<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 33-44849
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WMX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4953
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
36-2660763
(I.R.S. EMPLOYER IDENTIFICATION NO.)
3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(708) 572-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HERBERT A. GETZ, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WMX TECHNOLOGIES, INC.
3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(708) 572-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus included
in this Post-Effective Amendment No. 5 to the Registration Statement also
relates to the subsequently filed Registration Statement on Form S-1 of the
Registrant, Registration No. 333-01327.
----------------
FILING AMENDED PROSPECTUS AND AMENDING ITEM 16 OF PART II
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-01327
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WMX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4953
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
36-2660763
(I.R.S. EMPLOYER IDENTIFICATION NO.)
3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(708) 572-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HERBERT A. GETZ, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WMX TECHNOLOGIES, INC.
3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(708) 572-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus included
in this Post-Effective Amendment No. 1 to the Registration Statement also
relates to the previously filed Registration Statement on Form S-1 of the
Registrant, Registration No. 33-44849.
----------------
FILING AMENDED PROSPECTUS AND AMENDING ITEM 16 OF PART II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WMX TECHNOLOGIES, INC.
----------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN OR CAPTION IN PROSPECTUS
---------------- ------------------------------------
<S> <C>
1.Forepart of the Registration Statement and Cross Reference Sheet and Cover Page of
Outside Front Cover Page of Prospectus.. Prospectus
2.Inside Front and Outside Back Cover Pages Inside Front Cover Page
of Prospectus...........................
3.Summary Information and Risk Factors...... Summary
4.Use of Proceeds........................... Securities Covered by this Prospectus
5.Determination of Offering Price........... Inapplicable
6.Dilution.................................. Inapplicable
7.Selling Security Holders.................. Cover Page of Prospectus; Securities
Covered by this Prospectus
8.Plan of Distribution...................... Securities Covered by this Prospectus
9.Description of Securities to be Regis- Cover Page of Prospectus; Description of
tered................................... Capital Stock
10.Interests of Named Experts and Counsel.... Inapplicable
11.Information with Respect to the Registrant
(a).......................................... The Company; Business of the Company
(b).......................................... Property and Equipment
(c).......................................... Legal Proceedings
(d).......................................... Market Prices of Common Stock; Dividends
(e).......................................... Consolidated Financial Statements of WMX
Technologies, Inc. and Subsidiaries
(f).......................................... Selected Consolidated Financial Data
(g).......................................... Consolidated Financial Statements Note 17
(h).......................................... Management's Discussion and Analysis of
Results of Operations and Financial
Condition
(i).......................................... Inapplicable
(j).......................................... Management
(k).......................................... Management
(l).......................................... Securities Ownership of Management
(m).......................................... Management
12.Disclosure of Commission Position on In- Inapplicable
demnification for Securities Act Liabil-
ities...................................
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 24, 1996
PROSPECTUS
2,392,923 SHARES
LOGO
WMX TECHNOLOGIES, INC.
COMMON STOCK
$1 PAR VALUE
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------
The 2,392,923 shares of common stock, $1 par value, covered by this
prospectus may be offered and issued from time to time in connection with
acquisitions of other businesses, properties or securities in business
combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation
C under the Securities Act of 1933, as amended (the "1933 Act"). See
"Securities Covered by this Prospectus" herein.
This prospectus has also been prepared for use, with the Company's prior
consent, by persons who have received or will receive shares in connection with
such acquisitions and who wish to offer and sell such shares under
circumstances requiring or making desirable its use. See "Securities Covered by
this Prospectus" herein, and see the inside back cover page hereof for the
identity of such individuals, if any.
On May , 1996, the reported closing sale price for the Company's common
stock on the New York Stock Exchange Composite Tape as reported in The Wall
Street Journal (Midwest Edition) was $ . See "Market Prices of Common Stock;
Dividends" herein.
--------
THE DATE OF THIS PROSPECTUS IS , 1996.
Printed on recycled paper
LOGO
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY WMX TECHNOLOGIES, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD
BE UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary................................... 3
The Company............................... 7
Securities Covered by this Prospectus..... 10
Market Prices of Common Stock; Dividends.. 11
Selected Consolidated Financial Data...... 12
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................ 14
Business of the Company................... 31
General.................................. 31
Waste Services........................... 32
Solid Waste Management, Recycling and
Related Services....................... 32
Collection............................. 32
Transfer............................... 33
Recycling and Energy Recovery.......... 33
Disposal............................... 34
Related Services....................... 35
Hazardous Waste Management and Related
Services............................... 36
Chemical Waste Management Services..... 36
Low-Level and Other Radioactive Waste
Services.............................. 37
International Waste Management and
Related Services........................ 38
Collection Services..................... 39
Treatment and Disposal Services......... 39
Clean Energy, Clean Water and Related
Services................................ 41
Wheelabrator Clean Energy............... 41
Wheelabrator Clean Water................ 41
Environmental and Infrastructure
Engineering and Consulting Services..... 43
Regulation............................... 44
Waste Services.......................... 45
Solid Waste............................ 45
Hazardous Waste........................ 46
</TABLE>
<TABLE>
<S> <C>
Clean Energy, Clean Water and Related
Services............................... 47
Environmental and Infrastructure
Engineering and Consulting Services.... 48
RCRA.................................... 48
Superfund............................... 49
International Waste Management
and Related Services................... 50
Competition.............................. 50
Insurance................................ 53
Employees................................ 53
Acquisitions and Dispositions............ 54
Property and Equipment.................... 55
Management................................ 57
Directors and Executive Officers......... 57
Compensation of Executive Officers....... 60
Stock Options............................ 62
Long-Term Incentive Plan Awards.......... 63
Pension and Retirement Plans............. 64
Compensation of Directors................ 65
Outside Directors' Plans................. 65
Stock Option Plans for Non-Employee
Directors............................... 66
Directors' Charitable Endowment Program.. 66
Compensation Committee Interlocks
and Insider Participation............... 67
Certain Transactions..................... 67
Securities Ownership of Management........ 68
Ownership of Company Common Stock........ 68
Ownership of WTI Common Stock............ 70
Ownership of WM International Ordinary
Shares.................................. 71
Legal Proceedings......................... 72
Description of Capital Stock.............. 74
Experts................................... 77
Additional Information.................... 77
Index to Financial Statements............. F-1
</TABLE>
AVAILABLE INFORMATION
WMX Technologies, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "1934 Act") and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the public reference facilities maintained by
the regional offices of the Commission at 7 World Trade Center, Suite 1300,
New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's common stock is listed on the New York
Stock Exchange and the Chicago Stock Exchange, and such reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005 and at the offices of the Chicago Stock Exchange, 440 South LaSalle
Street, Chicago, Illinois 60605.
This Prospectus constitutes a part of one or more Registration Statements
(the "Registration Statements") filed by the Company with the Commission under
the Securities Act of 1933. This Prospectus omits certain of the information
contained in the Registration Statements, and reference is hereby made to the
Registration Statements and the exhibits relating thereto for further
information with respect to the Company and the securities offered hereby. Any
Statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is hereby made to a
copy of such document filed as an exhibit to the Registration Statements or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
2
<PAGE>
SUMMARY
The Company.... WMX Technologies, Inc.
Location....... The Company's executive offices are located at:
3003 Butterfield Road
Oak Brook, Illinois 60521
(708) 572-8800
Business....... The Company is a leading international provider of
environmental and related services.
Through Waste Management, Inc., a wholly owned subsidiary of
the Company ("WMI"), the Company provides integrated solid
waste management services in North America, consisting of
solid waste collection, transfer, resource recovery and
disposal, to commercial, industrial, municipal and residential
customers, as well as to other waste management companies. The
Company's solid waste management services include Recycle
America(R), Recycle Canada(R) and other paper, glass, plastic
and metal recycling services; recovery of methane gas from
sanitary landfills for use in electricity generation; and
medical and infectious waste management services. The Company
also provides street sweeping and parking lot cleaning
services and Port-O-Let(R) portable sanitation services to
municipalities and commercial and special event customers. WMI
also manages the scaffolding and other on-site industrial
services businesses owned by the Company's Rust International
Inc. subsidiary.
Through WMI and Chemical Waste Management, Inc., a wholly
owned subsidiary of the Company ("CWM"), the Company also
provides hazardous waste management services in North America.
Its chemical waste management services, including treatment,
storage, disposal and related services, are furnished to
commercial and industrial customers, as well as to other waste
management companies and to governmental entities. Through
Advanced Environmental Technical Services, L.L.C., a 60%-owned
subsidiary of the Company, the Company provides on-site
integrated hazardous waste management services, including
hazardous waste identification, packaging, removal and
recycling services to industrial, institutional and
governmental customers. CWM also furnishes radioactive waste
management services, primarily to electric utilities and
governmental entities.
The Company provides comprehensive waste management and
related services internationally, primarily through Waste
Management International plc, a subsidiary owned approximately
56% by the Company and 12% each by the Company's Rust
International Inc. and Wheelabrator Technologies Inc.
subsidiaries ("Waste Management International"). Waste
Management International provides a wide range of solid and
hazardous waste management and related environmental services
(or has interests in projects or companies providing such
services) in ten countries in Europe and in Argentina,
Australia, Brazil, Brunei, Hong Kong, Indonesia, Israel,
Malaysia, New Zealand, Taiwan and Thailand. Waste Management
International also has an approximately 20% interest in Wessex
Water Plc, an English publicly traded company providing water
treatment, water distribution, wastewater treatment and
sewerage services.
Wheelabrator Technologies Inc., an approximately 58%-owned
subsidiary of the Company ("WTI"), provides a wide array of
environmental products and services in
3
<PAGE>
North America and abroad that are primarily utilized in
meeting the needs of municipalities and industry for clean
energy and clean water. WTI's clean energy group is a leading
developer of facilities and systems for, and provider of
services to, the trash-to-energy, energy, and independent
power markets. Through the clean energy group, WTI develops,
arranges financing for, operates and owns facilities that
dispose of trash and other waste materials in an
environmentally acceptable manner by recycling them into
electrical or steam energy. Also within this group are
business units which design, fabricate and install
technologically advanced air pollution control systems and
equipment. WTI's clean water group is principally involved in
the design, manufacture, operation and ownership of facilities
and systems used to purify water, to treat municipal and
industrial wastewater, to treat and manage biosolids resulting
from the treatment of wastewater by converting them into
useful fertilizers, and to recycle organic wastes into compost
material useable for horticultural and agricultural purposes.
The clean water group also designs and manufactures various
products used in water and wastewater treatment facilities and
industrial processes, precision profile wire screens for use
in groundwater wells and other industrial and municipal
applications, and certain other industrial equipment.
Rust International Inc., a subsidiary owned approximately 60%
by the Company and 40% by WTI ("Rust"), furnishes
environmental and infrastructure engineering and consulting
services, primarily to clients in government and in the
chemical, petrochemical, nuclear energy, utility, pulp and
paper, manufacturing, environmental services and other
industries. Rust also provides process engineering,
construction, specialty contracting and related services
through a business unit which Rust intends to sell or
otherwise discontinue. On May 20, 1996 the Company announced
that Rust signed an agreement to sell Rust's industrial
process engineering and construction business based in
Birmingham, Alabama to Raytheon Engineers & Constructors,
Inc., a subsidiary of Raytheon Company. Rust also has an
approximately 41% interest in NSC Corporation, a publicly
traded provider of asbestos abatement and other specialty
contractors services, and an approximately 37% interest in OHM
Corporation, a publicly-traded provider of environmental
remediation services.
4
<PAGE>
FINANCIAL INFORMATION
(SEE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY BEGINNING ON PAGE F-1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------------- -----------------------------------
1991(1) 1992(2) 1993(3)(6) 1994(4)(6) 1995(5)(6) 1995(5) 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from continuing
operations............ $ 7,550,914 $ 8,661,027 $ 8,636,116 $ 9,554,705 $10,247,617 $ 2,445,185 $ 2,417,191
Income from continuing
operations............ $ 606,323 $ 850,036 $ 442,431 $ 776,491 $ 654,590 $ 101,292 $ 185,178
Earnings per common and
common equivalent
share--continuing
operations............ $ 1.23 $ 1.72 $ .91 $ 1.60 $ 1.35 $ 0.21 $ 0.38
Total assets........... $12,572,310 $14,114,180 $16,264,476 $17,423,173 $18,695,308 $18,158,893 $18,945,387
Long-term debt, less
portion payable within
one year.............. $ 3,782,973 $ 4,312,511 $ 6,145,584 $ 6,044,411 $ 6,420,610 $ 6,724,695 $ 6,385,833
Dividends per share.... $ .42 $ .50 $ .58 $ .60 $ .60 $ 0.15 $ 0.15
</TABLE>
- ---------
(1) The results for 1991 include a special charge of $296,000,000 (before tax
and minority interest) primarily to reflect then current estimates of the
environmental remediation liabilities at waste disposal sites previously
used or operated by the Company and its subsidiaries or their predecessors.
(2) The results for 1992 include a non-taxable gain of $240,000,000 (before
minority interest) resulting from the initial public offering of Waste
Management International, as well as special charges of $219,900,000
(before tax and minority interest) primarily related to writedowns of the
Company's medical waste business, CWM incinerators in Chicago, Illinois and
Tijuana, Mexico and a former subsidiary's investment in its asbestos
abatement business and certain restructuring costs incurred by the
subsidiary and CWM related to the formation of Rust, and one time after-tax
charges aggregating $71,139,000, or $.14 per share, related to the
cumulative effect of adopting two new accounting standards.
(3) The results for 1993 include a non-taxable gain of $15,109,000 (before
minority interest) relating to the issuance of shares by Rust, as well as a
special asset revaluation and restructuring charge of $550,000,000 (before
tax and minority interest) recorded by CWM related primarily to a
revaluation of its thermal treatment business, and a provision of
approximately $14,000,000 to adjust deferred income taxes resulting from
the 1993 tax law change. See Notes 3 and 14 to the Company's Consolidated
Financial Statements.
(4) The results for 1994 include a charge of $9,200,000 (before tax and
minority interest) recorded by Rust to write off assets and recognize costs
of exiting certain of Rust's service lines and closing offices in a
consolidation of certain of its other operations. See Note 14 to the
Company's Consolidated Financial Statements.
(5) The results for 1995 include a special charge of $140,600,000 (before tax)
recorded by CWM in the first quarter, primarily to write off its investment
in facilities and technologies that it abandoned because
5
<PAGE>
they do not meet customer service or performance objectives, and a special
charge of $194,600,000 (before tax and minority interest) recorded by Waste
Management International in the fourth quarter relating to actions it is
taking to sell or otherwise dispose of non-core businesses and investments,
as well as core businesses and investments in low potential markets, abandon
certain hazardous waste treatment and processing technologies, and
streamline its country management organization. See Note 14 to the Company's
Consolidated Financial Statements.
(6) In December 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. Accordingly, these businesses
have been segregated as discontinued operations in the financial statements
since 1993. It is not practical to restate periods prior to the formation
of Rust on January 1, 1993 for the discontinued operations. See Note 15 to
the Company's Consolidated Financial Statements.
(7) Certain amounts have been restated to conform to 1996 classifications.
6
<PAGE>
THE COMPANY
WMX Technologies, Inc. is a leading international provider of environmental
and related services. Unless the context indicates to the contrary, as used in
this prospectus the terms "Company" and "WMX Technologies" refer to WMX
Technologies, Inc. and its subsidiaries.
The Company provides integrated solid waste management services in North
America through Waste Management, Inc., a wholly owned subsidiary of the
Company (referred to herein, together with its subsidiaries and certain
affiliated companies providing waste management and related services, as
"Waste Management" or "WMI"). The Company's solid waste management services
are provided to commercial, industrial, municipal and residential customers,
as well as to other waste management companies and consist of solid waste
collection, transfer, resource recovery and disposal services. As part of
these services, the Company is engaged in providing, through its Recycle
America(R), Recycle Canada(R) and other programs, paper, glass, plastic and
metal recycling services to commercial and industrial operations and curbside
collection of such materials from residences; in removing methane gas from
sanitary landfill facilities for use in electricity generation; and in
providing medical and infectious waste management services to hospitals and
other health care and related facilities. In addition, through Waste
Management the Company provides street sweeping and parking lot cleaning
services and Port-O-Let(R) portable sanitation services to municipalities and
commercial and special event customers. Since mid-1995, Waste Management also
has managed the scaffolding and other on-site industrial services businesses
owned by the Company's Rust International Inc. subsidiary.
The Company also provides hazardous waste management services in North
America. The Company's chemical waste treatment, storage, disposal and related
services are provided through Waste Management and Chemical Waste Management,
Inc., a wholly owned subsidiary of the Company (referred to herein, together
with its subsidiaries, as "CWM"), and are provided to commercial and
industrial customers, as well as to other waste management companies and to
governmental entities. Through Advanced Environmental Technical Services,
L.L.C., a 60%-owned subsidiary of the Company (referred to herein, together
with its subsidiaries as "AETS"), the Company provides on-site integrated
hazardous waste management services, including hazardous waste identification,
packaging, removal and recycling services to industrial, institutional and
governmental customers. Through its Chem-Nuclear Systems, Inc. wholly owned
subsidiary (referred to herein, together with its subsidiaries, as "Chem-
Nuclear"), the Company also furnishes radioactive waste management services,
primarily to electric utilities and governmental entities.
The Company provides comprehensive waste management and related services
internationally, primarily through Waste Management International plc, a
subsidiary owned approximately 56% by the Company and 12% each by the
Company's Rust International Inc. and Wheelabrator Technologies Inc.
subsidiaries (referred to herein, together with its subsidiaries, as "Waste
Management International" or "WM International"). Waste Management
International provides a wide range of solid and hazardous waste management
and related environmental services (or has interests in projects or companies
providing such services) in ten countries in Europe and in Argentina,
Australia, Brazil, Brunei, Hong Kong, Indonesia, Israel, Malaysia, New
Zealand, Taiwan and Thailand. Waste Management International also has an
approximately 20% interest in Wessex Water Plc, an English publicly traded
company providing water treatment, water distribution, wastewater treatment
and sewerage services ("Wessex").
Wheelabrator Technologies Inc., an approximately 58%-owned subsidiary of the
Company (referred to herein, together with its subsidiaries, as "WTI"),
provides a wide array of environmental products and services that are
primarily utilized in meeting the needs of municipalities and industry for
clean energy and clean water. WTI's clean energy group is a leading developer
of facilities and systems for, and provider of services to, the trash-to-
energy, energy, and independent power markets. Through the clean energy group,
WTI develops, arranges financing for, operates and owns facilities
7
<PAGE>
that dispose of trash and other waste materials in an environmentally
acceptable manner by recycling them into electrical or steam energy. Also
within this group are business units which design, fabricate and install
technologically advanced air pollution control and systems and equipment.
WTI's clean water group is principally involved in the design, manufacture,
operation and ownership of facilities and systems used to purify water, to
treat municipal and industrial wastewater, to treat and manage biosolids
resulting from the treatment of wastewater by converting them into useful
fertilizers, and to recycle organic wastes into compost material useable for
horticultural and agricultural purposes. The clean water group also designs
and manufactures various products used in water and wastewater treatment
facilities and industrial processes, precision profile wire screens for use in
groundwater wells and other industrial and municipal applications, and certain
other industrial equipment.
Rust International Inc., a subsidiary owned approximately 60% by the Company
and 40% by WTI (referred to herein, together with its subsidiaries, as
"Rust"), furnishes environmental and infrastructure engineering and consulting
services primarily to clients in federal, state and local government and in
the chemical, petrochemical, nuclear, energy, utility, pulp and paper,
manufacturing, environmental services and other industries. Rust also provides
process engineering, construction, specialty contracting and related services
through a business unit which Rust intends to sell or otherwise discontinue.
On May 20, 1996, the Company announced that Rust signed an agreement to sell
Rust's industrial process engineering and construction business based in
Birmingham, Alabama to Raytheon Engineers & Constructors, Inc., a subsidiary
of Raytheon Company. Rust also has an approximately 41% interest in NSC
Corporation, a publicly traded provider of asbestos abatement and other
specialty contracting services ("NSC"), and an approximately 37% interest in
OHM Corporation, a publicly traded provider of environmental remediation
services ("OHM"). See "Acquisitions and Dispositions" herein.
The Company also owns an approximately 19% interest in ServiceMaster Limited
Partnership, a provider of management services, including management of health
care, education and commercial facilities, and lawn care, pest control and
other consumer services.
The following table shows the respective revenues of the Company's major
business groups for the last three years, excluding the revenues of Rust's
process engineering, construction, specialty contracting and related services
business, which is to be sold or otherwise discontinued and is being treated
as a discontinued operation, and including the revenues of the asbestos
abatement services business of a former subsidiary through the May 1993 sale
of that business and the revenues of the Rust remediation services business
transferred to OHM through the date of the transfer in May 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
---------- ---------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Solid Waste Management and Related
Services................................. $4,702,166 $5,117,871 $ 5,642,857
Hazardous Waste Management and Related
Services................................. 661,860 649,581 613,883
Engineering, Industrial and Related
Services................................. 1,035,004 1,140,294 1,027,430
Trash-to-Energy, Water Treatment, Air
Quality and Related Services............. 1,142,219 1,324,567 1,451,675
International Waste Management and Related
Services................................. 1,411,211 1,710,862 1,865,081
Elimination of Intercompany Revenue....... (316,344) (388,470) (353,309)
---------- ---------- -----------
Consolidated Revenue...................... $8,636,116 $9,554,705 $10,247,617
========== ========== ===========
</TABLE>
As a result of a strategic review begun in 1994, management and operations
of the Company have been largely realigned on the basis of four principal
global lines of business--waste services, clean energy, clean water and
environmental and infrastructure engineering and consulting. The following
table shows the respective revenues of these continuing lines of business
(i.e., excluding revenues of Rust's process engineering, construction,
specialty contracting and related services business) for the last three years.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
---------- ---------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Waste Services (including Scaffolding and
Other On-Site Industrial Services)....... $7,457,371 $8,140,785 $ 8,634,836
Clean Energy.............................. 804,016 888,037 893,513
Clean Water............................... 392,194 489,295 618,472
Environmental and Infrastructure
Engineering and Consulting............... 298,879 425,058 454,105
Elimination of Intercompany Revenue....... (316,344) (388,470) (353,309)
---------- ---------- -----------
Consolidated Revenue...................... $8,636,116 $9,554,705 $10,247,617
========== ========== ===========
</TABLE>
For information relating to expenses and identifiable assets attributable to
the Company's major business groups, see Note 13 to the Company's Consolidated
Financial Statements appearing elsewhere in this prospectus. For interim
periods, the revenues and net income of certain of the Company's businesses
may fluctuate for a number of reasons, including there being for some
businesses less activity during the winter months.
Regulatory or technological developments relating to the environment may
require companies engaged in environmental services businesses, including the
Company, to modify, supplement or replace equipment and facilities at costs
which may be substantial. Because certain of the businesses in which the
Company is engaged are intrinsically connected with the protection of the
environment and the potential discharge of materials into the environment, a
material portion of the Company's capital expenditures is, directly or
indirectly, related to such items. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition" set forth on pages 14 to 31
of this prospectus for a review of property and equipment expenditures by the
Company for the last three years. The Company does not expect such
expenditures, which are incurred in the ordinary course of business, to have a
materially adverse impact on its and its subsidiaries' combined earnings or
its or its subsidiaries' competitive position in the foreseeable future
because the Company's businesses are based upon compliance with environmental
laws and regulations and its services are priced accordingly.
Although the Company strives to conduct its operations in compliance with
applicable laws and regulations, the Company believes that in the existing
climate of heightened legal, political and citizen awareness and concerns,
companies in the environmental services industry, including the Company, will
be faced, in the normal course of operating their businesses, with fines and
penalties and the need to expend funds for remedial work and related
activities with respect to waste treatment, disposal and trash-to-energy
facilities. Where the Company concludes that it is probable that a liability
has been incurred, a provision is made in the Company's financial statements
for the Company's best estimate of the liability based on management's
judgment and experience, information available from regulatory agencies and
the number, financial resources and relative degree of responsibility of other
potentially responsible parties who are jointly and severally liable for
remediation of a specific site, as well as the typical allocation of costs
among such parties. If a range of possible outcomes is estimated and no amount
within the range appears to be a better estimate than any other, then the
Company provides for the minimum amount within the range, in accordance with
generally accepted accounting principles. Such estimates are subsequently
revised, as necessary, as additional information becomes available. While the
Company does not anticipate that the amount of any such revision will have a
material adverse effect on the Company's operations or financial condition,
the measurement of environmental liabilities is inherently difficult 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. Such matters could have a
material adverse impact on earnings for one or more fiscal quarters or years.
9
<PAGE>
While in general the Company's environmental services businesses have
benefited substantially from increased governmental regulation, the
environmental services industry itself is subject to extensive and evolving
regulation by federal, state, local and foreign authorities. Due to the
complexity of regulation of the industry and to public pressure,
implementation of existing and future laws, regulations or initiatives by
different levels of government may be inconsistent and difficult to foresee.
In addition, the demand for certain of the Company's services may be adversely
affected by the amendment or repeal, or reduction in enforcement of, federal,
state and foreign laws and regulations on which the Company's businesses
engaged in providing such services are dependent. Demand for certain of the
Company's services may also be adversely affected by delays or reductions in
funding, or failure of legislative bodies to fund, agencies or programs under
such laws and regulations. The Company makes a continuing effort to anticipate
regulatory, political and legal developments that might affect its operations
but is not always able to do so. The Company cannot predict the extent to
which any legislation or regulation that may be enacted, amended, repealed or
enforced, or any failure or delay in enactment or enforcement of legislation
or regulations or funding of agencies or programs, in the future may affect
its operations.
