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Waste Management Announces Fourth Quarter And Full-Year 2012 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 88156298 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) Thursday, February 14, 2013 through 5:00 PM (Eastern) on Thursday, March 1, 2013. 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 88156298.

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, all of the statements under the heading “2013 Outlook” (which includes 2013 earnings per diluted share; 2013 free cash flow; 2013 capital expenditures; future internal revenue growth from yield and volume; future recycling commodity prices; results from waste-to-energy operations; expected tax rate; and future dividends and share repurchases), as well as statements regarding 2013 compensation and accruals, future debt reduction, future acquisitions and investments, and earnings or cash generation in 2014. 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, increased competition; pricing actions; failure to implement our optimization, growth, and cost savings initiatives and overall business strategy; environmental and other regulations; commodity price fluctuations; 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 December 31,
2012 2011
 
Operating revenues $ 3,434 $ 3,406
 
Costs and expenses:
Operating 2,224 2,145
Selling, general and administrative 356 407
Depreciation and amortization 326 294
Restructuring 16 4
(Income) expense from divestitures, asset impairments and unusual items   28     4  

 

  2,950     2,854  
Income from operations   484     552  
 
Other income (expense):
Interest expense (122 ) (123 )
Interest income - 2
Equity in net losses of unconsolidated entities (11 ) (11 )
Other, net   (2 )   (8 )
  (135 )   (140 )
 
Income before income taxes 349 412
Provision for income taxes   114     134  
Consolidated net income 235 278

Less: Net income attributable to noncontrolling interests

  11     12  
Net income attributable to Waste Management, Inc. $ 224   $ 266  
 
Basic earnings per common share $ 0.48   $ 0.58  
 
Diluted earnings per common share $ 0.48   $ 0.58  
 
Basic common shares outstanding   464.3     460.8  
 
Diluted common shares outstanding   464.8     462.3  
 
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 December 31,
2012 2011
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 224 $ 266
 
 
 
Number of common shares outstanding at end of period 464.2 460.5
Effect of using weighted average common shares outstanding   0.1   0.3
Weighted average basic common shares outstanding 464.3 460.8
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   0.5   1.5
Weighted average diluted common shares outstanding   464.8   462.3
 
 
 
Basic earnings per common share $ 0.48 $ 0.58
 
Diluted earnings per common share $ 0.48 $ 0.58
 
 
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
               
 
Years Ended December 31,
2012 2011
 
Operating revenues $ 13,649 $ 13,378
 
Costs and expenses:
Operating 8,879 8,541
Selling, general and administrative 1,472 1,551
Depreciation and amortization 1,297 1,229
Restructuring 67 19
(Income) expense from divestitures, asset impairments and unusual items   83     10  
  11,798     11,350  
Income from operations   1,851     2,028  
 
Other income (expense):
Interest expense (488 ) (481 )
Interest income 4 8
Equity in net losses of unconsolidated entities (46 ) (31 )
Other, net   (18 )   (4 )
  (548 )   (508 )
 
Income before income taxes 1,303 1,520
Provision for income taxes   443     511  
Consolidated net income 860 1,009

Less: Net income attributable to noncontrolling interests

  43     48  
Net income attributable to Waste Management, Inc. $ 817   $ 961  
 
Basic earnings per common share $ 1.76   $ 2.05  
 
Diluted earnings per common share $ 1.76   $ 2.04  
 
Basic common shares outstanding   463.6     469.7  
 
Diluted common shares outstanding   464.4     471.4  
 
Cash dividends declared per common share $ 1.42   $ 1.36  
 
 
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
               
 
Years Ended December 31,
2012 2011
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 817   $ 961
 
 
 
Number of common shares outstanding at end of period 464.2 460.5
Effect of using weighted average common shares outstanding   (0.6 )   9.2
Weighted average basic common shares outstanding 463.6 469.7
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   0.8     1.7
Weighted average diluted common shares outstanding   464.4     471.4
 
 
 
Basic earnings per common share $ 1.76   $ 2.05
 
Diluted earnings per common share $ 1.76   $ 2.04
 
 
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
               
 
 
December 31, December 31,
2012 2011
(Unaudited)
Assets
 
Current assets:
Cash and cash equivalents $ 194 $ 258
Receivables, net 1,839 1,775
Other   390   346
Total current assets 2,423 2,379
 
