(WASTE MANAGEMcENT LOGO)
FOR FURTHER INFORMATION:
WASTE MANAGEMENT, INC.
ANALYSTS:
GREG NIKKEL
713.265.1358
MEDIA:
HEATHER BROWNE
713.265.1514
WMI #05-10
WASTE MANAGEMENT ANNOUNCES FIRST QUARTER 2005 EARNINGS AND
REAFFIRMS GUIDANCE ON FULL YEAR FINANCIAL PROJECTIONS
PRICING INITIATIVES DRIVE REVENUE GROWTH FROM YIELD TO FIVE-YEAR HIGH OF 2.1%
HOUSTON - APRIL 28, 2005 - Waste Management, Inc. (NYSE: WMI) today announced
financial results for its first quarter ended March 31, 2005. Revenues for the
quarter were $3.04 billion as compared with $2.90 billion in the year ago
period, or an increase of 4.9%. Net income for the quarter was $150 million, or
$0.26 per diluted share, as compared with $152 million, or $0.26 per diluted
share in the prior year period. In the 2004 quarter, net income, before
considering a favorable $8 million cumulative effect of change in accounting
principle, was $144 million, or $0.25 per diluted share.
Net income for the first quarter of 2005 increased 4.2% as compared with the net
income for the first quarter of 2004 before considering the favorable cumulative
effect of change in accounting principle in 2004. The cumulative effect of
change in accounting principle in 2004 was related entirely to final
implementation of Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46").
"Our first quarter results reflect the strong progress we have made in improving
our pricing in all of our lines of business and in our ability to control costs
of maintenance, workers compensation, and salaries and wages," stated David P.
Steiner, Chief Executive Officer of Waste Management. "Our performance in the
quarter was right on track with our expectations and we are confident that we
will achieve our 2005 financial goals."
Steiner added, "We were pleased with our internal revenue growth due to higher
yield. At 2.1% for the quarter, this matches the highest level we have seen in
the past five years. Yield was higher across our entire business as we saw
improvements in all collection lines of business, in the three primary landfill
waste streams, and across our transfer stations and waste-to-energy facilities.
The revenue increase due to yield grew 2.9% if you include the favorable impact
of our fuel surcharge program. As we see continued cost pressures in our
operations, we will maintain our focus on increasing prices to recover those
costs for the remainder of 2005 and beyond."
KEY HIGHLIGHTS FOR THE QUARTER
o Net cash provided by operating activities of $508 million.
o Free cash flow (a) of $420 million.
o Capital expenditures of $185 million.
o Internal revenue growth on base business of 3.1%, with 2.1% of that from
average yield and 1.0% from volume. The yield component excludes combined
positive impacts of 0.9% related to higher recycling commodity prices,
higher fuel surcharges and changes in electricity rates at Independent
Power Production facilities.
o Acquisitions net of divestitures contributed 0.6% to higher revenues in
the quarter.
o Price increases improved to 4.0% on our commercial customer base and to
3.2% on our total collection customer base.
o $213 million returned to shareholders in the form of $114 million in cash
dividends and $99 million in common stock repurchases.
The Company noted several items which impacted the current quarter's results:
o A $0.05 per diluted share gain related to the divestiture of the Ridge
landfill in Canada, which closed in January of 2005.
o A $0.03 per diluted share charge to settle a lawsuit with a group of
shareholders who had opted not to participate in the settlement of the
class action lawsuit against us related to 1998 and 1999 activity.
o A $0.02 per diluted share decrease in earnings related to the cost of a
seven-week strike in New Jersey and accelerated expenses under our new
long-term incentive plan for those employees eligible for retirement.
Steiner continued, "There were a number of other encouraging factors in our
first quarter results. Net cash provided by operating activities and free cash
flow were both strong for the quarter. We returned $213 million to shareholders
in the form of our $0.20 per share quarterly dividend and our share repurchase
program. Higher volumes also contributed 1.0% to the increase in revenues, even
in light of the unusually wet weather that occurred in a number of our key
markets. We also improved productivity in our commercial and industrial lines of
business, which is an important component of our cost control initiatives.
"We expect the momentum of our pricing programs to carry forward through the
remainder of the year. We reported today that, based on the success of our
landfill pricing study during the first quarter, we will expand that study to
include 23 transfer stations, plus a total of 58 landfills and transfer stations
in four Market Areas. Today we also announced a seasonal price increase plan for
the temporary roll-off segment of our business, similar to seasonal pricing done
by other industries during periods of peak demand."