The Company was incorporated in Delaware in 1968 and subsequently succeeded
to certain businesses owned by its organizers and others. The Company's common
stock is listed on the New York Stock Exchange under the trading symbol "WMX"
and is also listed on the Frankfurt Stock Exchange, the London Stock Exchange,
the Chicago Stock Exchange and the Swiss Stock Exchanges in Basle, Zurich and
Geneva.
SECURITIES COVERED BY THIS PROSPECTUS
The shares of common stock of the Company covered by this prospectus are
available for use in connection with acquisitions of other businesses,
properties or securities in business combination transactions, which may
relate to businesses similar or dissimilar to the Company's environmental
services and other operations. The consideration offered by the Company in
such acquisitions, in addition to any shares of common stock offered by this
prospectus, may include cash, debt or other securities (which may be
convertible into shares of common stock of the Company covered by this
prospectus), or assumption by the Company of liabilities of the business being
acquired, or a combination thereof. The terms of acquisitions are typically
determined by negotiations between the Company and the owners of the
businesses, properties or securities (including newly issued securities) to be
acquired, with the Company taking into account the quality of management, the
past and potential earning power and growth of the businesses, properties or
securities to be acquired, and other relevant factors. Shares of common stock
issued to the owners of the businesses, properties or securities to be
acquired normally are valued at a price reasonably related to the market value
of the common stock either at the time the terms of the acquisition are
tentatively agreed upon or at or about the time or times of delivery of the
shares.
With the consent of the Company, this prospectus may also be used by persons
who have received or will receive from the Company common stock covered by
this prospectus or by prospectuses under other registration statements in
connection with acquisitions and who may wish to sell such stock under
circumstances requiring or making desirable its use. The Company's consent to
such use may be conditioned upon such persons' agreeing not to offer more than
a specified number of shares following amendments to this prospectus, which
the Company may agree to use its best efforts to prepare and file at certain
intervals. The Company may require that any such offering be effected in an
organized manner through securities dealers. Sales by means of this prospectus
may be made from time to time privately at prices to be individually
negotiated with the purchasers, or publicly through transactions on the New
York or Chicago Stock Exchanges (which may involve crosses and block
transactions), or in the over-the-counter market, at prices reasonably related
to market prices at the time of sale or at negotiated prices. Broker-dealers
participating in such transactions may act as agent
10
<PAGE>
or as principal and, when acting as agent, may receive commissions from the
purchasers as well as from the sellers (if also acting as agent for the
purchasers). The Company may indemnify any broker-dealer participating in such
transactions against certain liabilities, including liabilities under the 1933
Act. Profits, commissions and discounts on sales by persons who may be deemed
to be underwriters within the meaning of the 1933 Act may be deemed
underwriting compensation under that Act.
Stockholders may also offer shares of stock issued in past and future
acquisitions by means of prospectuses under other available registration
statements or pursuant to exemptions from the registration requirements of the
1933 Act, including sales which meet the requirements of Rule 145(d) under that
Act, and stockholders should seek the advice of their own counsel with respect
to the legal requirements for such sales.
See the inside back cover page of this prospectus for the identity of any
persons who have received stock in connection with acquisitions by the Company
and with respect to whom the Company has consented to the use of this
prospectus in connection with sales of such stock.
MARKET PRICES OF COMMON STOCK; DIVIDENDS
The following table shows the per share high and low sales prices of the
common stock of WMX Technologies on the New York Stock Exchange Composite Tape
for the periods indicated, as reported by The Wall Street Journal (Midwest
Edition), and also shows the cash dividends declared per share during such
periods:
<TABLE>
<CAPTION>
MARKET
PRICE CASH DIVIDENDS
------------ DECLARED PER
HIGH LOW SHARE
---- ---- --------------
<S> <C> <C> <C>
1994
----
First Quarter .......... $30 3/4 $23 $.15
Second Quarter.......... 29 3/8 22 5/8 .15
Third Quarter .......... 30 3/8 26 3/8 .15
Fourth Quarter.......... 30 24 1/2 .15
1995
----
First Quarter .......... $29 5/8 $25 3/4 $.15
Second Quarter.......... 28 3/4 26 3/4 .15
Third Quarter........... 32 1/2 28 1/4 .15
Fourth Quarter.......... 30 7/8 26 3/8 .15
1996
----
First Quarter .......... $32 1/8 $27 3/4 $.15
Second Quarter (through
May 21, 1996).......... $36 1/8 $31 5/8 $.16
</TABLE>
See the cover page of this prospectus for a recent sale price of WMX
Technologies' common stock.
Due in part to the high level of public awareness of the business in which
the Company is engaged, regulatory enforcement proceedings or other unfavorable
developments involving the Company's operations or facilities, including those
in the ordinary course of business, may be expected to engender substantial
publicity which could from time to time have an adverse impact upon the market
price for the Company's common stock.
From September 1990 to December 1995, WMX Technologies maintained a program
for the purchase of up to 25,000,000 shares of its common stock from time to
time in the open market or in privately negotiated transactions. During 1992
and 1993, the Company purchased approximately 7,600,000 shares and 8,400,000
shares, respectively, of its common stock under this program. No Company shares
were repurchased in 1994 or 1995. In December 1995, the Company terminated that
program and announced that its Board of Directors had authorized the repurchase
by the Company of up to an additional 25,000,000 shares of the Company's common
stock from time to time over the following 24-month period in open market or
privately negotiated transactions.
11
<PAGE>
During 1994 and 1995, the Company sold put options on 31,600,000 shares of
its common stock in conjunction with the repurchase program. The put options
give the holders the right at maturity to require the Company to repurchase
its shares at specified prices. 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. Options on 17,900,000 shares expired unexercised in 1994 and 1995,
as the price of the Company's stock was in excess of the strike price at
maturity. Options on 4,700,000 shares were exercised in February 1995, and the
Company elected to settle them for cash in the amount of $12,019,000. The
remaining 9,000,000 options expire at various dates in 1996 at strike prices
ranging from $27.34 to $31.45 per share. For additional information, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition--Capital Structure" at pages 26-27 and 31.
The Board of Directors of WMX Technologies intends to consider the payment
of dividends on a quarterly basis, but the declaration of future dividends
will necessarily be dependent upon business conditions, the earnings and
financial position of WMX Technologies and such other matters as the Board
deems relevant.
At March 20, 1996, the Company had approximately 55,600 holders of record of
its common stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information for each of the
five years in the period ended December 31, 1995 and for each of the three-
month periods ended March 31, 1995 and 1996 is derived from the Company's
Consolidated Financial Statements. The Company's Consolidated Financial
Statements for each of the five years in the period ended December 31, 1995
have been audited by Arthur Andersen LLP, independent public accountants,
whose report thereon appears elsewhere in this prospectus. The unaudited
financial information for the three-month periods ended March 31, 1995 and
1996 reflects, in management's opinion, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation. Interim
results are not necessarily indicative of results for an entire year. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the
Company's Consolidated Financial Statements, and the related Notes, and the
other financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31 (UNAUDITED)
----------------------------------------------------------- -----------------------
1991(1) 1992(2) 1993(3)(6) 1994(4)(6) 1995(5)(6) 1995(5) 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from continuing
operations............. $ 7,550,914 $ 8,661,027 $ 8,636,116 $ 9,554,705 $10,247,617 $ 2,445,185 $ 2,417,191
Income from continuing
operations............. $ 606,323 $ 850,036 $ 442,431 $ 776,491 $ 654,590 $ 101,292 $ 185,178
Earnings per common and
common equivalent
share--continuing
operations............. $ 1.23 $ 1.72 $ .91 $ 1.60 $ 1.35 $ 0.21 $ 0.38
Total assets............ $12,572,310 $14,114,180 $16,264,476 $17,423,173 $18,695,308 $18,158,893 $18,945,387
Long-term debt, less
portion payable within
one year............... $ 3,782,973 $ 4,312,511 $ 6,145,584 $ 6,044,411 $ 6,420,610 $ 6,724,695 $ 6,385,833
Dividends per share..... $ .42 $ .50 $ .58 $ .60 $ .60 $ 0.15 $ 0.15
</TABLE>
- ---------
(1) The results for 1991 include a special charge of $296,000,000 (before tax
and minority interest) primarily to reflect then current estimates of the
environmental remediation liabilities at waste disposal sites previously
used or operated by the Company and its subsidiaries or their
predecessors.
12
<PAGE>
(2) The results for 1992 include a non-taxable gain of $240,000,000 (before
minority interest) resulting from the initial public offering of Waste
Management International, as well as special charges of $219,900,000
(before tax and minority interest) primarily related to writedowns of the
Company's medical waste business, CWM incinerators in Chicago, Illinois and
Tijuana, Mexico and a former subsidiary's investment in its asbestos
abatement business and certain restructuring costs incurred by the
subsidiary and CWM related to the formation of Rust, and one time after-tax
charges aggregating $71,139,000, or $.14 per share, related to the
cumulative effect of adopting two new accounting standards.
(3) The results for 1993 include a non-taxable gain of $15,109,000 (before
minority interest) relating to the issuance of shares by Rust, as well as a
special asset revaluation and restructuring charge of $550,000,000 (before
tax and minority interest) recorded by CWM related primarily to a
revaluation of its thermal treatment business, and a provision of
approximately $14,000,000 to adjust deferred income taxes resulting from
the 1993 tax law change. See Notes 3 and 14 to the Company's Consolidated
Financial Statements.
(4) The results for 1994 include a charge of $9,200,000 (before tax and
minority interest) recorded by Rust to write off assets and recognize costs
of exiting certain of Rust's service lines and closing offices in a
consolidation of certain of its other operations. See Note 14 to the
Company's Consolidated Financial Statements.
(5) The results for 1995 include a special charge of $140,600,000 (before tax)
recorded by CWM in the first quarter, primarily to write off its investment
in facilities and technologies that it abandoned because they do not meet
customer service or performance objectives, and a special charge of
$194,600,000 (before tax and minority interest) recorded by Waste
Management International in the fourth quarter relating to actions it is
taking to sell or otherwise dispose of non-core businesses and investments,
as well as core businesses and investments in low potential markets,
abandon certain hazardous waste treatment and processing technologies, and
streamline its country management organization. See Note 14 to the
Company's Consolidated Financial Statements.
(6) In December 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. Accordingly, these businesses
have been segregated as discontinued operations in the financial statements
since 1993. It is not practical to restate periods prior to the formation
of Rust on January 1, 1993 for the discontinued operations. See Note 15 to
the Company's Consolidated Financial Statements.
(7) Certain amounts have been restated to conform to 1996 classifications.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Consolidated
Consolidated 1995 revenue from continuing operations of WMX Technologies,
Inc. and its subsidiaries was $10.25 billion compared with $9.55 billion in
1994 and $8.64 billion in 1993.
Consolidated 1995 net income was $603.9 million or $1.24 per share, compared
with $784.4 million or $1.62 per share in 1994 and $452.8 million or $0.93 per
share in 1993. Net income from continuing operations was $654.6 million or
$1.35 per share in 1995, $776.5 million or $1.60 per share in 1994, and $442.4
million or $0.91 per share in 1993.
Earnings from continuing operations during the three years were impacted by
special charges, gains from stock transactions of subsidiaries, and an
increase in U.S. tax rates. The following table reconciles reported earnings
per share from continuing operations to earnings excluding such items:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Reported amount............................................. $0.91 $1.60 $1.35
Gains on stock transactions of subsidiaries................. (0.02) -- --
Special charges (see Note 14 to Consolidated Financial
Statements)--
Chemical Waste Management, Inc............................ 0.59 -- 0.19
Waste Management International plc........................ -- -- 0.23
Rust International Inc.................................... -- 0.01 --
Costs related to early extinguishment of debt............... -- -- 0.01
Adjustment to deferred income taxes resulting from 1993 tax
law change................................................. 0.03 -- --
----- ----- -----
Amount excluding above items................................ $1.51 $1.61 $1.78
===== ===== =====
</TABLE>
The environmental service business has undergone significant change over the
three-year period. Overcapacity in the hazardous waste segment, an emphasis on
waste minimization and recycling as opposed to land disposal, increased
competition for landfill volume, changes in government regulation, and slow
growth in the trash-to-energy market have affected the industry globally. In
addition, political uncertainty in Italy and economic conditions in France and
Germany have further affected the Company's international operations.
The Company has taken a number of steps to realign and restructure its
business in response to these changing conditions and to position itself for
growth and improved profitability into the 21st century. Hazardous waste
operations have been downsized and management of land disposal facilities has
been integrated into the WMI North American solid waste management
organization. WMI itself was reorganized during late 1993 to flatten the
organization and bring decision-making closer to the customer. During 1994,
the Company commenced a major strategic review of its operations, focusing on
streamlining business units, enhancing management and planning processes,
reducing operating costs and improving profitability, improving customer
satisfaction, and increasing returns on capital and cash flow. As an outcome
of these efforts, management was realigned on the basis of four principal
global lines of business--waste services, clean energy, clean water, and
environmental and infrastructure engineering and consulting services.
Executives were named to head each of these global lines of business. The
shares of CWM and Rust owned by the public were purchased by the Company. The
management and sales organizations of Rust Industrial Services were integrated
into the waste services line of business to provide a seamless offering to
industrial customers. Rust exchanged its remediation business in 1995 for an
equity interest in OHM. WTI and WM International formed a joint venture in
1995 to develop trash-to-energy projects on a worldwide basis outside
14
<PAGE>
Germany, Italy and North America. A new management team at WM International
completed an extensive review of its operations and management structure to
refocus on its core waste services business, and as a result adopted a plan to
sell or otherwise dispose of non-core businesses and investments, as well as
core businesses and investments in low potential markets, abandon certain
hazardous waste treatment and processing technologies, and streamline its
country management organization. During the fourth quarter of 1995, the
Company announced that Rust would sell or discontinue its process engineering,
construction, specialty contracting and similar lines of business and focus on
the environmental and infrastructure engineering and consulting business.
Operating results of the businesses to be discontinued have been segregated
from continuing operations in the Consolidated Statements of Income and are
not included in the analysis which follows.
The analysis of results of continuing operations which follows reflects the
Company's traditional management structure of five principal subsidiaries,
each of which has operated in a relatively discrete portion of the
environmental services industry or geographic area. WMI has provided
integrated solid waste services and CWM has provided hazardous waste
collection, transportation, treatment and disposal services in North America.
WM International has provided these services, as well as trash-to-energy
services, outside North America. WTI has been involved in trash-to-energy and
independent power projects, water and wastewater treatment, and air quality
control, primarily in North America. Rust has served the engineering,
construction, environmental and infrastructure consulting, and on-site
industrial and related services market in the United States and a number of
foreign countries.
Beginning in 1996, to conform to its new management structure, the Company
will report operating results along the four major business lines discussed
above. Note 13 to the Consolidated Financial Statements shows results of
continuing operations for 1993, 1994 and 1995 on a line-of-business basis, as
well as on the basis of the traditional management structure.
1994 OPERATIONS COMPARED WITH 1993
WMI
WMI's revenue grew 8.8% to $5.12 billion in 1994 compared with $4.70 billion
in 1993. Revenue growth occurred in all service lines as shown in the
following table:
<TABLE>
<S> <C>
Residential.......................................................... 4.6%
Commercial........................................................... 8.1
Rolloff and industrial............................................... 11.1
Disposal, transfer and other......................................... 11.8
</TABLE>
Price increases accounted for revenue growth of approximately 1.5%. WMI
focused on pricing on a customer-by-customer basis and sought increases when
and where appropriate. Pricing in the commercial, rolloff and industrial lines
generally continued the positive trend begun in the fourth quarter of 1993.
Residential work remained extremely competitive and disposal pricing varied by
region, but generally improved during the year. Higher recyclable commodity
prices, which can vary significantly from year to year, helped 1994 results.
Volume increases accounted for revenue growth of 7.8%, despite the negative
impact of the loss of volume from the contract to dispose of debris from
Hurricane Andrew in 1993 and the loss of a disposal contract for the City of
Philadelphia as of July 1, 1994. The increase in disposal, transfer and other
revenue was aided by special waste volume, which increased over 20%, and
recycling, which grew 29% (including the impact of higher commodity prices
discussed above). Revenue decreases due to businesses sold exceeded revenue
from acquisitions by approximately 0.5% in 1994, primarily the result of the
sale during the first quarter of that year of WMI's Modulaire(R) mobile office
business and certain other under-performing businesses, coupled with reduced
acquisition activity.
15
<PAGE>
Operating margins strengthened throughout the year following the 1993
reorganization discussed previously, and were 20.8% of revenue compared with
20.4% in 1993. This improvement resulted from productivity increases,
particularly in the selling and administrative areas where expenses remained
relatively constant in dollars and declined as a percentage of revenue,
stronger pricing and increased volume, partially offset by higher costs of
operating disposal facilities to comply with more stringent environmental
regulations.
CWM
CWM revenue continued to decline in 1994, to $649.6 million from $661.9
million in 1993. The following table analyzes revenue changes in 1994 compared
with 1993:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
-------------------
<S> <C>
Price.................................................. 2.9%
Volume................................................. (7.2)
Purchased businesses................................... 2.4
----
Total................................................ (1.9)%
====
</TABLE>
Price and volume increases for low-level radioactive waste services, which
increased revenue by 3.1%, were more than offset by a continuation of industry
conditions which negatively impacted the remainder of the hazardous waste
industry. The strong results in the low-level radioactive waste services line
resulted from the acceleration of volume received at CWM's disposal facility
in Barnwell, South Carolina, in anticipation of a state deadline which denied
access to that facility to customers outside an eight-state region in the
southeastern United States ("Southeast Compact") after June 30, 1994. Event
business (revenue from relatively larger, typically non-recurring projects)
was 9.0% of revenue in 1994 compared to 10.6% in 1993. The decline in event
business revenue was primarily the result of reduced off-site disposal from
environmental cleanup projects.
During 1993, CWM completed a study of its business and began a strategic
reconfiguration of its operations to meet then-current market demand. In
connection therewith, CWM recorded a charge of $550 million before tax,
including $381 million to write down assets, primarily incinerators, and $169
million for cash expenditures to be made as part of a program to reduce costs
and improve efficiency. This restructuring was completed in 1994 and
substantially all cash expenditures were made. As a result, overhead,
including depreciation and amortization, was reduced in 1994 by approximately
$60 million on an annualized basis.
Operating expenses declined as a percentage of revenue in 1994 to 70.0%
compared to 76.5% in 1993. Benefits from the restructuring were partially
offset by severe weather in the northeast portion of the United States during
the first quarter, which delayed projects and hampered operations, and a shift
of revenue mix toward lower margin services. Selling and administrative
expenses declined $22.3 million in 1994 on an absolute basis and were reduced
from 19.3% of revenue to 16.3%, primarily as a result of the restructuring.
WTI
WTI revenue increased 16% to $1.32 billion in 1994. Businesses acquired in
1993 and 1994 contributed approximately 47% of the revenue increase, while
incremental operating and construction revenue from new energy and water
development projects accounted for the remainder. Revenue from existing
businesses was flat in 1994 compared to 1993.
Consolidated revenue for the energy business line (which includes WTI's air
business) grew $83.1 million, or 11%, in 1994 to $844.7 million. Revenue from
trash-to-energy and independent power facility operations grew $98.2 million
from the prior year level and generated approximately 82% of the 1994 revenue
for this business line compared with 78% in 1993. Air-related businesses were
responsible for the balance of the revenue during both periods. Construction
revenue on the Lisbon, Connecticut,
16
<PAGE>
trash-to-energy facility provided half of the energy business growth. The
third quarter 1994 commencement of commercial operations at the Falls Township
trash-to-energy facility in Pennsylvania and the wood waste and scrap tire-
fueled Ridge Generating Station in Florida provided an additional 25% of the
revenue growth. Excellent plant operating performances, coupled with a shift
in the mix of waste received at the trash-to-energy plants from lower-priced
spot tons to generally higher-priced contract tonnage accounted for the
remainder. Air business revenue fell in 1994 primarily because of an expected
lull in air pollution control retrofit activity by utilities between Phases I
and II of the Clean Air Act Amendments of 1990. In addition, many industrial
customers delayed awards for air quality control equipment purchases in
response to economic uncertainty and to rule-making delays and limited
enforcement activities by the U.S. Environmental Protection Agency.
Energy operating income increased to $247.0 million or 29.2% of revenue in
1994, versus $208.7 million, or 27.4% of revenue, in 1993. The addition of the
Falls Township and Ridge facilities, modest improvement in gross margin, and a
decline in selling and administrative expense were responsible for this
improvement, despite Lisbon construction revenue having no associated margin
recognition. Integration of acquired air businesses and a decrease in energy-
related project development expenditures in response to limited market
opportunities caused selling and administrative costs to decrease in 1994 in
both absolute terms and as a percentage of revenue.
Water revenue increased $97.1 million to $489.3 million in 1994, a 25%
increase from the 1993 level of $392.2 million. Acquisitions contributed
approximately $81.5 million or 84% of this revenue growth, and expanded WTI's
presence in the industrial water and wastewater treatment markets while
increasing the breadth of WTI's technology and process offerings. The full
year impact of the New York Organic Fertilizer Company ("NYOFCO") biosolids
pelletizer facility, which began commercial operations in the third quarter of
1993, accounted for an additional $35.5 million of incremental 1994 revenue.
Increased 1994 revenue from sales of water process systems and equipment to
industrial customers was offset by a decline in revenue from water,
wastewater, and biosolids contract service operations and curtailed equipment
procurement by municipal customers.
Operating income from the water business line increased 22% to $41.1 million
or 8.4% of revenue in 1994 compared with $33.7 million or 8.6% of revenue in
1993. Gross margin declined to 24.5% of revenue in 1994 versus 24.9% in 1993
because of competitive pricing pressures in the equipment product lines and
faster relative growth of the process systems business, which is typically
lower margin in nature. Selling and administrative expenses declined slightly
in 1994 as a percentage of revenue as a result of consolidation of
acquisitions partially offset by increased own/operate development
expenditures.
WM International
WM International is a U.K. corporation which prepares its financial
statements in pounds sterling under accounting principles prevailing in the
United Kingdom. Such accounting principles differ in certain respects from
those generally accepted in the United States ("US GAAP"). The discussion and
analysis of WM International is based on US GAAP financial statements with
pounds sterling translated to U.S. dollars at the rate used to translate WM
International financial statements for inclusion in the Company's consolidated
financial statements.
Stated in U.S. dollars, WM International revenue grew by $299.7 million or
21.2% to $1.71 billion in 1994 compared with $1.41 billion in 1993. Components
of revenue change are as follows:
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
-------------------
<S> <C>
Price.................................................. 1.7%
Volume (including start-ups)........................... 8.9
Purchased businesses................................... 9.4
Foreign currency translation........................... 1.2
----
Total................................................ 21.2%
====
</TABLE>
17
<PAGE>
Lower inflation and weak economic conditions in many European countries
constrained WM International's ability to increase prices in 1994. In Italy,
where a substantial portion of its business is municipal contracts, renewals
during much of 1994 were consistently at reduced prices. However, a price
increase was obtained on the municipal contract in Buenos Aires, Argentina.
The volume increase in 1994 related primarily to construction activity on the
solid waste SENT landfill in Hong Kong. Economic and competitive pressures
caused volume declines in Italy, France, and Germany, which were more than
offset by volume increases in other countries.
Revenue increases from acquisitions slowed in 1994 compared to 1993. With WM
International well positioned in many of its markets, it focused primarily on
"tuck-in" acquisitions (small acquisitions in markets where it already had a
support staff) and became more selective with respect to acquisitions.
A significant portion of WM International's revenue arises in currencies
other than pounds sterling (its reporting currency) or U.S. dollars. As a
result, foreign currency movement has had and will continue to have an impact
on reported revenue, expenses and net income, stated in both pounds sterling
and U.S. dollars. Both the Company and WM International periodically engage in
hedging transactions intended to mitigate currency risk. See "Derivatives."
Operating expenses increased to 72.7% of revenue in 1994 compared to 71.5%
in 1993 due to higher labor costs and pricing pressure in Italy, pricing
pressure in Germany and France, and flow control issues and landfill
permitting delays in Italy and France. Selling and administrative expenses
decreased to 13.4% of revenue in 1994 compared with 14.1% in 1993 as a result
of the impact of "tuck-in" acquisitions, a higher revenue base to absorb the
cost of corporate and country management and administrative infrastructure,
integration of acquired businesses, and a continued focus on improved
productivity and administrative cost reduction.
Rust
Rust's 1994 revenue from continuing operations was $1.14 billion compared
with $1.04 billion in 1993, an increase of 10.2%. Revenue growth by line of
business is shown in the following table ($000's omitted):
<TABLE>
<CAPTION>
PERCENTAGE
1993 1994 INCREASE
---------- ---------- ----------
<S> <C> <C> <C>
Engineering and consulting services...... $ 298,879 $ 425,058 42.2%
Remediation and industrial services...... 704,360 715,236 1.5
Asbestos abatement....................... 31,765 -- N/A
---------- ----------
Total.................................. $1,035,004 $1,140,294 10.2%
========== ==========
</TABLE>
In May 1993, Rust transferred its asbestos abatement business to NSC in
exchange for a 41% equity interest in NSC and NSC's ownership interest in two
industrial services businesses. Excluding the effect of the asbestos abatement
business, revenue increased 13.7% in 1994 compared with 1993.
Engineering and consulting services revenue grew by 42.2% in 1994. The full
year impact of 1993 acquisitions and domestic and foreign 1994 acquisitions
resulted in revenue growth of 35.5%. The balance came from increases in
existing businesses.
Remediation and industrial services revenue grew by 1.5% in 1994. Growth was
the result of the full year impact of 1993 acquisitions. Revenue in existing
businesses declined due to severe weather in the first quarter and delays by
scaffolding and industrial customers of scheduled plant maintenance. In
addition, the anticipated award of a large Federal remedial contract was
delayed.
