UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
September 30,
2011
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-12154
Waste Management,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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73-1309529
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1001 Fannin
Suite 4000
Houston, Texas 77002
(Address of principal
executive offices)
(713) 512-6200
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer
þ
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting
company
o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The number of shares of Common Stock, $0.01 par value, of
the registrant outstanding at October 21, 2011 was
460,330,016 (excluding treasury shares of 169,952,445).
TABLE OF CONTENTS
PART I.
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Item 1.
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Financial
Statements.
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WASTE
MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In
Millions, Except Share and Par Value Amounts)
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September 30,
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December 31,
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2011
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2010
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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282
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$
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539
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Accounts receivable, net of allowance for doubtful accounts of
$31 and $26, respectively
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1,686
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1,510
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Other receivables
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113
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146
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Parts and supplies
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142
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130
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Deferred income taxes
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43
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40
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Other assets
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153
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117
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Total current assets
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2,419
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2,482
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Property and equipment, net of accumulated depreciation and
amortization of $15,107 and $14,690, respectively
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11,911
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11,868
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Goodwill
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6,104
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5,726
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Other intangible assets, net
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397
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295
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Other assets
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1,221
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1,105
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Total assets
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$
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22,052
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$
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21,476
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LIABILITIES AND EQUITY
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Current liabilities:
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Accounts payable
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$
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676
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$
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692
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Accrued liabilities
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1,153
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1,100
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Deferred revenues
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473
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460
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Current portion of long-term debt
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225
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233
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Total current liabilities
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2,527
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2,485
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Long-term debt, less current portion
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9,388
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8,674
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Deferred income taxes
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1,695
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1,662
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Landfill and environmental remediation liabilities
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1,447
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1,402
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Other liabilities
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710
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662
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Total liabilities
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15,767
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14,885
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Commitments and contingencies
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Equity:
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Waste Management, Inc. stockholders equity:
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Common stock, $0.01 par value; 1,500,000,000 shares
authorized; 630,282,461 shares issued
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6
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6
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Additional paid-in capital
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4,553
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4,528
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Retained earnings
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6,613
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6,400
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Accumulated other comprehensive income
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144
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230
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Treasury stock at cost, 169,078,749 and 155,235,711 shares,
respectively
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(5,368
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)
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(4,904
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)
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Total Waste Management, Inc. stockholders equity
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5,948
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6,260
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Noncontrolling interests
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337
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331
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Total equity
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6,285
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6,591
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Total liabilities and equity
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$
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22,052
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$
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21,476
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See notes to the Condensed Consolidated Financial Statements.
2
WASTE
MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
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Three Months
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Nine Months
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Ended
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Ended
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September 30,
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September 30,
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2011
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2010
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2011
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2010
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Operating revenues
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$
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3,522
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$
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3,235
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$
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9,972
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$
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9,328
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Costs and expenses:
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Operating
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2,261
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2,006
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6,396
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5,883
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Selling, general and administrative
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380
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369
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1,144
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1,065
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Depreciation and amortization
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317
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317
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935
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917
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Restructuring
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15
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15
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(1
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)
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(Income) expense from divestitures, asset impairments and
unusual items
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6
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(1
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)
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6
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(78
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)
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2,979
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2,691
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8,496
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7,786
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Income from operations
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543
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544
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1,476
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1,542
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Other income (expense):
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Interest expense
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(118
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)
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(126
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)
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(358
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)
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(354
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)
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Interest income
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1
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1
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6
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3
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Equity in net losses of unconsolidated entities
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(7
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)
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(8
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)
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(20
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)
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(16
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)
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Other, net
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2
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4
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2
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(122
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)
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(133
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)
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(368
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)
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(365
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)
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Income before income taxes
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421
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411
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1,108
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1,177
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Provision for income taxes
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136
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153
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377
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469
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Consolidated net income
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285
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258
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731
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708
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Less: Net income attributable to noncontrolling interests
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13
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14
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36
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36
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Net income attributable to Waste Management, Inc.
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$
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272
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$
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244
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$
|
695
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$
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672
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Basic earnings per common share
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$
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0.58
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$
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0.51
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$
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1.47
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$
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1.40
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Diluted earnings per common share
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$
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0.58
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$
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0.51
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$
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1.46
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$
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1.39
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Cash dividends declared per common share
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$
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0.34
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$
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0.315
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$
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1.02
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$
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0.945
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See notes to the Condensed Consolidated Financial Statements.
3
WASTE
MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Nine Months
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Ended
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September 30,
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2011
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2010
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Cash flows from operating activities:
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Consolidated net income
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$
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731
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$
|
708
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Adjustments to reconcile consolidated net income to net cash
provided by operating activities:
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Depreciation and amortization
|
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935
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|
917
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Deferred income tax provision
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48
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95
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Interest accretion on landfill liabilities
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62
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61
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Interest accretion on and discount rate adjustments to
environmental remediation liabilities and recovery assets
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21
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17
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Provision for bad debts
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29
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|
|
|
29
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|
Equity-based compensation expense
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38
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|
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|
28
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|
Net gain on disposal of assets
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(13
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)
|
|
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(16
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)
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Excess tax benefits associated with equity-based transactions
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(7
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)
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(4
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)
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Effect of (income) expense from divestitures, asset impairments
and unusual items
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6
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|
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|
(1
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)
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Equity in net losses of unconsolidated entities, net of dividends
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|
20
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|
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|
14
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|
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures:
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Receivables
|
|
|
(146
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)
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|
|
(159
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)
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Other current assets
|
|
|
(25
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)
|
|
|
38
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|
Other assets
|
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|
35
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|
|
|
(4
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)
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Accounts payable and accrued liabilities
|
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|
96
|
|
|
|
(62
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)
|
Deferred revenues and other liabilities
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|
|
(93
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)
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|
|
(8
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)
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|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,737
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|
|
|
1,653
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|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
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Acquisitions of businesses, net of cash acquired
|
|
|
(645
|
)
|
|
|
(343
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)
|
Capital expenditures
|
|
|
(909
|
)
|
|
|
(737
|
)
|
Proceeds from divestitures of businesses (net of cash divested)
and other sales of assets
|
|
|
22
|
|
|
|
36
|
|
Net receipts from restricted trust and escrow accounts
|
|
|
74
|
|
|
|
36
|
|
Investments in unconsolidated entities
|
|
|
(92
|
)
|
|
|
(162
|
)
|
Other
|
|
|
15
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,535
|
)
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
New borrowings
|
|
|
1,001
|
|
|
|
775
|
|
Debt repayments
|
|
|
(425
|
)
|
|
|
(932
|
)
|
Common stock repurchases
|
|
|
(528
|
)
|
|
|
(443
|
)
|
Cash dividends
|
|
|
(481
|
)
|
|
|
(454
|
)
|
Exercise of common stock options
|
|
|
40
|
|
|
|
28
|
|
Excess tax benefits associated with equity-based transactions
|
|
|
7
|
|
|
|
4
|
|
Distributions paid to noncontrolling interests
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Other
|
|
|
(43
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(459
|
)
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(257
|
)
|
|
|
(590
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
539
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
282
|
|
|
$
|
550
|
|
|
|
|
|
|
|
|
|
|
See notes to the Condensed Consolidated Financial Statements.
4
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, 2010
|
|
$
|
6,591
|
|
|
|
|
|
|
|
630,282
|
|
|
$
|
6
|
|
|
$
|
4,528
|
|
|
$
|
6,400
|
|
|
$
|
230
|
|
|
|
(155,236
|
)
|
|
$
|
(4,904
|
)
|
|
$
|
331
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
731
|
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses resulting from changes in fair value of
derivative instruments, net of taxes of $16
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on derivative instruments reclassified into
earnings, net of taxes of $6
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on marketable securities, net of taxes of $3
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(46
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of post-retirement benefit obligations,
net of taxes of $1
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(86
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
645
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation transactions, including dividend
equivalents, net of taxes
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
2,572
|
|
|
|
82
|
|
|
|
|
|
Common stock repurchases
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,424
|
)
|
|
|
(546
|
)
|
|
|
|
|
Distributions paid to noncontrolling interests
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
$
|
6,285
|
|
|
|
|
|
|
|
630,282
|
|
|
$
|
6
|
|
|
$
|
4,553
|
|
|
$
|
6,613
|
|
|
$
|
144
|
|
|
|
(169,079
|
)
|
|
$
|
(5,368
|
)
|
|
$
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the Condensed Consolidated Financial Statements.
5
WASTE
MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
The financial statements presented in this report represent the
consolidation of Waste Management, Inc., a Delaware corporation;
Waste Managements wholly-owned and majority-owned
subsidiaries; and certain variable interest entities for which
Waste Management or its subsidiaries are the primary
beneficiary. Waste Management is a holding company and all
operations are conducted by its subsidiaries. When the terms
the Company, we, us or
our are used in this document, those terms refer to
Waste Management, Inc., its consolidated subsidiaries and
consolidated variable interest entities. When we use the term
WM, we are referring only to Waste Management, Inc.,
the parent holding company.
We manage and evaluate our principal operations through five
Groups. Our four geographic operating Groups, which are
comprised of our Eastern, Midwest, Southern and Western Groups,
provide collection, transfer, disposal (in both solid waste and
hazardous waste landfills) and recycling services. Our fifth
Group is the Wheelabrator Group, which provides
waste-to-energy
services and manages
waste-to-energy
facilities and independent power production plants. We also
provide additional services that are not managed through our
five Groups, including the operations of Oakleaf Global Holdings
(Oakleaf) acquired on July 28, 2011, which are
presented in this report as Other. Additional
information related to our segments and to our acquisition of
Oakleaf can be found in Note 9 and in Note 10,
respectively.
The Condensed Consolidated Financial Statements as of and for
the three and nine months ended September 30, 2011 and 2010
are unaudited. In the opinion of management, these financial
statements include all adjustments, which, unless otherwise
disclosed, are of a normal recurring nature, necessary for a
fair presentation of the financial position, results of
operations, and cash flows for the periods presented. The
results for interim periods are not necessarily indicative of
results for the entire year. The financial statements presented
herein should be read in connection with the financial
statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2010.
In preparing our financial statements, we make numerous
estimates and assumptions that affect the accounting for and
recognition and disclosure of assets, liabilities, equity,
revenues and expenses. We must make these estimates and
assumptions because certain information that we use is dependent
on future events, cannot be calculated with a high degree of
precision from data available or simply cannot be readily
calculated based on generally accepted methods. In some cases,
these estimates are particularly difficult to determine and we
must exercise significant judgment. In preparing our financial
statements, the most difficult, subjective and complex estimates
and the assumptions that present the greatest amount of
uncertainty relate to our accounting for landfills,
environmental remediation liabilities, asset impairments,
deferred income taxes and reserves associated with our insured
and self-insured claims. Actual results could differ materially
from the estimates and assumptions that we use in the
preparation of our financial statements.
Adoption
of New Accounting Pronouncements
Multiple-Deliverable Revenue Arrangements
In
October 2009, the Financial Accounting Standards Board
(FASB) amended authoritative guidance associated
with multiple-deliverable revenue arrangements. This amended
guidance addresses the determination of when individual
deliverables within an arrangement are required to be treated as
separate units of accounting and modifies the manner in which
consideration is allocated across the separately identifiable
deliverables. The amendments to authoritative guidance
associated with multiple-deliverable revenue arrangements became
effective for the Company on January 1, 2011. The new
accounting standard has been applied prospectively to
arrangements entered into or materially modified after the date
of adoption. The adoption of this guidance has not had a
material impact on our consolidated financial statements.
However, our adoption of this guidance may significantly impact
our accounting and reporting for future revenue arrangements to
the extent they are material.
6
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassifications
Certain reclassifications have been made to our prior period
consolidated financial information in order to conform to the
current year presentation.
|
|
2.
|
Landfill
and Environmental Remediation Liabilities
|
Liabilities for landfill and environmental remediation costs are
presented in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
|
|
|
|
Landfill
|
|
|
Remediation
|
|
|
Total
|
|
|
Landfill
|
|
|
Remediation
|
|
|
Total
|
|
|
Current (in accrued liabilities)
|
|
$
|
105
|
|
|
$
|
45
|
|
|
$
|
150
|
|
|
$
|
105
|
|
|
$
|
43
|
|
|
$
|
148
|
|
Long-term
|
|
|
1,207
|
|
|
|
240
|
|
|
|
1,447
|
|
|
|
1,161
|
|
|
|
241
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312
|
|
|
$
|
285
|
|
|
$
|
1,597
|
|
|
$
|
1,266
|
|
|
$
|
284
|
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes to landfill and environmental remediation
liabilities for the year ended December 31, 2010 and the
nine months ended September 30, 2011 are reflected in the
table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
|
Landfill
|
|
|
Remediation
|
|
|
December 31, 2009
|
|
$
|
1,267
|
|
|
$
|
256
|
|
Obligations incurred and capitalized
|
|
|
47
|
|
|
|
|
|
Obligations settled
|
|
|
(86
|
)
|
|
|
(36
|
)
|
Interest accretion
|
|
|
82
|
|
|
|
5
|
|
Revisions in cost estimates and interest rate assumptions
|
|
|
(49
|
)
|
|
|
61
|
|
Acquisitions, divestitures and other adjustments
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
1,266
|
|
|
|
284
|
|
Obligations incurred and capitalized
|
|
|
36
|
|
|
|
|
|
Obligations settled
|
|
|
(56
|
)
|
|
|
(25
|
)
|
Interest accretion
|
|
|
62
|
|
|
|
5
|
|
Revisions in cost estimates and interest rate assumptions(a)
|
|
|
4
|
|
|
|
22
|
|
Acquisitions, divestitures and other adjustments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
$
|
1,312
|
|
|
$
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The revisions in estimates and interest rate assumptions
associated with our environmental remediation liabilities were
primarily related to the impact of changes in the risk-free
discount rate used to measure the liabilities. As of
December 31, 2010, we used a risk-free discount rate for
these obligations of 3.5%. The applicable rate decreased to 2.0%
effective September 30, 2011. For the three and nine months
ended September 30, 2011, this change in the risk-free
discount rate resulted in an increase of $25 million to our
environmental remediation liabilities and a corresponding
increase to Operating expenses. This charge was
partially offset by a $9 million favorable revision to an
environmental remediation liability at a closed site based on
the estimated cost of the remediation alternative selected by
the EPA.
|
At several of our landfills, we provide financial assurance by
depositing cash into restricted trust funds or escrow accounts
for purposes of settling final capping, closure, post-closure
and environmental remediation obligations. Generally, these
trust funds are established to comply with statutory
requirements and operating agreements and we are the sole
beneficiary of the restricted balances. However, certain of the
funds have been established for the benefit of both the Company
and the host community in which we operate.
7
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of trust funds and escrow accounts for which we
are the sole beneficiary was $121 million at
September 30, 2011 and is included in long-term Other
assets in our Condensed Consolidated Balance Sheet. Our
portion of the trusts that have been established for the benefit
of both the Company and the host community in which we operate
had an aggregate carrying value of $108 million at
September 30, 2011 and are recorded in Other
receivables and as long-term Other assets in
our Condensed Consolidated Balance Sheet. See Note 14 for
additional information related to these trusts.
The following table summarizes the major components of debt at
each balance sheet date (in millions) and provides the
maturities and interest rate ranges of each major category as of
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Revolving credit facility
|
|
$
|
|
|
|
$
|
|
|
Letter of credit facilities
|
|
|
|
|
|
|
|
|
Canadian credit facility (weighted average effective interest
rate of 2.3% at September 30, 2011 and 2.2% at
December 31, 2010)
|
|
|
133
|
|
|
|
212
|
|
Senior notes and debentures, maturing through 2039, interest
rates ranging from 2.60% to 7.75% (weighted average interest
rate of 6.0% at September 30, 2011 and 6.5% at
December 31, 2010)
|
|
|
6,233
|
|
|
|
5,452
|
|
Tax-exempt bonds, maturing through 2041, fixed and variable
interest rates ranging from 0.2% to 7.4% (weighted average
interest rate of 3.0% at September 30, 2011 and 3.1% at
December 31, 2010)
|
|
|
2,751
|
|
|
|
2,696
|
|
Tax-exempt project bonds, maturing through 2029, fixed and
variable interest rates ranging from 0.2% to 3.4% (weighted
average interest rate of 1.4% at September 30, 2011 and
2.5% at December 31, 2010)
|
|
|
86
|
|
|
|
116
|
|
Capital leases and other, maturing through 2050, interest rates
up to 12%
|
|
|
410
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,613
|
|
|
|
8,907
|
|
Current portion of long-term debt
|
|
|
225
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,388
|
|
|
$
|
8,674
|
|
|
|
|
|
|
|
|
|
|
Debt
Classification
As of September 30, 2011, we had $348 million of debt
maturing within the next twelve months, including
U.S. $133 million under our Canadian credit facility.
We have classified $123 million of these borrowings as
long-term as of September 30, 2011 based on our intent and
ability to refinance these borrowings on a long-term basis.
Debt
Borrowings and Repayments
The significant changes in our debt balances from
December 31, 2010 to September 30, 2011 are related to
the following:
Canadian credit facility
The decrease in the
carrying value is primarily due to $77 million of debt
repayments during the nine months ended September 30, 2011.
Senior notes
In February 2011, we issued
$400 million of 4.60% senior notes due March 2021. The
net proceeds from the debt issuance were $396 million. We
used a portion of the proceeds to repay $147 million of
7.65% senior notes that matured in March 2011. In August
2011, we issued $500 million of 2.60% senior notes due
8
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 2016. The net proceeds from the debt issuance were
$497 million. A portion of the proceeds was used to repay
the $100 million borrowing under our $2.0 billion
revolving credit facility incurred in connection with our
acquisition of Oakleaf, which is discussed below.
Tax-exempt bonds
We issued $80 million
of tax-exempt bonds during the nine months ended
September 30, 2011. The proceeds from the issuance of the
bonds were deposited directly into a trust fund and may only be
used for the specific purpose for which the money was raised.
Accordingly, the restricted funds provided by these financing
activities have not been included in New borrowings
in our Condensed Consolidated Statement of Cash Flows. During
the nine months ended September 30, 2011, we repaid
$25 million of our tax-exempt bonds with available cash.
Tax-exempt project bonds
We repaid
$30 million of tax-exempt project bonds with available cash
during the nine months ended September 30, 2011.
Capital leases and other
The decrease in our
capital leases and other debt obligations is primarily due to
the repayment of various borrowings upon their scheduled
maturities.
Revolving
Credit and Letter of Credit Facilities
As of September 30, 2011, we had an aggregate committed
capacity of $2.5 billion for letters of credit under
various credit facilities. In May 2011, we amended and restated
our $2.0 billion revolving credit facility as a result of
changes in market conditions, which significantly reduced the
cost of the facility. We also extended the term through May
2016. Our revolving credit facility is our primary source of
letter of credit capacity. Our remaining letter of credit
capacity is provided under facilities with terms that extend
from June 2013 to June 2015. As of September 30, 2011, we
had an aggregate of $1.5 billion of letters of credit
outstanding under various credit facilities. Approximately
$1.0 billion of these letters of credit have been issued
under our revolving credit facility. During the third quarter of
2011, we borrowed $100 million under our revolving credit
facility in connection with our acquisition of Oakleaf. These
borrowings were repaid with proceeds from our August 2011
issuance of senior notes. See Note 10 for additional
information related to this acquisition. There were no
outstanding borrowings under these credit facilities as of
September 30, 2011.
|
|
4.
|
Derivative
Instruments and Hedging Activities
|
The following table summarizes the fair values of derivative
instruments recorded in our Condensed Consolidated Balance Sheet
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Derivatives Designated as Hedging Instruments
|
|
Balance Sheet Location
|
|
2011
|
|
|
2010
|
|
|
Interest rate contracts
|
|
Current other assets
|
|
$
|
|
|
|
$
|
1
|
|
Electricity commodity contracts
|
|
Current other assets
|
|
|
1
|
|
|
|
|
|
Interest rate contracts
|
|
Long-term other assets
|
|
|
75
|
|
|
|
37
|
|
Foreign exchange contracts
|
|
Long-term other assets
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
|
$
|
84
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Current accrued liabilities
|
|
$
|
|
|
|
$
|
11
|
|
Electricity commodity contracts
|
|
Current accrued liabilities
|
|
|
1
|
|
|
|
1
|
|
Interest rate contracts
|
|
Long-term accrued liabilities
|
|
|
68
|
|
|
|
13
|
|
Foreign exchange contracts
|
|
Long-term accrued liabilities
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
$
|
69
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
9
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have not offset fair value amounts recognized for our
derivative instruments. For information related to the methods
used to measure our derivative assets and liabilities at fair
value, refer to Note 13.
Interest
Rate Derivatives
Interest
Rate Swaps
We use interest rate swaps to maintain a portion of our debt
obligations at variable market interest rates. As of
September 30, 2011, we had approximately $6.1 billion
in fixed-rate senior notes outstanding compared with
$5.4 billion as of December 31, 2010. As of
September 30, 2011, the interest payments on
$1 billion, or 16%, of these senior notes have been swapped
to variable interest rates to protect the debt against changes
in fair value due to changes in benchmark interest rates,
compared with $500 million, or 9%, as of December 31,
2010. The increase in the notional amount of our interest rate
swaps from December 31, 2010 to September 30, 2011 was
due to the execution of $600 million of interest rate swaps
in March 2011 partially offset by the scheduled maturity of
$100 million of interest rate swaps in March 2011.
We have designated our interest rate swaps as fair value hedges
of our fixed-rate senior notes. Fair value hedge accounting for
interest rate swap contracts has increased the carrying value of
our debt instruments by $108 million as of
September 30, 2011 and $79 million as of
December 31, 2010.
Gains or losses on the derivatives as well as the offsetting
losses or gains on the hedged items attributable to our interest
rate swaps are recognized in current earnings. We include gains
and losses on our interest rate swaps as adjustments to interest
expense, which is the same financial statement line item where
offsetting gains and losses on the related hedged items are
recorded. The following table summarizes the fair value
adjustments from interest rate swaps and the underlying hedged
items on our results of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Statement of Operations
|
|
Gain (Loss) on
|
|
Gain (Loss) on
|
Ended September 30,
|
|
Classification
|
|
Swap
|
|
Fixed-Rate Debt
|
|
|
2011
|
|
|
Interest expense
|
|
$
|
25
|
|
|
$
|
(25
|
)
|
|
2010
|
|
|
Interest expense
|
|
$
|
10
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
Statement of Operations
|
|
Gain (Loss) on
|
|
Gain (Loss) on
|
Ended September 30,
|
|
Classification
|
|
Swap
|
|
Fixed-Rate Debt
|
|
|
2011
|
|
|
Interest expense
|
|
$
|
37
|
|
|
$
|
(37
|
)
|
|
2010
|
|
|
Interest expense
|
|
$
|
24
|
|
|
$
|
(24
|
)
|
We also recognize the impacts of (i) net periodic
settlements of current interest on our active interest rate
swaps and (ii) the amortization of previously terminated
interest rate swap agreements as adjustments to interest
expense. The following table summarizes the impact of periodic
settlements of active swap agreements and the impact of
terminated swap agreements on our results of operations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
Decrease to Interest Expense Due to Hedge Accounting for
Interest Rate Swaps
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Periodic settlements of active swap agreements(a)
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
18
|
|
|
$
|
24
|
|
Terminated swap agreements
|
|
|
2
|
|
|
|
4
|
|
|
|
8
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
26
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
These amounts represent the net of our periodic variable-rate
interest obligations and the swap counterparties
fixed-rate interest obligations. Our variable-rate obligations
are based on a spread from the three-month LIBOR.
|
10
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Forward-Starting
Interest Rate Swaps
In 2009, we entered into forward-starting interest rate swaps
with a total notional value of $525 million to hedge the
risk of changes in semi-annual interest payments due to
fluctuations in the forward ten-year LIBOR swap rate for
anticipated fixed-rate debt issuances in 2011, 2012 and 2014. We
designated these forward-starting interest rate swaps as cash
flow hedges.
During the first quarter of 2011, $150 million of these
forward-starting interest rate swaps were terminated
contemporaneously with the actual issuance of senior notes in
February 2011, and we paid cash of $9 million to settle the
liability related to these swap agreements. The ineffectiveness
recognized upon termination of the hedges was immaterial and the
related deferred loss continues to be recognized as a component
of Accumulated other comprehensive income. The
deferred loss is being amortized as an increase to interest
expense over the ten-year life of the senior notes issued in
February 2011 using the effective interest method. The
incremental interest expense associated with these
forward-starting interest rate swaps was immaterial during the
three and nine months ended September 30, 2011. As of
September 30, 2011, the amount scheduled to be reclassified
as an increase to interest expense over the next twelve months
is immaterial.
The forward-starting interest rate swaps outstanding as of
September 30, 2011 relate to anticipated debt issuances in
November 2012 and March 2014. As of September 30, 2011, the
fair value of these active interest rate derivatives was
comprised of $68 million of long-term liabilities compared
with $13 million of long-term liabilities as of
December 31, 2010.
We recognized pre-tax and after-tax losses of $46 million
and $28 million, respectively, to other comprehensive
income for changes in the fair value of our forward-starting
interest rate swaps during the three months ended
September 30, 2011 and $53 million and
$33 million, respectively, during the nine months ended
September 30, 2011. We recognized pre-tax and after-tax
losses of $22 million and $13 million, respectively,
to other comprehensive income for changes in the fair value of
our forward-starting interest rate swaps during the three months
ended September 30, 2010 and $68 million and
$41 million, respectively, during the nine months ended
September 30, 2010. There was no significant
ineffectiveness associated with these hedges during the three
and nine months ended September 30, 2011 or 2010.
Treasury
Rate Locks
In prior years, we used Treasury rate locks to secure underlying
interest rates in anticipation of senior note issuances. These
cash flow hedging agreements resulted in deferred losses, net of
taxes, of $13 million at September 30, 2011 and
$16 million at December 31, 2010, which are included
in Accumulated other comprehensive income. These
deferred losses are reclassified as an increase to interest
expense over the life of the related senior note issuances,
which extend through 2032. Pre-tax and after-tax amounts of
$2 million and $1 million, respectively, for the
three-month periods ended September 30, 2011 and
September 30, 2010, and pre-tax and after-tax amounts of
$6 million and $3 million, respectively, for the
nine-month periods ended September 30, 2011 and
September 30, 2010, were reclassified out of accumulated
other comprehensive income and into interest expense. As of
September 30, 2011, $7 million (on a pre-tax basis) is
scheduled to be reclassified as an increase to interest expense
over the next twelve months.
Credit-Risk-Related
Contingent Features
Certain of our interest rate derivative instruments contain
provisions related to the Companys credit rating. If the
Companys credit rating were to fall to specified levels
below investment grade, the counterparties have the ability to
terminate the derivative agreements, resulting in settlement of
all affected transactions. As of September 30, 2011, we had
not experienced any credit events that would trigger these
provisions, nor did we have any derivative instruments with
credit-risk-related contingent features that were in a net
liability position.
11
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Derivatives
We use foreign currency exchange rate derivatives to hedge our
exposure to fluctuations in exchange rates for anticipated
intercompany cash transactions between Waste Management
Holdings, Inc., a wholly-owned subsidiary
(WM Holdings), and its Canadian subsidiaries.
As of September 30, 2011, we had foreign currency forward
contracts outstanding for all of the anticipated cash flows
associated with a debt arrangement between these wholly-owned
subsidiaries. The hedged cash flows include C$370 million
of principal, which is scheduled for payment on October 31,
2013, and interest payments scheduled as follows:
C$10 million on November 30, 2011, C$11 million
on November 30, 2012 and C$10 million on
October 31, 2013. We designated our foreign currency
derivatives as cash flow hedges.
Gains or losses on the underlying hedged items attributable to
foreign currency exchange risk are recognized in current
earnings. The gains or losses on our foreign currency forward
contracts that are reclassified out of accumulated other
comprehensive income are recognized as adjustments to other
income and expense, which is the same financial statement line
item where offsetting gains or losses on the related hedged
items are recorded. The following table summarizes the pre-tax
impacts of our foreign currency cash flow derivatives on our
comprehensive income and results of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain or
|
|
|
Derivative Gain or
|
|
|
|
(Loss) Reclassified
|
|
|
(Loss) Recognized
|
|
|
|
from AOCI into
|
Three Months
|
|
in OCI
|
|
Statement of Operations
|
|
Income
|
Ended September 30,
|
|
(Effective Portion)
|
|
Classification
|
|
(Effective Portion)
|
|
|
2011
|
|
|
$
|
25
|
|
|
Other income (expense)
|
|
$
|
33
|
|
|
2010
|
|
|
$
|
(12
|
)
|
|
Other income (expense)
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gain or
|
|
|
Derivative Gain or
|
|
|
|
(Loss) Reclassified
|
|
|
(Loss) Recognized
|
|
|
|
from AOCI into
|
Nine Months
|
|
in OCI
|
|
Statement of Operations
|
|
Income
|
Ended September 30,
|
|
(Effective Portion)
|
|
Classification
|
|
(Effective Portion)
|
|
|
2011
|
|
|
$
|
11
|
|
|
Other income (expense)
|
|
$
|
21
|
|
|
2010
|
|
|
$
|
(7
|
)
|
|
Other income (expense)
|
|
$
|
(7
|
)
|
Amounts reported in other comprehensive income and accumulated
other comprehensive income are reported net of tax. Adjustments
to other comprehensive income for changes in the fair value of
our foreign currency cash flow hedges resulted in the
recognition of after-tax gains of $15 million and
$7 million during the three and nine months ended
September 30, 2011, respectively, as compared with the
recognition of after-tax losses of $7 million and
$4 million during the three and nine months ended
September 30, 2010, respectively. After-tax adjustments for
the reclassification of gains from accumulated other
comprehensive income into income were $20 million and
$13 million during the three and nine months ended
September 30, 2011, respectively. After-tax adjustments for
the reclassification of losses from accumulated other
comprehensive income into income were $7 million and
$4 million during the three and nine months ended
September 30, 2010, respectively. There was no significant
ineffectiveness associated with these hedges during the three
and nine months ended September 30, 2011 or 2010.
Electricity
Commodity Derivatives
As a result of the expiration of certain long-term electricity
contracts at our
waste-to-energy
facilities, we use short-term receive fixed, pay
variable electricity commodity swaps to mitigate the
variability in our revenues and cash flows caused by
fluctuations in the market prices for electricity. We hedged
672,360 megawatt hours, or approximately 26%, of our
Wheelabrator Groups full year 2010 merchant electricity
sales, and the swaps executed through September 30, 2011
are expected to hedge about 1.6 million megawatt hours, or
49%, of the Groups full year 2011 merchant electricity
sales. For the three-month periods ended September 30, 2011
and 2010, we hedged 46% and 22%, respectively, of our merchant
electricity sales. For the nine-month periods ended
September 30, 2011 and 2010, we hedged 49% and 24%,
respectively, of our merchant electricity sales. There was no
significant
12
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ineffectiveness associated with these cash flow hedges and all
financial statement impacts associated with these derivatives
were immaterial for the three and nine-month periods ended
September 30, 2011 and 2010.
Our effective income tax rate for the three and nine months
ended September 30, 2011 was 32.3% and 34.0%, respectively,
compared with 37.3% and 39.8% for the comparable prior year
periods. We evaluate our effective income tax rate at each
interim period and adjust it accordingly as facts and
circumstances warrant. The differences between federal income
taxes computed at the federal statutory rate and reported income
taxes for the three and nine months ended September 30,
2011 were primarily due to the favorable impact of federal tax
credits, audit settlements and adjustments to our accruals due
to the filing of our 2010 income tax returns offset in part by
the unfavorable impact of state and local income taxes. The
differences between federal income taxes computed at the federal
statutory rate and reported income taxes for the three and nine
months ended September 30, 2010 were primarily due to an
increase in our state deferred income taxes to reflect the
impact of changes in the estimated income tax rate at which
temporary differences would be realized and the unfavorable
impact of state and local income taxes, offset in part by the
favorable impact of federal tax credits.
Investment in Refined Coal Facility
In
January 2011, we acquired a noncontrolling interest in a limited
liability company, which was established to invest in and manage
a refined coal facility in North Dakota. The facilitys
refinement processes qualify for federal tax credits that are
expected to be realized through 2019 in accordance with
Section 45 of the Internal Revenue Code. Our initial
consideration for this investment consisted of a cash payment of
$48 million.
We account for our investment in this entity using the equity
method of accounting, recognizing our share of the entitys
results and other reductions in Equity in net losses of
unconsolidated entities, within our Condensed Consolidated
Statement of Operations. Losses relating to our investment in
this entity were immaterial for the three and nine months ended
September 30, 2011. Our tax provision for the three and
nine months ended September 30, 2011 was reduced by
$4 million and $11 million, respectively, primarily as
a result of tax credits realized from this investment. See
Note 14 for additional information related to this
investment.
Investment in Federal Low-income Housing Tax
Credits
In April 2010, we acquired a
noncontrolling interest in a limited liability company
established to invest in and manage low-income housing
properties. The entitys low-income housing investments
qualify for federal tax credits that are expected to be realized
through 2020 in accordance with Section 42 of the Internal
Revenue Code.
We account for our investment in this entity using the equity
method of accounting. We recognize our share of the
entitys results and reductions in the value of our
investment in Equity in net losses of unconsolidated
entities, within our Condensed Consolidated Statement of
Operations. The value of our investment decreases as the tax
credits are generated and utilized. During the three and nine
months ended September 30, 2011, we recognized
$5 million and $17 million of losses relating to our
equity investment in this entity, $2 million and
$6 million of interest expense, and a reduction in our tax
provision of $9 million (including $7 million of tax
credits) and $27 million (including $18 million of tax
credits), respectively. During the three and nine months ended
September 30, 2010, we recognized $4 million and
$12 million of losses associated with our equity
investment, $3 million and $4 million of interest
expense, and a reduction in our tax provision of $7 million
(including $4 million of tax credits) and $18 million
(including $12 million of tax credits), respectively.
Recent Legislation
The Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act,
signed into law on December 17, 2010, included an extension
of the bonus depreciation allowance through the end of 2012 and
increased the amount of qualifying capital expenditures that can
be depreciated immediately from 50 percent to
100 percent. The 100 percent depreciation deduction
applies to qualifying property placed in service from
September 8, 2010 through December 31, 2011. The
acceleration of deductions on 2011 capital expenditures
resulting from the bonus depreciation provision will have no
impact on our effective tax rate. However, the ability to
13
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accelerate depreciation deductions is expected to decrease our
2011 cash taxes by approximately $190 million. Taking the
accelerated tax depreciation in the current period will result
in increased cash taxes in future periods when the accelerated
deductions for these capital expenditures would have otherwise
been taken.
Comprehensive income was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Consolidated net income
|
|
$
|
285
|
|
|
$
|
258
|
|
|
$
|
731
|
|
|
$
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses resulting from changes in fair value of
derivative instruments, net of taxes
|
|
|
(12
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(54
|
)
|
Realized (gains) losses on derivative instruments reclassified
into earnings, net of taxes
|
|
|
(18
|
)
|
|
|
10
|
|
|
|
(9
|
)
|
|
|
10
|
|
Unrealized gains (losses) on marketable securities, net of taxes
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
1
|
|
Foreign currency translation adjustments
|
|
|
(82
|
)
|
|
|
30
|
|
|
|
(46
|
)
|
|
|
20
|
|
Change in funded status of post-retirement benefit obligations,
net of taxes
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(115
|
)
|
|
|
20
|
|
|
|
(86
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
170
|
|
|
|
278
|
|
|
|
645
|
|
|
|
684
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(13
|
)
|
|
|
(14
|
)
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Waste Management, Inc.
|
|
$
|
157
|
|
|
$
|
264
|
|
|
$
|
609
|
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, which
is included as a component of Waste Management, Inc.
stockholders equity, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Accumulated unrealized loss on derivative instruments, net of
taxes
|
|
$
|
(67
|
)
|
|
$
|
(33
|
)
|
Accumulated unrealized gain on marketable securities, net of
taxes
|
|
|
1
|
|
|
|
5
|
|
Foreign currency translation adjustments
|
|
|
215
|
|
|
|
261
|
|
Funded status of post-retirement benefit obligations, net of
taxes
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
14
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic and diluted earnings per share were computed using the
following common share data (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Number of common shares outstanding at end of period
|
|
|
461.2
|
|
|
|
475.7
|
|
|
|
461.2
|
|
|
|
475.7
|
|
Effect of using weighted average common shares outstanding
|
|
|
7.1
|
|
|
|
1.6
|
|
|
|
11.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
468.3
|
|
|
|
477.3
|
|
|
|
472.7
|
|
|
|
481.7
|
|
Dilutive effect of equity-based compensation awards and other
contingently issuable shares
|
|
|
1.4
|
|
|
|
3.7
|
|
|
|
1.8
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
469.7
|
|
|
|
481.0
|
|
|
|
474.5
|
|
|
|
484.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially issuable shares
|
|
|
17.3
|
|
|
|
14.7
|
|
|
|
17.3
|
|
|
|
14.7
|
|
Number of anti-dilutive potentially issuable shares excluded
from diluted common shares outstanding
|
|
|
9.9
|
|
|
|
0.2
|
|
|
|
6.4
|
|
|
|
0.2
|
|
|
|
8.
|
Commitments
and Contingencies
|
Financial Instruments
We have obtained
letters of credit, performance bonds and insurance policies and
have established trust funds and issued financial guarantees to
support tax-exempt bonds, contracts, performance of landfill
final capping, closure and post-closure requirements,
environmental remediation, and other obligations. Letters of
credit generally are supported by our revolving credit facility
and other credit facilities established for that purpose. We
obtain surety bonds and insurance policies from an entity in
which we have a noncontrolling financial interest. We also
obtain insurance from a wholly-owned insurance company, the sole
business of which is to issue policies for us. In those
instances where our use of financial assurance from entities we
own or have financial interests in is not allowed, we have
available alternative financial assurance mechanisms.
