<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 JUNE 30, 1996
--- 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: (630) 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 JULY 31, 1996 -- 491,074,822
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<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I. Financial Information:
Consolidated balance sheets as of December 31, 1995, and
June 30, 1996................................................... 3
Consolidated statements of income for the three months and six months
ended June 30, 1995 and 1996.................................... 5
Consolidated statements of stockholders' equity for the six months
ended June 30, 1995 and 1996.................................... 6
Consolidated statements of cash flows for the six months
ended June 30, 1995 and 1996.................................... 8
Notes to consolidated financial statements........................... 9
Management's discussion and analysis of results of operations
and financial condition......................................... 14
PART II. Other Information.......................................... 23
******
2
<PAGE>
PART I. FINANCIAL INFORMATION
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's omitted)
ASSETS
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 189,031 $ 266,435
Short-term investments 36,243 25,878
Accounts receivable, less reserve of $66,840 in 1995
and $60,563 in 1996 1,880,934 1,937,398
Employee receivables 8,787 10,214
Parts and supplies 210,864 204,551
Costs and estimated earnings in excess of billings
on uncompleted contracts 334,786 368,164
Prepaid expenses 360,404 376,485
----------- -----------
Total Current Assets $ 3,021,049 $ 3,189,125
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, primarily disposal sites $ 4,575,117 $ 4,816,183
Buildings 1,572,821 1,542,161
Vehicles and equipment 7,498,718 7,795,265
Leasehold improvements 87,986 91,105
----------- -----------
$13,734,642 $14,244,714
Less - Accumulated depreciation and amortization (3,968,943) (4,315,809)
----------- -----------
Total Property and Equipment, Net $ 9,765,699 $ 9,928,905
----------- -----------
OTHER ASSETS:
Intangible assets relating to acquired businesses, net $ 4,205,031 $ 4,566,168
Sundry, including other investments 1,572,977 1,619,639
Net assets of discontinued operations 130,552 -
----------- -----------
Total Other Assets $ 5,908,560 $ 6,185,807
----------- -----------
Total Assets $18,695,308 $19,303,837
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Portion of long-term debt payable within one year $ 1,094,165 $ 901,510
Accounts payable 1,072,372 966,265
Accrued expenses 991,539 940,943
Unearned revenue 263,029 271,338
----------- -----------
Total Current Liabilities $ 3,421,105 $ 3,080,056
----------- -----------
DEFERRED ITEMS:
Income taxes $ 956,525 $ 1,070,774
Environmental liabilities 622,952 590,403
Other 684,452 660,754
----------- -----------
Total Deferred Items $ 2,263,929 $ 2,321,931
----------- -----------
LONG-TERM DEBT, less portion payable within one year $ 6,420,610 $ 7,123,055
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES $ 1,385,366 $ 1,190,173
----------- -----------
COMMITMENTS AND CONTINGENCIES $ $
----------- -----------
PUT OPTIONS $ 261,959 $ 397,916
----------- -----------
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; 498,817,093 shares issued in 1995
and 507,097,590 in 1996 498,817 507,098
Additional paid-in capital 422,801 565,859
Cumulative translation adjustment (102,943) (108,530)
Retained earnings 4,486,877 4,738,415
----------- -----------
$ 5,305,552 $ 5,702,842
Less: Treasury stock; 4,357,693 shares, at cost - 145,879
1988 Employee Stock Ownership Plan 13,062 9,729
Employee Stock Benefit Trust (11,769,788
shares in 1995 and 10,886,361 shares
in 1996, at market) 350,151 356,528
----------- -----------
Total Stockholders' Equity $ 4,942,339 $ 5,190,706
----------- -----------
Total Liabilities and Stockholders'
Equity $18,695,308 $19,303,837
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------- -----------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE $2,635,665 $2,618,125 $5,080,850 $5,035,316
---------- ---------- ---------- ----------
Operating expenses $1,817,192 $1,815,274 $3,501,142 $3,495,197
Special charges - - 140,600 -
Goodwill amortization 29,544 32,806 59,054 64,370
Selling and administrative expenses 300,322 289,268 587,852 576,154
Interest expense 111,847 99,603 218,370 198,918
Interest income (14,463) (6,857) (23,349) (13,699)
Minority interest 40,117 32,179 69,431 60,254
Sundry income, net (13,343) (21,409) (30,264) (38,768)
---------- ---------- ---------- ----------
Income from continuing operations
before income taxes $ 364,449 $ 377,261 $ 558,014 $ 692,890
Provision for income taxes 151,987 154,219 244,260 284,670
---------- ---------- ---------- ----------
Income from continuing operations $ 212,462 $ 223,042 $ 313,754 $ 408,220
Income from operations of
discontinued businesses, less
applicable income taxes and
minority interest of $6,382 and
$6,474 for the three months and
six months ended June 30, 1995,
respectively 6,665 - 6,618 -
---------- ---------- ---------- ----------
NET INCOME $ 219,127 $ 223,042 $ 320,372 $ 408,220
========== ========== ========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 485,082 496,031 484,968 492,593
========== ========== ========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Continuing operations $ 0.44 $ 0.45 $ 0.65 $ 0.83
Discontinued operations 0.01 - 0.01 -
---------- ---------- ---------- ----------
NET INCOME $ 0.45 $ 0.45 $ 0.66 $ 0.83
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.16 $ 0.30 $ 0.31
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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
-------- ---------- ------------ ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $496,387 $357,150 $(150,832) $4,181,606 $ - $19,729 $323,601
Net income for the period - - - 320,372 - - -
Cash dividends ($.30 per share) - - - (145,376) - - -
Dividends paid to Employee
Stock Benefit Trust - 3,643 - (3,643) - - -
Stock issued upon exercise
of stock options 16 (1,959) - - (329) - (7,801)
Treasury stock received in
connection with exercise of
stock options - - - - 329 - -
Tax benefit of non-qualified
stock options exercised - 895 - - - -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (3,334) -
Common stock issued upon
conversion of Liquid Yield
Option Notes 120 1,929 - - - - -
Common stock issued for
acquisitions 378 10,206 - - - - -
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 - 27,389 - - - - 27,389
Transfer of equity interests
among controlled subsidiaries - 598 - - - - -
Cumulative translation adjust-
ment of foreign currency
statements - - 55,825 - - - -
-------- -------- ----------- ---------- -------- ------- --------
Balance, June 30, 1995 $496,901 $405,731 $ (95,007) $4,352,959 $ - $16,395 $343,189
======== ======== =========== ========== ======== ======= ========
The accompanying notes are an integral part of this statement.