18
<PAGE>
In December 1994, Rust signed an agreement with OHM to acquire an
approximately 37% interest in OHM in exchange for Rust's remediation services
business. This transaction was completed in May 1995. For 1994, the business
transferred had revenue of $231.1 million and operating income (after
operating, selling and administrative expenses) of $6.0 million.
Revenue from affiliated companies was $118.3 million in 1994 compared with
$112.8 million in 1993.
Excluding the charge discussed in the following paragraph, operating
expenses were 79.7% of revenue in 1994 compared with 78.1% in 1993, partially
the result of severe weather in the first quarter and delayed projects which
resulted in less efficient personnel utilization. In addition, 1994 saw a
shift in revenue mix in favor of lower margin businesses. Selling and
administrative expenses were 13.2% of 1994 revenue compared with 12.7% of 1993
revenue. The increase in 1994 is attributable to the lower revenue base in
existing businesses and to acquisition activity, which typically initially
increases these costs, although it is anticipated that such expenses will
decline as a percentage of revenue as the acquired companies are integrated
into existing operations.
In 1994, Rust recorded a pretax charge of $9.2 million for the write-off of
assets and the recognition of one-time costs incurred in the fourth quarter in
connection with the discontinuance of its marine construction and dredging
operations, and the closing of offices in a consolidation of its other
operations. After tax and minority interest, the charge reduced the Company's
net income by $0.01 per share.
1995 OPERATIONS COMPARED WITH 1994
WMI
Revenue for WMI was $5.64 billion in 1995 compared with $5.12 billion in
1994, an increase of 10.3%. 1995 revenue growth by line of business is shown
in the following table:
<TABLE>
<S> <C>
Residential.......................................................... 6.3%
Commercial........................................................... 7.5
Rolloff and industrial............................................... 7.5
Disposal, transfer and other......................................... 20.3
</TABLE>
Revenue growth came from price (2.5 to 3%) and volume (6 to 6.5%) increases,
with acquisitions accounting for 1%. Prices of recyclable commodities
continued the 1994 upward trend during the first six months of 1995, but then
began moving downward and by the fourth quarter were below the levels of the
same period in the prior year. Beginning 1996, commodity prices have been
significantly below levels which were achieved in 1995 and management does not
foresee these prices recovering to 1995 levels during 1996. Volume growth was
helped by a relatively mild winter in 1995, whereas severe weather over a
large part of the country adversely affected the first quarter of 1994.
Volumes in 1995 were adversely impacted by the loss of the disposal contract
for the City of Philadelphia as of July 1, 1994. Revenue from recycling
increased 71.9% in 1995 compared with 1994 as a result of the favorable
pricing discussed above, as well as WMI's marketing efforts and acquisition
and construction of additional material recovery facilities.
Operating expenses were 67.5% of revenue in 1995 and 68.4% in 1994. Milder
weather in 1995, WMI's pricing effectiveness program, improved safety
performance, higher recyclable commodity prices, internalization of recycling
processing, and continuing productivity enhancements all contributed to the
improvement. Selling and administrative expenses were 10.2% of revenue in 1995
compared with 10.8% in 1994. Although such expenses increased in absolute
dollars, productivity enhancements have enabled WMI to manage a higher revenue
base with relatively modest selling and administrative expense increases, the
majority of which result from acquisitions and pay-for-performance
compensation plans.
19
<PAGE>
CWM
CWM revenue (including hazardous waste revenues of WMI and AETS) again
declined in 1995 as waste minimization, recycling, over-capacity and shifting
governmental regulation and enforcement continued to adversely affect the
hazardous waste industry. Total 1995 revenue was $613.9 million compared with
$649.6 million in 1994. Pricing and volume growth were both negative, only
partially offset by the 1995 acquisition of a 60% interest in Advanced
Environmental Technology Corporation. In addition, unusually high revenue in
the second quarter of 1994 at CWM's Barnwell, South Carolina, low-level
radioactive waste disposal facility adversely impacted 1995 comparisons.
However, during June 1995, South Carolina approved legislation which extended
the authorized life of the Barnwell site until its permitted disposal capacity
is fully utilized; previously, the site had been required to close at December
31, 1995. The legislation also again permitted acceptance of waste from
outside the Southeast Compact. Event business continued to decline in 1995, to
7.7% of revenue versus 9.0% in 1994.
Operating expenses increased as a percentage of revenue in 1995 to 75.6%
compared to 70.0% in 1994. The increase was a function of pressure on pricing,
a lower revenue base, and a shift in revenue mix toward lower margin technical
services, which offset the benefit from personnel reductions. Selling and
administrative expenses declined in both absolute terms and as a percentage of
revenue as a result of personnel reductions.
During the first quarter of 1995, CWM recorded a pretax charge of $140.6
million, primarily to write off its investment in facilities and technologies
that it abandoned because they did not meet customer service or performance
objectives in the current market environment. The percentages above exclude
this charge.
WTI
WTI revenue increased 9.6% to $1.45 billion in 1995. Energy business line
revenue was essentially flat as higher revenue from operating energy plants
was offset by lower construction revenue on the Lisbon facility and by a
further decline in air business revenue. Approximately 85% of the $42.3
million growth in revenue from operating plants was accounted for by the Falls
Township and Ridge Generating Station facilities which began operations in
1994. Contractual price escalation on long-term trash disposal and energy sale
contracts, partly offset by curtailment of electrical purchases by certain
utility customers, accounted for the balance of the operating plant revenue
growth. Spot pricing, on the whole, was stable, although there were increases
in certain markets offset by declines in others, particularly Florida and the
metropolitan New York City area. Air business revenue declined $30.7 million
to 15% of total energy revenue, reflecting a continuation of the industry-wide
decrease in activity in the face of regulatory uncertainty.
Operating income from the energy business line grew $5.4 million to $252.4
million in 1995 and also increased as a percentage of revenue to 30.1% from
29.2%. Selling and administrative costs
were flat compared to 1994 both as a percent of revenue and in absolute
dollars, but operating margins improved due to cost containment efforts at
operating energy facilities and less revenue on the Lisbon facility where no
margin was recognized. Development activity increased slightly because of
activities associated with the July 1995 joint venture agreement with WM
International.
Revenue in the water business line increased $129.2 million from $489.3
million in 1994 to $618.5 million in 1995, a 26% increase. The full year
impact of businesses acquired in 1994 provided approximately 64% of this
increase. In 1995, WTI successfully completed the privatization of the Miami
Conservancy District wastewater treatment plant in Franklin, Ohio, the first
privatization of a municipal wastewater treatment plant under Executive Order
12803 issued by President George Bush in 1992. Approximately 4% of the 1995
revenue growth came from the Baltimore I pelletizer facility, which began
commercial operations at the start of the year. Existing businesses accounted
for the
20
<PAGE>
remainder of the revenue growth as WTI increased its biosolids landspreading
activities in California and experienced strong worldwide demand for its
surface cleaning and screen products.
Operating income grew $9.6 million, or 23%, to $50.7 million and represented
8.2% of 1995 water revenue. Faster relative growth of the process systems
business, which typically is lower margin in nature, and costs incurred to
consolidate office and manufacturing locations were the principal reasons for
the slight operating margin decline as a percent of revenue compared with
1994. Margins in the contract services business improved compared with 1994
due to cost reduction efforts, while equipment margins remained relatively
stable and process systems margins declined slightly. Selling and
administrative costs increased $11.3 million in 1995 because of the full year
impact of 1994 acquisitions, but declined as a percent of revenue to 14.5%, a
result of a higher revenue base and the integration of acquisitions into
existing businesses.
WM International
WM International revenue, in U.S. dollars, grew $154.2 million or 9.0% to
$1.87 billion in 1995 compared with $1.71 billion in 1994. Components of
revenue change are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
-------------------
<S> <C>
Price.................................................. 1.8%
Volume (including start-ups)........................... (3.2)
Purchased businesses................................... 4.5
Foreign currency translation........................... 5.9
----
Total................................................ 9.0%
====
</TABLE>
The major cause of the 1995 volume decline was the completion of the
construction phase of the SENT landfill in Hong Kong, which opened during the
year. A new pricing mechanism introduced by the Hong Kong government in March
1995, which requires generators to absorb a portion of the disposal cost for
waste brought to the Hong Kong incinerator, has resulted in volume declines in
certain waste streams, but the impact has been offset with other volumes. The
future impact of these charges, on the incinerator and on the SENT landfill
should they be extended to that facility, is uncertain. Pricing in Europe was
negatively impacted in 1995 by relatively low inflation, highly competitive
conditions in the solid waste market in France, softness in segments of the
hazardous waste market, and a continuation of lower prices on rebids of
municipal contracts in Italy. Acquisition activity continued to be below WM
International's historical levels and focused particularly on "tuck-in"
acquisitions which can complement or expand existing operations in a given
market. WM International also increased its emphasis on acquisition and
construction of material recovery facilities to take advantage of a continued
emphasis on recycling as an alternative to land disposal.
Operating expenses (excluding the special charge discussed below) increased
to 75.6% of revenue in 1995 compared with 72.7% in 1994, a result of higher
labor costs in Italy, continuing pressures on pricing, particularly in Italy
and France, and disruption of operations in France during the fourth quarter
due to widespread strikes and industrial action against the government.
Selling and administrative costs increased 2.5% in absolute terms but declined
as a percentage of revenue to 12.6% in 1995 from 13.4% in 1994 due to the
higher revenue base, the benefit of "tuck-in" acquisitions, and continued
emphasis on productivity improvements.
Following a thorough review of its operations and management structure by a
new management team, WM International announced a fourth quarter pretax
special charge of $194.6 million, related to actions it is taking to sell or
otherwise dispose of non-core businesses and investments, as well as core
businesses and investments in low potential markets, abandon certain hazardous
waste treatment and processing facilities, and streamline its country
management organization. Approximately $34.3 million
21
<PAGE>
of this charge represents cash costs related to severance of personnel and
rents under non-cancelable leases. Approximately $11.2 million of the cash
costs were paid prior to December 31, 1995. The majority of the balance will
be paid in early 1996, although certain rent payments on leased facilities
will continue into the future. WM International expects that upon completion
of these actions, overhead will be reduced by approximately $20 million
annually, which management plans to invest in new marketing initiatives and
operational productivity enhancements. However, the full benefit of these new
programs will not be reflected in the short term, and management has cautioned
WM International shareholders not to expect more than 5% to 10% growth in 1996
earnings.
Rust
Rust revenue from continuing operations decreased $112.9 million or 9.9% to
$1.03 billion in 1995 compared with $1.14 billion in 1994. Revenue by business
line is shown in the following table ($000's omitted):
<TABLE>
<CAPTION>
PERCENTAGE
1994 1995 INCREASE/(DECREASE)
---------- ---------- -------------------
<S> <C> <C> <C>
Engineering and consulting serv-
ices............................ $ 425,058 $ 454,105 6.8%
Industrial and other services.... 484,178 511,102 5.6
Remediation...................... 231,058 62,223 N/A
---------- ----------
Total.......................... $1,140,294 $1,027,430 (9.9)%
========== ==========
</TABLE>
In May 1995, Rust exchanged its remediation business for an approximately
37% equity interest in OHM. Excluding the effect of the remediation business,
revenue increased 6.2% in 1995 compared with 1994. This increase was the
result of additional volume across existing businesses as the impact of
acquisitions was not significant. Revenue from affiliated companies declined
to $89.7 million in 1995 from $118.3 million in 1994.
Backlog in continuing operations at December 31, 1995, was $476 million,
down from $671 million at December 31, 1994. Approximately $177 million of the
1994 backlog relating to the remediation business was transferred to OHM. The
backlog shown above does not include approximately $349 million at December
31, 1995, for several Department of Defense contracts, including two Total
Environmental Restoration Contracts. There is no assurance that specific
projects identified and performed under these contracts will generate
aggregate revenue of $349 million over their remaining terms; in addition, a
portion of any projects performed may be remediation work which would now be
performed by OHM.
Operating expenses were 79.5% of revenue in 1995 compared with 79.7% in
1994. Selling and administrative expenses also decreased to 13.1% of 1995
revenue from 13.2% of 1994 revenue. These slight improvements were primarily
the result of the elimination of the relatively low margin remediation
business.
OTHER ITEMS
Interest
The following table sets forth the components of consolidated interest
expense, net ($000's omitted):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Interest expense............................. $393,631 $439,687 $506,207
Interest income.............................. (41,198) (34,488) (39,804)
Capitalized interest......................... (100,591) (104,512) (81,471)
-------- -------- --------
Interest expense, net........................ $251,842 $300,687 $384,932
======== ======== ========
</TABLE>
22
<PAGE>
Net interest expense has increased during the three-year period, partially
the result of an earlier management decision to increase the leverage of the
Company. Debt levels increased in 1993 to fund stock repurchase programs,
acquisitions and capital expenditures, and approximately $130 million paid to
acquire the minority interest in a subsidiary of Rust. Debt levels remained
flat during 1994 but interest expense increased as a result of higher U.S.
interest rates and the full-year impact of the 1993 borrowings. The increase
in debt in 1995 is primarily a result of the acquisition of the public
ownership of CWM and Rust. Capitalized interest also declined substantially in
1995 as a number of significant capital projects were completed and became
operational near the end of 1994. See "Financial Condition--Capital
Structure."
Minority Interest
The minority interest in 1993 reflected the lower earnings of the Company's
subsidiaries in that year and the minority interest (approximately $78.6
million) in the special charge recorded by CWM. Minority interest in 1995
reflects the repurchase of the public shares of CWM and Rust, as well as the
minority interest (approximately $41.3 million) in the special charge recorded
by WM International.
Sundry Income, Net
Sundry income relates primarily to earnings recorded on the equity method
from the Company's investments in less than 50%-owned affiliates. In addition,
CWM recognized a gain in the first quarter of 1993 on the sale of shares of
common stock of WTI it had held for investment.
Income Taxes
In August 1993, the U.S. Congress passed and the President signed the
Omnibus Budget Reconciliation Act of 1993, which, among other things,
increased U.S. Federal income taxes for the Company and its domestic
subsidiaries, retroactive in certain cases to January 1, 1993. The provision
for 1993 income taxes includes approximately $14.0 million to adjust deferred
income taxes as a result of this law. The consolidated income tax rate
increased slightly in 1995 as a result of shifts in the sources of taxable
income and the inability to realize tax benefits on a portion of the special
charges.
ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 112--Employers' Accounting for Postemployment
Benefits--and FAS No. 115--Accounting for Certain Investments in Debt and
Equity Securities. The adoption of FAS No. 112 did not have a material impact
on the Company's financial statements as its previous accounting was
substantially in compliance with the new standard. Other than for short-term
investments which were previously accounted for in accordance with FAS No.
115, the Company does not have significant investments of the type covered by
that standard.
The Financial Accounting Standards Board ("FASB") has issued FAS No. 121--
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of--which is effective for fiscal years beginning after
December 15, 1995. The Company does not believe the adoption of FAS No. 121
will have a material impact on the financial statements.
In October 1995, the FASB issued FAS No. 123--Accounting for Stock-Based
Compensation--which the Company also must adopt in 1996. FAS No. 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.
23
<PAGE>
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. All derivatives are related
to actual or anticipated instruments or transactions of the Company. While the
Company is exposed to credit risk in the event of non-performance by
counterparties to derivatives, in all cases such counterparties are highly
rated financial institutions and the Company does not anticipate non-
performance. In addition, maximum credit exposure is represented by the fair
value of contracts with a positive fair value; at December 31, 1995, such
amounts were not material. The impact of derivatives on the Company's
financial statements has not been significant. See Note 6 to Consolidated
Financial Statements for further discussion of the use and accounting for such
instruments. Also see "Financial Condition--Capital Structure" for a
discussion of the Company's sale of put options in connection with its
authorized stock repurchase program.
ENVIRONMENTAL MATTERS
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 its 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 governmental 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. Such costs include a final cap and cover on the
site, methane gas and leachate management, and groundwater monitoring.
The Company has also established procedures to evaluate potential remedial
liabilities at closed sites which it owns or operated or to which it
transported waste, including 106 sites listed on the Superfund National
Priority List ("NPL") as of December 31, 1995. In the majority of situations,
the Company's connection with NPL sites relates to allegations that its
subsidiaries (or their predecessors) transported waste to the facilities in
question, often prior to the acquisition of such subsidiaries by the Company.
The Company routinely reviews and evaluates sites requiring remediation,
including NPL sites, giving consideration to the nature (e.g., owner,
operator, transporter, or generator), and the extent (e.g., amount and nature
of waste hauled to the location, number of years of site operation by the
Company, or other relevant factors) of the Company's alleged connection with
the site, the accuracy and strength of evidence connecting the Company to the
location, the number, connection and financial ability of other named and
unnamed potentially responsible parties ("PRPs"), and the nature and estimated
cost of the likely remedy. Where the Company concludes that it is probable
that a liability has been incurred, provision is made in the financial
statements. Cost estimates are based upon management's judgment and experience
in remediating such sites for the Company as well as for unrelated parties,
information available from regulatory agencies as to cost of remediation, and
the number, financial resources and relative degree of responsibility of other
PRPs who are jointly and severally liable for remediation of the specific
site, as well as the typical allocation of costs among PRPs. These estimates
sometimes involve a range of possible outcomes. In such cases, the Company
provides for the amount within the range which constitutes its best estimate.
If no amount within the range appears to be a better estimate than any other
amount, then the Company provides for the minimum amount within the range in
accordance with FAS No. 5. See Note 7 to Consolidated Financial Statements for
additional details regarding the Company's environmental liabilities.
24
<PAGE>
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of
remediation require a number of assumptions and are inherently difficult, and
the ultimate outcome may differ from current estimates. However, the Company
believes that its extensive experience in the environmental services business,
as well as its involvement with a large number of sites, provides a reasonable
basis for estimating its aggregate liability. As additional information
becomes available, estimates are adjusted as necessary. While the Company does
not anticipate that any such adjustment would be material to its financial
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies, or other
factors could alter this expectation and necessitate the recording of
additional liabilities which could be material. The impact of such future
events cannot be estimated at the current time.
The Company spent $34.8 million, $58.8 million and $50.1 million on remedial
activities at closed sites in 1993, 1994 and 1995, respectively, and
anticipates expenditures of approximately $48.5 million in 1996.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort costs at a number
of sites. The carriers involved have denied coverage and are defending these
claims. No amounts have been recognized in the financial statements for any
future insurance recoveries.
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 or, in certain cases, conducted environmental remediation
activities at such sites. See "Financial Condition--Risks and Uncertainties."
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had working capital deficits of $400.1 million at December 31,
1995, and $115.6 million at December 31, 1994, the result of emphasis on
minimizing working capital requirements. The Company operates in a service
industry with neither significant inventory nor seasonal variation in
receivables, and accordingly, minimizing working capital typically does not
significantly affect operations. Cash flow from operating activities, less net
capital expenditures (other than acquisitions) and dividends, which the
Company defines as "owners' cash flow," is available to make acquisitions,
reduce debt, or repurchase common stock. The Company has increased its
emphasis on raising the level of owners' cash flow, which was $518 million in
1995 and, based on budgeted levels of net income, capital expenditures net of
dispositions, and working capital, is expected to exceed $600 million in 1996.
The Company believes that it has adequate liquidity and resources to meet its
current needs for replacement capital and finance anticipated growth.
Acquisitions and Capital Expenditures
Capital expenditures, including $443.5 million, $56.8 million and $154.1
million for property and equipment of purchased businesses in 1993, 1994 and
1995, respectively, are shown in the following table ($000's omitted):
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land (primarily disposal sites)............. $ 660,226 $ 582,287 $ 517,162
Buildings and leasehold improvements........ 195,472 141,164 148,818
Vehicles.................................... 373,055 226,005 345,768
Containers.................................. 231,586 167,936 181,225
Other equipment............................. 702,374 395,022 348,102
---------- ---------- ----------
Total..................................... $2,162,713 $1,512,414 $1,541,075
========== ========== ==========
</TABLE>
25
<PAGE>
During 1993, the Company and its principal subsidiaries acquired 189
businesses for $715.7 million in cash and debt (including debt assumed),
1,046,801 shares of WMX common stock and 1,635,471 shares of WTI common stock.
During 1994, 119 businesses were acquired for $214.5 million in cash and debt
(including debt assumed), 73,809 shares of the Company's common stock and
156,124 shares of WTI common stock. 136 businesses were acquired in 1995 for
$302.0 million in cash and debt (including debt assumed) and 2,236,354 shares
of the Company's common stock. The Board of Directors has approved a capital
expenditure budget of $1.2 billion (excluding acquisitions) for 1996. The
Company currently expects to finance capital expenditures, as well as any
acquisition activity, through cash flow from operations. The Company believes
that it has adequate resources to finance any attractive acquisitions that
become available.
Capital Structure
Through 1993, the Company financed capital expenditures and acquisitions
primarily through the use of debt, taking advantage of favorable interest
rates. Beginning in 1994, increased emphasis has been placed on cash flow and
reducing leverage. The following table reflects the impact of these
strategies. However, although the Company generated $518 million of owners'
cash flow in 1995, the debt to equity ratios were adversely impacted by the
purchase, discussed below, of the public shares of CWM and Rust, as these
transactions reduced minority interest and increased debt.
<TABLE>
<CAPTION>
DECEMBER 31 1993 1994 1995
----------- ---- ---- ----
<S> <C> <C> <C>
Long-term debt as a percent of total capital.............. 49.4% 45.6% 46.5%
Short-term and long-term debt as a percent of short-term
debt
and total capital........................................ 52.5% 49.4% 50.7%
</TABLE>
The above ratios include minority interest in subsidiaries and put options
as part of total capital, and exclude project debt of WTI. A significant
portion of WTI's debt is project debt, the interest and principal of which is
expected to be paid by cash generated from operations of specific projects.
In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of CWM that it did not already own, in return for
convertible subordinated debt (see Note 5 to Consolidated Financial
Statements). In July 1995, WMX acquired the approximately 3.1 million Rust
shares held by the public for $16.35 per share in cash.
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 approximately 3.3 million shares in 1994 and
approximately 7.2 million shares in 1995. WMX has not repurchased any of its
shares in the last two years.
During 1994 and 1995, in conjunction with its authorized repurchase program,
WMX sold put options on 31.6 million shares of 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 put
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.
Options on 17.9 million shares expired unexercised, as the price of the
Company's stock was in excess of the strike price at maturity. Options on 4.7
million shares were exercised in February 1995, and the Company elected to
settle them for cash in the amount of $12.0 million, which was charged to
paid-in capital. The remaining 9.0 million options expire at various dates in
1996, at strike prices ranging from $27.34 to $31.45 per share. The Company
may sell additional put options in 1996.
26
<PAGE>
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. 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.
Risks and Uncertainties
During the first quarter of 1995, WM International received an assessment of
approximately 417 million Krona (approximately $62 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 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"). Although a lower
Court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded
the case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the WMI 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 has
appealed the Superior Court order to the state Supreme Court. The Company is
unable to predict the outcome of the appeal or the nature and extent of the
removal action that may ultimately be required following further appeals or as
a result of the permitting process. However, if the Superior 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.
Since 1994, WTI had been involved in litigation concerning permits for the
construction and operation of the Lisbon, Connecticut, trash-to-energy plant.
These matters were resolved during 1995 and the plant began commercial
operations in January 1996.
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's 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 possible such matters could have a material adverse impact on the Company's
earnings for one or more fiscal quarters or years.
27
<PAGE>
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, are material to its business or
financial condition.
Outlook
Although the Company believes that the actions taken over the past three
years position it for long-term growth and improved profitability in a rapidly
changing environmental services market, a number of challenges remain. The
current low level of recyclable commodity prices and severe weather in many
portions of the United States at the beginning of 1996 have adversely impacted
WMI. As a result of slow growth in the domestic trash-to-energy business,
WTI's revenue mix has been shifting to the lower margin water business.
Consequently WTI management does not anticipate 1996 earnings growth in excess
of 10%. WM International continues to confront political and economic
uncertainty in some of its largest markets.
To the extent they are within its control, the Company is responding to
these challenges with increased management focus on core businesses, higher
productivity through use of technology, and greater coordination among
business units. Increased emphasis is also being placed on cash flow and
control of capital expenditures. However, in light of the risk factors
highlighted above, the Company anticipates that 1996 earnings per share growth
(on continuing operations before special charges) will be in the range of 5%
to 10% ($1.87 to $1.96).
The following is Management's Discussion and Analysis of Results of
Operations and Financial Condition for the three months ended March 31, 1996:
RESULTS OF OPERATIONS:
Consolidated
For the three months ended March 31, 1996, WMX and its subsidiaries had net
income from continuing operations of $185.2 million or $.38 per share,
compared with $101.3 million or $.21 per share in the same period in 1995.
Revenue for the quarter was $2.42 billion versus $2.45 billion (restated to
eliminate discontinued operations) in the year-earlier quarter.
First quarter 1995 results included a pretax charge of $140.6 million
recorded by CWM, primarily to revalue investments in certain hazardous waste
treatment and processing technologies and facilities, which reduced earnings
by $.19 per share.
