<PAGE>
================================================================================
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 SEPTEMBER 30, 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, ISSUED AND OUTSTANDING
AT OCTOBER 31, 1994 -- 483,871,149
================================================================================
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I. Financial Information:
Consolidated balance sheets as of December 31, 1993, and
September 30, 1994............................................. 3
Consolidated statements of income for the three-month and nine-month
periods ended September 30, 1993 and 1994...................... 5
Consolidated statements of stockholders' equity for the nine-month
periods ended September 30, 1993 and 1994...................... 6
Consolidated statements of cash flows for the nine-month
periods ended September 30, 1993 and 1994...................... 8
Notes to consolidated financial statements.......................... 9
Management's discussion and analysis of results of operations
and financial condition........................................ 15
PART II. Other Information......................................... 24
******
2
<PAGE>
PART I. FINANCIAL INFORMATION
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted)
ASSETS
<TABLE>
<CAPTION>
December 31, 1993 September 30, 1994
------------------ -------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 107,625
Short-term investments 126,382 31,659
Accounts receivable, less reserve of $63,146 in 1993
and $63,936 in 1994 1,762,091 2,121,607
Employee receivables 9,670 10,952
Parts and supplies 148,022 158,188
Costs and estimated earnings in excess of billings
on uncompleted contracts 339,364 419,653
Refundable income taxes 54,001 -
Prepaid expenses 337,990 353,015
----------- -----------
Total Current Assets $ 2,777,520 $ 3,202,699
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, primarily disposal sites $ 3,625,412 $ 3,982,234
Buildings 1,223,139 1,345,373
Vehicles and equipment 6,856,044 7,049,434
Leasehold improvements 100,262 94,447
----------- -----------
$11,804,857 $12,471,488
Less - Accumulated depreciation and amortization (3,035,398) (3,417,994)
----------- -----------
Total Property and Equipment, Net $ 8,769,459 $ 9,053,494
----------- -----------
OTHER ASSETS:
Intangible assets relating to acquired businesses, net $ 3,461,331 $ 3,756,782
Funds held by trustees 116,949 90,667
Sundry, including other investments 1,139,217 1,220,144
----------- -----------
Total Other Assets $ 4,717,497 $ 5,067,593
----------- -----------
Total Assets $16,264,476 $17,323,786
=========== ===========
</TABLE>
3
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1993 September 30, 1994
----------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Portion of long-term debt payable within one year $ 754,491 $ 732,075
Accounts payable 818,501 858,188
Accrued expenses 863,474 970,183
Unearned revenue 241,096 283,589
----------- -----------
Total Current Liabilities $ 2,677,562 $ 2,844,035
----------- -----------
DEFERRED ITEMS:
Income taxes $ 448,706 $ 644,762
Investment credit 27,006 25,057
Other 1,457,607 1,378,514
----------- -----------
Total Deferred Items $ 1,933,319 $ 2,048,333
----------- -----------
LONG-TERM DEBT, less portion payable within one year $ 6,145,584 $ 6,221,908
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES $ 1,348,559 $ 1,542,596
----------- -----------
COMMITMENTS AND CONTINGENCIES $ $
----------- -----------
PUT OPTIONS $ - $ 240,151
----------- -----------
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 496,326,907 in 1994 496,217 496,327
Additional paid-in capital 668,470 397,227
Cumulative translation adjustment (245,587) (133,819)
Retained earnings 3,693,108 4,050,290
----------- -----------
$ 4,612,208 $ 4,810,025
Less: Treasury stock; 12,763,884 shares in 1993,
at cost 425,097 -
1988 Employee Stock Ownership Plan 27,659 22,711
Employee Stock Benefit Trust (12,486,603 shares) - 360,551
----------- -----------
Total Stockholders' Equity $ 4,159,452 $ 4,426,763
----------- -----------
Total Liabilities and Stockholders'
Equity $16,264,476 $17,323,786
=========== ===========
</TABLE>
4
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------- -----------------------
1993 1994 1993 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE $2,322,745 $2,603,110 $6,748,668 $7,438,899
---------- ---------- ---------- ----------
Operating expenses $1,610,071 $1,809,485 $4,669,002 $5,173,285
Special charges 550,000 - 550,000 -
Goodwill amortization 23,593 27,776 67,654 82,708
Selling and administrative
expenses 286,589 293,175 829,483 877,801
Gains from stock transactions
of subsidiaries - - (15,109) -
Interest expense 81,248 83,528 216,247 246,029
Interest income (9,555) (8,747) (31,268) (25,154)
Minority interest (46,550) 41,885 20,381 112,635
Sundry income, net (16,510) (18,606) (81,403) (48,803)
---------- ---------- ---------- ----------
Income (loss) before income
taxes $ (156,141) $ 374,614 $ 523,681 $1,020,398
Provision (benefit) for income
taxes (28,985) 161,729 233,828 441,784
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (127,156) $ 212,885 $ 289,853 $ 578,614
========== ========== ========== ==========
AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING 482,920 484,162 485,911 483,985
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.26) $ 0.44 $ 0.60 $ 1.20
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.15 $ 0.43 $ 0.45
========== ========== ========== ==========
</TABLE>
5
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1993
(Unaudited)
($000's omitted)
<TABLE>
<CAPTION>
1988
Employee
Additional Cumulative Stock
Common Paid-In Translation Retained Treasury Ownership
Stock Capital Adjustment Earnings Stock Plan
-------- ----------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $496,203 $708,296 $(166,566) $3,521,190 $204,490 $34,988
Net income for the period - - - 289,853 - -
Cash dividends - - - (208,351) - -
Stock repurchase (8,443,400
shares) - - - - 278,363 -
Stock issued upon exercise
