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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, 1995
___ 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, ISSUED AND
OUTSTANDING, AT APRIL 28, 1995 -- 484,702,562
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WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I. Financial Information:
Consolidated balance sheets as of December 31, 1994, and
March 31, 1995.............................................. 3
Consolidated statements of income for the three months
ended March 31, 1994 and 1995............................... 5
Consolidated statements of stockholders' equity for the three
months ended March 31, 1994 and 1995....................... 6
Consolidated statements of cash flows for the three months
ended March 31, 1994 and 1995............................... 8
Notes to consolidated financial statements....................... 9
Management's discussion and analysis of results of operations
and financial condition..................................... 14
PART II. Other Information...................................... 20
******
2
PART I. FINANCIAL INFORMATION
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted)
ASSETS
December 31, 1994 March 31, 1995
----------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 121,918 $ 294,492
Short-term investments 19,704 21,882
Accounts receivable, less reserve of
$65,536 in 1994 and $63,138 in 1995 1,958,052 1,887,539
Employee receivables 10,140 11,769
Parts and supplies 194,645 206,922
Costs and estimated earnings in excess of billings
on uncompleted contracts 403,949 452,343
Refundable income taxes 30,713 36,268
Prepaid expenses 349,723 357,534
----------- -----------
Total Current Assets $ 3,088,844 $ 3,268,749
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, primarily disposal sites $ 4,162,418 $ 4,215,788
Buildings 1,372,782 1,389,074
Vehicles and equipment 7,162,217 7,279,590
Leasehold improvements 91,554 77,962
----------- -----------
$12,788,971 $12,962,414
Less - Accumulated depreciation and amortization (3,503,219) (3,631,766)
----------- -----------
Total Property and Equipment, Net $ 9,285,752 $ 9,330,648
----------- -----------
OTHER ASSETS:
Intangible assets relating to acquired businesses, net $ 3,789,801 $ 4,158,326
Funds held by trustees 90,863 91,386
Sundry, including other investments 1,283,654 1,309,784
----------- -----------
Total Other Assets $ 5,164,318 $ 5,559,496
----------- -----------
Total Assets $17,538,914 $18,158,893
=========== ===========
The accompanying notes are an integral part of these balance sheets.
3
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1994 March 31, 1995
------------------ ---------------
CURRENT LIABILITIES:
Portion of long-term debt payable within one year $ 890,686 $ 900,458
Accounts payable 1,017,451 871,345
Accrued expenses 966,284 1,027,885
Unearned revenue 305,310 312,415
----------- -----------
Total Current Liabilities $ 3,179,731 $ 3,112,103
----------- -----------
DEFERRED ITEMS:
Income taxes $ 665,677 $ 696,912
Environmental liabilities 704,015 679,839
Other 615,606 621,977
----------- -----------
Total Deferred Items $ 1,985,298 $ 1,998,728
----------- -----------
LONG-TERM DEBT, less portion payable within one year $ 6,044,411 $ 6,724,695
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES $ 1,536,165 $ 1,445,839
----------- -----------
COMMITMENTS AND CONTINGENCIES $ $
----------- -----------
PUT OPTIONS $ 252,328 $ 241,195
----------- -----------
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; 496,386,758 shares issued in 1994
and 496,578,979 in 1995 496,387 496,579
Additional paid-in capital 357,150 386,429
Cumulative translation adjustment (150,832) (102,264)
Retained earnings 4,181,606 4,208,365
----------- -----------
$ 4,884,311 $ 4,989,109
Less: 1988 Employee Stock Ownership Plan 19,729 18,062
Employee Stock Benefit Trust (12,386,629
shares in 1994 and 12,171,418 shares
in 1995, at market) 323,601 334,714
----------- -----------
Total Stockholders' Equity $ 4,540,981 $ 4,636,333
----------- -----------
Total Liabilities and Stockholders'
Equity $17,538,914 $18,158,893
=========== ===========
The accompanying notes are an integral part of these balance sheets.
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)
1994 1995
----------- -----------
REVENUE $2,284,067 $2,604,909
---------- ----------
Operating expenses $1,596,911 $1,836,094
Special charges - 140,600
Goodwill amortization 27,211 30,048
Selling and administrative expenses 286,934 294,039
Interest expense 84,230 107,160
Interest income (10,764) (8,894)
Minority interest 28,780 29,302
Sundry income, net (17,410) (17,062)
---------- ----------
Income before income taxes $ 288,175 $ 193,622
Provision for income taxes 125,563 92,377
---------- ----------
NET INCOME $ 162,612 $ 101,245
========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 483,847 484,814
========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.34 $ 0.21
========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.15
========== ==========
The accompanying notes are an integral part of these statements.