Management does not expect that any claims against or draws on
these instruments would have a material adverse effect on our
consolidated financial statements. We have not experienced any
unmanageable difficulty in obtaining the required financial
assurance instruments for our current operations. In an ongoing
effort to mitigate risks of future cost increases and reductions
in available capacity, we continue to evaluate various options
to access cost-effective sources of financial assurance.
Insurance
We carry insurance coverage for
protection of our assets and operations from certain risks
including automobile liability, general liability, real and
personal property, workers compensation, directors
and officers liability, pollution legal liability and
other coverages we believe are customary to the industry. Our
exposure to loss for insurance claims is generally limited to
the per incident deductible under the related insurance policy.
Our exposure, however, could increase if our insurers are unable
to meet their commitments on a timely basis.
We have retained a significant portion of the risks related to
our automobile, general liability and workers compensation
insurance programs. For our self-insured retentions, the
exposure for unpaid claims and associated expenses, including
incurred but not reported losses, is based on an actuarial
valuation and internal estimates. The accruals for these
liabilities could be revised if future occurrences or loss
development significantly differ from our assumptions used. We
do not expect any known casualty, property, environmental or
other contingency to have a material impact on our financial
condition, results of operations or cash flows.
Guarantees
In the ordinary course of our
business, WM and WM Holdings enter into guarantee
agreements associated with their subsidiaries operations.
Additionally, WM and WM Holdings have each guaranteed all
of the
15
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
senior debt of the other entity. No additional liabilities have
been recorded for these intercompany guarantees because all of
the underlying obligations are reflected in our Condensed
Consolidated Balance Sheets.
We also have guaranteed the obligations of, and provided
indemnification to, third parties in the ordinary course of
business. Guarantee agreements outstanding as of
September 30, 2011 include (i) guarantees of
unconsolidated entities financial obligations maturing
through 2020 for maximum future payments of $11 million;
and (ii) agreements guaranteeing certain market value
losses for approximately 900 homeowners properties
adjacent to or near 21 of our landfills. Our indemnification
obligations generally arise in divestitures and provide that we
will be responsible for liabilities associated with our
operations for events that occurred prior to the sale of the
operations. Additionally, under certain of our acquisition
agreements, we have provided for additional consideration to be
paid to the sellers if established financial targets are
achieved post-closing and we have recognized liabilities for
these contingent obligations based on an estimate of the fair
value of these contingencies at the time of acquisition.
Contingent obligations related to indemnifications arising from
our divestitures and contingent consideration provided for by
our acquisitions are not expected to be material to our
financial position, results of operations or cash flows.
Environmental Matters
A significant portion
of our operating costs and capital expenditures could be
characterized as costs of environmental protection as we are
subject to an array of laws and regulations relating to the
protection of the environment. Under current laws and
regulations, we may have liabilities for environmental damage
caused by our operations, or for damage caused by conditions
that existed before we acquired a site. In addition to
remediation activity required by state or local authorities,
such liabilities include potentially responsible party, or PRP,
investigations. The costs associated with these liabilities can
include settlements, certain legal and consultant fees, as well
as incremental internal and external costs directly associated
with site investigation and
clean-up.
Estimating our degree of responsibility for remediation is
inherently difficult. We recognize and accrue for an estimated
remediation liability when we determine that such liability is
both probable and reasonably estimable. Determining the method
and ultimate cost of remediation requires that a number of
assumptions be made. There can sometimes be a range of
reasonable estimates of the costs associated with the
investigation of the extent of environmental impact and
identification of likely site-remediation alternatives. In these
cases, we use the amount within the range that constitutes our
best estimate. If no amount within a range appears to be a
better estimate than any other, we use the amount that is the
low end of such range. If we used the high ends of such ranges,
our aggregate potential liability would be approximately
$150 million higher than the $285 million recorded in
the Condensed Consolidated Financial Statements as of
September 30, 2011. Our ongoing review of our remediation
liabilities, in light of relevant internal and external facts
and circumstances, could result in revisions to our accruals
that could cause upward or downward adjustments to income from
operations. These adjustments could be material in any given
period.
As of September 30, 2011, we had been notified that we are
a PRP in connection with 79 locations listed on the EPAs
Superfund National Priorities List, or NPL. Of the 79 sites at
which claims have been made against us, 17 are sites we own.
Each of the NPL sites we own was initially developed by others
as a landfill disposal facility. At each of these facilities, we
are working in conjunction with the government to characterize
or remediate identified site problems, and we have either agreed
with other legally liable parties on an arrangement for sharing
the costs of remediation or are working toward a cost-sharing
agreement. We generally expect to receive any amounts due from
other participating parties at or near the time that we make the
remedial expenditures. The other 62 NPL sites, which we do not
own, are at various procedural stages under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, known as CERCLA or Superfund.
The majority of these proceedings involving NPL sites that we do
not own are based on allegations that certain of our
subsidiaries (or their predecessors) transported hazardous
substances to the sites, often prior to our acquisition of these
subsidiaries. CERCLA generally provides for liability for those
parties owning, operating, transporting to or disposing at the
sites. Proceedings arising under Superfund typically involve
numerous waste
16
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
generators and other waste transportation and disposal companies
and seek to allocate or recover costs associated with site
investigation and remediation, which costs could be substantial
and could have a material adverse effect on our consolidated
financial statements. At some of the sites at which we have been
identified as a PRP, our liability is well defined as a
consequence of a governmental decision and an agreement among
liable parties as to the share each will pay for implementing
that remedy. At other sites, where no remedy has been selected
or the liable parties have been unable to agree on an
appropriate allocation, our future costs are uncertain.
Litigation
In April 2002, certain former
participants in the ERISA plans of WM Holdings filed a
lawsuit in the U.S. District Court for the District of
Columbia in a case entitled
William S. Harris, et al. v.
James E. Koenig, et al
. The lawsuit attempts to increase the
recovery of a class of ERISA plan participants on behalf of the
plan based on allegations related to both the events alleged in,
and the settlements relating to, the securities class action
against WM Holdings that was settled in 1998, the
litigation against WM in Texas that was settled in 2002, as well
as the decision to offer WM common stock as an investment option
within the plan beginning in 1990, despite alleged knowledge by
at least two members of the investment committee of financial
misstatement by WM during the relevant time period.
During the second quarter of 2010, the Court dismissed certain
claims against individual defendants, including all claims
against each of the current members of our Board of Directors.
Previously, plaintiffs dismissed all claims related to the
settlement of the securities class action against WM that was
settled in 2002, and the court certified a limited class of
participants who may bring claims on behalf of the plan, but not
individually. During the third quarter of 2011, the Court ruled
in favor of WM and two former employees dismissing all claims
brought by the plaintiffs related to the decision to offer WM
stock as an investment option within the plan. The Court still
has under consideration additional motions that, if granted,
would resolve the few remaining claims against WM and its
Committees. The outcome of this lawsuit cannot be predicted with
certainty. The defendants intend to defend themselves vigorously
in this litigation.
Two separate wage and hour lawsuits were commenced in October
2006 and March 2007 against certain of our subsidiaries in
California, each seeking class certification. The actions were
coordinated to proceed in San Diego County Superior Court.
Both lawsuits make the same general allegations that our
subsidiaries failed to comply with certain California wage and
hour laws, including allegedly failing to provide meal and rest
periods and failing to properly pay hourly and overtime wages.
We have executed a settlement agreement in connection with this
matter. Following hearings held on July 15, 2011 and
October 21, 2011, the Court approved the class action
settlement and final judgment. The settlement did not have a
material effect on our consolidated financial statements.
Additionally, in July 2008, we were named as a defendant in a
purported class action in the Circuit Court of Bullock County,
Alabama, which was subsequently removed to the United States
District Court for the Northern District of Alabama. This suit
pertained to our fuel and environmental charge in our customer
service agreements and generally alleged that such charges were
not properly disclosed, were unfair and were contrary to the
contracts. We filed a motion to dismiss that was partially
granted during the third quarter of 2010, resulting in dismissal
of the plaintiffs national class action claims. During the
third quarter of 2011, the plaintiffs filed and the Court
granted a motion to dismiss the litigation without prejudice.
In October 2011, we were named as a defendant in a purported
class action in the Circuit Court of Sarasota County, Florida.
This suit was filed by the same law firm that brought the
Alabama litigation discussed in the prior paragraph, and it also
pertains to our fuel and environmental charges in our customer
service agreements, generally alleging that such charges were
not properly disclosed, were unfair and were contrary to the
contracts. We will vigorously defend this matter. Given the
inherent uncertainties of litigation, the ultimate outcome of
this case cannot be predicted at this time, nor can possible
damages, if any, be reasonably estimated.
17
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We often enter into contractual arrangements with landowners
imposing obligations on us to meet certain regulatory or
contractual conditions upon site closure or upon termination of
the agreements. Compliance with these arrangements is inherently
subject to subjective determinations and may result in disputes,
including litigation. In May 2008, Mnoian Management, Inc. filed
suit in Los Angeles County Superior Court seeking remediation
and increased compaction of a site we had previously leased for
landfill purposes. The parties have completed a binding
arbitration and are awaiting the arbitrators decision.
From time to time, we also are named as defendants in personal
injury and property damage lawsuits, including purported class
actions, on the basis of having owned, operated or transported
waste to a disposal facility that is alleged to have
contaminated the environment or, in certain cases, on the basis
of having conducted environmental remediation activities at
sites. Some of the lawsuits may seek to have us pay the costs of
monitoring of allegedly affected sites and health care
examinations of allegedly affected persons for a substantial
period of time even where no actual damage is proven. While we
believe we have meritorious defenses to these lawsuits, the
ultimate resolution is often substantially uncertain due to the
difficulty of determining the cause, extent and impact of
alleged contamination (which may have occurred over a long
period of time), the potential for successive groups of
complainants to emerge, the diversity of the individual
plaintiffs circumstances, and the potential contribution
or indemnification obligations of co-defendants or other third
parties, among other factors.
As a large company with operations across the United States and
Canada, we are subject to various proceedings, lawsuits,
disputes and claims arising in the ordinary course of our
business. Many of these actions raise complex factual and legal
issues and are subject to uncertainties. Actions filed against
us include commercial, customer, and employment-related claims,
including, as noted above, purported class action lawsuits
related to our customer service agreements and purported class
actions involving federal and state wage and hour and other
laws. The plaintiffs in some actions seek unspecified damages or
injunctive relief, or both. These actions are in various
procedural stages, and some are covered in part by insurance. We
currently do not believe that any such actions will ultimately
have a material adverse impact on our consolidated financial
statements.
WMs charter and bylaws require indemnification of its
officers and directors if statutory standards of conduct have
been met and allow the advancement of expenses to these
individuals upon receipt of an undertaking by the individuals to
repay all expenses if it is ultimately determined that they did
not meet the required standards of conduct. Additionally, WM has
entered into separate indemnification agreements with each of
the members of its Board of Directors as well as its President
and Chief Executive Officer, and its principal financial
officer. The Company may incur substantial expenses in
connection with the fulfillment of its advancement of costs and
indemnification obligations in connection with current actions
involving former officers of the Company or its subsidiaries or
other actions or proceedings that may be brought against its
former or current officers, directors and employees.
Item 103 of the SECs
Regulation S-K
requires disclosure of certain environmental matters when a
governmental authority is a party to the proceedings, or such
proceedings are known to be contemplated, unless we reasonably
believe that the matter will result in no monetary sanctions, or
in monetary sanctions, exclusive of interest and costs, of less
than $100,000. The following matter pending as of
September 30, 2011 is disclosed in accordance with that
requirement:
On April 4, 2006, the EPA issued a Notice of Violation
(NOV) to Waste Management of Hawaii, Inc., an
indirect wholly-owned subsidiary of WM, and to the City and
County of Honolulu for alleged violations of the federal Clean
Air Act, based on an alleged failure to submit certain reports
and design plans required by the EPA, and the failure to begin
and timely complete the installation of a gas collection and
control system (GCCS) for the Waimanalo Gulch
Sanitary Landfill on Oahu. The EPA has also indicated that it
will seek penalties and injunctive relief as part of the NOV
enforcement for elevated landfill temperatures that were
recorded after installation of the GCCS. The parties have been
in confidential settlement negotiations. Pursuant to an
indemnity agreement, any penalty assessed will be paid by the
Company, and not by the City and County of Honolulu.
18
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additionally, the following matters previously reported were
resolved during the third quarter of 2011 as set forth below.
On February 25, 2011, the EPA issued an NOV to Chemical
Waste Management, Inc.s Kettleman Hills facility for
alleged violations of the Resource Conservation and Recovery Act
(RCRA). In this matter, the EPA sought civil
penalties for the violations alleged, which related primarily to
management of landfill leachate, laboratory protocols, and the
management and disposal of certain hazardous waste. On
August 23, 2011, Chemical Waste Management, Inc. settled
the RCRA enforcement action with the EPA through entry of a
Consent Agreement/Final Order. Under the agreement, Chemical
Waste Management, Inc. paid a penalty of $400,000 on
September 12, 2011 and will implement certain corrective
actions and process changes.
On April 11, 2011, Waste Management LampTracker,
Inc.s Kaiser, Missouri facility was notified that the EPA
would be filing an administrative complaint and assessing civil
penalties for alleged RCRA violations relating to container and
facility management and the handling of certain waste. On
September 12, 2011, Waste Management LampTracker, Inc.
settled the RCRA enforcement action with the EPA through entry
of a Consent Agreement/Final Order and paid a penalty of
$118,800. As a result of the agreement, Waste Management
LampTracker, Inc. will implement a corrective action at the
facility.
Multiemployer, Defined Benefit Pension Plans
About 20% of our workforce is covered by collective bargaining
agreements with various union locals across the United States
and Canada. As a result of some of these agreements, certain of
our subsidiaries are participating employers in a number of
trustee-managed multiemployer, defined benefit pension plans for
the affected employees. One of the most significant
multiemployer pension plans in which we have participated is the
Central States Southeast and Southwest Areas Pension Plan
(Central States Pension Plan), which has reported
that it adopted a rehabilitation plan as a result of its
actuarial certification for the plan year beginning
January 1, 2008. The Central States Pension Plan is in
critical status, as defined by the Pension
Protection Act of 2006.
In connection with our ongoing renegotiation of various
collective bargaining agreements, we may discuss and negotiate
for the complete or partial withdrawal from one or more of these
pension plans. A complete or partial withdrawal from a
multiemployer pension plan may also occur if employees covered
by a collective bargaining agreement vote to decertify a union
from continuing to represent them. In October 2011, our last
remaining group of employees that were active participants in
the Central States Pension Plan voted to decertify the union
that represented them, ceasing any contribution obligation and
effectively withdrawing them from the Central States Pension
Plan.
We recognized charges to Operating expenses of
$26 million, largely in the first quarter of 2010,
associated with the withdrawal of three bargaining units from
the Central States Pension Plan in connection with our
negotiations of these units agreements. We are still
negotiating and litigating final resolutions of our withdrawal
liability for previous withdrawals and our recent final
withdrawal referenced above, which could be materially higher
than the charges we have recognized. We do not believe that our
withdrawals from the multiemployer plans, individually or in the
aggregate, will have a material adverse effect on our financial
condition or liquidity. However, depending on the number of
employees withdrawn in any future period and the financial
condition of the multiemployer plans at the time of withdrawal,
such withdrawals could materially affect our results of
operations in the period of the withdrawal.
Tax Matters
We are currently in the
examination phase of IRS audits for the tax years 2010 and 2011
and expect these audits to be completed within the next three
and 15 months, respectively. We participate in the
IRSs Compliance Assurance Program, which means we work
with the IRS throughout the year in order to resolve any
material issues prior to the filing of our year-end tax return.
We are also currently undergoing audits by various state and
local jurisdictions that date back to 2000. In the third quarter
of 2010, we finalized audits in Canada through the 2005 tax year
and are not currently under audit for any subsequent tax years.
On July 28, 2011, we acquired Oakleaf, which is currently
under IRS examination for the tax periods ended
December 31, 2005 through December 31,
19
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2008. We expect this examination to be completed within the next
12 months. In addition, Oakleaf is subject to state income
tax examinations for years dating back to 2002. Pursuant to the
terms of our acquisition of Oakleaf, we are entitled to
indemnification for Oakleafs tax liabilities. We maintain
a liability for uncertain tax positions, the balance of which
management believes is adequate. Results of audit assessments by
taxing authorities are not currently expected to have a material
adverse impact on our results of operations or cash flows.
|
|
9.
|
Segment
and Related Information
|
We currently manage and evaluate our operations primarily
through our Eastern, Midwest, Southern, Western and Wheelabrator
Groups. These five Groups are presented below as our reportable
segments. Our four geographic operating Groups provide
collection, transfer, disposal (in both solid waste and
hazardous waste landfills) and recycling services. Our fifth
Group is the Wheelabrator Group, which provides
waste-to-energy
services and manages
waste-to-energy
facilities and independent power production plants. We serve
residential, commercial, industrial, and municipal customers
throughout North America. The operations not managed through our
five operating Groups, including the Oakleaf operations we
acquired on July 28, 2011, are presented herein as
Other. See Note 10 for additional information
related to our acquisition of Oakleaf.
Summarized financial information concerning our reportable
segments for the three and nine months ended September 30 is
shown in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Intercompany
|
|
|
Net
|
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
Operating
|
|
|
Income from
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Operations
|
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
822
|
|
|
$
|
(139
|
)
|
|
$
|
683
|
|
|
$
|
146
|
|
Midwest
|
|
|
847
|
|
|
|
(123
|
)
|
|
|
724
|
|
|
|
175
|
|
Southern
|
|
|
853
|
|
|
|
(104
|
)
|
|
|
749
|
|
|
|
194
|
|
Western
|
|
|
841
|
|
|
|
(114
|
)
|
|
|
727
|
|
|
|
154
|
|
Wheelabrator
|
|
|
228
|
|
|
|
(28
|
)
|
|
|
200
|
|
|
|
57
|
|
Other
|
|
|
462
|
|
|
|
(23
|
)
|
|
|
439
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
|
(531
|
)
|
|
|
3,522
|
|
|
|
686
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,053
|
|
|
$
|
(531
|
)
|
|
$
|
3,522
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
755
|
|
|
$
|
(132
|
)
|
|
$
|
623
|
|
|
$
|
138
|
|
Midwest
|
|
|
792
|
|
|
|
(119
|
)
|
|
|
673
|
|
|
|
149
|
|
Southern
|
|
|
903
|
|
|
|
(102
|
)
|
|
|
801
|
|
|
|
218
|
|
Western
|
|
|
809
|
|
|
|
(113
|
)
|
|
|
696
|
|
|
|
146
|
|
Wheelabrator
|
|
|
237
|
|
|
|
(32
|
)
|
|
|
205
|
|
|
|
67
|
|
Other
|
|
|
248
|
|
|
|
(11
|
)
|
|
|
237
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
|
|
(509
|
)
|
|
|
3,235
|
|
|
|
680
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,744
|
|
|
$
|
(509
|
)
|
|
$
|
3,235
|
|
|
$
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Intercompany
|
|
|
Net
|
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
Operating
|
|
|
Income from
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Operations
|
|
|
Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
2,326
|
|
|
$
|
(387
|
)
|
|
$
|
1,939
|
|
|
$
|
407
|
|
Midwest
|
|
|
2,403
|
|
|
|
(355
|
)
|
|
|
2,048
|
|
|
|
460
|
|
Southern
|
|
|
2,553
|
|
|
|
(307
|
)
|
|
|
2,246
|
|
|
|
579
|
|
Western
|
|
|
2,456
|
|
|
|
(336
|
)
|
|
|
2,120
|
|
|
|
436
|
|
Wheelabrator
|
|
|
664
|
|
|
|
(89
|
)
|
|
|
575
|
|
|
|
112
|
|
Other
|
|
|
1,085
|
|
|
|
(41
|
)
|
|
|
1,044
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,487
|
|
|
|
(1,515
|
)
|
|
|
9,972
|
|
|
|
1,919
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,487
|
|
|
$
|
(1,515
|
)
|
|
$
|
9,972
|
|
|
$
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
2,214
|
|
|
$
|
(385
|
)
|
|
$
|
1,829
|
|
|
$
|
390
|
|
Midwest
|
|
|
2,266
|
|
|
|
(336
|
)
|
|
|
1,930
|
|
|
|
372
|
|
Southern
|
|
|
2,602
|
|
|
|
(303
|
)
|
|
|
2,299
|
|
|
|
624
|
|
Western
|
|
|
2,372
|
|
|
|
(328
|
)
|
|
|
2,044
|
|
|
|
416
|
|
Wheelabrator
|
|
|
660
|
|
|
|
(92
|
)
|
|
|
568
|
|
|
|
150
|
|
Other
|
|
|
688
|
|
|
|
(30
|
)
|
|
|
658
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,802
|
|
|
|
(1,474
|
)
|
|
|
9,328
|
|
|
|
1,859
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,802
|
|
|
$
|
(1,474
|
)
|
|
$
|
9,328
|
|
|
$
|
1,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluctuations in our operating results may be caused by many
factors, including
period-to-period
changes in the relative contribution of revenue by each line of
business and operating segment and by general economic
conditions. In addition, our revenues and income from operations
typically reflect seasonal patterns. Our operating revenues
normally tend to be somewhat higher in the summer months,
primarily due to the traditional seasonal increase in the volume
of construction and demolition waste. Historically, the volumes
of industrial and residential waste in certain regions in which
we operate have tended to increase during the summer months. Our
second and third quarter revenues and results of operations
typically reflect these seasonal trends.
Additionally, certain destructive weather conditions that tend
to occur during the second half of the year, such as hurricanes
that most often impact our Southern Group, can actually increase
our revenues in the areas affected. While weather-related and
other one-time occurrences can boost revenues
through additional work, as a result of significant
start-up
costs and other factors, such revenue sometimes generates
earnings at comparatively lower margins. Certain weather
conditions, including severe winter storms, may result in the
temporary suspension of our operations, which can significantly
affect the operating results of the affected regions. The
operating results of our first quarter also often reflect higher
repair and maintenance expenses because we rely on the slower
winter months, when waste flows are generally lower, to perform
scheduled maintenance at our
waste-to-energy
facilities.
From time to time, the operating results of our reportable
segments are significantly affected by unusual or infrequent
transactions or events. During 2010, our Midwest Group
recognized $26 million in charges, largely in the first
quarter, as a result of bargaining unit employees in Michigan
and Ohio agreeing to our proposal to withdraw them from an
underfunded multiemployer pension plan. Refer to Note 8 for
additional information related to our participation in
multiemployer pension plans.
21
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Acquisition
of Oakleaf Global Holdings
|
On July 28, 2011, we paid $432 million, net of cash
received of $4 million and inclusive of certain
adjustments, to acquire Oakleaf Global Holdings and its primary
operations. Oakleaf provides outsourced waste and recycling
services through a nationwide network of third-party haulers.
The operations we acquired generated approximately
$580 million in revenues in 2010. We acquired Oakleaf to
advance our growth and transformation strategies and increase
our national accounts customer base while enhancing our ability
to provide comprehensive environmental solutions. For the three
and nine months ended September 30, 2011, we incurred
$1 million of acquisition-related costs, which are
classified as Selling, general and administrative expense. Since
the acquisition date, Oakleaf has recognized revenues of
$112 million and net losses of less than $1 million,
which are included in our Condensed Consolidated Statement of
Operations. We have recorded a preliminary allocation of the
purchase price to Oakleaf tangible and intangible assets
acquired and liabilities assumed based on their estimated fair
values as of July 28, 2011. The allocation of the purchase
price shown in the table below is preliminary and subject to
change based on the finalization of our detailed valuations. The
preliminary purchase price allocation is as follows (in
millions):
|
|
|
|
|
Accounts and other receivables
|
|
$
|
68
|
|
Other current assets
|
|
|
28
|
|
Property and equipment
|
|
|
77
|
|
Goodwill
|
|
|
320
|
|
Intangible assets
|
|
|
92
|
|
Accounts payable
|
|
|
(80
|
)
|
Accrued liabilities
|
|
|
(48
|
)
|
Deferred income taxes, net
|
|
|
(13
|
)
|
Other liabilities
|
|
|
(12
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
432
|
|
|
|
|
|
|
The following table presents the preliminary allocation of the
purchase price to intangible assets (amounts in millions, except
for amortization periods):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
Periods
|
|
|
|
Amount
|
|
|
(in Years)
|
|
|
Customer relationships
|
|
$
|
74
|
|
|
|
10.0
|
|
Vendor relationships
|
|
|
9
|
|
|
|
10.0
|
|
Trademarks
|
|
|
9
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
92
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $320 million was calculated as the excess of
the consideration paid over the net assets recognized and
represents the future economic benefits arising from other
assets acquired that could not be individually identified and
separately recognized. Goodwill is a result of expected
synergies from combining the Companys operations with
Oakleafs national accounts customer base and vendor
network. The vendor-hauler network expands our partnership with
third-party service providers. In many cases we can provide
vendor-haulers with opportunities to maintain and increase their
business by utilizing our extensive post-collection network. We
believe this will generate significant benefits for the Company
and for the vendor-haulers. Goodwill acquired will be allocated
to our operating segments upon completion of our detailed
valuations. Goodwill is not deductible for income tax purposes.
22
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following pro forma consolidated results of operations have
been prepared as if the acquisition of Oakleaf occurred at
January 1, 2010 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
|
Ended September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Operating revenues
|
|
$
|
3,566
|
|
|
$
|
3,379
|
|
|
$
|
10,287
|
|
|
$
|
9,740
|
|
Net income attributable to Waste Management, Inc.
|
|
|
272
|
|
|
|
239
|
|
|
|
689
|
|
|
|
660
|
|
Basic earnings per common share
|
|
|
0.58
|
|
|
|
0.50
|
|
|
|
1.46
|
|
|
|
1.37
|
|
Diluted earnings per common share
|
|
|
0.58
|
|
|
|
0.50
|
|
|
|
1.45
|
|
|
|
1.36
|
|
In July 2011, we took steps to streamline our organization as
part of our cost savings programs. This reorganization
eliminated over 700 employee positions throughout the
Company, including approximately 300 open positions. During
the three and nine months ended September 30, 2011, we
recognized $14 million of pre-tax restructuring charges
related to employee severance and benefit costs associated with
this reorganization. The following table summarizes the employee
severance and benefit costs and other charges recognized for
this restructuring by each of our current reportable segments
and our Corporate and Other organization for the three and nine
months ended September 30, 2011 (in millions):
|
|
|
|
|
Eastern
|
|
$
|
2
|
|
Midwest
|
|
|
3
|
|
Southern
|
|
|
2
|
|
Western
|
|
|
2
|
|
Wheelabrator
|
|
|
1
|
|
Corporate and Other
|
|
|
5
|
|
|
|
|
|
|
Total
|
|
$
|
15
|
|
|
|
|
|
|
Through September 30, 2011, we have paid approximately
$4 million of the employee severance and benefit costs
incurred as a result of this restructuring.
|
|
12.
|
(Income)
Expense from Divestitures, Asset Impairments and Unusual
Items
|
During the third quarter of 2011, we recognized impairment
charges relating to two facilities in our medical waste services
business as a result of the closure of one site and as a result
of continuing operating losses at the other site. We wrote down
the net book values of the sites to their estimated fair values.
We filed a lawsuit in March 2008 related to the revenue
management software implementation that was suspended in 2007
and abandoned in 2009. Accordingly, in 2009, we recognized a
non-cash charge of $51 million for the abandonment of the
licensed software. In April 2010, we settled the lawsuit and
received a one-time cash payment. The settlement increased our
Income from operations for the nine months ended
September 30, 2010 by $77 million.
23
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Fair
Value Measurements
|
Assets
and Liabilities Accounted for at Fair Value
Our assets and liabilities that are measured at fair value on a
recurring basis include the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
September 30, 2011 Using
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
185
|
|
|
$
|
185
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
162
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
Foreign currency derivatives
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Electricity commodity derivatives
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
431
|
|
|
$
|
347
|
|
|
$
|
84
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
68
|
|
|
$
|
|
|
|
$
|
68
|
|
|
$
|
|
|
Electricity commodity derivatives
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
69
|
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
December 31, 2010 Using
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
468
|
|
|
$
|
468
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
148
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
654
|
|
|
$
|
616
|
|
|
$
|
38
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
|
|
Foreign currency derivatives
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Electricity commodity derivatives
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Debt
At September 30, 2011, the carrying value of our debt was
approximately $9.6 billion compared with $8.9 billion
at December 31, 2010. The carrying value of our debt
includes adjustments for both the unamortized fair value
adjustments related to terminated hedge arrangements and fair
value adjustments of debt instruments that are currently hedged.
24
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair value of our debt was approximately
$10.6 billion at September 30, 2011 and approximately
$9.2 billion at December 31, 2010. The estimated fair
value of our senior notes is based on quoted market prices. The
carrying value of remarketable debt approximates fair value due
to the short-term nature of the interest rates. The fair value
of our other debt is estimated using discounted cash flow
analysis, based on rates we would currently pay for similar
types of instruments. The increase in the fair value of our debt
when comparing September 30, 2011 with December 31,
2010 is primarily related to $753 million of net borrowings
during 2011 associated with our senior notes. Increases in
market prices for corporate debt securities and decreases in
current market rates on fixed-rate tax-exempt bonds also
contributed to the increase in the fair value of debt for the
reported period.
Although we have determined the estimated fair value amounts
using available market information and commonly accepted
valuation methodologies, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, our estimates are not necessarily indicative of the
amounts that we, or holders of the instruments, could realize in
a current market exchange. The use of different assumptions
and/or
estimation methodologies could have a material effect on the
estimated fair values. The fair value estimates are based on
information available as of September 30, 2011 and
December 31, 2010. These amounts have not been revalued
since those dates, and current estimates of fair value could
differ significantly from the amounts presented.
|
|
14.
|
Variable
Interest Entities
|
Following is a description of our financial interests in
variable interest entities that we consider significant,
including (i) those for which we have determined that we
are the primary beneficiary of the entity and, therefore, have
consolidated the entities into our financial statements; and
(ii) those that represent a significant interest in an
unconsolidated entity.
Consolidated
Variable Interest Entities
Waste-to-Energy
LLCs
In June 2000, two limited liability
companies were established to purchase interests in existing
leveraged lease financings at three
waste-to-energy
facilities that we lease, operate and maintain. We own a 0.5%
interest in one of the LLCs (LLC I) and a 0.25%
interest in the second LLC (LLC II). John Hancock
Life Insurance Company (Hancock) owns 99.5% of LLC I
and 99.75% of LLC II is owned by LLC I and the CIT Group
(CIT). In 2000, Hancock and CIT made an initial
investment of $167 million in the LLCs, which was used to
purchase the three
waste-to-energy
facilities and assume the sellers indebtedness. Under the
LLC agreements, the LLCs shall be dissolved upon the occurrence
of any of the following events: (i) a written decision of
all members of the LLCs; (ii) December 31, 2063;
(iii) a courts dissolution of the LLCs; or
(iv) the LLCs ceasing to own any interest in the
waste-to-energy
facilities.
Income, losses and cash flows of the LLCs are allocated to the
members based on their initial capital account balances until
Hancock and CIT achieve targeted returns; thereafter, we will
receive 80% of the earnings of each of the LLCs and Hancock and
CIT will be allocated the remaining 20% proportionate to their
respective ownership interests. All capital allocations made
through September 30, 2011 have been based on initial
capital account balances as the target returns have not yet been
achieved.
Our obligations associated with our interests in the LLCs are
primarily related to the lease of the facilities. In addition to
our minimum lease payment obligations, we are required to make
cash payments to the LLCs for differences between fair market
rents and our minimum lease payments. These payments are subject
to adjustment based on factors that include the fair market
value of rents for the facilities and lease payments made
through the re-measurement dates. In addition, we may also be
required under certain circumstances to make capital
contributions to the LLCs based on differences between the fair
market value of the facilities and defined termination values as
provided for in the underlying lease agreements, although we
believe the likelihood of the occurrence of these circumstances
is remote.
25
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have determined that we are the primary beneficiary of the
LLCs and consolidate these entities in our Consolidated
Financial Statements because (i) all of the equity owners
of the LLCs are considered related parties for purposes of
applying this accounting guidance; (ii) the equity owners
share power over the significant activities of the LLCs; and
(iii) we are the entity within the related party group
whose activities are most closely associated with the LLCs.
As of September 30, 2011, our Condensed Consolidated
Balance Sheet includes $310 million of net property and
equipment associated with the LLCs
waste-to-energy
facilities and $248 million in noncontrolling interests
associated with Hancocks and CITs interests in the
LLCs. As of September 30, 2011, all debt obligations of the
LLCs have been paid in full and, therefore, the LLCs have no
liabilities. We recognized reductions in earnings of
$13 million and $38 million for the three and nine
months ended September 30, 2011 and 2010, respectively, for
Hancocks and CITs noncontrolling interests in the
LLCs earnings. The LLCs earnings relate to the
rental income generated from leasing the facilities to our
subsidiaries, reduced by depreciation expense. The LLCs
rental income is eliminated in WMs consolidation.
Significant
Unconsolidated Variable Interest Entities
Investment in Refined Coal Facility
In
January 2011, we acquired a noncontrolling interest in a limited
liability company, which was established to invest in and manage
a refined coal facility. Along with the other equity investor,
we support the operations of the entity in exchange for a
pro-rata share of the tax credits it generates. Our initial
consideration for this investment consisted of a cash payment of
$48 million. At September 30, 2011, our investment
balance was $42 million, representing our current maximum
pre-tax exposure to loss. Under the terms and conditions of the
transaction, we do not believe that we have any material
exposure to loss. Future contributions will commence once
certain levels of tax credits have been generated and will
continue through the expiration of the tax credits under
Section 45 of the Internal Revenue Code, which occurs at
the end of 2019. We are only obligated to make future
contributions to the extent tax credits are generated. We
determined that we are not the primary beneficiary of this
entity as we do not have the power to individually direct the
entitys activities. Accordingly, we account for this
investment under the equity method of accounting and do not
consolidate the entity. Additional information related to this
investment is discussed in Note 5.
Investment in Federal Low-income Housing Tax
Credits
In April 2010, we acquired a
noncontrolling interest in a limited liability company
established to invest in and manage low-income housing
properties. We support the operations of the entity in exchange
for a pro-rata share of the tax credits it generates. Our target
return on the investment is guaranteed and, therefore, we do not
believe that we have any material exposure to loss. Our
consideration for this investment totaled $221 million,
which was comprised of a $215 million note payable and an
initial cash payment of $6 million. At September 30,
2011, our investment balance was $184 million and our debt
balance was $181 million. We determined that we are not the
primary beneficiary of this entity as we do not have the power
to individually direct the entitys activities.
Accordingly, we account for this investment under the equity
method of accounting and do not consolidate the entity.
Additional information related to this investment is discussed
in Note 5.
Trusts for Final Capping, Closure, Post-Closure or
Environmental Remediation Obligations
We have
significant financial interests in trust funds that were created
to settle certain of our final capping, closure, post-closure or
environmental remediation obligations. We have determined that
we are not the primary beneficiary of certain of these trust
funds because power over the trusts significant activities
is shared.
Our interests in these variable interest entities are accounted
for as equity investments in unconsolidated entities and
receivables. These amounts are recorded in Other
receivables and as long-term Other assets in
our Condensed Consolidated Balance Sheet. Our investments and
receivables related to the trusts had an aggregate carrying
value of $108 million as of September 30, 2011. We
reflect our interests in the unrealized gains and losses on
marketable securities held by these trusts as a component of
Accumulated other comprehensive income.
26
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As the party with primary responsibility to fund the related
final capping, closure, post-closure or environmental
remediation activities, we are exposed to risk of loss as a
result of potential changes in the fair value of the assets of
the trust. The fair value of trust assets can fluctuate due to
(i) changes in the market value of the investments held by
the trusts and (ii) credit risk associated with trust
receivables. Although we are exposed to changes in the fair
value of the trust assets, we currently expect the trust funds
to continue to meet the statutory requirements for which they
were established.
|
|
15.
|
Condensed
Consolidating Financial Statements
|
WM Holdings has fully and unconditionally guaranteed all of
WMs senior indebtedness. WM has fully and unconditionally
guaranteed all of WM Holdings senior indebtedness.