Revenue, operating expenses (excluding special charges), selling and
administrative expense, and operating margin for each of the continuing
business lines are set forth in the tables below (in millions):
<TABLE>
<CAPTION>
ENVIRONMENTAL &
INFRASTRUCTURE
WASTE CLEAN CLEAN ENGINEERING AND
SERVICES ENERGY WATER CONSULTING ELIMINATIONS CONSOLIDATED
-------- ------ ------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 1996--
Revenue................... $2,037.5 $203.3 $150.3 $110.1 $(84.0) $2,417.2
Operating expenses........ 1,454.0 132.6 118.9 90.0 (84.0) 1,711.5
Selling & admin. expenses. 237.6 10.7 22.6 16.0 -- 286.9
-------- ------ ------ ------ ------ --------
Margin.................. $ 345.9 $ 60.0 $ 8.8 $ 4.1 $ -- $ 418.8
======== ====== ====== ====== ====== ========
First Quarter 1995--
Revenue................... $2,032.6 $251.2 $137.1 $108.4 $(84.1) $2,445.2
Operating expenses........ 1,433.2 169.9 110.0 84.5 (84.1) 1,713.5
Selling & admin. expenses. 237.3 11.0 21.6 17.6 -- 287.5
-------- ------ ------ ------ ------ --------
Margin.................. $ 362.1 $ 70.3 $ 5.5 $ 6.3 $ -- $ 444.2
======== ====== ====== ====== ====== ========
</TABLE>
28
<PAGE>
Waste Services
Waste services revenue by source for the first quarter of 1996 compared to
the same quarter in 1995 is shown in the following table (in millions):
<TABLE>
<CAPTION>
PERCENTAGE
1996 1995 INCREASE/(DECREASE)
-------- -------- -------------------
<S> <C> <C> <C>
North America.......................
Residential....................... $ 312.4 $ 293.1 6.6%
Commercial........................ 405.0 394.3 2.7
Rolloff and industrial............ 315.9 305.1 3.5
Disposal, transfer and other*..... 456.7 439.8 3.8
Rust Industrial Services.......... 107.7 171.1 (37.1)
International....................... 439.8 429.2 2.5
-------- --------
Total........................... $2,037.5 $2,032.6 0.2%
======== ======== =====
</TABLE>
- ----------
*Includes hazardous waste revenue of $125.2 million in 1996 and $130.5 million
in 1995.
North American solid waste revenue grew 4.8% for the first quarter of 1996
compared to the same period in 1995. Price increases accounted for 0.5 to 1.0%
of revenue growth; a decline in recyclable commodity prices caused a 1.0% loss
in revenue that partially offset price increases of 1.5 to 2.0% in other solid
waste business. Volume increases accounted for 2.0 to 2.5% revenue growth while
acquisitions accounted for 1.5 to 2.0%. Industrial services revenue in 1995
included Rust's environmental remediation business, which was exchanged in May
1995 for an approximately 37% equity interest in OHM Corporation. International
waste services revenue increased 2.5% for the first quarter of 1996 compared to
the first quarter of 1995, a result of price (1.5%), volume (-2.8%),
acquisitions (1.9%) and currency translation (1.9%).
Revenue from all segments of the waste services business was negatively
impacted by severe winter weather in many areas of the United States and most
of northern Europe during the first quarter of 1996. In addition, as noted
above, prices for recyclable commodities, which can vary significantly from
year to year, were approximately 50% lower during the first quarter of 1996
than during the first quarter of 1995. Volumes at WM International's Hong Kong
hazardous waste incinerator have declined since the Hong Kong government
introduced a pricing mechanism in March 1995, that requires generators to
absorb a portion of the disposal cost for their waste. Pricing in Europe
continued to be negatively impacted by highly competitive conditions in France,
softness in segments of the hazardous waste market, and lower prices on rebids
of municipal contracts in Italy.
Operating expenses were 71.4% of first quarter 1996 revenue compared to 70.5%
in the first quarter of 1995. The increase was a function of the severe
weather, which hampered operations, and the decline in the price of recyclable
commodities. Selling and administrative expenses remained constant between
years, both in dollars and as a percentage of revenue.
Clean Energy
Revenue declined to $203.3 million in the first quarter of 1996 compared to
$251.2 million in the first quarter of 1995. The majority of the decrease
relates to construction revenue from the Lisbon, Connecticut trash-to-energy
plant included in the 1995 quarter; the plant has subsequently been completed
and began commercial operations in January 1996. Revenue from existing energy
facilities also decreased, a result of a number of factors including lower spot
pricing for trash disposal in areas of Florida and the timing of scheduled
maintenance at certain domestic facilities.
Operating expenses declined slightly as a percentage of revenue in the first
quarter of 1996 compared to the same 1995 quarter, primarily as a result of the
1995 Lisbon construction revenue carrying no profit margin. Selling and
administrative expenses remained essentially flat in dollar
29
<PAGE>
terms, but increased as a percentage of revenue because of the lower 1996
revenue base. The 1996 operating margin was below the 1995 comparable quarter
in dollar terms, but improved as a percentage of revenue to 29.5% from 28.0% a
year earlier.
Clean Water
Revenue for the first quarter grew $13.2 million to $150.3 million in 1996, a
10% increase compared to the prior year. Companies acquired in the previous
twelve months provided $4.8 million or 36% of this increase. The balance was
attributable to growth in existing operations, with biosolids and screen
activity being particularly strong. The domestic industrial water process
business experienced strong orders during the 1996 quarter, reversing the
delays experienced late in 1995.
Operating income grew $3.3 million, or 60%, to $8.8 million in the 1996
quarter compared to 1995. As a percentage of revenue, operating income
increased from 4.0% in 1995 to 5.8% in 1996, due primarily to business mix and
the benefits of consolidating office and manufacturing locations. Operating
expenses declined slightly as a percentage of revenue due to a larger
proportion of higher margin equipment and product sales, which offset weather-
related declines in biosolids' margins. Selling and administrative expenses
increased $1.0 million in 1996 compared to the first quarter of 1995, but
decreased as a percentage of revenue from 15.7% to 15.0%.
Environmental and Infrastructure Engineering and Consulting
Total revenue improved slightly to $110.1 million in the first quarter of
1996 compared to $108.4 million in the first quarter of 1995. However, domestic
engineering and consulting fees (labor-based revenues) were $6.3 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 77.9% of revenue in 1995 to 81.7% in 1996.
The severe winter weather delayed client projects and reduced productivity.
Selling and administrative expenses declined in 1996 compared to 1995 in both
dollar terms and as a percentage of revenue as the Company realized benefits
from cost-control programs and the consolidation of certain operating units.
Discontinued Operations
The discontinued businesses have been segregated from continuing operations
in the accompanying balance sheets and statements of income. Results of
operations for the three months ended March 31, 1996, were not material and
were included in the reserve for loss on disposition provided previously.
Revenue from these businesses was $142.8 million for the three months ended
March 31, 1996, and $159.7 million for the comparable period in 1995.
Interest
The following table sets forth the components of consolidated interest, net,
for the three months ended March 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Interest expense.......................................... $116.5 $126.2
Interest income........................................... (6.8) (8.9)
Capitalized interest...................................... (17.2) (19.7)
------ ------
Interest expense, net................................. $ 92.5 $ 97.6
====== ======
</TABLE>
The lower net interest expense in 1996 was 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 declined as a
result of continuing management effort to reduce capital expenditures.
30
<PAGE>
Minority Interest
Minority interest declined in the first quarter of 1996 compared to the same
period in 1995 as a result of the purchase of the public shares of CWM and
Rust, and stock repurchases by WTI under the repurchase program discussed below
under "Financial Condition--Capital Structure".
FINANCIAL CONDITION:
Liquidity and Capital Resources
The Company had a working capital deficit of $474.0 million at March 31,
1996, compared to a deficit of $400.1 million at December 31, 1995. The Company
operates in a service industry with neither significant inventory nor seasonal
variations in receivables, and accordingly, minimizing working capital
typically does not adversely affect operations.
The Company has adopted a strategy of raising the level of "owner's 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 was originally expected to exceed $600 million.
Although the first quarter amount was negative, results were consistent with
budgeted levels, and as a result of a subsequent downward revision in expected
capital expenditures, the Company now anticipates that 1996 owners' cash flow
will exceed $700 million. In addition, management has established a goal of
converting approximately $1 billion of non-core or underperforming assets into
cash over the next 18 to 24 months.
Acquisitions and Capital Expenditures
Capital expenditures, excluding property and equipment of purchased
businesses, were $280.6 million for the three months ended March 31, 1996, and
$261.7 million for the comparable quarter in 1995. In addition, the Company and
its principal subsidiaries acquired 45 businesses for $67.1 million in cash and
debt (including debt assumed) and 7.1 million shares of WMX common stock during
the first quarter of 1996. For the first quarter of 1995, 34 businesses were
acquired for $47.9 million in cash and debt (including debt assumed) and .2
million shares of WMX common stock.
Capital Structure
In connection with its authorized stock repurchase program, WTI repurchased
3.8 million shares, including 3.0 million shares during the first quarter of
1996. WMX had not repurchased any shares under its program as of March 31,
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 March 31, 1996,
put options were outstanding for 9.0 million shares at strike prices ranging
from $27.34 to $31.45 per share. Of these options, 4.3 million subsequently
expired unexercised as the price of the Company's stock was in excess of the
strike price at maturity. Subsequent to March 31, 1996, the Company sold
additional put options and expects to continue to do so.
BUSINESS OF THE COMPANY
GENERAL
WMX Technologies provides environmental and related services to commercial,
industrial, and municipal and other governmental customers. Through WMI, the
Company provides integrated solid waste management and related services in
North America. Through WMI, CWM, AETS and
31
<PAGE>
Chem-Nuclear, the Company provides hazardous waste management services in North
America. Through Waste Management International, the Company also provides
comprehensive waste management and related services (or has interests in
projects or companies providing such services) in ten European countries and in
Argentina, Australia, Brazil, Brunei, Hong Kong, Indonesia, Israel, Malaysia,
New Zealand, Taiwan and Thailand. Through WTI, the Company provides a wide
array of environmental products and services primarily utilized in meeting the
needs for clean energy and clean water. Through Rust, the Company furnishes
environmental and infrastructure engineering and consulting services.
Unless the context indicates to the contrary, all statistical and financial
information under the captions "Business of the Company" and "Property and
Equipment" is given as of December 31, 1995. Also, unless the context indicates
to the contrary, statistical and financial data appearing under the caption
"Waste Services" relate only to the Company's Waste Management, CWM, AETS and
Chem-Nuclear groups of subsidiaries and do not include any data relating to
Rust, Rust's scaffolding and other on-site industrial services business managed
by Waste Management, WTI or Waste Management International. See "Environmental
and Infrastructure Engineering and Consulting Services," "Clean Energy, Clean
Water and Related Services" and "International Waste Management and Related
Services."
WASTE SERVICES
The Company's solid waste management and recycling services include
residential, commercial and industrial collection, transfer and disposal
services and related services provided by Waste Management. The Company's
hazardous waste management services include chemical waste treatment, storage,
disposal and related services provided by Waste Management and CWM, on-site
integrated hazardous waste management services provided by AETS and low-level
radioactive waste disposal services provided by Chem-Nuclear. For each of the
three years in the period ended December 31, 1995, such services accounted for
the following percentages of the Company's total North America waste services
revenue (excluding scaffolding and other on-site industrial services revenue):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Solid Waste and Recycling
Collection Services:
Residential.............................................. 20.4% 19.8% 19.4%
Commercial............................................... 26.3 26.4 26.2
Roll-off and Industrial.................................. 20.8 21.5 21.3
Solid Waste Disposal, Transfer and Related Services....... 20.2 21.0 23.3
Hazardous Waste Services................................... 12.3 11.3 9.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
SOLID WASTE MANAGEMENT, RECYCLING AND RELATED SERVICES
At December 31, 1995, Waste Management conducted solid waste management,
recycling and related services operations in 48 states, the District of
Columbia, four Canadian provinces and Mexico. During 1993, 1994 and 1995,
operations in California, Florida and Pennsylvania together accounted for
approximately 34%, 30% and 28%, respectively, of North America solid waste
revenue. No customer accounted for as much as 2% of such revenue in 1993 or 1%
in 1994 or 1995.
Collection
Waste Management provides solid waste collection services to approximately
1,072,500 commercial and industrial customers. Collection services are also
provided to approximately 11,982,800 homes and apartment units. These services
include collection of recyclable commodities. See "Recycling and Energy
Recovery--Recycling" for a description of recycling services.
32
<PAGE>
Commercial and Industrial
Many of Waste Management's commercial and industrial customers utilize
containers to store solid waste, including "roll-offs," which are large
containers dropped off at construction or other sites for the deposit of waste
and then hoisted when full onto a truck for transport. These containers,
ranging from 1 to 45 cubic yards in size, are usually provided to the customer
as part of Waste Management's services. Stationary compactors, which compact
the volume of the stored waste prior to collection, are frequently installed on
the premises of large volume customers and are usually provided to these
customers in conjunction with Waste Management's collection services.
Containerization enables Waste Management to service most of its commercial and
industrial customers with collection vehicles operated by a single employee.
Compaction serves to decrease the frequency of collection.
Commercial and industrial collection services (which include containerized
service to apartment buildings) are generally performed under one- to three-
year service agreements. Fees are determined by such considerations as market
factors, collection frequency, type of equipment furnished, length of service
agreement, type and volume or weight of the waste collected, distance to the
disposal facility and cost of disposal.
Residential
Most of Waste Management's residential solid waste collection services are
performed under contracts with, or franchises granted by, municipalities giving
Waste Management exclusive rights to service all or a portion of the homes in
their respective jurisdictions. Such contracts or franchises usually range in
duration from one to five years. The fees received by Waste Management are
based primarily on market factors, frequency and type of service, the distance
to processing or disposal facilities and cost of processing or disposal.
Residential collection fees are either paid by the municipalities out of tax
revenues or service charges or are paid directly by the residents receiving the
service.
Transfer
Waste Management operates 151 solid waste transfer stations. A transfer
station is a facility where solid waste is received from collection vehicles
and then transferred to, and in some cases compacted in, large, specially
constructed trailers for transportation to disposal or resource recovery
facilities. This procedure reduces costs by improving utilization of collection
personnel and equipment and improving the efficiency of transporting waste to
final disposal facilities.
The services of these facilities are provided to municipalities or counties
and in most instances are also used by Waste Management and by other collection
companies. Fees are generally based upon such considerations as market factors,
the type and volume or weight of the waste transferred, the extent of
processing of recyclable materials, the transport distance involved and the
cost of disposal.
Recycling and Energy Recovery
Recycling
Waste Management provides recycling services in the United States and Canada
through its Recycle America(R), Recycle Canada(R) and other programs. Recycling
involves the removal of reusable materials from the waste stream for processing
and sale or other disposition for use in various applications. Participating
commercial and industrial operations use containers to separate recyclable
paper, glass, plastic and metal wastes for collection, processing and sale by
Waste Management. Fees are determined by such considerations as market factors,
frequency of collection, type and volume or weight of the recyclable material,
degree of processing required, distance the recyclable material must be
transported and value of the recyclable material.
33
<PAGE>
As part of its residential solid waste collection services, Waste Management
engages in curbside collection of recyclable materials from residences in the
United States and Canada, also through its Recycle America(R), Recycle
Canada(R) and other programs. Curbside recycling services generally involve the
collection of recyclable paper, glass, plastic and metal waste materials, which
may be separated by residents into different waste containers or commingled
with other recyclable materials. The recyclable materials are then typically
deposited at a local materials recovery facility where they are sorted and
processed for resale.
The prices received by the Company for recyclable materials fluctuate
substantially from quarter to quarter and year to year depending upon domestic
and foreign demand for such materials, the quality of such materials, prices
for new materials and other factors. In some instances, the Company enters into
agreements with the local governments of municipalities in which it provides
recycling services whereby the governments share in the gains and losses
resulting from fluctuation in prices of recyclable commodities. These
agreements mitigate both the Company's gains and losses from such fluctuations.
In 1995, Waste Management provided curbside recycling services to
approximately 7,200,000 households pursuant to more than 1,000 contracts in the
United States and Canada. Waste Management has approximately 188,000 commercial
and industrial recycling services customers.
Waste Management operates 129 materials recovery facilities for the receipt
and processing of recyclable materials. Such processing consists of separating
recyclable materials according to type and baling or otherwise preparing the
separated materials for sale.
Waste Management also participates in joint ventures with Stone Container
Corporation and American National Can Corporation to engage, respectively, in
the businesses of marketing paper fibre and aluminum, steel, and glass
containers for recycling. In each case Waste Management sells to the joint
venture, or has the joint venture market, the paper fibre or containers
collected by Waste Management to Stone Container, American National Can or
other parties who will process them for reuse. The joint venture with American
National Can also owns and operates three glass processing facilities. During
1995, the joint ventures processed approximately 4,496,000 tons of recyclable
materials. Waste Management also provides tire and demolition and construction
debris recycling services.
Energy Recovery
At 34 Waste Management-owned or -operated sanitary landfill facilities, Waste
Management is engaged in methane gas recovery operations. These operations
involve the installation of a gas collection system into a sanitary landfill
facility. Through the gas collection system, gas generated by decomposing solid
waste is collected and transported to a gas-processing facility at the landfill
site. Through physical processes methane gas is separated from contaminants.
The processed methane gas generally is then either (i) sold directly to
industrial users or (ii) sold to an affiliate of the Company which uses it as a
fuel to power electricity generators. Electricity generated by these facilities
is sold, usually to public utilities under long-term sales contracts, often
under terms or conditions which are subject to approval by regulatory
authorities.
WMX Technologies also engages in other resource recovery activities through
WTI's trash-to-energy and independent power operations and Waste Management
International's operations. See "Clean Energy, Clean Water and Related
Services" and "International Waste Management and Related Services."
Disposal
Waste Management operates 133 solid waste sanitary landfill facilities. Of
this number, 103 are owned by Waste Management and the remainder are leased
from, or operated under contract with,
34
<PAGE>
others. Additional facilities are in various stages of development. Waste
Management also provides yard-waste composting services, bioremediation of
petroleum-contaminated soils and solidification of difficult-to-treat liquid
wastes at a number of its disposal facilities. All of the sanitary landfill
facilities are subject to governmental regulation. See "Regulation--Waste
Services--Solid Waste."
A sanitary landfill site must have geological and hydrological properties and
design features which limit the possibility of water pollution, directly or by
leaching. Sanitary landfill operations, which include carefully planned
excavation, continuous spreading and compacting of solid waste and covering of
the waste, are designed to maintain sanitary conditions, insure optimum
utilization of the airspace and prepare the site for ultimate use for other
purposes.
Suitable sanitary landfill facilities and permission to expand existing
facilities may be difficult to obtain in some areas because of land scarcity,
local resident opposition and governmental regulation. As its existing
facilities become filled in such areas, the solid waste disposal operations of
Waste Management are and will continue to be materially dependent on its
ability to purchase, lease or obtain operating rights for additional sites or
expansion of existing sites and to obtain the necessary permits from regulatory
authorities to construct and operate them. In addition, there can be no
assurance that additional sites can be obtained or that existing facilities can
continue to be expanded or operated. However, management believes that the
facilities currently available to Waste Management are sufficient to meet the
needs of its operations in most areas for the foreseeable future.
To develop a new facility, Waste Management must expend significant time and
capital resources without any certainty that the necessary permits will
ultimately be issued for such facility or that the Company will be able to
achieve and maintain the desired disposal volume at such facility. If the
inability to obtain and retain necessary permits, the failure of a facility to
achieve the desired disposal volume or other factors cause Waste Management to
terminate development efforts for a facility, the capitalized development
expenses of the facility may need to be written off.
In varying degrees, Waste Management utilizes its own sanitary landfill
facilities to accommodate its disposal requirements for collection and transfer
operations. In 1993, 1994 and 1995 approximately 52%, 55% and 57%,
respectively, of the solid waste collected by Waste Management was disposed of
in sanitary landfill facilities operated by it. Usually these facilities are
also used by other companies and government agencies on a noncontract basis for
fees determined by such considerations as market factors and the type and
volume or weight of the waste.
Related Services
Waste Management also provides or manages several types of services which are
compatible with its solid waste collection operations. Included in these
operations are scaffolding and other on-site industrial services, medical and
infectious waste management services, portable sanitation services and street
sweeping and parking lot cleaning services.
Waste Management manages the business of Rust Industrial Services Inc., a
subsidiary of Rust ("RIS"), providing scaffolding and other on-site industrial
services. RIS provides scaffolding services primarily to the chemical,
petrochemical and utilities industries. In most cases, the scaffolding services
are provided in conjunction with periodic, routine cleaning and maintenance of
refineries, chemical plants and utilities, although such services are also
performed in connection with new construction projects. RIS also performs a
variety of types of other industrial services--water blasting, tank cleaning,
explosives blasting, chemical cleaning, industrial vacuuming, catalyst
handling, specialty chemicals and separation technologies--primarily for
clients in the petrochemical, chemical, and pulp and paper industries,
utilities and, to a lesser extent, the public sector. RIS also provides on-site
plant services, including providing personnel to perform mechanical and
electrical services, equipment installation, welding, heating, ventilating and
air conditioning ("HVAC"), warehousing and inventory
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management services and technical support in the area of industrial hygiene and
safety training. RIS assists clients in the nuclear and utility industries in
solving electrical, mechanical, engineering and related technical services
problems. RIS also provides spent fuel storage (rerack) services to the nuclear
power industry.
Waste Management's medical and infectious waste management services consist
of collecting, transporting, treating and disposing of medical and infectious
waste generated by hospitals, pharmaceutical manufacturers, medical clinics,
physician and dentist offices and other sources.
Waste Management also provides portable sanitation services to municipalities
and commercial customers. The portable sanitation services, which are marketed
under the Port-O-Let(R) trade name, are also used at numerous special events
and public gatherings.
Certain of these related services are marketed and performed primarily by
employees operating out of Waste Management's solid waste operations facilities
who also may have responsibility for some phase of solid waste marketing or
operations.
HAZARDOUS WASTE MANAGEMENT AND RELATED SERVICES
Chemical Waste Management Services
The Company operates chemical waste treatment, storage and disposal
facilities in 16 states and also owns a majority interest in a subsidiary which
operates a resource recovery and storage facility and a disposal facility in
Mexico. The chemical wastes handled by the Company include industrial by-
products and residues that have been identified as "hazardous" pursuant to the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), as well as
other materials contaminated with a wide variety of chemical substances.
Chemical waste may be collected from customers and transported by Waste
Management or CWM or contractors retained by them or delivered by customers to
their facilities. Chemical waste is transported by Waste Management or CWM
primarily in specially constructed tankers and semi-trailers, including
stainless steel and rubber or epoxy-lined tankers and vacuum trucks, or in
containers or drums on trailers designed to comply with applicable regulations
and specifications of the U.S. Department of Transportation ("DOT") relating to
the transportation of hazardous materials. Waste Management and CWM also
operate several facilities at which waste collected from or delivered by
customers may be analyzed and consolidated prior to further shipment.
The Company's seven secure land disposal facilities either have interim
status or have been issued permits under RCRA. See "Regulation--RCRA." In
general, the Company's secure land disposal facilities have received the
necessary permits and approvals to accept chemical wastes, although some of
such sites may accept only certain chemical wastes. Only chemical wastes in a
stable, solid form which meet applicable regulatory requirements may be buried
in the Company's secure disposal cells. These land disposal facilities are
sited, constructed and operated in a manner designed to provide long-term
containment of such waste. Chemical wastes may be treated prior to disposal.
Physical treatment methods include distillation, evaporation and separation,
all of which basically result in the separation or removal of solid materials
from liquids. Chemical treatment methods include chemical oxidation and
reduction, chemical precipitation of heavy metals, hydrolysis and
neutralization of acid and alkaline wastes and essentially involve the
transformation of wastes into inert materials through one or more chemical
reaction processes. At two of its locations, the Company isolates treated
chemical wastes in liquid form by injection into deep wells. Deep well
technology involves drilling wells in suitable rock formations far below the
base of fresh water and separated from it by other substantial geological
confining layers.
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AETS provides on-site integrated hazardous waste management services,
including hazardous waste identification, packaging, removal and recycling
services in North America. These services include on-site hazardous waste data
management, education and training, inventory control and other administrative
services, lab pack services, drum identification services, household hazardous
waste programs, less-than-full load waste pickup and consolidation services,
and related services. AETS provides these services primarily to industrial,
institutional and public sector customers, including laboratories.
In the United States, most chemical wastes generated by industrial processes
are handled "on-site" at the generators' facilities. Since the mid-1970's,
public awareness of the harmful effects of unregulated disposal of chemical
wastes on the environment and health has led to extensive and evolving federal,
state and local regulation of chemical waste management activities. The major
federal statutes regulating the management of chemical wastes include RCRA, the
Toxic Substances Control Act ("TSCA") and the Comprehensive Environmental
Response, Compensation and Liabilities Act of 1980, as amended ("CERCLA" or
"Superfund"), all primarily administered by the United States Environmental
Protection Agency ("EPA"). The business is heavily dependent upon the extent to
which regulations promulgated under these or similar state statutes and their
enforcement over time effectively require wastes to be specially handled or
managed and disposed of in facilities of the type owned and operated by the
Company. See "Regulation--Waste Services--Hazardous Waste,"
"--RCRA" and "--Superfund." The chemical waste services industry currently has
substantial excess capacity caused by a number of factors, including a decline
in environmental remediation projects generating hazardous waste for off-site
treatment and disposal, continuing efforts by hazardous waste generators to
reduce volume and to manage it on-site, and the uncertain regulatory
environment regarding hazardous waste management and remediation requirements.
These factors have led to reduced demand and increased pressure on pricing for
chemical waste management services, consequences which the Company expects to
continue for the foreseeable future.
Low-Level and Other Radioactive Waste Services
Radioactive wastes with varying degrees of radioactivity are generated by
nuclear reactors and by medical, industrial, research and governmental users of
radioactive material. Radioactive wastes are generally classified as either
high-level or low-level. High-level radioactive waste, such as spent nuclear
fuel and waste generated during the reprocessing of spent fuel from nuclear
reactors, contains substantial quantities of long-lived radionuclides and is
the ultimate responsibility of the federal government. Low-level radioactive
waste, which decays more quickly than high-level waste, largely consists of dry
compressible wastes (such as contaminated gloves, paper, tools and clothing),
resins and filters which have removed radioactive contaminants from nuclear
reactor cooling water, solidified wastes from power plants which have become
contaminated with radioactive substances and irradiated hardware.
