Date: April 29, 2010
Source: Waste Management, Inc.
-- First Quarter Revenue Increases 4.4%
-- Company Notes Volume Trends are Improving
Waste Management, Inc. (NYSE: WM) today announced financial results for its first quarter ended March 31, 2010. Net income (a) for the quarter was $182 million, or $0.37 per diluted share, compared with $155 million, or $0.31 per diluted share, for the first quarter of 2009. This is an increase in earnings per diluted share of over 19%. Revenues for the first quarter of 2010 were $2.93 billion compared with $2.81 billion for the same 2009 period, an increase of 4.4%.
The Company noted several items that impacted results in the 2010 and 2009 first quarters. Results in the first quarter of 2010 included a $17 million after-tax charge related to the partial withdrawal from a Teamsters' under-funded multi-employer pension plan. Results in the first quarter of 2009 included a $23 million reduction in net income due to charges related to the restructuring announced in February 2009, and a $30 million reduction in net income related to the abandonment of a revenue management system. Excluding these items, net income would have been $199 million, or $0.41 per diluted share, in the first quarter of 2010 compared with $208 million, or $0.42 per diluted share, in the first quarter of 2009. (b)
David P. Steiner, Chief Executive Officer of Waste Management, commented, "We saw further signs of improvement in our business during the first quarter of 2010. Revenue increased over 4% compared with the first quarter of 2009, primarily because of improving commodity prices and year-over-year yield increases. And volume comparisons continued to show improving trends.
"In addition, we overcame several headwinds to produce solid first quarter results. That included severe winter weather, a $0.01 per diluted share expense related to our decision to add stock options as part of our long-term compensation program, and a year-over-year negative impact of $0.02 per diluted share relating to fuel costs, net of fuel surcharge revenues.
"Internal revenue growth from volume declined by 4.9% in the first quarter of 2010, an improvement of 150 basis points compared with the decline experienced in the fourth quarter of 2009. Compared with the third quarter of 2009, the rate of volume decline has improved 400 basis points. As we look at volumes for the remainder of 2010, we continue to expect the rate of decline to show improvement in the second quarter and for volumes to turn positive during the second half of the year."
Steiner continued, "Our internal revenue growth from yield for our collection and disposal business was 1.8%. We anticipated that yield would be lower during the first half of 2010 because the consumer price index was quite low, and even negative, for several months during the last half of 2009. This decline in the index affected recent contract price adjustments. Excluding the price impacts associated with municipal and franchise contracts, which are primarily driven by CPI adjustments, internal revenue growth from yield would have been 2.5% for the quarter. The CPI index is now running over 2% for the first three months of 2010. In addition, we have increased our environmental fee from 6.0% to 7.5%. So, we expect our internal revenue growth from yield to strengthen throughout the year."
Key Highlights for the First Quarter 2010
-- Revenue increased by 4.4%, or $125 million, in the first quarter.
-- Internal revenue growth from yield for the Company's collection and disposal operations was 1.8%, but would have been 2.5% excluding the price impacts associated with municipal and franchise contracts, which are primarily driven by CPI adjustments. Internal revenue growth from volume was negative 4.9%.
-- Operating expenses increased by 9.0%, or $156 million, in the first quarter. This increase resulted mainly from $77 million of increased cost of goods sold related to recycling commodity rebates, a $28 million charge related to the partial withdrawal from a Teamsters' under-funded multi-employer pension plan, and a $28 million increase in fuel costs. First quarter 2010 fuel costs, net of fuel surcharge revenues, negatively impacted earnings by $0.02 per diluted share, compared to the prior year period.
-- Selling, general and administrative expenses increased by $14 million compared with the first quarter of 2009, due principally to increased expenses for growth initiatives and information technology upgrades. As a percentage of revenue, these expenses remained unchanged at 12% compared with the prior year period.
-- Average recycling commodity prices more than doubled in the first quarter of 2010 compared with the prior year period. This favorable year-over-year impact contributed over $0.06 to earnings per diluted share in the first quarter of 2010, compared with the prior year period, which was consistent with the Company's previously announced estimate for commodity impacts.
-- In 2010 we granted stock options as part of our long-term compensation program. There was $5 million of non-cash expense, or an approximate $0.01 decline in earnings per diluted share in the quarter, due to vesting provisions applicable to retirement eligible employees under the Company's long-term stock option incentive plan.
-- Free cash flow was $253 million in the quarter.(b)
-- Capital expenditures were $255 million in the quarter.
-- The Company returned $273 million to shareholders in the first quarter, consisting of $153 million in dividends and $120 million in common stock repurchases.
-- The effective tax rate in the quarter was approximately 36.6%.
"We remain committed to returning cash to our shareholders while at the same time making strategic investments that will increase future cash flows. In the first quarter we paid $153 million in dividends and repurchased $120 million of common stock. We also completed over $80 million of tuck-in acquisitions. On March 23, 2010, we closed on our previously announced acquisition of a 40% interest in Shanghai Environment Group (SEG). SEG is the leading company in China in the fast-growing waste-to-energy market. We also expect to close today on the purchase of a waste-to-energy facility owned by the Southeastern Public Service Authority, located in Virginia."