5
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(Unaudited)
($000's omitted except per share amounts)
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 ($.15 per share) - - - (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 - - - - -
Sale of shares to 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
======== ========= ========= ========== ========= ======= ========
The accompanying notes are an integral part of these statements.
6
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
($000's omitted except per share amounts)
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, 1995 $496,387 $357,150 $(150,832) $4,181,606 $ - $19,729 $323,601
Net income for the period - - - 101,245 - - -
Cash dividends ($.15 per share) - - - (72,658) - - -
Dividends paid to Employee
Stock Benefit Trust - 1,828 - (1,828) - - -
Stock issued upon exercise
of stock options 6 (1,415) - - (323) - (5,674)
Treasury stock received in
connection with exercise of
stock options - - - - 323 - -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (1,667) -
Common stock issued upon
conversion of Liquid Yield
Option Notes 2 27 - - - - -
Common stock issued for
acquisitions 184 4,966 - - - - -
Tax benefit of non-qualified
stock options exercised - 619 - - - - -
Temporary equity related to
put options - 11,133 - - - - -
Proceeds from sale of put
options - 6,766 - - - - -
Settlement of expired put
options - (12,019) - - - - -
Adjustment of Employee Stock
Benefit Trust to market value - 16,787 - - - - 16,787
Transfer of equity interests
among controlled subsidiaries - 587 - - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - 48,568 - - - -
-------- -------- ----------- ---------- -------- --------- -------------
Balance, March 31, 1995 $496,579 $386,429 $(102,264) $4,208,365 $ - $18,062 $334,714
======== ======== =========== ========== ======== ========= =============
The accompanying notes are an integral part of these statements.
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)
1994 1995
---------- ----------
Cash flows from operating activities:
Net income for the period $ 162,612 $ 101,245
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 212,553 213,245
Provision for deferred income taxes 49,241 32,809
Minority interest in subsidiaries 28,780 29,302
Interest on Liquid Yield Option Notes (LYONs)
and WMX Subordinated Notes 9,285 9,067
Gain on sale of property and equipment (6,881) (1,899)
Contribution to 1988 Employee Stock
Ownership Plan 1,983 1,667
Special charge, net of tax - 91,400
Changes in assets and liabilities, excluding effects
of acquired companies:
Receivables, net (24,075) 79,778
Other current assets (48,091) (78,457)
Sundry other assets (52,421) (2,782)
Accounts payable (37,041) (161,140)
Accrued expenses and unearned revenue (38,469) 50,062
Deferred items (46,328) (24,041)
Minority interest in subsidiaries 12,145 2,665
--------- ---------
Net cash provided by operating activities $ 223,293 $ 342,921
--------- ---------
Cash flows from investing activities:
Short-term investments $ 23,252 $ 6,480
Capital expenditures (321,865) (261,680)
Proceeds from sale of property and equipment 53,673 66,562
Cost of acquisitions, net of cash acquired (86,591) (32,758)
Other investments (14,115) (16,090)
Acquisition of minority interests - (2,251)
--------- ---------
Net cash used for investing activities $(345,646) $(239,737)
--------- ---------
Cash flows from financing activities:
Cash dividends $ (72,538) $ (72,658)
Proceeds from issuance of indebtedness 463,236 718,956
Repayments of indebtedness (316,352) (564,034)
Proceeds from exercise of stock options, net 3,798 4,884
Contributions from minority interests 11,636 10,761
Stock repurchases by Company and subsidiaries - (23,266)
Proceeds from sale of put options 8,747 6,766
Settlement of expired put options - (12,019)
--------- ---------
Net cash provided by financing activities $ 98,527 $ 69,390
--------- ---------
Net increase (decrease) in cash and cash equivalents $ (23,826) $ 172,574
Cash and cash equivalents at beginning of period 92,802 121,918
--------- ---------
Cash and cash equivalents at end of period $ 68,976 $ 294,492
========= =========
The Company considers cash and cash equivalents
to include currency on hand, demand deposits
with banks and short-term investments with
maturities of less than three months when
purchased.
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 74,945 $ 98,093
Income taxes, net of (refunds) received $ (448) $ 36,087
Supplemental schedule of noncash investing and
financing activities:
LYONs converted into common stock of the Company $ 26 $ 29
Liabilities assumed in acquisitions of businesses $ 100,726 $ 61,451
Fair market value of Company stock issued for
acquired businesses $ - $ 5,150
WMX Subordinated Notes issued for acquisition of
CWM minority interest $ - $ 436,830
The accompanying notes are an integral part of these statements.