None of WMs other subsidiaries have guaranteed any of
WMs or WM Holdings debt. As a result of these
guarantee arrangements, we are required to present the following
condensed consolidating financial information (in millions):
CONDENSED
CONSOLIDATING BALANCE SHEETS
September 30,
2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
184
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
|
|
|
$
|
282
|
|
Other current assets
|
|
|
2
|
|
|
|
|
|
|
|
2,135
|
|
|
|
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
2,233
|
|
|
|
|
|
|
|
2,419
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
11,911
|
|
|
|
|
|
|
|
11,911
|
|
Investments in and advances to affiliates
|
|
|
11,664
|
|
|
|
14,576
|
|
|
|
3,029
|
|
|
|
(29,269
|
)
|
|
|
|
|
Other assets
|
|
|
141
|
|
|
|
12
|
|
|
|
7,569
|
|
|
|
|
|
|
|
7,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,991
|
|
|
$
|
14,588
|
|
|
$
|
24,742
|
|
|
$
|
(29,269
|
)
|
|
$
|
22,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
190
|
|
|
$
|
|
|
|
$
|
225
|
|
Accounts payable and other current liabilities
|
|
|
94
|
|
|
|
5
|
|
|
|
2,203
|
|
|
|
|
|
|
|
2,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
5
|
|
|
|
2,393
|
|
|
|
|
|
|
|
2,527
|
|
Long-term debt, less current portion
|
|
|
5,846
|
|
|
|
449
|
|
|
|
3,093
|
|
|
|
|
|
|
|
9,388
|
|
Other liabilities
|
|
|
68
|
|
|
|
|
|
|
|
3,784
|
|
|
|
|
|
|
|
3,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,043
|
|
|
|
454
|
|
|
|
9,270
|
|
|
|
|
|
|
|
15,767
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
5,948
|
|
|
|
14,134
|
|
|
|
15,135
|
|
|
|
(29,269
|
)
|
|
|
5,948
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,948
|
|
|
|
14,134
|
|
|
|
15,472
|
|
|
|
(29,269
|
)
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
11,991
|
|
|
$
|
14,588
|
|
|
$
|
24,742
|
|
|
$
|
(29,269
|
)
|
|
$
|
22,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE
SHEETS (Continued)
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
465
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
539
|
|
Other current assets
|
|
|
4
|
|
|
|
1
|
|
|
|
1,938
|
|
|
|
|
|
|
|
1,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469
|
|
|
|
1
|
|
|
|
2,012
|
|
|
|
|
|
|
|
2,482
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
11,868
|
|
|
|
|
|
|
|
11,868
|
|
Investments in and advances to affiliates
|
|
|
10,757
|
|
|
|
13,885
|
|
|
|
2,970
|
|
|
|
(27,612
|
)
|
|
|
|
|
Other assets
|
|
|
91
|
|
|
|
12
|
|
|
|
7,023
|
|
|
|
|
|
|
|
7,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,317
|
|
|
$
|
13,898
|
|
|
$
|
23,873
|
|
|
$
|
(27,612
|
)
|
|
$
|
21,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
232
|
|
|
$
|
|
|
|
$
|
233
|
|
Accounts payable and other current liabilities
|
|
|
93
|
|
|
|
17
|
|
|
|
2,142
|
|
|
|
|
|
|
|
2,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
18
|
|
|
|
2,374
|
|
|
|
|
|
|
|
2,485
|
|
Long-term debt, less current portion
|
|
|
4,951
|
|
|
|
596
|
|
|
|
3,127
|
|
|
|
|
|
|
|
8,674
|
|
Other liabilities
|
|
|
13
|
|
|
|
|
|
|
|
3,713
|
|
|
|
|
|
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,057
|
|
|
|
614
|
|
|
|
9,214
|
|
|
|
|
|
|
|
14,885
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
6,260
|
|
|
|
13,284
|
|
|
|
14,328
|
|
|
|
(27,612
|
)
|
|
|
6,260
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
331
|
|
|
|
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,260
|
|
|
|
13,284
|
|
|
|
14,659
|
|
|
|
(27,612
|
)
|
|
|
6,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
11,317
|
|
|
$
|
13,898
|
|
|
$
|
23,873
|
|
|
$
|
(27,612
|
)
|
|
$
|
21,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
Three
Months Ended September 30, 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,522
|
|
|
$
|
|
|
|
$
|
3,522
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
2,979
|
|
|
|
|
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(85
|
)
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
(117
|
)
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
323
|
|
|
|
328
|
|
|
|
|
|
|
|
(651
|
)
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
|
|
320
|
|
|
|
(29
|
)
|
|
|
(651
|
)
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
238
|
|
|
|
320
|
|
|
|
514
|
|
|
|
(651
|
)
|
|
|
421
|
|
Provision for (benefit from) income taxes
|
|
|
(34
|
)
|
|
|
(3
|
)
|
|
|
173
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
272
|
|
|
|
323
|
|
|
|
341
|
|
|
|
(651
|
)
|
|
|
285
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Waste Management, Inc.
|
|
$
|
272
|
|
|
$
|
323
|
|
|
$
|
328
|
|
|
$
|
(651
|
)
|
|
$
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,235
|
|
|
$
|
|
|
|
$
|
3,235
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
2,691
|
|
|
|
|
|
|
|
2,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(88
|
)
|
|
|
(9
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
(125
|
)
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
298
|
|
|
|
303
|
|
|
|
|
|
|
|
(601
|
)
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
294
|
|
|
|
(36
|
)
|
|
|
(601
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
210
|
|
|
|
294
|
|
|
|
508
|
|
|
|
(601
|
)
|
|
|
411
|
|
Provision for (benefit from) income taxes
|
|
|
(34
|
)
|
|
|
(4
|
)
|
|
|
191
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
244
|
|
|
|
298
|
|
|
|
317
|
|
|
|
(601
|
)
|
|
|
258
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Waste Management, Inc.
|
|
$
|
244
|
|
|
$
|
298
|
|
|
$
|
303
|
|
|
$
|
(601
|
)
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF
OPERATIONS (Continued)
Nine
Months Ended September 30, 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,972
|
|
|
$
|
|
|
|
$
|
9,972
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
8,496
|
|
|
|
|
|
|
|
8,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(256
|
)
|
|
|
(25
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
(352
|
)
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
850
|
|
|
|
865
|
|
|
|
|
|
|
|
(1,715
|
)
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594
|
|
|
|
840
|
|
|
|
(87
|
)
|
|
|
(1,715
|
)
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
594
|
|
|
|
840
|
|
|
|
1,389
|
|
|
|
(1,715
|
)
|
|
|
1,108
|
|
Provision for (benefit from) income taxes
|
|
|
(101
|
)
|
|
|
(10
|
)
|
|
|
488
|
|
|
|
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
695
|
|
|
|
850
|
|
|
|
901
|
|
|
|
(1,715
|
)
|
|
|
731
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Waste Management, Inc.
|
|
$
|
695
|
|
|
$
|
850
|
|
|
$
|
865
|
|
|
$
|
(1,715
|
)
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,328
|
|
|
$
|
|
|
|
$
|
9,328
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
7,786
|
|
|
|
|
|
|
|
7,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
1,542
|
|
|
|
|
|
|
|
1,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(241
|
)
|
|
|
(28
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
(351
|
)
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
819
|
|
|
|
836
|
|
|
|
|
|
|
|
(1,655
|
)
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578
|
|
|
|
808
|
|
|
|
(96
|
)
|
|
|
(1,655
|
)
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
578
|
|
|
|
808
|
|
|
|
1,446
|
|
|
|
(1,655
|
)
|
|
|
1,177
|
|
Provision for (benefit from) income taxes
|
|
|
(94
|
)
|
|
|
(11
|
)
|
|
|
574
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
672
|
|
|
|
819
|
|
|
|
872
|
|
|
|
(1,655
|
)
|
|
|
708
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Waste Management, Inc.
|
|
$
|
672
|
|
|
$
|
819
|
|
|
$
|
836
|
|
|
$
|
(1,655
|
)
|
|
$
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
695
|
|
|
$
|
850
|
|
|
$
|
901
|
|
|
$
|
(1,715
|
)
|
|
$
|
731
|
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
(850
|
)
|
|
|
(865
|
)
|
|
|
|
|
|
|
1,715
|
|
|
|
|
|
Other adjustments
|
|
|
8
|
|
|
|
(11
|
)
|
|
|
1,009
|
|
|
|
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(147
|
)
|
|
|
(26
|
)
|
|
|
1,910
|
|
|
|
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(645
|
)
|
|
|
|
|
|
|
(645
|
)
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(909
|
)
|
|
|
|
|
|
|
(909
|
)
|
Proceeds from divestitures of businesses (net of cash divested)
and other sales of assets
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Net receipts from restricted trust and escrow accounts and
other, net
|
|
|
(5
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5
|
)
|
|
|
|
|
|
|
(1,530
|
)
|
|
|
|
|
|
|
(1,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New borrowings
|
|
|
893
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
1,001
|
|
Debt repayments
|
|
|
|
|
|
|
(147
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
(425
|
)
|
Common stock repurchases
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(528
|
)
|
Cash dividends
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(481
|
)
|
Exercise of common stock options
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Distributions paid to noncontrolling interests and other
|
|
|
(10
|
)
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(66
|
)
|
(Increase) decrease in intercompany and investments, net
|
|
|
(43
|
)
|
|
|
173
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(129
|
)
|
|
|
26
|
|
|
|
(356
|
)
|
|
|
|
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(281
|
)
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
(257
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
465
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
184
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
|
|
|
$
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF CASH
FLOWS (Continued)
Nine
Months Ended September 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
WM
|
|
|
Holdings
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
672
|
|
|
$
|
819
|
|
|
$
|
872
|
|
|
$
|
(1,655
|
)
|
|
$
|
708
|
|
Equity in earnings of subsidiaries, net of taxes
|
|
|
(819
|
)
|
|
|
(836
|
)
|
|
|
|
|
|
|
1,655
|
|
|
|
|
|
Other adjustments
|
|
|
12
|
|
|
|
(13
|
)
|
|
|
946
|
|
|
|
|
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(135
|
)
|
|
|
(30
|
)
|
|
|
1,818
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(343
|
)
|
|
|
|
|
|
|
(343
|
)
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(737
|
)
|
|
|
|
|
|
|
(737
|
)
|
Proceeds from divestitures of businesses (net of cash divested)
and other sales of assets
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Net receipts from restricted trust and escrow accounts and
other, net
|
|
|
(2
|
)
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New borrowings
|
|
|
592
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
775
|
|
Debt repayments
|
|
|
(617
|
)
|
|
|
(35
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
(932
|
)
|
Common stock repurchases
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
Cash dividends
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(454
|
)
|
Exercise of common stock options
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Distributions paid to noncontrolling interests and other
|
|
|
(10
|
)
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
(43
|
)
|
(Increase) decrease in intercompany and investments, net
|
|
|
405
|
|
|
|
65
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(499
|
)
|
|
|
30
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(636
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
(590
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,093
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
457
|
|
|
$
|
|
|
|
$
|
93
|
|
|
$
|
|
|
|
$
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
WASTE
MANAGEMENT, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
New
Accounting Pronouncements Pending Adoption
|
Fair Value Measurement
In May 2011, the FASB
amended authoritative guidance associated with fair value
measurements. This amended guidance defines certain requirements
for measuring fair value and for disclosing information about
fair value measurements in accordance with U.S. generally
accepted accounting principles. The amendments to authoritative
guidance associated with fair value measurements are effective
for the Company on January 1, 2012 and are to be applied
prospectively. We are in the process of assessing the provisions
of this new guidance and currently do not expect that the
adoption will have a material impact on our consolidated
financial statements.
Goodwill Impairment Testing
In September
2011, the FASB amended authoritative guidance associated with
goodwill impairment testing. The amended guidance provides
companies the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads
to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount
before performing the two-step impairment test. If, after
assessing the totality of events or circumstances, an entity
determines it is not more likely than not that the fair value of
a reporting unit is less than its carrying amount, then
performing the two-step impairment test is unnecessary. The
amendments are effective for goodwill impairment tests performed
for fiscal years beginning after December 15, 2011;
however, early adoption is permitted. We are in the process of
assessing the provisions of this new guidance and currently do
not expect that the adoption will have a material impact on our
consolidated financial statements.
Multiemployer Pension Plans
In September
2011, the FASB amended authoritative guidance associated with
disclosures about an employers participation in a
multiemployer plan. The amended disclosure requirements are
intended to provide more information about an employers
financial obligations to multiemployer plans and, therefore,
help financial statement users better understand the financial
health of all of the significant plans in which the employer
participates. The revised standard is effective for fiscal years
ending after December 15, 2011 and retrospective
application is required for all years presented. We are in the
process of assessing the provisions of this new guidance and
currently do not expect that the adoption of these new
disclosure requirements will have a material impact on our
consolidated financial statements.
33
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and notes thereto
included under Item 1 and our Consolidated Financial
Statements and notes thereto and related Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on
Form 10-K
for the year ended December 31, 2010.
In an effort to keep our stockholders and the public informed
about our business, we may make forward-looking
statements. Forward-looking statements usually relate to
future events and anticipated revenues, earnings, cash flows or
other aspects of our operations or operating results.
Forward-looking statements are often identified by the words,
will, may, should,
continue, anticipate,
believe, expect, plan,
forecast, project, estimate,
intend, and words of similar nature and generally
include statements containing:
|
|
|
|
|
projections about accounting and finances;
|
|
|
|
plans and objectives for the future;
|
|
|
|
projections or estimates about assumptions relating to our
performance; or
|
|
|
|
our opinions, views or beliefs about the effects of current or
future events, circumstances or performance.
|
You should view these statements with caution. These statements
are not guarantees of future performance, circumstances or
events. They are based on the facts and circumstances known to
us as of the date the statements are made. All phases of our
business are subject to uncertainties, risks and other
influences, many of which we do not control. Any of these
factors, either alone or taken together, could have a material
adverse effect on us and could change whether any
forward-looking statement ultimately turns out to be true.
Additionally, we assume no obligation to update any
forward-looking statement as a result of future events,
circumstances or developments. The following discussion should
be read together with the Condensed Consolidated Financial
Statements and the notes thereto.
Some of the risks that we face and that could affect our
financial statements for 2011 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
include the following:
|
|
|
|
|
volatility and deterioration in the credit markets, inflation
and other general and local economic conditions may negatively
affect the volumes of waste generated;
|
|
|
|
competition may negatively affect our profitability or cash
flows, our pricing strategy may have negative effects on
volumes, and inability to execute our pricing strategy in order
to retain and attract customers may negatively affect our
average yield on collection and disposal business;
|
|
|
|
increasing use by customers of alternatives to traditional
disposal, government mandates requiring recycling and
prohibiting disposal of certain types of waste, and overall
reduction of waste generated could continue to have a negative
effect on volumes of waste going to landfills and
waste-to-energy
facilities;
|
|
|
|
we may fail in implementing our optimization initiatives and
business strategy, which could adversely impact our financial
performance and growth;
|
|
|
|
weather conditions and one-time special projects cause our
results to fluctuate, and harsh weather or natural disasters may
cause us to temporarily suspend operations;
|
|
|
|
possible changes in our estimates of costs for site remediation
requirements, final capping, closure and post-closure
obligations, compliance and regulatory developments may increase
our expenses;
|
|
|
|
regulations may negatively impact our business by, among other
things, restricting our operations, increasing costs of
operations or requiring additional capital expenditures;
|
|
|
|
climate change legislation, including possible limits on carbon
emissions, may negatively impact our results of operations by
increasing expenses related to tracking, measuring and reporting
our greenhouse gas emissions and increasing operating costs and
capital expenditures that may be required to comply with any
such legislation;
|
34
|
|
|
|
|
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 revenue;
|
|
|
|
adverse publicity (whether or not justified) relating to
activities by our operations, employees or agents could tarnish
our reputation and reduce the value of our brand;
|
|
|
|
fuel price increases or fuel supply shortages may increase our
expenses or restrict our ability to operate;
|
|
|
|
some of our customers, including governmental entities, have
suffered financial difficulties that could affect our business
and operating results, due to their credit risk and the impact
of the municipal debt market on remarketing of our tax-exempt
bonds;
|
|
|
|
increased costs or the inability to obtain financial assurance
or the inadequacy of our insurance coverage 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;
|
|
|
|
fluctuations in commodity prices may have negative effects on
our operating results;
|
|
|
|
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 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;
|
|
|
|
we could face significant liability for withdrawal from
multiemployer pension plans;
|
|
|
|
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 could decrease our efficiencies and increase our costs;
|
|
|
|
our existing and proposed service offerings to customers may
require that we develop or license, and protect, new
technologies; and our inability to obtain or protect new
technologies could impact our services to customers and
development of new revenue sources;
|
|
|
|
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;
|
|
|
|
we may reduce or suspend capital expenditures, acquisition
activity, dividend declarations or share repurchases if we
suffer a significant reduction in cash flows; and
|
|
|
|
we may be unable to incur future indebtedness on terms we deem
acceptable or to refinance our debt obligations, including
near-term maturities, on acceptable terms and higher interest
rates and market conditions may increase our expenses.
|
General
Our principal executive offices are located at 1001 Fannin
Street, Suite 4000, Houston, Texas 77002. Our telephone
number at that address is
(713) 512-6200.
Our website address is www.wm.com. Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
are all available, free of charge, on our website as soon as
practicable after we file the reports with the SEC. Our stock is
traded on the New York Stock Exchange under the symbol
WM.
We are the leading provider of comprehensive waste management
services in North America. Our subsidiaries provide collection,
transfer, recycling and disposal services. We are also a leading
developer, operator and owner of
35
waste-to-energy
and landfill
gas-to-energy
facilities in the United States. Our customers include
residential, commercial, industrial and municipal customers
throughout North America.
Overview
Our strategic focus is centered on three long-term goals: know
more about our customers and how to service them than anyone
else; use conversion and processing technology to extract more
value from the materials we manage; and continuously improve our
operational efficiency. Our strategy considers the increasing
focus on waste reduction at the source and diversion from
landfills as customers seek alternative methods of disposal.
Accordingly, our strategic focus is reflective of current
developments in our industry. We intend to pursue achievement of
our long-term goals in the short-term through efforts to:
|
|
|
|
|
Grow our markets by implementing customer-focused growth,
through customer segmentation and through strategic
acquisitions, while maintaining our pricing discipline and
increasing the amount of recyclable materials we handle each
year;
|
|
|
|
Grow our customer loyalty;
|
|
|
|
Grow into new markets by investing in greener
technologies; and
|
|
|
|
Pursue initiatives that improve our operations and cost
structure.
|
These efforts will be enabled by improved information
technologies. We believe that execution of our strategy,
including making the investments required by our strategy, will
provide long-term value to our stockholders.
Our third quarter of 2011 results of operations reflect the
impact of improved recyclable commodity prices and recycling
volumes, our discipline in pricing and our continued investment
in our strategic initiatives, including our July 28, 2011
acquisition of the primary operations of Oakleaf Global
Holdings. Highlights of our financial results for the current
quarter include:
|
|
|
|
|
Revenues of $3,522 million compared with
$3,235 million in the third quarter of 2010, an increase of
$287 million, or 8.9%. This increase in revenues is
primarily attributable to:
|
|
|
|
|
|
Internal revenue growth from yield on our collection and
disposal business of 1.6% in the current period, which increased
revenue by $43 million;
|
|
|
|
Increases from recyclable commodity prices of $104 million;
increases primarily from our fuel surcharge program of
$47 million; and increases from foreign currency
translation of $11 million; and
|
|
|
|
Increases associated with acquired businesses of
$150 million, driven in large part by our acquisition of
Oakleaf Global Holdings;
|
|
|
|
|
|
Internal revenue growth from volume was negative 2.0%, compared
with negative 0.7% in 2010. The
year-over-year
decline in internal revenue growth due to volume was
$64 million, of which $56 million relates to volume we
received from the oil spill
clean-up
project in the gulf coast region in 2010. We continued to
experience an increase in recycling volumes in both our
brokerage business and our material recovery facilities, and
when excluding volume associated with the oil spill
clean-up
project, our rate of volume decline improved over the prior year;
|
|
|
|
Operating expenses of $2,261 million, or 64.2% of revenues,
compared with $2,006 million, or 62.0% of revenues, in the
third quarter of 2010. This increase of $255 million, or
12.7%, is due primarily to higher customer rebates because of
higher recyclable commodity prices, increases resulting from
acquisitions, growth initiatives and higher fuel prices, all of
which have related revenue increases as noted above;
|
|
|
|
Selling, general and administrative expenses increased by
$11 million, or 3.0%, from $369 million in the third
quarter of 2010 to $380 million in the third quarter of
2011, largely due to acquisitions and costs incurred to support
our strategic growth plans and cost savings programs. We have
begun to see the associated benefits of these programs and
expect the benefits to accelerate into future quarters;
|
36
|
|
|
|
|
Income from operations of $543 million, or 15.4% of
revenues, compared with $544 million, or 16.8% of revenues,
in the third quarter of 2010; and
|
|
|
|
Net income attributable to Waste Management, Inc. of
$272 million, or $0.58 per diluted share, as compared with
$244 million, or $0.51 per diluted share in the third
quarter of 2010.
|
The comparability of our third quarter of 2011 results with the
third quarter of 2010 has been affected by certain items
management believes are not representative or indicative of our
performance. Our third quarter of 2011 results were affected by
the following:
|
|
|
|
|
The recognition of pre-tax restructuring charges, excluding
charges recognized in the operating results of Oakleaf, of
$14 million related to our cost savings programs. These
charges were primarily related to employee severance and benefit
costs and had a negative impact of $0.02 on our diluted earnings
per share;
|
|
|
|
The recognition of net non-cash, pre-tax charges of
$8 million arising from the accounting effect of lower
ten-year Treasury rates, which are used to discount remediation
reserves and related recovery assets at our landfills, offset in
part by the favorable impact from a revision to an environmental
remediation liability at a closed landfill. The net charges had
a negative impact of $0.01 on our diluted earnings per share;
|
|
|
|
The reduction in pre-tax earnings of approximately
$6 million related to the Oakleaf acquisition, which
includes the operating results of Oakleaf and related interest
expense and integration costs. These items had a negative impact
of $0.01 on our diluted earnings per share;
|
|
|
|
The recognition of non-cash, pre-tax charges of $6 million
related to impairments at two of our medical waste services
facilities. The impairment charges had a negative impact of
$0.01 on our diluted earnings per share; and
|
|
|
|
The recognition of a tax benefit of $10 million due to
favorable tax audit settlements and favorable adjustments
relating to the finalization of our 2010 tax returns. These
items had a positive impact of $0.02 on our diluted earnings per
share.
|
Our third quarter of 2010 results were affected by the following:
|
|
|
|
|
The recognition of pre-tax, non-cash charges aggregating
$18 million related to remediation and closure costs at
three closed sites, which had a negative impact of $0.02 on our
diluted earnings per share;
|
|
|
|
The recognition of a non-cash, pre-tax charge of $6 million
arising from the accounting effect of lower ten-year Treasury
rates, which are used to discount remediation reserves and
related recovery assets at our landfills. This charge had a
negative impact of $0.01 on our diluted earnings per
share; and
|
|
|
|
The recognition of net tax charges of $4 million due to
adjustments relating to the finalization of our 2009 tax
returns, partially offset by favorable tax audit settlements,
which, combined, had a negative impact of $0.01 on our diluted
earnings per share.
|
We intend to continue our commitment to investing in and
executing our strategy. On the revenue front, we continue to
expect our overall revenue growth from yield to be approximately
2.0% for the full year. Additionally, based on our results in
the first nine months of 2011 and our economic outlook for the
remainder of the year, we continue to expect our revenue growth
from volumes to be in the range of negative 1.5% to negative
2.5% for the full year.
Free
Cash Flow
As is our practice, we are presenting free cash flow, which is a
non-GAAP measure of liquidity, in our disclosures because we use
this measure in the evaluation and management of our business.
We define 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. We believe it is indicative of our ability to
pay our quarterly dividends, repurchase common stock, fund
acquisitions and other investments and, in the absence of
refinancings, to repay our debt obligations. Free cash flow is
not intended to replace Net cash provided by operating
activities, which is the most comparable U.S. GAAP
measure. However, we believe free cash flow gives
37
investors greater insight into how we view our liquidity.
Nonetheless, the use of free cash flow as a liquidity measure
has material limitations because it excludes certain
expenditures that are required or that we have committed to,
such as declared dividend payments and debt service requirements.
Our calculation of free cash flow and reconciliation to
Net cash provided by operating activities, is shown
in the table below (in millions), and may not be the same as
similarly-titled measures presented by other companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net cash provided by operating activities
|
|
$
|
659
|
|
|
$
|
677
|
|
|
$
|
1,737
|
|
|
$
|
1,653
|
|
Capital expenditures
|
|
|
(313
|
)
|
|
|
(262
|
)
|
|
|
(909
|
)
|
|
|
(737
|
)
|
Proceeds from divestitures of businesses (net of cash divested)
and other sales of assets(a)
|
|
|
26
|
|
|
|
9
|
|
|
|
39
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
372
|
|
|
$
|
424
|
|
|
$
|
867
|
|
|
$
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Proceeds from divestitures of businesses for the three and nine
months ended September 30, 2011 includes the receipt of a
payment of $17 million related to a note receivable from a
prior year divestiture. This repayment is included as a
component of Other within Cash flows from
investing activities in our Condensed Consolidated
Statement of Cash Flows.
|
Our cash flow from operating activities decreased
$18 million in the third quarter of 2011 as compared with
the third quarter of 2010 and increased $84 million during
the nine months ended September 30, 2011 as compared with
the same prior year period. Both comparisons were significantly
affected by a decline in cash paid for income taxes, offset, to
different extents, by non-recurring cash inflows to our
operating cash during the three and nine months ended
September 30, 2010. Our cash payments for income taxes
decreased $55 million and $226 million in the three-
and nine-month comparisons, respectively. In the second quarter
of 2010, we received $77 million for a litigation
settlement, and in the third quarter of 2010, we received a
$65 million federal tax refund related to the liquidation
of a foreign subsidiary in 2009.
The increase in capital expenditures is a result of our
increased spending on natural gas vehicles and fueling
infrastructure, information technology infrastructure and growth
initiatives and taking advantage of bonus depreciation
legislation. The nine-month increase in capital expenditures was
also affected by timing differences associated with cash
payments for the previous years fourth quarter capital
spending. We generally use a significant portion of our free
cash flow on capital spending in the fourth quarter of each
year. A more significant portion of our fourth quarter 2010
spending was paid in cash in the first quarter of 2011 than the
amount of our fourth quarter 2009 spending that was paid in cash
in the first quarter of 2010.
Acquisition
of Oakleaf Global Holdings
On July 28, 2011, we paid $432 million, net of cash
received of $4 million and inclusive of certain
adjustments, to acquire Oakleaf Global Holdings and its primary
operations. Oakleaf provides outsourced waste and recycling
services through a nationwide network of third-party haulers.
The operations we acquired generated approximately
$580 million in revenues in 2010. We acquired Oakleaf to
advance our growth and transformation strategies and increase
our national accounts customer base while enhancing our ability
to provide comprehensive environmental solutions. For the three
and nine months ended September 30, 2011, we incurred
$1 million of acquisition-related costs, which are
classified as Selling, general and administrative expense. Since
the acquisition date, Oakleaf has recognized revenues of
$112 million and net losses of less than $1 million,
which are included in our Condensed Consolidated Statement of
Operations. We have recorded a preliminary allocation of the
purchase price to Oakleaf tangible and intangible assets
acquired and liabilities assumed based on their estimated fair
values as of July 28,
38
2011. The allocation of the purchase price shown in the table
below is preliminary and subject to change based on the
finalization of our detailed valuations. The preliminary
purchase price allocation is as follows (in millions):
|
|
|
|
|
Accounts and other receivables
|
|
$
|
68
|
|
Other current assets
|
|
|
28
|
|
Property and equipment
|
|
|
77
|
|
Goodwill
|
|
|
320
|
|
Intangible assets
|
|
|
92
|
|
Accounts payable
|
|
|
(80
|
)
|
Accrued liabilities
|
|
|
(48
|
)
|
Deferred income taxes, net
|
|
|
(13
|
)
|
Other liabilities
|
|
|
(12
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
432
|
|
|
|
|
|
|
The following table presents the preliminary allocation of the
purchase price to intangible assets (amounts in millions, except
for amortization periods):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
Periods
|
|
|
|
Amount
|
|
|
(in Years)
|
|
|
Customer relationships
|
|
$
|
74
|
|
|
|
10.0
|
|
Vendor relationships
|
|
|
9
|
|
|
|
10.0
|
|
Trademarks
|
|
|
9
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
92
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $320 million was calculated as the excess of
the consideration paid over the net assets recognized and
represents the future economic benefits arising from other
assets acquired that could not be individually identified and
separately recognized. Goodwill is a result of expected
synergies from combining the Companys operations with
Oakleafs national accounts customer base and vendor
network. The vendor network expands our partnership with
third-party service providers. In many cases we can provide
vendor haulers with opportunities to maintain and increase their
business by utilizing our extensive post-collection network. We
believe this will generate significant benefits for the Company
and for the vendor haulers. Goodwill acquired will be allocated
to our operating segments upon completion of our detailed
valuations. Goodwill is not deductible for income tax purposes.
The following pro forma consolidated results of operations have
been prepared as if the acquisition of Oakleaf occurred at
January 1, 2010 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Operating revenues
|
|
$
|
3,566
|
|
|
$
|
3,379
|
|
|
$
|
10,287
|
|
|
$
|
9,740
|
|
Net income attributable to Waste Management, Inc.
|
|
|
272
|
|
|
|
239
|
|
|
|
689
|
|
|
|
660
|
|
Basic earnings per common share
|
|
|
0.58
|
|
|
|
0.50
|
|
|
|
1.46
|
|
|
|
1.37
|
|
Diluted earnings per common share
|
|
|
0.58
|
|
|
|
0.50
|
|
|
|
1.45
|
|
|
|
1.36
|
|
Adoption
of New Accounting Pronouncements
Multiple-Deliverable Revenue Arrangements
In
October 2009, the Financial Accounting Standards Board
(FASB) amended authoritative guidance associated
with multiple-deliverable revenue arrangements. This amended
guidance addresses the determination of when individual
deliverables within an arrangement are required to be treated as
separate units of accounting and modifies the manner in which
consideration is allocated across the separately identifiable
deliverables. The amendments to authoritative guidance
associated with multiple-deliverable revenue arrangements became
effective for the Company on January 1, 2011. The new
accounting standard has
39
been applied prospectively to arrangements entered into or
materially modified after the date of adoption. The adoption of
this guidance has not had a material impact on our consolidated
financial statements. However, our adoption of this guidance may
significantly impact our accounting and reporting for future
revenue arrangements to the extent they are material.
New
Accounting Pronouncements Pending Adoption
Fair Value Measurement
In May 2011, the FASB
amended authoritative guidance associated with fair value
measurements. This amended guidance defines certain requirements
for measuring fair value and for disclosing information about
fair value measurements in accordance with U.S. generally
accepted accounting principles. The amendments to authoritative
guidance associated with fair value measurements are effective
for the Company on January 1, 2012 and are to be applied
prospectively. We are in the process of assessing the provisions
of this new guidance and currently do not expect that the
adoption will have a material impact on our consolidated
financial statements.
Goodwill Impairment Testing
In September
2011, the FASB amended authoritative guidance associated with
goodwill impairment testing. The amended guidance provides
companies the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads
to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If,
after assessing the totality of events or circumstances, an
entity determines it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, then
performing the two-step impairment test is unnecessary. The
amendments are effective for goodwill impairment tests performed
for fiscal years beginning after December 15, 2011;
however, early adoption is permitted. We are in the process of
assessing the provisions of this new guidance and currently do
not expect that the adoption will have a material impact on our
consolidated financial statements.
Multiemployer Pension Plans
In September
2011, the FASB amended authoritative guidance associated with
disclosures about an employers participation in a
multiemployer plan. The amended disclosure requirements are
intended to provide more information about an employers
financial obligations to multiemployer plans and, therefore,
help financial statement users better understand the financial
health of all of the significant plans in which the employer
participates. The revised standard is effective for fiscal years
ending after December 15, 2011 and retrospective
application is required for all years presented. We are in the
process of assessing the provisions of this new guidance and
currently do not expect that the adoption of these new
disclosure requirements will have a material impact on our
consolidated financial statements.
Critical
Accounting Estimates and Assumptions
In preparing our financial statements, we make numerous
estimates and assumptions that affect the accounting for and
recognition and disclosure of assets, liabilities, equity,
revenues and expenses. We must make these estimates and
assumptions because certain information that we use is dependent
on future events, cannot be calculated with a high degree of
precision from data available or simply cannot be readily
calculated based on generally accepted methods. In some cases,
these estimates are particularly difficult to determine and we
must exercise significant judgment. In preparing our financial
statements, the most difficult, subjective and complex estimates
and the assumptions that present the greatest amount of
uncertainty relate to our accounting for landfills,
environmental remediation liabilities, asset impairments,
deferred income taxes and reserves associated with our insured
and self-insured claims, as described in Item 7 of our
Annual Report on
Form 10-K
for the year ended December 31, 2010. Actual results could
differ materially from the estimates and assumptions that we use
in the preparation of our financial statements.
Results
of Operations
Operating
Revenues
We manage and evaluate our principal operations through five
Groups. Our four geographic Groups, comprised of our Eastern,
Midwest, Southern and Western Groups, provide collection,
transfer, disposal (in both solid waste and hazardous waste
landfills) and recycling services. Our fifth Group is the
Wheelabrator Group,
40
which provides
waste-to-energy
services and manages
waste-to-energy
facilities and independent power production plants.
We also provide additional services that are not managed through
our five Groups, including our recent acquisition of Oakleaf,
recycling brokerage services, electronic recycling services,
in-plant services, landfill
gas-to-energy
services, and integrated medical waste services. Part of our
expansion of service offerings and solutions includes portable
self-storage services and fluorescent bulb and universal waste
mail-back through our
LampTracker
®
program. In addition, we have made investments that involve the
acquisition and development of interests in oil and gas
producing properties, and we will continue to consider similar
investments in the future. These operations are presented as
Other in the table below. Shown below (in millions)
is the contribution to revenues during each period provided by
our five Groups and our Other services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Eastern
|
|
$
|
822
|
|
|
$
|
755
|
|
|
$
|
2,326
|
|
|
$
|
2,214
|
|
Midwest
|
|
|
847
|
|
|
|
792
|
|
|
|
2,403
|
|
|
|
2,266
|
|
Southern
|
|
|
853
|
|
|
|
903
|
|
|
|
2,553
|
|
|
|
2,602
|
|
Western
|
|
|
841
|
|
|
|
809
|
|
|
|
2,456
|
|
|
|
2,372
|
|
Wheelabrator
|
|
|
228
|
|
|
|
237
|
|
|
|
664
|
|
|
|
660
|
|
Other
|
|
|
462
|
|
|
|
248
|
|
|
|
1,085
|
|
|
|
688
|
|
Intercompany
|
|
|
(531
|
)
|
|
|
(509
|
)
|
|
|
(1,515
|
)
|
|
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,522
|
|
|
$
|
3,235
|
|
|
$
|
9,972
|
|
|
$
|
9,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The mix of operating revenues from our major lines of business
is reflected in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Collection
|
|
$
|
2,150
|
|
|
$
|
2,119
|
|
|
$
|
6,287
|
|
|
$
|
6,175
|
|
Landfill
|
|
|
690
|
|
|
|
674
|
|
|
|
1,940
|
|
|
|
1,900
|
|
Transfer
|
|
|
337
|
|
|
|
342
|
|
|
|
965
|
|
|
|
1,005
|
|
Wheelabrator
|
|
|
228
|
|
|
|
237
|
|
|
|
664
|
|
|
|
660
|
|
Recycling
|
|
|
438
|
|
|
|
286
|
|
|
|
1,227
|
|
|
|
836
|
|
Other
|
|
|
210
|
|
|
|
86
|
|
|
|
404
|
|
|
|
226
|
|
Intercompany
|
|
|
(531
|
)
|
|
|
(509
|
)
|
|
|
(1,515
|
)
|
|
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,522
|
|
|
$
|
3,235
|
|
|
$
|
9,972
|
|
|
$
|
9,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
The following table provides details associated with the
period-to-period
change in revenues (dollars in millions) along with an
explanation of the significant components of the current period
changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
Period-to-Period
|
|
|
|
Change for the
|
|
|
Change for the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011 vs. 2010
|
|
|
2011 vs. 2010
|
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
Amount
|
|
|
Company(a)
|
|
|
Amount
|
|
|
Company(a)
|
|
|
Average yield(b)
|
|
$
|
191
|
|
|
|
5.9
|
%
|
|
$
|
526
|
|
|
|
5.6
|
%
|
Volume
|
|
|
(64
|
)
|
|
|
(2.0
|
)
|
|
|
(167
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal revenue growth
|
|
|
127
|
|
|
|
3.9
|
|
|
|
359
|
|
|
|
3.8
|
|
Acquisitions
|
|
|
150
|
|
|
|
4.6
|
|
|
|
255
|
|
|
|
2.7
|
|
Divestitures
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Foreign currency translation
|
|
|
11
|
|
|
|
0.4
|
|
|
|
32
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
287
|
|
|
|
8.9
|
%
|
|
$
|
644
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Calculated by dividing the amount of current period increase or
decrease by the prior periods total Company revenue
adjusted to exclude the impacts of divestitures for the current
period ($3,234 million and $9,326 million for the
three- and nine-month periods, respectively).
|
|
(b)
|
|
The amounts reported herein represent the changes in our revenue
attributable to average yield for the total Company. We analyze
the changes in average yield in terms of related business
revenues in order to differentiate the changes in yield
attributable to our pricing strategies from the changes that are
caused by market-driven price changes in commodities. The
following table summarizes changes in revenues from average
yield on a related-business basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
Period-to-Period
|
|
|
|
Change for the
|
|
|
Change for the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011 vs. 2010
|
|
|
2011 vs. 2010
|
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
Related
|
|
|
|
Amount
|
|
|
Business(i)
|
|
|
Amount
|
|
|
Business(i)
|
|
|
Average yield:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection, landfill and transfer
|
|
$
|
45
|
|
|
|
1.7
|
%
|
|
$
|
155
|
|
|
|
2.0
|
%
|
Waste-to-energy
disposal(ii)
|
|
|
(2
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection and disposal(ii)
|
|
|
43
|
|
|
|
1.6
|
|
|
|
155
|
|
|
|
2.0
|
|
Recycling commodities
|
|
|
104
|
|
|
|
34.9
|
|
|
|
236
|
|
|
|
27.2
|
|
Electricity(ii)
|
|
|
(3
|
)
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
Fuel surcharges and mandated fees
|
|
|
47
|
|
|
|
41.2
|
|
|
|
135
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
191
|
|
|
|
5.9
|
%
|
|
$
|
526
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
|
Calculated by dividing the increase or decrease for the current
period by the prior periods related business revenue,
adjusted to exclude the impacts of divestitures for the current
period. The table below summarizes the related business revenues
for the three and nine months ended September 30, 2010
adjusted to exclude the impacts of divestitures:
|
42
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
Related business revenues:
|
|
|
|
|
|
|
|
|
Collection, landfill and transfer
|
|
$
|
2,624
|
|
|
$
|
7,583
|
|
Waste-to-energy
disposal
|
|
|
124
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
Collection and disposal
|
|
|
2,748
|
|
|
|
7,930
|
|
Recycling commodities
|
|
|
298
|
|
|
|
868
|
|
Electricity
|
|
|
74
|
|
|
|
202
|
|
Fuel surcharges and mandated fees
|
|
|
114
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
3,234
|
|
|
$
|
9,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
|
Average revenue growth from yield for Collection and
disposal excludes all electricity-related revenues
generated by our Wheelabrator Group, which are reported as
Electricity revenues.
|
Our revenues increased $287 million, or 8.9%, for the three
months ended September 30, 2011 as compared with the prior
year period and $644 million, or 6.9%, for the nine months
ended September 30, 2011 as compared with the prior year
period. During the three- and nine-month periods, our current
period revenue growth has been driven by (i) market
factors, including higher recyclable commodity prices; higher
diesel fuel prices, which increase revenues provided by our fuel
surcharge program; and foreign currency translation, which
affects revenues from our Canadian operations; (ii) revenue
growth from average yield on our collection and disposal
operations; and (iii) acquisitions, particularly the
acquisition of Oakleaf, which increased consolidated revenues by
$106 million for the three and nine months ended
September 30, 2011. Offsetting these revenue increases were
revenue declines due to lower volumes.
