Waste Management Announces Third Quarter 2007 Earnings
Company Generates Cash from Operations of $771 Million in Third
Quarter 2007 and Raises Full-Year Free Cash Flow Guidance
Income from Operations as a Percent of Revenue Expands
HOUSTON--(BUSINESS WIRE)--Oct. 26, 2007--Waste Management, Inc. (NYSE:WMI) today announced financial results for its third quarter ended September 30, 2007. Revenues for the quarter were $3.40 billion as compared with $3.44 billion in the year ago period. Net income for the quarter was $278 million, or $0.54 per diluted share, compared with $300 million, or $0.55 per diluted share, in the prior year period.
The Company noted a $16 million after-tax decrease, or approximately $0.03 per diluted share, in the current quarter's net income related primarily to the cost of the labor disruption in the Oakland, California area.
Income from operations as a percent of revenue was 16.6% in the third quarter of 2007. Income from operations as a percent of revenue, as adjusted for the item noted above, was 17.4% in the current year's quarter.(a)
"The Company overcame a number of challenges during the third quarter of 2007. We successfully responded to the labor disruption in Oakland, but at a cost of $0.03 per diluted share. We also saw a sharp run-up in crude oil prices, which eliminated our expected earnings per diluted share benefit from Section 45K tax credits in the quarter. We had expected to receive a $0.02 per share benefit coming into the third quarter. I would note that the $0.55 per diluted share earnings in the third quarter of 2006 included a $0.05 per diluted share benefit from Section 45K tax credits," said David P. Steiner, Chief Executive Officer of Waste Management.
"As compared to our expectations for the quarter, third party volumes were weaker than we anticipated. Our earnings were also below the expectations that we had entering the quarter. But we don't believe that the 5.0% reduction in volumes in the third quarter was the primary driver of that result. There are certain types of costs, such as health and welfare, litigation settlement costs and bad debt expense, that tend to be uneven through the year. The fluctuation in these costs and Section 45K tax credits were benefits in the first and second quarter of the year, and worked against us in the third quarter. These items were the primary reason earnings did not meet our expectations for the third quarter.
"Despite these challenges, we expanded our operating margins and generated very strong free cash flow, which was $1.36 billion for the first nine months of the year. Because of this, we are raising our free cash flow projection for the full-year to approximately $1.5 billion, which is $100 million above the high end of our previously projected range.(a) Our internal revenue growth due to yield on base business was strong at 3.3% and, on a year-over-year basis, we lowered operating costs as a percent of revenue for the ninth consecutive quarter. These accomplishments are evidence of the success of our pricing and operational excellence programs.
"Our collection line of business continues to perform very well despite lower volumes. The combined internal revenue growth from yield in our commercial, industrial and residential lines of business was 4.5%. The driving factor behind this was internal revenue growth from yield in our commercial collection line of business of 6.0% in the quarter, which is the highest level we have achieved in the recent past. The volume loss in our collection business was 5.4% and was driven in part by our strategy to review low margin accounts and either increase prices or cull those accounts. Our collection volumes were also impacted by lower roll-off activity related mainly to the downturn in residential construction. Our ability to flex down costs as we have lost volumes, combined with the success of our pricing program, led to a 14% growth in income from operations in our collection business."
Steiner continued, "Internal revenue growth from volumes was a decrease of 4.5% at our landfills due mainly to the decline in third party construction and demolition tons, which is largely a result of the weakness in residential construction. We did achieve positive internal revenue growth from yield at our landfills and transfer stations during the third quarter of 2007, marking the ninth consecutive quarter in which we have shown year-over-year improvement."
Steiner also highlighted the Company's strong cash position: "We generated $771 million in net cash provided by operating activities and $550 million in free cash flow during this year's third quarter, bringing our free cash flow total to $1.36 billion for the first nine months of 2007.(a) We returned $499 million in cash to our shareholders during the third quarter in the form of share repurchases and our quarterly cash dividend payment and remain on track to return nearly $1.8 billion to our shareholders for the full-year. Although we expect sequential capital expenditures to increase during the fourth quarter, we now project that free cash flow will be approximately $1.5 billion for the full-year 2007."(a)
Key Highlights for the Quarter
-- Internal revenue growth on base business due to yield was an
increase of 3.3%.
