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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
____ EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________
TO ________
COMMISSION FILE NUMBER 1-7327
WMX TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-2660763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3003 BUTTERFIELD ROAD,
OAK BROOK, ILLINOIS 60521
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (708) 572-8800
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 REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS.
YES X NO
--- ---
SHARES OF REGISTRANT'S COMMON STOCK, $1 PAR VALUE, OUTSTANDING,
EXCLUSIVE OF TREASURY SHARES, AT APRIL 29, 1994 -- 483,630,232
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WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
-----
PART I. Financial Information: PAGE
----
Consolidated balance sheets as of December 31, 1993 and
March 31, 1994.................................................... 3
Consolidated statements of income for the three months
ended March 31, 1993 and 1994..................................... 5
Consolidated statements of stockholders' equity for the three months
ended March 31, 1993 and 1994.................................... 6
Consolidated statements of cash flows for the three months
ended March 31, 1993 and 1994.................................... 8
Notes to consolidated financial statements............................ 9
Management's discussion and analysis of results of operations
and financial condition.......................................... 13
PART II. Other Information........................................... 19
******
2
PART I. FINANCIAL INFORMATION
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted)
ASSETS
December 31, 1993 March 31, 1994
----------------- --------------
CURRENT ASSETS:
Cash $ - $ 14,569
Short-term investments 126,382 73,329
Accounts receivable, less reserve of $63,146 in 1993
and $65,456 in 1994 1,762,091 1,969,438
Employee receivables 9,670 9,610
Parts and supplies 148,022 149,515
Costs and estimated earnings in excess of billings
on uncompleted contracts 339,364 385,386
Refundable income taxes 54,001 45,995
Prepaid expenses 337,990 350,179
----------- -----------
Total Current Assets $ 2,777,520 $ 2,998,021
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, primarily disposal sites $ 3,625,412 $ 3,741,139
Buildings 1,223,139 1,257,770
Vehicles and equipment 6,856,044 6,867,006
Leasehold improvements 100,262 89,555
----------- -----------
$11,804,857 $11,955,470
Less - Accumulated depreciation and amortization (3,035,398) (3,191,662)
----------- -----------
Total Property and Equipment, Net $ 8,769,459 $ 8,763,808
----------- -----------
OTHER ASSETS:
Intangible assets relating to acquired businesses, net $ 3,461,331 $ 3,598,063
Funds held by trustees 116,949 97,030
Sundry, including other investments 1,139,217 1,207,149
----------- -----------
Total Other Assets $ 4,717,497 $ 4,902,242
----------- -----------
Total Assets $16,264,476 $16,664,071
=========== ===========
3
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1993 March 31, 1994
------------------ ---------------
CURRENT LIABILITIES:
Portion of long-term debt payable within one year $ 754,491 $ 952,544
Accounts payable 818,501 796,040
Accrued expenses 863,474 877,698
Unearned revenue 241,096 269,383
----------- -----------
Total Current Liabilities $ 2,677,562 $ 2,895,665
----------- -----------
DEFERRED ITEMS:
Income taxes $ 448,706 $ 521,181
Investment credit 27,006 26,368
Other 1,457,607 1,393,459
----------- -----------
Total Deferred Items $ 1,933,319 $ 1,941,008
----------- -----------
LONG-TERM DEBT, less portion payable within one year $ 6,145,584 $ 6,108,281
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES $ 1,348,559 $ 1,424,834
----------- -----------
COMMITMENTS AND CONTINGENCIES $ $
----------- -----------
PUT OPTIONS $ - $ 105,977
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $l par value (issuable in series);
50,000,000 shares authorized; none outstanding
during the periods $ - $ -
Common stock, $l par value; 1,500,000,000 shares
authorized; 496,216,829 shares issued in 1993
and 1994 496,217 496,217
Additional paid-in capital 668,470 447,953
Cumulative translation adjustment (245,587) (214,082)
Retained earnings 3,693,108 3,783,182
----------- -----------
$ 4,612,208 $ 4,513,270
Less: Treasury stock; 12,763,884 shares in 1993,
at cost 425,097 -
1988 Employee Stock Ownership Plan 27,659 25,676
Employee Stock Benefit Trust - 299,288
----------- -----------
Total Stockholders' Equity $ 4,159,452 $ 4,188,306
----------- -----------
Total Liabilities and Stockholders'
Equity $16,264,476 $16,664,071
=========== ===========
4
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
(000's omitted except per share amounts)
1993 1994
----------- -----------
REVENUE $2,135,341 $2,284,067
---------- ----------
Operating expenses $1,479,080 $1,596,911
Selling and administrative expenses 264,110 286,934
Goodwill amortization 20,777 27,211
Interest expense 59,443 84,230
Interest income (10,758) (10,764)
Minority interest 29,406 28,780
Sundry income, net (32,377) (17,410)
---------- ----------
Income before income taxes $ 325,660 $ 288,175
Provision for income taxes 126,375 125,563
---------- ----------
NET INCOME FOR THE PERIOD $ 199,285 $ 162,612