Steiner concluded, "We are confident about the outlook for our price and
operational initiatives and we reaffirm our full-year financial projections
which we issued on February 10th of this year. In reaffirming our earnings
projection, we note that it is within the mid-to-upper end of the analysts'
current range of $1.50 to $1.60 per diluted share."
- --------------------------------------------------------------------------------
(a) The Company included its free cash flow, which is a non-GAAP financial
measure, herein 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 acquisition program, its share repurchase program,
its scheduled debt reduction and the payment of dividends. The Company
defines free cash flow as:
o Net cash provided by operating activities
o Less, capital expenditures
o 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. The Company has reconciled its
free cash flow as presented herein to cash flow from operations, which is the
most comparable GAAP measure, in the accompanying schedules.
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 9:00 a.m. Eastern time, 8:00 a.m.
Central 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 "First Quarter 2005 Earnings Webcast." You may
also listen to the conference call by telephone by contacting the conference
call operator at (877) 710-6139, 5-10 minutes prior to the scheduled start, and
asking for the "Waste Management Conference Call - Call ID 4978881." US/Canada
Dial-In #: (877) 710-6139. Int'l/Local Dial-In #: (706) 643-7398. For those
unable to listen to the live call, a replay will be available 24 hours a day
beginning at approximately 10:00 a.m. CT April 28th through 5:00 p.m. CT on May
12th. 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 4978881.
Waste Management, Inc. is its industry's leading provider of comprehensive waste
management and environmental services. Based in Houston, the Company serves
municipal, commercial, industrial, and residential customers throughout North
America.
Certain statements contained in this press release include statements that are
"forward-looking statements." Outlined below are some of the risks that the
Company faces and that could affect our financial statements for 2005 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 these forward-looking statements, which speak only as of their dates. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In addition, the Company, from time to time, provides estimates of financial and
other data relating to future periods. Such estimates and other information are
the Company's expectations at the point in time of issuance but may change at
some future point in time. By issuing such estimates the Company has no
obligation, and is not undertaking any obligation, to update such estimates or
provide any other information relating to such estimates. The following are some
of the risks we face:
o the effects competition may have on our profitability or cash flows,
including the negative impact to our yield on base business resulting from
price roll-backs and lower than average pricing to retain and attract
customers;
o our inability to maintain or expand margins as volumes increase if we are
unable to control variable costs or our fixed cost base increases;
o increases in employee-related costs and expenses, including health care
and other employee benefits such as unemployment insurance and workers'
compensation, as well as the costs and expenses associated with attracting
and retaining qualified personnel;
o possible increases in expenses due to fuel price increases or fuel supply
shortages;
o the effect that fluctuating commodity prices may have on our operating
revenues and expenses;
o the general effects of a weak economy, including the resulting decreases
in volumes of waste generated;
o external factors beyond our control, such as higher interest rates and the
possible inability of insurers to meet their obligations, both of which
may cause increased expenses;
o the effect the weather has on our quarter to quarter results, as well as
the effect of extremely harsh weather on our operations;
o possible changes in our estimates of site remediation requirements, final
capping, closure and post-closure obligations, compliance and regulatory
developments;
o the possible impact of regulations on our business, including the cost to
comply with regulatory requirements and the potential liabilities
associated with disposal operations;
o our ability to obtain and maintain permits needed to operate our
facilities;
o the effect of limitations or bans on disposal or transportation of
out-of-state waste or certain categories of waste;
o possible charges against earnings as a result of shut-down operations,
uncompleted development or expansion projects or other events;
o the effects that trends toward requiring recycling, waste reduction at the
source and prohibiting the disposal of certain types of wastes could have
on volumes of waste going to landfills and waste-to-energy facilities;
o possible diversions of management's attention and increases in operating
expenses due to efforts by labor unions to organize our employees;
o the outcome of litigation or threatened litigation;
o the need for additional capital if cash flows are less than we expect or
capital expenditures are more than we expect, and the possibility that we
cannot obtain additional capital on acceptable terms if needed;
o possible errors or problems upon implementation of new information
technology systems; and
o possible fluctuations in quarterly results of operations or adverse
impacts on our results of operations as a result of the adoption of new
accounting standards or interpretations.
