurance Company VT
Mountainview Landfill, Inc. (fka Chambers of MD) MD
MSTS. Lizenz GmbH GERMANY
Mull Entsorgung West GmbH & Co. KG GERMANY
Mull Entsorgung West Verwaltungs GmbH GERMANY
Municipal Waste and Service Corp. MI
Napa Garbage Service, Inc. CA
Napa Valley Disposal Service, Inc. CA
Nassjo Renhallning AB SWEDEN
National Guaranty Insurance Company VT
National Seal Company IL
Neal Road Landfill Corporation CA
Neotec Srl ITALY
Nevada City Garbage Service, Inc. CA
Nevada County Transfer, Inc. CA
New England CR, Inc. MA
New Milford Landfill, L.L.C. DE
NH/VT Energy Recovery Corporation NH
Nichols Sanitation, Inc. FL
Lake Placid Sanitation
North Broward County Resource Recovery Project, Inc. FL
North Broward Holdings, Inc. DE
North Hennepin Recycling & Transfer Corporation MN
North Valley Disposal Service, Inc. CA
Northeast Hauling Company, Inc. NJ
Northeast Waste Systems, Inc. CT
Northern Recycling, Inc. NY
Northwestern Landfill, Inc. DE
Norwaste Limited UNITED KINGDOM
</TABLE>
<PAGE> 13
<TABLE>
<S> <C>
Norwaste, Inc. AK
NRT Realty Corp. NY
NSC Corporation MA
NSC Sales Corp VA
Nu-Way Live Oak Landfill, Inc. (fka Sanifill of CA) DE
NYOFCO Holdings, Inc. DE
O.V.E.R. s.r.1. ITALY
Oak Grove Landfill, Inc. DE
Oakridge Landfill, Inc. (fka Chambers Oakridge LF) SC
Oakwood Landfill, Inc. (fka Pinewood Recycling) SC
Ocean Combustion Service, B.V. NETHERLANDS
OHM Corporation OH
Oil & Solvent Process Company CA
Okeechobee Landfill, Inc. (fka Chambers W.S. of FL) FL
Olney Sanitary System, Inc. IL
Olshan Demolishing Company, Inc. TX
Olson's Sanitation Service, Inc. WA
Olympic View Sanitary Landfill, Inc. WA
Orange County Landfill, Inc. (fka Chambers Orange Co. LF) FL
Ormsby Sanitary Landfill, Inc. NV
P.I.T.E.F. S.r.1. ITALY
Pacific Environmental Partners NEW ZEALAND
Pacific Waste Alternatives, Inc. CA
Pacific Waste Management Holdings Pty. Limited. AUSTRALIA
Pacific Waste Management Ltd. NEW ZEALAND
Pacific Waste Management Pte. Ltd. SINGAPORE
Pacific Waste Management Pty Limited AUSTRALIA
Palo Alto Sanitation Company CA
Paper Recycling International, L.P. DE
Pappy, Inc. MD
Paradise Solid Waste Systems, Inc. CA
Pearl Delta WMI Limited HONG KONG
Peerless Landfill Company FL
Peninsula Sanitation, Inc. AK
Penn Warner Club, Inc. DE
Pen-Rob, Inc. AZ
Penuelas Valley Landfill, Inc. PR
People's Landfill, Inc. DE
Peterson Demolition, Inc. MN
Phoenix Resources, Inc. PA
Photodigit Ltd. UNITED KINGDOM
Piacenza Amb. Srl. ITALY
Pikes Point Transfer Station Ltd. NEW ZEALAND
Pilmuir Waste Disposal Limited UNITED KINGDOM
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
Pine Bluff Landfill, Inc. (fka Sanifill/Pine Bluff LF) GA
Pine Grove Hauling, Inc. PA
Pine Grove Landfill, Inc. DE
Pine Grove Landfill, Inc. PA
Pine Grove, Inc. DE
Pine Ridge Landfill, Inc. DE
Pine Tree Acres, Inc. MI
S&V Disposal
PPK Environmental & Infrastructure Pty. Ltd. AUSTRALIA
Practical Recycling Systems Ltd. UNITED KINGDOM
Progesam Ecosistemi Srl ITALY
PT Prtasada Painunah Limbah Industri INDONESIA
PT Waste Management Indonesia INDONESIA
Public Sanitary Service, Inc. OR
Pucillo and Companies Environmental Recovery, Inc. NJ
Pulaski Grading, Inc. KY
Pullman Chimney of Canada Ltd. CANADA
Pullman Power Products Corporation DE
Pullman Power Products International Corporation DE
Pullman Power Products of Canada Limited CANADA
Pullman Power Products of Ohio, Inc. OH
PWMH Affiliates Superannuation Fund Pty Limited AUSTRALIA
Quail Hollow Landfill, Inc. DE
R A Johnson (Hauliage) Ltd. ENGLAND
R&A Bender, Inc. PA
R&B Landfill, Inc. (fka Chambers R&B LF) GA
R.S.W. Recycling, Inc. NV
RA Johnson (Haulage) Ltd. UNITED KINGDOM
Rail-Cycle L.P. CA
Randers Omlast Aps DENMARK
RCC Fiber Company, Inc. DE
RCI Hudson, Inc. MA
United Waste Systems of Hudson
RECO Venture, L.P. (45%) DE
Recuperi Piemontesi Srl ITALY
Recycle & Recover, Inc. GA
Recycle New Zealand Ltd. NEW ZEALAND
Recycling Works, Inc. PA
Re-Cy-Co, Inc. MN
United Waste Transfer
Red Bluff Disposal, Inc. CA
Redwood Landfill, Inc. DE
Refuse Disposal, Inc. WV
Refuse Removal Systems, Inc. CA
Refuse Services, Inc. FL
Clay County Recycling and Disposal Facility
Jacksonville Waste Control
Refuse, Inc. NV
</TABLE>
<PAGE> 15
<TABLE>
<S> <C>
Sage Street Transfer Station
Stead Street Transfer Station
Regin B.V. NETHERLANDS
Regional Recycling Corporation NJ
Regional Recycling, Inc. NY
REI Holdings, Inc. DE
Reliable Landfill, L.L.C. DE
Reliable Trash Hauling, Inc. FL
Remote Landfill Services, Inc. TN
Reno Disposal Co. NV
Reno Sanitation Company
Sparks Sanitation
Renovadan Miljoservice A/S DENMARK
Rent-a-Weld (Wirral) Ltd. UNITED KINGDOM
Resco Holdings, Inc. DE
Residential Services, Inc. NY
Residuals Processing, Inc. CA
Residuos Industriales Multiquim, S.A. de C.V. MEXICO
Resource Control Composting, Inc. MA
Resource Control, Inc. MA
Reuter Recycling of Florida, Inc. FL
Reym B.V. NETHERLANDS
Reym GmbH NETHERLANDS
Richland County Landfill, Inc. (fka Chambers Richland Co. LF) SC
Ridge Generating Station Limited Partnership
Ri-Eco S.r.1. ITALY
RIH Inc. DE
Riley Energy Systems of Lisbon Connecticut Corp. CT
Riley Energy Systems of Lisbon Corporation DE
RIS Risk Management Inc. DE
Riverbend Landfill, Inc. OR
Rolling Meadows Landfill, L.L.C. DE
Ross County Landfill, Inc. DE
RRT Design & Construction Corp DE
RRT Empire Returns Corp. of Monroe County, Inc. NY
RRT of Broome, Inc. DE
RRT of New Jersey, Inc. NJ
RRT of Pennsylvania, Inc. PA
RRT of Philadelphia, Inc. DE
RRT Plastics Corporation DE
RRT Recycling Associates of North Carolina, Inc. NC
RRT-Recycle America, Inc. DE
RTS Landfill, Inc. (fka Sanifill of GA) DE
Del Mar Virginia District
Plant Atkinson Transfer Station
South Side Sanitation
Starr Tranfer Station
Rudolph Beck & Sohne Aktiengesellschaft AUSTRIA
Rural Dispos-all Service, Inc. CA
</TABLE>
<PAGE> 16
<TABLE>
<S> <C>
Rust Capital Corporation DE
Rust China Ltd DE
Rust Controldua, S.A. De C.V. MX
Rust Engineering & Construction Inc. DE
Rust Federal Environmental Services Inc. DE
Rust Industrial Cleaning Inc. DE
Rust International Holdings Inc. DE
Rust International Inc. DE