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 1995 classifications.
Income Taxes -
The following table sets forth the provision for income taxes for the three
months ended March 31, 1994 and 1995:
1994 1995
--------- --------
Currently payable $ 76,967 $59,839
Deferred 49,241 32,809
Amortization of deferred
investment credit (645) (271)
-------- -------
$125,563 $92,377
======== =======
Business Combinations -
The acquisition data which follows excludes acquisitions where consideration
paid was less than $1,000,000.
During 1994, the Company and its principal subsidiaries acquired 46 businesses
for $172,908,000 in cash (net of cash acquired) and notes, 73,809 shares of the
Company's common stock and 156,124 shares of common stock of Wheelabrator
Technologies Inc. ("WTI"). These acquisitions were accounted for as purchases.
During the three months ended March 31, 1995, the Company and its principal
subsidiaries acquired 14 businesses for $32,758,000 in cash (net of cash
acquired) and notes and 183,766 shares of the Company's common stock. These
acquisitions were accounted for as purchases. The pro forma effect of the
acquisitions made during 1994 and 1995 is not material.
On January 24, 1995, the Company acquired all of the outstanding shares of
Chemical Waste Management, Inc. ("CWM") which it did not already own. WMX
previously owned approximately 78.6% of the outstanding CWM shares. The
transaction provided for the CWM public shareholders to receive a convertible
subordinated WMX note due 2005, with a principal amount at maturity of $1,000,
for every 81.1 CWM shares held with cash paid in lieu of issuance of fractional
notes. The notes are subordinated to all existing and future senior
indebtedness of WMX. Each note bears cash interest from the date the merger was
consummated
9
at the rate of two percent per annum of the $1,000 principal amount at maturity,
payable semi-annually. The difference between the principal amount at maturity
of $1,000 and the $717.80 stated issue price of each note represents the stated
discount which, together with the cash interest payable on the notes, will
accrue at a rate of 5.75 percent per annum (determined on a semi-annual bond
equivalent basis) for purposes of determining the prices at which WMX may
purchase or redeem notes, as described below. At the option of the holder, each
note will be purchased for cash by WMX on March 15, 1998, and March 15, 2000, at
prices of $789.95 and $843.03, respectively, which represent the stated issue
price plus accrued stated discount to those dates. Accrued unpaid interest to
those dates will also be paid. The notes will be redeemable by WMX on and after
March 15, 2000 (but not before) for cash, at the stated issue price plus accrued
stated discount and accrued but unpaid interest through the date of redemption.
In addition, each note is convertible at any time prior to maturity, unless
previously purchased or redeemed by WMX, into 26.078 shares of WMX common stock,
subject to adjustment upon the occurrence of certain events. Upon any such
conversion, WMX will have the option of paying cash equal to the market value of
the WMX shares which would otherwise be issuable.
As of December 31, 1994, the Convertible Liquid Yield Option Notes issued by CWM
("CWM LYONs") and the Exchangeable Liquid Yield Option Notes issued by the
Company ("Exchangeable LYONs") (together with the CWM LYONs, the "LYONs") were
convertible into (in the case of the CWM LYONs) or exchangeable for (in the case
of the Exchangeable LYONs) CWM shares. Upon consummation of the merger, the
LYONs became convertible into the number of notes discussed in the preceding
paragraph to which the holders would have been entitled had they converted or
exchanged the LYONs immediately prior to the merger approval. Outstanding CWM
stock options were converted into options to acquire 2,867,061 Company shares
at prices of $21.97 to $63.33 per share.
Accounting Principles -
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which is
effective for fiscal years beginning after December 15, 1995. The Company is
studying FAS 121 but currently does not believe its application will have a
material impact on the Company's financial statements.
Derivative Financial Instruments -
From time to time, the Company uses derivatives to manage interest rate,
currency and commodity risk. The portfolio of such instruments (which are held
for purposes other than trading) at March 31, 1995, is set forth in the
paragraphs which follow.
INTEREST RATE AGREEMENTS Certain of the Company's subsidiaries have entered
into interest rate swap agreements to reduce the impact of changes in interest
rates on underlying borrowings. The 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. The agreements provide only
for the exchange of interest on the notional amounts at the stated rates, with
no multipliers or leverage.