========== ==========
AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING 490,194 483,847
========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.41 $ 0.34
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.13 $ 0.15
========== ==========
5
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1993
(Unaudited)
($000's omitted)
1988
Employee
Additional Cumulative Stock
Common Paid-In Translation Retained Treasury Ownership
Stock Capital Adjustment Earnings Stock Plan
-------- ----------- ------------ ----------- --------- ----------
Balance, January 1, 1993 $496,203 $708,296 $(166,566) $3,521,190 $204,490 $34,988
Net income for the period - - - 199,285 - -
Cash dividends - - - (63,601) - -
Stock repurchase (2,770,900
shares) - - - - 99,999 -
Stock issued upon exercise
of stock options 12 (3,428) - - (7,728) -
Treasury stock received in
connection with exercise of
stock options - - - - 254 -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (1,825)
Treasury stock received as
settlement for claims - - - - 64 -
Stock issued upon conversion
of Liquid Yield Option
Notes - (179) - - (303) -
Stock issued for acquisitions - (1,262) - - (7,254) -
Tax benefit of non-qualified
stock options exercised - 1,445 - - - -
Transfer of equity interests
among controlled subsidiaries - (15,146) - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - (17,430) - - -
-------- -------- --------- ---------- -------- -------
Balance, March 31, 1993 $496,215 $689,726 $(183,996) $3,656,874 $289,522 $33,163
======== ======== ========= ========== ======== =======
6
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(Unaudited)
($000's omitted)
1988
Employee
Additional Cumulative Stock Employee
Common Paid-In Translation Retained Treasury Ownership Stock
Stock Capital Adjustment Earnings Stock Plan Benefit Trust
-------- ----------- ------------ ----------- ---------- ---------- --------------
Balance, January 1, 1994 $496,217 $ 668,470 $(245,587) $3,693,108 $ 425,097 $27,659 $ -
Net income for the period - - - 162,612 - - -
Cash dividends - - - (72,538) - - -
Stock issued upon exercise
of stock options - (3,430) - - (6,689) - -
Treasury stock received in
connection with exercise of
stock options - - - - 247 - -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (1,983) -
Treasury stock received as
settlement for claims - - - - 1,193 - -
Stock issued upon conversion
of Liquid Yield Option
Notes - (30) - - (56) - -
Tax benefit of non-qualified
stock options exercised - 786 - - - - -
Temporary equity related to
put options - (105,977) - - - - -
Proceeds from sale of put
options - 8,747 - - - - -
Establish Employee Stock
Benefit Trust (12,601,609
shares) - (106,327) - - (419,792) - 313,465
Adjustment of Employee Stock
Benefit Trust to market value - (14,177) - - - - (14,177)
Transfer of equity interests
among controlled subsidiaries - (109) - - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - 31,505 - - - -
-------- --------- --------- ---------- --------- ------- --------
Balance, March 31, 1994 $496,217 $ 447,953 $(214,082) $3,783,182 $ - $25,676 $299,288
======== ========= ========= ========== ========= ======= ========
7
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
Increase (Decrease) in Cash
(Unaudited)
($000's omitted)
1993 1994
---------- ----------
Cash flows from operating activities:
Net income for the period $ 199,285 $ 162,612
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 194,560 212,553
Deferred income taxes and investment credit 35,777 77,098
Interest on Liquid Yield Option Notes (LYONs) 9,397 9,285
Gain on sale of property and equipment, and
of investments by subsidiary (5,705) (6,881)
Contribution to 1988 Employee Stock
Ownership Plan 1,825 1,983
Changes in assets and liabilities, net of effects
of acquired companies:
Receivables (58,243) (25,429)
Other current assets (7,689) (42,688)
Sundry other assets 2,183 (52,755)
Accounts payable (60,712) (36,346)
Accrued expenses and unearned revenue 36,029 (35,099)
Deferred other items (51,159) (75,277)
Minority interest in subsidiaries 20,429 72,017
--------- ---------
Net cash provided by operating activities $ 315,977 $ 261,073
--------- ---------
Cash flows from investing activities:
Short-term investments $ (69,171) $ 53,053
Capital expenditures (351,535) (321,865)
Proceeds from sale of property and equipment, and
of investments by subsidiary 46,606 34,356
Cost of acquisitions, net of cash acquired (242,156) (86,591)
Other investments (110,881) (15,160)
--------- ---------
Net cash used for investing activities $(727,137) $(336,207)
--------- ---------
Cash flows from financing activities:
Cash dividends paid $ (63,601) $ (72,538)
Proceeds from issuance of indebtedness 874,449 463,236
Repayments of indebtedness (220,642) (313,540)
Proceeds from exercise of stock options, net 5,503 3,798
Stock repurchases by Company and subsidiaries (110,890) -
Preferred stock redemption by subsidiary (5,000) -
Proceeds from sale of put options - 8,747
--------- ---------
Net cash provided by financing activities $ 479,819 $ 89,703
--------- ---------
Net increase in cash $ 68,659 $ 14,569
Cash at beginning of period 6,473 -
--------- ---------
Cash at end of period $ 75,132 $ 14,569
========= =========
The Company considers cash to include currency on
hand and demand deposits with banks.