of stock options 14 (5,370) - - (11,804) -
Treasury stock received in
connection with exercise of
stock options - - - - 302 -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (5,474)
Treasury stock received as
settlement for claims - - - - 2,958 -
Stock issued upon conversion
of Liquid Yield Option
Notes - (4,396) - - (7,596) -
Stock issued for acquisitions - (2,922) - - (16,487) -
Tax benefit of non-qualified
stock options exercised - 2,099 - - - -
Transfer of equity interests
among controlled subsidiaries - (26,105) - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - (51,251) - - -
-------- -------- ----------- ---------- -------- ---------
Balance, September 30, 1993 $496,217 $671,602 $(217,817) $3,602,692 $450,226 $29,514
======== ======== =========== ========== ======== =========
</TABLE>
6
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994
(Unaudited)
($000's omitted)
<TABLE>
<CAPTION>
1988
Employee
Additional Cumulative Stock Employee
Common Paid-In Translation Retained Treasury Ownership Stock
Stock Capital Adjustment Earnings Stock Plan Benefit Trust
---------- ----------- ------------ ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $496,217 $ 668,470 $(245,587) $3,693,108 $ 425,097 $27,659 $ -
Net income for the period - - - 578,614 - - -
Cash dividends - - - (217,676) - - -
Dividends paid to Employee
Stock Benefit Trust - 3,756 - (3,756) - - -
Stock issued upon exercise
of stock options - (4,729) - - (7,406) - (3,164)
Treasury stock received in
connection with exercise of
stock options - - - - 250 - -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (4,948) -
Treasury stock received as
settlement for claims - - - - 1,907 - -
Stock issued upon conversion
of Liquid Yield Option
Notes 36 511 - - (56) - -
Common stock issued for
acquisitions 74 1,799 - - - - -
Tax benefit of non-qualified
stock options exercised - 1,156 - - - - -
Temporary equity related to
put options - (240,151) - - - - -
Proceeds from sale of put
options - 22,720 - - - - -
Establish Employee Stock
Benefit Trust (12,601,609
shares) - (106,327) - - (419,792) - 313,465
Adjustment of Employee Stock
Benefit Trust to market value - 50,250 - - - - 50,250
Transfer of equity interests
among controlled subsidiaries - (228) - - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - 111,768 - - - -
-------- --------- --------- ---------- --------- ------- --------
Balance, September 30, 1994 $496,327 $ 397,227 $(133,819) $4,050,290 $ - $22,711 $360,551
======== ========= ========= ========== ========= ======= ========
</TABLE>
7
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30
Increase (Decrease) in Cash
(Unaudited)
($000's omitted)
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period $ 289,853 $ 578,614
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 586,233 658,715
Interest on Liquid Yield Option Notes (LYONs) 27,980 26,039
Gain on sale of property and equipment, and of
investments by subsidiary (10,110) (11,276)
Contribution to 1988 Employee Stock
Ownership Plan 5,474 4,948
Gains from stock transactions of subsidiaries (15,109) -
Special charges, net of tax and minority interest 285,300 -
Changes in assets and liabilities, net of effects
of acquired companies:
Receivables (174,386) (324,275)
Other current assets (128,520) (64,738)
Sundry other assets (34,807) (3,950)
Accounts payable 14,321 14,991
Accrued expenses and unearned revenue (78,553) 47,548
Deferred income taxes and investment credit 203,851 211,921
Deferred other items (114,296) (86,118)
Minority interest in subsidiaries 66,201 188,163
----------- -----------
Net cash provided by operating activities $ 923,432 $ 1,240,582
----------- -----------
Cash flows from investing activities:
Short-term investments $ (17,919) $ 75,176
Capital expenditures (1,328,262) (1,004,196)
Proceeds from sale of property and equipment, and of
investments by subsidiary 88,542 161,243
Cost of acquisitions, net of cash acquired (489,764) (135,274)
Other investments (188,897) (71,404)
Purchase of Brand stock related to Rust merger (129,524) -
----------- -----------
Net cash used for investing activities $(2,065,824) $ (974,455)
----------- -----------
Cash flows from financing activities:
Cash dividends $ (208,351) $ (217,676)
Proceeds from issuance of indebtedness 2,610,580 1,183,452
Repayments of indebtedness (872,763) (1,152,363)
Proceeds from exercise of stock options, net 8,245 6,747
Stock repurchases by Company and subsidiaries (315,302) (1,382)
Preferred stock redemption by subsidiary (5,000) -
Proceeds from sale of put options - 22,720
----------- -----------
Net cash provided by (used for) financing activities $ 1,217,409 $ (158,502)
----------- -----------
Net increase in cash $ 75,017 $ 107,625
Cash at beginning of period 6,473 -
----------- -----------
Cash at end of period $ 81,490 $ 107,625
=========== ===========
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 $ 188,267 $ 219,990
Income taxes, net of refunds received $ 219,302 $ 149,915
Supplemental schedule of noncash investing and
financing activities:
LYONs converted into common stock of the Company $ 3,200 $ 603
Exchangeable LYONs exchanged for common stock
of CWM owned by the Company $ 36 $ -
Liabilities assumed in acquisitions of businesses $ 517,434 $ 194,780
Fair market value of Company and subsidiary stock
issued for acquired businesses $ 47,329 $ 4,773
</TABLE>
8
<PAGE>
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 and nine months ended September 30, 1993 and 1994:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- -------------------
1993 1994 1993 1994
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Currently payable $ 56,883 $ 65,845 $218,004 $227,315
Deferred (84,781) 96,529 18,536 216,398
Amortization of deferred
investment credit (1,087) (645) (2,712) (1,929)
-------- -------- -------- --------
$(28,985) $161,729 $233,828 $441,784
======== ======== ======== ========
</TABLE>
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 nine months 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. ("WTI"). These acquisitions were accounted for as purchases.