Rust JRP Pty Ltd. SINGAPORE
Rust Limited UNITED KINGDOM
Rust North America Holdings Inc. DE
Rust Remedial Services Holding Company Inc. DE
Rust Sweden Holdings A B SWEDEN
S&J Landfill, Limited Partnership TX
S&L Total Waste Systems, Inc. NV
S&S Grading of Illinois, Inc. IL
S&S Grading, Inc. WV
S.A.P. s.p.a. ITALY
S.A.R.I. S.p.A. ITALY
S.A.R.I. spa ITALY
S.A.S.P.I. S.p.A. ITALY
S.I.R.T.I.S. s.r.1. ITALY
S.P.E.M. S.p.A. ITALY
S.V. Farming Corp. NJ
Sa Ge Ter Spa ITALY
Sacagica s.r.l. ITALY
Sacramento Valley Environmental Waste Company CA
Saframa S.A. ARGENTINA
Sakab Batteri B SWEDEN
Salinas Disposal Service, Inc. CA
Saline County Landfill, Inc. IL
Salutec, S.A. ARGENTINA
Sanifill Canada, Inc. CDN
Sanifill de Mexico (US), Inc. DE
Sanifill de Mexico, S.A. de C.V. MX
AceVerde S.A. de C.V. MX
AceVerde Servicios, S.A. de C.V. MX
Sanifill Forest Products, Inc. CA
Sanifill of Florida, Inc. FL
Sanifill of Hawaii, Inc. DE
Sanifill of San Juan, Inc. PR
El Coqui de San Juan (JV Partnership) (PR) (50% by
EC Inc. and 50% by Sanifill of San Juan, Inc.)
Sanifill of Tennessee Hauling, Inc. TN
Sanifill of Tennessee, Inc. DE
Sanifill of Texas Hauling, Inc. TX
Sanifill Power Corporation DE
RECO Ventures, L.P. (DE) (49% owned by Sanifill
Power Corporation)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
Sanifill, Inc. DE
Frontier Recycling
Orange Soil Cement
Orange Transportation
Orange Trucking
Orange Waste Landfill
Orange Waste Transfer Station
Pine Ridge Landfill
SC Holdings, Inc. PA
L&D Landfill
Sanitary Landfill
SCA Services, Inc. DE
Mohawk Valley Sanitary Landfill
SCS Contractors Ltd. UNITED KINGDOM
Serecol Srl ITALY
Servizi Piemonte S.r.1. ITALY
SES Connecticut Inc. DE
SF, Inc. DE
Southern Services of TN, LLC (TN) (50% owned by
SF, Inc.)
Shade Landfill, Inc. DE
Shereg Schleswig Holsteinische Entsorgung u. Recycling GmbH GERMANY
Shore Disposal, Inc. VA
Shoreline Disposal, Inc. CA
SIE Srl ITALY
Sierra Estrella Landfill, Inc. (fka USA of Pinal County) (D) AZ
Signal Capital Sherman Station Inc. DE
Signal RESCO, Inc. DE
Sir-Mas Srl ITALY
Skaraborgs Energi-Och Mijo AB SWEDEN
SMC Smaltimenti Controllati S.p.a. ITALY
Smyrna Landfill, Inc. (fka Chambers Smyrna LF) GA
Sofind Srl ITALY
Solna Transport & Renhallnning AB SWEDEN
Sonoma Marin Waste Management, Inc. CA
Sonoma West Marin Recycling, Inc. CA
South Broward County Resource Recovery Project, Inc. FL
South Broward Holdings Inc. DE
South China WMI Transfer Limited HONG KONG
Southern Alleghenies Landfill, Inc. PA
Altoona Transfer Station
American Recycling
Southern Plains Landfill, Inc. OK
Southern Services of TN, L.L.C. TN
Southern Services of TN, L.P. (50/50 w/Sanifill) TN
Southern Waste Services, L.L.C. DE
Specialized Recycling Technologies NJ
Spruce Ridge Landfill, Inc. MN
Spruce Ridge, Inc. MN
Star Sanitation Services, Inc. AK
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
Stockton Scavengers Association CA
Storey County Sanitation, Inc. NV
Strawser Disposal Services, Inc. PA
Suffolk Waste Systems, Inc. NY
Summit Environmental Group, Inc. PA
Summit Transport Group, Inc. PA
Sun Waste Alternatives, Inc. CA
Super Kwik, Inc. PA
Svensk Avfallskonvertering AB SWEDEN
Swindell-Dressler Energy Supply Company DE
Swindell-Dressler Leasing Company DE
Sylvan & Qvibelius AB SWEDEN
Sylvans Kemiteknik AB SWEDEN
T. R. Walters Investments, Inc. CA
Tactical Management, Inc. NJ
Techim S.r.1. ITALY
The H. Sienknecht Company TN
The Rust Engineering Company of Michigan MI
The Woodlands of Van Buren, Inc. DE
Thoroughbred Leasing, Inc. PA
TMS Recycling, Inc. NV
Tonitown Landfill, L.L.C. DE
Town & Country Refuse, Inc. FL
Port-O-Let
Tra. S.E. s.p.a. ITALY
Trade & Domestic Ltd. NEW ZEALAND
Trade Domestic (1997) Ltd. NEW ZEALAND
Trail Ridge Landfill, Inc. FL
Transamerican Environmental, Inc. FL
Transamerican Waste Central Landfill, Inc. DE
TransAmerican Waste Industries of Alabama, Inc. AL
Transamerican Waste Industries of Ohio, Inc. DE
Transamerican Waste Industries of Southeast, Inc. DE
Transamerican Waste Industries, Inc. DE
Transamerican Waste of Houston, Inc. TX
Transmetro SA ARGENTINA
Transportbedrijf Van Bliet B.V. NETHERLANDS
Transpsro, Inc. NJ
TransWaste, Inc. LA
Trash Hunters of Tunica, Inc. MS
Trash Hunters, Inc. MS
Trepic SA ARGENTINA
Tri-County Sanitary Landfill, L.L.C. DE
Tri-State Recycling & Fibers, Inc. NJ
TVG Transport u. Verwertungsgesellschaft GERMANY
Twin City Sanitation, Inc. MN
Tyneside Waste Paper Co Ltd. UNITED KINGDOM
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
UK Waste Management Limited UNITED KINGDOM
Ulster County Roll-Offs, Inc. NY
Ulster Sanitation, Inc. NY
United Waste Systems Leasing, Inc. MI
United Waste Systems of Gardner, Inc. MA
United Waste Systems of Iowa, Inc. IA
United Waste Systems of Maine, Inc. DE
United Waste Systems of Minneapolis, Inc. MN
United Waste Systems of Minnesota, Inc. MN
Bellaire Sanitation
Gallagher's Service
J.J. Young Rubbish
Lake Sanitation
Mike's Disposal and Recycling Service
UWS
UWT
United Waste Systems of Onaway, Inc. MI
United Waste Systems of the Eastern UP, Inc. MI
United Waste Systems of Trinity County, Inc. CA
United Waste Systems, Inc. (MI) MI
United Waste Systems, Inc. (MN) MN
Mike's Disposal & Recycling Service
United Waste Transfer, Inc. MN
Universal Assurance Corporation VT
USA Crinc, Inc. DE
USA Landfills of Nevada, Inc. NV
USA South Hills Landfill, Inc. PA
USA Valley Facility, Inc. DE
USA Waste Arizona Landfill, Inc. (fka Sanifill of AZ) DE
USA Waste Geneva Landfill, Inc. (fka Sanifill of OH) OH
USA Waste of Ashtabula
USA Waste Hauling of Philadelphia, Inc. DE
USA Waste Industrial Services, Inc. TX
USA Environmental Services
USA Waste Landfill Operations and Transfer, Inc. (fka Sanifill...) TX
USA Waste- Management Resources, L.L.C. NY
USA Waste of Alaska, Inc. DE
USA Waste of California, Inc. DE
USA Waste of Connecticut, Inc. DE
USA Waste of DC, Inc. (fka LG Industries, Inc.) DC
USA Waste of Illinois, Inc. (fka USA Illinois Newco) IL
USA Waste of Kentucky, L.L.C. DE
USA Waste of Maryland, Inc. (fka Sanifill of MD) MD
A.R.D. Equipment, Inc.