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 50,046 $ 74,945
Income taxes, net of (refunds) received $ 44,081 $ (448)
Supplemental schedule of noncash investing and
financing activities:
LYONs converted into common stock of the Company $ 124 $ 26
Exchangeable LYONs exchanged into common stock of
CWM owned by the Company $ 32 $ -
Liabilities assumed in acquisitions of businesses $ 207,204 $ 100,726
Fair market value of Company stock issued for
acquired businesses $ 8,064 $ -
8
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($000's omitted in all tables except per share amounts)
The financial statements included herein have been prepared by WMX Technologies,
Inc. ("WMX" or the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The financial information
included herein reflects, in the opinion of the Company, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position and results of operations for the periods presented. The
results for interim periods are not necessarily indicative of results for the
entire year.
Certain amounts in previously issued financial statements have been restated to
conform to 1994 classifications.
Income Taxes -
The following table sets forth the provision for income taxes for the three
months ended March 31, 1993 and 1994:
1993 1994
--------- ---------
Currently payable $ 84,760 $ 76,967
Deferred 42,510 49,241
Amortization of deferred
investment credit (895) (645)
-------- --------
$126,375 $125,563
======== ========
Changes in Accounting Principles -
Effective January 1, 1994, the Company adopted Statements of Financial
Accounting Standards ("FAS") No. 112, Employers' Accounting for Postemployment
Benefits, and No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The adoption of FAS No. 112 and FAS No. 115 did not have a
significant effect on earnings for the first quarter of 1994, nor are they
expected to materially impact results of operations for the full year, since the
Company's accounting prior to adoption was substantially in compliance with the
new standards.
Business Combinations -
During 1993, the Company and its principal subsidiaries acquired 97 businesses
for $551,901,000 in cash (net of cash acquired) and notes, 1,046,801 shares of
the Company's common stock and 1,635,471 shares of common stock of Wheelabrator
Technologies Inc. These acquisitions were accounted for as purchases.
The following summarizes the pro forma effect of businesses acquired and
accounted for as purchases in 1993 as if they had been acquired as of January 1,
1993:
9
Three Months Ended
March 31, 1993
-------------------
Revenue as reported $2,135,341
Revenue of 1993 purchased businesses
for period prior to acquisition 129,505
----------
Pro forma revenue $2,264,846
==========
Net income as reported $ 199,285
Net income of 1993 purchased businesses
for period prior to acquisition 1,979
Adjustment for interest and goodwill
amortization (5,862)
----------
Pro forma net income $ 195,402
==========
Earnings per share as reported $ 0.41
Effect of purchased businesses prior to
acquisition (0.01)
----------
Pro forma earnings per share $ 0.40
==========
During the three months ended March 31, 1994, the Company and its principal
subsidiaries acquired 12 businesses (excluding minor acquisitions where
consideration paid was less than one million dollars) for $86,591,000 in cash
(net of cash acquired) and notes. These acquisitions were accounted for as
purchases. The pro forma effect of the acquisitions made during 1994 is not
material.
Debt -
During the first quarter of 1994, Waste Management International plc ("WM
International") entered into interest rate swap agreements, interest rate
collars, forward interest rate agreements, interest rate swap options and
arrears swap agreements to reduce the impact of changes in interest rates on
underlying borrowings. These agreements are contracts to exchange fixed and
floating interest rate payments periodically over the term without the exchange
of the underlying notional amounts. The notional amounts of such agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. In addition, the agreements are with major
financial institutions which are expected to fully perform under the terms of
the agreements, thereby further mitigating credit risk.