Property and equipment, net 12,651 12,242
Goodwill 6,291 6,215
Other intangible assets, net 397 457
Other assets   1,335   1,276
Total assets $ 23,097 $ 22,569
 
 
Liabilities and Equity
 
Current liabilities:
Accounts payable, accrued liabilities, and
deferred revenues $ 2,293 $ 2,437
Current portion of long-term debt   743   631
Total current liabilities 3,036 3,068
 
Long-term debt, less current portion 9,173 9,125
Other liabilities   4,213   3,986
Total liabilities   16,422   16,179
 
Equity:
Waste Management, Inc. stockholders' equity 6,354 6,070
Noncontrolling interests   321   320
Total equity   6,675   6,390
Total liabilities and equity $ 23,097 $ 22,569
 
 

Waste Management, Inc.

Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
               
 
Years Ended December 31,
2012 2011
 
Cash flows from operating activities:
Consolidated net income $ 860 $ 1,009
Adjustments to reconcile consolidated net income to net cash
provided by operating activities:
Depreciation and amortization 1,297 1,229
Other 356 403
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures   (218 )   (172 )
Net cash provided by operating activities   2,295     2,469  
 
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (250 ) (867 )
Capital expenditures (1,510 ) (1,324 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets 44 36
Investments in unconsolidated entities (77 ) (155 )
Net receipts from restricted trust and escrow
accounts, and other   (37 )   125  
Net cash used in investing activities   (1,830 )   (2,185 )
 
Cash flows from financing activities:
New borrowings 1,180 1,201
Debt repayments (1,058 ) (503 )
Common stock repurchases - (575 )
Cash dividends (658 ) (637 )
Exercise of common stock options 43 45
Other, net   (37 )   (97 )
Net cash used in financing activities   (530 )   (566 )
 
Effect of exchange rate changes on cash and cash equivalents   1     1  
 
Increase (decrease) in cash and cash equivalents (64 ) (281 )
Cash and cash equivalents at beginning of period   258     539  
Cash and cash equivalents at end of period $ 194   $ 258  
 
 
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
                               
 
Quarters Ended
December 31, September 30, December 31,
2012 2012 2011

Operating Revenues by Lines of Business

 
Collection
Commercial (a) $ 846 $ 851 $ 879
Residential 652 644 656
Industrial 538 553 517
Other   70     71     67  
Total Collection 2,106 2,119 2,119
Landfill 689 705 671
Transfer 335 332 315
Wheelabrator 215 218 213
Recycling 330 316 353
Other 385 393 251
Intercompany (b)   (626 )   (622 )   (516 )
Operating revenues $ 3,434   $ 3,461   $ 3,406  
 
Quarters Ended
December 31, 2012 December 31, 2011
 

Analysis of Change in Year Over Year Revenues

As a % of As a % of
Amount Total Company Amount Total Company
Average yield (i) $ (35 ) -1.0 % $ 46 1.5 %
Volume   14     0.4 %   (20 )   -0.6 %
Internal revenue growth (21 ) -0.6 % 26 0.9 %
Acquisition 45 1.3 % 194 6.0 %
Divestitures (2 ) -0.1 % - -
Foreign currency translation   6     0.2 %   (1 )   0.0 %
$ 28     0.8 % $ 219     6.9 %
 
As a % of As a % of
Related Related
Amount Business Amount Business

(i) Average yield

Collection, landfill and transfer $ 29 1.1 % $ 43 1.7 %
Waste-to-energy disposal   (3 ) -2.8 %   (5 ) -4.2 %
Collection and disposal 26 0.9 % 38 1.4 %
Recycling commodities (83 ) -23.2 % (20 ) -5.8 %
Electricity 6 9.1 % (6 ) -8.5 %
Fuel surcharges and mandated fees   16   10.3 %   34   27.9 %
Total $ (35 ) -1.0 % $ 46   1.5 %
 
Quarters Ended December 31, Years Ended December 31,
2012 2011 2012 2011

Free Cash Flow Analysis (c)

 
Net cash provided by operating activities $ 577 $ 732 $ 2,295 $ 2,469
Capital expenditures (378 ) (415 ) (1,510 ) (1,324 )
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets (d)   16     14     44     53  
Free cash flow $ 215   $ 331   $ 829   $ 1,198  
 
     
(a) During 2012, our revenues resulting from subcontracting work for our National Accounts customers has been reclassified from our Commercial Collection line of business to our Other line of business. For the three months ended September 30, 2012 and December 31, 2011, $4.0 million and $25.0 million, respectively, of these subcontract revenues were included in our Commercial Collection line of business.
 