During the nine months ended September 30, 1994, the Company and its principal
subsidiaries acquired 37 businesses (excluding minor acquisitions where
consideration paid was less than $1,000,000) for $135,274,000 in cash (net of
9
<PAGE>
cash acquired) and notes, 73,809 shares of the Company's common stock and
156,124 shares of common stock of WTI. These acquisitions were accounted for as
purchases.
The following summarizes the pro forma effect of businesses acquired and
accounted for as purchases in 1993 and 1994 as if they had been acquired as of
January 1, 1993:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1993
------------------
<S> <C>
Revenue as reported $6,748,668
Revenue of 1993 and 1994 purchased businesses
for period prior to acquisition 453,551
----------
Pro forma revenue $7,202,219
==========
Net income as reported $ 289,853
Net income of 1993 and 1994 purchased businesses
for period prior to acquisition 8,232
Adjustment for interest and goodwill amortization (15,945)
----------
Pro forma net income $ 282,140
==========
Earnings per share as reported $ 0.60
Effect of purchased businesses prior to
acquisition (0.02)
----------
Pro forma earnings per share $ 0.58
==========
</TABLE>
The pro forma effect of the acquisitions made during 1994 is not material to the
results of operations for the nine months ended September 30, 1994.
Derivative Financial Instruments -
From time to time, the Company uses derivatives to manage currency, interest
rate and commodity risk. The portfolio of such instruments (which are held for
purposes other than trading) at September 30, 1994 is set forth in the
paragraphs which follow.
INTEREST RATE AGREEMENTS - Waste Management International plc ("WM
International") has 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.
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 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. As
of September 30, 1994, WM International has entered into interest rate
agreements in notional amounts and with terms as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Notional
Currency Amount Duration of Agreement
- -------------------- ----------- -----------------------
<S> <C> <C>
Sterling 50 million Feb. 1994 - Feb. 1995
Sterling 20 million Feb. 1995 - Feb. 1999
Hong Kong dollar 250 million Feb. 1994 - Feb. 1995
Hong Kong dollar 250 million April 1994 - April 1997
Hong Kong dollar 250 million Feb. 1995 - Feb. 1997
Australian dollars 25 million Feb. 1994 - Feb. 1995
Australian dollars 20 million March 1994 - March 1996
</TABLE>
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. 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 September 30, 1994, the Company was party to the following average rate
currency options (all options settle at expiration):
<TABLE>
<CAPTION>
Currency
Notional Amount ---------------------------
(in 000's) Hedged Against
--------------- ------------- ------------
<S> <C> <C> <C>
Collars, structured as
offsetting puts and
calls with different
strike prices, expiring
December 31, 1994 -
141,500 Sterling Dollar
143,500 French Franc Sterling
68,727 Deutschemark Sterling
5,300 Deutschemark Dollar
210,000 Swedish Krona Sterling
24,000,000 Lira Sterling
Collars, structured as
offsetting puts and
calls with different
strike prices, covering
the period January 1
to December 31, 1995 -
24,000 Deutschemark Sterling
40,000 French Franc Sterling
Put option bought, expiring
December 31, 1994 12,000,000 Lira Deutschemark
</TABLE>
In addition, WM International has sold deutschemarks forward for delivery at
various dates in 1994 and 1995. Contracts covering DM 7.5 million represent
hedges of foreign earnings against the sterling, while contracts for DM 24
million represent hedges against construction contracts payable in dollars.
Gains or losses on the hedges against contractual obligations are deferred and
will be recognized as part of the construction cost.
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
11
<PAGE>
are deferred and recognized as fuel is purchased. The following table
summarizes the Company's positions in commodity derivatives as of September 30,
1994:
<TABLE>
<CAPTION>
Commodity Quantity Expiration
----------- --------------- ----------
<S> <C> <C>
Heating oil 30,000,000 gal. 1994
Heating oil 63,000,000 gal. 1995
Gas oil 9,000 tons 1994
Gas oil 40,000 tons 1995
Crude oil 1,500,000 bbls 1995
Crude oil 1,800,000 bbls 1996
Crude oil 1,350,000 bbls 1997
Crude oil 200,000 bbls 1998
Crude oil 100,000 bbls 1999
</TABLE>
In addition, the Company has sold swaptions on 5,500,000 barrels of crude oil
with maturities in 1996 through 1998. Such swaptions give the counterparty the
option, at some future date, to enter into a swap which would require the
Company to pay at the strike price set forth in the agreement in exchange for a
floating crude oil reference price. Until exercised, such contracts do not
qualify for hedge accounting under generally accepted accounting principles and
accordingly, must be marked to market each accounting period. To date, gains
and losses on such contracts have not been material.