6
</TABLE>
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
($000's omitted except per share amounts)
<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, 1996 $498,817 $422,801 $(102,943) $4,486,877 $ - $13,062 $350,151
Net income for the period - - - 408,220 - - -
Cash dividends ($.31 per share) - - - (153,222) - - -
Dividends paid to Employee
Stock Benefit Trust - 3,460 - (3,460) - - -
Stock repurchase
(5,000,000 shares) - - - - 168,305 - -
Stock issued upon exercise
of stock options 217 (7,332) - - (25,617) - (28,622)
Treasury stock received in
connection with exercise of
stock options - - - - 791 - -
Tax benefit of non-qualified
stock options exercised - 4,999 - - - - -
Contribution to 1988 Employee
Stock Ownership Plan - - - - - (3,333) -
Treasury stock received as
settlement for claims - - - - 2,400 - -
Common stock issued upon
conversion of Liquid Yield
Option Notes 107 1,893 - - - - -
Common stock issued for
acquisitions 7,957 226,222 - - - - -
Temporary equity related to
put options - (135,957) - - - - -
Proceeds from sale of
put options - 14,774 - - - - -
Adjustment of Employee Stock
Benefit Trust to market value - 34,999 - - - - 34,999
Cumulative translation adjust-
ment of foreign currency
statements - - (5,587) - - - -
-------- -------- --------- ---------- -------- ------- --------
Balance, June 30, 1996 $507,098 $565,859 $(108,530) $4,738,415 $145,879 $ 9,729 $356,528
======== ======== ========= ========== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
Increase (Decrease) in Cash
(Unaudited)
($000's omitted)
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period $ 320,372 $ 408,220
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 433,624 462,170
Provision for deferred income taxes 113,418 116,725
Minority interest in subsidiaries 70,939 60,254
Interest on Liquid Yield Option Notes (LYONs)
and WMX Subordinated Notes 17,365 5,737
Contribution to 1988 Employee Stock
Ownership Plan 3,334 3,333
Special charge, net of tax 91,400 -
Changes in assets and liabilities, excluding effects
of acquired companies:
Receivables, net (5,852) (30,391)
Other current assets (59,401) (43,864)
Sundry other assets 48,770 (16,939)
Accounts payable (43,910) (114,635)
Accrued expenses and unearned revenue (38,699) (68,449)
Deferred items (33,227) (55,029)
Other, net (10,498) 738
---------- ----------
Net cash provided by operating activities $ 907,635 $ 727,870
---------- ----------
Cash flows from investing activities:
Short term investments $ (65,847) $ 10,371
Capital expenditures (584,988) (577,791)
Proceeds from sale of assets and businesses 131,853 146,901
Cost of acquisitions, net of cash acquired (119,648) (57,911)
Other investments (54,123) (45,232)
Acquisition of minority interests (26,799) (329,653)
---------- ----------
Net cash used for investing activities $ (719,552) $ (853,315)
---------- ----------
Cash flows from financing activities:
Cash dividends $ (145,376) $ (153,222)
Proceeds from issuance of indebtedness 1,128,278 1,366,124
Repayments of indebtedness (1,140,402) (906,535)
Proceeds from exercise of stock options, net 5,858 46,333
Contributions from minority interests 13,348 3,680
Stock repurchases - (168,305)
Proceeds from sale of put options 6,766 14,774
Settlement of put options (12,019) -
---------- ----------
Net cash provided by (used for) financing activities $ (143,547) $ 202,849
---------- ----------
Net increase in cash and cash equivalents $ 44,536 $ 77,404
Cash and cash equivalents at beginning of period 123,348 189,031
---------- ----------
Cash and cash equivalents at end of period $ 167,884 $ 266,435
========== ==========
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 $ 202,722 $ 193,181
Income taxes, net of refunds received $ 144,377 $ 147,372
Supplemental schedule of noncash investing and
financing activities:
LYONs converted into common stock of the Company $ 2,049 $ 2,000
Liabilities assumed in acquisitions of businesses $ 107,740 $ 97,952
Fair market value of Company stock issued for
acquired businesses $ 10,584 $ 234,179
WMX Subordinated Notes issued for acquisition of
CWM minority interest $ 436,830 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($000's omitted in all tables)
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets, liabilities, income and expenses and
disclosures of contingencies. Future events could alter such estimates in the
near term.
Certain amounts in previously issued financial statements have been restated to
conform to 1996 classifications.
Income Taxes -
The following table sets forth the provision for income taxes for continuing
operations for the three months and six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Currently payable $ 69,859 $102,940 $129,880 $168,333
Deferred 82,399 51,473 114,922 116,725
Amortization of deferred
investment credit (271) (194) (542) (388)
-------- -------- -------- --------
$151,987 $154,219 $244,260 $284,670
======== ======== ======== ========
</TABLE>
Business Combinations -
During 1995, the Company and its principal subsidiaries acquired 136 businesses
for $224,304,000 in cash (net of cash acquired) and notes, $77,689,000 of debt
assumed, and 2,236,354 shares of the Company's common stock. Three of the
aforementioned 1995 acquisitions, which otherwise met pooling of interests
criteria, were not significant in the aggregate and, consequently, prior period
financial statements were not restated. The remaining acquisitions were
accounted for as purchases.
In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of Chemical Waste Management, Inc. ("CWM") that it did not
already own, for $436.8 million of convertible subordinated notes. In July 1995,
the Company acquired all of the approximately 3.1 million shares of Rust
International Inc. ("Rust") held by the public, for $16.35 per share in cash.
9
<PAGE>
During the six months ended June 30,1996, the Company and its principal
subsidiaries acquired 67 businesses for $57,911,000 in cash (net of cash
acquired) and notes, $34,885,000 of debt assumed, and 7,956,606 shares of the
Company's common stock. These acquisitions were accounted for as purchases. The
pro forma effect of the acquisitions made during 1995 and 1996 is not material.