While WM International is exposed to market risk to the extent that receipts and
payments under interest rate agreements are affected by market interest rates,
such agreements are entered into primarily as a hedge against interest exposure
on existing debt. Accordingly, differences paid or received under the
agreements, as well as premium and gains or losses on early termination, are
recognized as part of interest expense over the life of the agreements. At
March 31, 1994, WM International had deferred gains of approximately $1.1
million related to interest rate agreements.
As of March 31, 1994, WM International had entered into interest rate agreements
which effectively convert floating rate debt to fixed rate debt in notional
amounts and with terms as follows:
Currency Notional Amount Duration of Agreement
- - ----------------------------- --------------- ---------------------------
Sterling 50,000,000 February 1994-February 1995
Sterling 20,000,000 February 1995-February 1999
Deutsche Mark 50,000,000 May 1994-May 1996
Lira 50,000,000,000 May 1994-May 1999
Hong Kong Dollar 250,000,000 February 1994-February 1997
10
Environmental Liabilities -
The majority of the businesses in which the Company is engaged are intrinsically
connected with the protection of the environment. As such, a significant
portion of the Company's operating costs and capital expenditures could be
characterized as costs of environmental protection. While the Company is faced,
in the normal course of business, with the need to expend funds for
environmental protection and remediation, it does not expect such expenditures
to have a material adverse effect on its financial condition or results of
operations because its business is based upon compliance with environmental laws
and regulations and its services are priced accordingly. Such costs may
increase in the future as a result of legislation or regulation; however, the
Company believes that in general it benefits from increased government
regulation, which increases the demand for its services, and that it has the
resources and experience to manage environmental risk.
As part of its ongoing operations, the Company provides for estimated closure
and post-closure monitoring costs over the operating life of disposal sites as
airspace is consumed. The Company also has established procedures to evaluate
potential remedial liabilities at closed sites which it owns or operated or to
which it transported waste, including 105 sites listed on the Superfund National
Priority List ("NPL"). The majority of the situations involving NPL sites
relate to allegations that subsidiaries of the Company (or their predecessors)
transported waste to the facilities in question, often prior to the acquisition
of such subsidiaries by the Company. Where the Company concludes that it is
probable that a liability has been incurred, provision is made in the financial
statements.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult, and the ultimate
outcome may differ from current estimates. However, the Company believes that
its extensive experience in the environmental services business, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes
available, estimates are adjusted as necessary. While the Company does not
anticipate that any such adjustment would be material to its financial
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies or other factors
could alter this expectation and necessitate the recording of additional
liabilities which could be material. The impact of such future events cannot be
estimated at the current time.
The Company has also filed several lawsuits against numerous insurance carriers
seeking reimbursement for past and future remedial, defense and tort claim costs
at a number of sites. The carriers have denied coverage and are vigorously
defending these claims. No amounts have been recognized in the financial
statements for any potential insurance recoveries.
Stockholders' Equity -
During the first quarter of 1994, WMX sold put options on 4.3 million shares of
its common stock. The put options give the holders the right at maturity to
require the Company to repurchase shares of its common stock at specified
prices, which range from $24.375 to $24.841 per share. The options mature in
November 1994. The proceeds ($8,747,000) from the sale of put options were
credited to additional paid-in capital. The amount the Company would be
obligated to pay if all the put options were exercised has been reclassified to
a temporary equity account. Subsequent to March 31, 1994, the Company sold an
additional 4.7 million put options, maturing in July and August, 1994, at strike
prices of $24.810 to $26.518.
11
During the first quarter of 1994, the Company established an Employee Stock
Benefit Trust and sold 12.6 millon shares of treasury stock to the Trust in
return for a 30-year, 7.33% note with interest payable quarterly and principal
due at maturity. The Company has agreed to contribute to the Trust each quarter
funds sufficient, when added to dividends on the shares held by the Trust, to
pay interest on the note as well as principal outstanding at maturity. At the
direction of an administrative committee comprised of Company officers, the
trustee will use the shares or proceeds from the sale of shares to pay employee
benefits, and to the extent of such payments by the Trust, the Company will
forgive principal and interest on the note. The shares of common stock issued
to the Trust are not considered to be outstanding in the computation of earnings
per share until the shares are utilized to fund obligations for which the trust
was established. As of March 31, 1994, the Trust had not paid any employee
benefits.
Legal Matters -
See Part II of this Form 10-Q for a discussion of legal matters.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
CONSOLIDATED -
- - ------------
For the three months ended March 31, 1994, WMX Technologies, Inc. and its
subsidiaries ("WMX" or the "Company") had net income of $162,612,000 or $.34 per
share, compared with $199,285,000 or $.41 per share in the same period in 1993.