-- Including the positive impact of higher recycling commodity
prices, internal revenue growth from yield was 5.6%.
-- Net cash provided by operating activities of $771 million in
the third quarter. For the nine-month period, net cash
provided by operating activities was $1.85 billion.
-- Free cash flow of $550 million. For the nine-month period,
free cash flow was $1.36 billion.(a)
-- $499 million returned to shareholders in the third quarter,
consisting of $123 million in cash dividends and $376 million
in common stock repurchases. During the first nine-months of
2007, over $1.4 billion in cash was returned to shareholders.
-- Operating expenses declined by $38 million, or approximately
1.7%, to $2.14 billion in the third quarter of 2007. Excluding
the pre-tax $24 million impact of the California labor
disruption costs, operating expenses declined by $62 million,
or approximately 2.8%. On the same basis, operating expenses
as a percent of revenue fell to 62.3% during the current year
quarter, which is a 110 basis point improvement compared with
the same quarter in 2006.(a)
-- Divestitures net of acquisitions caused a 2.0% decline in
revenues in the quarter and foreign currency translation
caused a 0.4% increase in revenues.
-- Lower fuel surcharge revenue caused a 0.1% decline in internal
revenue growth.
-- Internal revenue growth reflected a decline of 5.0% due to
lower volumes. The volume component included a 5.4% reduction
in collection revenues and a 4.5% reduction in third party
landfill revenue.
-- Revenue decreased $38 million in the third quarter of this
year. Adjusting for the $80 million in divested revenues,
revenues would have increased $42 million, or about 1.2%.(a)
-- Capital expenditures of $240 million in the third quarter. For
the nine-month period, capital expenditures totaled $721
million.
-- The effective tax rate in the third quarter of 2007 was 36.2%.
This is higher than the 34% rate projected in the Company's
second quarter 2007 earnings release due to higher taxes as a
result of the increase in the estimated phase-out of Section
45K tax credits partially offset by $14 million in tax
benefits resulting primarily from adjustments required for the
finalization of our 2006 tax returns. At the end of the second
quarter, the Company estimated the full year phase-out of its
Section 45K tax credits to be 29%. At the end of the third
quarter, the estimated full-year phase-out increased to 52%.
Consequently, earnings per share did not benefit from Section
45K tax credits in the third quarter of 2007. This compares
with a benefit of $0.05 per diluted share from Section 45K tax
credits during the third quarter of 2006. Given our outlook
for crude oil prices for the full-year 2007, the Company would
not expect to record any earnings per diluted share benefit
from Section 45K tax credits during the fourth quarter of
2007. The full year outlook projected in the Company's second
quarter 2007 earnings release had assumed a $0.04 benefit for
the second half of the year, consisting of a $0.02 benefit in
each of the third and fourth quarters.
Steiner concluded, "Our collection and recycling businesses continue to grow income from operations at double digit rates, and we will continue to follow our strategy of pricing work to generate acceptable margins and returns on our business. We are meeting our expectations with regard to our pricing program and continue to produce a positive price-volume trade-off in our collection business. We remain committed to this approach and expect it to continue to drive earnings growth and margin expansion. As we have done in the collection line of business, we intend to follow a disciplined approach to landfill pricing and to pursue cost cutting at our landfills to offset the earnings impact of the loss in volumes.