(b) Intercompany revenues between lines of business are eliminated within the Condensed Consolidated Financial Statements included herein.
 
(c) 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.
 
(d) Proceeds for the year ended December 31, 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
December 31, September 30, December 31,
2012 2012 2011

Balance Sheet Data

 
Cash and cash equivalents $ 194   $ 398   $ 258  
 
Debt-to-total capital ratio:
Long-term indebtedness, including current
portion $ 9,916 $ 9,992 $ 9,756
Total equity   6,675     6,612     6,390  
Total capital $ 16,591   $ 16,604   $ 16,146  
 
Debt-to-total capital   59.8 %   60.2 %   60.4 %
 
Capitalized interest $ 6   $ 5   $ 8  
 

Acquisition Summary (a)

 
Gross annualized revenue acquired $ 55   $ 20   $ 169  
 
Total consideration $ 76   $ 26   $ 237  
 
Cash paid for acquisitions $ 72   $ 24   $ 222  
 

Other Operational Data

 
Internalization of waste, based on disposal costs   67.0 %   66.9 %   68.3 %
 
Total landfill disposal volumes (tons in millions) 23.6 23.9 22.7
Total waste-to-energy disposal volumes (tons in millions)   2.0     2.0     2.0  
Total disposal volumes (tons in millions)   25.6     25.9     24.7  
 
Active landfills   269     270     271  
 
Landfills reporting volume   254     259     254  
 
 

Amortization, Accretion and Other Expenses for

Landfills Included in Operating Groups:

Landfill amortization expense -
Cost basis of landfill assets $ 86.2 $ 86.7 $ 84.5
Asset retirement costs   5.0     19.1     (12.3 )
Total landfill amortization expense (b)(c) 91.2 105.8 72.2
Accretion and other related expense   17.9     17.1     17.7  
Landfill amortization, accretion and other related expense $ 109.1   $ 122.9   $ 89.9  
 
(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 December 31, 2012 as compared to the quarter ended September 30, 2012 reflects a decrease in amortization expense of approximately $14.6 million, primarily due to changes in landfill estimates identified in both quarters, as volumes remained consistent quarter-over-quarter.

 
(c)

The quarter ended December 31, 2012 as compared to the quarter ended December 31, 2011 reflects an increase in amortization expense of approximately $19.0 million. Approximately $17 million is due to changes in landfill estimates identified in both quarters.

 
Waste Management, Inc. Reconciliation of Certain Non-GAAP Measures (Dollars In Millions, Except Per Share Amounts) (Unaudited)
                   
Quarter Ended

December 31, 2012

Quarter Ended

December 31, 2011

Adjusted Net income and Diluted Earnings Per Share

After-tax Amount

(a)

Per Share Amount

After-tax Amount

(a)

Per Share Amount

 
Net income and Diluted EPS, as reported $ 224 $ 0.48 $ 266 $ 0.58
 
Adjustments to Net income and Diluted EPS:
Asset impairments, legal reserves and landfill operating costs (b) 27 3
Restructuring charges and Oakleaf related integration activities 16 4
Litigation   -   16
  43   0.09   23   0.05
Net income and Diluted EPS, as adjusted $ 267 $ 0.57 $ 289 $ 0.63
 
 
Year Ended

December 31, 2012

Year Ended

December 31, 2011

Adjusted Net income and Diluted Earnings Per Share

After-tax Amount

(a)

Per Share Amount

After-tax Amount

(a)

Per Share Amount

 
Net income and Diluted EPS, as reported $ 817 $ 1.76 $ 961 $ 2.04
 
Adjustments to Net income and Diluted EPS:
Asset impairments (c) 84 7
Restructuring 41 11
Oakleaf related integration activities 9 7
Legal reserve and landfill operating costs (d) 6 5
Partial withdrawal from multiemployer pension plan 6 -
Labor dispute 3 -
Litigation   -   16
  149   0.32   46   0.10
Net income and Diluted EPS, as adjusted $ 966 $ 2.08 $ 1,007 $ 2.14
 
(a) Please see the "Adjusted tax expense reconciliation" for the tax expense associated with each of the after-tax adjustments to net income and diluted EPS in the fourth quarter and full year of 2012 and 2011.
(b)

Adjustments in the fourth quarter of 2012 include impairment charges associated with certain of our investments in unconsolidated entities that are included in the "Other, net" financial caption, as well as impairment charges associated with assets in the "Asset Impairments and Unusual Items" financial caption. Adjustments in the fourth quarter of 2012 consist of $21 million of asset impairment charges and $6 million in legal reserves and landfill operating costs. Adjustments in the fourth quarter of 2011 consist of asset impairment charges of $3 million.