Discontinued Operations -
In the fourth quarter of 1995, the Rust Board of Directors approved a plan to
sell or otherwise discontinue Rust's process engineering, construction,
specialty contracting and similar lines of business and have Rust focus on its
environmental and infrastructure consulting businesses. During the second
quarter of 1996, the sale of the industrial process engineering and construction
business, based in Birmingham, Alabama, was completed. Rust is currently
negotiating the sales of certain other businesses, the remaining assets of which
are not material to the consolidated balance sheet. The results of these
transactions, which are expected to be completed by the end of 1996, will not
have a material impact on the consolidated statement of income.
Revenue from the discontinued businesses (through the date of sale for units
sold) was $67.0 million for the three months and $209.8 million for the six
months ended June 30, 1996, compared with $220.4 million for the three-month and
$380.1 million for the six-month periods in 1995. Results of operations for the
three months and six months ended June 30, 1996, were not material and were
included in the reserve for loss on disposition provided previously.
Accounting Principles -
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The change did not have a material
impact on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued FAS No. 123,
"Accounting for Stock-Based Compensation," which the Company also must adopt in
1996. FAS 123 provides an optional new method of accounting for employee stock
options and expands required disclosure about stock options. If the new method
of accounting is not adopted, the Company will be required to disclose pro forma
net income and earnings per share as if it were. The Company is studying FAS No.
123 and is gathering data necessary to calculate compensation in accordance with
its provisions, but has not decided whether to adopt the new method or
quantified its impact on the financial statements.
Derivative Financial Instruments -
From time to time, the Company uses derivatives to manage interest rate,
currency and commodity risk. Neither the amount of such instruments outstanding
at any point in time nor gains or losses from their use has been material to the
Company's financial statements.
INTEREST RATE AGREEMENTS Certain of the Company's subsidiaries have entered into
interest rate swap agreements to balance fixed and floating rate debt in
accordance with management's criteria. 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 agreements provide only for the
exchange of interest on the notional amounts at the stated rates, with no
multipliers or leverage. Differences paid or received are recognized as a part
of interest expense on the underlying debt over the life of the agreements.
10
<PAGE>
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. 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.
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 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 June
30, 1996, which is not material.
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 has also established procedures to evaluate
its potential remedial liabilities at closed sites which it owns or operated, or
to which it transported waste, including 107 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 necessitate the
recording of additional liabilities which could be material.
11
<PAGE>
The Company and certain of its subsidiaries are named as defendants in personal
injury and property damage lawsuits, including purported class actions, on the
basis of a Company subsidiary's having owned, operated or transported waste to a
disposal facility which is alleged to have contaminated the environment. While
the Company believes it has meritorious defenses to these lawsuits, their
ultimate resolution is often substantially uncertain due to a number of factors,
and it is possible such matters could have a material adverse impact on the
Company's earnings for one or more quarters or years.
Stockholders' Equity -
The Boards of Directors of WMX and WTI have authorized their respective
companies to repurchase shares of their own common stock (up to 25 million
shares in the case of WMX and 20 million shares in the case of WTI) in the open
market or in privately negotiated transactions. These programs extend into 1997.
WTI has repurchased 19.2 million shares under its program, including 15.4
million in the second quarter and 18.4 million shares during the first six
months of 1996. WMX has repurchased 5.0 million shares, all during the second
quarter of 1996.
In conjunction with its authorized repurchase program, WMX periodically sells
put options on its common stock. The put options give the holders the right at
maturity to require the Company to repurchase its shares at specified prices.
Proceeds from the sale of the options are credited to additional paid-in
capital. In the event the options are exercised, the Company may elect to pay
the holder in cash the difference between the strike price and the market price
of the Company's shares in lieu of repurchasing the stock. At June 30, 1996, put
options were outstanding for 12.5 million shares, 4.7 million of which
subsequently expired unexercised as the price of the Company's stock was in
excess of the strike price at maturity. The remaining options expire in October
and November of 1996 with strike prices of $33.45 to $35.17 per share.
Commitments and Contingencies -
Waste Management International plc ("WM International") has received an
assessment of approximately 417 million Krona (approximately $63 million) from
the Swedish Tax Authority, relating to a transaction completed in 1990. WM
International believes that all appropriate tax returns and disclosures were
filed at the time of the transaction and intends to vigorously contest the
assessment.
A subsidiary of WMI has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). WMI is presently
under an order of the Superior Court to apply to the DEP for permission to
remove all waste above the height allowed by the zoning ordinance. The Company
believes that the removal of such waste is an inappropriate remedy and has
appealed the Superior Court order to the state Supreme Court. The Company is
unable to predict the outcome of this appeal or the nature and extent of any
removal action that may ultimately be required. However, if the Superior Court
order is not modified, the subsidiary could incur substantial costs, which could
vary significantly depending upon the nature of any plan eventually approved by
the applicable regulatory authorities, the actual volume of waste to be moved,
and other factors, and which could have a material adverse effect on the
Company's financial condition and results of operations in the near term.
In July 1996, a Federal District Court permanently enjoined the State of New
Jersey from enforcing its solid waste regulatory flow control system, which was
held to be unconstitutional. Flow control typically involves a governmental
authority specifying the disposal site for all solid waste generated within its
borders. The New Jersey ruling is one of a number of similar court rulings since
a 1994 U.S. Supreme Court decision that state and local governments may not
constitutionally restrict the free movement of trash in interstate commerce
through the use of flow control laws. Other subsequent court decisions have
upheld nonregulatory means by which municipalities may effectively control the
flow of solid waste. Federal legislation has been proposed, but not enacted, to
essentially grandfather existing flow control mandates.
12
<PAGE>
WTI's Gloucester County, New Jersey, trash-to-energy facility relies on a
disposal franchise for substantially all of its supply of municipal solid waste.
The Federal District Court stayed its injunction for as long as its ruling is on
appeal, plus an additional period of two years, to enable the State to devise an
alternative nondiscriminatory approach. The Company believes that the State is
considering an appeal of the District Court decision.
To date, court decisions with regard to flow control have not had a material
adverse effect on the Company's operations. However, given the surrounding
uncertainty, it is not possible to predict what impact, if any, this matter may
have in the future on the Company's disposal facilities, particularly WTI's
trash-to-energy facilities.