While the subsidiaries are 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 as a hedge against interest rate
exposure on existing debt. Accordingly, differences paid or received under the
agreements are recognized as part of interest expense over the life of the
agreements. The
10
impact of swap agreements on consolidated interest expense and on the effective
interest rate on consolidated debt was immaterial. As of March 31, 1995,
interest rate agreements in notional amounts and with terms as set forth in the
following table were outstanding:
Notional
Currency Amount Duration of Agreement
- -------------------- -------- ---------------------
Sterling 20,000 Feb. 1995 - Feb. 1999
Hong Kong dollars 250,000 Feb. 1995 - Feb. 1997
Australian dollars 20,000 Mar. 1994 - Mar. 1996
U.S. dollars 25,000 Jan. 1988 - Dec. 1995
CURRENCY AGREEMENTS From time to time, the Company and certain of its
subsidiaries use foreign currency derivatives to mitigate the impact of
translation on foreign earnings and income from foreign investees. Typically
these have taken the form of purchased put options or offsetting put and call
options with different strike prices. The Company receives or pays, based on
the notional amount of the option, the difference between the average exchange
rate of the hedged currency against the base currency and the average (strike
price) contained in the option. Complex instruments involving multipliers or
leverage are not used. While the Company may be required to make a payment in
connection with these agreements, it will recognize an offsetting increase in
the translation of foreign earnings or income from foreign investees. Although
the purpose for using such derivatives is to mitigate currency risk, they do not
qualify for hedge accounting under generally accepted accounting principles and
accordingly, must be adjusted to market value at the end of each accounting
period. Gains and losses on currency derivatives to date have not been
material.
As of March 31, 1995, the Company was party to the following average rate
currency options (all options settle at expiration):
Currency
Notional -----------------------------
Amount Hedged Against
- ------------------------------------------------------------------
Collars, structured as
offsetting puts and
calls with different
strike prices, covering
the period January 1 to
December 31, 1995 40,000 French Franc Sterling
120,000 Swedish Krona Sterling
Put options purchased,
expiring at various
dates through March 31,
1996 47,600 Deutschemark Sterling
42,000 French Franc Sterling
13,500 Netherlands Guilder Sterling
60,000 Swedish Krona Sterling
51,400 Sterling Dollar
In addition, subsidiaries have sold currencies forward for delivery in 1995 to
hedge foreign exchange exposure on specific transactions. The amounts involved
are not material to the consolidated financial statements, and any gains or
losses on the hedges will be included in the measurement of the identified
transaction.
COMMODITY AGREEMENTS The Company utilizes collars, calls and swaps to mitigate
the risk of price fluctuations on the fuel used by its vehicles. Quantities
hedged equate to committed fuel purchases or anticipated usage and accordingly,
gains and losses are deferred and recognized as fuel is purchased. The
following table summarizes the Company's positions in commodity derivatives as
of March 31, 1995:
11
Type Commodity Quantity Expiration
- ---------------------------------------------------------------------
Swaps Heating oil 94,500 gal. 1995
Collars Gas oil 30 tons 1995
Swaps Crude oil 3,000 bbls. 1996
Collars Crude oil 300 bbls. 1996
Swaps Crude oil 3,000 bbls. 1997
Collars Crude oil 350 bbls. 1997
Swaps Crude oil 2,000 bbls. 1998
Collars Crude oil 200 bbls. 1998
Collars Crude oil 100 bbls. 1999
The Company is exposed to credit loss in the event of non-performance by
counterparties on interest rate, currency and commodity derivatives, but in all
cases such counterparties are highly rated financial institutions and the
Company does not anticipate non-performance. Maximum credit exposure is
represented by the fair value of contracts with a positive fair value at March
31, 1995.
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 103 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 future insurance recoveries.
12
Stockholders' Equity -
The Board of Directors of each of WMX, WTI and Rust International Inc. ("Rust")
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 1996. During the first quarter of 1995, WTI repurchased
approximately 1.7 million of its shares and Rust repurchased 10,200 shares.
During the first quarter of 1995, WMX sold put options on 4.7 million shares of
its common stock at strike prices ranging from $26.1068 to $26.5750. The
options expire in October and November 1995. WMX also has outstanding put
options covering 4.3 million shares at strike prices of $25.5875 to $28.8333 and
expiring in July and August of 1995. During the quarter ended March 31, 1995,
options on 4.7 million shares were exercised and the Company elected to settle
them for cash in the amount of $12,019,000.