Chem-Nuclear provides comprehensive low-level radioactive waste management
services in the United States consisting of disposal, processing and various
other special services. To a lesser extent, it provides services with respect
to radioactive waste that has become mixed with regulated chemical waste.
Chem-Nuclear's radioactive disposal operations involve low-level radioactive
waste only. Its Barnwell, South Carolina facility is one of two licensed
commercial low-level radioactive waste disposal facilities in the United States
and has been in operation since 1971. A trust has been established and funded
to pay the estimated cost of decommissioning the Barnwell facility. A second
fund, for the extended care of the facility, is funded by a surcharge on each
cubic foot of waste received. Chem-Nuclear may be liable for additional costs
if the extra charges collected to restore and maintain the facility are
insufficient to cover the cost of restoring or maintaining the site after its
closure (which
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Chem-Nuclear has no reason to expect). Under state legislation enacted in 1995,
the Barnwell, South Carolina facility is authorized to operate until its
current permitted disposal capacity is fully utilized, unless such
authorization is changed by legislation. However, presently pending in the
South Carolina Supreme Court is a suit challenging the 1995 legislation, which
repealed earlier legislation that would have closed the Barnwell facility to
out-of-state wastes. While Chem-Nuclear believes the suit (to which it is not a
party) lacks merit, it is impossible to predict the outcome of the suit and its
impact on future operations at Barnwell.
Chem-Nuclear also processes low-level radioactive waste at its customers'
plants to enable such waste to be shipped in dry rather than liquid form to
meet the requirements for receipt at disposal facilities and to reduce the
volume of waste that must be transported. Processing operations include
solidification, demineralization, dewatering and filtration. Other services
offered by Chem-Nuclear include providing electro-chemical, abrasive and
chemical removal of radioactive contamination, providing management services
for spent nuclear fuel storage pools and storing and incinerating liquid
radioactive organic wastes.
INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES
The Company is a leading provider of comprehensive waste management and
related services internationally, primarily through Waste Management
International, which conducts essentially all of the waste management
operations of the Company located outside North America. Waste Management
International's business may broadly be characterized into two areas of
activity, collection services and treatment and disposal services. The
following table shows the derivation of Waste Management International's
revenues for the years indicated and includes revenue from construction of
treatment or disposal facilities for third parties under "Treatment and
Disposal Services":
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Collection Services........................................ 69% 64% 64%
Treatment and Disposal Services............................ 31% 36% 36%
</TABLE>
The Company has had international operations since the mid-1970's. However,
the bulk of the Company's international operations and revenues are derived
from the acquisition over the last several years of numerous companies and
interests in Europe in various of its service lines. In 1993, major
acquisitions included, in the UK, the acquisition by the joint venture
described below between Waste Management International and Wessex of a solid
waste collection and disposal company; in France, a company engaged primarily
in solid waste collection; in The Netherlands, a company engaged in the
collection and transportation of solid waste and the sorting of demolition
waste; and, in Germany, a group of companies providing waste collection
services and recyclables sorting. In 1994, Waste Management International
completed 50 acquisitions in 10 countries, most of which were small
acquisitions which complemented or expanded existing Waste Management
International operations in various markets. With its acquisition goals largely
completed, Waste Management International engaged in 25 additional small
acquisitions during 1995.
In accordance with its objective of maintaining a local identity, Waste
Management International, in certain cases, operates through companies or joint
ventures in which Waste Management International and its affiliates own less
than a 100% interest. For example, Waste Management International is a party to
a joint venture with Wessex to provide waste management and related services in
the United Kingdom.
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Because of the size and timing of projects and acquisitions, Waste Management
International's revenue mix by country varies from year to year. Countries in
which revenue exceeded 10% of Waste Management International's consolidated
total were: Italy (32%) and The Netherlands (11%) in 1993, Italy (26%) and
Germany (12%) in 1994 and Italy (23%), Germany (14%), The Netherlands (11%) and
The United Kingdom (11%) in 1995.
While Waste Management International has considerable experience in
mobilizing for and managing foreign projects, its operations continue to be
subject generally to such risks as currency fluctuations and exchange controls,
the need to recruit and retain suitable local labor forces and to control and
coordinate operations in different jurisdictions, changes in foreign laws or
governmental policies or attitudes concerning their enforcement, political
changes, local economic conditions and international tensions. In addition,
price adjustment provisions based on certain formulae or indices may not
accurately reflect the actual impact of inflation on the cost of performance.
Collection Services
Collection services include collection and transportation of solid, hazardous
and medical wastes and recyclable material from residential, commercial and
industrial customers. The residential solid waste collection process, as well
as the commercial and industrial solid and hazardous waste collection process,
is similar to that utilized by the Company in the United States. Waste
Management International provided collection services as of December 31, 1995
to governmental and private customers in ten European countries, Argentina,
Australia, New Zealand and Taiwan. Business is obtained through public bids or
tenders, negotiated contracts, and, in the case of commercial and industrial
customers, direct contracts. Waste Management International operates 318
collection and staging facilities and 76 waste transfer facilities.
Residential solid waste collection is normally performed by Waste Management
International pursuant to municipal contracts. Waste Management International
has approximately 1,500 municipal contracts, serving more than 6,800,000
residential properties. The scope, specifications, services provided and
duration of such contracts vary substantially, with some contracts encompassing
landfill disposal of collected waste, street-sweeping and other related
municipal services. The largest number of municipal contracts held by Waste
Management International is in Italy where Waste Management International
services approximately 1,850,000 residential properties. Pricing for municipal
contracts is generally based on volume of waste, number and frequency of
collection pick-ups, and disposal arrangements. Longer-term contracts typically
have formulae for periodic price increases or adjustments. Waste Management
International also provides curbside recycling services similar to those
provided by Waste Management in North America.
Street, industrial premises, office and parking lot cleaning services are
also performed by Waste Management International, along with portable
sanitation/toilet services for such occasions as outdoor concerts and special
events.
Waste Management International's commercial and industrial solid and
hazardous waste collection services are generally contracted for by individual
establishments. In addition to solid waste collection customers, Waste
Management International provides services to small quantity waste generators,
as well as larger petrochemical, pharmaceutical and other industrial customers,
including collection of hazardous, chemical or medical wastes or residues.
Waste Management International has approximately 285,000 commercial and
industrial customers. Contract terms and prices vary substantially between
jurisdictions and types of customer. Waste Management International also
provides commercial and industrial recycling services.
Treatment and Disposal Services
Treatment and disposal services include processing of recyclable materials,
operation of both solid and hazardous waste landfills, operation of municipal
and hazardous waste incinerators, operation of a
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trash-to-energy facility, operation of water and wastewater treatment
facilities, operation of hazardous waste treatment facilities and construction
of treatment or disposal facilities for third parties. The operation of solid
waste landfills is currently Waste Management International's most significant
treatment and disposal service. Treatment and disposal services are provided
under contracts which may be obtained through public bid or tender or direct
negotiation, and are also provided directly to other waste service companies.
At December 31, 1995, Waste Management International owned, operated or
maintained 23 waste treatment facilities, 79 recycling and recyclables
processing facilities, 9 incinerators and 55 landfills.
Once collected, solid wastes may be processed in a recyclables processing
facility for sale or other disposition for use in various applications.
Unprocessed solid wastes, or the portion of the waste stream remaining after
recovery of recyclable materials, require disposal, which may be accomplished
through incineration (in connection with which the energy value may be
recovered in a trash-to-energy facility) or through disposal in a solid waste
landfill. The relative use of landfills versus incinerators differs from
country to country and will depend on many factors, including the availability
of land, geological and hydrological conditions, the availability and cost of
technology and capital, and the regulatory environment. The main determinant of
disposal method is generally the disposal cost per cubic meter at local
landfills, as incineration is generally more expensive.
At present, in most countries in which Waste Management International
operates, landfilling is the predominant disposal method employed. Waste
Management International owns or operates solid waste landfills in Argentina,
Australia, Brazil, Denmark, France, Germany, Hong Kong, Indonesia, Italy, New
Zealand, Spain, Sweden and the United Kingdom. Landfill disposal agreements may
be separate contracts or an integrated portion of collection or treatment
contracts.
Demand for solid waste incineration is affected by landfill disposal costs
and government regulations. The incineration process for non-hazardous solid
waste has also been influenced by two significant factors in recent years: (i)
increasingly strict control over air emissions from incinerators; and (ii)
increasing emphasis on trash-to-energy incinerators, which utilize heat
produced by incinerators to generate electricity and other energy. Incineration
generates approximately 30% residue (by weight), which is either landfilled or,
if permitted, recycled for use as a road base or in other construction uses.
Waste Management International's trash-to-energy incinerator in Hamm is a
German-designed plant and the only privately operated trash-to-energy facility
in Germany. It is among the first trash-to-energy facilities to fully comply
with that country's stringent new air pollution requirements. The facility
serves the household and commercial solid waste incineration needs of a
population of approximately 600,000 in Hamm and nearby towns. Under its current
permits, the facility is able to produce 18 megawatts per hour of steam-
generated electricity and sold approximately 74,000 megawatt hours to the local
power grid in 1995 (enough power for about 17,000 homes). In 1992, Waste
Management International entered into a contract with the County of Gutersloh,
Germany to design, construct, own and operate a trash-to-energy facility. The
facility is designed to convert 268,000 metric tons per year of municipal waste
and sewage sludge into energy. The facility would be capable of producing
enough electricity to power more than 35,000 homes. During 1995, Waste
Management International's permit application to develop and operate the
Gutersloh facility was denied. Waste Management International believes it is
entitled to the permit and is appealing the denial. Waste Management
International also operates seven small conventional municipal solid and other
waste incineration facilities. Waste Management International and WTI have also
formed a joint venture to develop trash-to-energy projects outside Germany,
Italy and North America. See "Competition" below.
Waste Management International owns or operates hazardous waste treatment
facilities in Australia, Finland, France, Germany, Hong Kong, Indonesia, Italy,
The Netherlands, Spain, Sweden and the United Kingdom and has entered into
agreements with respect to the development of hazardous waste treatment
facilities in Argentina and Thailand.
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CLEAN ENERGY, CLEAN WATER AND RELATED SERVICES
Wheelabrator Clean Energy
WTI, through Wheelabrator Environmental Systems Inc. and its subsidiaries, is
a leading developer, operator and owner of trash-to-energy and independent
power facilities in the United States. These facilities, either owned or
operated, give WTI approximately 850 megawatts of electric generating capacity.
WTI's trash-to-energy projects utilize proven boiler and grate technology
capable of processing up to 2,250 tons of trash per day per facility. The heat
from this combustion process is converted into high-pressure steam, which
typically is used to generate electricity for sale to public utility companies
under long-term contracts.
WTI's trash-to-energy development activities have historically involved a
number of contractual arrangements with a variety of private and public
entities, including municipalities (which supply trash for combustion),
utilities or other power users (which purchase the energy produced by the
facility), lenders, public debtholders, joint venture partners and equity
investors (which provide financing for the project) and the contractors or
subcontractors responsible for building the facility. In addition, WTI's
activities have often included identifying and acquiring sites for the facility
and for the disposal of residual ash produced by the facility and obtaining
necessary permits and licenses from local, state and federal regulatory
authorities.
WTI also develops, operates and, in some cases, owns independent power
projects, which either cogenerate electricity and thermal energy or generate
electricity alone for sale to utilities. Cogeneration is a technology which
allows the consecutive use of two or more useful forms of energy from a single
primary fuel source, thus providing a more efficient use of a fuel's total
energy content. During 1995, WTI entered into a joint venture for the purpose
of developing small cogeneration projects for district heating applications in
a province of The People's Republic of China.
WTI also designs, fabricates and installs advanced air pollution control and
measurement systems and equipment. WTI offers electrostatic precipitators,
flue-gas desulfurization systems (scrubbers), fabric-filter systems (baghouses)
and nitrogen oxide ("NOx") control systems, which remove pollutants from the
emissions of WTI's trash-to-energy systems, as well as power plants and other
industrial facilities. WTI also designs, constructs and maintains tall concrete
chimneys and storage silos. WTI offers both custom and pre-engineered systems
for emission control. The custom engineering division licenses a patented
process for the removal of hydrogen sulfide from gaseous and liquid streams.
The process controls hazardous gases and sulfur dioxide emissions, thereby
reducing acid rain and odor problems. WTI also provides a full range of
technologies and services for destroying or recycling volatile organic
compounds ("VOCs") from air and liquid sources and NOx from air sources. Both
VOCs and NOx are detrimental to air quality and the environment generally.
WTI's VOC and NOx control systems are utilized by customers in a variety of
industries, including oil refineries, chemical plants and automobile production
facilities. Complementing the emission control divisions is a measurement
division which designs and installs continuous emissions monitoring systems for
the utility, trash-to-energy, industrial furnace and petrochemical industries,
all of which are affected by regulations requiring the continuous monitoring of
stack emissions.
Wheelabrator Clean Water
Through Wheelabrator Water Technologies, Inc. and its subsidiaries, WTI
develops, operates and owns projects that purify water, treat water and
wastewater, compost organic wastes and treat and manage biosolids. WTI also
provides products and systems used to treat drinking water as well as
industrial and municipal process water and wastewater.
WTI is a leading provider of a broad range of water and wastewater treatment
services to municipalities and industry throughout the United States, Canada
and Mexico, including water and wastewater treatment plant start-up assistance,
plant operations and maintenance, planning and
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management, training of plant supervisors, operators and laboratory and
maintenance personnel, refining process systems, management systems for process
control, and plant diagnostic evaluations and energy audits. WTI also provides
specialty repair and cleaning services for industrial water and wastewater
management equipment.
In July 1995, WTI became the first company in the United States to acquire a
publicly owned wastewater treatment plant pursuant to a federal Executive Order
issued in 1992 which was intended to facilitate the privatization of municipal
facilities. The agreement provides for a subsidiary of WTI to operate the 4.5
million gallon per day MCD Franklin Wastewater Treatment Plant in Franklin,
Ohio for a period of 20 years and to expand the facility as needed to meet
future population growth. In August 1995, WTI was selected by the City of
Wilmington, Delaware to negotiate a similar public-private partnership,
including the acquisition of that City's wastewater treatment plant.
WTI also provides a range of biosolids management services, including land
application, drying, pelletizing, alkaline stabilization and composting of non-
hazardous biosolids to approximately 450 communities, typically pursuant to
multi-year contracts under which WTI is paid by the generator to make
beneficial use of the biosolids.
Land application involves the application of non-hazardous biosolids as a
natural fertilizer on farmland pursuant to rigorous site-specific permits
issued by applicable state authorities. Biosolids are also used in land-
reclamation projects such as strip mines. Regulations issued by the EPA in
December 1992 under the Clean Water Act encourage the beneficial use of
municipal sewage sludge by recognizing the resource value of biosolids as a
fertilizer and soil conditioner, and establish requirements for land
application designed to protect human health and the environment.
WTI also develops and operates facilities at which biosolids are dried and
pelletized and has four facilities currently in operation, and one other
facility under construction. WTI has approximately 560 dry-tons-per-day of
biosolids drying capacity either in operation or under construction. Biosolids
which have been dried are generally used as fertilizer by farmers, commercial
landscapers and nurseries and as a bulking agent by fertilizer manufacturers.
Development of dryer facilities generally involves various contractual
arrangements with a variety of private and public entities, including
municipalities (which generate the biosolids), lenders, contractors and
subcontractors which build the facilities, and end-users of the fertilizer
generated from the treatment process. WTI also engineers and manufactures a
variety of environmental products and systems. WTI provides single-source,
advanced-systems solutions for the treatment of municipal drinking water,
industrial process water and wastewater and for slurry pumping and high solids
dewatering. It also provides systems designed to remove solids from liquid
streams through the use of self-cleaning bar/filter screens, grinders,
macerators, conveyors and compactor systems. WTI also provides high technology
water purification and wastewater treatment systems which utilize a variety of
technologies including demineralizers, reverse osmosis and vacuum
degasification products. In addition, WTI designs and installs process
technology systems utilizing evaporators, crystallizers, electrodialysis,
dialysis, reverse osmosis and ultrafiltration for treating industrial process
wastewater. WTI also produces profile wire screen products for groundwater
production, hydrocarbon processing, food processing and coal/mineral
processing. WTI also designs and supplies enclosed automated composting systems
which recycle organic wastes into beneficial products which are used by
commercial landscapers, nurseries and fertilizer manufacturers. WTI provides a
number of these products and technologies to industrial customers abroad
through its operations in Australia, France, Ireland, Japan, Malaysia, The
Netherlands, Singapore, Spain and Taiwan.
WTI also manufactures a line of nonpolluting materials cleaning systems for
use by a variety of industrial customers, including foundries, steel
processors, automobile producers and rubber and plastics producers, in cleaning
and finishing metal and other materials. WTI also manufactures high-alloy
combustion grates used in the high-temperature furnaces of its trash-to-energy
facilities.
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ENVIRONMENTAL AND INFRASTRUCTURE ENGINEERING AND CONSULTING SERVICES
Rust is a leading provider, through its subsidiaries, of environmental and
infrastructure engineering and consulting services, primarily to clients in
government and in the chemical, petrochemical, nuclear, energy, utility, pulp
and paper, manufacturing, environmental services and other industries.
Rust's environmental and infrastructure engineering and consulting services
provide alternative solutions for client problems relating to removing and
disposing of hazardous and toxic substances; managing solid waste, water and
wastewater, groundwater and air resources; design and construction oversight of
transportation facilities; and photogrammetry. Such services are provided to
private industry, as well as federal, state and local governments, including
the Department of Defense (the "DOD") and the Department of Energy (the "DOE").
The services include performing remedial investigations for the purpose of
characterizing hazardous waste sites, preparing feasibility studies setting
forth recommended alternative remedial actions, and providing engineering
design and construction oversight services for remediation projects. The
services provided also include the siting, permitting, design and construction
oversight of solid and hazardous waste landfills and related facilities. Study,
design and construction oversight services are also provided, primarily to
municipalities, special government agencies and, to some extent, private
industry in connection with wastewater collection and treatment, potable water
supply treatment and distribution, stormwater management and the building of
streets, highways, airports, bridges, waterways and rail services. Rust also
provides architectural services in connection with these and other activities.
Additional services provided through Rust include environmental assessment
services, the design of systems to properly and safely store, convey, treat and
dispose of industrial, hazardous and radioactive materials and consulting
services regarding disposal, waste minimization methods and techniques, air
quality regulation and industrial hygiene and safety.
Rust also has an international environmental and infrastructure engineering
and consulting, process engineering and construction services and related
services business performing projects in 35 countries. In Europe, Rust has
offices in the United Kingdom, Germany, Sweden and Turkey, and in the Asia-
Pacific region, in Australia, Hong Kong, China, Singapore, Malaysia and
Indonesia. In the Middle East and Africa, Rust also has offices in the United
Arab Emirates, Saudi Arabia and South Africa. Rust's overseas operations
provide such services to the World Bank and associated lending agencies,
national, regional and local governments and to clients in the utility and
industrial power and general manufacturing industries. In addition, Rust
provides such services to Waste Management International worldwide.
In May 1995, Rust sold substantially all of its hazardous and radioactive
remediation services business to OHM. As a result of that transaction, Rust
acquired an approximately 37% interest in OHM. See "Acquisitions and
Dispositions."
Rust also engages in providing process engineering, construction, specialty
contracting and related services, but has announced its intention to sell or
otherwise discontinue that business in North America and certain locations
outside North America. The process engineering services currently provided by
Rust are of two general types: facility process engineering and facility design
engineering. Process engineers create the processes by which facilities
operate, such as chemical, petrochemical, energy and pulp and paper plants.
Design engineering services provided by Rust encompass the following
disciplines: architectural, electrical, control systems, process piping,
mechanical, structural, HVAC, and civil. The construction services currently
provided by Rust are generally performed in connection with projects on which
Rust has also provided the design engineering services. Rust also requisitions
and procures equipment and construction materials for clients and performs
quality assurance and quality control oversight of vendor manufacturing
practices. On May 20, 1996, the Company announced that Rust signed an agreement
to sell Rust's industrial process engineering and construction business based
in Birmingham, Alabama to Raytheon Engineers & Constructors, Inc., a subsidiary
of Raytheon Company.
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Rust also has scaffolding and other on-site industrial services businesses,
which are managed by Waste Management. See "Waste Services--Solid Waste
Management, Recycling and Related Services--Related Services" above.
REGULATION
While in general the Company's environmental services businesses have
benefited substantially from increased governmental regulation, the
environmental services industry itself has become subject to extensive and
evolving regulation by federal, state, local and foreign authorities. In
particular, the regulatory process requires firms in the Company's industries
to obtain and retain numerous governmental permits to conduct various aspects
of their operations, any of which may be subject to revocation, modification or
denial. As a result of governmental policies and attitudes relating to the
industries, which are subject to reassessment and change, the Company believes
that its ability to obtain applicable permits from governmental authorities on
a timely basis, and to retain such permits, could be impaired. The Company is
not in a position at the present time to assess the extent of the impact of
such potential changes in governmental policies and attitudes on the permitting
processes, but it could be significant. In particular, adverse decisions by
governmental authorities on permit applications submitted by the Company may
result in abandonment of projects, premature closure of facilities or
restriction of operations, which could result in a loss of earnings from a
facility, a write-off of capitalized development expenses or both.
Federal, state, local and foreign governments have also from time to time
proposed or adopted other types of laws, regulations or initiatives with
respect to the environmental services industry. Included among them are laws,
regulations and initiatives to ban or restrict the international, interstate or
intrastate shipment of wastes, impose higher taxes on out-of-state waste
shipments than in-state shipments, reclassify certain categories of hazardous
wastes as non-hazardous and regulate disposal facilities as public utilities.
Certain state and local governments have promulgated "flow control"
regulations, which attempt to require that all waste generated within the state
or local jurisdiction must go to certain disposal sites. The United States
Congress has from time to time considered legislation that would enable or
facilitate such bans, restrictions, taxes and regulations. Due to the
complexity of regulation of the industry and to public pressure, implementation
of existing or future laws, regulations or initiatives by different levels of
government may be inconsistent and difficult to foresee. Many state and local
governments have enacted mandatory or voluntary recycling laws and bans on the
disposal of yard-waste in landfills. The effect of these and similar laws is to
reduce the volume of wastes that would otherwise be disposed in Company
landfills. In addition, municipalities and other governmental entities with
whom the Company contracts to provide solid waste collection or disposal
services, or both, may require the Company as a condition of securing the
business to provide recycling services and operate recycling and composting
facilities, which may cause the Company to incur substantial costs. The Company
makes a continuing effort to anticipate regulatory, political and legal
developments that might affect its operations but is not always able to do so.
The Company cannot predict the extent to which any legislation or regulation
that may be enacted, amended, repealed or enforced, or any failure or delay in
enactment or enforcement of legislation or regulations or funding of government
agencies or programs, in the future may affect its operations. Such matters
could have a material adverse impact on the Company's earnings for one or more
fiscal quarters or years.
The demand for certain of the services provided by the Company, particularly
its hazardous waste management services, is dependent on the existence and
enforcement of federal, state and foreign laws and regulations which govern the
discharge of hazardous substances into the environment and on the funding of
agencies and programs under such laws and regulations. Such businesses will be
adversely affected to the extent that such laws or regulations are amended or
repealed, with the effect of reducing the regulation of, or liability for, such
activity, that the enforcement of such laws and regulations is lessened or that
funding of agencies and programs under such laws and regulations is
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delayed or reduced. In particular, the EPA has recently proposed regulations
under RCRA to redefine the term "hazardous waste" for regulatory purposes.
Under the proposal, wastes containing minimal concentrations of hazardous
substances would no longer be subject to the stringent record-keeping,
handling, treatment and disposal rules applied to hazardous wastes under RCRA.
Other EPA-proposed regulations would cause certain wastes which presently must
be managed in TSCA-approved facilities to be eligible for disposal in
facilities not approved under TSCA. These proposed rules would, if adopted,
reduce the volume of wastes for which the Company's hazardous waste management
services are needed.
In addition to environmental laws and regulations, federal government
contractors, including the Company, are subject to extensive regulation under
the Federal Acquisition Regulation and numerous statutes which deal with the
accuracy of cost and pricing information furnished to the government, the
allowability of costs charged to the government, the conditions under which
contracts may be modified or terminated, and other similar matters. Various
aspects of the Company's operations are subject to audit by agencies of the
federal government in connection with its performance of work under such
contracts as well as its submission of bids or proposals to the government.
Failure to comply with contract provisions or other applicable requirements may
result in termination of the contract, the imposition of civil and criminal
penalties against the Company, or the suspension or debarment of all or a part
of the Company from federal government work, which could have a material
adverse impact upon the Company's financial condition or earnings for one or
more fiscal quarters or years. Among the reasons for debarment are violations
of various statutes, including those related to employment practices, the
protection of the environment, the accuracy of records and the recording of
costs. Some state and local governments have similar suspension and debarment
laws or regulations.
Because of the high level of public awareness of environmental issues,
companies in the environmental service business, including the Company, may in
the normal course of their business be expected periodically to become subject
to judicial and administrative proceedings. Governmental agencies may seek to
impose fines on the Company or revoke, deny renewal of, or modify the Company's
operating permits or licenses. The Company is also subject to actions brought
by private parties or special interest groups in connection with the permitting
or licensing of its operations, alleging violations of such permits and
licenses, or other matters. In addition, increasing governmental scrutiny of
the environmental compliance records of the Company, CWM, WTI, Rust, Waste
Management International or their affiliates could cause a private or public
entity seeking environmental services to disqualify the Company from competing
for one or more projects, on the grounds that these records display inadequate
attention to environmental compliance.