The following provides further details associated with our
period-to-period
change in revenues.
Average
yield
Collection and disposal average yield
This
measure reflects the effect on our revenue from the pricing
activities of our collection, transfer, landfill and
waste-to-energy
disposal operations, exclusive of volume changes. Revenue growth
from collection and disposal average yield includes not only
base rate changes and environmental and service fee increases,
but also (i) certain average price changes related to the
overall mix of services, which are due to both the types of
services provided and the geographic locations where our
services are provided; (ii) changes in average price from
new and lost business; and (iii) price decreases to retain
customers.
For the first nine months of 2011, our revenue growth from yield
on our collection and disposal lines of business was
$155 million, or 2.0%. This increase in revenue from yield
was primarily driven by our collection operations, which
experienced yield growth in all lines of business and in every
geographic operating Group. As discussed below, increased
collection revenues due to average yield have been more than
offset by revenue declines from lower collection volumes.
However, revenue growth from yield on base business and our
efforts toward controlling variable costs continue to favorably
influence margin changes in our collection line of business.
The current quarter revenue growth from collection and disposal
average yield was $43 million, or 1.6%, as compared with
the prior year period. This revenue increase from yield was
primarily driven by our collection operations; however, we also
experienced yield growth from our disposal operations. Our 1.6%
increase for the three months ended September 30, 2011 is
less than the 2.0% increase for the nine-month period. This is
due in large part to our residential line of business, in which
we have experienced downward pressure on our revenue growth from
yield across most of our geographic Groups, most notably in our
Eastern and Southern Groups. Because it has become increasingly
difficult to retain customers and to win new contracts at
current average rates due to competition, the Company, in many
instances, has offered increased services, principally recycling
services, without a commensurate rate increase when bidding on
or renewing residential contracts. In addition, the subscription
component of our residential business is experiencing similar
competitive challenges. This
43
combination of increased competition and bundling of certain
complementary services in the residential line of business has
put added pressure on our revenue growth from yield.
Our total collection and disposal revenue growth from yield has
also been negatively affected during the third quarter of 2011
by other factors, primarily in our Southern Group, including the
negative effect of changes in the mix of our temporary and
permanent customers in our industrial business, particularly in
North and South Florida. Overall, we have found that increasing
our revenue growth from yield in todays market is a
challenge given the reduced volume levels resulting from the
economic slowdown, the increased service offerings in many of
our new contracts, and the highly competitive environment.
Additionally, a significant portion of our collection revenues
are generated under long-term franchise agreements with
municipalities or similar local or regional authorities. Price
adjustments under these agreements are typically based on
inflation indices, which have been at historic lows over the
past two years, although recent data has trended upward. Despite
this headwind, we are committed to maintaining pricing
discipline in order to improve revenue growth from yield on our
base business for the remainder of 2011.
Revenues from our environmental fee, which are included in
average revenue growth from yield on collection and disposal,
increased $8 million for the three month
year-over-year
comparison, and increased $20 million for the nine month
year-over-year
comparison. These revenues were $77 million and
$206 million during the three and nine months ended
September 30, 2011, respectively, as compared with
$69 million and $186 million, respectively, in the
comparable prior year periods.
Recycling commodities
Increases in the prices
of the recycling commodities we process resulted in an increase
in revenues of $104 million for the three months ended
September 30, 2011 and $236 million for the nine
months ended September 30, 2011 as compared with the
respective prior year periods. For the first nine months of
2011, our overall commodity prices have increased approximately
26% as compared with the first nine months of the prior year.
Fuel surcharges and mandated fees
These
revenues, which are predominantly generated by our fuel
surcharge program, increased by $47 million and
$135 million during the three and nine months ended
September 30, 2011, respectively. This increase is directly
attributable to higher national average prices for diesel fuel
that we use for our fuel surcharge program. The mandated fees
included in this line item are primarily related to the
pass-through of fees and taxes assessed by various state, county
and municipal governmental agencies at our landfills and
transfer stations. These mandated fees have not had a
significant impact on the comparability of revenues for the
periods included in the table above.
Volume
Our revenue decline due to volume was
$64 million, or 2.0%, and $167 million, or 1.8%, for
the three and nine months ended September 30, 2011,
respectively. Volume declines are generally attributable to
economic conditions, pricing, competition and increasing focus
on waste reduction and diversion by consumers. Additionally, the
oil spill
clean-up
project in the gulf coast region in 2010 unfavorably impacted
our
year-over-year
volume change by $56 million and $66 million for the
three and nine months ended September 30, 2011,
respectively.
Volume declines from our collection business accounted for
$102 million and $274 million of volume-related
revenue decline for the three and nine months ended
September 30, 2011, respectively. For the first nine months
of 2011, we experienced commercial and residential collection
revenue declines due to lower volume that we attribute to the
overall weakness in the economy, as well as the effects of
pricing, competition and diversion of waste by consumers. Our
industrial collection operations continued to be affected by the
current economic environment due to the construction slowdown
across the United States. Lower third-party volumes in our
transfer station operations also caused revenue declines in the
current year period and can generally be attributed to economic
conditions and the effects of pricing and competition.
Furthermore, as discussed above, the overall
year-over-year
comparison of volumes in the collection line of business was
unfavorably impacted by volume we received from the oil spill
clean-up
project in the gulf coast region in 2010. Additionally, for the
first nine months of 2011, we experienced revenue declines due
to lower volumes at our
waste-to-energy
facilities, primarily driven by the expiration of a long-term
electric power capacity agreement on December 31, 2010,
although these declines were offset, to some extent, by
volume-related revenue increases associated with an increase in
tons of waste processed by our
waste-to-energy
plants and electricity production.
44
Revenue declines due to volume detailed above were offset in
part by revenue increases of $24 million and
$95 million for the three and nine months ended
September 30, 2011, respectively, primarily from
year-over-year
volume improvements in our recycling brokerage business and in
our material recovery facilities. Our continued pursuit of
municipal volumes as well as the addition of new single stream
recycling facilities during 2011 contributed to these revenue
increases due to volume. We also experienced volume-related
revenue increases of $9 million and $33 million for
the three and nine months ended September 30, 2011,
respectively, from our strategic growth businesses and our
landfill
gas-to-energy
operations. Additionally, our total landfill revenues increased
$3 million and $12 million due to higher third-party
volumes during the three and nine months ended
September 30, 2011, respectively, as compared with the same
prior year periods. However, our landfill municipal solid waste
volumes continued to decline during the three and nine months
ended September 30, 2011 as compared with the same prior
year periods due to economic conditions, increased pricing,
competition and increased focus on waste reduction and diversion
by consumers.
We continue to strive for positive revenue growth from volumes;
however, the impacts of (i) the continued weakness of the
overall economic environment on our commercial and residential
businesses; (ii) increasing focus on waste reduction and
diversion by consumers; and (iii) pricing and competition
continue to present challenges to maintaining and growing
volumes.
Acquisitions and divestitures
Revenue
increased $150 million and $255 million for the three
and nine months ended September 30, 2011, respectively, due
to acquisitions, principally associated with Oakleaf in our
Other businesses, demonstrating our current focus on
identifying strategic growth opportunities in new, complementary
lines of business.
Operating
Expenses
Our operating expenses increased $255 million, or 12.7%,
and $513 million, or 8.7%, when comparing the three and
nine months ended September 30, 2011 with the comparable
prior-year periods, respectively. Our operating expenses as a
percentage of revenues increased from 62.0% in the third quarter
of 2010 to 64.2% in the current quarter, and increased from
63.1% for the nine months ended September 30, 2010 to 64.1%
for the nine months ended September 30, 2011. The changes
in our operating expenses during the three and nine months ended
September 30, 2011 can largely be attributed to the
following:
|
|
|
|
|
Higher market prices for recyclable commodities
Overall, market prices for recyclable commodities increased
approximately 26% as compared with prior year levels on a
year-to-date
basis. The
year-over-year
increase is the result of the continued increase in recyclable
commodity prices from the near-historic lows reached in late
2008 and early 2009. In March 2011, market prices almost
attained the decade-high levels reached during the third quarter
of 2008. Market pricing held very close to these levels during
the second quarter of 2011 and, in the third quarter of 2011,
reached new all time highs. This increase in market prices was
the main driver of the current quarter increase in cost of goods
sold, primarily customer recycling rebates, as presented in the
table below and has also resulted in increased revenues and
earnings this year;
|
|
|
|
Fuel cost increases
On average, diesel fuel
prices increased 32% from $2.94 per gallon in the third quarter
of 2010 to $3.87 per gallon in the third quarter of 2011. On a
year-to-date
basis, diesel fuel prices increased 31% from $2.94 per gallon in
the first nine months of 2010 to $3.84 per gallon in the first
nine months of 2011. Higher fuel costs caused increases in both
our direct fuel costs and in the fuel component of our
subcontractor costs for the three and nine months ended
September 30, 2011. The unfavorable impact of
year-over-year
increases in fuel prices on our operating costs was offset by
increased revenues attributable to our fuel surcharge program;
|
|
|
|
Acquisitions and growth initiatives
We have
experienced cost increases attributable to recently acquired
businesses and, to a lesser extent, our various growth and
business development initiatives. We estimate that these cost
increases affected each of the operating cost categories
identified in the table below and accounted for over 40% of our
total $513 million
year-to-date
increase in operating expenses. Our acquisition of Oakleaf
increased operating costs by $91 million in the current
quarter, primarily impacting subcontractor costs and, to a
lesser extent, the cost of goods sold and other categories. The
increase in operating expenses resulting from acquired
businesses was more than offset by increased revenues from
acquired businesses; and
|
45
|
|
|
|
|
Volume declines
During the three and nine
months ended September 30, 2011, we continued to experience
volume declines as a result of the ongoing weakness of the
overall economic environment, pricing, competition and increased
focus on waste reduction and diversion by consumers. We continue
to manage our fixed costs and reduce our variable costs as we
experience volume declines and have achieved cost savings as a
result. These cost decreases have benefited each of the
operating cost categories identified in the table below.
|
The following table summarizes the major components of our
operating expenses, which include the impact of foreign currency
translation, for the three- and nine-month periods ended
September 30 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period-to-
|
|
|
Ended
|
|
|
Period-to-
|
|
|
|
September 30,
|
|
|
Period
|
|
|
September 30,
|
|
|
Period
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Labor and related benefits
|
|
$
|
598
|
|
|
$
|
576
|
|
|
$
|
22
|
|
|
|
3.8
|
%
|
|
$
|
1,743
|
|
|
$
|
1,723
|
|
|
$
|
20
|
|
|
|
1.2
|
%
|
Transfer and disposal costs
|
|
|
246
|
|
|
|
243
|
|
|
|
3
|
|
|
|
1.2
|
|
|
|
709
|
|
|
|
712
|
|
|
|
(3
|
)
|
|
|
(0.4
|
)
|
Maintenance and repairs
|
|
|
271
|
|
|
|
265
|
|
|
|
6
|
|
|
|
2.3
|
|
|
|
829
|
|
|
|
795
|
|
|
|
34
|
|
|
|
4.3
|
|
Subcontractor costs
|
|
|
277
|
|
|
|
217
|
|
|
|
60
|
|
|
|
27.6
|
|
|
|
658
|
|
|
|
577
|
|
|
|
81
|
|
|
|
14.0
|
|
Cost of goods sold
|
|
|
306
|
|
|
|
201
|
|
|
|
105
|
|
|
|
52.2
|
|
|
|
822
|
|
|
|
555
|
|
|
|
267
|
|
|
|
48.1
|
|
Fuel
|
|
|
161
|
|
|
|
122
|
|
|
|
39
|
|
|
|
32.0
|
|
|
|
471
|
|
|
|
366
|
|
|
|
105
|
|
|
|
28.7
|
|
Disposal and franchise fees and taxes
|
|
|
157
|
|
|
|
152
|
|
|
|
5
|
|
|
|
3.3
|
|
|
|
452
|
|
|
|
441
|
|
|
|
11
|
|
|
|
2.5
|
|
Landfill operating costs
|
|
|
69
|
|
|
|
73
|
|
|
|
(4
|
)
|
|
|
(5.5
|
)
|
|
|
193
|
|
|
|
248
|
|
|
|
(55
|
)
|
|
|
(22.2
|
)
|
Risk management
|
|
|
56
|
|
|
|
52
|
|
|
|
4
|
|
|
|
7.7
|
|
|
|
175
|
|
|
|
151
|
|
|
|
24
|
|
|
|
15.9
|
|
Other
|
|
|
120
|
|
|
|
105
|
|
|
|
15
|
|
|
|
14.3
|
|
|
|
344
|
|
|
|
315
|
|
|
|
29
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,261
|
|
|
$
|
2,006
|
|
|
$
|
255
|
|
|
|
12.7
|
%
|
|
$
|
6,396
|
|
|
$
|
5,883
|
|
|
$
|
513
|
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
year-over-year
changes in our operating expenses by category are discussed
below.
|
|
|
|
|
Labor and related benefits
The current
quarter and
year-to-date
increases were due to higher hourly and salaried wages due to
merit increases and additional employee expenses incurred from
acquisitions and growth opportunities, offset in part by cost
savings that have been achieved in the current year as volumes
have declined. On a
year-to-date
basis this net increase has been partially offset by the impact
of (i) a decrease in bonus expense, and
(ii) $26 million in prior year charges incurred by our
Midwest Group as a result of bargaining unit employees in
Michigan and Ohio agreeing to our proposal to withdraw them from
an underfunded multiemployer pension plan. These withdrawal
charges were largely recognized during the first quarter of 2010.
|
|
|
|
Maintenance and repairs
The increase was due
to higher costs in our geographic Groups largely attributable to
increased fleet maintenance costs, which include services
provided by third-parties, tires, parts and internal shop labor
costs. The increase in expense for tires and parts reflects the
worldwide increase in commodity prices. These increases were
offset partially by the favorable impacts of differences in the
timing and scope of planned maintenance projects at our
waste-to-energy
and landfill
gas-to-energy
facilities for both the current quarter and, to a lesser extent,
the nine months ended September 30, 2011 as compared with
the prior year periods and to decreases resulting from lower
volumes.
|
|
|
|
Subcontractor costs
The current year increase
in subcontractor costs was primarily a result of the Oakleaf
acquisition, increased diesel fuel prices, other recent
acquisitions, our various growth and business development
initiatives and additional costs associated with servicing our
in-plant services customers. Oakleaf utilizes a nationwide
network of third-party haulers to service its customers. These
increases were partially offset by the impacts of
(i) additional prior year costs attributable to the oil
spill
clean-up
projects in the gulf coast region during the second and third
quarters; and (ii) cost savings that have been achieved in
the current year as volumes have declined.
|
|
|
|
Cost of goods sold
The significant increase
was primarily from higher customer rebates as a result of the
improvement in recycling commodity pricing discussed above and,
to a lesser extent, (i) increases in the volume of
materials processed at our existing recycling facilities, and
(ii) increases resulting from the Oakleaf acquisition and
other recently acquired businesses.
|
46
|
|
|
|
|
Fuel
Higher direct costs for diesel fuel were
due to an increase in market prices on a
year-over-year
basis of 32% and 31% for the three and nine months ended
September 30, 2011, respectively.
|
|
|
|
Landfill operating costs
The decrease in
these costs during the current year was due largely to:
|
|
|
|
|
|
The prior year recognition of net charges for estimates
associated with environmental remediation liabilities of
$13 million for two closed sites and $50 million for
four closed sites during the three and nine months ended
September 30, 2010, respectively. During the third quarter
of 2011 the Company recognized a $9 million favorable
revision to an environmental liability at one of these sites
based on the estimated cost of the remediation alternative
selected by the EPA; and
|
|
|
|
The prior year recognition of unfavorable adjustments of
$6 million and $14 million during the three and nine
months ended September 30, 2010, respectively, due to the
decreases in United States Treasury rates. During the three and
nine months ended September 30, 2010, the discount rate
used to estimate the present value of our environmental
remediation obligations and recovery assets decreased from 3.00%
to 2.50% and from 3.75% to 2.50%, respectively.
|
|
|
|
The favorable impact of these items on the
year-over-year
comparison of landfill operating costs was offset, in part, by
the current quarter recognition of an unfavorable adjustment of
$17 million due to further decreases in United States
Treasury rates from 3.50% to 2.00%; and
|
|
|
|
Additional current quarter landfill site costs experienced along
the East Coast, which were due to significant rainfall,
including the effects from Hurricane Irene and Tropical Storm
Lee.
|
|
|
|
|
|
Risk management
The current year increase in
risk management costs was primarily a result of several
significant auto and general liability claims in the current
year and the prior year recognition of a favorable adjustment
associated with prior period claims.
|
|
|
|
Other
The increase in these costs during the
current year was attributable, in part, to our various growth
and business development initiatives and recently acquired
businesses, including the Oakleaf acquisition. These cost
increases were offset in part by prior year costs attributable
to the oil spill
clean-up
project in the gulf coast region during the second and third
quarters of 2010 and the payment from an insurance claim for
business interruption and property damages in the third quarter
of 2010 related to an outage resulting from the failure of a
generator that occurred in the second quarter of 2010 at one of
our
waste-to-energy
facilities.
|
Selling,
General and Administrative
Our selling, general and administrative expenses increased by
$11 million, or 3.0%, and $79 million, or 7.4%, when
comparing the three and nine months ended September 30,
2011 with the comparable prior-year periods. The increases are
largely due to (i) increased consulting costs of
$6 million and $37 million during the three- and
nine-month periods, respectively, incurred during the
start-up
phase of new cost savings programs focusing on procurement and
operational and back-office efficiency; (ii) additional
costs, principally in labor and related benefits, incurred to
support our strategic plan to grow into new markets and provide
expanded service offerings; and (iii) additional costs of
$12 million attributable to our acquisition of Oakleaf.
Additionally, our costs increased $11 million during the
nine-month period, as a result of improvements we are making to
our information technology systems. Our selling, general and
administrative expenses as a percentage of revenues decreased
from 11.4% for the third quarter of 2010 to 10.8% for the third
quarter of 2011, and increased from 11.4% for the nine months
ended September 30, 2010 to 11.5% for the nine months ended
September 30, 2011.
47
The following table summarizes the major components of our
selling, general and administrative expenses for the three-and
nine-month periods ended September 30 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period-to-
|
|
|
Ended
|
|
|
Period-to-
|
|
|
|
September 30,
|
|
|
Period
|
|
|
September 30,
|
|
|
Period
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Labor and related benefits
|
|
$
|
233
|
|
|
$
|
220
|
|
|
$
|
13
|
|
|
|
5.9
|
%
|
|
$
|
676
|
|
|
$
|
630
|
|
|
$
|
46
|
|
|
|
7.3
|
%
|
Professional fees
|
|
|
39
|
|
|
|
46
|
|
|
|
(7
|
)
|
|
|
(15.2
|
)
|
|
|
146
|
|
|
|
129
|
|
|
|
17
|
|
|
|
13.2
|
|
Provision for bad debts
|
|
|
15
|
|
|
|
11
|
|
|
|
4
|
|
|
|
36.4
|
|
|
|
32
|
|
|
|
33
|
|
|
|
(1
|
)
|
|
|
(3.0
|
)
|
Other
|
|
|
93
|
|
|
|
92
|
|
|
|
1
|
|
|
|
1.1
|
|
|
|
290
|
|
|
|
273
|
|
|
|
17
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
380
|
|
|
$
|
369
|
|
|
$
|
11
|
|
|
|
3.0
|
%
|
|
$
|
1,144
|
|
|
$
|
1,065
|
|
|
$
|
79
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and related benefits
In 2011, our labor
and related benefits costs increased primarily due to
(i) higher compensation costs due to an increase in
headcount driven by our strategic growth plans, optimization
initiatives, cost savings programs, and our acquisition of
Oakleaf; (ii) higher salaries and hourly wages due to merit
increases; and (iii) higher non-cash compensation costs
incurred for our performance share units and our stock option
equity awards granted under our long-term incentive plan, or
LTIP, during the nine months of 2011; offset partially by lower
costs associated with our executive salary deferral plan, the
costs of which are directly affected by equity-market
conditions. Similar to the stock option awards granted during
2010, the stock option equity awards that were granted in 2011
provide for continued vesting for three years following an
employees retirement. Because retirement-eligible
employees are not required to provide any future service to vest
in these awards, we recognized all of the compensation expense
associated with their awards immediately. The increase in these
costs in 2011 is attributable to a significant increase in the
number of stock option awards granted in 2011 over those granted
in 2010, and an increase in the number of retirement-eligible
employees receiving those awards. The increase in the number of
stock option awards granted in 2011 was driven in part by a
change in the composition of our 2011 annual LTIP award grant
compared with our 2010 annual LTIP award grant to utilize stock
options to a greater extent and to reduce the amount of
performance share units awarded.
Professional fees
During the nine-month
period ending September 30, 2011, our professional fees
increased over the comparable prior-year period due to increased
consulting fees primarily associated with our new cost savings
programs. These fees declined significantly during the third
quarter of 2011 as compared with the previous quarters of the
current year. We have begun to see the associated benefits of
these programs and expect the benefits to accelerate into future
quarters. The following items more than offset the increase in
consulting fees for the three-month comparison and slightly
offset the increase in consulting fees for the nine-month
comparison: (i) a reduction in legal fees associated
primarily with the lawsuit related to the abandonment of revenue
management software, which was settled in the second quarter of
2010, and (ii) lower costs during 2011 as compared with
2010 for costs associated with our strategic growth plans.
Provision for bad debts
During the current
quarter, our provision for bad debts increased due in part to a
required reserve associated with the bankruptcy of one of our
recycling paper mill customers. Despite the current quarter
increase, we still experienced a moderate reduction in our
provision for bad debts for the nine months ended
September 30, 2011, which reflects managements
continued focus on the collection of our receivables.
Other
We have experienced expense increases
from litigation settlements and improvements we are making to
our information technology systems.
48
Depreciation
and Amortization
The following table summarizes the components of our
depreciation and amortization expense for the three- and
nine-month periods ended September 30 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period-to-
|
|
|
Ended
|
|
|
Period-to-
|
|
|
|
September 30,
|
|
|
Period
|
|
|
September 30,
|
|
|
Period
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Depreciation of tangible property and equipment
|
|
$
|
200
|
|
|
$
|
195
|
|
|
$
|
5
|
|
|
|
2.6
|
%
|
|
$
|
599
|
|
|
$
|
586
|
|
|
$
|
13
|
|
|
|
2.2
|
%
|
Amortization of landfill airspace
|
|
|
103
|
|
|
|
112
|
|
|
|
(9
|
)
|
|
|
(8.0
|
)
|
|
|
300
|
|
|
|
301
|
|
|
|
(1
|
)
|
|
|
(0.3
|
)
|
Amortization of intangible assets
|
|
|
14
|
|
|
|
10
|
|
|
|
4
|
|
|
|
40.0
|
|
|
|
36
|
|
|
|
30
|
|
|
|
6
|
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317
|
|
|
$
|
317
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
935
|
|
|
$
|
917
|
|
|
$
|
18
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When comparing depreciation and amortization expense for the
current quarter with the third quarter of 2010, the decrease in
landfill airspace amortization is due to additional expense
recorded in 2010 for adjustments to amortization rates at
various landfill sites. The higher amortization rates at these
landfills were principally attributable to increases in cost
estimates.
The increases in depreciation of tangible property and equipment
and amortization of intangible assets for the three-and
nine-month periods can generally be attributed to our focus on
the growth and development of our business through acquisitions
and other investments. The current year increase in amortization
expense for intangible assets is primarily related to the
amortization of customer lists, which were acquired
(i) through our acquisition of Oakleaf, (ii) by our
Southern Group and (iii) by our recycling and electronic
brokerage services business.
Restructuring
In July 2011, we took steps to streamline our organization as
part of our cost savings programs. This reorganization
eliminated over 700 employee positions throughout the
Company, including approximately 300 open positions. During the
three and nine months ended September 30, 2011, we
recognized $15 million of pre-tax restructuring charges
associated with this reorganization, which included
$14 million of employee severance and benefit costs.
Through September 30, 2011, we have paid approximately
$4 million of the employee severance and benefit costs
incurred as a result of this restructuring.
(Income)
Expense from Divestitures, Asset Impairments and Unusual
Items
During the third quarter of 2011, we recognized impairment
charges relating to two facilities in our medical waste services
business as a result of the closure of one site and as a result
of continuing operating losses at the other site. We wrote down
the net book values of the sites to their estimated fair values.
We filed a lawsuit in March 2008 related to the revenue
management software implementation that was suspended in 2007
and abandoned in 2009. Accordingly, in 2009, we recognized a
non-cash charge of $51 million for the abandonment of the
licensed software. In April 2010, we settled the lawsuit and
received a one-time cash payment. The settlement increased our
Income from operations for the nine months ended
September 30, 2010 by $77 million.
49
Income
from Operations by Reportable Segment
The following table summarizes income from operations by
reportable segment for the three- and nine-month periods ended
September 30 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period-to-
|
|
|
Ended
|
|
|
Period-to-
|
|
|
|
September 30,
|
|
|
Period
|
|
|
September 30,
|
|
|
Period
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
$
|
146
|
|
|
$
|
138
|
|
|
$
|
8
|
|
|
|
5.8
|
%
|
|
$
|
407
|
|
|
$
|
390
|
|
|
$
|
17
|
|
|
|
4.4
|
%
|
Midwest
|
|
|
175
|
|
|
|
149
|
|
|
|
26
|
|
|
|
17.4
|
|
|
|
460
|
|
|
|
372
|
|
|
|
88
|
|
|
|
23.7
|
|
Southern
|
|
|
194
|
|
|
|
218
|
|
|
|
(24
|
)
|
|
|
(11.0
|
)
|
|
|
579
|
|
|
|
624
|
|
|
|
(45
|
)
|
|
|
(7.2
|
)
|
Western
|
|
|
154
|
|
|
|
146
|
|
|
|
8
|
|
|
|
5.5
|
|
|
|
436
|
|
|
|
416
|
|
|
|
20
|
|
|
|
4.8
|
|
Wheelabrator
|
|
|
57
|
|
|
|
67
|
|
|
|
(10
|
)
|
|
|
(14.9
|
)
|
|
|
112
|
|
|
|
150
|
|
|
|
(38
|
)
|
|
|
(25.3
|
)
|
Other
|
|
|
(40
|
)
|
|
|
(38
|
)
|
|
|
(2
|
)
|
|
|
(5.3
|
)
|
|
|
(75
|
)
|
|
|
(93
|
)
|
|
|
18
|
|
|
|
(19.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
686
|
|
|
|
680
|
|
|
|
6
|
|
|
|
0.9
|
|
|
|
1,919
|
|
|
|
1,859
|
|
|
|
60
|
|
|
|
3.2
|
|
Corporate and Other
|
|
|
(143
|
)
|
|
|
(136
|
)
|
|
|
(7
|
)
|
|
|
5.1
|
|
|
|
(443
|
)
|
|
|
(317
|
)
|
|
|
(126
|
)
|
|
|
39.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543
|
|
|
$
|
544
|
|
|
$
|
(1
|
)
|
|
|
(0.2
|
)%
|
|
$
|
1,476
|
|
|
$
|
1,542
|
|
|
$
|
(66
|
)
|
|
|
(4.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
During the three and nine
months ended September 30, 2011, revenue growth from yield
on our base business and the significant
year-over-year
improvement in market prices for recyclable commodities improved
the results of operations of each of our geographic Groups on a
year-over-year
basis. These increases in our geographic Groups 2011
results were offset, in part, by (i) a decrease in income
from operations caused by continued volume declines due to the
economy, pricing, competition and increasing trends of waste
reduction and diversion by consumers, (ii) an increase in
salaries and wages due to annual merit increases effective in
April, (iii) an increase in maintenance and repairs costs,
and (iv) restructuring charges. The third quarter
year-over-year
decline in our Southern Groups results was principally
driven by these items.
Other significant items affecting the comparability of our
Groups results of operations for the three and nine months
ended September 30, 2011 and 2010 are summarized below:
Midwest
The income from operations of our
Midwest Group for the nine months ended September 30, 2010
was significantly affected by the recognition of
$26 million in charges incurred as a result of bargaining
unit employees in Michigan and Ohio agreeing to our proposal to
withdraw them from an underfunded multiemployer pension plan.
These charges were largely recognized during the first quarter
of 2010.
Southern
During the first quarter of 2011,
the Group recognized a charge of $11 million related to
litigation reserves. This charge was initially recognized in
Other during the fourth quarter 2010. The
Groups operating results were also negatively affected by
the volume decline previously discussed, which includes the
unfavorable
year-over-year
impact of 2010 project volumes resulting from the oil spill
clean-up
project in the gulf coast region.
Wheelabrator
The decrease in income from
operations of our Wheelabrator Group for the three and nine
months ended September 30, 2011 as compared to the
respective prior year periods was driven largely by
(i) lower revenues due to the expiration of a long-term
electric power capacity agreement that expired December 31,
2010; (ii) an increase in
year-to-date
maintenance costs at our facility in Portsmouth, Virginia that
we acquired in April 2010; (iii) the unfavorable
year-over-year
impact of the payment from an insurance claim for business
interruption and property damages in the third quarter of 2010
related to an outage resulting from the failure of a generator
that occurred in the second quarter of 2010 at one of our
facilities and (iv) additional expenses recognized for
litigation reserves and associated compliance costs. A portion
of the expenses for litigation and associated costs were
initially recognized in Other during the fourth
quarter of 2010. During the second and third quarters of 2011
the impact of these unfavorable items was partially offset by
the benefit of an improvement in market prices for electricity
and the timing of planned maintenance activity as compared with
the prior year.
Other
The favorable change in operating
results during the nine months ended September 30, 2011 is
largely due to the reversal of certain year-end 2010 adjustments
initially recorded in consolidation related to our
50
reportable segments that are now included in the measure of
segment income from operations used to assess their performance
for 2011. These adjustments were primarily related to
$15 million of additional expense recognized during the
fourth quarter of 2010 for litigation and associated costs in
our Southern and Wheelabrator Groups.
Corporate and Other
The change in expenses
for the three and nine months ended September 30, 2011 as
compared with the prior year is largely attributable to the
following significant items:
|
|
|
|
|
the prior year benefit of $77 million resulting from a
litigation settlement that occurred in April 2010;
|
|
|
|
the current year increase in Selling, general and
administrative expenses as a result of cost increases
attributable to (i) consulting fees primarily associated
with our new cost savings programs focusing on procurement,
operational and back-office efficiency, (ii) additional
compensation expense due to transfers of certain field sales
organization employees to the Corporate sales organization,
annual salary and wage increases, headcount increases to support
the Companys strategic initiatives and an increase in
costs attributable to our LTIP, and (iii) a favorable
litigation settlement in the prior year;
|
|
|
|
the current quarter recognition of an unfavorable adjustment of
$17 million due to a decrease in United States Treasury
rates. The discount rate used to estimate the present value of
our environmental remediation obligations and recovery assets
decreased from 3.50% to 2.00%; and
|
|
|
|
the
year-to-date
increases in risk management costs, primarily a result of
(i) several significant auto and general liability claims
and (ii) the recognition of a favorable adjustment in the
second quarter of 2010 associated with prior period claims.
These increases in expenses were offset partially by:
|
|
|
|
the prior year recognition of charges of $50 million during
the nine months ended September 30, 2010 for revisions in
the estimated costs of our remedial liabilities at certain
closed landfills;
|
|
|
|
the prior year recognition of an unfavorable adjustment of
$13 million due to the decrease in United States Treasury
rates. The discount rate used to estimate the present value of
our environmental remediation obligations and recovery assets
decreased from 3.75% to 3.00% and 3.00% to 2.50% during the
second and third quarters of 2010, respectively; and
|
|
|
|
the current quarter recognition of a $9 million favorable
adjustment to an environmental liability at one of the closed
sites based on the estimated cost of the remediation alternative
selected by the EPA.
|
Renewable
Energy Operations
We have extracted value from the waste streams we manage for
years, and we are focusing on increasing our ability to do so,
particularly in the field of clean and renewable energy. Most
significantly, our current operations produce renewable energy
through the
waste-to-energy
facilities that are managed by our Wheelabrator Group and our
landfill
gas-to-energy
operations. We are actively seeking opportunities to enhance our
existing renewable energy service offerings to effectively
respond to the shifting demands of consumers and be a leader in
environmental stewardship.
We are disclosing the following supplemental information related
to the operating results of our renewable energy operations for
the three and nine months ended September 30, 2011 and 2010
(in millions) because we believe that it provides information
related to the significance of our current renewable energy
operations, the profitability of these operations, and the costs
we are incurring to develop these operations. Although our
Wheelabrator Groups income from operations has declined
year-over-year,
we continue to make progress in the area of renewable energy.
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
Landfill
|
|
|
Growth
|
|
|
|
|
|
|
|
|
Landfill
|
|
|
Growth
|
|
|
|
|
|
|
Wheelabrator
|
|
|
Gas-to-Energy(a)
|
|
|
Opportunities(b)
|
|
|
Total
|
|
|
Wheelabrator
|
|
|
Gas-to-Energy(a)
|
|
|
Opportunities(b)
|
|
|
Total
|
|
|
Operating revenues (including intercompany)
|
|
$
|
228
|
|
|
$
|
36
|
|
|
$
|
|
|
|
$
|
264
|
|
|
$
|
237
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
131
|
|
|
|
14
|
|
|
|
1
|
|
|
|
146
|
|
|
|
129
|
|
|
|
14
|
|
|
|
|
|
|
|
143
|
|
Selling, general & administrative
|
|
|
22
|
|
|
|
1
|
|
|
|
|
|
|
|
23
|
|
|
|
24
|
|
|
|
|
|
|
|
2
|
|
|
|
26
|
|
Depreciation and amortization
|
|
|
17
|
|
|
|
7
|
|
|
|
|
|
|
|
24
|
|
|
|
17
|
|
|
|
6
|
|
|
|
|
|
|
|
23
|
|
Restructuring and unusual items
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
22
|
|
|
|
1
|
|
|
|
194
|
|
|
|
170
|
|
|
|
20
|
|
|
|
2
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
57
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
70
|
|
|
$
|
67
|
|
|
$
|
12
|
|
|
$
|
(2
|
)
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011
|
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
Landfill
|
|
|
Growth
|
|
|
|
|
|
|
|
|
Landfill
|
|
|
Growth
|
|
|
|
|
|
|
Wheelabrator
|
|
|
Gas-to-Energy(a)
|
|
|
Opportunities(b)
|
|
|
Total
|
|
|
Wheelabrator
|
|
|
Gas-to-Energy(a)
|
|
|
Opportunities(b)
|
|
|
Total
|
|
|
Operating revenues (including intercompany)
|
|
$
|
664
|
|
|
$
|
105
|
|
|
$
|
|
|
|
$
|
769
|
|
|
$
|
660
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
429
|
|
|
|
43
|
|
|
|
2
|
|
|
|
474
|
|
|
|
391
|
|
|
|
36
|
|
|
|
1
|
|
|
|
428
|
|
Selling, general & administrative
|
|
|
72
|
|
|
|
3
|
|
|
|
2
|
|
|
|
77
|
|
|
|
72
|
|
|
|
2
|
|
|
|
3
|
|
|
|
77
|
|
Depreciation and amortization
|
|
|
50
|
|
|
|
20
|
|
|
|
|
|
|
|
70
|
|
|
|
47
|
|
|
|
17
|
|
|
|
|
|
|
|
64
|
|
Restructuring and unusual items
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
|
|
66
|
|
|
|
4
|
|
|
|
622
|
|
|
|
510
|
|
|
|
55
|
|
|
|
4
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
112
|
|
|
$
|
39
|
|
|
$
|
(4
|
)
|
|
$
|
147
|
|
|
$
|
150
|
|
|
$
|
36
|
|
|
$
|
(4
|
)
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Our landfill
gas-to-energy
business focuses on generating a renewable energy source from
the methane that is produced as waste decomposes. The operating
results include the revenues and expenses of landfill
gas-to-energy
plants that we own and operate, as well as revenues generated
from the sale of landfill gas to third-party owner/operators.