ARD Equipment Leasing Co., L.L.C.
Debris Disposers, Ltd.
Lowery's Trash Removal & Services
USA Waste of Massachusetts, Inc. MA
Westcott Disposal
USA Waste of Michigan, Inc. (fka Phillips Env. (MI)) MI
USA Waste of Minnesota, Inc. (fka Sanifill of MN Hauling) MN
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
Kato Sanitation.Northwest Valley
Meeker County Transfer Station
West Side Hauling
USA Waste of Mississippi, Inc. (fka Chambers WS of MS) MS
USA Waste of Montana, Inc. (fka Rozel Corp.) MT
USA Waste of Nevada, Inc. DE
USA Waste of New Jersey, Inc. (fka Chambers WS of NJ) NJ
Atlantic City Hauling
Bergen County Transfer Station
Burlington County Landfill
USA Waste of New York City, Inc DE
Marshall's Refuse, Inc.
North Hempstead Transfer
USA Waste of Ohio, Inc. OH
Johnson Disposal
Johnson Disposal Transfer & Recycling Facility
Mound Transfer Station
Northern Ohio Waste Systems
Reliable Sanitation
Sanitary Commercial Services
USA Waste of Oregon, Inc. OR
Alpine Disposal & Recycling
Energy Reclamation
Forest Grove Transfer Station
Klamath Disposal
Metropolitan Disposal & Recycling
Mt. Hood Refuse
Sandy Transfer Station
USA Waste of Pennsylvania, Inc. PA
Helmick's Sanitation and General Hauling
Kittinning Transfer Station
LeHigh Hauling
Mainline Sanitation
Tri-Valley Recycling
Tri-Valley Waste Systems
USA Waste of Harrisburg
USA Waste of Rhode Island, Inc. (fka Chambers WS of RI) DE
USA Waste of Tennessee, Inc. (fka Chambers of TN) TN
Nashville Hauling
Nashville Transfer
USA Waste of Texas Landfills, Inc. DE
USA Waste of Virginia Landfills, Inc. (fka Sanifill of VA) DE
Bethel Landfill
Bushrod Disposal Service
James City County Transfer
Qualla Road Landfill
USA Waste of Virginia, Inc. (fka Chambers Devlp of VA) VA
USA Waste of West Virginia, Inc. (fka Chambers of WVA) WV
USA Waste Recycling of New Jersey, Inc. (fka Safety Recycling) NJ
Safety Recycling
USA Waste Services North Carolina Landfills, Inc. DE
Anson Road Landfill
Coble Road Landfill
USA Waste Services of Nevada, Inc. NV
USA Waste Services of NYC, Inc. DE
USA Waste Services of Western Illinois, Inc. IL
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
USA Waste Services-Hickory Hills, L.L.C. DE
USA Waste Transfer of New Jersey, Inc. (fka Ellesor) NJ
USA Waste Transfer of Philadelphia, Inc. PA
UWS Barre, Inc. MA
UWS of Rhode Island, Inc. RI
Truk-Away of R.I.
UWS Transport, Inc. DE
Container Service
Waste Control
Wasteco
V&W Investments, Inc. CA
VAI VA Projekt AS SWEDEN
Valdenza Srl ITALY
Valley Garbage Service, Inc. WA
Van Len Recycling B.V. NETHERLANDS
Van Loenen Millieu B.V. NETHERLANDS
Van Loenen Transport en Verhuur B.V. NETHERLANDS
Vanerborgs Stadbudsbyra AB SWEDEN
VAR Projekt AS SWEDEN
VE-Part S.r.1. ITALY
Vern's Refuse Service, Inc. ND
Vinton county Sanitary Facility, Inc. DE
Vliko B.V. NETHERLANDS
W. van Loenen Beheer B.V. NETHERLANDS
W/W Risk Management, Inc. DE
Wallkill Recyclable Products, Inc. DE
Wallkill/Mid-Hudson Development Co., L.L.C. NY
Walters and Vann, Inc. CA
Winton Disposal
Warner Company DE
Warner West
Warner East
Warren Waste Transfer, Inc. MI
Wasco Landfill, Inc. DE
Washington Waste Hauling & Recycling, Inc. DE
Mountain Group-Northwest Office
Port-O-Let
Recycle America
Valley Topsoil
Waste Management-Northwest
Waste Management of Ellensburg
Waste Management of Greater Wenatchee
Waste Management of Kennewick
Waste Management of Seattle
Waste Management of Spokane
Waste Management of Yakima
Waste Management-SnoKing
Waste Management-Rainier
WMI Services
Washington Waste Systems, Inc. WA
Wasilla Refuse, Inc. AK
Wass Entreprenad AB SWEDEN
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
Waste Away Group, Inc. AL
Environmental Waste Systems
LaGrange Transfer Station
Montgomery Transfer Station
Phenix City Transfer
Springhill Landfill
Waste Management of Alabama- Central
Waste Management of Alabama- East
Waste Management of Alabama- North
Waste Management of Alabama- South
Waste Clearance (Holdings) Limited UNITED KINGDOM
Waste Control Systems, Inc. MN
Waste Management (Auckland) Ltd NEW ZEALAND
Waste Management (Land) Limited UNITED KINGDOM
Waste Management (Rock Common) Limited UNITED KINGDOM
Waste Management (Roxby) Limited UNITED KINGDOM
Waste Management (UK) Holdings Ltd. UNITED KINGDOM
Waste Management (W.M.) Israel Limited ISRAEL
Waste Management Asia B.V. NETHERLANDS
Waste Management Austria mbH AUSTRIA
Waste Management Collection and Recycling, Inc. CA
American Waste Systems
Empire Waste Management
Great Western Reclamation
Recycle America
SAWDCO Collection
Sunset Environment
Valley Waste Management
Waste Management of Inland Valley
Waste Management of Sacramento
Waste Management of San Gabriel/Pomona Valley
Waste Management of Santa Cruz County
Waste Management of the Central Valley
Waste Management of Woodland
Waste Management Czechoslovakia s.r.o. CZECHOSLOVAKIA
Waste Management de Mexico, S.A. de C.V. MEXICO
Waste Management Denmark A/S DENMARK
Waste Management Development B.V. NETHERLANDS
Waste Management Disposal Services of Arizona, Inc. DE
Waste Management Disposal Services of Colorado, Inc. CO
Central Weld Sanitary Landfill
Colorado Springs Recycling and Disposal Facility
County Line Recycling and Disposal Facility
Denver/Arapahoe Disposal Site
East Weld Sanitary Landfill
North Weld Sanitary Landfill
Waste Management of Colorado- Landfill Division
Waste Management Disposal Services of Maine, Inc. ME
Waste Management Disposal Services of Maine- Crossroads
Waste Management Disposal Services of Maryland, Inc. MD
Sandy Hill
Waste Management Disposal Services of Massachusetts, Inc. MA
Waste Management Disposal Services of Oregon, Inc. DE
Columbia Ridge Landfill and Recycling Center
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
Oregon Waste Systems
Waste Management Disposal Services of Pennsylvania, Inc. PA
Burlington County Resource Recovery Facilities Complex
G.R.O.W.S. Landfill
Meadowlands Baler Facility
Meadowland Recycling and Disposal Facility
Northwest Sanitary Landfill
Pottstown Landfill and Recycling Center
Waste Management Disposal Services of Virginia, Inc. DE
Middle Peninsula Landfill and Recycling Facility
Waste Management Disposal Services of Washington, Inc. DE
Greater Wenatchee Regional Landfill and Recycling Center
Waste Management of Washington
Waste Management Do Brasil, Ltda BRAZIL
Waste Management Environmental Services B.V. NETHERLANDS
Waste Management Federal Services of Colorado, Inc. DE
Waste Management Federal Services of Hanford, Inc. DE
Waste Management Federal Services of Idaho, Inc. DE
Waste Management Federal Services, Inc. DE
Waste Management Financing Corp. DE
Waste Management Geotech, Inc. DE
Waste Management GmbH & Co. MVA Hamm oHG GERMANY
Waste Management Greece AAE GREECE
Waste Management Holdings, Inc. (f/k/a Waste Management, Inc.) DE
Waste Management Inc., of Florida FL
Atlantic Waste Management
Broward Disposal
Central Disposal
Environmental Waste Systems
Florida Environmental Waste
Florida Disposal
Florida Resource Management
Gulf Coast Recycling and Disposal Facility
Hillsborough Heights Recycling and Disposal Facility
Medly Landfill & Recycling Center
Rubbish Gobbler
Southeast recycling and Disposal Facility