WASTE SERVICES
Solid Waste
Operating permits are generally required at the state and local level for
landfills, transfer stations and collection vehicles. Operating permits need to
be renewed periodically and may be subject to revocation, modification, denial
or non-renewal for various reasons, including failure of the Company to satisfy
regulatory concerns. With respect to solid waste collection, regulation takes
such forms as licensing of collection vehicles, truck safety requirements,
vehicular weight limitations and, in certain localities, limitations on rates,
area, time and frequency of collection. With respect to solid waste disposal,
regulation covers various matters, including landfill location and design,
groundwater monitoring, gas control, liquid runoff and rodent, pest, litter and
traffic control. Zoning and land use requirements and limitations are
encountered in the solid waste collection, transfer, recycling and energy
recovery and disposal phases of the Company's business. In almost all cases the
Company is required to obtain conditional use permits or zoning law changes in
order to develop transfer station, resource recovery or disposal facilities. In
addition, the Company's disposal facilities are subject to water and air
pollution laws and regulations. Noise pollution laws and regulations may also
affect the
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Company's operations. Governmental authorities have the power to enforce
compliance with these various laws and regulations and violators are subject to
injunctions, fines and revocation of permits. Private individuals may also have
the right to sue to enforce compliance. Safety standards under the Occupational
Safety and Health Act ("OSHA") are also applicable to the Company's solid waste
and related services operations.
The EPA and various states acting pursuant to EPA-delegated authority have
promulgated rules pursuant to RCRA which serve as minimum requirements for land
disposal of municipal wastes. The rules establish more stringent requirements
than previously applied to the siting, construction, operation and closure of
all but the smallest municipal waste landfill facilities. In certain cases, the
failure of some states to adopt the federal requirements may increase costs to
meet inconsistent federal and state laws applicable to the same facility. The
Company does not believe that continued compliance with the more stringent
minimum requirements will have a material adverse effect on the Company's
operations. See also "RCRA" and "Superfund" below for additional regulatory
information.
In March 1996, the EPA issued regulations that require large, municipal solid
waste landfills to install and monitor systems to collect and control landfill
gas. The regulations apply to landfills that are designed to accommodate 2.5
million cubic meters or more of municipal solid waste and that accepted waste
for disposal after November 8, 1987, regardless of whether the site is active
or closed. The date by which each affected landfill must have such gas
collection and control system depends on whether the landfill began operation
before or after May 30, 1991. Landfills constructed, reconstructed, modified or
first accepting waste after May 30, 1991 generally must have systems in place
by late 1998. Older landfills generally will be regulated by the states and
will be required to have landfill gas systems in place within approximately 30
months of EPA's approval of the state program. Many state solid waste
regulations already require collection and control systems. While the Company
has not yet completed its study of the new regulations, compliance with them is
not expected to have a material adverse effect on the Company.
Hazardous Waste
Waste Management and CWM are required to obtain federal, state, local and
foreign governmental permits for their chemical waste treatment, storage and
disposal facilities. Such permits are difficult to obtain, and in most
instances extensive geological studies, tests and public hearings are required
before permits may be issued. Waste Management's and CWM's chemical waste
treatment, storage and disposal facilities are also subject to siting, zoning
and land use restrictions, as well as to regulations (including certain
requirements pursuant to federal statutes) which may govern operating
procedures and water and air pollution, among other matters. In particular,
Waste Management's and CWM's operations in the United States are subject to the
Safe Drinking Water Act (which regulates deep well injection), TSCA (pursuant
to which the EPA has promulgated regulations concerning the disposal of PCBs),
the Clean Water Act (which regulates the discharge of pollutants into surface
waters and sewers by municipal, industrial and other sources) and the Clean Air
Act (which regulates emissions into the air of certain potentially harmful
substances). In their transportation operations, Waste Management and CWM are
subject to the jurisdiction of the Interstate Commerce Commission and regulated
by the DOT and by regulatory agencies in each state. Employee safety and health
standards under OSHA are also applicable.
Of Waste Management's and CWM's chemical waste treatment or disposal
facilities in the United States, all but one have been issued permits under
RCRA. The facility without a RCRA permit continues to have interim status. A
final permit is to be issued jointly by the authorized state, subject to EPA
oversight, and by the EPA. The regulations governing issuance of permits
contain detailed standards for hazardous waste facilities on matters such as
waste analysis, security, inspections, training, preparedness and prevention,
emergency procedures, reporting and recordkeeping. Once issued, a final permit
has a maximum fixed term of 10 years, and such permits for land disposal
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facilities are required to be reviewed five years from the date of issuance.
The issuing agency (either the EPA or an authorized state) may review or modify
a permit at any time during its term.
The Company believes that Waste Management and CWM maintain each of their
operating treatment, storage or disposal facilities in substantial compliance
with the applicable requirements promulgated pursuant to RCRA and expects that
the facility with interim status ultimately can qualify to be issued a RCRA
permit. It is possible, however, that the issuance or renewal of a permit could
be made conditional upon the initiation or completion of modifications or
corrective actions at facilities, which might involve substantial additional
capital expenditures on the part of Waste Management or CWM. Although the
Company is informed that Waste Management and CWM anticipate the
reauthorization of each permit at the end of its term if the facility's
operations are in compliance with applicable requirements, there can be no
assurance that such will be the case.
The radioactive waste services of Chem-Nuclear are also subject to extensive
governmental regulation. Due to the extensive geological and hydrological
testing and environmental data required, and the complex political environment,
it is difficult to obtain permits for radioactive waste disposal facilities.
Various phases of Chem-Nuclear's low-level radioactive waste management
services are regulated by various state agencies, the United States Nuclear
Regulatory Commission (the "NRC") and the DOT. Regulations applicable to Chem-
Nuclear's operations include those dealing with packaging, handling, labeling
and routing of radioactive materials, and prescribe detailed safety and
equipment standards and requirements for training, quality control and
insurance, among other matters. Employee safety and health standards under OSHA
are also applicable.
See also "RCRA" and "Superfund" below for additional regulatory information.
Clean Energy, Clean Water and Related Services
WTI's business activities are subject to environmental regulation under
federal, state and local laws and regulations, including the Clean Air Act, the
Clean Water Act and RCRA. The Company believes that WTI's business is conducted
in an environmentally responsible manner in material compliance with applicable
laws and regulations. The Company does not anticipate that WTI's maintaining
compliance with current requirements will result in any material decrease in
earnings. There can be no assurance, however, that such requirements will not
change so as to require significant additional expenditures. In particular,
pursuant to the Clean Air Act Amendments of 1990 it is probable that the air
pollution control systems at certain trash-to-energy projects owned or operated
by WTI's subsidiaries will be required to be modified by the end of the decade
to comply with the more stringent regulations promulgated thereunder. Although
the expenditures related to such modifications, if required, will likely be
significant, they are not expected to have a material adverse effect on WTI's
liquidity or results of operations because WTI has the right to pass on to the
majority of long-term contract users of its facilities increased capital and
operating costs resulting from changes in law. There can be no assurance,
however, that in such event WTI would be able to recover, for each project, all
such increased costs from its customers. Moreover, it is possible that future
developments, such as increasingly strict requirements of environmental laws,
and enforcement policies thereunder, could affect the manner in which WTI
operates its projects and conducts its business, including the handling,
processing or disposal of the wastes, by-products and residues generated
thereby.
WTI's energy facilities are also subject to the provisions of various energy-
related laws and regulations, including the Public Utility Regulatory Policies
Act of 1978 ("PURPA"). The ability of WTI's trash-to-energy and small power
production facilities to sell power to electric utilities on advantageous terms
and conditions and to avoid burdensome public utility regulation has
historically depended, in part, upon the continuing applicability of certain
provisions of PURPA, which generally exempts WTI from state and federal
regulatory control over electricity prices charged by, and the
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finances of, WTI and its energy-producing subsidiaries. While the recent
changes in Congressional leadership may increase the likelihood of a repeal or
modification of PURPA, it is unlikely that such action would abrogate the long-
term contracts and orders pursuant to which most of WTI's existing projects
sell electricity. Furthermore, the operations of WTI's trash-to-energy and
other small power facilities business is not expected to be materially and
adversely affected if the various benefits of PURPA are repealed or
substantially reduced on a prospective basis, due to the passage of the Energy
Policy Act of 1992 ("EPACT"). EPACT created an alternative ownership mechanism
by which independent power producers can participate in the electricity
generation industry without the burdens of traditional public utility
regulation.
Environmental and Infrastructure Engineering and Consulting Services
The practice of engineering and architecture is regulated by state statutes.
All states require engineers and architects to be registered by their
respective state registration boards as a condition to offering or rendering
professional services. Many states also require companies offering or rendering
professional services, such as Rust, to obtain certificates of authority.
Rust's businesses are also subject to OSHA regulations and to NRC regulations
concerning services provided to nuclear power plants.
RCRA
Pursuant to RCRA, the EPA has established and administers a comprehensive,
"cradle-to-grave" system for the management of a wide range of industrial by-
products and residues identified as "hazardous" wastes. States that have
adopted hazardous waste management programs with standards at least as
stringent as those promulgated by the EPA may be authorized by the EPA to
administer their programs in lieu of RCRA.
Under RCRA and federal transportation laws, a transporter must deliver
hazardous waste in accordance with a manifest prepared by the generator of the
waste and only to a treatment, storage or disposal facility having a RCRA
permit or interim status under RCRA. Every facility that treats or disposes of
hazardous wastes must obtain a RCRA permit from the EPA or an authorized state
and must comply with certain operating standards. The RCRA permitting process
involves applying for interim status and also for a final permit. Under RCRA
and the implementing regulations, facilities which have obtained interim status
are allowed to continue operating by complying with certain minimum standards
pending issuance of a permit.
RCRA also imposes restrictions on land disposal of certain hazardous wastes
and prescribes standards for hazardous waste land disposal facilities. Under
RCRA, land disposal of certain types of untreated hazardous wastes has been
banned except where the EPA has determined that land disposal of such wastes
and treatment residuals should be permitted. The disposal of liquids in
hazardous waste land disposal facilities is also prohibited.
The EPA from time to time considers fundamental changes to its regulations
under RCRA that could facilitate exemptions from hazardous waste management
requirements, including policies and regulations that could implement the
following changes: redefine the criteria for determining whether wastes are
hazardous; prescribe treatment levels which, if achieved, could render wastes
non-hazardous; encourage further recycling and waste minimization; reduce
treatment requirements for certain wastes to encourage alternatives to
incineration; establish new operating standards for combustion technologies;
and indirectly encourage on-site remediation. To the extent such changes are
adopted, they can be expected to adversely affect the demand for the Company's
chemical waste management services. In this regard, the EPA has recently
proposed regulations which would have the effect of reducing the volume of
waste classified as hazardous for RCRA regulatory purposes. See "Regulation"
above.
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In addition to the foregoing provisions, RCRA regulations require the Company
to demonstrate financial responsibility for possible bodily injury and property
damage to third parties caused by both sudden and nonsudden accidental
occurrences. See "Insurance" below. Also, RCRA regulations require the Company
to provide financial assurance that funds will be available when needed for
closure and post-closure care at its waste treatment, storage and disposal
facilities, the costs of which could be substantial. Such regulations allow the
financial assurance requirements to be satisfied by various means, including
letters of credit, surety bonds, trust funds, a financial (net worth) test and
a guarantee by a parent corporation. Under RCRA regulations, a company must pay
the closure costs for a waste treatment, storage or disposal facility owned by
it upon the closure of the facility and thereafter pay post-closure care costs.
If such a facility is closed prior to its originally anticipated time, it is
unlikely that sufficient funds will have been accrued over the life of the
facility to fund such costs, and the owner of the facility could suffer a
material adverse impact as a result. Consequently, it may be difficult to close
such facilities to reduce operating costs at times when, as is currently the
case in the hazardous waste services industry, excess treatment, storage or
disposal capacity exists.
Superfund
Superfund provides for EPA-coordinated response and removal actions to
releases of hazardous substances into the environment, and authorizes the
federal government either to clean up facilities at which hazardous substances
have created actual or potential environmental hazards or to order persons
responsible for the situation to do so. Superfund assigns liability for these
response and other related costs to parties involved in the generation,
transfer and disposal of such hazardous substances. Superfund has been
interpreted as creating strict, joint and several liability for costs of
removal and remediation, other necessary response costs and damage to natural
resources. Liability extends to owners and operators of waste disposal
facilities (and waste transportation vehicles) from which a release occurs,
persons who owned or operated such facilities at the time the hazardous
substances were disposed, persons who arranged for disposal or treatment of a
hazardous substance at or transportation of a hazardous substance to such a
facility, and waste transporters who selected such facilities for treatment or
disposal of hazardous substances, as well as to generators of such substances.
Liability may be trebled if the responsible party fails to perform a removal or
remedial action ordered under the law. For additional information concerning
potential Superfund liability, see "Legal Proceedings" below.
Superfund created a revolving fund to be used by the federal government to
pay for the cleanup efforts. In late 1990, federal Superfund spending through
the end of the government's 1994 fiscal year was authorized to a maximum of
$5.1 billion. For the federal government's 1995 fiscal year, a maximum of $1.4
billion of Superfund spending was authorized. As of the date of this report,
the federal government had not approved any 1996 Superfund spending
authorization.
The U. S. Congress is expected to consider reauthorization and revision of
the Superfund statute in 1996. In addition to possible changes in the statute's
funding mechanisms and provisions for allocating cleanup responsibility, it is
possible that Congress also will fundamentally alter the statute's provisions
governing the selection of appropriate site cleanup remedies. For example,
Congress may consider whether to continue Superfund's current reliance on
stringent technology standards issued under other statutes (such as RCRA) to
govern removal and treatment of remediation wastes or to adopt new approaches
such as national or site-specific risk based standards. This and other
potential policy changes could significantly affect the stringency and extent
of site remediation, the types of remediation techniques that will be employed,
and the degree to which permitted hazardous waste management facilities will be
used for remediation wastes. In addition, Congress may consider revision of the
liability imposed by the Superfund law for remediation of contamination caused
prior to a party's acquisition of a contaminated site, which could reduce the
remediation obligations of the Company and others who currently are jointly and
severally liable for remediation obligations under Superfund.
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International Waste Management and Related Services
Waste Management International's operations are subject to the general
business, liability, land-use planning and other environmental laws and
regulations of the countries where the services are performed and, in Europe,
to European Union ("EU") regulations and directives. The degree of local
enforcement of applicable laws and regulations varies substantially between,
and even within, the various countries in which Waste Management International
operates. In addition to the statutes and regulations imposed by national,
state or provincial, and municipal or other local authorities, many of the
countries in which Waste Management International operates are members of the
EU. The EU has issued and continues to issue environmental Directives and
Regulations covering a broad range of environmental matters and has created a
European Environmental Agency responsible for monitoring and collating member
state environmental data. The Single European Act, passed in 1987, established
three fundamental principles to guide the development of future EU
environmental law: (i) the need for preventative action; (ii) the correction of
environmental problems at the source; and (iii) the polluter's liability for
environmental damage.
The Treaty on European Union, signed in December 1991, came into force in
November 1993. The Treaty applies the principle of "sustainable development" as
a key component of EU policy-making and requires that environmental protection
be integrated into the definition and application of all EU laws. It also
introduced a new procedure for the adoption of waste management legislation
(other than for proposals of a primarily fiscal nature) which it is predicted
may result in the speedier implementation of EU waste laws.
The impact of current and future EU legislation will vary from country to
country according to the degree to which existing national requirements already
meet or fall short of the new EU standards and, in some jurisdictions, may
require extensive public and private sector investment and the development and
provision of the necessary technology, expertise, administrative procedures and
regulatory structures. These extensive laws and regulations are continually
evolving in response to technological advances and heightened public and
political concern.
Outside Europe, continuing industrialization, population expansion and
urbanization have caused increased levels of pollution with all of the
resultant social and economic implications. The desire to sustain economic
growth and address historical pollution problems is being accompanied by
investments in environmental infrastructure, particularly in Southeast Asia,
and the introduction of regulatory standards to further control industrial
activities.
The Company believes that Waste Management International's business is
conducted in material compliance with applicable laws and regulations and does
not anticipate that maintaining such compliance will adversely affect the
Company's financial position. There can be no assurance, however, that such
requirements will not change so as to require significant additional
expenditures or operating costs.
Waste Management International operates facilities in Hong Kong which are
owned by the Hong Kong government. Control of the Hong Kong government passes
to the People's Republic of China in 1997. Waste Management International is
unable to predict what impact, if any, this change will have on its operations
in Hong Kong.
COMPETITION
Waste Management encounters intense competition, primarily in the pricing and
rendering of services, from various sources in all phases of its solid waste
management and related operations. In the solid waste collection phase,
competition is encountered, for the most part, from national, regional and
local collection companies as well as from municipalities and counties (which,
through use of tax revenues, may be able to provide such services at lower
direct charges to the customer than can Waste
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Management) and some large commercial and industrial companies which handle
their own waste collection. In the solid waste transfer, resource recovery and
disposal phases of its operations, competition is encountered primarily from
municipalities, counties, local governmental agencies, other national or
regional waste management companies and certain large corporations not
primarily involved in the solid waste management services business. The Company
also encounters intense competition in pricing and rendering of services in its
medical and infectious waste management, portable sanitation and street
sweeping and parking lot cleaning services businesses from numerous large and
small competitors.
In its hazardous waste management operations, the Company encounters
competition from a number of sources, including several national or regional
firms specializing primarily in chemical waste management, local waste
management concerns and, to a much greater extent, generators of chemical
wastes which seek to reduce the volume of or otherwise process and dispose of
such wastes themselves. The basis of competition is primarily technical
expertise and the price, quality and reliability of service.
Waste Management International encounters intense competition from local
companies and governmental entities in particular countries, as well as from
major international companies. Pricing, quality of service and type of
equipment utilized are the primary methods of competition for collection
services, and proximity of suitable treatment or disposal facilities, technical
expertise, price, quality and reliability of services are the primary methods
of competition for treatment and disposal services.
WTI experiences substantial competition in all aspects of its business. It
competes with a large number of firms, both nationally and internationally,
some of which may have substantially greater financial and technical resources
than WTI. The principal competitive factors with respect to its project
development activities include technological performance, service, technical
know-how, price and performance guarantees. Competing for selection as a
project developer may require commitment of substantial resources over a long
period of time, without any certainty of being ultimately selected. Competition
for attractive development opportunities is intense, as there are a number of
competitors in the industry interested in such opportunities.
The service industries in which Rust competes are highly competitive. Rust
encounters intense competition, primarily in pricing, quality and reliability
of services from various sources in all aspects of its environmental and
infrastructure engineering and consulting services operations.
Pursuant to the First Amended and Restated International Business
Opportunities Agreement, dated January 1, 1993, by and among CWM, WTI, Waste
Management International, Inc., Waste Management International, Rust and the
Company (as amended, the "IBOA"), which agreement is also a successor to
certain prior agreements among certain of the parties, each of CWM, WTI, Rust
and the Company has agreed that, until the later of July 1, 2000 or the date on
which the Company ceases to beneficially own a majority of the outstanding
voting equity interests of such subsidiary or ceases to beneficially own a
majority of the outstanding voting equity interests of Waste Management
International, and in each case no longer has an option to obtain such
ownership, such subsidiary or the Company will not engage (except through Waste
Management International) in waste management services; design, development,
construction and operation of trash-to-energy facilities in Italy or Germany;
collection, storage, processing, treatment or disposal of hazardous wastes
(including hazardous substance remediation services); or design, engineering
and construction (where the customer is seeking third-party operation),
operation and maintenance of water, wastewater and sewage treatment facilities
(including facilities for treating hazardous waste streams whether or not the
customer is seeking third-party operation) outside North America (i.e., the
United States, its
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territories and possessions, Canada and Mexico) (the "Waste Management
International Allocated Activities"), except with respect to licensing of
technology and minor interests of CWM, WTI or Rust in publicly held entities.
WTI may engage outside North America in the design, engineering, construction,
operation and maintenance of chimneys and air pollution control facilities (the
"WTI Allocated Activities"). Rust may engage outside North America in
activities relating to (i) architectural services, (ii) engineering and design
services and procurement, construction and construction management services
(including marine construction and dredging), other than those relating to the
Waste Management International Allocated Activities and the WTI Allocated
Activities, (iii) scaffolding services, (iv) demolition and dismantling
services, (v) environmental consulting services, and (vi) industrial facility
and power plant maintenance services (the "Rust Allocated Activities"). Sales
by the Company of recyclables, licensing of technology and minor investments by
the Company in publicly held entities are also permitted activities of the
Company outside North America. Waste Management International has agreed that
for the same time periods as are applicable to CWM, WTI, Rust and the Company
above in this paragraph, it will not engage in North America in the type of
activities included within the Waste Management International Allocated
Activities outside North America and will not engage in the WTI Allocated
Activities or the Rust Allocated Activities. Businesses or assets acquired by a
party to the IBOA which are in the domain of another party thereto (according
to the allocations described above) must be offered for sale to the other party
at fair market value.
In addition, WTI and Waste Management International have entered into an
agreement whereby WTI will have primary responsibility for the early-stage
development of trash-to-energy projects outside North America (except in Italy
and Germany) and Waste Management International will have the right to acquire
up to 49% of all equity of any such project available to Waste Management
International, WTI and their affiliates, with WTI or other investors owning the
balance. This arrangement is non-cancellable by WTI or Waste Management
International without the other's consent prior to 2000. If the arrangement is
cancelled, the right to develop trash-to-energy projects reverts to being part
of the Waste Management International Allocated Activities.
By agreement among the parties, the Company is responsible for determining
business allocations among CWM, WTI, Rust, the Company and Waste Management
International which are not controlled by the allocations set forth in the
preceding two paragraphs. In this connection CWM, WTI, Rust, the Company and
Waste Management International have agreed that in order to minimize the
potential for conflicts of interest among various subsidiaries under the common
control of the Company and for so long as the Company shall have beneficial
ownership of a majority of the outstanding voting equity interests of such
subsidiary (or an option to obtain such ownership), the Company has the right
to direct future business opportunities to the Company or the Company-
controlled subsidiary which, in the Company's reasonable and good faith
judgment, has the most experience and expertise in that line of business,
provided that the Company may not allocate a business opportunity to a
particular subsidiary if such business opportunity would involve the subsidiary
in a breach of its agreement not to compete as described in the immediately
preceding paragraphs. Opportunities outside North America relating to the
provision of future waste management services are generally to be allocated to
Waste Management International, except that opportunities outside North America
relating to the WTI Allocated Activities and the Rust Allocated Activities are
generally to be allocated to WTI and Rust, as the case may be. Environmental
opportunities other than waste management activities are to be allocated in the
Company's good faith judgment. No party is liable for consequential damages,
except for lost profits, for any breach of the IBOA.
In addition, in connection with the transfer by Rust of its hazardous and
radioactive substance remediation business (see "Acquisitions and Dispositions"
below), the Company, Rust and their respective wholly owned affiliates agreed
with OHM not to engage in providing on-site hazardous and radioactive substance
remediation services in North America prior to 2002.
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INSURANCE
While the Company believes it operates professionally and prudently, its
business exposes it to risks such as the potential for harmful substances
escaping into the environment and causing damage or injuries, the cost of which
could be substantial. The Company currently maintains liability insurance
coverage for occurrences under various environmental impairment, primary
casualty and excess liability insurance policies.
The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and pollutants.
The Company believes that the coverage terms, available limits of liability,
and costs currently offered by the insurance market do not represent sufficient
value to warrant the purchase of "non-sudden and accidental" pollution
liability insurance coverage. As such, the Company has chosen not to purchase
risk transfer "non-sudden and accidental" pollution liability insurance
coverage. To satisfy existing government requirements, the Company has secured
non-risk transfer pollution liability insurance coverage in amounts believed to
be in compliance with federal and state law requirements for "non-sudden and
accidental" pollution. The Company must reimburse the insurer for losses
incurred and covered by this insurance policy. In the event the Company
continues not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage, the Company's net income could be adversely
affected in the future if "non-sudden and accidental" pollution losses should
occur.
EMPLOYEES
WMX Technologies and its subsidiaries employ a total of approximately 73,200
persons in their worldwide continuing operations. Of this number, the Company
employs approximately 38,700 persons in its North American solid and hazardous
waste management services operations (excluding employees of the Rust
scaffolding and other on-site industrial services business operated by Waste
Management). Of this total, 35,900 persons are engaged in its Waste Management
solid waste and related services operations, including approximately 27,200
persons employed in solid waste collection, transfer, resource recovery and
disposal activities, and approximately 8,700 managerial, executive, sales,
clerical, data processing and other solid waste and related activities.
Approximately 2,800 employees are employed in the Company's hazardous waste
services business, including 100 as managers or executives. Approximately 2,000
are employed in hazardous waste treatment, storage and disposal activities
(including approximately 530 performing technical, analytical or engineering
services), and approximately 700 are employed in sales, clerical, data
processing and other hazardous waste-related activities.
As of December 31, 1995, Waste Management International employed
approximately 18,500 persons. Of this number, approximately 14,900 persons were
employed in its collection services operations, 2,400 in its treatment and
disposal services operations and 1,200 in administrative functions.
At December 31, 1995, WTI had approximately 4,600 full-time employees.
Rust employed approximately 11,400 persons at December 31, 1995 (excluding
its process engineering and construction, specialty contracting and related
services business which is to be sold or otherwise discontinued, but including
the scaffolding and other on-site industrial services business managed by Waste
Management), of whom approximately 4,200 provided technical or engineering
services (excluding craft personnel hired on a temporary basis).
At December 31, 1995, approximately 6,900 of the Company's employees in North
America were unionized, primarily in the Company's solid waste and related
services operations, under collective bargaining agreements expiring on various
dates through 2002. At December 31, 1995, approximately
53
<PAGE>
13,900 Waste Management International employees were represented by labor
unions. The Company believes its employee relations are acceptable.
ACQUISITIONS AND DISPOSITIONS
Since August 1971, the Company has acquired a number of companies, and
certain assets of other companies, engaged in various phases of the
environmental services industry. See Note 4 to the Company's Consolidated
Financial Statements filed as an exhibit to this report and incorporated herein
by reference. The amounts and types of consideration generally have been
determined by direct negotiations with the owners of the businesses acquired.