The operating results of our landfill
gas-to-energy
business are included within our geographic reportable segments
and Other.
|
|
(b)
|
|
Includes businesses and entities we have acquired or invested in
through our organic growth groups business development
efforts. These businesses include a landfill
gas-to-LNG
facility; landfill
gas-to-diesel
fuels technologies; organic waste
streams-to-fuels
technologies; and other engineered fuels technologies. The
operating results of our growth opportunities are included
within Other in our assessment of our income from
operations by segment.
|
Interest
Expense
Our interest expense was $118 million and $358 million
during the three and nine months ended September 30, 2011
compared with $126 million and $354 million during the
three and nine months ended September 30, 2010. The
$8 million, or 6.3%, decrease in interest expense for the
three-month period is primarily due to (i) a decline in our
financial assurance costs, which can be attributed to the
amendment and restatement of our $2.0 billion credit
facility in May 2011 and a reduction in the amount of letters of
credit outstanding; (ii) the repayment of senior notes
52
and tax-exempt project bonds with relatively high interest rates
upon their scheduled maturities; (iii) an increase in
capitalized interest due to higher capital spending; and
(iv) a decline in market interest rates, which has reduced
the cost of certain of our tax-exempt debt. These reductions in
interest expense were partially offset by an increase in our
overall debt balances. The incremental indebtedness has been
secured at a weighted average rate of approximately 3.25%.
The
year-to-date
increase in interest expense can generally be attributed to
(i) a decrease in the benefits provided by active and
terminated interest rate swap agreements due to the maturity of
the underlying senior notes; (ii) the higher cost of our
previous revolving credit facility, which had been executed in
June 2010; and (iii) an increase in our overall debt
balances. These increases were largely offset by (i) the
scheduled repayment upon their maturities of senior notes and
tax-exempt project bonds with relatively high interest rates;
and (ii) a decline in market interest rates, which has
reduced the cost of certain of our tax-exempt debt.
Equity
in Net Losses of Unconsolidated Entities
Beginning in April 2010, our Equity in net losses of
unconsolidated entities has been primarily related to our
noncontrolling interest in a limited liability company
established to invest in and manage low-income housing
properties, as well as (i) noncontrolling investments made
to support our strategic initiatives and
(ii) unconsolidated trusts for final capping, closure,
post-closure or environmental obligations. In January 2011, we
acquired a noncontrolling interest in a limited liability
company established to invest in and manage a refined coal
facility. The tax impacts realized as a result of our
investments in low-income housing properties and the refined
coal facility are discussed below in
Provision for Income
Taxes.
Refer to Notes 5 and 14 to the Condensed
Consolidated Financial Statements for more information related
to these investments.
Provision
for Income Taxes
We recorded a provision for income taxes of $136 million
during the third quarter of 2011, representing an effective
income tax rate of 32.3%, compared with a provision for income
taxes of $153 million during the third quarter of 2010,
representing an effective income tax rate of 37.3%. Our
effective income tax rate for the nine months ended
September 30, 2011 was 34.0% compared with 39.8% for the
nine months ended September 30, 2010. The decrease in our
provision for income taxes when comparing both the three and
nine months ended September 30, 2011 to the prior year is
due primarily to the increased benefit of federal tax credits
and audit settlements, as well as favorable adjustments to our
accruals resulting from the filing of our 2010 income tax
returns in the third quarter of 2011. In addition, in the second
quarter of 2010 we recorded an increase in our state deferred
income taxes to reflect the impact of changes in the estimated
income tax rate at which temporary differences would be realized.
Our investments in low-income housing properties and the refined
coal facility reduced our provision for income taxes by
$9 million and $4 million, respectively, for the three
months ended September 30, 2011 and by $27 million and
$11 million, respectively, for the nine months ended
September 30, 2011. Our tax provision for the three and
nine months ended September 30, 2010, was reduced by
$7 million and $18 million, respectively, as a result
of our investment in low-income housing properties. Refer to
Note 5 to the Condensed Consolidated Financial Statements
for more information related to these investments.
On July 28, 2011, we acquired Oakleaf and its primary
operations. Oakleaf did not materially impact our provision for
income taxes or the effective income tax rate for the three and
nine months ended September 30, 2011. We did receive, as a
part of the acquisition, income tax attributes (primarily
federal and state net operating losses). While these tax
attributes, when realized, will not affect our overall provision
for income taxes, they will have a favorable impact on our cash
taxes, although we do not anticipate the impact to be material
to our overall cash flow from operations.
The Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act, signed into law on December 17, 2010,
included an extension of the bonus depreciation allowance
through the end of 2012 and increased the amount of qualifying
capital expenditures that can be depreciated immediately from
50 percent to 100 percent. The 100 percent
depreciation deduction applies to qualifying property placed in
service from September 8, 2010 through December 31,
2011. The acceleration of deductions on 2011 capital
expenditures
53
resulting from the bonus depreciation provision will have no
impact on our effective tax rate. However, the ability to
accelerate depreciation deductions is expected to decrease our
2011 cash taxes by approximately $190 million. Taking the
accelerated tax depreciation in the current period will result
in increased cash taxes in future periods when the accelerated
deductions for these capital expenditures would have otherwise
been taken.
Noncontrolling
Interests
Net income attributable to noncontrolling interests was
$13 million and $36 million for the three and nine
months ended September 30, 2011 and $14 million and
$36 million for the three and nine months ended
September 30, 2010. These amounts are principally related
to third parties equity interests in two limited liability
companies that own three
waste-to-energy
facilities operated by our Wheelabrator Group. Refer to
Note 14 to the Condensed Consolidated Financial Statements
for information related to the consolidation of these variable
interest entities.
Liquidity
and Capital Resources
Summary
of Cash and Cash Equivalents, Restricted Trust and Escrow
Accounts and Debt Obligations
The following is a summary of our cash and cash equivalents,
restricted trust and escrow accounts and debt balances as of
September 30, 2011 and December 31, 2010 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Cash and cash equivalents
|
|
$
|
282
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
Restricted trust and escrow accounts:
|
|
|
|
|
|
|
|
|
Final capping, closure, post-closure and environmental
remediation funds
|
|
$
|
121
|
|
|
$
|
120
|
|
Tax-exempt bond funds
|
|
|
36
|
|
|
|
14
|
|
Other
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total restricted trust and escrow accounts
|
|
$
|
160
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
225
|
|
|
$
|
233
|
|
Long-term portion
|
|
|
9,388
|
|
|
|
8,674
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
9,613
|
|
|
$
|
8,907
|
|
|
|
|
|
|
|
|
|
|
Increase in carrying value of debt due to hedge accounting for
interest rate swaps
|
|
$
|
108
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011, we had $348 million of debt
maturing within the next twelve months, including
U.S. $133 million under our Canadian credit facility.
The amount reported as the current portion of long-term debt as
of September 30, 2011 excludes $123 million of these
scheduled repayments because we have the intent and ability to
refinance portions of our current maturities on a long-term
basis.
Summary
of Cash Flow Activity
The following is a summary of our cash flows for the nine-month
periods ended September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net cash provided by operating activities
|
|
$
|
1,737
|
|
|
$
|
1,653
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(1,535
|
)
|
|
$
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
$
|
(459
|
)
|
|
$
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
|
54
Net Cash Provided by Operating Activities
We
generated $1,737 million of cash flows from operating
activities during the nine-month period ended September 30,
2011, compared with $1,653 million during the nine-month
period ended September 30, 2010. The $84 million
year-over-year
increase in cash provided by operating activities was primarily
related to a $226 million decline in cash paid for income
taxes, offset, in part, by the impacts of two non-recurring cash
inflows on our operating cash in 2010.
|
|
|
|
|
Decreased income tax payments
The significant
decrease in cash taxes paid in 2011 is due in large part to the
extension of the bonus depreciation legislation. The ability to
accelerate depreciation deductions is expected to decrease our
full year 2011 cash taxes by $190 million. Also
contributing to the decrease in cash paid for taxes in 2011, is
an increase in federal tax credits provided by our investments
in two unconsolidated entities. These investments are discussed
in Note 5 and Note 14 of the Condensed Consolidated
Financial Statements.
|
|
|
|
2010 Non-recurring cash inflows
Two
significant cash transactions benefited cash provided by
operating activities for the nine months ended
September 30, 2010. In the second quarter of 2010, we
received $77 million for a litigation settlement, and in
the third quarter of 2010, we received a $65 million
federal tax refund related to the liquidation of a foreign
subsidiary in 2009.
|
Net Cash Used in Investing Activities
The
most significant items included in our investing cash flows for
the nine-month periods ended September 30, 2011 and 2010
are summarized below:
|
|
|
|
|
Capital expenditures
We used
$909 million during the first nine months of 2011 for
capital expenditures compared with $737 million in the
first nine months of 2010, an increase of $172 million. The
increase in capital expenditures in 2011 is a result of our
increased spending on natural gas vehicles and fueling
infrastructure, information technology infrastructure and growth
initiatives and taking advantage of the bonus depreciation
legislation. The
year-over-year
comparison was also affected by timing differences associated
with cash payments for the previous years fourth quarter
capital spending. Approximately $206 million of our fourth
quarter 2010 spending was paid in cash in the first quarter of
2011 compared with approximately $145 million of our fourth
quarter 2009 spending that was paid in the first quarter of 2010.
|
|
|
|
Acquisitions
Our spending on acquisitions was
$645 million in the first nine months of 2011 compared with
$343 million in the first nine months of 2010. On
July 28, 2011, we paid $432 million, net of cash
received of $4 million and inclusive of certain
adjustments, to acquire Oakleaf, which provides outsourced waste
and recycling services through a nationwide network of
third-party haulers. We continue to focus on accretive
acquisitions and growth opportunities that will contribute to
improved future results of operations and enhance and expand our
existing service offerings.
|
|
|
|
Investments in unconsolidated entities
We
made $92 million of cash investments in unconsolidated
entities during the first nine months of 2011. These investments
included a $48 million payment made to acquire a
noncontrolling interest in a limited liability company, which
was established to invest in and manage a refined coal facility
in North Dakota, and $44 million of investments primarily
related to furthering our goal of growing into new markets by
investing in greener technologies.
|
We made $162 million of cash investments in unconsolidated
entities during the first nine months of 2010. These cash
investments were primarily related to a $142 million
payment made to acquire a 40% equity investment in Shanghai
Environment Group (SEG), a subsidiary of Shanghai
Chengtou Holding Co., Ltd. As a joint venture partner in SEG, we
participate in the operation and management of
waste-to-energy
and other waste services in the Chinese market. SEGs focus
also includes building new
waste-to-energy
facilities in China.
55
Net Cash Used in Financing Activities
During
the nine months ended September 30, 2011, net cash used in
financing activities was $459 million, compared with
$1,069 million during the comparable prior year period. The
most significant items affecting the comparison of our financing
cash flows for the nine-month periods ended September 30,
2011 and 2010 are summarized below:
|
|
|
|
|
Debt borrowings and repayments
The following
summarizes our cash borrowings and debt repayments during each
period (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Borrowings
:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
100
|
|
|
$
|
|
|
Canadian credit facility
|
|
|
|
|
|
|
183
|
|
Senior notes
|
|
|
893
|
|
|
|
592
|
|
Capital leases and other debt
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,001
|
|
|
$
|
775
|
|
|
|
|
|
|
|
|
|
|
Repayments
:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
(100
|
)
|
|
$
|
|
|
Canadian credit facility
|
|
|
(77
|
)
|
|
|
(236
|
)
|
Senior notes
|
|
|
(147
|
)
|
|
|
(600
|
)
|
Tax exempt bonds
|
|
|
(25
|
)
|
|
|
(52
|
)
|
Tax exempt project bonds
|
|
|
(30
|
)
|
|
|
|
|
Capital leases and other debt
|
|
|
(46
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(425
|
)
|
|
$
|
(932
|
)
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments)
|
|
$
|
576
|
|
|
$
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
Refer to Note 3 to the Condensed Consolidated Financial
Statements for additional information related to our debt
borrowings and repayments.
|
|
|
|
|
Share repurchases and dividend payments
We
repurchased 16.4 million shares of our common stock for
$546 million during the first nine months of 2011, of which
approximately $18 million was paid in October 2011 compared
with 13.4 million shares of our common stock for
$445 million during the first nine months of 2010, of which
approximately $2 million was paid in October 2010. We
increased our rate of repurchases during the third quarter of
2011, during which time the price of our stock reached its
lowest levels for the previous 52-week period. We continued this
acceleration of repurchases into October 2011 and have completed
our common stock repurchases for 2011 under the capital
allocation program approved by the Board of Directors, which
provided for up to $575 million in common stock repurchases
in 2011.
|
We paid $481 million in cash dividends in the first nine
months of 2011 compared with $454 million in the first nine
months of 2010. The increase in dividend payments is due to our
quarterly per share dividends declared increasing from $0.315 in
2010 to $0.34 in 2011, partially offset by a reduction in the
number of our outstanding shares as a result of our share
repurchase program.
|
|
|
|
|
Other
Net cash used for our other financing
activities was $43 million during the first nine months of
2011 (including $7 million of financing costs paid to amend
and restate our $2.0 billion revolving credit facility)
compared with $17 million during the first nine months of
2010 (including $13 million of financing costs paid to
execute our $2.0 billion revolving credit facility). In
2011, the use of cash was driven by changes in our accrued
liabilities for checks written in excess of related cash
balances due to the timing of cash deposits or payments.
|
56
Liquidity
Impacts of Uncertain Tax Positions
We have liabilities associated with uncertain tax positions and
related interest. These liabilities are primarily included as a
component of long-term Other liabilities in our
Condensed Consolidated Balance Sheet because we generally do not
anticipate that settlement of the liabilities will require
payment of cash within the next twelve months. We are not able
to reasonably estimate when we would make any cash payments
required to settle these liabilities, but do not believe that
the ultimate settlement of our obligations will materially
affect our liquidity. We anticipate that approximately
$8 million of liabilities for uncertain tax positions,
including accrued interest, and $3 million of related
deferred tax assets may be reversed within the next twelve
months. The anticipated reversals are related to state tax
items, none of which are material, and are expected to result
from audit settlements or the expiration of the applicable
statute of limitations period.
Off-Balance
Sheet Arrangements
We are party to guarantee arrangements with unconsolidated
entities as discussed in the
Guarantees
section of
Note 8 to the Condensed Consolidated Financial Statements.
These arrangements have not materially affected our financial
position, results of operations or liquidity during the nine
months ended September 30, 2011, nor are they expected to
have a material impact on our future financial position, results
of operations or liquidity.
Seasonal
Trends
Our operating revenues normally tend to be somewhat higher in
the summer months, primarily due to the traditional seasonal
increase in the volume of construction and demolition waste.
Historically, the volumes of industrial and residential waste in
certain regions where we operate have tended to increase during
the summer months. Our second and third quarter revenues and
results of operations typically reflect these seasonal trends.
Additionally, certain destructive weather conditions that tend
to occur during the second half of the year, such as hurricanes
that most often impact our Southern Group, can actually increase
our revenues in the areas affected. While weather-related and
other one-time occurrences can boost revenues
through additional work, as a result of significant
start-up
costs and other factors, such revenue sometimes generates
earnings at comparatively lower margins. Certain weather
conditions, including severe winter storms, may result in the
temporary suspension of our operations, which can significantly
affect the operating results of the affected regions. The
operating results of our first quarter also often reflect higher
repair and maintenance expenses because we rely on the slower
winter months, when waste flows are generally lower, to perform
scheduled maintenance at our
waste-to-energy
facilities.
Inflation
A significant portion of our collection revenues are generated
under long-term agreements with price adjustments based on
various indices intended to measure inflation. These indices
have been at historic lows over the past two years, although
recent data has trended upward. We believe that inflation
generally has not had, and in the near future is not expected to
have, any material adverse effect on our results of operations.
Additionally, managements estimates associated with
inflation have had, and will continue to have, an impact on our
accounting for landfill and environmental remediation
liabilities.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Information about market risks as of September 30, 2011,
does not differ materially from that discussed under
Item 7A in our Annual Report on
Form 10-K
for the year ended December 31, 2010.
57
|
|
Item 4.
|
Controls
and Procedures.
|
Effectiveness
of Controls and Procedures
Our management, with the participation of our principal
executive and financial officers, has evaluated the
effectiveness of our disclosure controls and procedures in
ensuring that the information required to be disclosed in
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, including ensuring that such information is
accumulated and communicated to management (including the
principal executive and financial officers) as appropriate to
allow timely decisions regarding required disclosure. Based on
such evaluation, our principal executive and financial officers
have concluded that such disclosure controls and procedures were
effective as of September 30, 2011 (the end of the period
covered by this Quarterly Report on
Form 10-Q).
Changes
in Internal Controls over Financial Reporting
Management, together with our Chief Executive Officer and
principal financial officer, evaluated the changes in our
internal control over financial reporting during the quarter
ended September 30, 2011. We determined that there were no
changes in our internal control over financial reporting during
the quarter ended September 30, 2011 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
58
PART II.
|
|
Item 1.
|
Legal
Proceedings.
|
Information regarding our legal proceedings can be found under
the Litigation section of Note 8,
Commitments and Contingencies
, to the Condensed
Consolidated Financial Statements.
There have been no material changes from risk factors previously
disclosed in our
Form 10-K
for the year ended December 31, 2010 in response to
Item 1A to Part I of
Form 10-K.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
In December 2010, the Board of Directors approved a capital
allocation program that provides for up to $575 million in
common stock repurchases for 2011. All of the common stock
repurchases made in 2011 have been pursuant to this capital
allocation program.
The following table summarizes common stock repurchases made
during the third quarter of 2011:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased as
|
|
|
Approximate Maximum
|
|
|
|
Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Dollar Value of Shares that
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
May Yet be Purchased Under
|
|
Period
|
|
Purchased
|
|
|
per Share(a)
|
|
|
Programs
|
|
|
the Plans or Programs(b)
|
|
|
July 1 31
|
|
|
1,377,806
|
|
|
$
|
35.95
|
|
|
|
1,377,806
|
|
|
$
|
349 Million
|
|
August 1 31
|
|
|
6,290,810
|
|
|
$
|
30.69
|
|
|
|
6,290,810
|
|
|
$
|
156 Million
|
|
September 1 30(c)
|
|
|
4,061,404
|
|
|
$
|
31.28
|
|
|
|
4,061,404
|
|
|
$
|
29 Million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,730,020
|
|
|
$
|
31.51
|
|
|
|
11,730,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This amount represents the weighted average price paid per share
and includes a per-share commission paid for all repurchases.
|
|
(b)
|
|
We purchased the remaining maximum allowable amount of shares
under our capital allocation program in October 2011.
|
|
(c)
|
|
The amounts reported include 555,600 shares repurchased for
an aggregate of approximately $18 million that were
initiated in September, but settled in cash in October.
|
59
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
4
|
.1
|
|
|
|
Officers Certificate delivered pursuant to Section 301 of
the Indenture dated September 10, 1997 by and between Waste
Management, Inc. and The Bank of New York Mellon Trust Company,
N.A., as Trustee, establishing the terms and form of Waste
Management, Inc.s 2.60% Senior Notes due 2016.
|
|
4
|
.2
|
|
|
|
Guarantee Agreement by Waste Management Holdings, Inc. in favor
of The Bank of New York Mellon Trust Company, N.A., as Trustee
for the holders of Waste Management, Inc.s
2.60% Senior Notes due 2016.
|
|
10
|
.1
|
|
|
|
Employment Agreement by and between the Company and Steven C.
Preston dated October 5, 2011. [incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed October 5,
2011].
|
|
10
|
.2
|
|
|
|
Employment Agreement by and between the Company and James C.
Fish, Jr. dated August 15, 2011.
|
|
10
|
.3
|
|
|
|
Employment Agreement by and between the Company and William K.
Caesar dated August 23, 2011.
|
|
31
|
.1
|
|
|
|
Certification Pursuant to Rules 13a - 14(a) and 15d - 14(a)
under the Securities Exchange Act of 1934, as amended, of David
P. Steiner, President and Chief Executive Officer.
|
|
31
|
.2
|
|
|
|
Certification Pursuant to Rules 13a - 14(a) and 15d - 14(a)
under the Securities Exchange Act of 1934, as amended, of Steven
C. Preston, Executive Vice President Finance,
Recycling and Energy Services.
|
|
32
|
.1
|
|
|
|
Certification Pursuant to 18 U.S.C. §1350 of David P.
Steiner, President and Chief Executive Officer.
|
|
32
|
.2
|
|
|
|
Certification Pursuant to 18 U.S.C. §1350 of Steven C.
Preston, Executive Vice President Finance, Recycling
and Energy Services.
|
|
101
|
.INS
|
|
|
|
XBRL Instance Document.
|
|
101
|
.SCH
|
|
|
|
XBRL Taxonomy Extension Schema Document.
|
|
101
|
.CAL
|
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101
|
.DEF
|
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101
|
.LAB
|
|
|
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
101
|
.PRE
|
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASTE MANAGEMENT, INC.
|
|
|
|
By:
|
/s/ STEVEN
C. PRESTON
|
Steven C. Preston
Executive Vice President
Finance, Recycling & Energy Services
(Principal Financial Officer)
WASTE MANAGEMENT, INC.
|
|
|
|
By:
|
/s/ GREG
A. ROBERTSON
|
Greg A. Robertson
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: October 27, 2011
61
Exhibit 4.1
WASTE MANAGEMENT, INC.
Officers Certificate Delivered Pursuant to
Section 301 of the Indenture dated as of September 10, 1997
The undersigned, the Vice
President Finance and Treasurer, and the Corporate Secretary of Waste Management, Inc. (the Company), hereby
certify that:
1. This Certificate is delivered
to The Bank of New York Mellon Trust Company, N.A. (the current successor to Texas Commerce Bank National Association),
as trustee (the Trustee), pursuant to Sections 102 and 301 of the Indenture dated as of September 10, 1997
between the Company, formerly known as USA Waste Services, Inc., and the Trustee in connection with the Company Order
dated August 29, 2011 (the Order) for the authentication and delivery by the Trustee of $500,000,000 aggregate principal
amount of 2.60% Notes due 2016 (the Notes).
2. The undersigned have read
Sections 102, 103, 301 and 303 of the Indenture and the definitions in the Indenture relating thereto.
3. The statements made herein are
based either upon the personal knowledge of the persons making this Certificate or on information, data and reports
furnished to such persons by the officers, counsel, department heads or employees of the Company who have knowledge of
the facts involved.
4. The undersigned have
examined the Order, and they have examined the covenants, conditions and provisions of the Indenture relating thereto.
5. In the opinion of the persons
making this Certificate, they have made such examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not all conditions provided for in the Indenture with respect to the Order have been
complied with.
6. All conditions precedent
provided in the Indenture to the authentication by the Trustee of $500,000,000 aggregate principal amount of the
Notes have been complied with, and such Notes may be delivered in accordance with the Order as provided in the Indenture.
7. The terms of the Notes
(including the Form of Note) as set forth in
Annex A
to this Officers Certificate have been approved by officers
of the Company as duly authorized by resolutions of the Board of Directors of the Company as of August 20, 2009 and
such resolutions, copies of which are attached hereto as
Annex B
, are in full force and effect as of the date hereof.
[signature page follows]
WASTE MANAGEMENT, INC.
Officers Certificate Delivered Pursuant to
Section 301 of the Indenture dated as of September 10, 1997
IN WITNESS
WHEREOF, the undersigned has hereunto executed as of the date first written above.
|
|
|
|
|
|
|
/s/ Cherie C. Rice
Cherie C. Rice
|
|
|
|
|
Vice President Finance and Treasurer
|
|
|
|
|
|
|
|
|
|
/s/ Linda J. Smith
Linda J. Smith
|
|
|
|
|
Corporate Secretary
|
|
|
WASTE MANAGEMENT, INC.
Officers Certificate Delivered Pursuant to
Section 301 of the Indenture dated as of September 10, 1997
Annex A
Terms of the Notes
Pursuant to authority granted by the Board of Directors of the Company on August 20, 2009 and
the Sole Director of Waste Management Holdings, Inc. on August 23, 2011, the Company has approved
the establishment, issuance, execution and delivery of a new series of Securities (as defined in
the Indenture) to be issued under the Indenture dated as of September 10, 1997 (the Indenture),
between the Company, formerly known as USA Waste Services, Inc., and The Bank of New York Mellon
Trust Company, N.A. (the current successor to Texas Commerce Bank National Association), as trustee
(the Trustee), the terms of which are set forth below. Capitalized terms used but not defined
herein are used herein as defined in the Indenture.
(1)
|
|
The title of the series of Securities shall be 2.60% Senior Notes due 2016 (the Notes).
|
|
(2)
|
|
The Notes shall be general unsecured, senior obligations of the Company.
|
|
(3)
|
|
The initial aggregate principal amount of the Notes that may be authenticated and delivered
under the Indenture shall be $500,000,000 (except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 304, 305, 306, 906 or 1107 of the Indenture); provided, however, that the authorized
aggregate principal amount of such series may be increased before or after the issuance of any
Notes of such series by a Board Resolution (or action pursuant to a Board Resolution) to such
effect.
|
|
(4)
|
|
The principal amount of each Note shall be payable on September 1, 2016.
|
|
(5)
|
|
Each Note shall bear interest from August 29, 2011 at the fixed rate of 2.60% per annum; the
Interest Payment Dates on which such interest shall be payable shall be March 1 and September
1, of each year, commencing March 1, 2012, until maturity unless such date falls on a day that
is not a Business Day, in which case, such payment shall be made on the next day that is a
Business Day. The Regular Record Date for the determination of Holders to whom interest is
payable shall be February 15 or August 15, respectively, immediately preceding such date, as
the case may be.
|
|
(6)
|
|
If a Change of Control Triggering Event (as defined in the Notes) occurs, each Holder of
the Notes may require the Company to purchase all or a portion of such Holders Notes at a
price equal to 101% of the principal amount, plus accrued interest, if any, to the date of
purchase, on the terms and subject to the conditions set forth in the Notes.
|
|
(7)
|
|
The Notes are to be issued as Registered Securities only. Each Note is to be issued as a
book-entry note (Book-Entry Note) but in certain circumstances may be represented by Notes
in definitive form. The Book-Entry Notes shall be issued, in whole or in part, in the form of
one or more Notes in global form as contemplated by Section 203 of the Indenture. The
Depositary with respect to the Book-Entry Notes shall be The Depository Trust Company, New
York, New York.
|
(8)
|
|
Payments of principal of, premium, if any, and interest due on the Notes representing
Book-Entry Notes on any Interest Payment Date or at maturity will be made available to the
Trustee by 11:00 a.m., New York City time, on such date, unless such date falls on a day which
is not a Business Day, in which case such payments will be made available to the Trustee by
11:00 a.m., New York City time, on the next Business Day. As soon as possible thereafter, the
Trustee will make such payments to the Depositary.
|
|
(9)
|
|
The Notes will be redeemable, at the option of the Company, at any time in whole, or from
time to time in part, at a Redemption Price equal to the greater of (i) 100% of the principal
amount of the Notes to be redeemed or (ii) the sum of the present value of the remaining
scheduled payments of principal and interest (at the rate in effect on the date of calculation
of the Redemption Price) thereon (exclusive of interest accrued to the Redemption Date (as
defined in the Notes)) discounted to the Redemption Date on a semiannual basis (assuming a 360
day year consisting of twelve 30-day months) at the applicable Treasury Yield (as defined in
the Notes) plus 25 basis points; plus, in either case, accrued interest to the Redemption
Date.
|
|
(10)
|
|
The Company shall have no obligation to redeem, purchase or repay the Notes pursuant to any
mandatory redemption, sinking fund or analogous provisions or at the option of a Holder
thereof.
|
|
(11)
|
|
The Notes will be subject to defeasance and discharge as contemplated by Section 1302 of the
Indenture and to covenant defeasance under Section 1303 of the Indenture.
|
|
(12)
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The Notes shall be entitled to the benefit of the covenants contained in Sections 1008 and
1009 of the Indenture.
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(13)
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The Bank of New York Mellon shall serve initially as Security Registrar for the Notes.
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(14)
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The Notes shall be substantially in the form of Exhibit A hereto.
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(15)
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The Notes will be fully and unconditionally guaranteed on a senior basis by the Companys
wholly owned subsidiary, Waste Management Holdings, Inc., pursuant to the terms and conditions of a
Guarantee Agreement dated August 29, 2011 (the Guarantee). The amount of the Guarantee will be
limited to the extent required under applicable fraudulent conveyance laws to cause the Guarantee
to be enforceable. The terms and conditions of the Guarantee shall continue in full force and
effect for the benefit of holders of the Notes until release thereof as set forth in Section 6 of
the Guarantee.
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EXHIBIT A
TO
TERMS OF NOTES
(Form of Note)
BOOK-ENTRY SECURITY
THIS SECURITY IS A BOOK-ENTRY SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF
THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (DTC), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR
REGISTRATION FOR TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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RGN-1
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Principal Amount
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WASTE MANAGEMENT, INC.
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U.S. $500,000,000,
which may be
decreased by the Schedule of
Exchanges of Definitive
Security attached hereto
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2.60% SENIOR NOTES DUE 2016
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CUSIP 94106LAX7
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WASTE MANAGEMENT, INC., a Delaware corporation (the Company, which term includes any
successors under the Indenture hereinafter referred to), for value received, hereby promises to pay
to CEDE & CO. or registered assigns, at the office or agency of the Company, the principal sum of
Five Hundred Million ($500,000,000) U.S. dollars, or such lesser principal sum as is shown on the
attached Schedule of Exchanges of Definitive Security, on September 1, 2016 in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest at an annual
rate of 2.60% payable on March 1 and September 1 of each year, to the person in whose name this
Security is registered at the close of business on the record date for such interest, which shall
be the preceding February 15 or August 15, respectively, payable commencing March 1, 2012, with
interest consisting of interest accrued from August 29, 2011.
Reference is made to the further provisions of this Security set forth on the reverse hereof.
Such further provisions shall for all purposes have the same effect as though fully set forth at
this place.
The statements in the legends set forth above are an integral part of the terms of this
Security and by acceptance hereof the Holder of this Security agrees to be subject to, and bound
by, the terms and provisions set forth in each such legend.
This Security is issued in respect of a series of Securities of an initial aggregate of U.S.
$500,000,000 in principal amount designated as the 2.60% Senior Notes due 2016 of the Company and
is governed by the Indenture dated as of September 10, 1997, duly executed and delivered by the
Company, formerly known as USA Waste Services, Inc., to The Bank of New York Mellon Trust Company
N.A. (the current successor to Texas Commerce Bank National Association) as trustee (the
Trustee), as supplemented by Board Resolutions (as defined in the Indenture) (such Indenture and
Board Resolutions, collectively, the Indenture). The terms of the Indenture are incorporated
herein by reference. This Security shall in all respects be entitled to the same benefits as
definitive Securities under the Indenture.
If and to the extent that any provision of the Indenture limits, qualifies or conflicts with
any other provision of the Indenture that is required to be included in the Indenture or is deemed
applicable to the Indenture by virtue of the provisions of the Trust Indenture Act of 1939, as
amended, such required provision shall control.
The Company hereby irrevocably undertakes to the Holder hereof to exchange this Security in
accordance with the terms of the Indenture without charge.
This Security shall not be valid or become obligatory for any purpose until the Certificate of
Authentication hereon shall have been manually signed by the Trustee under the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its
corporate seal.
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Dated: August 29, 2011
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WASTE MANAGEMENT, INC.,
a Delaware corporation
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By:
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Cherie C. Rice
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Vice President-Finance and Treasurer
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Attest:
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By:
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Linda J. Smith
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Secretary
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CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the
within-mentioned Indenture.
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Date of Authentication: August 29, 2011
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The Bank of New York Mellon Trust
Company N.A., as Trustee
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By:
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Julie Hoffman-Ramos
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Vice President
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REVERSE OF BOOK-ENTRY SECURITY
WASTE MANAGEMENT, INC.
2.60% SENIOR NOTES DUE 2016
This Security is one of a duly authorized issue of unsecured debentures, notes or other
evidences of indebtedness of the Company (the Debt Securities) of the series hereinafter
specified, all issued or to be issued under and pursuant to the Indenture, to which Indenture
reference is hereby made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the Holders of the Debt
Securities. The Debt Securities may be issued in one or more series, which different series may be
issued in various aggregate principal amounts, may mature at different times, may bear interest (if
any) at different rates, may be subject to different sinking, purchase or analogous funds (if any)
and may otherwise vary as provided in the Indenture. This Security is one of a series designated as
the 2.60% Senior Notes due 2016 of the Company, in initial aggregate principal amount of
$500,000,000 (the Securities).
1.
Interest.
The Company promises to pay interest on the principal amount of this Security at the rate of
2.60% per annum.
The Company will pay interest semi-annually on March 1 and September 1 of each year (each an
Interest Payment Date), commencing March 1, 2012. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been paid on the
Securities, from August 29, 2011. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The Company shall pay interest (including post-petition
interest in any proceeding under any applicable bankruptcy laws) on overdue installments of
interest (without regard to any applicable grace period) and on overdue principal and premium, if
any, from time to time on demand at the rate of 2.60% per annum, in each case to the extent lawful.
2.
Method of Payment.
The Company shall pay interest on the Securities (except Defaulted Interest) to the persons
who are the registered Holders at the close of business on the Regular Record Date immediately
preceding the Interest Payment Date. Any such interest not so punctually paid or duly provided for
(Defaulted Interest) may be paid to the persons who are registered Holders at the close of
business on a Special Record Date for the payment of such Defaulted Interest, or in any other
lawful manner not inconsistent with the requirements of any securities exchange on which such
Securities may then be listed if such manner of payment shall be deemed practicable by the Trustee,
as more fully provided in the Indenture. Except as provided below, the Company shall pay principal
and interest in such coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts (U.S. Legal Tender). Payments in
respect of a Book-Entry Security (including principal, premium, if any, and interest) will be made
by wire transfer of immediately available funds to the accounts
specified by the Depository. Payments in respect of Securities in definitive form (including
principal, premium, if any, and interest) will be made at the office or agency of the Company
maintained for such purpose within the Borough of Manhattan, the City of New York, which initially
will be at the corporate trust office of The Bank of New York Mellon, located at 101 Barclay
Street, Floor 21W, New York, New York, 10286 or at the option of the Company, payment of interest
may be made by check mailed to the Holders on the Regular Record Date or on the Special Record Date
at their addresses set forth in the Security Register of Holders.
3.
Paying Agent and Registrar.
Initially, The Bank of New York Mellon will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar at any time upon notice to the Trustee and the
Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying
Agent, Registrar or co-Registrar.
4.
Indenture.
This Security is one of a duly authorized issue of Debt Securities of the Company issued and
to be issued in one or more series under the Indenture.
Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein.
The terms of the Securities include those stated in the Indenture and all indentures supplemental
thereto, those made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, as in effect on the date of the Indenture, and those terms stated in the Officers
Certificate to the Trustee, duly authorized by resolutions of the Board of Directors of the Company
on August 20, 2009 (the Resolutions) and the written consent of the Sole Director of Waste
Management Holdings, Inc. on August 23, 2011 (the Consent). The Securities are subject to all
such terms, and Holders of Securities are referred to the Indenture, all indentures supplemental
thereto, said Act, said Resolutions and said Consent and Officers Certificate for a statement of
them. The Securities of this series are general unsecured obligations of the Company limited with
an initial aggregate principal amount of $500,000,000.
5.
Redemption.
The Securities will be redeemable, at the option of the Company, at any time in whole, or from
time to time in part, at a Redemption Price (the Make-Whole Price) equal to the greater of: (i)
100% of the principal amount of the Securities to be redeemed; or (ii) the sum of the present
values of the remaining scheduled payments of principal and interest (at the rate in effect on the
date of calculation of the Redemption Price) on the Securities (exclusive of interest accrued to
the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the applicable Treasury Yield plus 25 basis points;
plus, in either case, accrued interest to the Redemption Date.