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 major financial institutions and the Company does
not anticipate non-performance.
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 104 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
12
<PAGE>
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 potential insurance recoveries.
Stockholders' Equity -
During the first nine months of 1994, WMX sold put options on 13.7 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. Options on 4.7 million shares maturing in July and August
expired unexercised, as the price of the Company's stock was in excess of the
strike price at maturity. Of the options outstanding, 4.3 million expire in
November 1994 at strike prices ranging from $24.375 to $24.841 per share, and
4.7 million expire in February 1995 at strike prices ranging from $28.321 to
$29.375. Proceeds of $22,720,000 received 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. WMX sold additional put options in November to
replace those which expired.
During 1994, the Company established 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. 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.
Subsequent Event -
On July 28, 1994, the Company made a proposal to acquire all of the
approximately 44.9 million outstanding shares of CWM which it does not already
own in a transaction whereby WMX would have exchanged .27 shares of its stock
for each publicly held CWM share. WMX already owns 78.6% of the outstanding CWM
shares.
On October 14, 1994, following negotiations with a special committee of CWM
independent directors, WMX agreed to a revised proposal, in which the public
stockholders of CWM will receive a WMX convertible subordinated note, described
more fully below. The terms of the revised proposal were approved unanimously
by the special committee of CWM independent directors and by the Boards of
Directors of both WMX and CWM. The transaction, which will be taxable under
the revised terms, remains subject to the approval of the holders of a majority
of the outstanding CWM shares (other than those held
13
<PAGE>
by WMX) voting at a special meeting of CWM stockholders expected to be held in
January 1995.
The new terms provide for the CWM stockholders 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. The notes will be subordinated to all existing
and future indebtedness of WMX. Each note will bear cash interest from the date
the merger is consummated 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 $790.24 and $843.35, 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 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 will be convertible at any time prior to maturity, unless
previously purchased or redeemed by WMX, into a number of shares of WMX common
stock to be determined by dividing the stated issue price per note by the
average New York Stock Exchange closing price of WMX common stock during the ten
trading days immediately preceding the special meeting of CWM stockholders to be
held to consider the merger. The conversion rate will be not less than 21.90
shares nor more than 26.76 shares per note. 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.
Legal Matters -
See Part II of this Form 10-Q for a discussion of legal matters.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Consolidated -
- ------------
WMX Technologies, Inc. and its subsidiaries ("WMX" or the "Company") had
net income of $212,885,000 or $.44 per share for the three months ended
September 30, 1994, compared with a net loss of $127,156,000 or $.26 per share
in the same period of 1993. Revenue in the third quarter of 1994 was
$2,603,110,000 versus $2,322,745,000 in the year earlier quarter.
Third quarter 1993 results included the Company's share of a special charge
recorded by its Chemical Waste Management, Inc. ("CWM") subsidiary, which
reduced net income by approximately $285 million or $.59 per share, and a
provision for a retroactive increase in U.S. income taxes of $24 million or $.05
per share. Excluding these items, 1993 third quarter net income would have been
$181,244,000 or $.38 per share.
For the nine months ended September 30, 1994, net income was $578,614,000
or $1.20 per share, compared with $289,853,000 or $.60 per share a year earlier.
Revenue rose to $7,438,899,000 from $6,748,668,000 in the same period in 1993.
Results for the nine-month period in 1993 included a gain of approximately $.02
per share relating to the issuance of shares by the Company's Rust International
Inc. ("Rust") subsidiary, in addition to the charges discussed above. Excluding
all special items, earnings per share for the nine months ended September 30,
1993, would have been $1.20.
The Company provides comprehensive environmental, engineering and
construction, industrial and related services through five principal
subsidiaries, each of which operates in a relatively discrete 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
(including biosolids management) and air quality control, primarily in North
America. 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, environmental 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 revenue by line of business for the third quarter and first nine months
of 1994 compared to the same periods in 1993 are shown in the following table
($000's omitted):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------------------- ---------------------------------
1994 1993 Increase 1994 1993 Increase
---------- ------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 290,829 $ 276,731 5.1% $ 852,973 $ 819,997 4.0%
Commercial 385,959 353,354 9.2 1,129,493 1,044,005 8.2
Rolloff and
industrial 324,564 289,907 12.0 924,231 823,599 12.2
Disposal, transfer
and other 332,643 284,145 17.1 889,958 820,943 8.4
---------- ---------- ---------- ----------
$1,333,995 $1,204,137 10.8% $3,796,655 $3,508,544 8.2%
========== ========== ==== ========== ========== ====
</TABLE>
15
<PAGE>
Price increases were responsible for approximately 2.5-3.0% of the revenue
growth for the three months ended September 30, 1994, and approximately 1% for
the nine-month period, as compared to the corresponding periods in 1993. WMI
continues to focus on pricing on a customer-by-customer basis and to seek
increases when and where appropriate. Pricing in the commercial, rolloff and
industrial lines appears to be firming, while residential work remains extremely
competitive and disposal pricing varies by region. Higher prices for recyclable
commodities also helped 1994 results. Volume increases accounted for 8.5-9.0%
of the revenue growth for the quarter, and a slightly lower percentage for the
nine months. Revenue related to dispositions exceeded that from acquisitions by
0.5-1.0% in the third quarter of 1994 compared to 1993, and the revenue impact
of these two factors for the nine months is approximately equal.