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, 2004.
####
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
QUARTERS ENDED MARCH 31,
------------------------
2005 2004
------- -------
Operating revenues $ 3,038 $ 2,896
------- -------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below) 2,044 1,920
Selling, general and administrative 330 316
Depreciation and amortization 321 325
Asset impairments and unusual items (23) (9)
------- -------
2,672 2,552
------- -------
Income from operations 366 344
------- -------
Other income (expense):
Interest expense (116) (113)
Interest income 6 3
Equity in net losses of unconsolidated entities (26) (19)
Minority interest (10) (7)
Other, net -- (2)
------- -------
(146) (138)
------- -------
Income before income taxes and cumulative effect of
change in accounting principle 220 206
Provision for income taxes 70 62
------- -------
Income before cumulative effect of change in accounting principle 150 144
Cumulative effect of change in accounting principle,
net of income tax expense of $5 for 2004 -- 8
------- -------
Net income $ 150 $ 152
======= =======
Basic earnings per common share:
Income before cumulative effect of change in accounting
principle $ 0.26 $ 0.25
Cumulative effect of change in accounting principle -- 0.01
------- -------
Net income $ 0.26 $ 0.26
======= =======
Diluted earnings per common share:
Income before cumulative effect of change in accounting
principle $ 0.26 $ 0.25
Cumulative effect of change in accounting principle -- 0.01
------- -------
Net income $ 0.26 $ 0.26
======= =======
Weighted average basic common shares outstanding 568.8 577.3
======= =======
Weighted average diluted common shares outstanding 572.8 582.8
======= =======
Cash dividends per common share $ 0.20 $ 0.19
======= =======
(1)
WASTE MANAGEMENT, INC.
EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
QUARTERS ENDED MARCH 31,
------------------------
2005 2004
-------- --------
EPS CALCULATION:
Income before cumulative effect of change in accounting principle $ 150 $ 144
Cumulative effect of change in accounting principle -- 8
-------- --------
Net income $ 150 $ 152
======== ========
Number of common shares outstanding at end of period 568.3 579.7
Effect of using weighted average common shares outstanding 0.5 (2.4)
-------- --------
Weighted average basic common shares outstanding 568.8 577.3
Dilutive effect of equity-based compensation awards, warrants
and other contingently issuable shares 4.0 5.5
-------- --------
Weighted average diluted common shares outstanding 572.8 582.8
======== ========
Basic earnings per common share:
Income before cumulative effect of change in accounting principle $ 0.26 $ 0.25
Cumulative effect of change in accounting principle -- 0.01
-------- --------
Net income $ 0.26 $ 0.26
======== ========
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle $ 0.26 $ 0.25
Cumulative effect of change in accounting principle -- 0.01
-------- --------
Net income $ 0.26 $ 0.26
======== ========
(2)
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
MARCH 31, DECEMBER 31,
2005 2004
---------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 441 $ 424
Receivables, net 1,834 1,949
Other 407 446
------- -------
Total current assets 2,682 2,819
Property and equipment, net 11,378 11,476
Goodwill 5,340 5,301
Other intangible assets, net 157 152
Other assets 1,101 1,157
------- -------
Total assets $20,658 $20,905
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued liabilities and
deferred revenues $ 2,699 $ 2,821
Current portion of long-term debt 319 384
------- -------
Total current liabilities 3,018 3,205
Long-term debt, less current portion 8,067 8,182
Other liabilities 3,341 3,265
------- -------
Total liabilities 14,426 14,652
Minority interest in subsidiaries and variable interest entities 289 282
Stockholders' equity 5,943 5,971
------- -------
Total liabilities and stockholders' equity $20,658 $20,905
======= =======
Note: Prior year information has been reclassified to conform to 2005
presentation.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
QUARTERS ENDED
MARCH 31,
----------------
2005 2004
----- -----
Cash flows from operating activities:
Net income $ 150 $ 152
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle -- (8)
Depreciation and amortization 321 325
Other 26 59
Change in operating assets and liabilities, net of
effects of acquisitions and divestitures 11 (58)
----- -----
Net cash provided by operating activities 508 470
----- -----
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (87) (73)
Capital expenditures (185) (181)
Purchases of short-term investments (86) (431)
Proceeds from sales of short-term investments 96 84
Other, net 141 100
----- -----
Net cash used in investing activities (121) (501)
----- -----
Cash flows from financing activities:
New borrowings -- 347
Debt repayments (118) (9)
Common stock repurchases (99) (24)
Cash dividends (114) (109)
Exercise of common stock options and warrants 26 48
Other, net (67) (46)
----- -----
Net cash provided by (used in) financing activities (372) 207
----- -----
Effect of exchange rate changes on cash and cash equivalents 2 --
----- -----
Increase in cash and cash equivalents 17 176
Cash and cash equivalents at beginning of period 424 217
----- -----
Cash and cash equivalents at end of period $ 441 $ 393
===== =====
Note: Prior year information has been reclassified to conform to 2005
presentation.