Securities called for redemption become due on the Redemption Date. Notices of redemption will
be mailed at least 30 but not more than 60 days before the Redemption Date to each holder of record
of the Securities to be redeemed at its registered address. The notice of redemption for the
Securities will state, among other things, the amount of Securities to be redeemed, the Redemption
Date, the Redemption Price or, if not ascertainable, the manner of
determining the Make-Whole Price and the place(s) that payment will be made upon presentation
and surrender of Securities to be redeemed. Unless the Company defaults in payment of the
Make-Whole Price, interest will cease to accrue on any Securities that have been called for
redemption at the Redemption Date. If less than all the Securities are redeemed at any time, the
Trustee will select the Securities to be redeemed on a pro rata basis or by any other method the
Trustee deems fair and appropriate.
For purposes of determining the Make-Whole Price, the following definitions are applicable:
Treasury Yield means, with respect to any Redemption Date applicable to the Securities, the
rate per annum equal to the semi-annual equivalent yield to maturity (computed as of the third
Business Day immediately preceding such Redemption Date) of the Comparable Treasury Issue, assuming
a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal
to the applicable Comparable Treasury Price for such Redemption Date.
Comparable Treasury Issue means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term of the
Securities that would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of the Securities.
Independent Investment Banker means any of Credit Suisse Securities (USA) LLC, J.P. Morgan
Securities LLC and a Primary Treasury Dealer (as defined below) selected by Wells Fargo Securities,
LLC (and their respective successors), or, if all of such firms are unwilling or unable to select
the applicable Comparable Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee and reasonably acceptable to the Company.
Comparable Treasury Price means, with respect to any Redemption Date, (i) the average of the
Reference Treasury Dealer Quotations obtained by the Trustee for the Redemption Date, after
excluding the highest and lowest of all Reference Treasury Dealer Quotations obtained, or (ii) if
the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all
Reference Treasury Dealer Quotations obtained by the Trustee.
Reference Treasury Dealer means (i) each of Credit Suisse Securities (USA) LLC, J.P. Morgan
Securities LLC and a Primary Treasury Dealer (as defined below) selected by Wells Fargo Securities,
LLC (and their respective successors), unless any of them ceases to be a primary U.S. Government
securities dealer in New York City (a Primary Treasury Dealer), in which case the Company will
substitute therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer
selected by the Company.
Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer
and any Redemption Date for the Securities, an average, as determined by the Trustee, of the bid
and asked prices for the Comparable Treasury Issue for the Securities (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding
such Redemption Date.
Except as set forth above, the Securities will not be redeemable prior to their Stated
Maturity and will not be entitled to the benefit of any sinking fund.
The Securities may be redeemed in part in a minimum principal amount of $2,000, or any
integral multiple of $1,000 in excess thereof.
Any such redemption will also comply with Article Eleven of the Indenture.
6.
Change of Control Offer.
If a Change of Control Triggering Event occurs, unless the Company has exercised its option to
redeem the Securities as described in Section 5, the Company shall make an offer (a Change of
Control Offer) to each Holder of the Securities to repurchase all or any part (equal to $2,000 or
an integral multiple of $1,000 in excess thereof) of that Holders Securities on the terms set
forth herein. In a Change of Control Offer, the Company shall offer payment in cash equal to 101%
of the aggregate principal amount of Securities repurchased (a Change of Control Payment), plus
accrued and unpaid interest, if any, on the Securities repurchased to the date of repurchase,
subject to the right of holders of record on the applicable record date to receive interest due on
the next Interest Payment Date.
Within 30 days following any Change of Control Triggering Event or, at the Companys option,
prior to any Change of Control, but after public announcement of the transaction that constitutes
or may constitute the Change of Control, the Company shall mail a notice to Holders of the
Securities describing the transaction that constitutes or may constitute the Change of Control
Triggering Event and offer to repurchase such Securities on the date specified in the applicable
notice, which date shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (a Change of Control Payment Date). The notice may, if mailed prior to the date
of consummation of the Change of Control, state that the Change of Control Offer is conditioned on
the Change of Control Triggering Event occurring on or prior to the applicable Change of Control
Payment Date.
Upon the Change of Control Payment Date, the Company shall, to the extent lawful:
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accept for payment all Securities or portions of Securities properly
tendered and not withdrawn pursuant to the Change of Control Offer;
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deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Securities or portions of Securities properly tendered; and
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deliver or cause to be delivered to the Trustee the Securities properly
accepted together with an Officers Certificate stating the aggregate principal amount
of Securities or portions of Securities being repurchased.
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The Company need not make a Change of Control Offer upon the occurrence of a Change of Control
Triggering Event if a third party makes such an offer in the manner, at the times and otherwise in
compliance with the requirements for an offer made by the Company and the third party repurchases
all Securities properly tendered and not withdrawn under its offer. In addition, the Company shall
not repurchase any Securities if there has occurred and is continuing on the Change of Control
Payment Date an Event of Default under the Indenture, other than a default in the payment of the
Change of Control Payment upon a Change of Control Triggering Event.
The Company will comply with the applicable requirements of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended (the Exchange Act), and any other securities laws and
regulations thereunder to the extent those laws and regulations are applicable in connection with
the repurchase of the Securities as a result of a Change of Control Triggering Event. To the extent
that the provisions of any securities laws or regulations conflict with the Change of Control Offer
provisions of this Security, the Company may comply with those securities laws and regulations and,
if so, will not be deemed to have breached its obligations under the Change of Control Offer
provisions of this Security by virtue of any such conflict.
For purposes of the Change of Control Offer provisions of the Securities, the following terms
are applicable:
Change of Control means the occurrence of any of the following: (1) the direct or indirect
sale, lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or more series of related transactions, of all or substantially all of the
Companys assets and the assets of its Subsidiaries, taken as a whole, to any person, other than
the Company or one of its Subsidiaries; (2) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any person becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the outstanding Voting Stock of the Company or other Voting Stock
into which the Companys Voting Stock is reclassified, consolidated, exchanged or changed, measured
by voting power rather than number of shares; (3) the Company consolidates with, or merges with or
into, any person, or any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or the
Voting Stock of such other person is converted into or exchanged for cash, securities or other
property, other than any such transaction where the shares of the Voting Stock of the Company
outstanding immediately prior to such transaction constitute, or are converted into or exchanged
for, a majority of the Voting Stock of the surviving person or any direct or indirect parent
company of the surviving person, measured by voting power rather than number of shares, immediately
after giving effect to such transaction; (4) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors; or (5) the adoption of a plan
relating to the liquidation or dissolution of the Company.
Notwithstanding the preceding, a transaction will not be deemed to involve a Change of Control
under clause (2) above if (i) the Company becomes a direct or indirect wholly-owned subsidiary of a
holding company and (ii)(A) the direct or indirect holders of the Voting Stock of such holding
company immediately following that transaction are substantially the same as the holders of Voting
Stock of the Company immediately prior to that transaction or (B)
immediately following that transaction no person (other than a holding company satisfying the
requirements of this sentence) is the beneficial owner, directly or indirectly, of more than 50% of
the Voting Stock of such holding company. The term person, as used in this definition, has the
meaning given thereto in Section 13(d)(3) of the Exchange Act.
Change of Control Triggering Event means the occurrence of both a Change of Control and a
Rating Event.
Continuing Directors means, as of any date of determination, any member of the Board of
Directors of the Company who (1) was a member of such Board of Directors on the date the Securities
were issued or (2) was nominated for election, elected or appointed to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of such Board of Directors
at the time of such nomination, election or appointment (either by a specific vote or by approval
of the Companys proxy statement in which such member was named as a nominee for election as a
director, without objection to such nomination).
Fitch means Fitch Inc. and its successors.
Investment Grade Rating means a rating equal to or higher than BBB- (or the equivalent) by
Fitch, Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, and the equivalent
investment grade credit rating from any replacement Rating Agency or Rating Agencies selected by
the Company.
Moodys means Moodys Investors Service, Inc. and its successors.
Rating Agencies means (1) each of Fitch, Moodys and S&P and (2) if any of Fitch, Moodys or
S&P ceases to rate the Securities or fails to make a rating of the Securities publicly available
for reasons outside of the Companys control, a nationally recognized statistical rating
organization within the meaning of Section 3(a)(62) of the Exchange Act selected by the Company
(as certified by a resolution of our Board of Directors) as a replacement agency for Fitch, Moodys
or S&P, or all of them, as the case may be.
Rating Event means the rating on the Securities is lowered by at least two of the three
Rating Agencies and the Securities are rated below an Investment Grade Rating by at least two of
the three Rating Agencies, in any case on any day during the period (which period will be extended
so long as the rating of the Securities is under publicly announced consideration for a possible
downgrade by any of the rating agencies) commencing 60 days prior to the first public notice of the
occurrence of a Change of Control or the Companys intention to effect a Change of Control and
ending 60 days following consummation of such Change of Control.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc.,
and its successors.
Voting Stock means, with respect to any specified person (as that term is used in
Section 13(d)(3) of the Exchange Act) as of any date, the capital stock of such person that is at
the time entitled to vote generally in the election of the board of directors of such person.
7.
Denominations; Transfer; Exchange.
The Securities are issued in registered form, without coupons, in a minimum denomination of
$2,000 and integral multiples of $1,000 in excess thereof. A Holder may register the transfer of,
or exchange, Securities in accordance with the Indenture. The Securities Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture.
8.
Person Deemed Owners.
The registered Holder of a Security may be treated as the owner of it for all purposes.
9.
Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture may be amended or supplemented, and any existing
Event of Default or compliance with any provision may be waived, with the consent of the Holders of
a majority in principal amount of the Outstanding Securities of each series affected. Without
consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities
to, among other things, cure any ambiguity, defect or inconsistency, or make any other change that
does not adversely affect the interests of any Holder of a Security. Any such consent or waiver by
the Holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such Holder and upon all future Holders and owners of this Security and any Securities
which may be issued in exchange or substitution herefor, irrespective of whether or not any
notation thereof is made upon this Security or such other Securities.
10.
Defaults and Remedies.
If an Event of Default with respect to the Securities occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of the Securities
then Outstanding may declare the principal amount of all the Securities to be due and payable
immediately in the manner and with the effect provided in the Indenture. Notwithstanding the
preceding sentence, however, if at any time after such a declaration of acceleration has been made
and before judgment or decree for payment of the money due has been obtained by the Trustee as
provided in the Indenture, the Holders of a majority in principal amount of the Outstanding
Securities, by written notice to the Company and to the Trustee, may rescind and annul such
declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum
sufficient to pay (A) all overdue interest on all Securities, (B) the principal of (and premium, if
any, on) any Securities which has become due otherwise than by such declaration of acceleration and
any interest thereon at the rate prescribed therefor herein, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest at the rate prescribed therefor herein, and (D)
all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel and (2) all Events of Default under the
Indenture with respect to the Securities, other than the nonpayment of the principal of Securities
which has become due solely by such declaration acceleration, shall have been cured or shall have
been waived. No such rescission shall affect any subsequent Event of Default or shall impair any
right consequent thereon. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of
the Securities then outstanding may direct the Trustee in its exercise of any trust or power.
11.
Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity, may make loans to,
accept deposits from, and perform services for the Company and its Affiliates and any subsidiary of
the Companys Affiliates, and may otherwise deal with the Company and its Affiliates as if it were
not the Trustee.
12.
Authentication.
This Security shall not be valid until the Trustee or authenticating agent signs the
certificate of authentication on the other side of this Security.
13.
Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such
as: TEN COM (tenant in common), TEN ENT (tenants by the entireties), JT TEN (joint tenants with
right of survivorship and not as tenants in common), CUST (Custodian), and U/G/M/A (Uniform Gifts
to Minors Act).
14.
CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification
Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience
to the Holders of the Securities. No representation is made as to the accuracy of such number as
printed on the Securities and reliance may be placed only on the other identification numbers
printed hereon.
15.
Absolute Obligation.
No reference herein to the Indenture and no provision of this Security or the Indenture shall
alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security in the manner, at the respective
times, at the rate and in the coin or currency herein prescribed.
16.
No Recourse.
No recourse under or upon any obligation, covenant or agreement contained in the Indenture or
in any Security, or because of any indebtedness evidenced thereby, shall be had against any
incorporator, past, present or future stockholder, officer or director, as such of the Company or
of any successor, either directly or through the Company or of any successor, either directly or
through the Company or any successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the acceptance of the
Security by the Holder and as part of the consideration for the issue of the Security.
17.
Governing Law.
This Security shall be construed in accordance with and governed by the laws of the State of
New York.
18.
Guarantee.
The Securities will be fully and unconditionally guaranteed on a senior basis by the Companys
wholly owned subsidiary, Waste Management Holdings, Inc., pursuant to the terms and conditions of a
Guarantee Agreement dated August 29, 2011 (the Guarantee). The amount of the Guarantee will be
limited to the extent required under applicable fraudulent conveyance laws to cause the Guarantee
to be enforceable. The terms and conditions of the Guarantee shall continue in full force and
effect for the benefit of holders of the Securities until release thereof as set forth in Section 6
of the Guarantee.
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY
The following exchanges of a part of this Book-Entry Security for definitive Securities have
been made:
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Annex B
Resolutions of the Board of Directors
of Waste Management, Inc.
WHEREAS
, on September 22, 2006, Waste Management, Inc. (the Company) filed with the
Securities Exchange Commission (the SEC) an automatic shelf registration statement on Form S-3,
File No. 333-137526 (the Automatic Shelf), which registered the offer and sale by the Company
from time to time of common stock; senior and subordinated debt securities; preferred stock;
warrants; units; and guarantees by Waste Management Holdings, Inc., a wholly-owned subsidiary of
the Company (WMHI), with respect to debt securities, in one or more classes or series in amounts
as may be determined at the time of any offering; and
WHEREAS
, pursuant to rules and regulations promulgated by SEC, the Automatic Shelf expires, by
its terms, on September 22, 2009, three years after the effective date of the Automatic Shelf; and
WHEREAS
, the Company desires, and finds it in the best interests of the Company, to file a new
automatic shelf registration statement on Form S-3 in order to facilitate any future offerings of
securities by the Company or any selling security holders.
NOW, THEREFORE, BE IT RESOLVED
, that the Company is hereby authorized to prepare and file with
the SEC an automatic shelf registration statement on Form S-3 (the New Automatic Shelf), pursuant
to the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the Securities Act), which New Automatic Shelf may cover, among other things, unsecured senior
or subordinated debentures, notes or other evidences of indebtedness of the Company (collectively
Debt Securities); shares of common stock, par value $0.01 per share, of the Company (the Common
Stock); warrants to purchase shares of Common Stock; shares of preferred stock in such series with
such designations, powers, preferences and relative and other special rights and qualifications,
limitations and restrictions as the Board of Directors may from time to time authorize; guarantees
of securities by Waste Management Holdings, Inc., a wholly-owned subsidiary of the Company; and any
units consisting of one or more of the foregoing (the Debt Securities, Common Stock, warrants,
preferred stock, guarantees and units collectively referred to herein as the Securities), to be
issued from time to time;
RESOLVED FURTHER
, that the proper officers (as established pursuant to these resolutions) be,
and they hereby are, authorized, in their sole and absolute discretion, subject to any limitations
set forth in these resolutions, to cause the Company to offer and sell up to an aggregate of
$3,000,000,000 of Securities without further approval of the Board of Directors;
RESOLVED FURTHER
, that the proper officers and the authorized employees (as established
pursuant to these resolutions) be, and each of them hereby is, authorized, in the name and on
behalf of the Company, to execute and cause to be filed with the SEC any and all amendments
(including, without limitation, post-effective amendments) or supplements to the New Automatic Shelf and any prospectus included therein and any additional documents which
such officer or employee may deem necessary or desirable with respect to the registration and
offering of the Securities, and such amendments, supplements, registration statements and documents
to be in such form as the officer or employee executing the same may approve, as conclusively
evidenced by his execution thereof;
RESOLVED FURTHER
, that the General Counsel of the Company be, and he hereby is, designated and
appointed the agent for service of process on the Company under the Securities Act in connection
with the New Automatic Shelf and any and all amendments and supplements thereto, with all powers
incident to such appointment;
RESOLVED FURTHER
, that the proper officers and authorized employees be and hereby are
authorized and directed in the name and on behalf of the Company to take any and all action which
they may deem necessary or advisable in order to effect the registration or qualification of all or
part of the Securities to be registered under the Securities Act, for offer and sale under the
securities or Blue Sky laws of the states of the United States of America, and in connection
therewith, to execute, acknowledge, verify, deliver, file and publish all such applications,
reports, issuers covenants, resolutions, consents to service of process, or appointments of
governmental officials for the purpose of receiving and accepting service of process on the laws,
and to take any and all further action which they may deem necessary or advisable in order to
maintain any such registration or qualification for as long as they deem the same to be in the best
interest of the Company;
RESOLVED FURTHER
, that the form of any additional resolutions required in connection with the
appropriate qualification or registration of the Securities for offer and sale under such
securities or Blue Sky laws, be and hereby is approved and adopted, provided the appropriate
officers of the Company, on the advice of counsel, consider the adoption thereof necessary or
advisable, in which case the Secretary or any Assistant Secretary of the Company is hereby directed
to insert as an appendix hereto a copy of such resolutions, which shall thereupon be deemed to have
been adopted by this Board with the same force and effect as if set out verbatim herein;
RESOLVED FURTHER
, that any of the proper officers or authorized employees be, and each of them
hereby is, authorized to approve at any time and from time to time, one or more forms of
underwriting agreements (and related terms agreement) and agency agreement (and related purchase
agreement) and any other agreement or agreements any of such persons may deem necessary or
appropriate in connection with the arrangements for the purchase of any of the Securities, and that
such persons be, and each of them hereby is, authorized to execute and deliver, in the name and on
behalf of the Company, any such agreement or agreements in substantially the form approved by any
of them, with such changes therein as the person executing the same may approve, as conclusively
evidenced by the execution and delivery thereof, it being understood that, in the case of any terms
agreement or purchase agreement referred to above, it shall not be necessary for any of the proper
officers to approve any individual agreement pursuant to which Securities are to be sold if the
form thereof has previously been approved as provided in this resolution;
RESOLVED FURTHER
, that any of the proper officers be, and each of them hereby is, authorized,
at any time and from time to time, on behalf of the Company, (i) to determine, within
any limits that may be set by the Board of Directors, the number of shares of Common Stock,
preferred stock or other equity securities to be offered and sold by the Company pursuant to the
New Automatic Shelf, including any shares underlying warrants or convertible Debt Securities, (ii)
to authorize the reserve and issuance of such shares and (iii) to take any and all action and to do
or cause to be done any and all things which may appear to any of the proper officers to be
necessary or advisable in order to authorize, offer, issue, and sell such shares of Common Stock,
pursuant to the New Automatic Shelf and the applicable purchase agreement, which action could be
taken or which things could be done by the Board of Directors of the Company;
RESOLVED FURTHER
, that any of the proper officers may, at any time and from time to time, on
behalf of the Company, authorize the issuance of one or more series of Securities under the
Companys indentures, within any limits that may be set by the Board of Directors, and in
connection therewith establish, or, if all of the Securities of such series may not be originally
issued at one time, to the extent deemed appropriate, prescribe the manner of determining, within
any limitations established by any of the proper officers and subject in either case to the
limitations set forth in these resolutions, all of the terms of such Securities;
RESOLVED FURTHER
, that, in connection with any such series of Securities (but without limiting
the authority hereinafter in these resolutions conferred with respect to the issuance of Securities
of a series which may not all be originally issued at one time), any of the proper officers is
authorized at any time or from time to time to determine the price or prices to be received by the
Company in any offering or sale of Securities of such series, any public offering price or prices
thereof, any discounts to be allowed or commissions to be paid to any agent, dealer or underwriter
and any other terms of offering or sale of Securities of such series and to sell Securities of such
series in accordance with any applicable purchase agreement or other agreement(s);
RESOLVED FURTHER
, that, in connection with the issuance of Securities of any series which may
not be originally issued at one time (except as may be inconsistent with any action taken by any of
the proper officers, as hereinabove provided, in connection with such series), any of the proper
officers may delegate any of its authority pursuant to these resolutions to any officer of the
Company, including authority to fix the terms of such Securities;
RESOLVED FURTHER
, that, in connection with any such series of Securities, any of the proper
officers is authorized to approve any amendment, modification or supplement to the Companys
indentures and that any proper officer be, and each of them hereby is, authorized to execute and
deliver, in the name and on behalf of the Company, any such amendment, modification or supplement,
substantially in the form approved by any proper officer;
RESOLVED FURTHER
, that the proper officers and authorized employees be, and each of them
hereby is, authorized, in the name and on behalf of the Company, to execute and deliver such other
agreements (including indemnity agreements), documents, certificates, orders, requests and
instruments as may be contemplated by the Companys indentures or required by the trustee
thereunder, the security registrar or any other agent of the Company under such indentures in
connection therewith or as may be necessary or appropriate in connection with the issuance and sale
of Securities thereunder;
RESOLVED FURTHER
, that the proper officers be, and each of them hereby is, authorized, subject
to and in accordance with the Companys indentures and any action taken by any of the proper
officers in connection therewith, from time to time to appoint or designate on behalf of the
Company one or more security registrars, paying agents and transfer agents for each series of
Securities, to rescind on behalf of the Company any such appointment or designation and to approve
on behalf of the Company any change in the location of any office through which any such security
registrar, paying agent or transfer agent acts, and in connection therewith to take such action and
to make, execute and deliver, or cause to be made, executed and delivered, such agreements,
instruments and other documents as any such officer may deem necessary or appropriate;
RESOLVED FURTHER
, that the proper officers and authorized employees be, and each of them
hereby is, authorized, in the name and on behalf of the Company, to make application to such
securities exchange or exchanges as the persons acting shall deem necessary or appropriate for the
listing thereof of any of the Securities (including any Common Stock or preferred stock underlying
any convertible Securities) and in connection therewith to appoint one or more listing agents and
to prepare, or cause to be prepared, execute and file, or cause to be filed, an application or
applications for such listing and any and all amendments thereto and any additional certificates,
documents, letters and other instruments which any such officer may deem necessary or desirable;
that such officers, or such other person as any such officer may designate in writing, be, and each
of them hereby is, authorized to appear before any official or officials or before any body of any
such exchange, with authority to make such changes in such application, amendments, certificates,
documents, letters and other instruments and to execute and deliver such agreements relative
thereto, including, without limitation, listing agreements, fee agreements and indemnity agreements
relating to the use of facsimile signatures as they, or any one of them, may deem necessary or
appropriate in order to comply with the requirements of any such exchange or to effect such
listing;
RESOLVED FURTHER
, that the proper officers be, and each of them hereby is, authorized, in the
name and on behalf of the Company, to make application to the SEC for registration of any series of
the Securities under Section 12 or other applicable section of the Securities Exchange Act of 1934,
and the proper officers and authorized employees are hereby authorized to prepare or cause to be
prepared, and to execute and file, or cause to be filed, with the SEC and any securities exchange
an application or applications for such registration and any and all amendments thereto and any
additional certificates, documents, letters and other instruments which any such officer may deem
necessary or desirable;
RESOLVED FURTHER
, that the officers and authorized employees of the Company be, and each of
them hereby is, authorized to take, or cause to be taken, any and all action which any such officer
may deem necessary or desirable in order to carry out the purpose and intent of the foregoing
resolutions or in order to perform, or cause to be performed, the obligations of the Company under
the Securities, the New Automatic Shelf and any indenture, purchase agreement, or other agreement
referred to herein, and, in connection therewith, to make, execute and deliver, or cause to be
made, executed and delivered, all agreements, undertakings, documents, certificates, orders,
requests or instruments in the name and on behalf of the Company as each such officer or authorized
employee may deem necessary or appropriate;
RESOLVED FURTHER
, that for purposes of these resolutions, the term proper officer shall mean
any or all of the Chief Executive Officer, the Chief Financial Officer, the General Counsel, the
Chief Accounting Officer and the Treasurer of the Company and the term authorized employees shall
mean either or both of the Vice President and Assistant General Counsel Corporate and Securities
and the Senior Counsel Corporate & Securities of the Company;
RESOLVED FURTHER
, that the form of any additional resolutions required in connection with the
foregoing resolutions be and hereby is approved and adopted, provided the proper officers of the
Company, on the advice of counsel, consider the adoption thereof necessary or advisable, in which
case the Secretary or any Assistant Secretary of the Company is hereby directed to insert as an
appendix hereto a copy of such resolutions, which shall, upon execution, be deemed to have been
adopted by this Board with the same force and effect as if set out verbatim herein; and
RESOLVED FURTHER
, that any officer of the Company is hereby authorized and directed to make,
provide, execute, and deliver any and all statements, applications, certificates, representations,
payments, notices, receipts, and other instruments and documents and take any and all other actions
which in the opinion of such officer is or may be necessary or appropriate in connection with or to
consummate any of the matters covered by the foregoing resolutions.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the Agreement) is made and entered into on this 15th day of
August, 2011, but effective as of the date set forth below, by and between Waste Management, Inc.
(the Company) and James C. Fish, Jr. (the Executive).
1. Employment.
The Company shall employ Executive, and Executive shall be employed by the Company upon the
terms and subject to the conditions set forth in this Agreement.
2. Term of Employment.
The period of Executives employment under this Agreement began on June 13, 2011 (Employment
Date), and may be terminated by either party pursuant to Section 5 below. The period during which
Executive is employed hereunder shall be referred to as the Employment Period.
3. Duties and Responsibilities.
(a)
Executive shall serve as the Senior Vice President, Eastern Group. In such capacity,
Executive shall perform such duties and have the power, authority, and functions consistent with
such position, as may be deemed appropriate for the position and assigned to Executive from time to
time by the Chief Executive Officer or the Board of Directors (the Board) of the Company.
(b)
Executive shall devote substantially all of his working time, attention and energies to
the business of the Company, and its affiliated entities. Executive may make and manage his
personal investments (provided such investments in other activities do not violate, in any material
respect, the provisions of Section 10 of this Agreement), be involved in charitable and
professional activities, and, with the prior written consent of the Board, serve on boards of other
for profit entities, provided such activities do not materially interfere with the performance of
his duties hereunder or create a conflict of interest (however, the Board does not typically allow
officers to serve on more than one public company board at a time).
4. Compensation and Benefits.
(a) Base Salary.
During the Employment Period, the Company shall pay Executive a base salary
at the annual rate of Four Hundred Thousand and 00/100ths Dollars ($400,000.00) per year, or such
higher rate as may be determined from time to time by the Company (Base Salary). Such Base
Salary shall be paid in accordance with the Companys standard payroll practice for its executive
officers. Once increased, Base Salary shall not be reduced except by mutual agreement.
(b) Annual Bonus.
During the Employment Period, Executive will be entitled to participate in
an annual incentive compensation plan of the Company, as established by the Management Development
and Compensation Committee (Compensation Committee) of the
Board from time to time. Executives target annual bonus under this Agreement will be
seventy-five percent (75%) of his Base Salary in effect for such year (the Target Bonus), and his
actual annual bonus may range from 0% to 150% of Base Salary (
i.e
., a maximum possible bonus of two
times the Target Bonus), and will be determined based upon (i) the achievement of certain corporate
financial and/or performance goals, as may be established and approved from time to time by the
Compensation Committee of the Board, and (ii) the achievement of personal performance goals as may
be established by Executives immediate supervisor. Executives annual bonus for calendar year
2011 will be prorated between the time he spent as Vice-President for the Pennsylvania Market Area
(using the applicable financial and operational performance objectives, salary, and target bonus)
and the time he spent as Senior Vice President, Eastern Group. The annual bonus will be paid at
such time and in such manner as set forth in the annual incentive compensation plan document.
(c) Benefit Plans and Vacation.
Subject to the terms of such plans, Executive shall be
eligible to participate in or receive benefits under any profit sharing plan, salary deferral plan,
medical and dental benefits plan, life insurance plan, short-term and long-term disability plans,
or any other health, welfare or fringe benefit plan, generally made available by the Company to
similarly-situated executive employees. The Company shall not be obligated to institute, maintain,
or refrain from changing, amending, or discontinuing any benefit plan, so long as such changes are
similarly applicable to similarly-situated employees generally.
During the Employment Period, Executive shall be entitled to vacation each year in accordance
with the Companys policies in effect from time to time, but in no event less than four (4) weeks
paid vacation per calendar year. Vacation not taken in the calendar year in which it is granted
cannot be carried forward to any subsequent year.
(d) Expense Reimbursement.
The Company shall promptly reimburse Executive for the ordinary
and necessary business expenses incurred by Executive in the performance of his duties hereunder in
accordance with the Companys customary practices applicable to executive officers. The
reimbursement of expenses during a year will not affect the expenses eligible for reimbursement in
any other year. In no event shall any expense be reimbursed after the last day of the year
following the year in which the expense was incurred.
(e) Other Perquisites.
Executive shall be entitled to all perquisites provided to Senior Vice
Presidents of the Company as approved by the Compensation Committee of the Board, and as they may
exist from time to time.
5. Termination of Employment.
Executives employment hereunder may be terminated during the Employment Period under the
following circumstances:
(a) Death.
Executives employment hereunder shall terminate upon Executives death.
(b) Total Disability.
The Company may terminate Executives employment
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hereunder upon Executives becoming Totally Disabled. For purposes of this Agreement,
Executive shall be considered Totally Disabled if Executive has become physically or mentally
disabled so as to render Executive incapable of performing the essential functions of his position
(with or without reasonable accommodations) and such disability is expected to result in death or
to last for a continuous period of at least 12 months, provided that such condition constitutes a
disability within the meaning of Section 409A of the Internal Revenue Code. Executives receipt
of disability benefits under the Companys long-term disability plan or receipt of Social Security
disability benefits shall be deemed conclusive evidence of Total Disability for purpose of this
Agreement.
(c) Termination by the Company for Cause.
The Company may terminate Executives employment
hereunder for Cause at any time after providing a Notice of Termination for Cause to Executive.
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(i)
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For purposes of this Agreement, the term Cause means any of the following:
Executives (A) willful or deliberate and continual refusal to perform Executives
employment duties reasonably requested by the Company after receipt of written notice
to Executive of such failure to perform, specifying such failure (other than as a
result of Executives sickness, illness or injury) and Executives failure to cure such
nonperformance within ten (10) days of receipt of said written notice; (B) breach of
any statutory or common law duty of loyalty to the Company; (C) conviction of, or plea
of
nolo contendre
to, any felony; (D) willful or intentional cause of material injury
to the Company, its property, or its assets; (E) disclosure or attempted disclosure to
any unauthorized person(s) of the Companys proprietary or confidential information;
(F) material violation or a repeated and willful violation of the Companys policies or
procedures, including but not limited to, the Companys Code of Business Conduct and
Ethics (or any successor policy) then in effect; or (G) breach of any of the covenants
set forth in Section 10 hereof.
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(ii)
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For purposes of this Agreement, the phrase Notice of Termination for Cause
shall mean a written notice that shall indicate the specific termination provision or
provisions in Section 5(c)(i) relied upon, and shall set forth in reasonable detail the
facts and circumstances which provide the basis for termination for Cause.
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(d) Voluntary Termination by Executive.
Executive may terminate his employment hereunder with
or without Good Reason at any time upon written notice to the Company.
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(i)
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A termination for Good Reason means a resignation of employment by Executive
by written notice (Notice of Termination for Good Reason) given to the Companys
Chief Executive Officer within ninety (90) days after the occurrence of the Good Reason
event, unless such circumstances are substantially corrected prior to the date of
termination specified in the Notice of Termination for Good Reason. For purposes of
this Agreement, Good Reason shall mean the occurrence or failure to cause the
occurrence, as the case may be, without
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Executives express written consent, of any of the following circumstances: (A) the
Company materially diminishes Executives core duties or responsibility for those
core duties, so as to effectively cause Executive to no longer be performing the
duties of his position (except in each case in connection with the termination of
Executives employment for Death, Total Disability, or Cause, or temporarily as a
result of Executives illness or other absence); (B) in the event of the Companys
becoming a fifty percent or more subsidiary of any other entity, the Company
materially diminishes the duties, authority or responsibilities of the person to
whom Executive is required to report; (C) removal or the non-reelection of the
Executive from the officer position with the Company specified herein, or removal of
the Executive from any of his then officer positions; (D) any material breach by the
Company of any provision of this Agreement; or (E) failure of any successor to the
Company (whether direct or indirect and whether by merger, acquisition,
consolidation or otherwise) to assume in a writing delivered to Executive upon the
assignee becoming such, the obligations of the Company hereunder, resulting in a
material negative change in the employment relationship.
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(ii)
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A Notice of Termination for Good Reason shall mean a notice that shall
indicate the specific termination provision or provisions relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The Notice of Termination for Good Reason shall provide
for a date of termination not less than thirty (30) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in the case
of the events set forth in Sections 5(d)(i)(A) or (B), the date may be twenty (20) days
after the giving of such notice.
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(e) Termination by the Company without Cause.
The Company may terminate Executives
employment hereunder without Cause at any time upon written notice to Executive.
(f) Effect of Termination.
Upon any termination of employment for any reason, Executive shall
immediately resign from all Board memberships and other positions with the Company or any of its
subsidiaries held by him at such time.
6. Compensation Following Termination of Employment.
In the event that Executives employment hereunder is terminated in a manner as set forth in
Section 5 above, Executive shall be entitled to the compensation and benefits provided under this
Section 6, in each case subject to potential reduction as may be required by Section 22, as
applicable to the form of termination:
(a) Termination by Reason of Death.
In the event that Executives employment is terminated by
reason of Executives death, the Company shall pay the following amounts to Executives beneficiary
or estate:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of death,
any accrued but unpaid expenses required to be reimbursed under this Agreement,
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any accrued but unused vacation to the date of employment termination, and any
earned but unpaid bonuses for any prior calendar year. Executive shall also be
eligible for a pro-rata bonus or incentive compensation payment for the calendar
year of his employment termination to the extent such awards are made to other
senior executives of the Company and paid at the same time as other senior
executives are paid.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof), as determined and paid in accordance with the terms of such
plans, policies and arrangements.
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(b) Termination by Reason of Total Disability.
In the event that Executives employment is
terminated by the Company by reason of Executives Total Disability (as determined in accordance
with Section 5(b)), the Company shall pay the following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year. Executive shall also be eligible for a
pro-rata bonus or incentive compensation payment for the calendar year of his
employment termination to the extent such awards are made to other senior executives of
the Company and paid at the same time as other senior executives are paid.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof) shall be determined and paid in accordance with the terms of
such plans, policies and arrangements.
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(c) Termination for Cause.
In the event that Executives employment is terminated by the
Company for Cause, the Company shall pay the following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof up to the date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and arrangements.
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(d) Voluntary Termination by Executive.
In the event that Executive voluntarily terminates
employment other than for Good Reason, the Company shall pay the following
amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of termination,
any accrued but unpaid expenses required to be reimbursed under this Agreement, any
accrued but unused vacation to the date of termination, and any earned but unpaid bonuses
for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof up to the date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and arrangements.
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(e) Termination by the Company Without Cause Outside a Change in Control Period; Termination
by Executive for Good Reason Outside a Change in Control Period.
In the event that Executives
employment is terminated by the Company outside a Change in Control Period (as defined in Section 7
below) for reasons other than death, Total Disability or Cause, or Executive terminates his
employment for Good Reason outside of a Change in Control Period, the Company shall pay the
following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements referred to in Section 4(c)
hereof shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.
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(iii)
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Subject to Executives execution of the Release (as defined in Section 7),
Executive shall be eligible for a bonus or incentive compensation payment, at the same
time, on the same basis, and to the same extent payments are made to senior executives
of the Company, pro-rated for the fiscal year in which the Executives employment is
terminated.
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(iv)
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Subject to Executives execution of the Release (as defined in Section 7), an
amount equal to two (2) times the sum of Executives Base Salary plus his Target Annual
Bonus (in each case, as then in effect), of which one-half of such amount shall be paid
in a lump sum within the calendar quarter in which the 60
th
day following
Executives employment termination date falls and one-half of such amount shall be paid
during the two (2) year period beginning in the calendar quarter within which the
60
th
day following Executives employment termination date falls and
continuing at the same time and in the same manner as Base Salary would have been paid
if Executive had remained in active employment until the end of such period.
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(v)
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Subject to Executives execution of the Release (as defined in Section 7) and
Executives completion of required enrollment elections, the Company will continue for
Executive and Executives spouse and eligible dependents coverage under the Companys
health benefit plan and disability benefit plans, in which Executive was a participant
at any time during the twelve-month period prior to the date of termination, until the
earliest to occur of (A) twenty-four (24) months after the employment termination date;
(B) Executives death (provided that benefits provided to Executives spouse and
dependents shall not terminate until twenty-four (24) months after the employment
termination date); or (C) with respect to any particular plan, the date Executive
becomes eligible to participate in a comparable benefit provided by a subsequent
employer. In the event that Executives continued participation in any such Company
plan is prohibited, the Company will arrange to provide Executive with benefits
substantially similar to those which Executive would have been entitled to receive
under this paragraph on a basis which provides Executive with no additional after-tax
cost.
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(f) Suspension and Refund of Termination Benefits for Subsequently Discovered Cause.
