Trash firm picks up pieces after scandal
By Mark Babineck
Associated Press
HOUSTON — Imagine a company that grows from modest beginnings into an industry giant before its stock price and reputation are felled by accounting scandals.
The problems lead to the replacement of the company's once-respected management by turnaround specialists and shake the credibility of longtime auditor Arthur Andersen LLP.
Lawsuits and criminal indictments follow, and the new regime is left to restore a tainted name.
It all sounds familiar, except this is the story of Waste Management Inc. And while its history is similar to Enron Corp.'s, its prospects hardly could be more different.
"This is an old-economy company that has wonderful assets and amazing cash flow," said A. Maurice Myers, the chief executive who has picked up Waste Management's pieces since his hiring in 1999. "A new-economy company, like Enron, its assets walk out the door and go home every night."
So while bankrupt Enron will be a shell of its former self if it survives, Waste Management has pushed past its troubled past and rolls on as the nation's largest trash hauler.
And at its helm has been Myers, who formerly ran Aloha Airlines as president and chief executive officer of Aloha Airgroup Inc., and who wasn't yet ready to retire to the home he owns in Hawai'i when he signed on to run Waste Management.
Waste Management, the largest U.S. trash collector and seventh-worst performing stock in the Standard & Poor's 500 Index in 1999, offered Myers a challenge.
Waste Management, co-founded in 1968 by billionaire investor Wayne Huizenga, had expanded rapidly by gobbling up local operations around the world. The company, then based in suburban Chicago, grew into the leader among a handful of similar operations, including Houston-based USA Waste Services and Browning-Ferris Industries Inc.
Long after Huizenga left to pursue video rentals, professional sports ownership and auto dealerships, Waste Management continued to absorb smaller companies, about 1,400 in all. Then things began to sour.
In 1998, the company restated earnings from 1992-97 after the Securities and Exchange Commission alleged accountants had inflated them by more than $1 billion. As a result, Andersen paid the SEC a $7 million fine, without commenting on allegations it knowingly or recklessly produced misleading audit reports.
Waste Management, crippled by the accounting debacle, was bought by smaller USA Waste in 1998. The merged company assumed the Waste Management name and continued to operate in Houston.
In July 1999, Waste Management announced a surprise $250 million earnings shortfall, which eventually led to Andersen's paying the company $20 million in a settlement.
The two episodes cost the companies a combined $677 million in settlements.
William Genco, a Merrill Lynch waste analyst, said the fiascos resulted from internal issues and not Waste Management's core business. The company's cash flow, assets and customer base were never in jeopardy of collapse and its debt held its investment grade rating despite the tumult, he said.
"The problem with the company was really a lack of operating discipline, a lack of uniformity, a lack of financial controls, a lack of adequate information on a timely basis," Genco said.
But the combined company's stock price, which had hovered in the mid-$50 range in the spring of 1999, dropped about 75 percent to around $14 by year's end as word of insider selling and deep accounting troubles spread.
The 1999 earnings miss was the last straw for the board of directors, which ousted management and began searching for someone to put the company right. Still, director Ralph Whitworth recalls it was difficult dismissing CEO John Drury, who was ill at the time.
Drury rode his father's garbage trucks in Minneapolis in the 1950s and went on to head BFI and USA Waste before leading the combined Waste Management. He died last year after a 17-month battle with cancer.
"There were human dimensions associated with it that might not have been if it had just been that management failed to get the job done," Whitworth said.
Myers was brought in after successful stints at America West Airlines and Kansas-based Yellow Corp., a major U.S. trucking company, He saw his transportation background meshing well with the company, which runs 33,000 vehicles in the nation's fourth-largest trucking fleet.
"This was probably the biggest turnaround opportunity in American business," Myers said.
The new CEO and his team implemented several cultural changes, the most important being the integration of myriad past acquisitions into one cohesive unit.
Myers also appointed an ombudsman to enforce company ethics, saying restoring integrity and honesty was paramount to repairing confidence among workers, investors, customers and analysts.
Under Myers, Waste Management has paid down $2.8 billion debt by selling off international assets.
Because it cannot grow significantly by adding other companies, Myers said, Waste Management has discontinued its feverish pace of acquisitions.
John Skinner, executive director of the Solid Waste Association of North America, an organization of industry professionals, said the rapid-fire consolidation of the industry began trailing off in the last decade.
"Since then I've seen a much lower-key presence and focus on good management, cost controls" and landfill operations across the industry, Skinner said.
Today, Waste Management ranks among the nation's 200 largest corporations with $11.3 billion in revenue last year.
Yet for all the hard work to restore the company's reputation and finances, Waste Management still battles perceptions.
"Unfortunately, you have your best-laid plans and up pops the charges against the former Waste Management officers," Myers said.