Southern Sanitation Service
South Florida Service Center
United Sanitation Recycling and Disposal Facility
Waste Management of Bay County
Waste Management of Collier County
Waste Management of Dade County
Waste Management of Monroe County
Waste Management of Pasco County
Waste Management of Tampa
Waste Management Industrial Services, Inc. DE
Waste Management International JAPAN
Waste Management International SWITZERLAND
Waste Management International Services Limited UNITED KINGDOM
Waste Management International, Inc. DE
Waste Management International, Ltd. BERMUDA
Waste Management Italia S.r.1. ITALY
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
Waste Management Ltd. UNITED KINGDOM
Waste Management N.Z. Ltd. NEW ZEALAND
Waste Management Nederland B.V. NETHERLANDS
Waste Management of Alameda County, Inc. CA
Altamont Landfill and Resource Recovery Facility
Central Division
Davis Street Station for Material Recovery and Transfer
East Bay Disposal Co.
Livermore Dublin Disposal
Northern Division
Recycle America of Northern California
Southern Division
Sunnyvale Recycling and Disposal Facility
Tri-Cities Recycling and Disposal Facility
Waste Management of Arizona, Inc. CA
Asset Recovery Group
Butterfield Station Recycling and Disposal Facility
Industrial Services Division
Sky Harbor regional Transfer & Recycling Center
27th Avenue Recycling and Disposal Facility
Waste Management of Northern Arizona
Waste Management of Phoenix - North
Waste Management of Phoenix - Recycle America
Waste Management of Phoenix - South
Waste Management of Tucson
Waste Management of Tucson - Recycle America
Waste Management of Verde Valley
WMI Services- Phoenix
Waste Management of Arkansas, Inc. DE
Brushy Island Recycling and Disposal Facility
Jefferson County Recycling and Disposal Facility
Shannon Road Recycling and Disposal Facility
Union County Recycling and Disposal Facility
Waste Management of Arkansas North
Waste Management of Arkansas South
Waste Management of California, Inc. CA
Kirby Canyon recycling and Disposal Facility
Lancaster Recycling and Disposal Facility
Simi Valley Recycling and Disposal Facility
Universal Refuse Removal of El Cajon
Waste Management of Fresno County
Waste Management of Lancaster
Waste Management of Los Angeles
Waste Management of Los Angeles - South
Waste Management of North County
Waste Management of San Diego
Waste Management of San Fernando Valley
Waste Management of Santa Clara County
Waste Management of the Desert
WMI Services
Waste Management of Carolinas, Inc. NC
Piedmont Landfill and Recycling Center
Waste Management of Asheville
Waste Management of Carolinas
Waste Management of Central Carolina
Waste Management of Eastern Carolina
Waste Management of the Piedmont
Waste Management of Raleigh/Durham
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
Waste Management of Wilmington
Waste Management of the Triad
Waste Management of Central Florida, Inc. FL
Aluchua Waste Management
Waste Management of Colorado, Inc. CO
Canon City Disposal and Recycling
Colorado Springs Transfer Station
Englewood Transfer Station
Port-O-Let
Waste Management of Aurora
Waste Management of Colorado - Aurora Facility
Waste Management of Colorado - North Facility
Waste Management of Colorado - Recycle Facility
Waste Management of Colorado - South Facility
Waste Management of Colorado Springs-Recycle America
Facility
Waste Management of Denver
Waste Management of Denver- Recycle America
Processing Facility
Waste Management of Northern Colorado
Waste Management of Pueblo
Waste Management of the Rockies
WMI Medical Services
Waste Management of Delaware, Inc. DE
Waste Management of Delaware- Wilmington
Waste Management of Delmarva
Waste Management of Five Oaks Recycling and Disposal, Inc. DE
Waste Management of Florida Holding Co, Inc. DE
Waste Management of Georgia, Inc. GA
Live Oak Landfill
Superior Sanitation Landfill
Waste Management of Savannah
Waste Management of the Tennessee Valley
Waste Management of Grass Valley, Inc. DE
Waste Management of Hawaii, Inc. HI
Waimanalo Gilch Recycling and Disposal Facility
West Hawaii Landfill
Waste Management of Idaho, Inc. ID
Waste Management of Illinois, Inc. DE
Banner/Western Disposal Service
Chain of Rocks Recycling and Disposal Facility
CID
DeKalb County Recycling and Disposal Facility
Durbin Paper Stock Company
Five Oaks Recycling and Disposal Facility
Greene Valley Recycling and Disposal Facility
Kankakee recycling and Disposal Facility
Laraway Recycling and Disposal Facility
McLean County Disposal and recycling Services
Milam Recycling and Disposal Facility
Prairie Hill Recycling and Disposal Facility
Settler's Hill recycling and Disposal Facility
Tazewell Recycling and Disposal Facility
TCD Services
United Waste Systems
Waste Management- Metro
Waste Management- North
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
Waste Management- Northwest
Waste Management- West
Waste Management of Metro East
Waste Management of Peoria
Waste Management of the South Suburbs
Wheatland Prairie Recycling and Disposal Facility
Woodland Recycling and Disposal Facility
Waste Management of Indiana Holdings One, Inc. DE
Waste Management of Indiana Holdings Two, Inc. DE
Waste Management of Indiana LLC DE
Deercroft Recycling and Disposal Facility
Glenwood Ridge Recycling and Disposal Facility
Oak Ridge recycling and Disposal Facility
Prairie View recycling and Disposal Facility
Superior Waste Systems
Twin Bridges Recycling and Disposal Facility
Waste Management of Central Indiana
Waste Management of Evansville
Waste Management of Fort Wayne
Waste Management of Indianapolis
Waste Management of Indianapolis-Hamilton County
Transfer
Waste Management of Lafayette
Waste Management of Muncie
Waste Management of Northwest Indiana
Waste Management of Warsaw
Wheeler Recycling and Disposal Facility
Waste Management of Iowa, Inc. IA
Solid Waste Systems
Waste Management of Kansas, Inc. KS
Forest View recycling and Disposal Facility
Rolling Meadows recycling & Disposal facility
Solid Waste Systems
Topeka Waste Systems
Waste Management of Wichita
Waste Management - Refuse Control
Waste Management of Kentucky Holdings, Inc. DE
Waste Management of Kentucky LLC DE
Blue Ridge Recycling and Disposal Facility
Kramer Lane Recycling and Disposal Facility
Lexington recycling and Disposal Facility
Outer Loop recycling and Disposal Facility
Waste Management of Kentucky - Gray Disposal
Waste Management of Kentucky - Lexington
Waste Management of Kentucky - Louisville
Waste Management of Kentucky - Madison Disposal
Waste Management of Kentucky - Stevens Dispos-All
Service
Waste Management of Leon County, Inc. FL
Waste Management of Louisiana Holdings One, Inc. DE
Waste Management of Louisiana Holdings Two, Inc. DE
Waste Management of Louisiana LLC DE
Acadiana Recycling and Disposal Facility
Acadia Parish Sanitary Landfill
Alexandria Recycling and Disposal Facility
American Waste and Pollution Control-Algiers Residential
American Waste and Pollution Control- Eastern New
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
Orleans Residential
American Waste and Pollution Control- Kelvin Recycling
and Disposal Facility
American Waste and Pollution Control- St. Bernard Parish