"In looking at our full year 2007 earnings projections, the previously projected range of $2.07 to $2.11 per diluted share included a Section 45K tax credit benefit of $0.04 per diluted share in the second half of the year. We no longer expect to receive that $0.04 per diluted share benefit. After reducing the range by this $0.04 per diluted share non-operational tax item, we are confident we can meet the revised 2007 full-year earnings projection. And we have raised our full-year free cash flow by $100 million over the high end of our previously projected range of $1.3 billion to $1.4 billion." (a)
(a)This earnings release contains a discussion of non-GAAP measures,
as defined in Regulation G of the Securities Exchange Act of 1934,
as amended. The Company reports its financial results in
compliance with GAAP, but believes that also discussing non-GAAP
measures provides investors with (i) additional, meaningful
comparisons of current results to prior periods' results by
excluding items that the Company does not believe reflect its
fundamental business performance and (ii) financial measures the
Company uses in the management of its business. GAAP measures that
have been adjusted to exclude the impact of certain unusual, non-
recurring or otherwise non-operational items include:
-- Income from operations as a percentage of revenue;
-- Revenue and comparative changes in revenue;
-- Operating expenses, operating expenses as a percentage of
revenue and comparative changes in these measures; and
-- Projected earnings per diluted share.
The Company also discusses free cash flow and projected free cash
flow, which are non-GAAP measures, because it believes that
investors are interested in the cash produced by the Company from
non-financing activities that is available for uses such as the
Company's acquisitions, its share repurchase program, its
scheduled debt reduction and the payment of dividends. The Company
defines free cash flow as:
-- Net cash provided by operating activities
-- Less, capital expenditures
-- Plus, proceeds from divestitures of businesses, net of cash
divested, and other sales of assets.
The Company's definition of free cash flow may not be comparable to
similarly titled measures presented by other companies, and
therefore not subject to comparison.
Except for projected earnings per diluted share, discussed below,
the quantitative reconciliations of each of the non-GAAP measures
presented herein to the most comparable GAAP measures are included
in the accompanying schedules. Investors are urged to take into
account GAAP measures as well as non-GAAP measures in evaluating
the Company.
The Company's full year projection of adjusted earnings of $2.07 to
$2.11 per diluted share given in its second quarter 2007 earnings
release excluded (i) the first quarter 2007 impact of
restructuring charges of $6 million after tax; (ii) the 2007 year-
to-date impact of $54 million associated with income tax benefits;
(iii) the second quarter net $18 million in after-tax gains from
the divestiture of certain operations; and (iv) the 2007 year-to-
date impact of $18 million after tax associated with the labor
disruptions in California; but did not exclude an expected benefit
of $0.02 per share from Section 45K tax credits in each of the
third and fourth quarters of 2007. No such benefit was realized in
the third quarter and, given the uncertainty of crude oil prices,
the Company has excluded the effects that Section 45K tax credits
may have on the remainder of the year from its projection, thus
reducing the $2.07 to $2.11 estimate by $0.04 per diluted share.
GAAP net earnings per diluted share for the fourth quarter of the
year may include restructuring charges, asset impairment and
unusual items charges, gains or losses from divestitures, the
resolution of income tax items, and other items that are not
currently determinable, but may be significant, such as the
financial impact of the labor action in the Los Angeles,
California area. Our current full year 2007 projection excludes
the impact of any such items that may occur. GAAP net earnings per
diluted share projected for the full year would require inclusion
of the projected impact of any such items. Due to the uncertainty
of the occurrence of any such items, as well as their amount and
timing, we do not believe we have the information available to
provide projected full year GAAP net earnings per diluted share
and the quantitative reconciliation to our current adjusted
earning per diluted share projection.
The Company has scheduled an investor and analyst conference call for later this morning to discuss the results of today's earnings announcement. The information in this press release should be read in conjunction with the information on the conference call. The call will begin at 10:00 a.m. Eastern time and is open to the public. To listen to the conference call, which will be broadcast live over the Internet, go to the Waste Management Website at http://www.wm.com, and select "3Q2007 Earnings Report Webcast." You may also listen to the analyst conference call by telephone by contacting the conference call operator 5 to 10 minutes prior to the scheduled start time and asking for the "Waste Management Conference Call - Call ID 16948617." US/Canada Dial-In Number: (877) 710-6139. Int'l/Local Dial-In Number: (706) 643-7398. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately 1:00 p.m. Eastern time on October 26 through 5:00 p.m. Eastern time on November 9th. To hear a replay of the call over the Internet, access the Waste Management Website at http://www.wm.com. To hear a telephonic replay of the call, dial (800) 642-1687 or (706) 645-9291 and enter reservation code 16948617.