Commitments and Contingencies -
In February 1994, a Connecticut Superior Court judge issued a decision on
appeals of the Connecticut Department of Environmental Protection's ("DEP")
issuance of WTI's permit to construct the $92 million Lisbon, Connecticut trash-
to-energy facility. In the ruling, the judge agreed with WTI's position on all
issues raised in the appeals but remanded the permit back to the DEP for further
proceedings on an uncontested permit condition that requires the Lisbon facility
to dispose of only Connecticut waste. WTI continues to construct the facility
as it pursues a favorable resolution of this permit remand through appropriate
judicial and regulatory proceedings. As of March 31, 1995, the facility was
approximately 90 percent complete. Although WTI believes that the probability
of an adverse determination as a result of the judge's remand order is remote,
such a determination could result in the permanent termination of facility
construction. Through a guarantee agreement with the Eastern Connecticut
Resource Recovery Authority, the facility's owner, such a consequence may
require WTI to redeem the debt issued to finance the facility. In the unlikely
event this were to occur, the resulting payments could have a material adverse
impact on WTI's financial condition and results of operations. Although the
impact on the Company would be mitigated by the minority interest in WTI, it
could nonetheless be material to results of operations for a particular quarter
or year.
During the first quarter of 1995, Waste Management International plc ("WM
International") received an assessment of approximately 417 million Krona
(approximately $58 million) from the Swedish Tax Authority, relating to a
transaction completed in 1990. WM International believes that all appropriate
tax returns and disclosures were properly filed at the time of the transaction,
and intends to vigorously contest the assessment.
In February 1995, WMX offered to acquire the approximately 4% of Rust's shares
held by the public, for $14 per share in cash. In May 1995, following
negotiations with a special committee of Rust independent directors, WMX agreed
to increase the price which the public stockholders would receive under its
proposal to $16.35 per share in cash. The revised WMX proposal was approved by
the special committee of Rust independent directors and by the Boards of
Directors of both WMX and Rust. The transaction, which does not require
stockholder approval, is expected to be completed during the third quarter of
1995.
Debt -
In January 1995, the Company issued $250,000,000 of 8 1/8% Notes due February 1,
1998, at a price of 99.671%. In March 1995, the Company issued $200,000,000 of
7 1/8% Notes due March 22, 1997, at a price of 99.98%. Neither of these issues
is redeemable at the option of the Company prior to maturity.
Legal Matters -
See Part II of this Form 10-Q for a discussion of legal matters.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Consolidated -
- ------------
For the three months ended March 31, 1995, WMX Technologies, Inc. and its
subsidiaries ("WMX" or the "Company") had net income of $101,245,000 or $.21 per
share, compared with $162,612,000 or $.34 per share in the same period in 1994.
Revenue for the quarter was $2,604,909,000 versus $2,284,067,000 in the year
earlier quarter.
First quarter 1995 results included a pre-tax charge of $140,600,000 recorded by
the Company's Chemical Waste Management, Inc. ("CWM") subsidiary, primarily to
revalue investments in certain hazardous waste treatment and processing
technologies and facilities due to continued deterioration of the hazardous
waste market. Excluding this charge, the Company earned $192,645,000 or $.40
per share.
The Company currently 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 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, and air quality
control, primarily in North America. Rust International Inc. ("Rust") 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. The strategic
review begun by the Company in 1994 is continuing, focusing on, among other
things, the Company's opportunities and resources, on both a line of business
and a geographic basis, to determine the most effective use of resources to add
value to the Company's core competencies. No conclusions have been reached but
the current business alignment could change in the future as a result of the
review. Following is an analysis of operating results by principal subsidiary.
WMI -
- ---
WMI revenue by line of business for the first quarter of 1995 compared to the
same quarter in 1994 is shown in the following table (000's omitted):
Percentage
1995 1994 Increase
---------- ---------- -----------
Residential $ 293,087 $ 275,899 6.2%
Commercial 394,311 365,582 7.9
Rolloff and industrial 305,083 282,275 8.1
Disposal, transfer and
other 309,282 251,748 22.9
---------- ----------
Total $1,301,763 $1,175,504 10.7%
========== ========== ====
Volume increases accounted for revenue growth of 7-8%, while acquisitions, net
of divestitures, were neutral to minus .5%. Price increases accounted for
revenue growth of 3.5 to 4%, including a strong 1% growth due to increases in
prices for recyclable commodities, despite weakness in special waste pricing.
Volume growth was helped by a relatively mild winter in 1995, whereas severe
14
weather over a large part of the country adversely impacted the first quarter of
1994.
Operating expenses declined to 67.2% of revenue in the first quarter of 1995
compared to 69.1% in the same quarter a year earlier. Mild weather had a
favorable impact in the current year, as well as WMI's pricing effectiveness
program, improved safety performance, internalization of recyclables processing,
and continuing productivity enhancements. Selling and administrative expenses
were 10.6% of revenue in 1995 compared to 11.5% in 1994, as WMI has used
productivity enhancements to manage a higher revenue base with no significant
increase in selling and administrative expenses. Operating margins improved for
the fifth consecutive quarter, to 22.2% of revenue in 1995.