Residential
American Waste and Pollution Control- Slidell
American Waste and Pollution Control- West Jefferson
Residential
Jefferson Davis Recycling and Disposal Facility
Kelvin Recycling and Disposal Facility
Magnolia Recycling and Disposal Facility
Pelican Recycling and Disposal Facility
Pelican State Environmental Services
Waste Management of Acadiana
Waste Management of Baton Rouge
Waste Management of the Bayous
Waste Management of Central Louisiana
Waste Management of Lake Charles
Waste Management of New Orleans
Waste Management of Northeast Louisiana
Waste Management of Northwest Louisiana
Waste Management of the Pines
Waste Management of St. Landry
Waste Management of St. Tammany
Waste Management of South Louisiana
Woodside Recycling and Disposal Facility
Waste Management of Maine, Inc. ME
Waste Management of Maine- Portland
Waste Management of Malaysia Sdn Bhd MALAYSIA
Waste Management of Maryland, Inc. MD
Mobile Offices of Maryland
Waste Management of Cambridge
Waste Management of Greater Washington
Waste Management of Maryland, Baltimore
Waste Management of Southern Maryland
WMI Medical Services
WMI Services of Maryland
Waste Management of Massachusetts, Inc. MA
Somerville Transfer Station
Waste Management- Container Services
Waste Management of Boston- North
Waste Management of Central Massachusetts
Waste Management of Massachusetts- Gloucester
Waste Management of Massachusetts- South Shore
Waste Management of Michigan, Inc. MI
Autumn Hills Recycling and Disposal Facility
Cedar Ridge Recycling and Disposal Facility
Eagle Valley Recycling and Disposal Facility
Efficient Sanitation
Northern Oaks Recycling and Disposal Facility
Recycle America- Metro Detroit
Valley Rubbish
Venice Park recycling and Disposal Facility
Waste Management of Detroit- Residential
Waste Management - Metro Detroit
Waste Management of Michigan- Alma Transfer and
Recycling Facility
Waste Management of Michigan- Area Disposal
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
Waste Management of Michigan- Burr Oak
Waste Management of Michigan- Central
Waste Management of Michigan- Detroit East Recycling
Transfer Facility
Waste Management of Michigan- Detroit Transfer and
Recycling Facility
Waste Management of Michigan- Detroit MRF/Transfer
Waste Management of Michigan- Dowagiac Transfer and
Recycling Facility
Waste Management of Michigan- Holland
Waste Management of Michigan- Holland Transfer and
Recycling Facility
Waste Management of Michigan- Mideast
Waste Management of Michigan- Mideast/Port Huron
Waste Management of Michigan- Midwest
Waste Management of Michigan- Northern
Waste Management of Michigan- Recycle
America/Grand Rapids
Waste Management of Michigan- Southwest
Waste Management of Michigan- Western
Westside Recycling and Disposal Facility
WMI Services- Eastern Michigan/ Northwest Ohio
Woodland Meadows Recycling and Disposal Facility
Waste Management of Minnesota, Inc. MN
Anoka Recycling and Disposal Facility
Dietman Sanitation & Recycling
Northern Waste Systems
Recycle America of Minnesota
Sun Prairie Recycling and Disposal Facility
Waste Management- Blaine
Waste Management- LeSeur
Waste Management- Rochester
Waste Management- Savage
Waste Management- St. Cloud
Waste Management of Hastings
WMI Services of Minnesota
Waste Management of Mississippi, Inc. MS
Pecan Grove Landfill
Pine Ridge Landfill
Plantation Oaks Landfill
Prairie Bluff Landfill
Waste Management of Central Mississippi- Jackson
Waste Management of Central Mississippi- Kosciusko
Waste Management of Central Mississippi- Meridian
Waste Management of Central Mississippi- Vicksburg
Waste Management of North Mississippi-Clarksdale
Waste Management of North Mississippi- Columbus
Waste Management of North Mississippi- Corinth
Waste Management of North Mississippi- Greenville
Waste Management of North Mississippi- Grenada
Waste Management of North Mississippi- Tupelo
Waste Management of South Mississippi- Gulfport
Waste Management of South Mississippi- McComb
Waste Management of South Mississippi- Natchez
Waste Management of South Mississippi- Pine Belt
Waste Management of Missouri, Inc. DE
Black Oak and Disposal Facility
Environmental Industries
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
Kahle Recycling and Disposal facility
Meramec Hauling
Pezold Hauling
Rumble Recycling and Disposal Facility
Waste Management of Kansas City
Waste Management of Springfield
Waste Management fo St. Loius
Waste Management of the Ozarks
Waste Management of Montana, Inc DE
Waste Management of Great Falls
Waste Management of Nebraska, Inc. DE
Douglas County Recycling and Disposal Facility
Waste Management of New Hampshire, Inc. CT
Turnkey Recycling and Environmental Enterprises
Waste Management of New Hampshire- Londonberry
Waste Management of New Hampshire- New Hampton
Waste Management of New Hampshire- Rochester
Waste Management of New Hampshire- Peterborough
Waste Management of New Jersey, Inc. DE
Avenue A Transfer & Recycling Center
Middle Martee Landfill
Recycle America
Waste Management of Camden
Waste Management of New Mexico, Inc. NM
Environmental Waste Equipment Company
Hobbs Recycling and Disposal Facility
Landfill Hauling Systems
Landfill Systems
R&B Rubbish Removal
Rio Rancho Recycling and Disposal Facility
San Juan Recycling and Disposal Facility
Seay Brothers Rolloff
Tijeras Disposal
United Waste Systems
Waste Management of Albuquerque-Recycle America
Processing Facility
Waste Management of Four Corners
Waste Management of Southeast New Mexico
Waste Management of the Southwest
Waste Management of New York, L.L.C. DE
High Acres Landfill and Recycling Facility
Waste Management of Eastern New York
Waste Management of Hudson Valley
Waste Management of New York-Albion
Waste Management of New York- Buffalo
Waste Management of New York- Rochester
Waste Management of New York- Syracuse
Waste Management of New York- Utica
Waste Management of Southwestern New York
WMI Services of New York
Waste Management of North America, Inc. IL
Waste Management of North Dakota, Inc. DE
Northern Waste Systems
Waste Management of Ohio, Inc. DE
Countywide Recycling and Disposal Facility
ELDA Recycling and Disposal Facility
Evergreen Recycling and Disposal Facility
Herrick Valley Recycling and Disposal Facility
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
Lake County Recycling and Disposal Facility
Pinnacle Road Recycling and Disposal Facility
Seneca East Recycling and Disposal Facility
Stony Hollow Recycling and Disposal facility
Suburban Recycling and Disposal Facility
Waste Management of Ohio- Akron
Waste Management of Ohio- Blaylock
Waste Management of Ohio- Cleveland Transfer and
Recycling Facility
Waste Management of Ohio- Cleveland West
Waste Management of Ohio- Columbus
Waste Management of Ohio- Columbus Transfer and
Recycling Facility
Waste Management of Ohio- Findlay
Waste Management of Ohio- IWD
Waste Management of Ohio- Koogler
Waste Management of Ohio- Lima
Waste Management of Ohio- Lima Transfer and Recycling
Facility
Waste Management of Ohio- M&M Sanitation
Waste Management of Ohio- Newark
Waste Management of Ohio- Northwest
Waste Management of Ohio- Recycle America/Toledo
Waste Management of Ohio- S.E.M.