Operating margins in the third quarter of 1994 improved slightly, to 21.5%,
compared to 21.3% in the third quarter of 1993. Margin improvement resulted
from stronger pricing, increased volume, operating efficiencies, and the ability
to spread selling and administrative expenses over a larger revenue base.
CWM (Core Business) -
- -------------------
Revenue for CWM's core business (excluding Rust) decreased $19.7 million or
11.6% in the three months ended September 30, 1994, compared to the same period
in 1993, reflecting the continuing impact of changes which have affected the
hazardous waste industry, including the decline in off-site waste volumes from
environmental cleanup projects, the lack of regulatory "drivers", the shift of
special wastes to Subtitle D facilities, waste minimization and recycling, and
overcapacity in the incineration markets. Third quarter 1994 core business
revenue was also impacted by substantially reduced low-level radioactive waste
volumes received at CWM's Barnwell, South Carolina disposal facility, which was
restricted by the state of South Carolina to customers within an eight-state
region in the southeastern United States (the "Southeast Compact") after June
30, 1994. Price increases for low-level radioactive waste disposal effective
July 1, 1994, more than offset price declines during the third quarter of 1994
in the remainder of CWM's core business.
Core business revenue declined $13.9 million in the first nine months of
1994 compared to the same period in 1993. The more modest decline in the nine-
month period, compared to the third quarter, results from the strong second
quarter disposal volume at the Barnwell facility from customers outside the
Southeast Compact whose access to the facility ended June 30, 1994. South
Carolina earlier adopted legislation which allows the Barnwell site to continue
operating until December 31, 1995, to serve customers located within this
region. The North Carolina Low Level Radioactive Waste Management Authority has
voted to select a site in that state for development by CWM as a replacement
regional disposal facility for the Southeast Compact, but CWM is unable to
predict when, if ever, its efforts to develop a replacement site will be
successful.
Event business (generally large, non-recurring projects) was 9.0% of core
business revenue in the 1994 third quarter and 8.6% for the first nine months,
compared to 10.2% and 14.2% for the same periods in 1993. The decline in event
business is due to a continuing decline in off-site disposal from environmental
cleanups.
The following table analyzes core business revenue changes for the three-
month and nine-month periods ended September 30, 1994, compared to 1993:
16
<PAGE>
Increase (Decrease) in 1994
Compared to 1993
-----------------------------
Three Months Nine Months
-------------- -------------
Price 4.2 % (.6)%
Purchased businesses 2.1 2.7
Volume (17.9) (4.9)
----- -----
Total (11.6)% (2.8)%
===== =====
Operating expenses declined as a percentage of revenue in both the three-
month and nine-month periods of 1994 compared to 1993, a result of cost savings
achieved from the 1993 restructuring discussed below. These benefits were
partially offset, however, in the nine-month period as a result of severe
weather in the northeast portion of the United States during the first quarter,
which delayed projects and hampered operations. CWM has also experienced a
shift toward lower margin revenue in 1994. Selling and administrative expenses
declined on an absolute dollar basis, as a result of the 1993 restructuring, in
both the third quarter and nine-month periods of 1994 compared to 1993.
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 a program to
reduce costs, improve efficiency, and structure CWM to meet then current demand
levels. Of the amount provided for cash expenditures, CWM has spent $84.1
million through September 30, 1994, including $23.1 million related to personnel
actions. CWM expects the balance, except for closure and post-closure costs, to
be expended by the end of 1994. Based upon results for the third quarter and
first nine months of 1994, the Company continues to believe that the full impact
of the restructuring will reduce overhead, including depreciation and
amortization, by approximately $60 million annually.
WTI -
- ---
WTI revenue was $334,707,000 and $937,700,000 for the three-month and nine-
month periods ended September 30, 1994, respectively, which represent increases
of 17.9% and 15.9%, respectively, over revenue for the comparable 1993 periods.
Approximately 40% of the revenue growth reflects the impact of water businesses
acquired during the last twelve months with the balance attributable to internal
growth, including the third quarter 1993 commencement of commercial operations
at the New York Organic Fertilizer Company ("NYOFCO") biosolids pelletizer
facility, construction revenue from the Lisbon, Connecticut trash-to-energy
facility being built by WTI, and the third quarter 1994 commencement of
commercial operations at WTI's Falls Township trash-to-energy facility near
Philadelphia and the wood waste, scrap tire and landfill gas-fired Ridge
Generating Station in Polk County, Florida. WTI's energy, water and air
businesses represented approximately 54%, 34% and 12%, respectively, of revenue
during the quarter ended September 30, 1994, compared with 52%, 31% and 17%,
respectively, in the third quarter of 1993. These businesses contributed
approximately 53%, 34% and 13%, respectively, of year-to-date revenue at
September 30, 1994, compared with 53%, 29% and 18%, respectively, during the
same period in 1993. Current year air business declined from 1993 levels due to
the completion in 1993 of certain contracts related to Phase I of the Clean Air
Act Amendments of 1990 and delays in discretionary spending by industrial
customers.