Steiner concluded, "Virtually all of the signs that we have seen in our business during March and early April suggest a continuing upturn in volumes during the second quarter. Recycling commodity prices remain at a high level, and our recent pricing activities will provide immediate benefit. Given these positive indications, we are confident that we will meet our previously announced full year 2010 earnings guidance range of $2.09 to $2.13 per diluted share, with earnings momentum building steadily throughout the year. (b)"
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Par Value Amounts)
| March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 871 | $ | 1,140 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $29 and $31, respectively | 1,380 | 1,408 | ||||||
| Other receivables | 113 | 119 | ||||||
| Parts and supplies | 107 | 110 | ||||||
| Deferred income taxes | 105 | 116 | ||||||
| Other assets | 143 | 117 | ||||||
| Total current assets | 2,719 | 3,010 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $14,199 and $13,994, respectively | 11,515 | 11,541 | ||||||
| Goodwill | 5,675 | 5,632 | ||||||
| Other intangible assets, net | 245 | 238 | ||||||
| Other assets | 841 | 733 | ||||||
| Total assets | $ | 20,995 | $ | 21,154 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 500 | $ | 567 | ||||
| Accrued liabilities | 1,088 | 1,128 | ||||||
| Deferred revenues | 450 | 457 | ||||||
| Current portion of long-term debt | 632 | 749 | ||||||
| Total current liabilities | 2,670 | 2,901 | ||||||
| Long-term debt, less current portion | 8,191 | 8,124 | ||||||
| Deferred income taxes | 1,514 | 1,509 | ||||||
| Landfill and environmental remediation liabilities | 1,375 | 1,357 | ||||||
| Other liabilities | 704 | 672 | ||||||
| Total liabilities | 14,454 | 14,563 | ||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Waste Management, Inc. stockholders’ equity: | ||||||||
| Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued | 6 | 6 | ||||||
| Additional paid-in capital | 4,514 | 4,543 | ||||||
| Retained earnings | 6,082 | 6,053 | ||||||
| Accumulated other comprehensive income | 234 | 208 | ||||||
| Treasury stock at cost, 146,441,694 and 144,162,063 shares, respectively | (4,603 | ) | (4,525 | ) | ||||
| Total Waste Management, Inc. stockholders’ equity | 6,233 | 6,285 | ||||||
| Noncontrolling interests | 308 | 306 | ||||||
| Total equity | 6,541 | 6,591 | ||||||
| Total liabilities and equity | $ | 20,995 | $ | 21,154 | ||||
See notes to the Condensed Consolidated Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Amounts)
(Unaudited)
| Three Months |
||||||||
| Ended |
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| Operating revenues | $ | 2,935 | $ | 2,810 | ||||
| Costs and expenses: | ||||||||
| Operating | 1,881 | 1,725 | ||||||
| Selling, general and administrative | 351 | 337 | ||||||
| Depreciation and amortization | 291 | 289 | ||||||
| Restructuring | — | 38 | ||||||
| (Income) expense from divestitures, asset impairments and unusual items | — | 49 | ||||||
| 2,523 | 2,438 | |||||||
| Income from operations | 412 | 372 | ||||||
| Other income (expense): | ||||||||
| Interest expense | (112 | ) | (105 | ) | ||||
| Interest income | — | 4 | ||||||
| Other, net | 2 | — | ||||||
| (110 | ) | (101 | ) | |||||
| Income before income taxes | 302 | 271 | ||||||
| Provision for income taxes | 110 | 101 | ||||||
| Consolidated net income | 192 | 170 | ||||||
| Less: Net income attributable to noncontrolling interests | 10 | 15 | ||||||
| Net income attributable to Waste Management, Inc. | $ | 182 | $ | 155 | ||||
| Basic earnings per common share | $ | 0.37 | $ | 0.31 | ||||
| Diluted earnings per common share | $ | 0.37 | $ | 0.31 | ||||
| Cash dividends declared per common share | $ | 0.315 | $ | 0.29 | ||||
See notes to the Condensed Consolidated Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
| Three Months |
||||||||
| Ended |
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| Cash flows from operating activities: | ||||||||
| Consolidated net income | $ | 192 | $ | 170 | ||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 291 | 289 | ||||||
| Deferred income tax (benefit) provision | 1 | (10 | ) | |||||
| Interest accretion on landfill liabilities | 20 | 19 | ||||||
| Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets | 1 | (9 | ) | |||||
| Provision for bad debts | 11 | 19 | ||||||
| Equity-based compensation expense | 12 | 6 | ||||||
| Net gain on disposal of assets | (5 | ) | (1 | ) | ||||
| Effect of (income) expense from divestitures, asset impairments and unusual items | — | 49 | ||||||