Waste Management of Ohio- Shelby County Transfer
Waste Management of Ohio- Suburban Sanitation Service
Waste Management of Ohio- Western Reserve
Waste Management of Ohio- Youngstown
WMI Services- Ohio
Waste Management of Oklahoma, Inc. OK
East Oak Recycling and Disposal Facility
Muskogee recycling and Disposal Facility
Quarry Recycling and Disposal Facility
Waste Management of Oklahoma City
Waste Management of Tulsa
Waste Management of Oregon, Inc. OR
Metro South Transfer Station
Port-O-Let
Waste Management of Vancouver U.S.A.
Zero Garbage
Waste Management of Pennsylvania, Inc. PA
Alderfer & Frank
Lake View Landfill (Northern)
Mid-Atlantic Recycling and Distribution Center
Milton Grove Demolition and Tire Recycling
Philadelphia Transfer and Recycling Station
Pottsville Transfer Station
Recycle America
River Road Landfill
Steel Valley Transfer Station
The Forge Recycling and Resource Recovery Center
Tully Town Resource Recovery Facility
Waste Automation
Waste Management - Allentown
Waste Management- Dixon Recycling
Waste Management of Camp Hill
Waste Management of Delaware Valley- North
Waste Management of Delaware Valley- South
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
Waste Management of Erie
Waste Management of Greater Lancaster
Waste Management of Greencastle
Waste Management of Greenville
Waste Management of Indian Valley
Waste Management of Laurel Valley
Waste Management of Northeast Pennsylvania
Waste Management of Pennsylvania- Hauling
Waste Management of Pittsburgh
Waste Management of Pottstown
Waste Management of Wilkinsburg
WMI Medical Services of New Jersey
WMI Medical Services of New York
WMI Medical Services of Pennsylvania
WMI Medical Services of West Virginia
Waste Management of Rhode Island, Inc. DE
Waste Management of Rhode Island- Newport
Waste Management of South Carolina, Inc. SC
Charleston Landfill
Hickory Hill Sanitary Landfill
Palmetto Landfill
Sandy Pines Landfill
Waste Management of South Carolina
Waste Management of the Low Country
Waste Management of South Dakota, Inc. SD
Waste Management of Sioux Falls
Waste Management of the Black Hills
Waste Management of Texas, Inc. TX
All Waste Paper Recycling
Atascosita Recycling and Disposal Facility
Ausitn Community Disposal Co.
Bluebonnet Recycling and Disposal Facility
Centex Waste Management
Coastal Plains Recycling and Disposal Facility
Comal County Recycling and Disposal Facility
Covell Gardens Landfill
DFW Recycling and Disposal Facility
Fogle Garbage Service
Garbage Gobbler
Hillside recycling and Disposal Facility
Kingwood Garbage Service
Lacy Lakeview Recycling and Disposal Facility
Longhorn Disposal
Northwest Transfer Station
Oak Hill Recycling and Disposal Facility
Pecan Prairie Recycling and Disposal Facility
Recycle America- Dallas Bulk grade Division
Recycle America- Dallas High Grade Division
S&B trucking & Sanitation
Security Landfill
Skyline Recycling and Disposal Facility
Texas Waste Management
Waste Management of Fort Worth Recycling and Disposal
Facility
Waste Management - Golden Triangle
Waste Management of Dallas- East
Waste Management of Dallas Recycle America Processing
Facility
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
Waste Management of Dallas- West
Waste Management of East Texas
Waste Management of Fort Worth
Waste Management of Fort Worth Recycling and Disposal
Facility
Waste Management of Houston
Waste Management of Northeast Texas
Waste Management of Southeast Texas
Waste Management of Southeast Texas- Angleton
Waste Management of Southeast Texas- Dickinson
Waste Management of South Texas
Waste Management of West Texas
Westside Recycling and Disposal Facility
Williamson County Recycling and Disposal Facility
WMI Services of Dallas
WMI Services of North Texas
WMI Services of Texas
Waste Management of Utah, Inc. UT
Waste Management of Northern Utah
Reliable Waste Systems
Waste Management of Salt Lake
Waste Management of Virginia, Inc. VA
Manassas Transfer Station
Waste Management of Hampton Roads
Waste Management of Northern Virginia
Waste Management of Northern Virginia- Crown Disposal
Waste Management of the Outer Banks
Waste Management of Richmond/Fiber Fuels
Waste Management of Richmond Port-O-Let
Waste Management of Richmond Recycle America
Waste Management of Virginia- Blue Ridge
WMI Services of Hampton Roads
WMI Services of Virginia
Waste Management of West Virginia, Inc. DE
Waste Management of Shenandoah Valley
Waste Management of Wisconsin, Inc. WI
Best Disposal
Mallard Ridge Recycling and Disposal Facility
Metro/Stone Ridge Recycling and Disposal Facility
Orchard Ridge Recycling and Disposal Facility
Parkview Recycling and Disposal Facility
Pheasant Run Recycling and Disposal Facility
Ridgeview Recycling and Disposal Facility
Timberline Trail Recycling and Disposal Facility
UWS Transportation
Valley Trail Recycling and Disposal Facility
Waste Management- Northeast Wisconsin
Waste Management of Fox Valley
Waste Management of La Crosse
Waste Management of Madison
Waste Management of Milwaukee
Waste Management of Muskego
Waste Management of Rockford
Waste Management of Wisconsin- East
Waste Management Southwest
Waste Management of St. Croix Valley
Waste Management - Tri County
WMI Services of Wisconsin
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
Waste Management of Wyoming, Inc. DE
Waste Management Operations Ireland Ltd. UNITED KINGDOM
Waste Management Paper Recycling, Inc. DE
Waste Management Paper Stock Company, Inc. DE
Southern Sanitation Southeast - Recycle America
Waste Management of Florida- Recycle America
Waste Management of Sarasota- Recycle America
Waste Management of Tampa- Recycle America
Waste Management Partners, Inc. DE
American Refuse Systems, Inc.
Ocmulgee Disposal, Inc.