Operating expenses constituted 68.3% and 68.5% of revenue for the third
quarter and first nine months of 1994, respectively, compared with 68.6% and
69.2% of revenue in the corresponding 1993 periods. These reductions reflect
improved operating performance at certain of WTI's energy facilities and the
addition of the NYOFCO facility. Selling and administrative expenses decreased
17
<PAGE>
as a percentage of revenue to 9.0% and 9.1%, respectively, for the quarter and
nine months of 1994 versus 9.3% and 9.5% of revenue for the comparable year-
earlier periods. The decline is primarily attributable to the integration of
acquired companies into existing businesses, to ongoing administrative cost
containment activities, and to revenue growth providing a larger base over which
to spread the fixed portion of such costs.
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 ("US GAAP"). The following discussion
and analysis is based on US 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 = $1.5181 in 1994 and one pound = $1.5042 in 1993).
Revenues were $446,024,000 for the quarter ended September 30, 1994, versus
$351,011,000 for the comparable quarter of 1993. For the nine months ended
September 30, revenues were $1,262,696,000 in 1994 compared with $1,039,212,000
in 1993. Components of the change in revenue are shown in the following table:
Increase (Decrease) in 1994
Compared to 1993
-----------------------------
Three Months Nine Months
-------------- -------------
Price 2.2% 2.0%
Volume 10.2 11.9
Acquisitions 10.3 8.8
Currency translation 4.4 (1.2)
---- ----
Total 27.1% 21.5%
==== ====
WM International's ability to implement price increases continues to be
adversely affected by economic conditions, particularly in parts of Europe.
However, price increases were obtained in certain European countries, as well as
in Argentina. WM International should benefit from improved pricing as
additional European economies improve. 1994 revenue volume increased as a
result of construction activity on the SENT Landfill in Hong Kong, but for the
nine months was adversely impacted by severe weather in much of Europe during
the first quarter.
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. Both the Company and WM
International periodically engage in hedging transactions intended to mitigate
currency translation risk. See Notes to Consolidated Financial Statements.
Operating expenses were 73.3% of revenue in the third quarter of 1994
compared to 70.0% in the same quarter of 1993, and for the nine months were
72.5% in 1994 versus 71.5% in 1993. The resulting decline in operating margin
was caused primarily by highly competitive pricing in Italy and France and
higher labor costs in Italy. Selling and administrative expenses improved to
13.3% of revenue for the third quarter of 1994 compared to 14.3% in the same
quarter of 1993, and 13.4% for the nine months of 1994 compared to 14.2% in
1993. The improvements result from an increased revenue base over which to
spread the fixed portion of such costs, integration of acquired businesses, and
continued focus on improved productivity and reduced administrative costs.
18
<PAGE>
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 four months 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% (since reduced to 40%) equity interest in NSC
and NSC's interest in two industrial services businesses.
Excluding the effect of the asbestos abatement business, revenues increased
13.5% for the third quarter and 13.6% for the first nine months of 1994 compared
to the same periods in 1993. Revenue by business line is shown in the following
table ($000's omitted):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ----------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Engineering, construction and
consulting services $260,827 $205,601 $ 707,612 $ 573,260
Remediation and
industrial services 182,173 184,737 533,206 518,876
Asbestos abatement - - - 31,765
-------- -------- ---------- ----------
Total $443,000 $390,338 $1,240,818 $1,123,901
======== ======== ========== ==========
</TABLE>
The increase in engineering, construction and consulting services revenue
for the first nine months of 1994 compared to 1993 was primarily the result of
acquisitions completed in the most recent twelve-month period. In addition,
there were net increases in revenue of existing businesses in 1994 of $29.1
million in the third quarter, primarily the result of work on two pulp and paper
product facilities, and $11.8 million for the nine months, compared to the same
periods in 1993. Backlog in this business line at September 30, 1994, was
$1,091 million.
The nine-month increase in remediation and industrial services revenue for
1994 compared to 1993 was the result of acquisitions completed in the second
half of 1993. This was offset by declines in existing businesses of $59.0
million due to severe weather in the first quarter of 1994, and scaffolding and
industrial customers' delay of scheduled maintenance at their plants. In
addition, the expected award of several large federal remediation contracts has
been delayed. Net declines in existing businesses in the third quarter of 1994
compared to the third quarter of 1993 were $16.0 million and were due to
continuing customer delays. Backlog in this line of business at September 30,
1994, was $556 million.
The backlog in the two business lines includes approximately $449 million
in respect of several Department of Defense contracts awarded to Rust. There
can be no assurance that specific projects to be identified and performed by
Rust pursuant to such contracts will result in aggregate revenues of $449
million over the term of the contracts.
Revenue from affiliated companies was 13.8% of Rust revenue for the first
nine months of 1994 compared to 15.4% for the first nine months of 1993.
Operating expenses were 83.7% of revenue for the third quarter of 1994
compared to 80.4% for the same quarter in 1993, and 82.9% for the nine months of
1994 compared to 81.4% in 1993. The increase in operating expenses is primarily
attributable to the severe weather in the first quarter and continuing customer
delays of projects, which results in less efficient utilization of personnel.
In addition, 1994, and particularly the third quarter, has seen a shift in the
revenue mix toward lower margin businesses.