Revenue for the quarter was $2,284,067,000 versus $2,135,341,000 in the year
earlier quarter.
The Company provides comprehensive environmental, engineering and
construction, industrial and related services through five principal
subsidiaries, each of which operates in a relatively discrete portion of the
environmental services industry or geographic area. Waste Management, Inc.
("WMI") provides integrated solid waste services and Chemical Waste Management,
Inc. ("CWM") provides hazardous waste collection, transportation, treatment and
disposal services in North America. Waste Management International plc ("WM
International") provides these services, as well as trash-to-energy services,
outside North America. Wheelabrator Technologies Inc. ("WTI") is involved in
trash-to-energy and independent power projects, water and wastewater treatment,
including biosolids management, and air-quality control, primarily in North
America. Rust International Inc. ("Rust"), which was formed January 1, 1993,
and is owned approximately 56% by CWM and 40% by WTI, serves the engineering,
construction, environmental and infrastructure consulting, hazardous substance
remediation and on-site industrial and related services markets in the United
States and a number of foreign countries. Following is an analysis of operating
results by principal subsidiary.
WMI -
- - ---
WMI revenues by line of business for the first quarter of 1994 compared to
the same quarter in 1993 are shown in the following table ($000's omitted):
Percentage
1994 1993 Change
---------- ---------- -----------
Residential $ 275,899 $ 266,812 3.4%
Commercial 365,582 340,486 7.4
Roll-off and
industrial 282,275 251,541 12.2
Disposal, transfer
and other 251,748 254,660 (1.1)
---------- ----------
Total $1,175,504 $1,113,499 5.6%
========== ========== ====
Disposal, transfer and other revenue in the first quarter of 1993 was
increased by approximately $25 million as a result of several unusual events,
primarily a contract to dispose of debris from Hurricane Andrew. Excluding
these unusual items, disposal, transfer and other revenue increased 9.6% in 1994
compared to 1993, and total revenue increased 8.0%.
The majority of the 1994 revenue growth related to volume increases.
Pricing was flat to down slightly, and 1994 acquisitions offset the 1993 unusual
items. First quarter volume was adversely impacted by severe winter weather
over a large part of the country, but the improving economy does appear to be
generating added volume. Volumes were strong in March and the strength has
continued to date in the second quarter. Although the impact of pricing was
flat
13
to down year over year, pricing appears to have bottomed and may be trending up.
WMI continues to focus on pricing on a customer-by-customer basis and to seek
increases where appropriate.
Operating margins were down slightly, to 19.4%, compared to 21.1% in the
first quarter of 1993, but improved from the fourth quarter of 1993. Operating
expenses increased to 69.1% of revenue from 67.0% in the first quarter of 1993,
a result of weak pricing and some carry-over costs from the reorganization of
WMI during the fourth quarter of 1993. Selling and administrative expenses
declined from 11.9% of revenue in 1993 to 11.5%, a result of increased volumes
absorbing fixed costs, administrative cost reduction programs, and increased
productivity from the late 1992 investment in the sales and marketing
organization.
CWM (CORE BUSINESS) -
- - -------------------
Revenue for CWM's core business (excluding Rust) declined from $158,766,000
in the first quarter of 1993 to $146,336,000 in the first quarter of 1994.
Severe weather in the northeast portion of the United States was the primary
reason for this decline. Event business revenue (revenue from relatively large,
typically non-recurring projects) declined 21% in the first quarter of 1994
compared to the same period in 1993, again primarily as a result of severe
weather. Event business was 8% of revenue in the first quarter of 1994 versus
10% in the first quarter of 1993. The following table analyzes the revenue
decline compared to the first quarter of 1993:
Percentage Change
-----------------
Price (3.5)%
Volume (8.3)
Acquisitions 4.0
----
Total (7.8)%
====
Operating expenses remained relatively constant as a percentage of revenue,
as benefits of the fourth quarter 1993 restructuring were offset by additional
costs incurred as a result of weather, such as added overtime, closed highways
due to snow emergencies, and conditions that made outside work difficult and, at
times, impossible. Selling and administrative expenses declined in real dollar
terms but increased as a percentage of revenue, primarily due to the revenue
decline which provided a lower base over which to spread the fixed portion of
such costs.
In the third quarter of 1993, CWM recorded a revaluation and restructuring
charge of $550 million, including $381 million to write down assets, primarily
incinerators, and $169 million for cash expenditures related to actions taken or
to be taken as part of a program to reduce costs, improve efficiency and
structure CWM to meet current market conditions. Of the amount provided for
probable cash expenditures, CWM has spent $54 million through March 31, 1994,
including $11.2 million related to personnel actions. CWM expects the balance,
except for closure and post-closure costs, will be expended by the end of 1994.