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.
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. Statements relating to future events and performance are "forward-looking statements." The forward-looking statements that the Company makes are the Company's expectations, opinion, view or belief at the point in time of issuance but may change at some future point in time. By issuing estimates or making statements based on current expectations, opinions, views or beliefs, the Company has no obligation, and is not undertaking any obligation, to update such estimates or statements or to provide any other information relating to such estimates or statements. Outlined below are some of the risks that the Company faces and that could affect our financial statements for 2007 and beyond and that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company. However, they are not the only risks that the Company faces. There may be additional risks that we do not presently know or that we currently believe are immaterial which could also impair our business. We caution you not to place undue reliance on any forward-looking statements, which speak only as of their dates. The following are some of the risks that we face:
-- competition may negatively affect our profitability or cash
flows, our price increases may have negative effects on
volumes and price roll-backs and lower than average pricing to
retain and attract customers may negatively affect our yield
on base business;
-- we may be unable to maintain or expand margins if we are
unable to control costs;
-- we may not be able to successfully execute or continue our
operational or other margin improvement plans and programs,
including pricing increases; passing on increased costs to our
customers; reducing costs due to our operational improvement
programs; and divesting under-performing assets and purchasing
accretive businesses, any of which could negatively affect our
revenues and margins;
-- weather conditions cause our quarter-to-quarter results to
fluctuate, and extremely harsh weather or natural disasters
may cause us to temporarily shut down operations;
-- inflation and resulting higher interest rates as well as other
general and local economic conditions may negatively affect
the volumes of waste generated, our financing costs and other
expenses;
-- possible changes in our estimates of site remediation
requirements, final capping, closure and post-closure
obligations, compliance and regulatory developments may
increase our expenses;
-- regulations, including regulations to limit greenhouse gas
emissions, may negatively impact our business by, among other
things, restricting our operations, increasing costs of
operations or requiring additional capital expenditures;
-- if we are unable to obtain and maintain permits needed to
open, operate, and/or expand our facilities, our results of
operations will be negatively impacted;
-- limitations or bans on disposal or transportation of
out-of-state, cross-border, or certain categories of waste, as
well as mandates on the disposal of waste, can increase our
expenses and reduce our revenues;
-- fuel price increases or fuel supply shortages may increase our
expenses, including our tax expense if Section 45K credits are
phased out due to continued high crude oil prices, or restrict
our ability to operate;
-- increased costs to obtain financial assurance or the
inadequacy of our insurance coverages could negatively impact
our liquidity and increase our liabilities;
-- possible charges as a result of shut-down operations,
uncompleted development or expansion projects or other events
may negatively affect earnings;
-- fluctuating commodity prices may have negative effects on our
operating revenues and expenses;
-- trends requiring recycling, waste reduction at the source and
prohibiting the disposal of certain types of wastes could have
negative effects on volumes of waste going to landfills and
waste-to-energy facilities;
-- efforts by labor unions to organize our employees may increase
operating expenses and we may be unable to negotiate
acceptable collective bargaining agreements with those who
have been chosen to be represented by unions, which could lead
to labor disruptions, including strikes and lock-outs, which
could adversely affect our results of operations and cash
flows;
-- negative outcomes of litigation or threatened litigation or
governmental proceedings may increase our costs, limit our
ability to conduct or expand our operations, or limit our
ability to execute our business plans and strategies;
-- problems with the operation of our current information
technology or the development and deployment of new
information systems may decrease our efficiencies and increase
our costs to operate;
-- the adoption of new accounting standards or interpretations
may cause fluctuations in reported quarterly results of
operations or adversely impact our reported results of
operations; and
-- we may reduce or eliminate our dividend or share repurchase
program or we may need to raise additional capital if cash
flows are less than we expect or capital expenditures are more
than we expect, and we may not be able to obtain any needed
capital on acceptable terms.