19
<PAGE>
Selling and administrative expenses as a percentage of revenue were 9.8%
for the third quarter and 10.6% for the first nine months of 1994 compared to
10.7% and 10.3% in the corresponding periods of 1993. The percentage decline
between the comparable quarters was attributable to revenue for the quarter
growing at a faster rate than selling and administrative expenses. The
increased percentage in the nine-month 1994 period is attributable to revenue
declines in existing businesses and increased acquisition activity in 1993 and
1994. Acquisitions tend to initially increase such costs as a percentage of
revenue, but the situation generally reverses as acquired companies are
integrated into existing operations.
Interest -
- --------
The following table sets forth the components of consolidated interest,
net, for the three-month and nine-month periods ended September 30, 1994 and
1993 ($000's omitted):
<TABLE>
<CAPTION>
Three Months Nine Months
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest expense $109,478 $104,828 $325,547 $291,472
Interest income (8,747) (9,555) (25,154) (31,268)
Capitalized (25,950) (23,580) (79,518) (75,225)
-------- -------- -------- --------
Interest expense $ 74,781 $ 71,693 $220,875 $184,979
======== ======== ======== ========
</TABLE>
Net interest expense for the nine months of 1994 increased over the
comparable period of 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.
Minority Interest -
- -----------------
Minority interest for the third quarter and nine-month periods of 1993 was
reduced as a result of the minority share of the CWM charge discussed
previously. In addition, 1994 earnings from the Company's less than wholly-
owned subsidiaries have increased over the comparable periods in 1993, as have
the earnings of WM International subsidiaries in the U.K. and Hong Kong which
have minority shareholders. As a result, minority interest expense increased in
1994 compared to 1993 for both the three-month and nine-month periods.
Sundry Income, Net -
- ------------------
Sundry income for the first nine months of 1993 included a gain realized by
CWM on the sale of WTI shares held by CWM for investment.
Income Taxes -
- ------------
The provision for income taxes for the three months ended September 30,
1993 included approximately $24 million to adjust deferred taxes as a result of
the Omnibus Budget Reconciliation Act of 1993, as well as to apply the new law
retroactively as of January 1 of that year.
20
<PAGE>
Derivative Financial Instruments -
- --------------------------------
From time to time, the Company uses derivatives to manage currency,
interest rate and commodity risks. Gains and losses on such instruments
recognized in income to date have not been material. See Notes to Consolidated
Financial Statements for further discussion of the use of and accounting for
such instruments.
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, and in 1993, to fund stock repurchase programs. The
Company has placed emphasis on generating positive cash flow to reduce debt in
1994. The Company had working capital of $358,664,000 at September 30, 1994,
compared to $99,958,000 at December 31, 1993.
Long-term and short-term debt increased by approximately $54 million from
December 31, 1993, to September 30, 1994. The increase results from translation
of WM International debt due to the strengthening of the pound sterling against
the U.S. dollar during that period, which more than offsets the benefits of the
Company's emphasis on improved cash flow from operations and proceeds from the
sale of assets and businesses by WMI as part of its strategic re-focusing of its
business. Short-term debt and long-term debt as a percentage of short-term debt
and total capital declined from 52.5% at December 31, 1993, to 49.8% at
September 30, 1994.
Acquisitions, Divestitures and Capital Expenditures -
- ---------------------------------------------------
Capital expenditures, excluding property and equipment of purchased
companies, were $1,004,196,000 for the nine months ended September 30, 1994, and
$1,328,262,000 for the nine months ended September 30, 1993. In addition, the
Company and its principal subsidiaries acquired 37 businesses for $135,274,000
in cash and notes, 73,809 shares of WMX common stock and 156,124 shares of WTI
common stock during the first nine months of 1994. For the nine months ended
September 30, 1993, the Company and its principal subsidiaries acquired 79
businesses for $489,764,000 in cash and notes, 479,630 shares of the Company's
common stock and 1,635,471 shares of WTI common stock.
During May 1993, Rust acquired the previously outstanding minority interest
in Brand for approximately 3.1 million shares of Rust common stock and
approximately $130 million in cash. The Company and WM International also
increased their equity investments in ServiceMaster Consumer Services L.P. and
Wessex Water Plc., respectively, in 1993. See Notes to Consolidated Financial
Statements for a discussion of the pro forma effect of acquisitions.
During 1994, WMI sold several businesses, including its Modulaire(R) mobile
office business. Revenue and net income from businesses sold were not material
to the consolidated financial statements.
Capital Structure -
- -----------------
The Boards of Directors of each of WMX, CWM, 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 to
November 1994 in the case of CWM, and into 1996 in the case of WMX, WTI and
Rust.
21
<PAGE>
During the third quarter of 1994, WTI repurchased 87,500 shares and Rust
repurchased 1,500 shares. No shares were repurchased by WMX or CWM.
During the first nine months of 1994, WMX sold put options on 13.7 million
shares of its common stock. The put options give the holders the right at
maturity to require WMX to repurchase shares of its common stock at specified
prices. Options on 4.7 million shares expired unexercised, as the price of WMX
common stock was in excess of the strike price at maturity. Of the options
outstanding, 4.3 million expire in November 1994 at strike prices ranging from
$24.375 to $24.841 per share, and 4.7 million expire in February 1995 at strike
prices ranging from $28.321 to $29.375. Proceeds of $22,720,000 received from
the sale of put options were credited to additional paid-in capital. WMX sold
additional put options in November to replace those which expired.
During 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. See Notes to Consolidated Financial
Statements for additional information.