(4)
WASTE MANAGEMENT, INC.
SUMMARY DATA SHEET
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
QUARTERS ENDED
-------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2005 2004 2004
--------- ------------ ---------
OPERATING REVENUES BY LINES OF BUSINESS
NASW:
Collection $ 2,057 $ 2,141 $ 1,964
Landfill 676 762 664
Transfer 387 422 369
Wheelabrator 202 210 196
Recycling and other 287 281 249
Intercompany (571) (608) (546)
------- ------- -------
Operating revenues $ 3,038 $ 3,208 $ 2,896
======= ======= =======
INTERNAL GROWTH OF OPERATING REVENUES FROM COMPARABLE PRIOR PERIODS
Internal growth 4.0% 6.4% 3.0%
Less: Yield changes due to recycling commodities, electricity
(IPP) and fuel surcharge 0.9% 1.9% 1.1%
------- ------- -------
Adjusted internal growth 3.1% 4.5% 1.9%
======= ======= =======
ACQUISITION SUMMARY (a)
Gross annualized revenue acquired $ 97 $ 15 $ 57
======= ======= =======
Total consideration $ 100 $ 17 $ 75
======= ======= =======
Cash paid for acquisitions $ 85 $ 16 $ 66
======= ======= =======
RECYCLING SEGMENT SUPPLEMENTAL DATA (b)
Operating revenues $ 196 $ 179 $ 167
======= ======= =======
Operating expenses (exclusive of depreciation and amortization) $ 167 $ 159 $ 144
======= ======= =======
QUARTERS ENDED
MARCH 31,
----------------
2005 2004
----- -----
FREE CASH FLOW ANALYSIS (c)
Net cash provided by operating activities $ 508 $ 470
Capital expenditures (185) (181)
Proceeds from divestitures of businesses, net of
cash divested, and other sales of assets 97 22
----- -----
Free cash flow $ 420 $ 311
===== =====
(a) Represents amounts associated with business acquisitions consummated during
the indicated periods.
(b) Information provided is after the elimination of intercompany revenues and
related expenses.
(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. We continue to project full-year 2005 free
cash flow to be in the range of $1.1 billion to $1.2 billion, based on
estimated net cash provided by operating activities in the range of $2.25
billion to $2.35 billion, capital expenditures of between $1.25 bilion and
$1.35 billion, and proceeds from divestitures, net of cash divested and
other sales of assets of $125 milion to $150 million.
(5)
WASTE MANAGEMENT, INC.
SUMMARY DATA SHEET
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
QUARTERS ENDED
----------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2005 2004 2004
--------- ------------ ---------
BALANCE SHEET DATA
Cash and cash equivalents (a) $ 441 $ 424 $ 393
========= ========= =========
Debt-to-total capital ratio:
Long-term indebtedness, including current
portion $ 8,386 $ 8,566 $ 9,020
Total equity (a) 5,943 5,971 5,712
--------- --------- ---------
Total capital $ 14,329 $ 14,537 $ 14,732
========= ========= =========
Debt-to-total capital (a) 58.5% 58.9% 61.2%
========= ========= =========
Capitalized interest $ 3 $ 6 $ 4
========= ========= =========
OTHER OPERATIONAL DATA
Internalization of waste, based on disposal costs 65.1% 65.0% 64.5%
========= ========= =========
Total landfill disposal volumes (tons in millions) (a) 28.0 30.6 27.3
Total waste to energy disposal volumes (tons in millions) (a) 1.9 1.9 1.9
--------- --------- ---------
Total disposal volumes (tons in millions) 29.9 32.5 29.2
========= ========= =========
Active landfills 285 286 289
========= ========= =========
Landfills reporting volume 264 264 267
========= ========= =========
AMORTIZATION AND SFAS NO. 143 EXPENSES FOR
LANDFILLS INCLUDED IN OPERATING GROUPS
Non - SFAS No. 143 amortization expense $ 87.7 $ 99.5 $ 86.7
Amortization expense related to SFAS No. 143 obligations (b) 14.0 (4.5) 19.6
--------- --------- ---------
Total amortization expense 101.7 95.0 106.3
Accretion and other related expense 13.1 14.2 9.8
--------- --------- ---------
Landfill amortization, accretion and other related expense $ 114.8 $ 109.2 $ 116.1
========= ========= =========
(a) Prior period information has been reclassified to conform to 2005
presentation.