CWM -
- ---
Although CWM's low-level radioactive waste services business performed well in
the first quarter of 1995, total revenue declined $15.8 million or 10.8%
compared to the first quarter of 1994. The decline was attributable in
approximately equal amounts to a decline in event business revenue (revenue from
larger, typically non-recurring projects), the decline in value of the Mexican
peso, and overall volume declines in base business. Event business accounted
for 4.9% of total revenue in 1995 compared to 8.2% in 1994. Volume declines in
base business occurred despite milder winter weather in 1995 than in 1994.
First quarter 1995 operating expenses declined $6.5 million from the year-
earlier period as a result of CWM's 1993 restructuring, but increased from 72.1%
of revenue in the first quarter of 1994 to 75.9% in the 1995 quarter due to the
smaller revenue base. Selling and administrative expenses decreased $5.2
million in the quarter ended March 31, 1995, compared to the same quarter in
1994, and were 18.8% of 1995 revenue versus 20.3% of 1994 revenue.
In the first quarter of 1995, in response to the continuing deterioration of the
chemical waste services market, CWM took additional steps to realign its
organization, and in connection therewith, recorded a special charge of $140.6
million before tax ($91.4 million after tax or $.19 per WMX share). The charge
relates primarily to a write-off of the investment in facilities and
technologies that CWM is eliminating because they do not meet customer service
or performance objectives, but also includes $22.0 million of future cash
payments for rents under non-cancelable leases, guaranteed bank obligations of a
joint venture, and employee severance. The majority of the cash expenditures
will be paid during 1995, although certain of the non-cancelable leases extend
through the year 2002.
WTI -
- ---
Revenue for the three months ended March 31, 1995, increased 32.7%, to
$373,299,000, compared with $281,332,000 in the first quarter of 1994. Slightly
under 30% of the revenue growth reflects incremental construction revenue from
the Lisbon, Connecticut, trash-to-energy facility being built by WTI. An
additional 30% of the increase reflects the impact of water quality control
businesses acquired during the last twelve months, while the remainder was
divided approximately equally between revenue from new plants and growth of
existing businesses.
Energy business revenue increased 37% over the prior year and contributed 54% of
WTI's total revenue compared to 53% in the first quarter of 1994. Sources of
the revenue growth included the incremental Lisbon construction revenue, the
Falls Township trash-to-energy facility and the Polk County, Florida, wood
waste-to-energy facility. Water business revenue in the quarter grew 40% over
the prior year and provided 36% of total revenue versus 33% in 1994. The
majority of this growth resulted from acquisitions. Air business revenue was
generally flat
15
compared to the first quarter of 1994 and provided 10% of total 1995 revenue
versus 14% in 1994.
Operating expenses were 71.8% of revenue in the first quarter of 1995 compared
to 69.5% in the first quarter of 1994, primarily because the Lisbon construction
revenue was offset by an equal amount of construction expenses. Excluding the
Lisbon revenue and related costs, first quarter 1995 operating expenses were
69.6% of revenue, relatively consistent with the year-earlier quarter. Selling
and administrative expenses as a percentage of revenue were flat between years
after excluding the incremental Lisbon construction revenue, which has no
associated selling and administrative expenses. On a dollar basis, selling and
administrative expenses increased $6.1 million over the same quarter a year ago,
primarily due to the impact of 1994 acquisitions.
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 equals $1.5870 in 1995 and one pound equals
$1.4894 in 1994).
Revenue for the three months ended March 31, 1995, was $442,269,000 compared
with $381,307,000 for the comparable three months of 1994. Components of the
revenue growth are shown in the following table:
Percentage
Increase
-----------
Price 1.6%
Volume 0.4
Acquisitions 5.8
Currency translation 8.2
----
16.0%
====
WM International's ability to implement price increases continues to be
adversely affected by economic and competitive conditions and relatively low
inflation. In Italy, where a substantial portion of its business is municipal
contracts, renewals continue to be consistently at reduced prices. Volume
increased in several European countries and Hong Kong, but was adversely
impacted by a decline in landfill volumes in France and Italy. The government
of Hong Kong introduced a new pricing mechanism in March, that will require
generators to absorb a portion of the disposal cost of their waste. The future
impact of this change on volume at WM International's chemical waste treatment
facility is uncertain.