Notwithstanding any provision of this Agreement to the contrary, if within one (1) year of
Executives employment termination date for any reason other than for Cause, it is determined by
the Company that Executive could have been terminated for Cause, then to the extent permitted by
law:
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(i)
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the Company may elect to cancel any and all payments of any benefits otherwise
due Executive, but not yet paid, under this Agreement or otherwise; and
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(ii)
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upon written demand by the Company, Executive shall refund to the Company any
amounts, plus interest, previously paid by Company to Executive pursuant to Subsections
6(e)(iii), 6(e)(iv) or 6(e)(v), less one thousand dollars ($1,000) which Executive
shall be entitled to retain as fully sufficient consideration to support and maintain
in effect any contractual obligations that Executive has to the Company prior to the
refund, including the Release as defined herein.
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7. Resignation by Executive for Good Reason or Termination by Company Without Cause During a
Change in Control Period.
(a) Certain Terminations During a Change in Control Period.
Subject to reduction required by
Section 22, in the event a Change in Control occurs and (x) Executive terminates his employment for
Good Reason during a Change in Control Period, or (y) the Company terminates Executives employment
without Cause (and for reason other than Death of Total Disability) during a Change in Control
Period, the Company shall, subject to Executives execution of the Release (as defined in this
Section 7), pay the following amounts to Executive:
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(i)
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The payments and benefits provided for in Section 6(e)(iv) and (v) in the same
form as provided for therein.
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(ii)
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Executive shall also receive a bonus or incentive compensation payment for the
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calendar year of the employment termination, payable at 100% of the maximum bonus
available to Executive, pro-rated as of the employment termination date. Such bonus
payment shall be payable within five (5) days after the later of the effective date
of Executives termination or the Change in Control.
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(b) Certain Definitions.
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(i)
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For purposes of this Agreement, Change in Control means the first to occur on
or after the date on which this Agreement is first signed, the occurrence of any of the
following events:
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(A)
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any Person, or Persons acting as a group (within the meaning of
Section 409A of the Internal Revenue Code), directly or indirectly, including
by purchases, mergers, consolidation or otherwise, acquires ownership of
securities of the Company that, together with stock held by such Person or
Persons, represents fifty percent (50%) or more of the total voting power or
total fair market value of the Companys then outstanding securities;
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(B)
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any Person, or Persons acting as a group (within the meaning of
Section 409A of the Internal Revenue Code), acquires, (or has acquired during
the 12-month period ending on the date of the most recent acquisition by such
Person or Persons) directly or indirectly, including by purchases, merger,
consolidation or otherwise, ownership of the securities of the Company that
represent thirty percent (30%) or more of the total voting power of the
Companys then outstanding voting securities;
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(C)
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the following individuals cease for any reason to constitute a
majority of the number of directors then serving during any 12-month period:
individuals who, at the beginning of the 12-month period, constitute the Board
and any new director (other than a director whose initial assumption of office
is in connection with an actual or threatened election contest, including but
not limited to a consent solicitation, relating or the election of directors of
the Company) whose appointment or election by the Board or nomination for
election by the Companys stockholders was approved or recommended by a vote of
at least a majority of the directors before the date of such appointment or
election or whose appointment, election or nomination for election was
previously so approved or recommended;
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(D)
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a Person or Persons acting as a group acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by
such Person or Persons) assets from the Company that have a total gross fair
market value equal to or more than forty percent (40%) of the total gross fair
market value of all of the assets of the Company immediately before such
acquisition or acquisitions, other than a sale or disposition by the Company of
such assets to an entity, at least fifty percent (50%) of the combined voting
power of the voting securities of which are owned by the Company or by the
stockholders of the Company in substantially the same
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proportions as their ownership of the Company immediately prior to such
sale.
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(ii)
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For purposes of this Agreement, Change in Control Period means the period
commencing on the date occurring six months immediately prior to the date on which a
Change in Control occurs and ending on the second anniversary of the date on which a
Change in Control occurs.
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(iii)
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For purposes of this Agreement, Exchange Act means the Securities and
Exchange Act of 1934, as amended from time to time.
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(iv)
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For purposes of this Section 7, Person shall have the meaning set forth in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (1) the Company, (2) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company, (3)
an employee benefit plan of the Company, (4) an underwriter temporarily holding
securities pursuant to an offering of such securities or (5) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of shares of Common Stock of the Company.
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(v)
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For purposes of this Agreement, Release means that specific document which
the Company shall present to Executive for consideration and execution after any
applicable termination of employment, wherein if he agrees to such, he will irrevocably
and unconditionally release and forever discharge the Company, it subsidiaries,
affiliates and related parties from any and all causes of action which Executive at
that time had or may have had against the Company (excluding any claim for indemnity
under this Agreement, any claim under state workers compensation or unemployment laws,
or any claim under the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA)).
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8. No Other Benefits or Compensation.
Except as may be provided under this Agreement, or
under the terms of any incentive compensation, employee benefit, or fringe benefit plan applicable
to Executive at the time of Executives employment termination or resignation, Executive shall have
no right to receive any other compensation, or to participate in any other plan, arrangement or
benefit, with respect to future periods after such employment termination or resignation.
9. No Mitigation.
In the event of any termination of employment hereunder, Executive shall be
under no obligation to seek other employment, and there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain.
9
10. Protective Covenants
. In reliance upon Executives promise to abide by the various
protective covenants and restrictions provided for below, the Company will continue to provide
Executive with one or more of the following: (i) portions of the Companys Confidential Information
(through a computer password or other means) and updates thereto; (ii) authorization to communicate
with customers and prospective customers, and other business relationship providers, to help
Executive develop goodwill for Company; and/or (iii) authorization to participate in specialized
training related to Companys business. Executive agrees that each of Executives covenants in
Section 10 of this Agreement (the Protective Covenants) is reasonable and necessary to protect a
legitimate business interest of the Company, and that no one restriction or obligation (such as the
confidentiality obligations) would be sufficient to protect the Companys interests standing alone
due to the variety of different interests involved, the difficulty of identifying and addressing a
breach before irreparable harm has occurred, and the need to prevent irreparable harm. Employee
understands and agrees that one purpose of this Agreement is to enhance, maintain, and not
diminish, all common law and contract protections that have been in effect for the parties
concerning Confidential Information that Employee has received in the past. In addition, Executive
agrees that any and all rights Executive may have to incentive compensation, stock or stock-related
compensation, and/or severance compensation, whether provided for in this Agreement or elsewhere,
are provided in reliance upon Executives agreement to abide by and not challenge the validity of
the Protective Covenants described below.
(a) Company Property, Computer Systems, and Inventions
. All written materials, records, data,
and other documents prepared or possessed by Executive during Executives employment with the
Company are the Companys property. Executive understands that access to the Companys computer
systems is authorized for activities that are consistent with the business purposes of the Company,
that benefit the Company (consistent with Company policies and/or guidelines as they may be
modified from time to time), and that do not knowingly cause harm to the Company. The use of the
Company computer systems to pursue a competing enterprise, or prepare to compete with the Company,
is unauthorized and strictly prohibited. All information, ideas, concepts, improvements,
discoveries, and inventions that are conceived, made, developed, or acquired by Executive
individually or in conjunction with others during Executives employment (whether during business
hours or not and whether on the Companys premises or not) which relate to or are derived from the
Companys business, products, property, resources or services are the Companys sole and exclusive
property. Executive does hereby grant and assign to the Company (or its nominee) Executives
entire right, title and interest in and to all inventions, original works of authorship,
developments, concepts, improvements, designs, discoveries, and ideas of commercial use or value
that either: (i) relate to the Companys business, or actual or demonstrably anticipated research
or development activity of the Company; or (ii) are derived from, suggested by, or result of work
performed for the Company, or were created, discovered, or conceived with the aid of Company
property (Company IP). While employed, and as necessary thereafter, Executive will assist
Company to obtain patents or copyrights on Company IP, and will upon request execute all documents
and otherwise cooperate in the Companys efforts to obtain the copyrights, patents, licenses, and
other rights and interests that would be necessary to secure for the Company the complete benefit
of Company IP. To the extent state law where Executive resides requires it (such as under Cal.
Lab. Code, § 2870, or comparable laws), Executive is notified that
no provision in this Agreement
requires
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Executive to assign any of rights to an invention for which no equipment, supplies, facility,
or trade secret information of the Company was used and which was developed entirely on Executives
own time, unless (i) the invention relates at the time of conception or reduction to practice of
the invention, (A) to the business of the Company, or (B) to the Companys actual or demonstrably
anticipated research or development, or (ii) the invention results from any work performed by
Executive for the Company.
This paragraph is intended to compliment and supplement, not replace,
any additional written agreement(s) the parties may have regarding Company IP. All memoranda,
notes, records, files, correspondence, drawings, manuals, models, specifications, computer
programs, maps, and all other documents, data, or materials of any type embodying such information,
ideas, concepts, improvements, discoveries, and inventions are the Companys property. At the
termination of Executives employment with the Company for any reason, Executive shall return all
of the Companys documents, data, or other Company property to the Company and shall not retain any
copies of such property, in any form (tangible or intangible), without the express written consent
of the Company..
(b) Confidential Information; Non-Disclosure
. Executive acknowledges that the business of the
Company is highly competitive and that Executives position is one where the Company will provide
Executive with access to Confidential Information relating to the business of the Company and its
affiliates. Executive further acknowledges that protection of such Confidential Information against
unauthorized disclosure and use is of critical importance to the Company and its affiliates in
maintaining their competitive advantage. Executive understands that it shall be his responsibility
to handle and use Confidential Information in a manner that does not violate Company policies or
knowingly cause harm to the Company. Accordingly, during employment and for so long thereafter as
the information remains qualified as Confidential Information, Executive agrees to maintain the
confidentiality of Confidential Information and not to engage in any unauthorized use or
disclosure of such information.
For purposes of this Agreement, Confidential Information refers to an item of information,
or a compilation of information, in any form (tangible or intangible), related to the Companys
business that (i) the Company has not intentionally made public or authorized public disclosure of,
and (ii) is not generally known to the public or to other persons who might obtain value or
competitive advantage from its disclosure or use, through proper means. Confidential Information
will not lose its protected status under this Agreement if it becomes known to the public or to
other persons through improper means such as the unauthorized use or disclosure of the information
by Executive or another person. Confidential Information includes, but is not limited to: (i)
Market Business Strategy (MBS) data, the Company Transformation Change processes, MBS Plans,
Business Improvement Process (BIP), Fleet Planning, Public Sector Pro-formas, Letters of Intent,
Route Manager and District Manager Training Programs, internal information regarding acquisition
targets, divestiture targets, and mergers, Real Estate Market Area Analysis Mapping and Real Estate
Owned and Leased Property Data and Reporting; (ii) Companys business plans and analysis, customer
and prospect lists; compilations of names and other individualized information concerning
customers, investors, and business affiliates (such as contact name, service provided, pricing for
that customer, type and amount of services used, credit and financial data, and/or other
information relating to the Companys relationship with that customer); pricing strategies and
price curves; marketing plans and strategies, research and development data, buying practices,
human resource information and personnel files (including
11
salaries of management level personnel), financial data, operational data, methods,
techniques, technical data, know-how, innovations, computer programs, un-patented inventions, and
trade secrets; and (iii) information about the business affairs of third parties (including, but
not limited to, clients and acquisition targets) that such third parties provide to Company in
confidence.
Confidential Information will include trade secrets, but an item of Confidential Information
need not qualify as a trade secret to be protected by this Agreement. Companys confidential
exchange of information with a third party for business purposes will not remove it from protection
under this Agreement. Executive acknowledges that items of Confidential Information are Companys
valuable assets and have economic value, actual or potential, because they are not generally known
by the public or others who could use them to their own economic benefit and/or to the competitive
disadvantage of the Company, and thus, should be treated as Companys trade secrets.
(c) Unfair Competition Restrictions
. Ancillary to the rights provided to Executive following
employment termination, the Companys provision of Confidential Information, specialized training,
and/or goodwill support to Executive, and Executives agreements regarding the use of same, and in
order to protect the value of any restricted stock, stock options, or other stock-related
compensation, training, goodwill support and/or the Confidential Information described above, the
Company and Executive agree to the following provisions against unfair competition. Executive
agrees that for a period of two (2) years following the termination of employment for any reason
(Restricted Term), Executive will not, directly or indirectly, for Executive or for others,
anywhere in the United States (including all parishes in Louisiana, and Puerto Rico), Canada, the
United Kingdom, or the Peoples Republic of China (the Restricted Area) do the following, unless
expressly authorized to do so in writing by the Chief Executive Officer of the Company:
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Engage in, or assist any person, entity, or business engaged in, the
selling or providing of products or services that would displace the
products or services that (i) the Company is currently in the
business of providing and was in the business of providing, or was
planning to be in the business of providing, at the time Executive
was employed with the Company, and (ii) that Executive had
involvement in or received Confidential Information about in the
course of employment; the foregoing is expressly understood to
include, without limitation, the business of the collection,
transfer, recycling and resource recovery, or disposal of solid
waste, hazardous or other waste, including the operation of
waste-to-energy facilities.
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During the Restricted Term, Executive cannot engage in any of the enumerated prohibited activities
in the Restricted Area by means of telephone, telecommunications, satellite communications,
correspondence, or other contact from outside the Restricted Area. Executive further understands
that the foregoing restrictions may limit his ability to engage in certain businesses during the
Restricted Term, but acknowledges that these restrictions are necessary to protect the Confidential
Information the Company has provided to Executive.
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A failure to comply with the foregoing restrictions will create a presumption that Executive
is engaging in unfair competition. Executive agrees that this Section defining unfair competition
with the Company does not prevent Executive from using and offering the skills that Executive
possessed prior to receiving access to Confidential Information, confidential training, and
knowledge from the Company. This Agreement creates an advance approval process, and nothing herein
is intended, or will be construed as, a general restriction against the pursuit of lawful
employment in violation of any controlling state or federal laws. Executive shall be permitted to
engage in activities that would otherwise be prohibited by this covenant if such activities are
determined in the sole discretion of the Chief Executive Officer of the Company in writing to be of
no material threat to the legitimate business interests of the Company.
(d) Non-Solicitation of Customers
. For the Restricted Term, Executive will not, in person or
through the direction or control of others, call on, service, or solicit competing business from a
Covered Customer, or induce or encourage any such Covered Customer or other source of ongoing
business to stop doing business with Company. A Covered Customer is any Company customer (person
or entity) for which Executive had business-related contact or dealings with, or received
Confidential Information about, in the two (2) year period preceding the termination of Executives
employment with the Company for any reason.
(e) Non-Solicitation of Employees
. During Executives employment, and for the Restricted Term,
Executive will not, in person or through the direction or control of others, call on, solicit,
encourage, or induce any other employee or officer of the Company or its affiliates whom Executive
had contact with, knowledge of, or association within the course of employment with the Company to
terminate his or her employment, and will not assist any other person or entity in such a
solicitation.
(f) Non-Disparagement.
During Executives employment, and for the Restricted Term, Executive
covenants and agrees that Executive shall not engage in any pattern of conduct that involves the
making or publishing of written or oral statements or remarks (including, without limitation, the
repetition or distribution of derogatory rumors, allegations, negative reports or comments) which
are disparaging, deleterious or damaging to the integrity, reputation or good will of the Company,
its management, or of management of corporations affiliated with the Company.
(g) Protected Communications.
Nothing in this Agreement (particularly nothing in Paragraphs
10(b) and (f) regarding non-disclosure and non-disparagement) is intended or to be construed to
prohibit or interfere with any and all rights Executive may have to report a violation of state or
federal law to appropriate federal or state law enforcement officials, or to cooperate with a duly
authorized government investigation. In addition, nothing herein prohibits Executive from engaging
in a disclosure of information that is required by law (such as by court order or subpoena).
Provided, however, that if Executive believes that the disclosure of Confidential Information is
required by a subpoena, court order, or similar legal mandate, then Executive will provide the
Company reasonable notice and opportunity to protect any legitimate business interests it may have
in maintaining Confidential Information as confidential (through protective order or other means)
before engaging in such a disclosure.
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11. Enforcement of Protective Covenants.
(a) Termination of Employment and Forfeiture of Compensation.
Executive agrees that any
breach by Executive of any of the Protective Covenants set forth in Section 10 during Executives
employment with the Company shall be grounds for immediate employment termination of Executive for
Cause pursuant to Section 5(c)(i), which shall be in addition to and not exclusive of any and all
other rights and remedies the Company may have against Executive.
In the event that Executive violates one of the Protective Covenants, (i) the Company shall
have the right to immediately cease making any payments that it may otherwise owe to Executive, if
any, (ii) Executive will forfeit any remaining rights to payments or continuing benefits provided
by this Agreement, if there are any, and (iii) upon the Companys demand, Executive will refund to
the Company any amounts, plus interest, previously paid by Company to Executive pursuant to
Subsections 6(e)(iii), 6(e)(iv), 6(e)(v), 7(a)(i) or 7(a)(ii), less one thousand dollars ($1,000)
which Executive shall be entitled to retain as fully sufficient consideration to support and
maintain in effect any contractual obligations that Executive has to the Company prior to the
refund, including the Release as defined herein.
(b) Right to Injunction
. Executive acknowledges that a breach of a Protective Covenant set
forth in Section 10 hereof will cause irreparable damage to the Company with respect to which the
Companys remedy at law for damages will be inadequate. Therefore, in the event of any breach or
anticipatory breach of a Protective Covenant by Executive, Executive and the Company agree that the
Company shall be entitled to seek the following particular forms of relief, in addition to remedies
otherwise available to it at law or equity: (i) injunctions, both preliminary and permanent,
enjoining or restraining such breach or anticipatory breach and Executive hereby consents to the
issuance thereof forthwith and without bond by any court of competent jurisdiction; and (ii)
recovery of all reasonable sums expended and costs, including reasonable attorneys fees, incurred
by the Company to pursue the remedies provided for in this Section of the Agreement to enforce the
Protective Covenants.
(c) Reformation of Covenants.
The Protective Covenants set forth in Section 10 constitute a
series of separate but ancillary covenants, one for each applicable State in the United States and
the District of Columbia, and one for each applicable foreign country. If in any judicial
proceeding, a court shall hold that any of the Protective Covenants set forth in Section 10 exceed
the time, geographic, or occupational limitations permitted by applicable laws, Executive and the
Company agree that such provisions shall and are hereby reformed to provide for a restriction with
the maximum time, geographic, or occupational limitations permitted by such laws to protect the
Companys business interests. Further, in the event a court shall hold unenforceable any of the
separate covenants deemed included herein, then such unenforceable covenant or covenants shall be
deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in such proceeding.
(d) Survival.
Executive and the Company further agree that the protective Covenants set forth
in Section 10 shall each be construed as a separate agreement independent of any other
14
provisions of this Agreement, and the existence of any claim or cause of action by Executive
against the Company whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of any of the Protective Covenants. The Protective
Covenants will survive the termination of Executives employment with Company, regardless of the
cause of the termination. If Executive violates one of the Protective Covenants for which there is
a specific time limitation, the time period for that restriction will be extended by one day for
each day Executive violates it, up to a maximum extension equal to the length of time prescribed
for the restriction, so as to give Company the full benefit of the bargained-for length of
forbearance. If Executive becomes employed with an affiliate of the Company without signing a new
agreement, the affiliate will step into Companys position under this Agreement, and will be
entitled to the same protections and enforcement rights as the Company.
12. Indemnification.
The Company shall indemnify and hold harmless Executive to the fullest extent permitted by
Delaware law for any action or inaction of Executive while serving as an officer and director of
the Company or, at the Companys request, as an officer or director of any other entity or as a
fiduciary of any benefit plan. This provision includes the obligation and undertaking of the
Executive to reimburse the Company for any fees advanced by the Company on behalf of the Executive
should it later be determined that Executive was not entitled to have such fees advanced by the
Company under Delaware law. The Company shall cover the Executive under directors and officers
liability insurance both during and, while potential liability exists, after the Employment Period
in the same amount and to the same extent as the Company covers its other officers and directors.
13. Arbitration.
The parties agree that any dispute relating to this Agreement, or to the breach of this
Agreement, arising between Executive and the Company shall be settled by arbitration in accordance
with the Federal Arbitration Act and the commercial arbitration rules of the American Arbitration
Association (AAA), or any other mutually agreed upon arbitration service; provided, however, that
temporary and preliminary injunctive relief to enforce the covenants contained in Section 10 of
this Agreement, and related expedited discovery, may be pursued in a court of law to provide
temporary injunctive relief pending a final determination of all issues of final relief through
arbitration. The arbitration proceeding, including the rendering of an award, shall take place in
Houston, Texas, and shall be administered by the AAA (or any other mutually agreed upon arbitration
service). The arbitrator shall be jointly selected by the Company and Executive within thirty (30)
days of the notice of dispute, or if the parties cannot agree, in accordance with the commercial
arbitration rules of the AAA (or any other mutually agreed upon arbitration service). All fees and
expenses associated with the arbitration shall be borne equally by Executive and the Company during
the arbitration, pending final decision by the arbitrator as to who should bear fees, unless
otherwise ordered by the arbitrator. The arbitrator shall not be authorized to create a cause of
action or remedy not recognized by applicable state or federal law. The arbitrator shall be
authorized to award final injunctive relief. The award of the arbitrator shall be final and
binding upon the parties without appeal or review, except as permitted by the arbitration laws of
the State of Texas. The award, inclusive of any
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and all injunctive relief provided for therein, shall be enforceable through a court of law
upon motion of either party.
14. Requirement of Timely Payments.
If any amounts which are required, or determined to be paid or payable, or reimbursed or
reimbursable, to Executive under this Agreement (or any other plan, agreement, policy or
arrangement with the Company) are not so paid promptly at the times provided herein or therein,
such amounts shall accrue interest, compounded daily, at an 8% annual percentage rate, from the
date such amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon are finally and
fully paid, provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder, exceed the maximum non-usurious amount of interest allowed by
applicable law.
15. Withholding of Taxes.
The Company may withhold from any compensation and benefits payable under this Agreement all
applicable federal, state, local, or other taxes.
16. Source of Payments.
All payments provided under this Agreement, other than payments made pursuant to a plan which
provides otherwise, shall be paid from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure payment. Executive
shall have no right, title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a
right to receive payments from the Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
17. Assignment.
This Agreement shall inure to the benefit of the Company, its subsidiaries, affiliates,
successors, and assigns. Except as otherwise provided in this Agreement, this Agreement shall
inure to the benefit of Executive, and Executives heirs, representatives, and successors. This
Agreement shall not be assignable by Executive (but any payments due hereunder which would be
payable at a time after Executives death shall be paid to Executives estate).
18. Entire Agreement; Amendment.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its subsidiaries or
affiliated entities relating to the terms of Executives employment by the Company; provided,
however, that if all or any material part of the Protective Covenants provided for in this
Agreement are deemed void or unenforceable, then any prior agreement between the parties covering
the same or substantially similar restrictions on Executive (such as, but not limited to
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the Companys prior Employment Agreement(s) or Loyalty And Confidentiality Agreement with
Executive) shall resume effect to the extent necessary to maintain protection of the Companys
legitimate protectable interests covered by the Protective Covenants. This Agreement may not be
amended except by a written agreement signed by both parties. No material term or obligation of a
party may be waived except through written agreement by the party with the authority to enforce
such right or obligation.
19. Governing Law and Venue.
This Agreement shall be governed by and construed in accordance with the laws of the State of
Texas applicable to agreements made and to be performed in that State, without regard to its
conflict of laws provisions. The parties agree that any legal action arising from this Agreement
that is not required to be resolved through arbitration pursuant to Section 13 must be pursued in a
court of competent jurisdiction that is located in Houston, Texas.
20. Notices.
Any notice, consent, request, or other communication made or given in connection with this
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed
by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to
those listed below at their following respective addresses or at such other address as each may
specify by notice to the others:
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To the Company:
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Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: General Counsel
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To Executive:
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At the address for Executive set forth below.
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21. Miscellaneous.
(a) Waiver.
The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
(b) Severability.
Subject to Section 11 hereof, if any term or provision of this Agreement is
declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to
be enforceable, such term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
(c) Headings.
Section headings are used herein for convenience of reference only and shall
not affect the meaning of any provision of this Agreement.
(d) Rules of Construction.
Whenever the context so requires, the use of the singular shall be
deemed to include the plural and vice versa.
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(e) Counterparts.
This Agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, and such counterparts will together constitute but
one Agreement.
22. Potential Limitation on Severance Benefits.
(a) Maximum Severance Amount.
Notwithstanding any provision in this Agreement to the
contrary, in the event of a qualifying termination (or resignation) under Section 6(e) or Section 7
of this Agreement it is determined by the Company that the Severance Benefits (as defined in
Section 22(b) below) would exceed 2.99 times the sum of the Executives then current base salary
and target bonus (the Maximum Severance Amount), then the aggregate present value of the
Severance Benefits provided to the Executive shall be reduced by the Company to the Reduced Amount.
The Reduced Amount shall be an amount, expressed in present value, that maximizes the aggregate
present value of the Severance Benefits without exceeding the Maximum Severance Amount.
(b) Severance Benefits.
For purposes of determining Severance Benefits under Section 22(a)
above, Severance Benefits means the present value of payments or distributions by the Company, its
subsidiaries or affiliated entities to or for the benefit of the Executive (whether paid or
provided pursuant to the terms of this Agreement or otherwise), and
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(A) including: (i) cash amounts payable by the Company in the event of termination of
Executives employment; and (ii) the present value of benefits or perquisites provided for
periods after termination of employment (but excluding benefits or perquisites provided to
employees generally); and
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(B) excluding: (i) payments of salary, bonus or performance award amounts that had accrued
at the time of termination; (ii) payments based on accrued qualified and non-qualified
deferred compensation plans, including retirement and savings benefits; (iii) any benefits
or perquisites provided under plans or programs applicable to employees generally; (iv)
amounts paid as part of any agreement intended to make-whole any forfeiture of benefits
from a prior employer; (v) amounts paid for services following termination of employment for
a reasonable consulting agreement for a period not to exceed one year; (vi) amounts paid for
post-termination covenants (such as a covenant not to compete); (vii) the value of
accelerated vesting or payment of any outstanding equity-based award; and (viii) any payment
that the Board or any committee thereof determines in good faith to be a reasonable
settlement of any claim made against the Company.
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(c) Possible 280G Reduction.
Following application of Section 22(a), in the event that the
payment of the remaining Severance Benefits to Executive plus any other payments to Executive which
would be subject to Internal Revenue Code Section 280G (including any reduced Severance Benefits)
(280G Severance Benefits) would be subject (in whole or part), to any excise tax imposed under
Internal Revenue Code Section 4999 (the Excise Tax), then the cash portion of the 280G Severance
Benefits shall first be further reduced, and the non-cash
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280G Severance Benefits shall thereafter be further reduced, to the extent necessary so that
no portion of the 280G Severance Benefits is subject to the Excise Tax, but only if (i) the amount
of the 280G Severance Benefits to be received by Executive, as so reduced by this Section 22(c) and
after subtracting the amount of federal, state and local income taxes on such reduced 280G
Severance Benefits (after taking into account the phase out of itemized deductions and personal
exemptions attributable to such reduced 280G Severance Benefits) is greater than or equal to (ii)
the amount of the 280G Severance Benefits to be received by Executive without such reduction by
this Section 22(c) after subtracting the amount of federal, state and local income taxes on such
280G Severance Benefits and the amount of the Excise Tax to which Executive would be subject in
respect of such unreduced 280G Severance Benefits (after taking into account the phase out of
itemized deductions and personal exemptions attributable to such unreduced 280G Severance Benefits
).
(d) Calculation of 280G Severance Benefits.
For purposes of determining the 280G Severance
Benefits, (i) no portion of the 280G Severance Benefits, the receipt or enjoyment of which
Executive shall have waived at such time and in such manner as not to constitute a payment within
the meaning of Internal Revenue Code Section 280G(b), shall be taken into account, (ii) no portion
of the 280G Severance Benefits shall be taken into account which, in the opinion of tax counsel
(Tax Counsel) who is reasonably acceptable to Executive and selected by the accounting firm (the
Auditor) which was, immediately prior to the Change in Control, the Companys independent
auditor, does not constitute a parachute payment within the meaning of Internal Revenue Code
Section 280G(b)(2) (including by reason of Internal Revenue Code Section 280G(b)(4)(A)); (iii) no
portion of the 280G Severance Benefits shall be taken into account which, in the opinion of Tax
Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of
Internal Revenue Code Section 280G(b)(4)(B), in excess of the base amount (as defined in Internal
Revenue Code Section 280G(b)(3)) allocable to such reasonable compensation, and (iv) the value of
any non-cash benefit or any deferred payment or benefit included in the 280G Severance Benefits
shall be determined by the Auditor in accordance with the principles of Internal Revenue Code
Sections 280G(d)(3) and (4).
(e) Determination of Present Value.
For purposes of this Section 22, the present value of
Severance Benefits and 280G Severance Benefits 280G shall be determined in accordance with Internal
Revenue Code Section 280G(d)(4).
23. Compliance with Internal Revenue Code Section 409A.
(a) Compliance.
It is the intention of the Company and Executive that this Employment
Agreement not result in unfavorable tax consequences to Executive under Internal Revenue Code
Section 409A. This Section 23 does not create an obligation on the part of Company to modify the
Employment Agreement in the future and does not guarantee that the amounts or benefits owed under
the Employment Agreement will not be subject to interest and penalties under Internal Revenue Code
Section 409A.
(b) Payment Timing.
The payments of severance under Sections 6(e)(iii) and (iv) and Sections
7(a)(i) and (ii) above (Separation Payments) are designated as separate payments for purposes of
the short-term deferral rules under Treasury Regulation Section 1.409A-1(b)(4)(i)(F), and, with
respect to such Separation Payments, the exemption for involuntary
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terminations under separation pay plans under Treasury Regulation Section 1.409A-1(b)(9)(iii).
As a result, (A) Separation Payments that are by their terms scheduled to be made on or before
March 15th of the calendar year following the applicable year of termination, (B) any additional
Separation Payments that are made on or before December 31st of the second calendar year following
the year of Executives termination and do not exceed the lesser of two times Base Salary or two
times the limit under Internal Revenue Code Section 401(a)(17) then in effect, and (C) any
Separation Payments under Section 7(a) made on account of a 409A Change in Control within the
meaning of Internal Revenue Code Section 409A are exempt from the requirements of Internal Revenue
Code Section 409A. If Executive is designated as a specified employee within the meaning of
Internal Revenue Code Section 409A, then to the extent the Disability Payments and Separation
Payments to be made during the first six month period following Executives termination of
employment exceed such exempt amounts, the payments shall be withheld and the amount of the
payments withheld will be paid in a lump sum, with interest (at the Companys then applicable
overnight rate), on the date that is six (6) months and one (1) day after Executives termination.
Continued medical benefits under Sections 6(e)(v) and 7(a)(i) above are intended to satisfy the
exemption for medical expense reimbursements under Treasury Regulation Section
1.409A-1(b)(9)(v)(B).
IN WITNESS WHEREOF, this Agreement is EXECUTED as of the date first set forth above and
effective as set forth therein.
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JAMES C. FISH, JR.
(Executive)
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/s/ James C. Fish, Jr.
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James C. Fish, Jr.
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(Address)
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WASTE MANAGEMENT, INC.
(The Company)
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By:
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/s/ David P. Steiner
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David P. Steiner
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President and Chief Executive Officer
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the Agreement) is made and entered into on this 23rd day of
August, 2011 by and between Waste Management, Inc. (the Company) and William K. Caesar (the
Executive).
1. Employment.
The Company shall employ Executive, and Executive shall be employed by the Company upon the
terms and subject to the conditions set forth in this Agreement.
2. Term of Employment.
The period of Executives employment under this Agreement began on June 13, 2011 (Employment
Date), and may be terminated by either party pursuant to Section 5 below. The period during which
Executive is employed hereunder shall be referred to as the Employment Period.
3. Duties and Responsibilities.
(a)
Executive shall serve as Chef Strategy Officer. In such capacity, Executive shall perform
such duties and have the power, authority, and functions consistent with such position, as may be
deemed appropriate for the position and assigned to Executive from time to time by the Chief
Executive Officer or the Board of Directors (the Board) of the Company.
(b)
Executive shall devote substantially all of his working time, attention and energies to
the business of the Company, and its affiliated entities. Executive may make and manage his
personal investments (provided such investments in other activities do not violate, in any material
respect, the provisions of Section 10 of this Agreement), be involved in charitable and
professional activities, and, with the prior written consent of the Board, serve on boards of other
for profit entities, provided such activities do not materially interfere with the performance of
his duties hereunder or create a conflict of interest (however, the Board does not typically allow
officers to serve on more than one public company board at a time).
4. Compensation and Benefits.
(a) Base Salary.
During the Employment Period, the Company shall pay Executive a base salary
at the annual rate of Three Hundred Sixty Thousand Five Hundred and 00/100ths Dollars ($360,500.00)
per year, or such higher rate as may be determined from time to time by the Company (Base
Salary). Such Base Salary shall be paid in accordance with the Companys standard payroll
practice for its executive officers. Once increased, Base Salary shall not be reduced except by
mutual agreement.
(b) Annual Bonus.
Beginning on January 1, 2011 and continuing during the remaining Employment
Period, Executive will be entitled to participate in an annual incentive compensation plan of the
Company, as established by the Management Development and Compensation Committee (Compensation
Committee) of the Board from time to time. The
Executives target annual bonus will be sixty percent (60%) of his Base Salary in effect for
such year (the Target Bonus), and his actual annual bonus may range from 0% to 120% of Base
Salary (
i.e
., a maximum possible bonus of two times the Target Bonus), and will be determined based
upon (i) the achievement of certain corporate financial and/or performance goals, as may be
established and approved from time to time by the Compensation Committee of the Board, and (ii) the
achievement of personal performance goals as may be established by Executives immediate
supervisor. The annual bonus will be paid at such time and in such manner as set forth in the
annual incentive compensation plan document.
(c) Benefit Plans and Vacation.
Subject to the terms of such plans, Executive shall be
eligible to participate in or receive benefits under any profit sharing plan, salary deferral plan,
medical and dental benefits plan, life insurance plan, short-term and long-term disability plans,
or any other health, welfare or fringe benefit plan, generally made available by the Company to
similarly-situated executive employees. The Company shall not be obligated to institute, maintain,
or refrain from changing, amending, or discontinuing any benefit plan, so long as such changes are
similarly applicable to similarly-situated employees generally.
During the Employment Period, Executive shall be entitled to vacation each year in accordance
with the Companys policies in effect from time to time, but in no event less than four (4) weeks
paid vacation per calendar year. Vacation not taken in the calendar year in which it is granted
cannot be carried forward to any subsequent year.
(d) Expense Reimbursement.
The Company shall promptly reimburse Executive for the ordinary
and necessary business expenses incurred by Executive in the performance of his duties hereunder in
accordance with the Companys customary practices applicable to executive officers. The
reimbursement of expenses during a year will not affect the expenses eligible for reimbursement in
any other year. In no event shall any expense be reimbursed after the last day of the year
following the year in which the expense was incurred.
(e) Other Perquisites.
Executive shall be entitled to all perquisites provided to Senior Vice
Presidents of the Company as approved by the Compensation Committee of the Board, and as they may
exist from time to time.
5. Termination of Employment.
Executives employment hereunder may be terminated during the Employment Period under the
following circumstances:
(a) Death.
Executives employment hereunder shall terminate upon Executives death.
(b) Total Disability.
The Company may terminate Executives employment hereunder upon
Executives becoming Totally Disabled. For purposes of this Agreement, Executive shall be
considered Totally Disabled if Executive has become physically or mentally disabled so as to
render Executive incapable of performing the essential functions of his position (with or without
reasonable accommodations) and such disability is expected to result in death or
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to last for a continuous period of at least 12 months, provided that such condition
constitutes a disability within the meaning of Section 409A of the Internal Revenue Code.
Executives receipt of disability benefits under the Companys long-term disability plan or receipt
of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for
purpose of this Agreement.
(c) Termination by the Company for Cause.
The Company may terminate Executives employment
hereunder for Cause at any time after providing a Notice of Termination for Cause to Executive.
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(i)
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For purposes of this Agreement, the term Cause means any of the following:
Executives (A) willful or deliberate and continual refusal to perform Executives
employment duties reasonably requested by the Company after receipt of written notice
to Executive of such failure to perform, specifying such failure (other than as a
result of Executives sickness, illness or injury) and Executives failure to cure such
nonperformance within ten (10) days of receipt of said written notice; (B) breach of
any statutory or common law duty of loyalty to the Company; (C) conviction of, or plea
of
nolo contendre
to, any felony; (D) willful or intentional cause of material injury
to the Company, its property, or its assets; (E) disclosure or attempted disclosure to
any unauthorized person(s) of the Companys proprietary or confidential information;
(F) material violation or a repeated and willful violation of the Companys policies or
procedures, including but not limited to, the Companys Code of Business Conduct and
Ethics (or any successor policy) then in effect; or (G) breach of any of the covenants
set forth in Section 10 hereof.
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(ii)
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For purposes of this Agreement, the phrase Notice of Termination for Cause
shall mean a written notice that shall indicate the specific termination provision or
provisions in Section 5(c)(i) relied upon, and shall set forth in reasonable detail the
facts and circumstances which provide the basis for termination for Cause.
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(d) Voluntary Termination by Executive.
Executive may terminate his employment hereunder with
or without Good Reason at any time upon written notice to the Company.