In the ordinary course of conducting its business, the Company becomes involved
in lawsuits, administrative proceedings and governmental investigations,
including antitrust and environmental matters. Some of these proceedings may
result in fines, penalties or judgments being assessed against the Company
which, from time to time, may have an impact on earnings for a particular
quarter or year. The Company does not believe that these proceedings,
individually or in the aggregate, will have a material adverse effect on its
results of operations or financial condition.
Debt -
In May 1996, the Company issued $200,000,000 of 6.7% Notes due May 1, 2001, at a
price of 99.828%. In June 1996, the Company issued $200,000,000 of 7 1/8% Notes
due June 15, 2001, at a price of 99.875%. Neither of these issues is redeemable
prior to maturity.
In July 1996, the Company issued $450,000,000 of 7.1% Notes due August 1, 2026,
at a price of 99.945%. These notes are not callable and include a put option on
August 1, 2003.
Legal Matters -
See Part II of this Form 10-Q for a discussion of legal matters.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
($000's omitted in all tables)
RESULTS OF OPERATIONS:
CONSOLIDATED -
- --------------
For the three months ended June 30, 1996, WMX Technologies, Inc. and its
subsidiaries ("WMX" or the "Company") had net income from continuing operations
of $223.0 million or $.45 per share, compared with $212.5 million or $.44 per
share in the same period in 1995. Net income was $.45 per share for both
quarters. Second quarter 1995 income from continuing operations and net income
included a charge of approximately $.01 per share for the write-off of deferred
costs related to debt securities previously issued by the Company and its
Chemical Waste Management, Inc. ("CWM") subsidiary that were put to the Company
by the debtholders prior to maturity.
Revenue for the 1996 quarter was $2.62 billion versus $2.64 billion
(restated to eliminate discontinued operations) in the year-earlier period.
For the six months ended June 30, 1996, income from continuing operations
was $408.2 million or $.83 per share, versus $313.8 million or $.65 per share
for the corresponding period in 1995. The 1995 results included a CWM charge
related to a revaluation of investments in certain hazardous waste treatment and
processing technologies and facilities, which reduced consolidated earnings in
the first quarter by $.19 per share. Excluding that charge and the charge
related to debt securities discussed above, earnings per share from continuing
operations for the six months ended June 30, 1995, were $.85. Net income was
$.83 for the six months of 1996 compared with $.66 ($.86 excluding the charges
discussed above) for the first six months of 1995. Revenue for the periods was
$5.04 billion in 1996 and $5.08 billion in 1995.
The Company provides environmental services internationally through five
principal operating subsidiaries: Waste Management, Inc. ("WMI"), CWM,
Wheelabrator Technologies Inc. ("WTI"), Waste Management International plc ("WM
International") and Rust International Inc. ("Rust"). However, operations are
managed on the basis of four global lines of business--waste services, clean
energy, clean water, and environmental and infrastructure consulting. Revenue,
operating expenses (excluding special charges), selling and administrative
expenses, and operating margins for the continuing businesses are set forth by
business line in the tables below:
<TABLE>
<CAPTION>
Waste Clean Clean Consoli-
Services Energy Water Consulting Eliminations dated
---------- -------- -------- ---------- ------------ ----------
Three Months Ended June 30
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 -
- ------
Revenue $2,204,738 $215,583 $162,960 $123,233 $(88,389) $2,618,125
Operating expenses 1,571,011 137,094 128,980 99,384 (88,389) 1,848,080
Selling and admin. expenses 241,439 9,125 22,605 16,099 -- 289,268
---------- -------- -------- -------- -------- ----------
Margin $ 392,288 $ 69,364 $ 11,375 $ 7,750 $ -- $ 480,777
========== ======== ======== ======== ======== ==========
1995 -
- ------
Revenue $2,217,204 $221,062 $164,213 $117,146 $(83,960) $2,635,665
Operating expenses 1,564,937 143,703 129,167 91,689 (82,760) 1,846,736
Selling and admin. expenses 248,476 10,933 22,811 18,102 -- 300,322
---------- -------- -------- -------- -------- ----------
Margin $ 403,791 $ 66,426 $ 12,235 $ 7,355 $ (1,200) $ 488,607
========== ======== ======== ======== ======== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Waste Clean Clean Consoli-
Services Energy Water Consulting Eliminations dated
---------- -------- -------- ---------- ------------ ----------
Six Months Ended June 30
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 -
- ------
Revenue $4,242,252 $418,845 $313,220 $233,337 $(172,338) $5,035,316
Operating expenses 3,024,995 269,663 247,878 189,369 (172,338) 3,559,567
Selling and admin. expenses 478,996 19,825 45,193 32,140 -- 576,154
---------- -------- -------- -------- --------- ----------
Margin $ 738,261 $129,357 $ 20,149 $ 11,828 $ -- $ 899,595
========== ======== ======== ======== ========= ==========
1995 -
- ------
Revenue $4,249,829 $472,294 $301,248 $225,548 $(168,069) $5,080,850
Operating expenses 2,998,149 313,592 239,140 176,184 (166,869) 3,560,196
Selling and admin. expenses 485,811 21,970 44,393 35,678 -- 587,852
---------- -------- -------- -------- --------- ----------
Margin $ 765,869 $136,732 $ 17,715 $ 13,686 $ (1,200) $ 932,802
========== ======== ======== ======== ========= ==========
</TABLE>
Waste Services -
- ----------------
Operating results for the three months and six months ended June 30 were as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $2,204,738 $2,217,204 $4,242,252 $4,249,829
Operating expenses 1,571,011 1,564,937 3,024,995 2,998,149
Selling and admin. expenses 241,439 248,476 478,996 485,811
---------- ---------- ---------- ----------
Margin $ 392,288 $ 403,791 $ 738,261 $ 765,869
========== ========== ========== ==========
</TABLE>
Revenue by source for the three months and six months ended June 30 is
shown in the following table:
<TABLE>
Three Months Six Months
------------------------------------- -------------------------------------
Percentage Percentage
1996 1995 Incr/(Decr) 1996 1995 Incr/(Decr)
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
North America
Residential $ 319,418 $ 304,307 5.0% $ 631,835 $ 597,394 5.8%
Commercial 419,188 408,089 2.7 824,232 802,400 2.7
Rolloff and industrial 360,002 343,299 4.9 675,849 648,382 4.2
Disposal, transfer and other* 528,008 549,194 (3.9) 984,665 988,957 (0.4)
Industrial services 113,686 150,148 (24.3) 221,417 321,309 (31.1)
International 464,436 462,167 0.5 904,254 891,387 1.4
---------- ---------- ---------- ----------
Total $2,204,738 $2,217,204 (0.6)% $4,242,252 $4,249,829 (0.2)%
========== ========== ===== ========== ========== =====
</TABLE>
*Includes hazardous waste revenue of $127,754 and $252,938, respectively,
for the three month and six month periods of 1996 and $161,455 and $291,936 for
the comparable 1995 periods.