The full impact of the restructuring is expected to be a reduction of overhead,
including depreciation and amortization, of approximately $60 million annually.
WTI -
- - ---
Revenue for the three months ended March 31, 1994, increased 14.6% to
$281,332,000, compared to $245,525,000 in the comparable 1993 period.
14
Approximately half of the revenue growth reflects the impact of water quality
control businesses acquired during the last twelve months. The balance of the
increase reflects the third quarter 1993 start of commercial operations at WTI's
New York Organic Fertilizer Company biosolids pelletizer facility, construction
revenues from the Lisbon, Connecticut trash-to-energy facility being built by
WTI, and the growth of existing businesses. Harsh winter weather conditions in
certain parts of the country during the first quarter of 1994 had a mixed impact
on WTI's operations. Several trash-to-energy facilities benefited by selling
power to utility customers at increased rates, while much of the biosolids land-
spreading activity was delayed due to the weather. WTI's energy, water and air
businesses represented approximately 53%, 33% and 14%, respectively, of first
quarter 1994 revenue, compared to 55%, 28% and 17%, respectively, in the first
quarter of 1993.
Operating expenses were 69.5% of first quarter 1994 revenue, essentially
unchanged from the first quarter 1993 level of 69.9%, as weather-related margin
declines in the biosolids land-spreading operations were offset by the strong
performance of the trash-to-energy facilities. Selling and administrative
expenses declined to 9.1% of revenue during the 1994 first quarter, compared to
9.6% for the same period a year earlier, primarily as a result of integration of
acquired companies into existing businesses and to continuing administrative
cost containment activities.
WM INTERNATIONAL -
- - ----------------
WM International is a United Kingdom corporation which prepares its
financial statements in pounds sterling under accounting principles prevailing
in the U. K. Such accounting principles differ in certain respects from those
generally accepted in the United States ("U.S. GAAP"). The following discussion
and analysis is prepared on the basis of U.S. GAAP financial statements with
pounds sterling translated to U.S. dollars at the rates used to translate WM
International financial statements for inclusion in the Company's consolidated
financial statements (one pound = $1.4877 for the first quarter of 1993 and one
pound = $1.4894 for the first quarter of 1994).
Revenues were $381,307,000 for the quarter ended March 31, 1994, compared
to $328,566,000 for the comparable quarter of 1993. Components of the change in
revenue are shown in the following table:
Percentage Change
-----------------
Price 2.4%
Volume 9.6
Acquisitions 9.7
Currency translation (5.6)
----
Total 16.1%
====
WM International's ability to implement price increases continues to be
adversely affected by economic conditions, particularly in Europe. However,
price increases were obtained in certain European countries, as well as in
Argentina. Volumes were adversely impacted by severe weather in much of Europe
during January and February, but returned to normal in March, and WM
International expects continued improvement as the European economies improve.
All of the WM International Italian landfills are now open, which should
favorably impact volume for the balance of the year. First quarter 1994 revenue
volume also increased as a result of construction activity on the SENT landfill
in Hong Kong.
A significant portion of WM International's revenue arises in currencies
other than pounds sterling (its reporting currency) or U.S. dollars. As a
result, currency movement has had and will continue to have an impact on
reported
15
revenue, expenses and net income.
Income from operations was 14.0% of revenue for the three months ended
March 31, 1994, compared to 13.1% for the comparable quarter in 1993. Operating
expenses were 72.2% of 1994 revenue versus 72.5% in 1993, while selling and
administrative expenses improved to 13.8% from 14.4% a year ago. The
improvements result from an increased revenue base over which to spread the
fixed portion of operating costs, integration of acquired businesses and
continuing efforts to improve productivity in collection operations, and
administrative cost reduction efforts.
RUST -
- - ----
Rust is an engineering and construction company with two broad lines of
business: engineering, construction and environmental and infrastructure
consulting services and environmental remediation and other on-site industrial
services. Through the first quarter of 1993, Rust also operated an asbestos
abatement business. This business was transferred to NSC Corporation ("NSC") on
May 3, 1993, in exchange for a 41% equity interest in NSC and NSC's interest in
two industrial services businesses.
Excluding the effect of the asbestos abatement business, Rust revenues
increased 17.3% in the first quarter of 1994, compared to the same quarter of
1993. Revenue by business line is shown in the following table (000's omitted):
1994 1993
-------- --------
Engineering, construction
and consulting services $205,350 $174,985
Remediation and
industrial services 180,790 154,173
Asbestos abatement - 22,216
-------- --------
Total $386,140 $351,374
======== ========
The increase in revenue for engineering, construction and consulting
services resulted from acquisitions completed in the latter part of 1993 and in
1994. This impact was offset by volume declines of approximately $18 million,
primarily related to severe weather in parts of the United States and customer
delays on projects. Backlog in this business line at March 31, 1994, was $804
million, an increase of $85 million from December 31, 1993.