Waste Management Partnership Holdings, Inc. DE
Waste Management Plastic Products, Inc. DE
Waste Management Project Services B.V. NETHERLANDS
Waste Management Queensland Pty Ltd. AUSTRALIA
Waste Management Queensland Pty. Limited QUEENSLAND
Waste Management Recycling & Services Ltd HONG KONG
Waste Management Remediation Services B.V. NETHERLANDS
Waste Management Siam Holdings Limited THAILAND
Waste Management Siam Limited THAILAND
Waste Management South America B.V. NETHERLANDS
Waste Management Stendahl GmbH GERMANY
Waste Management Technology Center, Inc. DE
Waste Management Thailand B.V. NETHERLANDS
Waste Management, Inc. (f/k/a USA Waste Services, Inc.) DE
Waste Management, Inc. of Tennessee TN
Chestnut Ridge Landfill and Recycling Center
Waste Management of Tennessee - Clarksville
Waste Management of Tennessee - Jackson
Waste Management of Tennessee - Knoxville
Waste Management of Tennessee - Memphis
Waste Management of Tennessee - Nashville
West Camden Sanitary Landfill
Waste Resource Technologies, Inc. CA
Waste Resources of Tennessee, Inc. TN
Waste Services of South Florida, Inc. FL
Waste-X Services, Inc. FL
Wastronics, Inc. AK
Water Investments, Inc. DE
LJ Water Partners, L.P. (49% ownership by Water Investment,
Inc.)
Waterblast Ltd. UNITED KINGDOM
Webster Parish Landfill, L.L.C. DE
WESI Baltimore Inc. DE
WESI Capital Inc. DE
WESI Peekskill Inc. DE
WESI Westchester Inc. DE
Wessex Waste Gas to Energy Ltd. UNITED KINGDOM
Wessex Waste Management Limited UNITED KINGDOM
West Milford Haulage, Inc. NJ
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
Westchester Resco Company, L.P.
Western El Dorado Recovery Systems, Inc. CA
Western Land Acquisition, Inc. RI
Western States Waste Systems, Inc. AZ
Western U.P. Landfill, Inc. MI
Western Waste Industries CA
Conroe Industrial Transportation
Conroe Landfill #7
Conroe Landfill Administration
Fresno Transfer Station
Inland Empire
Redondo Beach Recycling
Sunnydale Transfer Station
Western Beaumont Landfill
Western Longmont Landfill
WW/Chino Transfer Station
WW/Conroe Processing Plant
WW/EL Sobrante Landfill
Nassau Landfill
WW/Southern California Processing
Westley Trading Ltd. UNITED KINGDOM
Wheelabrator Air Pollution Control Inc. DE
Wheelabrator Canada Inc. ONTARIO
Wheelabrator Carteret Inc. DE
Wheelabrator Cedar Creek Inc. DE
Wheelabrator Clean Water New Jersey Inc. DE
Wheelabrator Coal Services Company DE
Wheelabrator Concord Inc. DE
Wheelabrator Connecticut Inc. DE
Wheelabrator Culm Services Inc. DE
Wheelabrator Energy Leasing Company DE
Wheelabrator Energy Systems Inc. DE
Wheelabrator Environmental Systems Inc. DE
Wheelabrator Falls Inc. DE
Wheelabrator Frackville Energy Company Inc. DE
Wheelabrator Frackville Properties Inc. DE
Wheelabrator Fuel Services Inc. DE
Wheelabrator Fuels Service Corporation DE
Wheelabrator Gloucester Inc. DE
Wheelabrator Guam Inc. DE
Wheelabrator Hudson Energy Company Inc. DE
Wheelabrator Land Resources Inc. DE
Wheelabrator Lassen Inc. DE
Wheelabrator Martell Inc.
Wheelabrator McKay Bay Inc. FL
Wheelabrator Millbury Inc. DE
Wheelabrator New Hampshire Inc. DE
Wheelabrator New Jersey Inc. DE
Wheelabrator NHC Inc. DE
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
Wheelabrator North Broward Inc. DE
Wheelabrator North Shore Inc. DE
Wheelabrator Norwalk Energy Company Inc. DE
Wheelabrator Penacook Inc. DE
Wheelabrator Pinellas Inc. DE
Wheelabrator Polk Inc. DE
Wheelabrator Power Marketing Inc. DE
Wheelabrator Putnam Inc. DE
Wheelabrator Ridge Energy Inc. DE
Wheelabrator Saugus Inc. DE
Wheelabrator Shasta Energy Company Inc. DE
Wheelabrator Sherman Station One Inc. DE
Wheelabrator Sherman Station Two Inc. DE
Wheelabrator Shrewsbury Inc. DE
Wheelabrator South Broward Inc. DE
Wheelabrator Spokane Inc. DE
Wheelabrator Technologies Inc. DE
Wheelabrator Water Technologies Baltimore L.L.C. DE
Wheelabrator Water Technologies Canada Inc. DE
Wheelabrator Water Technologies Inc. MD
White Lake Landfill, Inc. MI
Whitefeather Landfill, Inc. DE
Wildcat Refuse, Inc. MD
Williams Disposal Service, Inc. FL
Williams Landfill, L.L.C. DE
Wil-Mar, Inc. CA
WM International Holdings, Inc. DE
WM Norge AS NORWAY
WM Umwelttechnik GmbH GERMANY
WM Ymparistopalvelut OY FINLAND
WMD Bockmann Fritz Ohlig GmbH GERMANY
WMD Just Entsorgung GmbH GERMANY
WMD Knab GmgH GERMANY
WMD Knab Zwischenlager GmbH GERMANY
WMD Knoss & Anthes GmbH GERMANY
WMD Schreiber GmbH GERMANY
WMD Waste Management Deutschland Holding GmbH GERMANY
WMI Medical Services of Ohio, Inc. OH
WMI Medical Services- Dayton
WMI Merger Sub, Inc. DE
WMI Mexico Holdings, Inc. DE
WMI Quebec Inc. QUEBEC
WMI Selbergs AB SWEDEN
WMI Services of Nevada, Inc. NV
WMI Urban Services, Inc. DE
WMI Waste Management of Canada Inc. CANADA
TCL Waste Systems
Waste Management Big Bear Services
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
Waste Management Fraser Valley
Waste Management Halton/Hamilton
Waste Management Materials Processing- Recycle Canada
Waste Management Materials Processing- Toronto Transfer
Waste Management McLellan Disposal
Waste Management of Oxford/Perth
Waste Management of Calgary
Waste Management of Edmonton
Waste Management of Greater Toronto
Waste Management of Greater Vancouver
Waste Management of Southwestern Ontario
Waste Management of the Okanagan
Waste Management York/Simcoe
West Edmonton Recycling and Disposal Facility
WMI du Quebec
WMI - Hull/Ottawa
WMI Recyclage Quebec
WMI Rive - Sud
WMI Waste Management DuCanada
WMNA Container Recycling, Inc. DE
WMNA Rail-Cycle Sub, Inc. DE
WR Pollard and Son Limited UNITED KINGDOM
Wright General, Inc. AK
WTI China Holdings I, Inc. CAYMAN ISLANDS
WTI China Holdings II Inc. CAYMAN ISLANDS
WTI China One Inc. DE
WTI China Two Inc. DE
WTI International Energy Inc. DE
WTI International Holdings Inc. DE
WTI Qicheng LLC CAYMAN ISLANDS
WTI Rust Holdings Inc. DE
WTI Rust Holdings, Inc. DE
WTI Taicang LLC. CAYMAN ISLANDS
WTI Yingkou LLC. CAYMAN ISLANDS
Yell County Landfill, L.L.C. DE
Zenith/Kremer Material Recovery, Inc. MN
Suburban Recycling Service
Zenith/Kremer Waste Systems, Inc. MN
Cecil Shykes Sanitary Service
Home Town Garbage Service
Kremer Disposal
Kremer Recycling
Suburban Sanitation Service
Zenith Recycling
Zhong Zia Environmental Technology Co. Ltd. HONG KONG
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included or incorporated by reference in this Annual Report on Form 10-K,
into the Company's previously filed Registration Statements on Form S-8
(Registration Nos. 33-43619, 33-72436, 33-84988, 33-84990, 33-59807, 33-61621,
33-61625, 33-61627, 333-02181, 333-08161, 333-14115, 333-14613, 333-34819,
333-51975, 333-64239, 333-70055, 333-59247, 333-56113), previously filed
Registration Statements on Form S-3 (Registration Nos. 333-00097, 333-08573,
333-32471, 333-33889, 333-52197), and previously filed Registration Statements
on Form S-4 (Registration Nos. 333-31979 and 333-32805).
