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TheStreet Open House

Waste Management Announces Third Quarter Earnings

Stocks in this article: WM

The conference call will be webcast live from the Investor Relations section of Waste Management’s website www.wm.com. To access the conference call by telephone, please dial (877) 710-6139 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States or Canada, please dial (706) 643-7398. Please utilize conference ID number 30012751 when prompted by the conference call operator.

A replay of the conference call will be available on the Company’s website www.wm.com and by telephone from approximately 1:00 PM (Eastern) Wednesday, October 31, 2012 through 5:00 PM (Eastern) on Wednesday, November 14, 2012. To access the replay telephonically, please dial (855) 859-2056, or from outside of the United States or Canada dial (404) 537-3406, and use the replay conference ID number 30012751.

The Company, from time to time, provides estimates of financial and other data, comments on expectations relating to future periods and makes statements of opinion, view or belief about current and future events. This press release contains a number of such forward-looking statements, including but not limited to 2012 earnings per diluted share; 2012 free cash flow and its individual components; 2013 earnings and free cash flow; 2013 restructuring cost savings, and statements regarding the results from recycling and waste-to-energy operations and related commodity prices; results for core solid waste operations; sales of non-core assets; results from pricing initiatives; overall results of operations and business prospects; and general market and industry conditions. You should view these statements with caution. They are based on the facts and circumstances known to the Company as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to, commodity price fluctuations; increased competition; pricing actions; failure to implement our optimization and growth initiatives and overall business strategy; failure to successfully implement our restructuring actions and/or failure of those actions to achieve the goals and cost savings intended; business disruption and employee distraction resulting from our restructuring; changes in our organizational structure and workforce and resulting restructuring or impairment charges; environmental and other regulations; disposal alternatives and waste diversion; declining waste volumes; failure to develop and protect new technology; significant environmental or other incidents resulting in liabilities and brand damage; weakness in economic conditions; failure to obtain and maintain necessary permits; labor disruptions; impairment charges; and negative outcomes of litigation or governmental proceedings. Please also see the Company’s filings with the SEC, including Part I, Item 1A of the Company’s most recently filed Annual Report on Form 10-K, for additional information regarding these and other risks and uncertainties applicable to our business. The Company assumes no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.

ABOUT WASTE MANAGEMENT

Waste Management, Inc., based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. The company’s customers include residential, commercial, industrial, and municipal customers throughout North America. To learn more information about Waste Management visit www.wm.com or www.thinkgreen.com.

 
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
                   
 
Quarters Ended September 30,
2012 2011
 
Operating revenues $ 3,461 $ 3,522
 
Costs and expenses:
Operating 2,229 2,261
Selling, general and administrative 335 380
Depreciation and amortization 331 317
Restructuring 44 15
(Income) expense from divestitures, asset impairments and unusual items   22     6  
  2,961     2,979  
Income from operations   500     543  
 
Other income (expense):
Interest expense (123 ) (118 )
Interest income 2 1
Equity in net losses of unconsolidated entities (17 ) (7 )
Other, net   (14 )   2  
  (152 )   (122 )
 
Income before income taxes 348 421
Provision for income taxes   125     136  
Consolidated net income 223 285

Less: Net income attributable to noncontrolling interests

  9     13  
Net income attributable to Waste Management, Inc. $ 214   $ 272  
 
Basic earnings per common share $ 0.46   $ 0.58  
 
Diluted earnings per common share $ 0.46   $ 0.58  
 
Basic common shares outstanding   464.2     468.3  
 
Diluted common shares outstanding   464.9     469.7  
 
Cash dividends declared per common share $ 0.355   $ 0.34  
 
 
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
                   
 
Quarters Ended September 30,
2012 2011
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 214 $ 272
 
 
 
Number of common shares outstanding at end of period 463.9 461.2
Effect of using weighted average common shares outstanding   0.3   7.1
Weighted average basic common shares outstanding 464.2 468.3
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   0.7   1.4
Weighted average diluted common shares outstanding   464.9   469.7
 
 
 