15
<PAGE>
North American solid waste revenue grew 3.8% for the second quarter of 1996
compared to the second quarter of 1995, and 4.3% for the 1996 six months
compared to the same period in 1995. Revenue growth was inhibited by a
substantial decline in prices for recyclable commodities in 1996; average
pricing over the first six months of 1996 was less than 45% of 1995 levels and
for the second quarter declined from $160 per ton in 1995 to $54 per ton in
1996. The Company has responded by reducing its processing of lower grades of
paper, adjusting the capacity of its recycling operations, and continually
striving to reduce processing costs and improve the marketing of commodities.
Despite these efforts, the Company has been unable to replace the profits
associated with the stronger commodity market in 1995.
Price increases in solid waste collection and disposal provided North American
revenue growth of approximately 2% for the quarter, but this was offset by
reduced commodity prices that negatively impacted revenue by 2 to 2.5%. Volume
caused revenue growth of 2 to 2.5% in the quarter and acquisitions 1.5 to 2%.
For the six months, revenue growth was driven by volume (2 to 2.5%) and
acquisitions (1.5 to 2%). Pricing was essentially flat as recyclable commodity
price declines offset price increases in collection and disposal.
Industrial services revenue in 1995 included the Rust environmental
remediation business, which was exchanged in May 1995, for an approximately 37%
equity interest in OHM Corporation. The remediation business had 1995 revenue
of $22.0 million in the second quarter and $62.2 million for the year-ago period
through the date of its sale.
International waste services revenue increased 0.5% in the second quarter of
1996 and 1.4% for the six months compared with the same periods in 1995.
Revenue growth in approximately equal proportions from price increases and
acquisitions was largely offset by volume declines slightly in excess of 3%,
primarily in France, Germany, Italy, the Netherlands and Hong Kong.
International operations were also negatively impacted by lower commodity
prices, although to a lesser extent than in North America because of higher
disposal fees and taxes in Europe. The impact of currency translation was
relatively insignificant for both the quarter and the six months.
Operating expenses were 71.3% of revenue for the 1996 quarter compared with
70.6% for the second quarter of 1995, and 71.4% for the first quarter of 1996.
Depressed commodity prices, higher fuel costs, low margin construction revenue
on the West Kowloon transfer station in Hong Kong, and volume declines in Europe
more than offset the benefits of continued productivity improvements and caused
the increase in the 1996 second quarter compared to the same 1995 period.
Sequentially, operating expenses declined slightly, primarily a result of
improved weather. Selling and administrative expenses declined from 11.2% of
revenue in the second quarter of 1995 and 11.6% in the first quarter of 1996 to
11.0% in the quarter ended June 30, 1996. The improvement resulted from a
streamlining of the international organization and continuing productivity
enhancements on a global basis.
Clean Energy -
- --------------
Operating results for the three months and six months ended June 30 were as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $215,583 $221,062 $418,845 $472,294
Operating expenses 137,094 143,703 269,663 313,592
Selling and
admin. expenses 9,125 10,933 19,825 21,970
-------- -------- -------- --------
Margin $ 69,364 $ 66,426 $129,357 $136,732
======== ======== ======== ========
</TABLE>
16
<PAGE>
Revenue declined to $215.6 million in the second quarter of 1996, from $221.1
million in the second quarter of 1995. Revenue growth from the Lisbon,
Connecticut, waste-to-energy plant, which began commercial operations in January
1996, an industrial cogeneration facility acquired in Martell, California, and
increased electric purchases by the utility customer of the Company's California
independent power facilities was more than offset by the absence of construction
revenue from the Lisbon facility, which contributed $8.6 million in the second
quarter of 1995, and a continuing revenue decline in the clean air business,
which is included in this segment. Air business revenue declined 19% compared
with the second quarter of 1995, reflecting continuing industry-wide weakness in
the face of regulatory uncertainties. For the six months, segment revenue
declined $53.5 million to $418.8 million, due to the foregoing factors as well
as lower spot pricing for trash disposal in the first quarter of 1996 in areas
of Florida.
Operating expenses were 63.6% of revenue for the three months ended June 30,
1996, compared with 65.0% of revenue during the June 30, 1995 quarter. This
improvement resulted primarily from the absence of construction revenue on the
Lisbon facility, which had no associated margin. Selling and administrative
expenses declined to 4.2% of 1996 second quarter revenue from 5.0% of revenue in
the comparable quarter of 1995. Improved air business results and lower energy
development expense were responsible for the improvement. For the six months
ended June 30, operating expenses were 64.4% of revenue in 1996 and 66.4% of
revenue in 1995, while selling and administrative expenses were 4.7% of revenue
in 1996 compared with 4.6% in 1995. The lower operating expense percentage was
again largely the result of the absence of no-margin Lisbon construction
revenue.
Clean Water -
- -------------
Operating results for the three months and six months ended June 30 were
as follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $162,960 $164,213 $313,220 $301,248
Operating expenses 128,980 129,167 247,878 239,140
Selling and
admin. expenses 22,605 22,811 45,193 44,393
-------- -------- -------- --------
Margin $ 11,375 $ 12,235 $ 20,149 $ 17,715
======== ======== ======== ========
</TABLE>
Second quarter 1996 revenue of $163.0 million was down slightly from the
$164.2 million in the second quarter of 1995, as lower revenue from North
American and European water process businesses more than offset growth from
acquisitions made during the past twelve months. Water process business
revenues were negatively impacted by a large project being completed in 1995 and
the timing of contract execution on orders booked late in 1995 and early in
1996. In addition, European revenue was negatively impacted by a weak German
economy and a stronger dollar. First half segment revenue grew $12.0 million to
$313.2 million in 1996 from $301.2 million in 1995. Acquisitions accounted for
approximately $9.0 million of the growth with the balance coming from strong
biosolids and contract operations and the Asian market, partially offset by the
lower water process revenue in Europe and North America.