Additional information regarding these and/or other factors that could materially affect results and the accuracy of the forward-looking statements contained herein may be found in Part I, Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended September 30,
----------------------------
2007 2006
-------------- -------------
Operating revenues $ 3,403 $ 3,441
-------------- -------------
Costs and expenses:
Operating 2,143 2,181
Selling, general and administrative 365 344
Depreciation and amortization 331 340
Restructuring - -
(Income) expense from divestitures,
asset impairments and unusual items (1) 19
-------------- -------------
2,838 2,884
-------------- -------------
Income from operations 565 557
-------------- -------------
Other income (expense):
Interest expense (128) (138)
Interest income 10 24
Equity in net earnings (losses) of
unconsolidated entities 1 (20)
Minority interest (12) (11)
Other, net - 1
-------------- -------------
(129) (144)
-------------- -------------
Income before income taxes 436 413
Provision for income taxes 158 113
-------------- -------------
Net income $ 278 $ 300
============== =============
Basic earnings per common share $ 0.54 $ 0.56
============== =============
Diluted earnings per common share $ 0.54 $ 0.55
============== =============
Basic common shares outstanding 515.9 537.0
============== =============
Diluted common shares outstanding 520.1 541.5
============== =============
Cash dividends declared per common share $ 0.24 $ 0.22
============== =============
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended September 30,
----------------------------
2007 2006
-------------- -------------
EPS Calculation:
Net income $ 278 $ 300
============== =============
Number of common shares outstanding at
end of period 509.8 534.5
Effect of using weighted average common
shares outstanding 6.1 2.5
-------------- -------------
Weighted average basic common shares
outstanding 515.9 537.0
Dilutive effect of equity-based
compensation awards, warrants and
other contingently issuable shares 4.2 4.5
-------------- -------------
Weighted average diluted common shares
outstanding 520.1 541.5
============== =============
Basic earnings per common share $ 0.54 $ 0.56
============== =============
Diluted earnings per common share $ 0.54 $ 0.55
============== =============
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2007 2006
--------------- ---------------
Operating revenues $ 9,949 $ 10,080
--------------- ---------------
Costs and expenses:
Operating 6,269 6,480
Selling, general and administrative 1,061 1,040
Depreciation and amortization 963 1,013
Restructuring 10 -
(Income) expense from divestitures,
asset impairments and unusual items (33) (10)
--------------- ---------------
8,270 8,523
--------------- ---------------
Income from operations 1,679 1,557
--------------- ---------------
Other income (expense):
Interest expense (395) (412)
Interest income 39 53
Equity in net losses of
unconsolidated entities (45) (18)
Minority interest (33) (33)
Other, net 2 2
--------------- ---------------
(432) (408)
--------------- ---------------
Income before income taxes 1,247 1,149
Provision for income taxes 393 246
--------------- ---------------
Net income $ 854 $ 903
=============== ===============
Basic earnings per common share $ 1.64 $ 1.66
=============== ===============
Diluted earnings per common share $ 1.62 $ 1.65
=============== ===============
Basic common shares outstanding 521.4 542.5
=============== ===============
Diluted common shares outstanding 526.0 547.8
=============== ===============
Cash dividends declared per common
share (1st quarter 2006 dividend of
$0.22 per share declared in December
2005, paid in March 2006) $ 0.72 $ 0.44
=============== ===============
Note: Provision for income taxes and net income for the quarter ended
March 31, 2007 have been adjusted for the effects of our
retrospective application of Financial Accounting Standard
Board Staff Position ("FSP") No. FIN 48-1, Definition of
Settlement in FASB Interpretation No. 48.