Basic earnings per common share $ 0.46 $ 0.58
 
Diluted earnings per common share $ 0.46 $ 0.58
 
 
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
                 
 
Nine Months Ended September 30,
2012 2011
 
Operating revenues $ 10,215 $ 9,972
 
Costs and expenses:
Operating 6,655 6,396
Selling, general and administrative 1,116 1,144
Depreciation and amortization 971 935
Restructuring 51 15
(Income) expense from divestitures, asset impairments and unusual items   55     6  
  8,848     8,496  
Income from operations   1,367     1,476  
 
Other income (expense):
Interest expense (366 ) (358 )
Interest income 4 6
Equity in net losses of unconsolidated entities (35 ) (20 )
Other, net   (16 )   4  
  (413 )   (368 )
 
Income before income taxes 954 1,108
Provision for income taxes   329     377  
Consolidated net income 625 731

Less: Net income attributable to noncontrolling interests

  32     36  
Net income attributable to Waste Management, Inc. $ 593   $ 695  
 
Basic earnings per common share $ 1.28   $ 1.47  
 
Diluted earnings per common share $ 1.28   $ 1.46  
 
Basic common shares outstanding   463.4     472.7  
 
Diluted common shares outstanding   464.2     474.5  
 
Cash dividends declared per common share $ 1.065   $ 1.02  
 
 
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
                   
 
Nine Months Ended September 30,
2012 2011
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 593   $ 695
 
 
 
Number of common shares outstanding at end of period 463.9 461.2
Effect of using weighted average common shares outstanding   (0.5 )   11.5
Weighted average basic common shares outstanding 463.4 472.7
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   0.8     1.8
Weighted average diluted common shares outstanding   464.2     474.5
 
 
 
Basic earnings per common share $ 1.28   $ 1.47
 
Diluted earnings per common share $ 1.28   $ 1.46
 
 
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
                 
 
September 30, December 31,
2012 2011
(Unaudited)
Assets
 
Current assets:
Cash and cash equivalents $ 398 $ 258
Receivables, net 1,868 1,775
Other   393   346
Total current assets 2,659 2,379
 
Property and equipment, net 12,518 12,242
Goodwill 6,259 6,215
Other intangible assets, net 405 457
Other assets   1,232   1,276
Total assets $ 23,073 $ 22,569
 
 
Liabilities and Equity
 
Current liabilities:
Accounts payable, accrued liabilities, and
deferred revenues $ 2,361 $ 2,437
Current portion of long-term debt   826   631
Total current liabilities 3,187 3,068
 
Long-term debt, less current portion 9,166 9,125
Other liabilities   4,108   3,986
Total liabilities   16,461   16,179
 
Equity:
Waste Management, Inc. stockholders' equity 6,288 6,070
Noncontrolling interests   324   320
Total equity   6,612   6,390
Total liabilities and equity $ 23,073 $ 22,569
 
 
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
                 
 
Nine Months Ended September 30,
2012 2011
 
Cash flows from operating activities:
Consolidated net income $ 625 $ 731
Adjustments to reconcile consolidated net income to net cash
provided by operating activities:
Depreciation and amortization 971 935
Other 219 204
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures   (97 )   (133 )
Net cash provided by operating activities   1,718     1,737  
 
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (178 ) (645 )
Capital expenditures (1,132 ) (909 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets 28 22
Investments in unconsolidated entities (61 ) (92 )
Net receipts from restricted trust and escrow
accounts, and other   (18 )   89  
Net cash used in investing activities   (1,361 )   (1,535 )
 
Cash flows from financing activities:
New borrowings 685 1,001
Debt repayments (473 ) (425 )
Common stock repurchases - (528 )
Cash dividends (493 ) (481 )
Exercise of common stock options 39 40
Other, net   23     (66 )
Net cash used in financing activities   (219 )   (459 )
 
Effect of exchange rate changes on cash and cash equivalents   2     -  
 
Increase (decrease) in cash and cash equivalents 140 (257 )
Cash and cash equivalents at beginning of period   258     539  
Cash and cash equivalents at end of period $ 398   $ 282  
 
 
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
                                 
 
Quarters Ended
September 30, June 30, September 30,
2012 2012 2011

Operating Revenues by Lines of Business

 
Collection
Commercial $ 851 $ 855 $ 885
Residential 644 650 657
Industrial 553 536 540
Other   71     66     68  
Total Collection 2,119 2,107 2,150
Landfill 705 676 690
Transfer 332 331 337
Wheelabrator 218 206 228
Recycling 316 369 438
Other 393 363 210
Intercompany (a)   (622 )   (593 )   (531 )
Operating revenues $ 3,461   $ 3,459   $ 3,522  
 