Revenue in the remediation and industrial services business line increased
due to acquisitions completed in the second half of 1993, offset by volume
declines of $5.2 million due to work delays caused by severe winter weather.
Backlog in this business line at March 31, 1994 was $669 million, an increase of
$16 million from December 31, 1993.
Intercompany revenue from Rust affiliates was 13.3% of the first quarter
1994 total, compared to 13.8% for the 1993 quarter.
Gross margins declined to 17.5% of revenue in the first quarter of 1994,
from 17.8% in the first quarter of 1993. The decline is primarily attributable
to weather, which resulted in lower personnel productivity, as well as reduced
volume over which to spread the fixed components of operating expenses. Selling
and administrative expenses increased to 11.3% of revenue in the first quarter
of 1994 from 10.3% in the first quarter of 1993. This increase is attributable
to the lower volume, as well as higher selling and administrative expenses
associated with acquired businesses until the acquired companies can be
integrated into existing operations.
16
INTEREST -
- - --------
The following table sets forth the components of consolidated interest,
net, for the three-month periods ended March 31, 1993 and 1994 (000's omitted):
1994 1993
--------- ---------
Interest expense $109,431 $ 83,556
Interest income (10,764) (10,758)
Capitalized interest (25,201) (24,113)
-------- --------
Interest expense, net $ 73,466 $ 48,685
======== ========
Net interest expense for the first quarter 1994 increased compared to the
first quarter 1993 primarily as a result of debt increases during 1993 to fund
stock repurchase programs, acquisitions, capital expenditures and approximately
$130 million paid to former stockholders of The Brand Companies, Inc. ("Brand")
who elected to receive cash in connection with the 1993 merger of Brand into a
wholly-owned subsidiary of Rust.
SUNDRY INCOME, NET -
- - ------------------
Sundry income was exceptionally large during the first quarter of 1993 as a
result of a gain realized by CWM on the sale of WTI shares held by CWM for
investment.
INCOME TAXES -
- - ------------
The Company's income tax rate increased during the first quarter of 1994
compared to the same quarter in 1993. The Omnibus Budget Reconciliation Act of
1993, which increased U.S. income tax rates for the Company and its
subsidiaries, was partially responsible. Increased amortization of intangibles
not deductible for tax purposes, particularly by CWM and Rust, also had the
effect of increasing the tax rate. The Company's tax rate with respect to the
earnings of WM International will vary, depending upon the tax rate in the
country where the earnings originate and the amount of income taxable to the
corporate U.S. stockholders under Subpart F.
CHANGES IN ACCOUNTING PRINCIPLES -
- - --------------------------------
Effective January 1, 1994, the Company adopted Statements of Financial
Accounting Standards ("FAS") No. 112, Employers' Accounting for Postemployment
Benefits, and No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The adoption of FAS No. 112 and FAS No. 115 did not have a
significant effect on earnings for the first quarter of 1994, nor are they
expected to materially impact results of operations for the full year, because
the Company's accounting prior to their adoption was substantially in compliance
with the new standards.
FINANCIAL CONDITION:
- - --------------------
LIQUIDITY AND CAPITAL RESOURCES -
- - -------------------------------
The Company is in a service industry and has neither significant inventory
nor seasonal variation in receivables. Therefore, cash flow from operating
activities is used primarily for the purchase of property and equipment and the
acquisition of businesses.
The Company had working capital of $99,958,000 at December 31, 1993, and
$102,356,000 at March 31, 1994. Accounts receivable increased $207,347,000,
primarily as a result of amounts due from sales of assets and businesses by WMI
as part of its strategic refocusing of its business.
17
Long-term and short-term debt increased approximately $160 million from
December 31, 1993, to March 31, 1994. Proceeds from the additional borrowings
were used to fund acquisitions and capital expenditures. The Company believes
that this increase relates to the timing of such expenditures and continues to
anticipate generating positive cash flow for calendar 1994.
ACQUISITIONS, DIVESTITURES AND CAPITAL EXPENDITURES -
- - ---------------------------------------------------
Capital expenditures, excluding property and equipment of purchased
businesses, were $321,865,000 for the three months ended March 31, 1994, and
$351,535,000 for the comparable quarter in 1993. In addition, the Company and
its principal subsidiaries acquired 12 businesses for $86,591,000 in cash and
notes during the first quarter of 1994. In the three months ended March 31,
1993, 29 businesses were acquired for $242,156,000 in cash and notes and 211,016
shares of common stock. See the Notes to Consolidated Financial Statements for
a schedule showing the proforma effect of acquisitions.