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2007 2006
--------------- ---------------
EPS Calculation:
Net income $ 854 $ 903
=============== ===============
Number of common shares outstanding at
end of period 509.8 534.5
Effect of using weighted average
common shares outstanding 11.6 8.0
--------------- ---------------
Weighted average basic common shares
outstanding 521.4 542.5
Dilutive effect of equity-based
compensation awards, warrants and
other contingently issuable shares 4.6 5.3
--------------- ---------------
Weighted average diluted common shares
outstanding 526.0 547.8
=============== ===============
Basic earnings per common share $ 1.64 $ 1.66
=============== ===============
Diluted earnings per common share $ 1.62 $ 1.65
=============== ===============
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
September 30, December 31,
2007 2006
------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 537 $ 614
Receivables, net 1,895 1,858
Other 429 710
------------- -------------
Total current assets 2,861 3,182
Property and equipment, net 11,162 11,179
Goodwill 5,400 5,292
Other intangible assets, net 128 121
Other assets 724 826
------------- -------------
Total assets $ 20,275 $ 20,600
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued liabilities,
and deferred revenues $ 2,259 $ 2,446
Current portion of long-term debt 481 822
------------- -------------
Total current liabilities 2,740 3,268
Long-term debt, less current portion 7,797 7,495
Other liabilities 3,505 3,340
------------- -------------
Total liabilities 14,042 14,103
Minority interest in subsidiaries and
variable interest entities 301 275
Stockholders' equity 5,932 6,222
------------- -------------
Total liabilities and stockholders'
equity $ 20,275 $ 20,600
============= =============
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2007 2006
--------------- ---------------
Cash flows from operating activities:
Net income $ 854 $ 903
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 963 1,013
Other 64 (6)
Change in operating assets and
liabilities, net of effects of
acquisitions and divestitures (35) (23)
--------------- ---------------
Net cash provided by operating
activities 1,846 1,887
--------------- ---------------
Cash flows from investing activities:
Acquisitions of businesses, net of
cash acquired (86) (32)
Capital expenditures (721) (846)
Proceeds from divestitures of
businesses (net of cash divested)
and other sales of assets 235 198
Purchases of short-term investments (1,221) (2,381)
Proceeds from sales of short-term
investments 1,288 2,355
Net receipts from restricted trust
and escrow accounts, and other 98 115
--------------- ---------------
Net cash used in investing activities (407) (591)
--------------- ---------------
Cash flows from financing activities:
New borrowings 439 118
Debt repayments (658) (236)
Common stock repurchases (1,059) (934)
Cash dividends (374) (358)
Exercise of common stock options and
warrants 137 219
Other, net (4) (25)
--------------- ---------------
Net cash used in financing activities (1,519) (1,216)
--------------- ---------------
Effect of exchange rate changes on
cash and cash equivalents 3 -
--------------- ---------------
Increase (decrease) in cash and cash
equivalents (77) 80
Cash and cash equivalents at beginning
of period 614 666
--------------- ---------------
Cash and cash equivalents at end of
period $ 537 $ 746
=============== ===============
Note: Prior year information has been reclassified to conform to 2007
presentation.
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
Quarters Ended
------------------------------------
September 30, June 30, September 30,
2007 2007 2006
------------- -------- -------------
Operating Revenues by
Lines of Business
-------------------------
Collection $ 2,210 $ 2,193 $ 2,251
Landfill 789 791 838
Transfer 426 433 469
Wheelabrator 222 219 233
Recycling and other 339 317 278
Intercompany (a) (583) (595) (628)
------------- -------- -------------
Operating revenues $ 3,403 $ 3,358 $ 3,441
============= ======== =============
Internal Growth of
Operating Revenues from
Comparable Prior Periods
-------------------------
Average yield
Base business 3.3% 3.4% 3.6%
Yield changes due to
recycling
commodities 2.3% 2.2% 0.0%
Yield changes due to
electricity (IPP),
fuel surcharge and
mandated fees -0.1% 0.1% 1.0%
------------- -------- -------------
Total 5.5% 5.7% 4.6%
Volume -5.0% -4.4% -1.8%
------------- -------- -------------
Internal revenue growth 0.5% 1.3% 2.8%
============= ======== =============
Acquisition Summary (b)
-------------------------
Gross annualized
revenue acquired $ 39 $ 44 $ 4
============= ======== =============
Total consideration $ 44 $ 48 $ 3
============= ======== =============
Cash paid for
acquisitions $ 38 $ 44 $ 2
============= ======== =============
WMRA Segment Supplemental
Data (c)
-------------------------
Operating revenues $ 243 $ 225 $ 194
============= ======== =============
Operating expenses $ 207 $ 189 $ 168
============= ======== =============
Quarters Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2007 2006 2007 2006
------------- -------- ------------- -------
Free Cash Flow Analysis
(d)(e)
-------------------------
Net cash provided by
operating activities $ 771 $ 707 $ 1,846 $1,887
Capital expenditures (240) (319) (721) (846)
Proceeds from
divestitures of
businesses (net of cash
divested) and other
sales of assets 19 43 235 198
------------- -------- ------------- -------
Free cash flow $ 550 $ 431 $ 1,360 $1,239
============= ======== ============= =======
(a) Intercompany revenues between lines of business are eliminated
within the Condensed Consolidated Financial Statements included
herein.