Quarters Ended
September 30, 2012 September 30, 2011
 

Analysis of Change in Year Over Year Revenues

 

As a % of

 

As a % of

Amount

Total Company

Amount

Total Company
Average yield (i) $ (148 ) -4.2 % $ 191 5.9 %
Volume   (5 )   -0.1 %   (64 )   -2.0 %
Internal revenue growth (153 ) -4.3 % 127 3.9 %
Acquisition 95 2.7 % 150 4.6 %
Divestitures (1 ) -

 

(1 ) -

Foreign currency translation

  (2 )   -0.1 %   11     0.4 %
$ (61 )   -1.7 % $ 287     8.9 %
 

 

As a % of

 

As a % of
Related Related

Amount

Business

Amount

Business

(i) Average yield

Collection, landfill and transfer $ 27 1.0 % $ 45 1.7 %
Waste-to-energy disposal   (5 ) -4.1 %   (2 ) -1.6 %
Collection and disposal 22 0.8 % 43 1.6 %
Recycling commodities (176 ) -38.6 % 104 34.9 %
Electricity (2 ) -2.8 % (3 ) -4.1 %
Fuel surcharges and mandated fees   8   5.0 %   47   41.2 %
Total $ (148 ) -4.2 % $ 191   5.9 %
 
Quarters Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011

Free Cash Flow Analysis (b)

 
Net cash provided by operating activities $ 574 $ 659 $ 1,718 $ 1,737
Capital expenditures (402 ) (313 ) (1,132 ) (909 )
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets (c)   8     26     28     39  
Free cash flow $ 180   $ 372   $ 614   $ 867  
 
(a)         Intercompany revenues between lines of business are eliminated within the Condensed Consolidated Financial Statements
included herein.
 
(b) The summary of free cash flows has been prepared to highlight and facilitate understanding of the principal cash
flow elements. Free cash flow is not a measure of financial performance under generally accepted accounting principles
and is not intended to replace the consolidated statement of cash flows that was prepared in accordance with generally
accepted accounting principles.
 
(c) Proceeds for the three and nine months ended September 30, 2011 includes the repayment of a $17.0 million note receivable
from a prior year divestiture. This repayment is included as a component of "Net receipts from restricted trust and escrow
accounts, and other" in our Condensed Consolidated Statement of Cash Flows.
 
 
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
                         
 
Quarters Ended
September 30, June 30, September 30,
2012 2012 2011

Balance Sheet Data

 
Cash and cash equivalents $ 398   $ 237   $ 282  
 
Debt-to-total capital ratio:
Long-term indebtedness, including current
portion $ 9,992 $ 9,826 $ 9,613
Total equity   6,612     6,487     6,285  
Total capital $ 16,604   $ 16,313   $ 15,898  
 
Debt-to-total capital   60.2 %   60.2 %   60.5 %
 
Capitalized interest $ 5   $ 5   $ 5  
 

Acquisition Summary (a)

 
Gross annualized revenue acquired $ 20   $ 13   $ 651  
 
Total consideration $ 26   $ 18   $ 495  
 

Cash paid for acquisitions

$ 24   $ 25   $ 488  
 

Other Operational Data

 
Internalization of waste, based on disposal costs   66.9 %   67.3 %   67.8 %
 
Total landfill disposal volumes (tons in millions) 23.9 23.2 24.0
Total waste-to-energy disposal volumes (tons in millions)   2.0     2.0     2.1  
Total disposal volumes (tons in millions)   25.9     25.2     26.1  
 
Active landfills   270     270     271  
 
Landfills reporting volume   259     258     254  
 
 

Amortization, Accretion and Other Expenses for

Landfills Included in Operating Groups:

Landfill amortization expense -
Cost basis of landfill assets $ 86.7 $ 83.1 $ 87.0
Asset retirement costs   19.1     14.0     15.2  
Total landfill amortization expense (b)(c) 105.8 97.1 102.2
Accretion and other related expense   17.1     16.8     17.6  
Landfill amortization, accretion and other related expense $ 122.9   $ 113.9   $ 119.8  
 
(a)         Represents amounts associated with business acquisitions consummated during the indicated periods. Note that cash paid for acquisitions
may include cash payments for business acquisitions consummated in prior quarters.
 