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(i)
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A termination for Good Reason means a resignation of employment by Executive
by written notice (Notice of Termination for Good Reason) given to the Companys
Chief Executive Officer within ninety (90) days after the occurrence of the Good Reason
event, unless such circumstances are substantially corrected prior to the date of
termination specified in the Notice of Termination for Good Reason. For purposes of
this Agreement, Good Reason shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executives express written consent, of any of
the following circumstances: (A) the Company materially diminishes Executives core
duties or responsibility for those core duties, so as to effectively cause Executive to
no longer be performing the duties of his position (except in each case in connection
with the termination
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of Executives employment for Death, Total Disability, or Cause, or temporarily as a
result of Executives illness or other absence); (B) in the event of the Companys
becoming a fifty percent or more subsidiary of any other entity, the Company
materially diminishes the duties, authority or responsibilities of the person to
whom Executive is required to report; (C) removal or the non-reelection of the
Executive from the officer position with the Company specified herein, or removal of
the Executive from any of his then officer positions; (D) any material breach by the
Company of any provision of this Agreement; or (E) failure of any successor to the
Company (whether direct or indirect and whether by merger, acquisition,
consolidation or otherwise) to assume in a writing delivered to Executive upon the
assignee becoming such, the obligations of the Company hereunder, resulting in a
material negative change in the employment relationship.
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(ii)
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A Notice of Termination for Good Reason shall mean a notice that shall
indicate the specific termination provision or provisions relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The Notice of Termination for Good Reason shall provide
for a date of termination not less than thirty (30) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in the case
of the events set forth in Sections 5(d)(i)(A) or (B), the date may be twenty (20) days
after the giving of such notice.
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(e) Termination by the Company without Cause.
The Company may terminate Executives
employment hereunder without Cause at any time upon written notice to Executive.
(f) Effect of Termination.
Upon any termination of employment for any reason, Executive shall
immediately resign from all Board memberships and other positions with the Company or any of its
subsidiaries held by him at such time.
6. Compensation Following Termination of Employment.
In the event that Executives employment hereunder is terminated in a manner as set forth in
Section 5 above, Executive shall be entitled to the compensation and benefits provided under this
Section 6, in each case subject to potential reduction as may be required by Section 22, as
applicable to the form of termination:
(a) Termination by Reason of Death.
In the event that Executives employment is terminated by
reason of Executives death, the Company shall pay the following amounts to Executives beneficiary
or estate:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of death,
any accrued but unpaid expenses required to be reimbursed under this Agreement, any
accrued but unused vacation to the date of employment termination, and any earned but
unpaid bonuses for any prior calendar year. Executive shall also be eligible for a
pro-rata bonus or incentive compensation payment for the calendar year of his
employment termination to the extent such awards are made to other
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senior executives of the Company and paid at the same time as other senior
executives are paid.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof), as determined and paid in accordance with the terms of such
plans, policies and arrangements.
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(b) Termination by Reason of Total Disability.
In the event that Executives employment is
terminated by the Company by reason of Executives Total Disability (as determined in accordance
with Section 5(b)), the Company shall pay the following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year. Executive shall also be eligible for a
pro-rata bonus or incentive compensation payment for the calendar year of his
employment termination to the extent such awards are made to other senior executives of
the Company and paid at the same time as other senior executives are paid.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof) shall be determined and paid in accordance with the terms of
such plans, policies and arrangements.
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(c) Termination for Cause.
In the event that Executives employment is terminated by the
Company for Cause, the Company shall pay the following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof up to the date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and arrangements.
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(d) Voluntary Termination by Executive.
In the event that Executive voluntarily terminates
employment other than for Good Reason, the Company shall pay the following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of termination,
any accrued but unpaid expenses required to be reimbursed under this Agreement,
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any accrued but unused vacation to the date of termination, and any earned but unpaid
bonuses for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements (including those referred to
in Section 4(c) hereof up to the date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and arrangements.
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(e) Termination by the Company Without Cause Outside a Change in Control Period; Termination
by Executive for Good Reason Outside a Change in Control Period.
In the event that Executives
employment is terminated by the Company outside a Change in Control Period (as defined in Section 7
below) for reasons other than death, Total Disability or Cause, or Executive terminates his
employment for Good Reason outside of a Change in Control Period, the Company shall pay the
following amounts to Executive:
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(i)
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Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any accrued but unused vacation to the date of termination, and any earned
but unpaid bonuses for any prior calendar year.
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(ii)
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Any benefits accrued through the date of termination to which Executive may be
entitled pursuant to the plans, policies and arrangements referred to in Section 4(c)
hereof shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.
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(iii)
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Subject to Executives execution of the Release (as defined in Section 7),
Executive shall be eligible for a bonus or incentive compensation payment, at the same
time, on the same basis, and to the same extent payments are made to senior executives
of the Company, pro-rated for the fiscal year in which the Executives employment is
terminated.
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(iv)
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Subject to Executives execution of the Release (as defined in Section 7), an
amount equal to two (2) times the sum of Executives Base Salary plus his Target Annual
Bonus (in each case, as then in effect), of which one-half of such amount shall be paid
in a lump sum within the calendar quarter in which the 60
th
day following
Executives employment termination date falls and one-half of such amount shall be paid
during the two (2) year period beginning in the calendar quarter within which the
60
th
day following Executives employment termination date falls and
continuing at the same time and in the same manner as Base Salary would have been paid
if Executive had remained in active employment until the end of such period.
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(v)
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Subject to Executives execution of the Release (as defined in Section 7) and
Executives completion of required enrollment elections, the Company will continue for
Executive and Executives spouse and eligible dependents coverage under the Companys
health benefit plan and disability benefit plans, in which
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Executive was a participant at any time during the twelve-month period prior to the
date of termination, until the earliest to occur of (A) twenty-four (24) months
after the employment termination date; (B) Executives death (provided that benefits
provided to Executives spouse and dependents shall not terminate until twenty-four
(24) months after the employment termination date); or (C) with respect to any
particular plan, the date Executive becomes eligible to participate in a comparable
benefit provided by a subsequent employer. In the event that Executives continued
participation in any such Company plan is prohibited, the Company will arrange to
provide Executive with benefits substantially similar to those which Executive would
have been entitled to receive under this paragraph on a basis which provides
Executive with no additional after-tax cost.
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(f) Suspension and Refund of Termination Benefits for Subsequently Discovered Cause.
Notwithstanding any provision of this Agreement to the contrary, if within one (1) year of
Executives employment termination date for any reason other than for Cause, it is determined by
the Company that Executive could have been terminated for Cause, then to the extent permitted by
law:
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(i)
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the Company may elect to cancel any and all payments of any benefits otherwise
due Executive, but not yet paid, under this Agreement or otherwise; and
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(ii)
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upon written demand by the Company, Executive shall refund to the Company any
amounts, plus interest, previously paid by Company to Executive pursuant to Subsections
6(e)(iii), 6(e)(iv) or 6(e)(v), less one thousand dollars ($1,000) which Executive
shall be entitled to retain as fully sufficient consideration to support and maintain
in effect any contractual obligations that Executive has to the Company prior to the
refund, including the Release as defined herein.
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7. Resignation by Executive for Good Reason or Termination by Company Without Cause During a
Change in Control Period.
(a) Certain Terminations During a Change in Control Period.
Subject to reduction required by
Section 22, in the event a Change in Control occurs and (x) Executive terminates his employment for
Good Reason during a Change in Control Period, or (y) the Company terminates Executives employment
without Cause (and for reason other than Death of Total Disability) during a Change in Control
Period, the Company shall, subject to Executives execution of the Release (as defined in this
Section 7), pay the following amounts to Executive:
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(i)
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The payments and benefits provided for in Section 6(e)(iv) and (v) in the same
form as provided for therein.
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(ii)
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Executive shall also receive a bonus or incentive compensation payment for the
calendar year of the employment termination, payable at 100% of the maximum bonus
available to Executive, pro-rated as of the employment termination date. Such bonus
payment shall be payable within five (5) days after the later of the effective date of
Executives termination or the Change in Control.
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(b) Certain Definitions.
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(i)
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For purposes of this Agreement, Change in Control means the first to occur on
or after the date on which this Agreement is first signed, the occurrence of any of the
following events:
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(A)
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any Person, or Persons acting as a group (within the meaning of
Section 409A of the Internal Revenue Code), directly or indirectly, including
by purchases, mergers, consolidation or otherwise, acquires ownership of
securities of the Company that, together with stock held by such Person or
Persons, represents fifty percent (50%) or more of the total voting power or
total fair market value of the Companys then outstanding securities;
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(B)
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any Person, or Persons acting as a group (within the meaning of
Section 409A of the Internal Revenue Code), acquires, (or has acquired during
the 12-month period ending on the date of the most recent acquisition by such
Person or Persons) directly or indirectly, including by purchases, merger,
consolidation or otherwise, ownership of the securities of the Company that
represent thirty percent (30%) or more of the total voting power of the
Companys then outstanding voting securities;
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(C)
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the following individuals cease for any reason to constitute a
majority of the number of directors then serving during any 12-month period:
individuals who, at the beginning of the 12-month period, constitute the Board
and any new director (other than a director whose initial assumption of office
is in connection with an actual or threatened election contest, including but
not limited to a consent solicitation, relating or the election of directors of
the Company) whose appointment or election by the Board or nomination for
election by the Companys stockholders was approved or recommended by a vote of
at least a majority of the directors before the date of such appointment or
election or whose appointment, election or nomination for election was
previously so approved or recommended;
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(D)
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a Person or Persons acting as a group acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by
such Person or Persons) assets from the Company that have a total gross fair
market value equal to or more than forty percent (40%) of the total gross fair
market value of all of the assets of the Company immediately before such
acquisition or acquisitions, other than a sale or disposition by the Company of
such assets to an entity, at least fifty percent (50%) of the combined voting
power of the voting securities of which are owned by the Company or by the
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
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(ii)
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For purposes of this Agreement, Change in Control Period means the period
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commencing on the date occurring six months immediately prior to the date on which a
Change in Control occurs and ending on the second anniversary of the date on which a
Change in Control occurs.
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(iii)
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For purposes of this Agreement, Exchange Act means the Securities and
Exchange Act of 1934, as amended from time to time.
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(iv)
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For purposes of this Section 7, Person shall have the meaning set forth in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (1) the Company, (2) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company, (3)
an employee benefit plan of the Company, (4) an underwriter temporarily holding
securities pursuant to an offering of such securities or (5) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of shares of Common Stock of the Company.
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(v)
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For purposes of this Agreement, Release means that specific document which
the Company shall present to Executive for consideration and execution after any
applicable termination of employment, wherein if he agrees to such, he will irrevocably
and unconditionally release and forever discharge the Company, it subsidiaries,
affiliates and related parties from any and all causes of action which Executive at
that time had or may have had against the Company (excluding any claim for indemnity
under this Agreement, any claim under state workers compensation or unemployment laws,
or any claim under the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA)).
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8. No Other Benefits or Compensation.
Except as may be provided under this Agreement, or
under the terms of any incentive compensation, employee benefit, or fringe benefit plan applicable
to Executive at the time of Executives employment termination or resignation, Executive shall have
no right to receive any other compensation, or to participate in any other plan, arrangement or
benefit, with respect to future periods after such employment termination or resignation.
9. No Mitigation.
In the event of any termination of employment hereunder, Executive shall be
under no obligation to seek other employment, and there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain.
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10. Protective Covenants
. In reliance upon Executives promise to abide by the various
protective covenants and restrictions provided for below, the Company will continue to provide
Executive with one or more of the following: (i) portions of the Companys Confidential Information
(through a computer password or other means) and updates thereto; (ii) authorization to communicate
with customers and prospective customers, and other business relationship providers, to help
Executive develop goodwill for Company; and/or (iii) authorization to participate in specialized
training related to Companys business. Executive agrees that each of Executives covenants in
Section 10 of this Agreement (the Protective Covenants) is reasonable and necessary to protect a
legitimate business interest of the Company, and that no one restriction or obligation (such as the
confidentiality obligations) would be sufficient to protect the Companys interests standing alone
due to the variety of different interests involved, the difficulty of identifying and addressing a
breach before irreparable harm has occurred, and the need to prevent irreparable harm. Employee
understands and agrees that one purpose of this Agreement is to enhance, maintain, and not
diminish, all common law and contract protections that have been in effect for the parties
concerning Confidential Information that Employee has received in the past. In addition, Executive
agrees that any and all rights Executive may have to incentive compensation, stock or stock-related
compensation, and/or severance compensation, whether provided for in this Agreement or elsewhere,
are provided in reliance upon Executives agreement to abide by and not challenge the validity of
the Protective Covenants described below.
(a) Company Property, Computer Systems, and Inventions
. All written materials, records, data,
and other documents prepared or possessed by Executive during Executives employment with the
Company are the Companys property. Executive understands that access to the Companys computer
systems is authorized for activities that are consistent with the business purposes of the Company,
that benefit the Company (consistent with Company policies and/or guidelines as they may be
modified from time to time), and that do not knowingly cause harm to the Company. The use of the
Company computer systems to pursue a competing enterprise, or prepare to compete with the Company,
is unauthorized and strictly prohibited. All information, ideas, concepts, improvements,
discoveries, and inventions that are conceived, made, developed, or acquired by Executive
individually or in conjunction with others during Executives employment (whether during business
hours or not and whether on the Companys premises or not) which relate to or are derived from the
Companys business, products, property, resources or services are the Companys sole and exclusive
property. Executive does hereby grant and assign to the Company (or its nominee) Executives
entire right, title and interest in and to all inventions, original works of authorship,
developments, concepts, improvements, designs, discoveries, and ideas of commercial use or value
that either: (i) relate to the Companys business, or actual or demonstrably anticipated research
or development activity of the Company; or (ii) are derived from, suggested by, or result of work
performed for the Company, or were created, discovered, or conceived with the aid of Company
property (Company IP). While employed, and as necessary thereafter, Executive will assist
Company to obtain patents or copyrights on Company IP, and will upon request execute all documents
and otherwise cooperate in the Companys efforts to obtain the copyrights, patents, licenses, and
other rights and interests that would be necessary to secure for the Company the complete benefit
of Company IP. To the extent state law where Executive resides requires it (such as under Cal.
Lab. Code, § 2870, or comparable laws), Executive is notified that
no provision in this Agreement
requires
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Executive to assign any of rights to an invention for which no equipment, supplies, facility,
or trade secret information of the Company was used and which was developed entirely on Executives
own time, unless (i) the invention relates at the time of conception or reduction to practice of
the invention, (A) to the business of the Company, or (B) to the Companys actual or demonstrably
anticipated research or development, or (ii) the invention results from any work performed by
Executive for the Company.
This paragraph is intended to compliment and supplement, not replace,
any additional written agreement(s) the parties may have regarding Company IP. All memoranda,
notes, records, files, correspondence, drawings, manuals, models, specifications, computer
programs, maps, and all other documents, data, or materials of any type embodying such information,
ideas, concepts, improvements, discoveries, and inventions are the Companys property. At the
termination of Executives employment with the Company for any reason, Executive shall return all
of the Companys documents, data, or other Company property to the Company and shall not retain any
copies of such property, in any form (tangible or intangible), without the express written consent
of the Company..
(b) Confidential Information; Non-Disclosure
. Executive acknowledges that the business of the
Company is highly competitive and that Executives position is one where the Company will provide
Executive with access to Confidential Information relating to the business of the Company and its
affiliates. Executive further acknowledges that protection of such Confidential Information against
unauthorized disclosure and use is of critical importance to the Company and its affiliates in
maintaining their competitive advantage. Executive understands that it shall be his responsibility
to handle and use Confidential Information in a manner that does not violate Company policies or
knowingly cause harm to the Company. Accordingly, during employment and for so long thereafter as
the information remains qualified as Confidential Information, Executive agrees to maintain the
confidentiality of Confidential Information and not to engage in any unauthorized use or
disclosure of such information.
For purposes of this Agreement, Confidential Information refers to an item of information,
or a compilation of information, in any form (tangible or intangible), related to the Companys
business that (i) the Company has not intentionally made public or authorized public disclosure of,
and (ii) is not generally known to the public or to other persons who might obtain value or
competitive advantage from its disclosure or use, through proper means. Confidential Information
will not lose its protected status under this Agreement if it becomes known to the public or to
other persons through improper means such as the unauthorized use or disclosure of the information
by Executive or another person. Confidential Information includes, but is not limited to: (i)
Market Business Strategy (MBS) data, the Company Transformation Change processes, MBS Plans,
Business Improvement Process (BIP), Fleet Planning, Public Sector Pro-formas, Letters of Intent,
Route Manager and District Manager Training Programs, internal information regarding acquisition
targets, divestiture targets, and mergers, Real Estate Market Area Analysis Mapping and Real Estate
Owned and Leased Property Data and Reporting; (ii) Companys business plans and analysis, customer
and prospect lists; compilations of names and other individualized information concerning
customers, investors, and business affiliates (such as contact name, service provided, pricing for
that customer, type and amount of services used, credit and financial data, and/or other
information relating to the Companys relationship with that customer); pricing strategies and
price curves; marketing plans and strategies, research and development data, buying practices,
human resource information and personnel files (including
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salaries of management level personnel), financial data, operational data, methods,
techniques, technical data, know-how, innovations, computer programs, un-patented inventions, and
trade secrets; and (iii) information about the business affairs of third parties (including, but
not limited to, clients and acquisition targets) that such third parties provide to Company in
confidence.
Confidential Information will include trade secrets, but an item of Confidential Information
need not qualify as a trade secret to be protected by this Agreement. Companys confidential
exchange of information with a third party for business purposes will not remove it from protection
under this Agreement. Executive acknowledges that items of Confidential Information are Companys
valuable assets and have economic value, actual or potential, because they are not generally known
by the public or others who could use them to their own economic benefit and/or to the competitive
disadvantage of the Company, and thus, should be treated as Companys trade secrets.
(c) Unfair Competition Restrictions
. Ancillary to the rights provided to Executive following
employment termination, the Companys provision of Confidential Information, specialized training,
and/or goodwill support to Executive, and Executives agreements regarding the use of same, and in
order to protect the value of any restricted stock, stock options, or other stock-related
compensation, training, goodwill support and/or the Confidential Information described above, the
Company and Executive agree to the following provisions against unfair competition. Executive
agrees that for a period of two (2) years following the termination of employment for any reason
(Restricted Term), Executive will not, directly or indirectly, for Executive or for others,
anywhere in the United States (including all parishes in Louisiana, and Puerto Rico), Canada, the
United Kingdom, or the Peoples Republic of China (the Restricted Area) do the following, unless
expressly authorized to do so in writing by the Chief Executive Officer of the Company:
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Engage in, or assist any person, entity, or business engaged in, the
selling or providing of products or services that would displace the
products or services that (i) the Company is currently in the
business of providing and was in the business of providing, or was
planning to be in the business of providing, at the time Executive
was employed with the Company, and (ii) that Executive had
involvement in or received Confidential Information about in the
course of employment; the foregoing is expressly understood to
include, without limitation, the business of the collection,
transfer, recycling and resource recovery, or disposal of solid
waste, hazardous or other waste, including the operation of
waste-to-energy facilities.
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During the Restricted Term, Executive cannot engage in any of the enumerated prohibited activities
in the Restricted Area by means of telephone, telecommunications, satellite communications,
correspondence, or other contact from outside the Restricted Area. Executive further understands
that the foregoing restrictions may limit his ability to engage in certain businesses during the
Restricted Term, but acknowledges that these restrictions are necessary to protect the Confidential
Information the Company has provided to Executive.
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A failure to comply with the foregoing restrictions will create a presumption that Executive
is engaging in unfair competition. Executive agrees that this Section defining unfair competition
with the Company does not prevent Executive from using and offering the skills that Executive
possessed prior to receiving access to Confidential Information, confidential training, and
knowledge from the Company. This Agreement creates an advance approval process, and nothing herein
is intended, or will be construed as, a general restriction against the pursuit of lawful
employment in violation of any controlling state or federal laws. Executive shall be permitted to
engage in activities that would otherwise be prohibited by this covenant if such activities are
determined in the sole discretion of the Chief Executive Officer of the Company in writing to be of
no material threat to the legitimate business interests of the Company.
(d) Non-Solicitation of Customers
. For the Restricted Term, Executive will not, in person or
through the direction or control of others, call on, service, or solicit competing business from a
Covered Customer, or induce or encourage any such Covered Customer or other source of ongoing
business to stop doing business with Company. A Covered Customer is any Company customer (person
or entity) for which Executive had business-related contact or dealings with, or received
Confidential Information about, in the two (2) year period preceding the termination of Executives
employment with the Company for any reason.
(e) Non-Solicitation of Employees
. During Executives employment, and for the Restricted Term,
Executive will not, in person or through the direction or control of others, call on, solicit,
encourage, or induce any other employee or officer of the Company or its affiliates whom Executive
had contact with, knowledge of, or association within the course of employment with the Company to
terminate his or her employment, and will not assist any other person or entity in such a
solicitation.
(f) Non-Disparagement.
During Executives employment, and for the Restricted Term, Executive
covenants and agrees that Executive shall not engage in any pattern of conduct that involves the
making or publishing of written or oral statements or remarks (including, without limitation, the
repetition or distribution of derogatory rumors, allegations, negative reports or comments) which
are disparaging, deleterious or damaging to the integrity, reputation or good will of the Company,
its management, or of management of corporations affiliated with the Company.
(g) Protected Communications.
Nothing in this Agreement (particularly nothing in Paragraphs
10(b) and (f) regarding non-disclosure and non-disparagement) is intended or to be construed to
prohibit or interfere with any and all rights Executive may have to report a violation of state or
federal law to appropriate federal or state law enforcement officials, or to cooperate with a duly
authorized government investigation. In addition, nothing herein prohibits Executive from engaging
in a disclosure of information that is required by law (such as by court order or subpoena).
Provided, however, that if Executive believes that the disclosure of Confidential Information is
required by a subpoena, court order, or similar legal mandate, then Executive will provide the
Company reasonable notice and opportunity to protect any legitimate business interests it may have
in maintaining Confidential Information as confidential (through protective order or other means)
before engaging in such a disclosure.
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11. Enforcement of Protective Covenants.
(a) Termination of Employment and Forfeiture of Compensation.
Executive agrees that any
breach by Executive of any of the Protective Covenants set forth in Section 10 during Executives
employment with the Company shall be grounds for immediate employment termination of Executive for
Cause pursuant to Section 5(c)(i), which shall be in addition to and not exclusive of any and all
other rights and remedies the Company may have against Executive.
In the event that Executive violates one of the Protective Covenants, (i) the Company shall
have the right to immediately cease making any payments that it may otherwise owe to Executive, if
any, (ii) Executive will forfeit any remaining rights to payments or continuing benefits provided
by this Agreement, if there are any, and (iii) upon the Companys demand, Executive will refund to
the Company any amounts, plus interest, previously paid by Company to Executive pursuant to
Subsections 6(e)(iii), 6(e)(iv), 6(e)(v), 7(a)(i) or 7(a)(ii), less one thousand dollars ($1,000)
which Executive shall be entitled to retain as fully sufficient consideration to support and
maintain in effect any contractual obligations that Executive has to the Company prior to the
refund, including the Release as defined herein.
(b) Right to Injunction
. Executive acknowledges that a breach of a Protective Covenant set
forth in Section 10 hereof will cause irreparable damage to the Company with respect to which the
Companys remedy at law for damages will be inadequate. Therefore, in the event of any breach or
anticipatory breach of a Protective Covenant by Executive, Executive and the Company agree that the
Company shall be entitled to seek the following particular forms of relief, in addition to remedies
otherwise available to it at law or equity: (i) injunctions, both preliminary and permanent,
enjoining or restraining such breach or anticipatory breach and Executive hereby consents to the
issuance thereof forthwith and without bond by any court of competent jurisdiction; and (ii)
recovery of all reasonable sums expended and costs, including reasonable attorneys fees, incurred
by the Company to pursue the remedies provided for in this Section of the Agreement to enforce the
Protective Covenants.
(c) Reformation of Covenants.
The Protective Covenants set forth in Section 10 constitute a
series of separate but ancillary covenants, one for each applicable State in the United States and
the District of Columbia, and one for each applicable foreign country. If in any judicial
proceeding, a court shall hold that any of the Protective Covenants set forth in Section 10 exceed
the time, geographic, or occupational limitations permitted by applicable laws, Executive and the
Company agree that such provisions shall and are hereby reformed to provide for a restriction with
the maximum time, geographic, or occupational limitations permitted by such laws to protect the
Companys business interests. Further, in the event a court shall hold unenforceable any of the
separate covenants deemed included herein, then such unenforceable covenant or covenants shall be
deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in such proceeding.
(d) Survival.
Executive and the Company further agree that the protective Covenants set forth
in Section 10 shall each be construed as a separate agreement independent of any other
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provisions of this Agreement, and the existence of any claim or cause of action by Executive
against the Company whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of any of the Protective Covenants. The Protective
Covenants will survive the termination of Executives employment with Company, regardless of the
cause of the termination. If Executive violates one of the Protective Covenants for which there is
a specific time limitation, the time period for that restriction will be extended by one day for
each day Executive violates it, up to a maximum extension equal to the length of time prescribed
for the restriction, so as to give Company the full benefit of the bargained-for length of
forbearance. If Executive becomes employed with an affiliate of the Company without signing a new
agreement, the affiliate will step into Companys position under this Agreement, and will be
entitled to the same protections and enforcement rights as the Company.
12. Indemnification.
The Company shall indemnify and hold harmless Executive to the fullest extent permitted by
Delaware law for any action or inaction of Executive while serving as an officer and director of
the Company or, at the Companys request, as an officer or director of any other entity or as a
fiduciary of any benefit plan. This provision includes the obligation and undertaking of the
Executive to reimburse the Company for any fees advanced by the Company on behalf of the Executive
should it later be determined that Executive was not entitled to have such fees advanced by the
Company under Delaware law. The Company shall cover the Executive under directors and officers
liability insurance both during and, while potential liability exists, after the Employment Period
in the same amount and to the same extent as the Company covers its other officers and directors.
13. Arbitration.
The parties agree that any dispute relating to this Agreement, or to the breach of this
Agreement, arising between Executive and the Company shall be settled by arbitration in accordance
with the Federal Arbitration Act and the commercial arbitration rules of the American Arbitration
Association (AAA), or any other mutually agreed upon arbitration service; provided, however, that
temporary and preliminary injunctive relief to enforce the covenants contained in Section 10 of
this Agreement, and related expedited discovery, may be pursued in a court of law to provide
temporary injunctive relief pending a final determination of all issues of final relief through
arbitration. The arbitration proceeding, including the rendering of an award, shall take place in
Houston, Texas, and shall be administered by the AAA (or any other mutually agreed upon arbitration
service). The arbitrator shall be jointly selected by the Company and Executive within thirty (30)
days of the notice of dispute, or if the parties cannot agree, in accordance with the commercial
arbitration rules of the AAA (or any other mutually agreed upon arbitration service). All fees and
expenses associated with the arbitration shall be borne equally by Executive and the Company during
the arbitration, pending final decision by the arbitrator as to who should bear fees, unless
otherwise ordered by the arbitrator. The arbitrator shall not be authorized to create a cause of
action or remedy not recognized by applicable state or federal law. The arbitrator shall be
authorized to award final injunctive relief. The award of the arbitrator shall be final and
binding upon the parties without appeal or review, except as permitted by the arbitration laws of
the State of Texas. The award, inclusive of any
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and all injunctive relief provided for therein, shall be enforceable through a court of law
upon motion of either party.
14. Requirement of Timely Payments.
If any amounts which are required, or determined to be paid or payable, or reimbursed or
reimbursable, to Executive under this Agreement (or any other plan, agreement, policy or
arrangement with the Company) are not so paid promptly at the times provided herein or therein,
such amounts shall accrue interest, compounded daily, at an 8% annual percentage rate, from the
date such amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon are finally and
fully paid, provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder, exceed the maximum non-usurious amount of interest allowed by
applicable law.
15. Withholding of Taxes.
The Company may withhold from any compensation and benefits payable under this Agreement all
applicable federal, state, local, or other taxes.
16. Source of Payments.
All payments provided under this Agreement, other than payments made pursuant to a plan which
provides otherwise, shall be paid from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure payment. Executive
shall have no right, title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a
right to receive payments from the Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.
17. Assignment.
This Agreement shall inure to the benefit of the Company, its subsidiaries, affiliates,
successors, and assigns. Except as otherwise provided in this Agreement, this Agreement shall
inure to the benefit of Executive, and Executives heirs, representatives, and successors. This
Agreement shall not be assignable by Executive (but any payments due hereunder which would be
payable at a time after Executives death shall be paid to Executives estate).
18. Entire Agreement; Amendment.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its subsidiaries or
affiliated entities relating to the terms of Executives employment by the Company; provided,
however, that if all or any material part of the Protective Covenants provided for in this
Agreement are deemed void or unenforceable, then any prior agreement between the parties covering
the same or substantially similar restrictions on Executive (such as, but not limited to
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the Companys Loyalty And Confidentiality Agreement with Executive) shall resume effect to the
extent necessary to maintain protection of the Companys legitimate protectable interests covered
by the Protective Covenants. This Agreement may not be amended except by a written agreement
signed by both parties. No material term or obligation of a party may be waived except through
written agreement by the party with the authority to enforce such right or obligation.
19. Governing Law and Venue.
This Agreement shall be governed by and construed in accordance with the laws of the State of
Texas applicable to agreements made and to be performed in that State, without regard to its
conflict of laws provisions. The parties agree that any legal action arising from this Agreement
that is not required to be resolved through arbitration pursuant to Section 13 must be pursued in a
court of competent jurisdiction that is located in Houston, Texas.
20. Notices.
Any notice, consent, request, or other communication made or given in connection with this
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed
by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to
those listed below at their following respective addresses or at such other address as each may
specify by notice to the others:
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To the Company:
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Waste Management, Inc.
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1001 Fannin, Suite 4000
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Houston, Texas 77002
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Attention: General Counsel
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To Executive:
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At the address for Executive set forth below.
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21. Miscellaneous.
(a) Waiver.
The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
(b) Severability.
Subject to Section 11 hereof, if any term or provision of this Agreement is
declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to
be enforceable, such term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
(c) Headings.
Section headings are used herein for convenience of reference only and shall
not affect the meaning of any provision of this Agreement.
(d) Rules of Construction.
Whenever the context so requires, the use of the singular shall be
deemed to include the plural and vice versa.
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(e) Counterparts.
This Agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, and such counterparts will together constitute but
one Agreement.
22. Potential Limitation on Severance Benefits.
(a) Maximum Severance Amount.
Notwithstanding any provision in this Agreement to the
contrary, in the event of a qualifying termination (or resignation) under Section 6(e) or Section 7
of this Agreement it is determined by the Company that the Severance Benefits (as defined in
Section 22(b) below) would exceed 2.99 times the sum of the Executives then current base salary
and target bonus (the Maximum Severance Amount), then the aggregate present value of the
Severance Benefits provided to the Executive shall be reduced by the Company to the Reduced Amount.
The Reduced Amount shall be an amount, expressed in present value, that maximizes the aggregate
present value of the Severance Benefits without exceeding the Maximum Severance Amount.
(b) Severance Benefits.
For purposes of determining Severance Benefits under Section 22(a)
above, Severance Benefits means the present value of payments or distributions by the Company, its
subsidiaries or affiliated entities to or for the benefit of the Executive (whether paid or
provided pursuant to the terms of this Agreement or otherwise), and
(A) including: (i) cash amounts payable by the Company in the event of termination of
Executives employment; and (ii) the present value of benefits or perquisites provided for
periods after termination of employment (but excluding benefits or perquisites provided to
employees generally); and
(B) excluding: (i) payments of salary, bonus or performance award amounts that had accrued
at the time of termination; (ii) payments based on accrued qualified and non-qualified
deferred compensation plans, including retirement and savings benefits; (iii) any benefits
or perquisites provided under plans or programs applicable to employees generally; (iv)
amounts paid as part of any agreement intended to make-whole any forfeiture of benefits
from a prior employer; (v) amounts paid for services following termination of employment for
a reasonable consulting agreement for a period not to exceed one year; (vi) amounts paid for
post-termination covenants (such as a covenant not to compete); (vii) the value of
accelerated vesting or payment of any outstanding equity-based award; and (viii) any payment
that the Board or any committee thereof determines in good faith to be a reasonable
settlement of any claim made against the Company.
(c) Possible 280G Reduction.
Following application of Section 22(a), in the event that the
payment of the remaining Severance Benefits to Executive plus any other payments to Executive which
would be subject to Internal Revenue Code Section 280G (including any reduced Severance Benefits)
(280G Severance Benefits) would be subject (in whole or part), to any excise tax imposed under
Internal Revenue Code Section 4999 (the Excise Tax), then the cash portion of the 280G Severance
Benefits shall first be further reduced, and the non-cash
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280G Severance Benefits shall thereafter be further reduced, to the extent necessary so that
no portion of the 280G Severance Benefits is subject to the Excise Tax, but only if (i) the amount
of the 280G Severance Benefits to be received by Executive, as so reduced by this Section 22(c) and
after subtracting the amount of federal, state and local income taxes on such reduced 280G
Severance Benefits (after taking into account the phase out of itemized deductions and personal
exemptions attributable to such reduced 280G Severance Benefits) is greater than or equal to (ii)
the amount of the 280G Severance Benefits to be received by Executive without such reduction by
this Section 22(c) after subtracting the amount of federal, state and local income taxes on such
280G Severance Benefits and the amount of the Excise Tax to which Executive would be subject in
respect of such unreduced 280G Severance Benefits (after taking into account the phase out of
itemized deductions and personal exemptions attributable to such unreduced 280G Severance Benefits
).
(d) Calculation of 280G Severance Benefits.
For purposes of determining the 280G Severance
Benefits, (i) no portion of the 280G Severance Benefits, the receipt or enjoyment of which
Executive shall have waived at such time and in such manner as not to constitute a payment within
the meaning of Internal Revenue Code Section 280G(b), shall be taken into account, (ii) no portion
of the 280G Severance Benefits shall be taken into account which, in the opinion of tax counsel
(Tax Counsel) who is reasonably acceptable to Executive and selected by the accounting firm (the
Auditor) which was, immediately prior to the Change in Control, the Companys independent
auditor, does not constitute a parachute payment within the meaning of Internal Revenue Code
Section 280G(b)(2) (including by reason of Internal Revenue Code Section 280G(b)(4)(A)); (iii) no
portion of the 280G Severance Benefits shall be taken into account which, in the opinion of Tax
Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of
Internal Revenue Code Section 280G(b)(4)(B), in excess of the base amount (as defined in Internal
Revenue Code Section 280G(b)(3)) allocable to such reasonable compensation, and (iv) the value of
any non-cash benefit or any deferred payment or benefit included in the 280G Severance Benefits
shall be determined by the Auditor in accordance with the principles of Internal Revenue Code
Sections 280G(d)(3) and (4).
(e) Determination of Present Value.
For purposes of this Section 22, the present value of
Severance Benefits and 280G Severance Benefits 280G shall be determined in accordance with Internal
Revenue Code Section 280G(d)(4).
23. Compliance with Internal Revenue Code Section 409A.
(a) Compliance.
It is the intention of the Company and Executive that this Employment
Agreement not result in unfavorable tax consequences to Executive under Internal Revenue Code
Section 409A. This Section 23 does not create an obligation on the part of Company to modify the
Employment Agreement in the future and does not guarantee that the amounts or benefits owed under
the Employment Agreement will not be subject to interest and penalties under Internal Revenue Code
Section 409A.
(b) Payment Timing.
The payments of severance under Sections 6(e)(iii) and (iv) and Sections
7(a)(i) and (ii) above (Separation Payments) are designated as separate payments for purposes of
the short-term deferral rules under Treasury Regulation Section 1.409A-1(b)(4)(i)(F), and, with
respect to such Separation Payments, the exemption for involuntary
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terminations under separation pay plans under Treasury Regulation Section 1.409A-1(b)(9)(iii).
As a result, (A) Separation Payments that are by their terms scheduled to be made on or before
March 15th of the calendar year following the applicable year of termination, (B) any additional
Separation Payments that are made on or before December 31st of the second calendar year following
the year of Executives termination and do not exceed the lesser of two times Base Salary or two
times the limit under Internal Revenue Code Section 401(a)(17) then in effect, and (C) any
Separation Payments under Section 7(a) made on account of a 409A Change in Control within the
meaning of Internal Revenue Code Section 409A are exempt from the requirements of Internal Revenue
Code Section 409A. If Executive is designated as a specified employee within the meaning of
Internal Revenue Code Section 409A, then to the extent the Disability Payments and Separation
Payments to be made during the first six month period following Executives termination of
employment exceed such exempt amounts, the payments shall be withheld and the amount of the
payments withheld will be paid in a lump sum, with interest (at the Companys then applicable
overnight rate), on the date that is six (6) months and one (1) day after Executives termination.
Continued medical benefits under Sections 6(e)(v) and 7(a)(i) above are intended to satisfy the
exemption for medical expense reimbursements under Treasury Regulation Section
1.409A-1(b)(9)(v)(B).
IN WITNESS WHEREOF, this Agreement is EXECUTED as of the date first set forth above and
effective as set forth therein.
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WILLIAM K. CAESAR
(Executive)
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/s/
William K. Caesar
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William K. Caesar
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(Address)
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WASTE MANAGEMENT, INC.
(The Company)
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By:
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/s/ David P. Steiner
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David P. Steiner
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President and Chief Executive Officer
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