(b) Represents amounts associated with business acquisitions
consummated during the indicated periods.
(c) Information provided is after the elimination of intercompany
revenues and related expenses.
(d) Prior year information has been reclassified to conform to 2007
presentation.
(e) 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.
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
Quarters Ended
------------------------------------
September 30, June 30, September 30,
2007 2007 2006
------------- -------- -------------
Balance Sheet Data
---------------------------------
Cash, cash equivalents and short-
term investments available for
use (a) $ 654 $ 694 $ 1,078
============= ======== =============
Debt-to-total capital ratio:
Long-term indebtedness,
including current portion $ 8,278 $ 8,249 $ 8,642
Total equity 5,932 6,070 6,160
------------- -------- -------------
Total capital $ 14,210 $14,319 $ 14,802
============= ======== =============
Debt-to-total capital 58.3% 57.6% 58.4%
============= ======== =============
Capitalized interest $ 6 $ 6 $ 5
============= ======== =============
Other Operational Data
---------------------------------
Internalization of waste, based
on disposal costs 66.5% 67.1% 67.0%
============= ======== =============
Total landfill disposal volumes
(tons in millions) 29.5 29.6 32.8
Total waste-to-energy disposal
volumes (tons in millions) 1.7 1.8 2.1
------------- -------- -------------
Total disposal volumes (tons in
millions) 31.2 31.4 34.9
============= ======== =============
Active landfills 279 279 286
============= ======== =============
Landfills reporting volume 261 262 267
============= ======== =============
Amortization and SFAS No. 143
Expenses for Landfills Included
in Operating Groups (b)
---------------------------------
Non - SFAS No. 143 amortization
expense $ 102.1 $ 102.0 $ 106.2
Amortization expense related to
SFAS No. 143 obligations 21.1 16.8 18.4
------------- -------- -------------
Total amortization expense (c) 123.2 118.8 124.6
Accretion and other related
expense 15.8 15.2 13.7
------------- -------- -------------
Landfill amortization,
accretion and other related
expense $ 139.0 $ 134.0 $ 138.3
============= ======== =============
(a) The quarters ended September 30, 2007, June 30, 2007, and
September 30, 2006 include short-term investments available for
use of $117 million, $124 million, and $332 million,
respectively.
(b) Prior period amounts have been revised to exclude amounts from
closed landfills not included in our Operating groups.
(c) The sequential increase in amortization expense is primarily
related to an increase in estimates of capping costs.
Waste Management, Inc.