(b) Reflected in the quarter ended December 31, 2004 results was a $23 million
reduction in landfill amortization expense. This reduction was related
primarily to adjustments to our fully accrued landfill final capping
obligations and was a result of fourth quarter event-driven changes as well
as changes in certain estimates as a result of our annual landfill review
process.
(6)
EXHIBIT 1
WASTE MANAGEMENT, INC.
ANALYSIS OF OPERATING EXPENSES
This schedule is being provided to reflect more detail regarding expense items
included in operating expense categories and to disclose the current quarter
reclassifications between categories to be reported in the Company's first
quarter 2005 Form 10-Q filing. We are providing this information and have made
these reclassifications to improve our investors' understanding of the business
and with the hope it will lead to further standardization of presentation format
within the solid waste industry.
OPERATING EXPENSE CATEGORIES -
TRANSFER AND DISPOSAL
LABOR AND RELATED BENEFITS COSTS MAINTENANCE AND REPAIRS SUBCONTRACTOR COSTS COST OF GOODS SOLD
- ------------------------------ ------------------------- ----------------------- ----------------------- ---------------------------
Salaries & wages Disposal to landfill Maintenance and Primarily independent Primarily rebates paid
Overtime Disposal to transfer repairs labor haulers who transport to suppliers associated
Bonus station Tires our waste to disposal with recycling
Safety bonus Disposal to other Parts & supplies facilities commodities
Commissions facility Lubricants Costs associated with
Other compensation Building maintenance the operation of IPP
Compensated absences Third party maintenance facilities - wood waste,
Vacation wages services natural gas, oil & coal
Severance Container maintenance and tires
Group insurance Other maintenance
Employer 401k matching
Union dues
Safety program expense
Pension expense
Employee vehicle costs
Payroll tax expense
Contract labor
Other employee costs
RECLASSIFICATIONS -
REMOVED FROM CATEGORY ADDED TO CATEGORY
- ------------------------------ ---------------------------------
Maintenance and repairs Maintenance and repairs labor
labor (moved to Maintenance (moved from Labor and related
and repairs) benefits)
Workers' compensation
insurance (moved to Risk
management)
Page 7 of 8
EXHIBIT 1
WASTE MANAGEMENT, INC.
ANALYSIS OF OPERATING EXPENSES
(CONTINUED)
DISPOSAL AND FRANCHISE LANDFILL OPERATING COSTS RISK MANAGEMENT
FUEL FEES AND TAXES (NEW CATEGORY) (NEW CATEGORY) OTHER
- ----------------------------- -------------------------- ---------------------------- --------------------- ------------------------
All types of fuel - diesel, Disposal fees & taxes Interest accretion on asset Workers' compensation Property taxes
gasoline, propane, Municipal franchise fees retirement obligations insurance Rental
LNG, CNG, methanol Host community fees Leachate treatment costs Insurance & claims Utilities
and other fuels Landfill fees & taxes Landfill remediation costs Vehicle transportation
Fuel tax credit Royalties Methane collection and costs
treatment Environmental compliance
Other landfill site costs Fines & penalties
License, fees & permits
Market development
Seminars & education
Supplies
Telecommunications
Travel & entertainment
Gain/losses from sale
of assets
Miscellaneous
ADDED TO CATEGORY ADDED TO CATEGORY REMOVED FROM CATEGORY
--------------------------------- -------------------------------- ---------------------------------
Landfill operating costs (moved Workers' compensation Landfill operating costs (moved
from Other) insurance (moved from Labor to Landfill operating costs)
and related benefits)
Insurance and claims (moved Insurance and claims (moved to
from Other) Risk management)
</Table>
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