Operating expenses were virtually unchanged in the second quarter of 1996
compared with the same period of 1995, but increased as a percentage of revenue
to 79.1% from 78.7% in the previous year. Selling and administrative expenses
were constant between years in both dollars and as a percentage of revenue. For
the first six months of 1996, both operating expenses and selling and
administrative expenses increased slightly in dollars but declined slightly as a
percentage of revenue. The increase in selling and administrative costs was due
largely to the growth of Asian operations.
17
<PAGE>
Environmental and Infrastructure Consulting -
- ----------------------------------------------
Operating results for the three months and six months ended June 30 were as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $123,233 $117,146 $233,337 $225,548
Operating expenses 99,384 91,689 189,369 176,184
Selling and
admin. expenses 16,099 18,102 32,140 35,678
-------- -------- -------- --------
Margin $ 7,750 $ 7,355 $ 11,828 $ 13,686
======== ======== ======== ========
</TABLE>
Revenue grew to $123.2 million in the second quarter of 1996 compared with
$117.1 million for the same period in 1995. However, labor-based revenues were
$3.7 million less in 1996 than in 1995, with the shortfall offset by an increase
in subcontract and other pass-through revenues that have little or no markup.
As a result, operating expenses increased from 78.3% of revenue in 1995 to 80.6%
of revenue in the 1996 quarter. Selling and administrative expenses declined in
both dollars and as a percentage of revenue during the 1996 second quarter when
compared with the same period in 1995 as the Company realized benefits from cost
control programs and the consolidation of certain operating units. For the six
months ended June 30, 1996, revenue was $233.3 million compared with $225.5
million in 1995, but again, the labor-based revenue was $10.0 million less in
the 1996 period than in 1995, resulting in operating expenses increasing as a
percentage of revenue. In addition, severe winter weather delayed client
projects and reduced productivity in the first quarter of 1996. Selling and
administrative expenses declined for the first six months of 1996 compared with
the same period in 1995, and as a percentage of revenue were 13.8% compared with
15.8% in the prior year, a result of the factors discussed above.
Discontinued Operations -
- -------------------------
In the fourth quarter of 1995, the Rust Board of Directors approved a plan to
sell or otherwise discontinue Rust's process engineering, construction,
specialty contracting and similar lines of business and have Rust focus on its
environmental and infrastructure consulting businesses. During the second
quarter of 1996, the sale of the industrial process engineering and construction
business, based in Birmingham, Alabama, was completed. Rust is currently
negotiating the sales of certain other businesses, the remaining assets of which
are not material to the consolidated balance sheet. The results of these
transactions, which are expected to be completed by the end of 1996, will not
have a material impact on the consolidated statement of income.
Revenue from the discontinued businesses (through the date of sale for units
sold) was $67.0 million for the three months and $209.8 million for the six
months ended June 30, 1996, compared with $220.4 million for the three-month and
$380.1 million for the six-month periods in 1995. Results of operations for the
three months and six months ended June 30, 1996, were not material and were
included in the reserve for loss on disposition provided previously.
18
<PAGE>
Interest -
- -----------
The following table sets forth the components of consolidated interest, net,
for the three months and six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Six Months
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $117,100 $131,146 $233,589 $257,405
Interest income (6,857) (14,463) (13,699) (23,349)
Capitalized interest (17,497) (19,299) (34,671) (39,035)
-------- -------- -------- --------
Interest expense, net $ 92,746 $ 97,384 $185,219 $195,021
======== ======== ======== ========
</TABLE>
The lower net interest expense in 1996 is a function of lower rates, including
the benefit of refinancing certain debt, offsetting a reduction in capitalized
interest and the impact of debt incurred to buy back the public ownership of CWM
and Rust during 1995. Capitalized interest has declined as a result of
continuing management effort to reduce capital expenditures.
In the second quarter of 1996, WMX repurchased 5.0 million shares of its
common stock and WTI repurchased 15.4 million of its shares (see "Financial
Condition- Capital Structure" below). The debt incurred to fund these purchases
will increase interest expense during the last half of 1996.
Minority Interest -
- --------------------
Minority interest declined in the second quarter and first six months of 1996
compared with the same periods in 1995 as a result of the purchase of the public
shares of CWM and Rust in 1995, and stock repurchases by WTI, which have
increased the WMX ownership of WTI to approximately 65% at June 30, 1996.
Accounting Principles -
- ------------------------
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of this
standard did not have a material impact on the financial statements. The
Financial Accounting Standards Board has also issued FAS No. 123 - Accounting
for Stock-Based Compensation - which the Company must adopt in 1996. This
statement provides an optional new method of accounting for employee stock
options and expands required disclosure about stock options. If the new method
of accounting is not adopted, the Company will be required to disclose pro forma
net income and earnings per share as if it were. The Company is studying FAS
No. 123 and is gathering data necessary to calculate compensation in accordance
with its provisions, but has not decided whether to adopt the new method or
quantified its impact on the 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. The Company's use of derivatives has not been
and is not expected to be material with respect to financial condition or
results of operations.
19
<PAGE>
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. 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 has also established procedures to evaluate its potential
remedial liability at closed sites which it owned or operated or to which it
transported waste. While the Company believes it has adequately provided for
its environmental liabilities, it is reasonably possible that technological,
regulatory or enforcement developments, the results of environmental studies or
other factors could necessitate the recording of additional liabilities which
could be material.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company subsidiary having owned, operated or
transported waste to a disposal facility which is alleged to have contaminated
the environment or, in certain cases, conducted environmental remediation
activities at such sites. Some of such lawsuits may seek to have the Company or
its subsidiaries pay the cost of groundwater monitoring and health care
examinations of allegedly affected persons for a substantial period of time,
even where no actual damage is proven. While the Company believes that it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to the difficulty of determining the cause, extent
and impact of alleged contamination (which may have occurred over a long period
of time), the potential for successive groups of complainants to emerge, the
diversity of the individual plaintiffs' circumstances, and the potential
contribution or indemnification obligations of co-defendants or other third
parties, among other things. Accordingly, it is reasonably possible that such
matters could have a material adverse impact on the Company's earnings for one
or more fiscal quarters or years.