Reconciliation of Certain Non-GAAP Measures
(Dollars In Millions)
(Unaudited)
Quarter Ended
Adjusted Income from Operations as a September 30,
percent of Revenue 2007
--------------
As reported:
Operating revenues $ 3,403
Income from operations $ 565
Income from Operations as a percent of
Revenue 16.6%
Adjustments for Labor disruption costs:
Operating revenues $ 1
Income from operations $ 26
As adjusted:
Operating revenues $ 3,404
Income from operations $ 591
Adjusted Income from Operations as a
percent of Revenue 17.4%
Adjusted Revenues and Comparative Changes
in Revenues
Operating revenues, as reported:
Quarter ended September 30, 2006 $ 3,441
Quarter ended September 30, 2007 $ 3,403
Decline in Operating revenues, as reported ($38) or -1.1%
Adjustments to 2007 Operating revenues:
Divested revenues $ 80
Operating revenues, as adjusted
Quarter ended September 30, 2006 $ 3,441
Quarter ended September 30, 2007 $ 3,483
Increase in Operating revenues, as
adjusted $42 or 1.2%
Quarters Ended
September 30,
---------------------------
Adjusted Operating Expenses as a percent
of Revenue 2007 2006
-------------- -----------
As reported:
Operating revenues $ 3,403 $ 3,441
Operating expenses (a) $ 2,143 $ 2,181
Adjustments for Labor disruption costs:
Operating revenues $ 1 $ -
Operating expenses $ 24 $ -
As adjusted:
Operating revenues $ 3,404 $ 3,441
Operating expenses (b) $ 2,119 $ 2,181
Adjusted Operating Expenses as a percent
of Revenue (c) 62.3% 63.4%
(a) Operating expenses, as reported, decreased $38 million or
approximately 1.7%.
(b) Operating expenses, as adjusted, decreased $62 million or
approximately 2.8%.
(c) Decrease in Operating Expenses as a percent of Revenue, as
adjusted, of 110 basis points.
Waste Management, Inc.
Reconciliation of Certain Non-GAAP Measures
(Dollars In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended
September 30,
--------------------
Adjusted Diluted Earnings Per Share (a) 2007 2006
--------- ----------
Diluted Earnings Per Share, as reported $ 0.54 $ 0.55
Adjustments:
(Income) expense from divestitures, asset
impairments and unusual items - 0.03
Tax items (0.03) (0.03)
Labor disruptions 0.03 -
--------- ----------
Diluted Earnings Per Share, as adjusted $ 0.54 $ 0.55
Additional adjustment:
Section 45K tax credit impact - (0.05)
--------- ----------
Diluted Earnings Per Share, as further adjusted $ 0.54 $ 0.50
========= ==========
Projected Full Year 2007 Free Cash Flow
Reconciliation Scenario (b)
Net cash provided by operating activities $ 2,500
Capital expenditures (1,250)
Proceeds from divestitures of businesses (net
of cash divested) and other sales of assets 250
---------
Free cash flow $ 1,500
=========
(a) The non-GAAP measure of adjusted diluted earnings per share has
not been disclosed in this press release. However, management of
the Company believes that providing investors with the year-over-
year comparison of diluted earnings per share, as adjusted for
the significant non-operational items noted, assists in an
understanding of the Company's current period performance.
(b) The table above illustrates a scenario that would result in free
cash flow meeting our free cash flow projection. The amounts used
in the reconciliation are not necessarily indicative of our
expectations for those amounts.
Waste Management, Inc.
Actual/Estimated Diluted Earnings Per Share Impact from Section 45K
Credits and Synthetic Fuel Production Facilities
(Unaudited)
2007
------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
Estimated earnings impact as
of June 30, 2007 -
Assumed estimated phase-out
of 29% $0.02 $0.03 $0.02 (a) $0.02 (a)
Updated estimated earnings
impact as of October 24,
2007 -
Assumed estimated phase-out
of 62% $0.02 $0.03 $ - (b) $ - (a)
(a) Forecasted as of the date indicated.
(b) Includes a $0.01 per share reduction in benefit attributable to
the quarter ended March 31, 2007 and a $0.01 per share reduction
in benefit attributable to the quarter ended June 30, 2007.
CONTACT: Waste Management, Inc.
Greg Nikkel, 713-265-1358 (Analysts)
Lynn Brown, 713-394-5093 (Media)
http://www.wm.com
SOURCE: Waste Management, Inc.