(c)

Adjustments in 2012 consist of 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.

(d)

Adjustments in 2012 consist of an aggregate after-tax charge of $6 million related to legal reserves and changes in risk-free interest rates. Adjustments in 2011 consist of a net after-tax charge resulting from an $11 million charge due to changes in risk-free interest rates partially offset by an after-tax benefit of $6 million due to decreases in environmental remediation reserves and closure and post-closure costs.

       
Waste Management, Inc. Reconciliation of Certain Non-GAAP Measures (Dollars In Millions) (Unaudited)
 
 
Quarters Ended December 31,
Adjusted Operating Expenses 2012 2011(e)
 
Operating Expenses, as reported $ 2,224 $ 2,145
Adjustments to Operating Expenses
Legal reserves and landfill operating costs (10 ) -
Oakleaf related integration activities   -     (2 )
Adjusted Operating Expenses (f) $ 2,214   $ 2,143  
 
 
Years Ended December 31,
Adjusted Operating Expenses 2012 2011(e)
 
Operating Expenses, as reported $ 8,879 $ 8,541
Adjustments to Operating Expenses
Partial withdrawal from multiemployer pension plan (10 ) -
Legal reserves and landfill operating costs (g) (10 ) (8 )
Labor dispute (6 ) -
Oakleaf related integration activities   -     (6 )
Adjusted Operating Expenses (h) $ 8,853   $ 8,527  
 
 
 
Full Year 2013 Free Cash Flow Reconciliation (i) Scenario 1 Scenario 2
 
Net cash provided by operating activities $ 2,500 $ 2,500
Capital expenditures (1,400 ) (1,300 )
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets   -     -  
 
$ 1,100   $ 1,200  
 
(e) Our financial results for the fourth quarter and full year 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 2012 and 2011, except for certain integration costs.
(f) Adjusted operating expenses for fourth quarter 2012 increased $71 million as compared with fourth quarter 2011.
(g)

Adjustments in 2012 were primarily comprised of $7 million in legal reserves and landfill operating costs of $3 million. Adjustments in 2011 were primarily comprised of a $17 million charge due to changes in risk-free interest rates partially offset by a $9 million benefit from decreases in environmental remediation reserves and closure and post-closure costs.

(h) Adjusted operating expenses for full year 2012 increased $326 million as compared with full year 2011.
(i) The reconciliation illustrates two scenarios that show our projected free cash flow for 2013. The amounts used in the reconciliation are subject to many variables, some of which are not under our control and, therefore, are not necessarily indicative of actual results.
           
Waste Management, Inc. Reconciliation of Certain Non-GAAP Measures (Dollars In Millions) (Unaudited)
 

Quarter Ended December 31, 2012

Quarter Ended December 31, 2011

Adjusted tax expense reconciliation

Pre-tax Income

Tax Expense

Pre-tax Income

Tax Expense

 
As reported amounts $ 349 $ 114 $ 412 $ 134
 
Adjustments to Tax Expense:
Asset impairments, legal reserves and landfill operating costs 41 14 4 1
Restructuring charges and Oakleaf related integration activities 25 9 7 3
Litigation - - 24 8
       
As adjusted amounts $ 415 $ 137 $ 447 $ 146
 

Year Ended December 31, 2012

Year Ended December 31, 2011

Adjusted tax expense reconciliation

Pre-tax Income

Tax Expense

Pre-tax Income

Tax Expense

 
As reported amounts $ 1,303 $ 443 $ 1,520 $ 511
 
Adjustments to Tax Expense:
Asset impairments 112 28 10 3
Restructuring 67 26 17 6
Oakleaf related integration activities 15 6 11 4
Legal reserve and landfill operating costs 10 4 8 3
Partial withdrawal from multiemployer pension plan 10 4 - -
Labor dispute 6 3 - -
Litigation - - 24 8
       
As adjusted amounts $ 1,523 $ 514 $ 1,590 $ 535




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