FINANCIAL CONDITION:
Liquidity and Capital Resources -
- ----------------------------------
The Company operates in a service industry with neither significant inventory
nor seasonal variation in receivables. Its primary source of liquidity is cash
flow from operations, and accordingly, minimizing working capital typically does
not adversely affect operations. The Company had working capital of $109.1
million at June 30, 1996, compared with a deficit of $400.1 million at December
31, 1995. Cash and cash equivalents increased $77.4 million and net accounts
receivable increased $56.5 million during the first six months of 1996. Other
current assets were largely unchanged during the period. Accounts payable and
accrued expenses decreased $156.7 million, while current debt declined as a
result of refinancing, on a long-term basis, debt maturing during 1996 and
commercial paper.
The Company has adopted a strategy of raising the level of "owners' cash
flow", which it defines as cash flow from operating activities less net capital
expenditures (other than acquisitions) and dividends. Such amounts are
available to make acquisitions, reduce debt, or repurchase common stock. For
1996, owners' cash flow is expected to exceed $700 million. In the second
quarter of 1996, management also established a goal of converting approximately
$1 billion of non-core or underperforming assets into cash by mid-1998.
20
<PAGE>
Acquisitions and Capital Expenditures -
- ----------------------------------------
Capital expenditures, excluding property and equipment of purchased
businesses, were $577.8 million for the six months ended June 30, 1996, and
$585.0 million for the comparable period in 1995. In addition, the Company and
its principal subsidiaries acquired 67 businesses for $92.8 million in cash and
debt (including debt assumed) and 8.0 million shares of WMX common stock during
the first six months of 1996. For the first half of 1995, 59 businesses were
acquired for $119.6 million in cash and debt (including debt assumed) and 0.4
million shares of WMX common stock. The pro forma effect of acquisitions made
during 1995 and 1996 is not material.
Capital Structure -
- -------------------
The Boards of Directors of WMX and WTI have authorized their respective
companies to repurchase shares of their own common stock (up to 25 million
shares in the case of WMX and 20 million shares in the case of WTI) in the open
market or in privately negotiated transactions. These programs extend into 1997.
WTI repurchased 19.2 million shares under its program, including 15.4 million in
the second quarter and 18.4 million during the first six months of 1996. WMX had
repurchased 5.0 million shares through June 30, 1996, all during the second
quarter of the current year.
In conjunction with its authorized repurchase program, WMX periodically sells
put options on its own common stock. The put options give the holders the right
at maturity to require the Company to repurchase its shares at specified prices.
Proceeds from the sale of the options are credited to additional paid-in
capital. In the event the options are exercised, the Company may elect to pay
the holder in cash the difference between the strike price and the market price
of the Company's shares in lieu of repurchasing the stock. At June 30, 1996, put
options were outstanding on 12.5 million shares, 4.7 million of which
subsequently expired unexercised as the price of the Company's stock was in
excess of the strike price at maturity. The remaining options expire in October
and November of 1996 with strike prices of $33.45 to $35.17 per share.
Excluding debt of acquired companies and the impact of currency translation,
net debt increased $172.2 million in the second quarter and $436.2 million
during the first six months of 1996. The increase was primarily a result of the
share repurchases by the Company and WTI.
Contingencies -
- ---------------
WM International has received an assessment of approximately 417 million Krona
(approximately $63 million) from the Swedish Tax Authority, relating to a
transaction completed in 1990. WM International believes that all appropriate
tax returns and disclosures were filed at the time of the transaction and
intends to vigorously contest the assessment. There have been no significant
developments in regard to this matter during the first six months of 1996.
A subsidiary of WMI has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). The WMI subsidiary
is presently under an order of the Superior Court to apply to the DEP for
permission to remove all waste above the height allowed by the zoning ordinance.
The Company believes that the removal of such waste is an inappropriate remedy
and has appealed the Superior Court order to the Connecticut Supreme Court. The
Company is unable to predict the outcome of this appeal or the nature and extent
of any removal action that might ultimately be required. However, if the
Superior Court order is not modified, the subsidiary could incur substantial
costs, which could vary significantly depending upon the nature of any plan
eventually approved by the applicable regulatory authorities, the actual volume
of waste to be moved, and other factors, and which could have a material adverse
effect on the Company's financial condition and results of operations in the
near term.
21
<PAGE>
In July 1996, a Federal District Court permanently enjoined the State of New
Jersey from enforcing its solid waste regulatory flow control system, which was
held to be unconstitutional. Flow control typically involves a governmental
authority specifying the disposal site for all solid waste generated within its
borders. The New Jersey ruling is one of a number of similar court rulings since
a 1994 U.S. Supreme Court decision that state and local governments may not
constitutionally restrict the free movement of trash in interstate commerce
through the use of flow control laws. Other subsequent court decisions have
upheld nonregulatory means by which municipalities may effectively control the
flow of solid waste. Federal legislation has been proposed, but not enacted, to
essentially grandfather existing flow control mandates.
WTI's Gloucester County, New Jersey, trash-to-energy facility relies on a
disposal franchise for substantially all of its supply of municipal solid waste.
The Federal District Court stayed its injunction for as long as its ruling is on
appeal, plus an additional period of two years, to enable the State to devise an
alternative nondiscriminatory approach. The Company believes that the State is
considering an appeal of the District Court decision.
To date, court decisions with regard to flow control have not had a material
adverse effect on the Company's operations. However, given the surrounding
uncertainty, it is not possible to predict what impact, if any, this matter may
have in the future on the Company's disposal facilities, particularly WTI's
trash-to-energy facilities.
In the ordinary course of conducting it business, the Company becomes involved
in lawsuits, administrative proceedings, and governmental investigations,
including antitrust and environmental matters. Some of these proceedings may
result in fines, penalties or judgments being assessed against the Company
which, from time to time, may have an impact on earnings for a particular
quarter or year. The Company does not believe that these proceedings,
individually or in the aggregate, will have a material adverse effect on its
results of operations or financial condition.