In most instances, the owners of the acquired businesses were few in number,
and often certain key former owners have continued to operate the businesses
following acquisition by the Company. During 1995, the Company continued to
acquire additional operations in the environmental services industry.
Acquisitions have historically contributed significantly to the Company's
growth. However, in recent years the Company's acquisition activity relative to
the size of its revenue base has decreased. The Company's growth prospects may
be affected by the availability of additional business acquisitions at
reasonable prices and the Company's ability to finance such acquisitions. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere herein for a discussion of capital expenditures
by the Company, including acquisitions. Other well-capitalized companies also
compete intensely for businesses available to be acquired. The Company is
continually engaged in the process of considering and negotiating additional
acquisitions. Some future acquisitions could be material. The acquisition of
businesses also entails certain inherent risks. Although the Company reviews
businesses to be acquired, because of the nature of the liabilities involved in
these businesses, there can be liabilities which will not become known until
after the transactions are consummated. The Company seeks to minimize the
impact of these liabilities and expenditures by obtaining indemnities and
warranties from the seller which may be supported by deferring payment of a
portion of the purchase price. These indemnities and warranties, if obtained,
may not, however, fully cover the liabilities due to their limited scope,
amount, or duration, the financial limitations of the indemnitor or warrantor,
or other reasons. Businesses purchased may require expenditures to make up for
deferred maintenance and to improve the quality or quantity of assets acquired.
In certain cases, the Company establishes reserves in respect of the
anticipated costs of remediation for acquired sites.
On January 24, 1995, the Company acquired CWM common stock representing the
approximately 21% interest in CWM held at that time by public stockholders. The
acquisition occurred pursuant to a merger (the "Merger") in which all publicly
held shares of CWM common stock were converted into convertible subordinated
notes of the Company due January 24, 2005 and having a principal amount at
maturity of $1,000 per note (the "Notes"), subject to the payment of cash in
lieu of the issuance of fractional Notes. For a description of the terms of the
Notes, see Note 5 to the Company's Consolidated Financial Statements. The
Merger was approved by a committee of independent directors of CWM and by a
majority of the public stockholders of CWM. As a result of the Merger, CWM
became a wholly owned subsidiary of the Company.
On March 14, 1995, the Company's Board of Directors approved a plan to reduce
the scope of the Company's chemical waste management services business by
selling or otherwise eliminating technologies and service locations which were
not meeting customer service or performance objectives. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--1995
Operations Compared with 1994--CWM," included elsewhere herein for further
information.
In May 1995, OHM acquired Rust's hazardous and radioactive substance
remediation business in exchange for an approximately 37% interest in OHM. In
exchange for warrants to acquire an additional approximately 2.6% of OHM common
stock, the Company also agreed in that transaction to guarantee up to $62
million of indebtedness of OHM.
54
<PAGE>
In July 1995, the Company acquired the approximately 4% of Rust's shares held
by the public for $16.35 per share in cash. The transaction was approved by a
special committee of independent directors appointed by the Rust Board of
Directors. As a result of that transaction, Rust became owned 60% by the
Company and 40% by WTI.
Additionally, Rust has announced its intention to sell or otherwise
discontinue its process engineering, construction, specialty contracting and
related services business. The terms of the sale have not yet been determined.
The Company expects the sale of those portions of the business which are to be
sold to be completed in 1996. On May 20, 1996, the Company announced that Rust
signed an agreement to sell Rust's industrial process engineering and
construction business based in Birmingham, Alabama, to Raytheon Engineers &
Constructors, Inc., a subsidiary of Raytheon Company.
In December 1995, the Company contributed its approximately 28% interest in
ServiceMaster Consumer Services L.P. ("SMCS"), a provider of lawn care, pest
control and other consumer services, to ServiceMaster L.P. ("SMLP"), the owner
of the remaining interest in SMCS, in exchange for an approximately 19%
interest in SMLP and an option to purchase up to 1.25 million SMLP limited
partnership shares.
The Company has also acquired numerous companies and interests in companies
internationally through Waste Management International or its predecessors. See
"International Waste Management and Related Services."
PROPERTY AND EQUIPMENT
The principal property and equipment of the Company consists of land
(primarily disposal sites), buildings and waste treatment or processing
facilities (other than disposal sites), and vehicles and equipment, which as of
December 31, 1995 represented approximately 18%, 6% and 27%, respectively, of
the Company's total consolidated assets. The Company believes that its
vehicles, equipment and operating properties are well maintained and suitable
for its current operations. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" for a discussion of property and
equipment expenditures by the Company for the last three years and the capital
budget for 1996. The Company's subsidiaries lease numerous office and operating
facilities throughout the world. For the year ended December 31, 1995,
aggregate annual rental payments on real estate leased by the Company and its
subsidiaries approximated $140,367,000.
The principal fixed assets of Waste Management consist of vehicles and
equipment (which include, among other items, approximately 20,800 collection
and transfer vehicles, 1,568,600 containers and 21,000 stationary compactors in
the United States and Canada). Waste Management owns or leases real property in
most states and Canadian provinces in which it is doing business. At December
31, 1995, 103 solid waste disposal facilities, aggregating approximately 65,740
total acres, including approximately 14,290 permitted acres, were owned by
Waste Management in the United States and Canada and 30 facilities, aggregating
approximately 13,340 total acres, including approximately 5,860 permitted
acres, were leased from parties not affiliated with Waste Management under
leases expiring from 1996 to 2085. At December 31, 1995, the Company owned or
leased in the United States a total of nine treatment, storage or disposal
facilities. At such date, the Company's seven chemical waste facilities with
secure land disposal sites aggregated approximately 7,865 acres, including
approximately 1,470 permitted acres.
The principal property and equipment of Waste Management International
consist of land (primarily disposal sites) and vehicles and equipment, which as
of December 31, 1995 represented approximately 13.1% and 30.3%, respectively,
of Waste Management International's assets. The principal fixed assets utilized
in Waste Management International's collection services operations at December
31, 1995 consisted of vehicles and equipment (which included, among other
items, approximately 7,000 collection, transportation, and other route vehicles
and approximately 300 pieces
55
<PAGE>
of landfill and other heavy equipment), and approximately 285,000 containers,
including approximately 3,550 stationary compactors. In addition, Waste
Management International owns approximately 710 pieces of hazardous waste
equipment, consisting predominately of containers and collection vehicles. The
principal fixed assets utilized in Waste Management International's treatment
and disposal services operations at December 31, 1995 consisted of 55
landfills, 23 waste treatment facilities, 79 recycling and recyclables
processing facilities, nine incinerators and various other manufacturing,
office and warehouse facilities owned, leased or operated by Waste Management
International.
WTI currently owns, operates or leases 16 trash-to-energy facilities, seven
cogeneration and small power production facilities, two coal handling
facilities, five biosolids drying, pelletizing and composting facilities, one
wastewater treatment plant and various other manufacturing, office and
warehouse facilities. Facilities leased or operated (but not owned) by WTI are
under leases or agreements having terms expiring from the years 1996 to 2020,
subject to renewal options in certain cases.
The principal property and equipment of Rust consist of the vehicles,
equipment and scaffolding inventory used in the scaffolding and other on-site
industrial services business managed by Waste Management, which as of December
31, 1995 represented approximately 14% of Rust's total continuing consolidated
assets. Rust believes that its equipment is well maintained and suitable for
its current operations. Rust leases its corporate offices in Greenville, South
Carolina and Birmingham, Alabama and numerous office, warehouse and equipment
and scaffolding yard facilities in various locations throughout the United
States.
56
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages (at April 1, 1996) of the
Company's executive officers and directors, the positions they hold with the
Company, and (because the Board of Directors is classified into three classes--
Class I, expiring at the 1998 annual stockholders meeting, Class II, expiring
at the 1999 annual stockholders meeting and Class III, expiring at the 1997
annual stockholders meeting) the classification of the Board to which they
belong. All directors hold their positions until the annual meeting of
stockholders at which their terms expire or until their respective successors
are elected and qualify. Executive officers are selected by the Board of
Directors and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dean L. Buntrock (1) (4)............... 64 Chairman of the Board and Director
Phillip B. Rooney (1) (3).............. 51 President and Director
James E. Koenig........................ 48 Senior Vice President, Treasurer and
Chief Financial Officer
D. P. Payne............................ 53 Senior Vice President-Marketing and
Communications
Herbert A. Getz........................ 40 Senior Vice President, General
Counsel and Secretary
Thomas C. Hau.......................... 60 Vice President, Controller and
Principal Accounting Officer
Donald A. Wallgren..................... 54 Vice President and Chief
Environmental Officer
William P. Hulligan.................... 52 Executive Vice President, Waste
Management
Joseph M. Holsten...................... 43 Chief Executive Officer, Waste
Management International
H. Jesse Arnelle (2)................... 62 Director
Howard H. Baker, Jr. (4)............... 70 Director
Dr. Pastora San Juan Cafferty (3)...... 55 Director
Jerry E. Dempsey (2)................... 63 Director
Dr. James B. Edwards (2)............... 68 Director
Donald F. Flynn (3).................... 56 Director
Peter H. Huizenga (4).................. 57 Director
Peer Pedersen (4)...................... 71 Director
James R. Peterson (3).................. 68 Director
Alexander B. Trowbridge (2)............ 66 Director
</TABLE>
- ----------
(1) Member of the Executive Committee of the Board of Directors
(2) Class I member
(3) Class II member
(4) Class III member
Dean L. Buntrock has been a director of the Company and has served as
Chairman of the Board and Chief Executive Officer of the Company since 1968.
Effective June 7, 1996, Mr. Buntrock will be succeeded as Chief Executive
Officer of the Company by Mr. Rooney, but will retain his position as Chairman
of the Board. From September 1980 to November 1984, he also served as
President. Mr. Buntrock is also a director of WTI, Waste Management
International and Boston Chicken, Inc.
57
<PAGE>
Phillip B. Rooney has served as a director of the Company since 1981 and as
its President and Chief Operating Officer since November 1984. Effective June
7, 1996, Mr. Rooney will become the Company's Chief Executive Officer. Since
January 1994, he has also served as Chairman of the Board and Chief Executive
Officer of Waste Management. Mr. Rooney commenced employment with the Company
in 1969 and first became an officer of the Company in 1971. Since November
1990, he has served as Chairman of the Board and Chief Executive Officer of
WTI. Mr. Rooney is also a director of Waste Management International, WTI,
Illinois Tool Works, Inc., Caremark International Inc., Urban Shopping Centers,
Inc., and ServiceMaster Management Corporation, the general partner of
ServiceMaster Limited Partnership.
Herbert A. Getz has been a Senior Vice President of the Company since May
1995, a Vice President of the Company since May 1990 and General Counsel since
August 1992. He has also been Secretary of the Company since January 1988. He
also served as Assistant General Counsel of the Company from December 1985
until August 1992. Mr. Getz has also held the offices of Vice President,
General Counsel and Secretary at Waste Management from April 1989 until
December 1993, and Vice President and Secretary of Rust from January 1993 to
May 1994. He has also served as Secretary of WTI since July 1995, a position he
previously held, as well as being the General Counsel of WTI, from November
1990 until May 1993. Mr. Getz commenced employment with the Company in 1983. He
is Chairman of the Board of Directors of NSC and a director of OHM.
Thomas C. Hau has been a Vice President and the Controller and Principal
Accounting Officer of the Company since he commenced employment with the
Company in September 1990. From 1971 until his employment by the Company, Mr.
Hau was a partner of Arthur Andersen LLP.
William P. Hulligan has been Executive Vice President of Waste Management
since January 1996, a position he previously held from September 1984 to
January 1988. From 1986 to August 1993, he was also a Vice President of the
Company. From August 1992 to March 1996, he also served as President of certain
Waste Management operating groups. He was President of Waste Management from
January 1988 to August 1992. He has been employed by the Company since 1979.
Joseph M. Holsten has been Chief Executive Officer of Waste Management
International since July 1995. From October 1993 to July 1995, he was Executive
Vice President and Chief Financial Officer of Waste Management. Mr. Holsten was
Vice President of Acquisitions and Project Development for Waste Management
International from April 1992 to August 1993 and Vice President, Chief
Financial Officer and Treasurer of Rust from September to October 1993. Mr.
Holsten has been employed by the Company since 1981.
James E. Koenig has been a Senior Vice President of the Company since May
1992, Treasurer of the Company since 1986 and its Chief Financial Officer since
1989. Mr. Koenig first became a Vice President of the Company in 1986. From
1984 to 1986, Mr. Koenig was Staff Vice President and Assistant to the Chief
Financial Officer of the Company. Mr. Koenig has been employed by the Company
since 1977. Mr. Koenig also served as Vice President, Chief Financial Officer
and Treasurer of WTI from November 1990 to May 1993. He also serves as a
director of WTI, Waste Management International and OHM.
D. P. Payne has been a Senior Vice President of the Company since April 1995,
a position he previously held from 1990 to 1993. He also served as President
and Chief Executive Officer and a director of CWM from September 1991 to March
1995. Mr. Payne has been employed by the Company since 1990.
Donald A. Wallgren has been Vice President and Chief Environmental Officer of
the Company since 1992 and Vice President of Environmental Management of Waste
Management since January 1995. He was Vice President and Chief Environmental
Officer at Waste Management from 1989 to May
58
<PAGE>
1990. From 1990 to 1992, he served as Vice President-Recycling, Development and
Environmental Management of Waste Management. Mr. Wallgren has been employed by
the Company since 1979.
H. Jesse Arnelle has been a director of the Company since 1992 and senior
partner of Arnelle, Hastie, McGee, Willis and Greene, a San Francisco-based
corporate law firm, for more than the past ten years. He currently also serves
as Chairman of the Pennsylvania State University Board of Trustees. Mr. Arnelle
is also a director of Florida Power & Light (FPL Group), Eastman Chemical
Corporation, Textron Corporation, Wells Fargo & Company and Wells Fargo Bank
N.A., Armstrong World Industries and Union Pacific Resources, Inc.
Howard H. Baker, Jr. has served as a director of the Company since 1989 and
has been a member of the law firm of Baker, Donelson, Bearman & Caldwell for
more than the past five years. From March 1987 to July 1988, Mr. Baker held the
position of Chief of Staff to the President of the United States. Mr. Baker
served three terms as a member of the United States Senate from 1967 to 1985.
Mr. Baker is also a director of Federal Express Corporation, Pennzoil Company
and United Technologies, Inc. He is Chairman of the Board of Trustees of the
Mayo Foundation and a member of the Smithsonian Board of Regents.
Dr. Pastora San Juan Cafferty has served as a Professor since 1985 at the
University of Chicago's School of Social Service Administration where she has
been a member of the faculty since 1971. She was elected a director of the
Company in July 1994. Dr. Cafferty also serves as a director of Kimberly-Clark
Corporation and People's Energy Corporation and on the boards of the Rush-
Presbyterian-St. Luke's Medical Center and the Lyric Opera Association, both in
Chicago.
Jerry E. Dempsey has served as a director of the Company since 1984, and
since September 1993, as Chairman and Chief Executive Officer of PPG
Industries, Inc., a glass, coatings and chemicals company. From April 1984 to
May 1988, Mr. Dempsey served as Vice Chairman of the Board of the Company. From
May 1988 to June 1993, Mr. Dempsey was Senior Vice President of the Company.
From July 1985 to September 1991, he was also President and Chief Executive
Officer of CWM. From September 1991 to May 1993, Mr. Dempsey served as Chairman
of the Board of CWM. Mr. Dempsey is also a director of Navistar International
Corp. and PPG Industries, Inc.
Dr. James B. Edwards has served as a director of the Company since 1995 and
has been President of the Medical University of South Carolina since November
1982. From January 1981 to November 1982, he served as the United States
Secretary of Energy, and previously as Governor of the State of South Carolina.
Dr. Edwards is also a director of Phillips Petroleum Company, SCANA
Corporation, Imo Industries Inc. and National Data Corporation.
Donald F. Flynn has served as a director of the Company since 1981 and as
Chairman of the Board and President of Flynn Enterprises, Inc., a financial
advisory and venture capital firm, since February 1988. He also served as
Chairman of the Board and Chief Executive Officer of Discovery Zone, Inc., an
operator of indoor fun and fitness centers for children, from July 1992 until
February 1996 and May 1995, respectively. On March 25, 1996, Discovery Zone,
Inc. announced that it filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code. Mr. Flynn was a Senior Vice President of the Company from May
1975 to January 1991. He also served as the Company's Chief Financial Officer
from March 1972 to December 1989 and the Company's Treasurer from May 1979 to
December 1986. Mr. Flynn is also a director of Psychemedics Corporation, WTI
and WM International.
Peter H. Huizenga has served as a director of the Company since 1968 and
President of Huizenga Capital Management, an investment management firm, since
October 1990. He has also been of counsel to the law firm of Hlustik, Huizenga
& Williams for more than the past five years. Mr. Huizenga served as Vice
President and Secretary of the Company from May 1975 and September 1968,
respectively, until his retirement from those positions on January 1, 1988.
59
<PAGE>
Peer Pedersen has been a director of the Company since 1979 and Chairman of
the Board of the law firm of Pedersen & Houpt, P.C. for more than the past
five years. Mr. Pedersen is also a director of Aon Corporation, Boston
Chicken, Inc., Latin American Growth Fund and Extended Stay America, Inc.
James R. Peterson has been a director of the Company since 1980 and was a
director and President and Chief Executive Officer of The Parker Pen Company
from January 1982 to January 1985. The Parker Pen Company was principally
involved in the manufacture and distribution of writing instruments and in
providing temporary help services. Mr. Peterson is also a director of The Dun
& Bradstreet Corporation.
Alexander B. Trowbridge has served as a director of the Company since 1985
and President of Trowbridge Partners, Inc., a consulting services firm, since
January 1990. He was President of the National Association of Manufacturers,
Washington, D.C., from January 1980 to January 1990. Mr. Trowbridge also
served as U.S. Secretary of Commerce in 1967 and 1968 and as Vice Chairman of
Allied Chemical Corp. from 1976 to 1980. He also serves as a director of New
England Mutual Life Insurance Co., PHH Corp., The Rouse Co., Sun Resorts
International Ltd., Harris Corp., Sun Co. Inc., The Gillette Co., Warburg-
Pincus Counsellors Funds and Icos Corp.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
compensation for services in all capacities paid by the Company and its
subsidiaries for the past three years, to or on behalf of the Chairman of the
Board and Chief Executive Officer of the Company at December 31, 1995, and
each of the four other most highly compensated executive officers of the
Company serving at December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------- ---------------------
AWARDS PAYOUTS
----------- ---------
SECURITIES
BONUS OTHER ANNUAL UNDERLYING LONG-TERM ALL OTHER
NAME AND PRINCIPAL ---------------------- COMPEN- OPTIONS INCENTIVE COMPEN-
POSITION YEAR SALARY CASH STOCK-BASED SATION(2) (SHARES)(4) PAYOUTS SATION(5)
------------------ ---- ---------- ---------- ----------- -------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock, 1995 $1,400,000 $ 0 $1,792,000(1) $437,980(1)(3) 205,505 $ 0 $10,500
Chairman and Chief 1994 1,400,000 1,120,000 0 77,420(3) 158,640 0 10,500
Executive Officer 1993 1,400,000 0 0 78,702(3) 122,449 0 500
Phillip B. Rooney, 1995 1,000,000 0 1,141,000(1) 228,200(1) 146,789 0 10,500
President and Chief 1994 1,000,000 1,029,280 0 -- 113,314 0 10,500
Operating Officer 1993 1,000,000 0 0 -- 87,464 97,800(6) 500
James E. Koenig, 1995 517,000 420,000 0 -- 62,615 0 10,500
Senior Vice 1994 500,000 250,000 0 -- 42,493 0 10,500
President and Chief 1993 500,000 0 0 -- 32,799 25,808(6) 500
Financial Officer
D. P. Payne 1995 400,000 0 322,250(1) 64,450(1) 47,706 0 8,500
Senior Vice President 1994 400,000 0 0 -- 0 0 8,500
-- Human Resources 1993 400,000 0 0 -- 0 0 500
and Communications
Herbert A. Getz 1995 365,000 300,000 0 -- 44,725 0 10,500
Senior Vice President, 1994 330,000 172,500 0 -- 24,221 0 10,500
General Counsel 1993 285,000 0 0 -- 18,695 14,398(6) 500
and Secretary
</TABLE>
- ----------
(1) All of the amounts shown under "Bonus--Stock-Based" were deferred and are
deemed to be invested in shares of the Company's common stock, and thus
fully "at risk" until after retirement or other termination of employment.
The deferring officers received a 20% Company match of the bonus deferred,
included under "Other Annual Compensation," which vests over a four-year
period and is also deemed invested and "at risk" in the same manner as the
deferred bonus. See note 1 to the "Ownership of Company Common Stock"
table on page 68.
60
<PAGE>
(2) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10 percent of
the total annual salary and bonus reported for the named executive officer.
(3) Includes financial planning expenses of $68,000 paid by the Company on
behalf of the named executive officer in 1993, 1994 and 1995.
(4) The numbers shown in the table above represent options for the purchase of
shares of the Company's common stock granted to the named persons under the
Employee Plans. The named officers also serve or served as directors or
executive officers of direct or indirect subsidiaries of the Company which
were publicly traded. Accordingly, during 1993, Messrs. Rooney, Koenig,
Payne and Getz also received options for 150,000, 20,000, 20,000 and 20,000
Rust shares, respectively, and Mr. Payne received options for 62,696 CWM
shares. Mr. Payne also received options for 22,833 CWM shares in 1994. In
connection with the 1995 acquisitions by the Company of all of the
publicly-held shares of Rust and CWM, such options to acquire shares of
Rust and CWM, respectively, were converted into options to acquire shares
of the Company. The options were granted under plans adopted by the
relevant subsidiaries.
(5) Amounts of All Other Compensation are amounts contributed by the Company
for fiscal years 1993, 1994 and 1995 under the Company's Profit Sharing and
Savings Plan and for fiscal year 1995 under the Company's Profit Sharing
and Savings Plus Plan for the persons named above.
(6) Paid pursuant to WTI's Performance Unit Plan, a long term incentive plan
covering the two-year period ended December 31, 1992.
61
<PAGE>
STOCK OPTIONS
The following tables set forth certain information with respect to stock
options granted to the persons named in the Summary Compensation Table during
the year ended December 31, 1995. No options were granted to the persons named
in the Summary Compensation Table during the year ended December 31, 1995 by
CWM, Rust, WTI or WM International.
COMPANY OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF COMPANY ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(4)
OPTIONS EMPLOYEES (PER EXPIRATION --------------------------------
NAME GRANTED(1)(2) IN 1995 SHARE) DATE(3) 0% 5% 10%
- ---- ------------- ---------- -------- ---------- --- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock 205,505 6.60 $27.25 04/03/05 $ 0 $ 3,521,817 $ 8,924,976
Phillip B. Rooney 146,789 4.72 27.25 04/03/05 0 2,515,579 6,374,970
James E. Koenig 62,615 2.01 27.25 04/03/05 0 1,073,057 2,719,337
D. P. Payne 47,706 1.53 27.25 04/03/05 0 817,556 2,071,847
Herbert A. Getz 44,725 1.44 27.25 04/03/05 0 766,469 1,942,384
All Stockholders as a
group(5) -- -- 27.25 04/03/05 0 8,301,475,760 21,037,569,469
</TABLE>
- ----------
(1) The option holder has the right to pay the exercise price by delivering
previously acquired shares of the Company's common stock, and to have
shares withheld to satisfy tax withholding requirements in connection with
the exercise of options. Such options become immediately exercisable upon a
Change in Control of the Company, as defined in the option plan. Options
are non-transferable other than by will or the laws of descent and
distribution.
(2) Options become exercisable in three equal cumulative annual installments
commencing April 3, 1996.
(3) Options have a term of ten years, subject to earlier termination in certain
events related to termination of employment.
(4) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's stock. Such amounts are based on the
assumption that the named persons hold the options granted for their full
term. The actual value of the options will vary in accordance with the
market price of the Company's common stock. The column headed "0%" is
included to demonstrate that the options were granted at fair market value
and optionees will not recognize any gain without an increase in the stock
price, which increase benefits all stockholders commensurately.
(5) Based upon the price of the Company's stock and the total shares
outstanding as of the date of grant, if the price of the Company's common
stock increased at the 5% or 10% rates shown in the table above,
stockholders as a group would realize aggregate gains (excluding dividends)
in the amounts shown above during the period from grant date to the April
3, 2005 option expiration date.
62
<PAGE>
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1995 by the persons named in
the Summary Compensation Table and the fiscal year-end value of unexercised
options:
AGGREGATED OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN- THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1995 DECEMBER 31, 1995(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock
Company Options........ -- -- 578,830 392,399 $ 173,182 $860,126
WTI Options............ -- -- 33,336 0 261,584 0
WM International Op-
tions................. -- -- 200,000 0 0 0
Phillip B. Rooney
Company Options........ -- -- 584,057 312,527 123,703 614,373
WM International Op-
tions................. -- -- 200,000 0 0 0
James E. Koenig
Company Options........ 6,050 $44,429 88,435 105,429 58,343 249,315
WTI Options............ -- -- 120,000 0 941,628 0
WM International Op-
tions................. -- -- 100,000 0 0 0
D. P. Payne
Company Options........ -- -- 179,727 106,635 140,898 401,060
Herbert A. Getz
Company Options........ 10,746 78,915 59,264 74,314 26,442 164,694
WTI Options............ -- -- 240,000 0 1,883,256 0
WM International Op-
tions................. -- -- 40,000 0 0 0
</TABLE>
- ----------
(1) Market value less exercise price, before payment of applicable income
taxes.