Arthur Andersen LLP
Houston, Texas
March 29, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Waste Management, Inc. on Form S-3 (File Nos. 333-00097, 333-08573, 333-32471,
333-33889, and 333-52197), on Form S-4 (File Nos. 333-31979 and 333-32805),
and on Form S-8 (File Nos. 33-43619, 33-72436, 33-84988, 33-84990, 33-59807,
33-61621, 33-61625, 33-61627, 333-02181, 333-08161, 333-14115, 333-14613,
333-34819, 333-51975, 333-64239, 333-70055, 333-59247, and 333-56113),
of our report dated March 16, 1998, on our audits of the consolidated financial
statements of USA Waste Services, Inc. as of December 31, 1997, and for the
years ended December 31, 1997 and 1996, which report is included in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 86,873
<SECURITIES> 1,792
<RECEIVABLES> 2,362,407
<ALLOWANCES> 116,430
<INVENTORY> 0
<CURRENT-ASSETS> 3,881,397
<PP&E> 18,235,813
<DEPRECIATION> 6,598,074
<TOTAL-ASSETS> 22,715,198
<CURRENT-LIABILITIES> 4,293,666
<BONDS> 11,114,201
0
0
<COMMON> 6,083
<OTHER-SE> 4,366,413
<TOTAL-LIABILITY-AND-EQUITY> 22,715,198
<SALES> 12,703,469
<TOTAL-REVENUES> 12,703,469
<CGS> 7,383,751
<TOTAL-COSTS> 12,863,858
<OTHER-EXPENSES> (141,967)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681,457
<INCOME-PRETAX> (699,879)
<INCOME-TAX> 66,923
<INCOME-CONTINUING> (766,802)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,900)
<CHANGES> 0
<NET-INCOME> (770,702)
<EPS-PRIMARY> (1.32)
<EPS-DILUTED> (1.32)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 JUN-30-1998 MAR-31-1998
<CASH> 179,409 410,083 362,781
<SECURITIES> 994 1,462 3,053
<RECEIVABLES> 2,319,027 2,217,370 2,047,533
<ALLOWANCES> 98,346 100,116 102,682
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 4,098,242 3,194,590 2,897,298
<PP&E> 17,345,504 18,342,658 17,396,632
<DEPRECIATION> 6,298,377 6,020,357 5,616,731
<TOTAL-ASSETS> 22,029,650 22,525,101 21,560,881
<CURRENT-LIABILITIES> 4,427,297 4,442,141 5,048,621
<BONDS> 9,796,572 9,335,043 9,046,878
0 0 0
0 0 0
<COMMON> 6,054 6,141 6,033
<OTHER-SE> 4,345,467 5,343,752 4,172,374
<TOTAL-LIABILITY-AND-EQUITY> 22,029,650 22,525,101 21,560,881
<SALES> 9,464,365 6,220,164 2,969,433
<TOTAL-REVENUES> 9,464,365 6,220,164 2,969,433
<CGS> 5,583,644 3,713,344 1,801,261
<TOTAL-COSTS> 9,988,614 5,198,669 2,507,167
<OTHER-EXPENSES> (130,422) (86,770) (51,254)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 503,347 329,085 155,531
<INCOME-PRETAX> (897,174) 779,180 357,989
<INCOME-TAX> 66,887 350,994 158,841
<INCOME-CONTINUING> (830,287) 428,186 199,148
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 3,900 3,900 0
<CHANGES> 0 0 0
<NET-INCOME> (834,187) 424,286 199,148
<EPS-PRIMARY> (1.44) 0.74 0.35
<EPS-DILUTED> (1.44) 0.72 0.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 189,942 201,653 510,786 597,241
<SECURITIES> 59,296 69,362 80,910 631,006
<RECEIVABLES> 2,066,642 2,041,170 2,018,867 1,945,215
<ALLOWANCES> 90,164 79,366 70,576 59,899
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 2,839,676 2,937,889 3,349,673 3,810,303
<PP&E> 16,760,990 17,837,010 17,467,223 16,938,840
<DEPRECIATION> 5,572,461 5,993,600 5,805,087 5,697,665
<TOTAL-ASSETS> 20,156,424 21,332,276 21,482,619 21,396,873
<CURRENT-LIABILITIES> 4,803,954 3,595,392 3,976,762 4,170,864
<BONDS> 7,881,949 8,925,132 8,809,762 7,915,134
0 0 0 0
0 0 0 0
<COMMON> 5,987 5,969 5,895 5,812
<OTHER-SE> 3,848,942 5,319,353 5,208,716 5,914,580
<TOTAL-LIABILITY-AND-EQUITY> 20,156,424 21,332,276 21,482,619 21,396,873
<SALES> 11,972,498 8,884,939 5,730,556 2,699,541
<TOTAL-REVENUES> 11,972,498 8,884,939 5,730,556 2,699,541
<CGS> 7,482,273 5,537,598 3,559,970 1,720,129
<TOTAL-COSTS> 12,206,407 7,791,167 4,921,620 2,362,312
<OTHER-EXPENSES> (126,988) (75,642) (85,984) (126,845)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 555,576 406,264 269,027 131,717
<INCOME-PRETAX> (662,497) 763,150 625,893 332,357
<INCOME-TAX> 363,341 399,103 318,357 161,938
<INCOME-CONTINUING> (1,025,838) 364,047 307,536 170,419
<DISCONTINUED> 95,688 8,412 8,208 647
<EXTRAORDINARY> 6,809 6,293 0 0
<CHANGES> 1,936 0 0 0
<NET-INCOME> (938,895) 366,166 315,744 171,066
<EPS-PRIMARY> (1.68) 0.66 0.57 0.31
<EPS-DILUTED> (1.68) 0.65 0.56 0.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 352,303
<SECURITIES> 319,338
<RECEIVABLES> 1,977,972
<ALLOWANCES> 72,743
<INVENTORY> 0
<CURRENT-ASSETS> 3,242,109
<PP&E> 16,551,429
<DEPRECIATION> 5,585,488
<TOTAL-ASSETS> 20,727,524
<CURRENT-LIABILITIES> 3,500,319
<BONDS> 8,466,901
0
0
<COMMON> 5,583
<OTHER-SE> 5,196,027
<TOTAL-LIABILITY-AND-EQUITY> 20,727,524
<SALES> 10,998,602
<TOTAL-REVENUES> 10,998,602
<CGS> 6,564,234
<TOTAL-COSTS> 9,800,989
<OTHER-EXPENSES> (101,959)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 525,340
<INCOME-PRETAX> 774,232
<INCOME-TAX> 486,700
<INCOME-CONTINUING> 287,532
<DISCONTINUED> 263,301
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,231
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