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,
foreign currency movement has had and will continue to have an impact on
reported revenue, expenses and net income, stated in both pounds sterling and
U.S. dollars. Both the Company and WM International periodically engage in
hedging transactions intended to mitigate currency translation risk. See
"Derivatives."
Operating expenses were 75.5% of revenue in the three months ended March 31,
1995, compared to 72.2% in the same period of 1994. The increase is a
reflection of highly competitive pricing in hazardous waste and in the solid
waste markets of Italy and France. Selling and administrative expenses were
13.3% of revenue
16
in the first quarter of 1995 compared to 13.8% in the 1994 first quarter, a
result of the increased revenue base over which to spread the fixed portion of
such costs, integration of acquired businesses, and continued focus on
productivity improvements.
Rust -
- ----
Rust revenue increased 14.3% in the first quarter of 1995 compared to the same
period in 1994. Substantially all of the increase related to price and volume;
the impact of acquisitions was not significant. Revenue by business line is
shown in the following table (000's omitted):
Percentage
Increase
1995 1994 (Decrease)
-------- -------- -----------
Engineering, construction
and consulting services $277,920 $205,350 35.3%
Remediation and
industrial services 163,286 180,790 (9.7)
-------- --------
Total $441,206 $386,140 14.3%
======== ========
The revenue increase for engineering, construction and consulting services was
driven by volume increases, particularly engineering and construction activity
on several large pulp and paper projects. Backlog in this business line
increased by $36.0 million from December 31, 1994, to $1.192 billion at March
31, 1995. The revenue decrease for the remediation and industrial services
business line is attributable primarily to the pending transaction with OHM
Corporation ("OHM") discussed below, which made customers reluctant to award new
projects to the Rust remediation services group, and shifted management's focus
to effectively completing the transition of the business to OHM. Backlog in
this business line at March 31, 1995, decreased by $65.0 million from December
31, 1994, to $562.0 million. Approximately $382 million of the March 31, 1995,
backlog relates to the businesses to be transferred to OHM.
Rust has signed an agreement with OHM to acquire an approximately 37% interest
in OHM in exchange for Rust's environmental remediation business. The
transaction, which is subject to approval by the stockholders of OHM, is
expected to close in the second quarter of 1995. For the three months ended
March 31, Rust's environmental remediation business had revenue and operating
income (after operating, selling and administrative expenses) of $40,165,000 and
$526,000, respectively, in 1995 and $53,122,000 and $1,433,000, respectively, in
1994.
Rust's backlog at March 31, 1995, includes approximately $440 million (of which
$238 million will be transferred to OHM) for several Department of Defense
contracts, including two Total Environmental Restoration Contracts. There can
be no assurance that specific projects identified and performed pursuant to such
contracts will result in aggregate revenues of $440 million over the remaining
terms of the contracts.
Revenue from affiliated companies was 7.7% of total revenue for the first
quarter of 1995, compared to 13.3% for the first quarter of 1994, primarily the
result of the completion of a trash-to-energy facility for WTI.
Operating expenses increased to 84.9% of revenue in the first quarter of 1995
from 82.5% in the first quarter of 1994. The increase is primarily attributable
to the continued shift of the revenue mix in favor of engineering, construction
and consulting work which has higher operating expenses than the industrial
service business. Selling and administrative expenses as a percentage of
revenue
17
decreased to 9.4% in the first quarter of 1995 from 11.3% in the same quarter of
1994. The decrease is attributable to the revenue increase and to ongoing
programs to reduce selling and administrative expenses across all business
lines, including closing certain offices and consolidating the engineering and
construction groups in the fourth quarter of 1994.
Interest -
- --------
The following table sets forth the components of consolidated interest, net, for
the three months ended March 31, 1995 and 1994 (000's omitted):
1995 1994
-------- --------
Interest expense $126,896 $109,431
Interest income (8,894) (10,764)
Capitalized interest (19,736) (25,201)
-------- --------
Interest expense, net $ 98,266 $ 73,466
======== ========
Net interest expense for the first quarter of 1995 increased compared to the
first quarter of 1994 as a result of higher interest rates, debt incurred to
purchase the public shares of CWM, and lower capitalized interest as a result of
the completion of several large construction projects.
New Accounting Principle -
- ------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which is
effective for fiscal years beginning after December 15, 1995. The Company is
studying FAS 121 but currently does not believe its application will have a
material impact on the Company's financial statements.
Derivatives -
- -----------
From time to time, the Company and certain of its subsidiaries use derivatives
to manage currency, interest rate, and commodity (fuel) risk. Derivatives used
are simple agreements which provide for payments based on the notional amount,
with no multipliers or leverage. While the Company is exposed to credit loss in
the event of non-performance by counterparties to derivatives, in all cases such
counterparties are highly rated financial institutions and the Company does not
anticipate non-performance. See Notes to Consolidated Financial Statements for
further discussion.