SUBSEQUENT EVENT:
On July 28, 1994, the Company made a proposal to acquire all of the
approximately 44.9 million outstanding shares of CWM which it does not already
own in a transaction whereby WMX would have exchanged .27 shares of its stock
for each publicly held CWM share. WMX already owns 78.6% of the outstanding CWM
shares.
On October 14, 1994, following negotiations with a special committee of
CWM independent directors, WMX agreed to a revised proposal, in which the public
stockholders of CWM will receive a WMX convertible subordinated note, described
more fully below. The terms of the revised proposal were approved unanimously
by the special committee of CWM independent directors and by the Boards of
Directors of both WMX and CWM. The transaction, which will be taxable under the
revised terms, remains subject to the approval of the holders of a majority of
the outstanding CWM shares (other than those held by WMX) voting at a special
meeting of CWM stockholders expected to be held in January 1995.
The new terms provide for the CWM stockholders 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. The notes will be subordinated to all existing
and future indebtedness of WMX. Each note will bear cash interest from the date
the merger is consummated 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 $790.24 and $843.35, 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 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 will be convertible at any time prior to maturity,
unless previously purchased or redeemed by WMX, into a number of shares of WMX
22
<PAGE>
common stock to be determined by dividing the stated issue price per note by the
average New York Stock Exchange closing price of WMX common stock during the ten
trading days immediately preceding the special meeting of CWM stockholders to be
held to consider the merger. The conversion rate will be not less than 21.90
shares nor more than 26.76 shares per note. 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.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
-----------------
The majority 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 September 30, 1994, CWM or its
subsidiaries (other than Rust) were involved in three such proceedings, WTI or
its subsidiaries were involved in two such proceedings, a subsidiary of Rust was
involved in one such proceeding and a subsidiary of WM International 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.
During the quarter, several putative class action lawsuits, which had been
filed between July 29 and August 5, 1994 in the Chancery Court of the State of
Delaware in and for New Castle County and which seek injunctive relief and
unspecified money damages against the Company, CWM and the individual directors
of CWM in connection with a July 28, 1994 proposal by the Company to acquire all
of the shares of CWM's common stock which the Company does not own, were
consolidated for all purposes into a single action captioned In re Chemical
Waste Management, Inc. Shareholders Litigation. Discovery is ongoing in the
consolidated action. The Company believes that its actions and those of CWM and
its Boards of Directors (including a Special Committee thereof consisting of
independent directors) in connection with the proposed transaction which is the
subject of the litigation have been in accordance with Delaware law.
Accordingly, the Company intends to contest this lawsuit vigorously.
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 July 28, 1994 reporting the
issuance of a news release concerning approval by the registrant's Board of
Directors of a proposal to acquire all of the outstanding shares of CWM
which the registrant does not already own and reporting an announcement by
the registrant of the commencement of a comprehensive review of its
operations and financial strategies and its organizational structure in
order to consider other potential strategic acquisitions intended to
enhance stockholder value.
24
<PAGE>
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
November 11, 1994
25
<PAGE>
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.
<PAGE>
EXHIBIT 12
WMX TECHNOLOGIES, INC.
Ratio of Earnings to Fixed Charges
(Unaudited)
(millions of dollars, except ratio)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
-------------------
1993(1) 1994
------- --------
<S> <C> <C>
Income Before Income Taxes and Minority
Interest....................................... $544.1 $1,133.0
Interest Expense................................ 291.5 325.5
Capitalized Interest............................ (75.2) (79.5)
One-Third of Rents Payable in the Next Year..... 31.1 34.9
------ --------
Income Before Income Taxes, Minority Interest,
Interest and One-Third of Rents................ $791.5 $1,413.9
====== ========
Interest Expense................................ $291.5 $ 325.5
One-Third of Rents Payable in the Next Year..... 31.1 34.9
------ --------
Interest Expense plus One-Third of Rents........ $322.6 $ 360.4
====== ========
Ratio of Earnings to Fixed Charges.............. 2.45 to 1 3.92 to 1
</TABLE>
(1) The results for 1993 include a non-taxable gain ($15.1 million before
minority interest) resulting from the issuance of shares by the Company's Rust
International Inc. subsidiary and special charges ($550 million before tax and
minority interest) relating to a special asset revaluation and restructuring
charge recorded by the Company's Chemical Waste Management, Inc. subsidiary.
Excluding the effects of these items, the ratio of earnings to fixed charges
would be 4.11 to 1.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SEPTEMBER 30, 1994 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 107,625
<SECURITIES> 31,659
<RECEIVABLES> 2,121,607
<ALLOWANCES> 63,936
<INVENTORY> 419,653
<CURRENT-ASSETS> 3,202,699
<PP&E> 12,471,488
<DEPRECIATION> 3,417,994
<TOTAL-ASSETS> 17,323,786
<CURRENT-LIABILITIES> 2,844,035
<BONDS> 6,221,908
<COMMON> 496,327
0
0
<OTHER-SE> 3,930,436
<TOTAL-LIABILITY-AND-EQUITY> 17,323,786
<SALES> 0
<TOTAL-REVENUES> 7,438,899
<CGS> 0
<TOTAL-COSTS> 5,255,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24,355
<INTEREST-EXPENSE> 246,029
<INCOME-PRETAX> 1,020,398
<INCOME-TAX> 441,784
<INCOME-CONTINUING> 578,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578,614
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