22
<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 June 30, 1996, neither the
Company nor any of its subsidiaries was involved in any such proceeding where it
is believed that sanctions involved may exceed $100,000. Subject to the
discussion below concerning the Company's New Milford, Connecticut landfill, the
Company believes that these matters will not have a material adverse effect on
its results of operation 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.
In May 1996, a Company subsidiary paid a civil penalty of $203,000 to
settle an administrative proceeding brought by the United States Environmental
Protection Agency involving alleged failure by the subsidiary in 1985 to test
incoming loads of polychlorinated biphenyl wastes at the subsidiary's Model
City, New York facility. In settling this matter, the subsidiary did not admit
any violation of law.
A subsidiary of the Company has been involved in litigation challenging a
municipal zoning ordinance which restricted the height of its New Milford,
Connecticut landfill to a level below that allowed by the permit previously
issued by the Connecticut Department of Environmental Protection ("DEP").
Although a lower court had declared the zoning ordinance's height limitation
unconstitutional, the Connecticut Supreme Court reversed that ruling and
remanded the case for further proceedings in the Superior Court in the judicial
district of Litchfield. On November 8, 1995, the Superior Court ordered the
Company's subsidiary to apply to the DEP for permission to remove all waste
above the height allowed by the zoning ordinance. The Company believes that
removal of such waste is an inappropriate remedy and its subsidiary has appealed
the Superior Court order to the Connecticut Supreme Court. The Company is
unable to predict the outcome of the appeal or any removal action that may
ultimately be required following further appeals or as a result of the
permitting process. However, if the lower court order as to removal of the
waste is not modified, the subsidiary could incur substantial costs, which could
vary significantly depending upon the nature of any plan which is eventually
approved by applicable regulatory authorities for removing the waste, the actual
volume of waste to be moved and other currently unforeseeable factors and which
could have a material adverse effect on the Company's financial condition and
results of operations in one or more future periods.
ITEM 4. Submission of Matters to Vote of Security Holders.
-------------------------------------------------
23
<PAGE>
At the Company's annual meeting of stockholders on May 10, 1996, a proposal
to elect the nominees listed in the following table as directors of the Company
was submitted to a vote of the Company's stockholders. The following table also
shows the results of voting as to each nominee:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Pastora San Juan Cafferty 414,927,357 7,058,941
Donald F. Flynn 414,188,389 7,797,909
James R. Peterson 414,849,973 7,136,325
Phillip B. Rooney 414,785,295 7,201,003
</TABLE>
At the same meeting, a proposal to ratify the appointment of Arthur
Andersen LLP as independent auditors for 1996 and stockholder proposals urging
that the Board of Directors of the Company (i) establish a policy that members
of the Board are to refrain from accepting consulting or other fees from the
Company while they serve on the Board and (ii) take the necessary steps to elect
all Company directors annually, were submitted to the Company's stockholders.
The ratification of the appointment of auditors was approved, while both
stockholder proposals were defeated.
<TABLE>
<CAPTION>
Votes Broker
Proposal Votes For Against Abstentions Non-Votes
-------- --------- ------- ----------- --------------
<S> <C> <C> <C> <C>
Ratification
of Auditors 420,162,786 1,162,636 660,474 402
Stockholder
Proposals
(i) Policy on
fees 110,889,499 250,760,609 8,818,674 51,517,516
(ii) Annual
director
election 166,947,330 199,101,882 4,413,573 51,523,513
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
The exhibits to this report are listed in the Exhibit Index elsewhere
herein.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated June 10, 1996 reporting the
issuance of a news release stating that due to continuing weakness in prices for
recyclable paper fiber and an expectation that recycling markets will not
improve in the near term, (i) the Company's Waste Management, Inc. subsidiary
was adjusting the capacity of its North American recycling operations to respond
to the nation's weak recycling economy and (ii) the Company's second quarter
earnings were expected to fall in the range of $.45 to $.47 per share and the
year was expected to be in the range of $1.85 to $1.90 per share.
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
August 12, 1996
25
<PAGE>
WMX TECHNOLOGIES, INC.
EXHIBIT INDEX
Number and Description of Exhibit/*/
---------------------------------
2 None
3 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>
Six Months
Ended June 30
-------------------------
1995(1) 1996
------- ------
<S> <C> <C>
Income From Continuing Operations Before Income
Taxes, Undistributed Earnings from Affiliated
Companies and Minority Interest...................... $595.0 $735.6
Interest Expense...................................... 257.4 233.6
Capitalized Interest.................................. (39.0) (34.7)
One-Third of Rents Payable in the Next Year........... 25.6 26.9
------ ------
Income From Continuing Operations Before Income
Taxes, Undistributed Earnings from Affiliated
Companies, Minority Interest, Interest and
One-Third of Rents................................... $839.0 $961.4
====== ======
Interest Expense...................................... $257.4 $233.6
One-Third of Rents Payable in the Next Year........... 25.6 26.9
------ ------
Interest Expense plus One-Third of Rents.............. $283.0 $260.5
====== ======
Ratio of Earnings to Fixed Charges.................... 2.96 to 1 3.69 to 1
</TABLE>
(1) The results for 1995 include a special charge ($140.6 million before income
taxes), recorded by the Company's Chemical Waste Management, Inc. subsidiary,
primarily related to a writeoff of certain investments in hazardous waste
treatment and processing technologies and facilities. Excluding the effect of
this charge, the ratio of earnings to fixed charges would be 3.46 to 1.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 266,435
<SECURITIES> 25,878
<RECEIVABLES> 1,997,961
<ALLOWANCES> 60,563
<INVENTORY> 0
<CURRENT-ASSETS> 3,189,125
<PP&E> 14,244,714
<DEPRECIATION> 4,315,809
<TOTAL-ASSETS> 19,303,837
<CURRENT-LIABILITIES> 3,080,056
<BONDS> 7,123,055
<COMMON> 507,098
0
0
<OTHER-SE> 4,683,608
<TOTAL-LIABILITY-AND-EQUITY> 19,303,837
<SALES> 0
<TOTAL-REVENUES> 5,035,316
<CGS> 0
<TOTAL-COSTS> 3,559,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,896
<INTEREST-EXPENSE> 198,918
<INCOME-PRETAX> 692,890
<INCOME-TAX> 284,670
<INCOME-CONTINUING> 408,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 408,220
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.00
</TABLE>