| Excess tax benefits associated with equity-based transactions | — | — | ||||||
| Change in operating assets and liabilities, net of effects of acquisitions and divestitures: | ||||||||
| Receivables | 12 | 87 | ||||||
| Other current assets | (31 | ) | (23 | ) | ||||
| Other assets | 4 | (2 | ) | |||||
| Accounts payable and accrued liabilities | (24 | ) | (40 | ) | ||||
| Deferred revenues and other liabilities | 12 | (35 | ) | |||||
| Net cash provided by operating activities | 496 | 519 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisitions of businesses, net of cash acquired | (62 | ) | (22 | ) | ||||
| Capital expenditures | (255 | ) | (325 | ) | ||||
| Proceeds from divestitures of businesses (net of cash divested) and other sales of assets | 12 | 5 | ||||||
| Net receipts from restricted trust and escrow accounts | 19 | 46 | ||||||
| Investments in unconsolidated entities | (149 | ) | — | |||||
| Other | — | — | ||||||
| Net cash used in investing activities | (435 | ) | (296 | ) | ||||
| Cash flows from financing activities: | ||||||||
| New borrowings | 114 | 895 | ||||||
| Debt repayments | (169 | ) | (452 | ) | ||||
| Common stock repurchases | (120 | ) | — | |||||
| Cash dividends | (153 | ) | (143 | ) | ||||
| Exercise of common stock options | 7 | 4 | ||||||
| Excess tax benefits associated with equity-based transactions | — | — | ||||||
| Distributions paid to noncontrolling interests | (7 | ) | (8 | ) | ||||
| Other | (3 | ) | (51 | ) | ||||
| Net cash provided by (used in) financing activities | (331 | ) | 245 | |||||
| Effect of exchange rate changes on cash and cash equivalents | 1 | (1 | ) | |||||
| Increase (decrease) in cash and cash equivalents | (269 | ) | 467 | |||||
| Cash and cash equivalents at beginning of period | 1,140 | 480 | ||||||
| Cash and cash equivalents at end of period | $ | 871 | $ | 947 | ||||
See notes to the Condensed Consolidated Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In Millions, Except Shares in Thousands)
(Unaudited)
| Waste Management, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||||||||||
| Other |
||||||||||||||||||||||||||||||||||||||||
| Additional |
Comprehensive |
|||||||||||||||||||||||||||||||||||||||
| Comprehensive |
Common Stock | Paid-In |
Retained |
Income |
Treasury Stock | Noncontrolling |
||||||||||||||||||||||||||||||||||
| Total | Income | Shares | Amounts | Capital | Earnings | (Loss) | Shares | Amounts | Interests | |||||||||||||||||||||||||||||||
| Balance, December 31, 2009 | $ | 6,591 | 630,282 | $ | 6 | $ | 4,543 | $ | 6,053 | $ | 208 | (144,162 | ) | $ | (4,525 | ) | $ | 306 | ||||||||||||||||||||||
| Comprehensive Income: | ||||||||||||||||||||||||||||||||||||||||
| Net income | 192 | $ | 192 | — | — | — | 182 | — | — | — | 10 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||
| Unrealized losses resulting from changes in fair value of derivative instruments, net of taxes of $7 | (11 | ) | (11 | ) | — | — | — | — | (11 | ) | — | — | — | |||||||||||||||||||||||||||
| Realized losses on derivative instruments reclassified into earnings, net of taxes of $5 | 9 | 9 | — | — | — | — | 9 | — | — | — | ||||||||||||||||||||||||||||||
| Unrealized gains on marketable securities, net of taxes of $1 | 1 | 1 | — | — | — | — | 1 | — | — | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 27 | 27 | — | — | — | — | 27 | — | — | — | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 26 | 26 | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 218 | $ | 218 | |||||||||||||||||||||||||||||||||||||
| Cash dividends declared | (153 | ) | — | — | — | (153 | ) | — | — | — | — | |||||||||||||||||||||||||||||
| Equity-based compensation transactions, including dividend equivalents, net of taxes | 18 | — | — | (29 | ) | — | — | 1,497 | 47 | — | ||||||||||||||||||||||||||||||
| Common stock repurchases | (125 | ) | — | — | — | — | — | (3,780 | ) | (125 | ) | — | ||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | (7 | ) | — | — | — | — | — | — | — | (7 | ) | |||||||||||||||||||||||||||||
| Noncontrolling interests in acquired businesses | 30 | — | — | — | — | — | 30 | |||||||||||||||||||||||||||||||||
| Deconsolidation of variable interests entities | (31 | ) | — | — | — | — | — | — | — | (31 | ) | |||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | 3 | — | — | |||||||||||||||||||||||||||||||
| Balance, March 31, 2010 | $ | 6,541 | 630,282 | $ | 6 | $ | 4,514 | $ | 6,082 | $ | 234 | (146,442 | ) | $ | (4,603 | ) | $ | 308 | ||||||||||||||||||||||
See notes to the Condensed Consolidated Financial Statements.
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