During the first quarter of 1994, WMI sold several businesses, including
its Modulaire(R) mobile offices business. Revenue and net income from the
businesses sold were not material to the consolidated financial statements.
CAPITAL STRUCTURE -
- - -----------------
During the first quarter of 1994, WM International entered into interest
rate swap agreements, interest rate collars, forward interest rate agreements,
interest rate swap options and arrears swap agreements to effectively convert a
portion of its debt from floating rate to fixed rate. The agreements are
contracts to exchange fixed and floating interest rate payments periodically
over the term without the exchange of the underlying notional amounts. See the
Notes to Consolidated Financial Statements for additional information.
The Boards of Directors of each of WMX, CWM and WTI have authorized their
respective companies to repurchase shares of their own common stock in the open
market or in privately negotiated transactions. The programs extend into 1994
in the case of CWM and 1996 in the case of WTI and WMX. No shares were
repurchased by any of the companies during the first quarter of 1994; however,
WMX sold put options on 4.3 million shares of its common stock during the
quarter. The put options give the holders the right at maturity to require the
Company to repurchase shares of its common stock at specified prices, which
range from $24.375 to $24.841 per share. The options mature in November, 1994.
The proceeds ($8,747,000) from the sale of the put options were credited to
additional paid-in capital. See the Notes to Consolidated Financial Statements
for additional information.
Subsequent to March 31, 1994, WMX sold additional put options on 4.7
million shares with strike prices ranging from $24.810 to $26.518 per share.
These options mature in July and August, 1994. Proceeds of $5,971,000 were
credited to additional paid-in capital.
During the first quarter of 1994, the Company formed an Employee Stock
Benefit Trust and sold 12.6 million shares of treasury stock to the Trust in
return for a 30-year, 7.33% note, with interest payable quarterly and principal
due at maturity. At the direction of an administrative committee comprised of
Company officers, the trustee will use the shares or proceeds from the sale of
shares to pay employee benefits, and to the extent of such payments by the
Trust, the Company will forgive principal and interest on the note.
18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
-----------------
Some of the businesses in which the Company is engaged are intrinsically
connected with the protection of the environment and the potential for the
unintended or unpermitted discharge of materials into the environment. In the
ordinary course of conducting its business activities, the Company becomes
involved in judicial and administrative proceedings involving governmental
authorities at the federal, state and local level including, in certain
instances, proceedings instituted by citizens or local governmental authorities
seeking to overturn governmental action where governmental officials or agencies
are named as defendants together with the Company or one or more of its
subsidiaries, or both. In the majority of the situations where proceedings are
commenced by governmental authorities, the matters involved relate to alleged
technical violations of licenses or permits pursuant to which the Company
operates or is seeking to operate or laws or regulations to which its operations
are subject or are the result of different interpretations of the applicable
requirements. From time to time the Company pays fines or penalties in
environmental proceedings relating primarily to waste treatment, storage or
disposal or trash-to-energy facilities. As of March 31, 1994, CWM or its
subsidiaries (other than Rust) were involved in three such proceedings, WTI or
its subsidiaries were involved in two such proceedings and a subsidiary of Rust
was involved in one such proceeding where it is believed that sanctions involved
in each instance may exceed $100,000. The Company believes that these matters
will not have a material adverse effect on its results of operations or
financial condition. However, the outcome of any particular proceeding cannot
be predicted with certainty, and the possibility remains that technological,
regulatory or enforcement developments, the results of environmental studies, or
other factors could materially alter this expectation at any time.
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
The exhibits to this report are listed in the Exhibit Index elsewhere
herein.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated February 8, 1994 reporting
under Item 5 the issuance of news releases reporting its results of operations
for the fourth quarter of 1993 and the year 1993 and information as to expected
1994 capital expenditures and cash flow and first quarter 1994 earnings.
19
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.
WMX TECHNOLOGIES, INC.
/s/ JAMES E. KOENIG
---------------------------------------
James E. Koenig - Senior Vice President
and Chief Financial Officer
May 16, 1994
20
WMX TECHNOLOGIES, INC.
EXHIBIT INDEX
Number and Description of Exhibit*
---------------------------------
2 None
4 None
10 None
11 None
12 Computation of Ratios of Earnings to Fixed Charges
15 None
18 None
19 None
22 None
23 None
24 None
99 None
- - ----------------------------
* Exhibits not listed are inapplicable.
21