FINANCIAL CONDITION:
Liquidity and Capital Resources -
- -------------------------------
The Company had working capital of $156,646,000 at March 31, 1995, compared to a
working capital deficit of $90,887,000 at December 31, 1994. Net accounts
receivable declined $70,513,000 but accounts payable and accrued expenses
decreased $84,505,000 and cash and cash equivalents increased by $172,574,000.
Costs and estimated earnings in excess of billings on uncompleted contracts
increased $48,394,000 as a result of higher engineering and construction volume
at Rust and WM International. Smaller changes in other current asset and
liability accounts reflect the effects of normal business activities.
18
The Company is primarily in a service industry and accordingly, cash flow from
operations is used primarily for capital expenditures (including business
acquisitions), dividends, stock repurchases or debt reduction. Beginning in
1994, management placed increased emphasis on reducing capital expenditures and
obtaining higher returns on existing assets. As a result, the Company generated
positive cash flow before financing activities of $103,184,000 in the first
quarter of 1995.
Long-term and short-term debt, net of cash and cash equivalents, increased
$517,482,000 during the quarter ended March 31, 1995. The majority of this
increase related to subordinated debt issued to acquire the public shares of
CWM, and the impact of foreign currency translation on the debt of WM
International.
During the first quarter of 1995, WM International received an assessment of
approximately 417 million Krona (approximately $58 million) from the Swedish Tax
Authority, relating to a transaction completed in 1990. WM International
believes that all appropriate tax returns and disclosures were properly filed at
the time of the transaction, and intends to vigorously contest the assessment.
Acquisitions and Capital Expenditures -
- -------------------------------------
Capital expenditures, excluding property and equipment of purchased businesses,
were $261,680,000 for the three months ended March 31, 1995, and $321,865,000
for the comparable quarter in 1994. In addition, the Company and its principal
subsidiaries acquired 14 businesses for $32,758,000 in cash and notes and
183,766 shares of WMX common stock during the first quarter of 1995. In the
first quarter of 1994, the Company and its principal subsidiaries acquired 12
businesses for $86,591,000 in cash and notes.
Capital Structure -
- -----------------
In January 1995, the holders of a majority of the outstanding CWM shares (other
than those held by WMX) approved a merger transaction that resulted in WMX
acquiring all of the outstanding CWM shares it did not previously own, in return
for convertible subordinated debt.
In February 1995, WMX offered to acquire the approximately 4% of Rust's shares
held by the public, for $14 per share in cash. In May 1995, following
negotiations with a special committee of Rust independent directors, WMX agreed
to increase the price which the public stockholders would receive under its
proposal to $16.35 per share in cash. The revised WMX proposal was approved by
the special committee of Rust independent directors and by the Boards of
Directors of both WMX and Rust. The transaction, which does not require
stockholder approval, is expected to be completed during the third quarter of
1995.
The Board of Directors of each of WMX, WTI and Rust 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 1996.
During the first quarter of 1995, WTI repurchased 1,708,600 of its shares and
Rust repurchased 10,200 shares.
In February and March 1995, WMX sold put options on 4.7 million shares of its
common stock at strike prices ranging from $26.1068 to $26.5750 per share. The
options expire in October and November 1995. WMX also has outstanding put
options covering 4.3 million shares at strike prices of $25.5875 to $28.8333 per
share and expiring in July and August of 1995. During the quarter ended March
31, 1995, options on 4.7 million shares were exercised, and the Company elected
to settle them for cash in the amount of $12,019,000.
19
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, 1995, CWM or its
subsidiaries (other than Rust) were involved in three such proceedings and a
subsidiary of WTI 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 registrant filed an 8-K Report dated January 24, 1995 reporting (i) the
issuance of a news release reporting its results of operations for the fourth
quarter of 1994 and for the year as a whole, (ii) information concerning the
expected 1995 earnings growth of WTI and WM International, (iii) the
consummation of the registrant's acquisition of all of the outstanding shares of
CWM which it did not already own, and (iv) the settlement of a lawsuit filed
against CWM and others under the federal securities laws.
The registrant filed an 8-K Report dated March 17, 1995 reporting that CWM
would record a first quarter 1995 charge relating primarily to revaluation of
certain investments in hazardous waste treatment and processing technologies and
facilities.
20
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 12, 1995
21
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
27 Financial Data Schedule
99 None
- ----------------------------
* Exhibits not listed are inapplicable.
22