(b)

The quarter ended September 30, 2012 as compared to the quarter ended June 30, 2012 reflects an increase in amortization expense of

approximately $8.7 million. $5.1 million of this change is driven by an increase in landfill volumes due to seasonality, coupled with a
$3.6 million increase primarily due to changes in landfill estimates identified in both quarters.
 
(c) The quarter ended September 30, 2012 as compared to the quarter ended September 30, 2011, reflects an increase in amortization expense
of approximately $3.6 million, primarily due to changes in landfill estimates identified in both quarters, as volumes remained
consistent year-over-year.
 
 
Waste Management, Inc.
Reconciliation of Certain Non-GAAP Measures
(Dollars In Millions, Except Per Share Amounts)
(Unaudited)
                     
 
Quarter Ended
September 30, 2012
Tax
After-tax (Expense)/ Per Share

Adjusted Net Income and Earnings Per Diluted Share

Amount Benefit Amount
Net income and Diluted EPS, as reported $ 214 $ 0.46
 
Adjustments to Net income and Diluted EPS:
Asset impairments (a) 39 6 (b) 0.08
Restructuring charges and Oakleaf related integration activities 29 18 0.06
Labor dispute   3 3   0.01
Net income and Diluted EPS, as adjusted $ 285 $ 0.61
 
 
Quarter Ended
September 30, 2011
Tax
After-tax (Expense)/ Per Share

Adjusted Net Income and Earnings Per Diluted Share

Amount Benefit Amount
Net income and Diluted EPS, as reported $ 272 $ 0.58
 
Adjustments to Net income and Diluted EPS:
Restructuring charges and asset impairments 14 6 0.03
Closed site adjustments and changes in risk-free interest rate 5 3 0.01
Oakleaf acquisition and related integration activities   4 3   0.01
Net income and Diluted EPS, as adjusted $ 295 $ 0.63
 
(a)         Includes impairment charges associated with certain of our investments in unconsolidated entities
that are included in the "Equity in Earnings/Losses of Unconsolidated Entities" and "Other, net"
financial captions, as well as impairment charges associated with assets in the "Asset
Impairments and Unusual Items" financial caption.
 
(b) Represents tax benefit resulting from the $22 million of pre-tax impairment charges included in
the "Asset Impairments and Unusual Items" financial caption. There is no tax impact
corresponding to the $23 million of pre-tax impairment charges associated with our investments
in unconsolidated entities.
 
 
Waste Management, Inc.
Reconciliation of Certain Non-GAAP Measures
(Dollars In Millions, Except Per Share Amounts)
(Unaudited)
                   
 
Quarter Ended
September 30, 2012
As a % of

Adjusted Income from Operations as a percent of Revenues

Amount Revenues
 
Operating revenues, as reported $ 3,461
 
Income from operations, as reported $ 500 14.4 %
 
Adjustments to Income from operations:
Asset impairments 22
Restructuring charges and Oakleaf related integration activities 47
Labor dispute   6
75
 
Income from operations, as adjusted $ 575 16.6 % (c)
 
 
Quarter Ended
September 30, 2011
As a % of

Adjusted Income from Operations as a percent of Revenues

Amount Revenues
 
Operating revenues, as reported $ 3,522
 
Income from operations, as reported $ 543 15.4 %
 
Adjustments to Income from operations:
Restructuring charges and asset impairments 20
Closed site adjustments and changes in risk-free interest rate 8
Oakleaf related integration activities   4
32
 
Income from operations, as adjusted (d) $ 575 16.3 % (c)
 
(c)         Increase of 30 basis points in income from operations as a percent of revenues, as adjusted.
 
(d) Our financial results released at the conclusion of the third quarter of 2011 were adjusted to exclude
the impact of our then recently acquired Oakleaf operations. However, for purposes of this year-over-year
comparison, we have included the impact of the Oakleaf operations in the results of both quarters.
 




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