LONG TERM INCENTIVE PLAN AWARDS
The following table sets forth certain information as to awards under the WMX
Technologies, Inc. Long Term Incentive Plan (the "LTIP") with respect to the
year ended December 31, 1995 to the persons named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NUMBER OF OR OTHER UNDER NON-STOCK PRICE BASED
SHARES, UNITS PERIOD UNTIL PLANS(3)
OR OTHER MATURATION -----------------------------
NAME RIGHTS(1) OR PAYOUT(2) THRESHOLD TARGET MAXIMUM
- ---- ------------- ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Dean L. Buntrock...... -- 3 years $700,000 $700,000 $2,100,000
Phillip B. Rooney..... -- 3 years 500,000 500,000 1,500,000
James E. Koenig....... -- 3 years 200,000 200,000 600,000
D. P. Payne........... -- 3 years 160,000 160,000 480,000
Herbert A. Getz....... -- 3 years 132,000 132,000 396,000
</TABLE>
- ----------
(1) Awards consist of the designation of target percentages of annual salary at
the end of the performance period to be paid if the Company achieves
certain performance objectives. No payout occurs unless the Company
achieves certain threshold performance objectives. Above the threshold,
payouts may be greater than the target percentage to the extent that the
Company's performance exceeds or fails to meet the target objectives
specified in the plan. Payouts under the LTIP are based on the rank of the
Company's total stockholder return (stock price appreciation plus
reinvested dividends) among the total stockholder returns of the companies
that comprise the Dow Jones Industrial Average over the performance period.
63
<PAGE>
(2) The performance period includes calendar years 1995, 1996 and 1997.
(3) At the end of the performance period, an amount equal to 50% of the
performance award, if any, is to be paid in cash, and the remaining 50% is
to be deemed to be invested in common stock of the Company. The participant
is entitled to receive the value of such deemed investment on the date
three years after the end of the performance period; provided that the
participant is an officer of the Company or one of its subsidiaries on that
date. Estimated future payouts were calculated using 1995 salaries, assume
that a performance award will be earned at the levels shown, and do not
reflect any possible subsequent increase or decrease in the value of the
portion of the award which would be required to be deferred under the terms
of the plan.
PENSION AND RETIREMENT PLANS
The following table sets forth estimated annual benefits payable upon
retirement under the Company's Pension Plan and its Supplemental Executive
Retirement Plan ("SERP") to employees of the Company in specified remuneration
and years of service classifications. For purposes of the following table, it
is assumed that the five executive officers named in the cash compensation
table are eligible for the SERP benefits and that each such officer's
annualized Final Average Compensation (as defined below) will be equal to his
average annual compensation for the three years ended December 31, 1995.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)(3)
---------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40
--------------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000........ $ 90,000 $120,000 $150,000 $180,000 $ 210,000 $ 240,000
500,000........ 112,500 150,000 187,500 225,000 262,500 300,000
600,000........ 135,000 180,000 225,000 270,000 315,000 360,000
700,000........ 157,500 210,000 262,500 315,000 367,500 420,000
800,000........ 180,000 240,000 300,000 360,000 420,000 480,000
900,000........ 202,500 270,000 337,500 405,000 472,500 540,000
1,000,000........ 225,000 300,000 375,000 450,000 525,000 600,000
1,100,000........ 247,500 330,000 412,500 495,000 577,500 660,000
1,200,000........ 270,000 360,000 450,000 540,000 630,000 720,000
1,300,000........ 292,500 390,000 487,500 585,000 682,500 780,000
1,400,000........ 315,000 420,000 525,000 630,000 735,000 840,000
1,500,000........ 337,500 450,000 562,500 675,000 787,500 900,000
1,600,000........ 360,000 480,000 600,000 720,000 840,000 960,000
1,700,000........ 382,500 510,000 637,500 765,000 892,500 1,020,000
1,800,000........ 405,000 540,000 675,000 810,000 945,000 1,080,000
1,900,000........ 427,500 570,000 712,500 855,000 997,500 1,140,000
2,000,000........ 450,000 600,000 750,000 900,000 1,050,000 1,200,000
</TABLE>
- ----------
(1) Upon normal retirement at age 65 or after completing five years of
participation in the Company's Pension Plan, whichever is later, a
participant is entitled to a pension based on the average of the
participant's eligible compensation for the highest five consecutive years
out of his or her last 10 years of service. For this purpose, a
participant's eligible compensation generally includes all of his or her
cash compensation, subject, in 1995, to the statutory maximum of $150,000.
The annual lifetime benefit is equal to (i) 1% of average eligible
compensation, multiplied by (ii) the number of his or her years of service,
and, for a participant retiring at age 65 with 10 years of service, may not
be less than $100 per month. Under the SERP, eligible participants who
retire following age 60, or retire with at least 30 years of service, are
entitled to a monthly benefit equal to (i) 1.5% of the participant's Final
Average Compensation per year of service (Final Average
64
<PAGE>
Compensation is the monthly average compensation of such participant for the
highest three consecutive calendar years out of his or her last 10 calendar
years of service), reduced by (ii) the amount of such participant's monthly
benefit under the Pension Plan. Compensation used for calculating benefits
under the SERP includes only the participant's salary and annual incentive
bonus. Eligible participants are those officers who have served in such
capacities for at least 10 years at the time of retirement. Payment of
benefits under the SERP is made on the same basis as payments under the
Pension Plan, and both plans provide for reduced payouts in the event of
early retirement.
(2) At December 31, 1995, the credited years of service for Messrs. Buntrock,
Rooney, Koenig, Payne and Getz were 40, 27, 19, 5 and 13, respectively.
(3) Benefits shown are computed on a straight-life annuity basis at normal
retirement age. Provision is made for payment of pensions in joint and
survivor form and in various other forms and at other times, on an
actuarially equivalent basis. Benefits are not subject to reduction for
social security benefits.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors of the Company who is not an employee
of the Company is paid an annual fee of $45,000. Such directors also receive
$1,000 for each meeting they attend of each Committee of the Board of which
such directors are members. The Company maintains a major medical expense
insurance policy which is available to all directors of the Company. The policy
covers the medical and dental expenses of the directors in excess of the
coverage provided by the director's primary health insurance program. In
addition, the Company paid Alexander B. Trowbridge, who is a director of the
Company, $30,000 in 1995 for consulting services relating to marketing and
government affairs projects, pursuant to a consulting agreement. Such agreement
was terminated as of December 31, 1995.
OUTSIDE DIRECTORS' PLANS
The Company has two unfunded deferred compensation plans for non-employee
members of its Board of Directors. Under the Deferred Directors' Fee Plan, such
directors may make an irrevocable election annually to defer receipt of all or
a portion of the directors' fees payable to them until termination of their
membership on the Board of Directors. Such deferred amounts are deemed to be
invested in the Company's common stock or, at the election of the director, in
the common stock of any of the Company's majority-owned public subsidiaries,
and during the period of deferral, such deferred amounts are credited with the
dividends or stock splits that would be received had such investment actually
been made. Upon termination of the director's service, the common stock deemed
reflected by his or her deferred account is deemed to be sold, and the deemed
proceeds of such sale (or an amount equal to the amount originally deferred, if
greater) will be distributed to the director in cash, in a lump sum or
installments. Under a similar plan maintained by WTI, Mr. Buntrock has deferred
fees for services rendered as a director of WTI prior to the Company's
acquisition of a majority interest of WTI in September 1990.
Under the Directors' Phantom Stock Plan, certain non-employee directors
received a one-time grant of 5,000 Phantom Shares at the time of adoption of
such plan or at the time they first became directors. Each of such Phantom
Shares was initially deemed to be equal in value to one share of the Company's
common stock at the time of award. Phantom Shares are credited to a bookkeeping
account which is adjusted to reflect stock (but not cash) dividends or stock
splits which would be received with respect to an equivalent number of shares
of the Company's common stock. Upon termination of the director's service, the
director is paid an amount in cash, in a lump sum or installments, for each
Phantom Share then credited to his or her account, equal to the then difference
between the market price of the Company's common stock at the time of award and
the average closing prices of one share
65
<PAGE>
of the Company's common stock on the New York Stock Exchange Composite Tape for
the most recent 10 consecutive trading days immediately preceding such
termination. In 1991, the Company's Board of Directors terminated its authority
to make additional grants under the Directors' Phantom Stock Plan.
STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS
The 1992 Stock Option Plan for Non-Employee Directors (the "Directors Plan")
of the Company provides for the awards of options covering an aggregate of
150,000 shares of the Company's common stock. Each director of the Company who
is neither an officer nor full-time employee of the Company or any of its
subsidiaries, upon election or appointment to the Board of Directors, is
granted an option to purchase a total of 15,000 shares of the Company's common
stock at the fair market value of the stock at the time of grant. All options
under the Directors Plan are for a term of 10 years from the date of grant and
become exercisable with respect to 20% of the total number of shares subject to
the option six months after the date of grant and with respect to an additional
20% at the end of each 12-month period thereafter on a cumulative basis during
the succeeding four years.
Under the Directors Plan, in the event that the Company's shares of common
stock are changed by a stock dividend, split or combination of shares, or a
merger, consolidation or reorganization with another company in which holders
of the Company's common stock receive other securities, or any other relevant
change in the capitalization of the Company, a proportionate or equitable
adjustment will be made in the number or kind of shares subject to unexercised
options or available for options and in the purchase price for shares. If an
option expires or is terminated or cancelled unexercised as to any shares, such
released shares may again be optioned (including a grant in substitution for a
cancelled option). Shares subject to options may be made available from
unissued or reacquired shares of common stock.
Options are not transferable by the optionee otherwise than by will or the
laws of descent and distribution. Options terminate if the optionee ceases to
be a director of the Company for any reason other than death, permanent
disability, resignation or retirement. If the optionee ceases to be a director
because of death or permanent disability, the optionee or his heirs, legatees
or legal representative may exercise the option in full at any time during its
term within three months after the date of termination. In the event of
resignation or retirement, an option may be exercised by the optionee (or if he
dies within three months after such termination, by his heirs, legatees or
legal representative) at any time during its specified term prior to three
months after the date of such resignation or retirement, but only to the extent
it was exercisable at the date of such resignation or retirement.
Prior to January 1, 1992, upon election to the Board of Directors non-
employee directors received options for 10,000 shares under the Company's 1981
Stock Option Plan for Non-Employee Directors (the "1981 Plan"), the terms of
which are substantially similar to the Directors Plan. No person who is the
holder of an option granted under the 1981 Plan or the Employee Plans or who
has purchased shares upon the exercise of such an option is eligible for a
grant of options under the Directors Plan.
DIRECTORS' CHARITABLE ENDOWMENT PROGRAM
The Company maintains the Directors' Charitable Endowment Program pursuant to
which the Company has purchased life insurance policies on members of the Board
of Directors. Under the program, death benefits will be paid to the Company,
and the Company in turn will donate such death benefits (up to $100,000 for
each year of service on the Company's Board of Directors, subject to a
$1,000,000 limit) to one or more charitable organizations recommended by the
director. Directors derive no financial benefit from this program because all
charitable deductions accrue solely to the Company.
66
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee of the Company's Board of
Directors consisted during 1995 of Messrs. Pedersen (Chairman), Baker (until
September 13, 1995), Edwards, Peterson and Dr. Cafferty. Mr. Pedersen is
Chairman of the Board of the law firm of Pedersen & Houpt, P.C. Mr. Baker is a
member of the law firm of Baker, Donelson, Bearman & Caldwell. The Company has
utilized the services of such firms, and currently anticipates that it may
continue to utilize such firms to finish the matters they are currently
handling, but does not anticipate referring any new matters to such firms. For
1995, the professional fees received by such firms from the Company were no
more than approximately 1% of such firms' gross revenues. In 1995, Mr. Buntrock
served on the Compensation Committees of the Boards of Directors of CWM, WTI
and Rust. Mr. Rooney, who is an executive officer of WTI and Rust, serves as a
director of the Company.
CERTAIN TRANSACTIONS
When an option is exercised by an optionee under the Employee Plans or WTI's
stock option plans at a time when the fair market value of the underlying stock
exceeds the option exercise price, the difference is treated as ordinary income
to the optionee for income tax purposes and the company which issued the
options is entitled to a deduction equal to such amount. To facilitate an
optionee's purchase of stock upon exercise of such options, the Company and WTI
have each adopted a policy of making available interest-free loans, in an
amount up to the equivalent of all applicable tax withholding requirements, to
optionees whose exercise of options results in ordinary income to them in
excess of $10,000. All such loans normally are required to be repaid not later
than April 15 in the year following the year in which such loans were made,
unless otherwise extended. The due date for such loans made in 1993 by the
Company was extended to December 31, 1994. The largest aggregate amounts of
such loans from the Company and WTI in excess of $60,000 pursuant to such
policy which were outstanding to the directors and executive officers of the
Company since January 1, 1995 were as follows: Mr. Getz--$67,227. At May 15,
1996 $37,824 of such loan remained outstanding.
The Company and WTI also each makes available to optionees interest-free
loans for a period not to exceed 15 days to facilitate the exercise of options
and the sale of the underlying stock. The largest aggregate amounts of such
loans from the Company and WTI in excess of $60,000 which were outstanding to
the directors and executive officers of the Company since January 1, 1995 were
as follows: Mr. Trowbridge--$143,908; Mr. Getz--$232,480; Joseph M. Holsten--
$161,251; Mr. Koenig--$196,865; Donald A. Wallgren--$143,331. Such loans have
been repaid and are not outstanding as of May 15, 1996.
The Company has entered into an employment agreement with Phillip B. Rooney
under which Mr. Rooney will be paid a minimum annual salary of $425,000 as
President of the Company. Mr. Rooney also is eligible to receive annual bonuses
and all benefits generally available to executives of the Company. The term of
Mr. Rooney's employment under the agreement continues through August 31, 2000
and is automatically extended on each anniversary date for a period of five
years from such anniversary date unless either party gives written notice of
termination prior to the anniversary date. Upon the death or permanent
disability of Mr. Rooney, the Company will pay annually 100% of his then
current annual salary (including bonuses) for the balance of the term of the
agreement. If the Company breaches or terminates the agreement or reduces the
nature and scope of Mr. Rooney's authority and duties, it will continue to pay
him for five years unless the termination was for cause, in which case its
obligations under the agreement cease. In the event of a change in control of
the Company, Mr. Rooney may elect to terminate the agreement and receive a lump
sum payment of three times his average annual compensation (including bonuses)
over the immediately preceding five years, which amount will be increased
should an excise tax be imposed on him because of the payment. Were a change in
control of the Company to have occurred on December 31, 1995 and if Mr.
Rooney's employment with the Company were terminated as provided in the
employment agreement, it is estimated that Mr. Rooney would have been eligible
to receive approximately $4,805,500 (assuming no increase for any excise tax).
During the term of the agreement, Mr. Rooney has agreed not to compete with the
Company or its subsidiaries.
67
<PAGE>
In connection with his transfer from CWM, where he was President, to the
Company, the Company has entered into an employment agreement with D. P. Payne
under which Mr. Payne will be paid a minimum annual salary of $400,000. Mr.
Payne also is eligible to receive annual bonuses and all benefits generally
available to executives of the Company. The term of Mr. Payne's employment
under the agreement continues through December 31, 1999. Upon the death or
permanent disability of Mr. Payne, the Company will pay his then current salary
(including bonuses accrued as of the date of termination) for the balance of
the calendar year in which such death or disability occurs but in no event for
less than 180 days. If the Company terminates the agreement, it will continue
to pay him an amount equal to his base salary until the end of the term of the
agreement plus any unpaid but fully accrued annual bonus for the prior calendar
year payable under the Annual Plan, unless the termination was for cause, in
which case its obligations under the agreement cease. During the term of the
agreement and for two years after the termination of the agreement, Mr. Payne
has agreed not to compete with the Company or its subsidiaries.
SECURITIES OWNERSHIP OF MANAGEMENT
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth certain information as of February 1, 1996 as
to the beneficial ownership of common stock of the Company by the directors,
the Chairman of the Board and Chief Executive Officer and the four other most
highly compensated executive officers of the Company as of December 31, 1995,
and by all directors and persons serving as executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF
OF THE COMPANY COMMON STOCK
BENEFICIALLY OF THE
NAME OWNED(2)(3) COMPANY(3)(5)
---- ---------------- -------------
<S> <C> <C>
Directors (Other than Executive Officers)
H. Jesse Arnelle.......................... 12,610(4) *
Howard H. Baker, Jr....................... 22,000(4) *
Pastora San Juan Cafferty................. 7,000 *
Jerry E. Dempsey.......................... 644,848 *
James B. Edwards.......................... 1,766 *
Donald F. Flynn........................... 595,581 *
Peter H. Huizenga......................... 8,100,526 1.7
Peer Pedersen............................. 225,586(4) *
James R. Peterson......................... 84,068(4) *
Alexander B. Trowbridge................... 2,400(4) *
Executive Officers(1)
Dean L. Buntrock.......................... 3,537,683 *
Herbert A. Getz........................... 122,800 *
James E. Koenig........................... 153,965 *
D. P. Payne............................... 208,853 *
Phillip B. Rooney......................... 1,222,382 *
All directors and executive officers as a
group including persons named above (19
persons)................................... 15,288,907 3.1
</TABLE>
- ----------
*Less than 1 percent.
(1) Subsequent to February 1, 1996, pursuant to the Company's Non-Qualified
Profit Sharing and Savings Plus Plan, Messrs. Buntrock, Payne, Rooney and
all executive officers as a group acquired beneficial ownership of the
equivalent of an additional 75,017, 13,448, 47,765 and 157,240 shares,
68
<PAGE>
respectively, of common stock of the Company in connection with their
voluntary deferral of bonus payments earned under the Company's Corporate
Incentive Bonus Plan.
(2) Directors and executive officers included in the group have sole voting
power and sole investment power over shares listed, except (i) shares
covered by options granted under the Company's stock option plans which
were exercisable within 60 days of February 1, 1996; (ii) shares held
pursuant to the Company's Profit Sharing and Savings Plan; (iii) Messrs.
Edwards, Pedersen and Peterson, whose shares listed above include 312,
12,856 and 1,668 shares issuable upon conversion of the convertible
subordinated notes due 2005 of WMX ("WMX Notes"), respectively; and (iv)
Messrs. Buntrock, Dempsey, Getz, Huizenga, Koenig, Pedersen and Rooney, and
all executive officers and directors as a group (including such
individuals), who have shared voting and investment power over 458,418,
263,589, 42,777, 225,144, 39,837, 12,730, 65,567, and 1,110,242 shares,
respectively. Such shares shown for Messrs. Buntrock, Dempsey, Huizenga,
Pedersen and Rooney are held in trusts or foundations over which such
individuals share voting and investment power with other co-trustees or
directors of such trusts and foundations. Such shares shown for Messrs.
Getz and Koenig are held jointly with their respective spouses. Ownership
of shares shown for Messrs. Buntrock, Dempsey, Edwards, Getz, Huizenga and
Rooney, and for all executive officers and directors as a group, includes
shares of common stock of the Company not held directly by them but held by
or for the benefit of (i) their spouses or (ii) their minor children and
other children residing with them, as to which they have neither investment
power nor voting power. Shares were held by or for the benefit of such
spouses or children of the following persons and the executive officers and
directors as a group at February 1, 1996, in the amounts indicated: Mr.
Buntrock--42,404 (held by spouse); Mr. Dempsey--1,000 (held by spouse); Dr.
Edwards--254 (held by spouse with 104 such shares issuable upon conversion
of WMX Notes); Mr. Getz--240 (held by spouse); Mr. Huizenga--680,836 (held
by spouse directly and as trustee); Mr. Rooney--101,184 (held by spouse
directly and as trustee for children); and all executive officers and
directors as a group (including such individuals)--825,918. Additionally,
ownership of shares shown for Mr. Koenig includes 1,200 shares held by him
as trustee of a family trust in which Mr. Koenig has no pecuniary interest.
Each of the above named persons and the members of such group disclaim any
beneficial ownership of such shares.
(3) The numbers and percentages of shares shown in the table above are based on
the assumption that currently outstanding stock options covering shares of
the Company's common stock which were exercisable within 60 days of
February 1, 1996 had been exercised as follows: Mr. Arnelle--12,000; Mr.
Baker--20,000; Mr. Buntrock--672,527; Dr. Cafferty--6,000; Mr. Dempsey--
224,828; Mr. Flynn--87,617; Mr. Getz--77,309; Mr. Koenig--111,472; Mr.
Payne--208,653; Mr. Rooney--679,037; and all executive officers and
directors as a group (including such individuals)--2,394,016. Such persons
and the members of such group disclaim any beneficial ownership of the
shares subject to such options.
(4) Pursuant to the Company's Deferred Directors' Fee Plan, described under
"Outside Directors' Plans," Messrs. Arnelle, Baker, Pederson, and Peterson
have also acquired beneficial ownership of the equivalent of 719, 4,318,
25,678 and 4,784 shares, respectively, of the Company's common stock
through their voluntary deferral of all or a portion of their directors'
fees. Pursuant to the Company's Directors' Phantom Stock Plan, described
under "Outside Directors' Plans," Messrs. Baker, Pederson, Peterson and
Trowbridge have also acquired beneficial ownership of the equivalent of
10,000, 40,000, 40,000 and 40,000 shares, respectively, of the Company's
common stock.
(5) The Company does not know of any person who, as of February 1, 1996,
directly owned more than five percent of the Company's outstanding common
stock. The Company, however, received a copy of Schedule 13G for the year
ended December 31, 1995 from the person set forth in the following table.
Pursuant to the aggregation and attribution rules relating to the
beneficial ownership of securities promulgated under the Securities
Exchange Act of 1934, as amended, the person identified below is deemed to
be the beneficial owner of such shares shown because such person is the
parent company of various investment management companies which exercise
discretionary
69
<PAGE>
investment management over accounts holding such shares. No managed account
alone owns five percent or more of the Company's common stock. The
information presented in the following table is taken from the above-
referenced Schedule 13G:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
TITLE OF NAME AND ADDRESS BENEFICIAL OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
------------ --------------------------------- ---------- -------
<S> <C> <C> <C>
Common Stock The Capital Group Companies, Inc. 25,091,160 5.2%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
OWNERSHIP OF WTI COMMON STOCK
The following table sets forth certain information as of February 1, 1996 as
to the beneficial ownership of WTI common stock by the directors, the Chairman
of the Board and Chief Executive Officer and the four other most highly
compensated executive officers of the Company as of December 31, 1995, and by
all directors and persons serving as executive officers of the Company as a
group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF WTI COMMON PERCENT OF
STOCK BENEFICIALLY WTI COMMON
NAME OWNED(1)(2)(3) STOCK(2)(3)
---- ------------------ -----------
<S> <C> <C>
Directors (Other than Executive Officers)
H. Jesse Arnelle........................... 0 *
Howard H. Baker, Jr........................ 0 *
Pastora San Juan Cafferty.................. 0 *
Jerry E. Dempsey........................... 34,336 *
James B. Edwards........................... 0 *
Donald F. Flynn............................ 45,245 *
Peter H. Huizenga.......................... 0 *
Peer Pedersen.............................. 0 *
James R. Peterson.......................... 0 *
Alexander B. Trowbridge.................... 0 *
Executive Officers
Dean L. Buntrock........................... 135,000(4) *
Herbert A. Getz............................ 240,000 *
James E. Koenig............................ 121,500 *
D. P. Payne................................ 0 *
Phillip B. Rooney.......................... 374,769 *
All directors and executive officers as a
group including persons named above (19
persons).................................... 951,050 *
</TABLE>
- ----------
* Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over WTI shares listed, except (i) WTI
shares covered by options exercisable within 60 days of February 1, 1996;
(ii) 10,000 WTI shares deemed to be beneficially owned by each of Messrs.
Buntrock, Flynn and Rooney as a result of restricted units granted pursuant
to WTI's Restricted Unit Plan for Non-Employee Directors and (iii) Messrs.
Dempsey and Koenig, and all executive officers and directors as a group,
who have shared voting and investment power over 33,336, 1,500 and 35,036
WTI shares, respectively. Such shares shown for Mr. Dempsey are held in a
trust over which he shares voting and investment power, and such shares
shown for Mr. Koenig are held jointly with his spouse. Such persons
disclaim any beneficial ownership of the WTI shares subject to such
restricted units.
(2) Excludes an aggregate of 104,621,810 WTI shares beneficially owned by the
Company that may be deemed beneficially owned by Messrs. Buntrock and
Rooney because each such person may be deemed to be an affiliate of the
Company. Each such person disclaims any beneficial ownership of such WTI
shares.
70
<PAGE>
(3) The numbers and percentages of WTI shares shown in the table above are
based on the assumption that currently outstanding stock options covering
WTI shares which were exercisable within 60 days of February 1, 1996 had
been exercised as follows: Mr. Buntrock--33,336; Mr. Getz--240,000; Mr.
Koenig--120,000 and all executive officers and directors as a group
(including such individuals)--393,336. Such persons and the members of such
group disclaim any beneficial ownership of the shares subject to such
options.
(4) Pursuant to WTI's Deferred Director's Fee Plan, Mr. Buntrock has acquired
beneficial ownership of the equivalent of an additional 8,228 WTI shares
through his voluntary deferral of previously accrued director's fees.
OWNERSHIP OF WM INTERNATIONAL ORDINARY SHARES
The following table sets forth certain information as of February 1, 1996 as
to the beneficial ownership of WM International ordinary shares (including
ordinary shares represented by American Depositary Shares) by the directors,
the Chairman of the Board and Chief Executive Officer and the four other most
highly compensated executive officers of the Company as of December 31, 1995,
and by all directors, and persons serving as executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OF WM INTERNATIONAL ORDINARY WM INTERNATIONAL
SHARES BENEFICIALLY OWNED ORDINARY SHARES
NAME (1)(2)(3) (2)(3)
---- ---------------------------- ----------------
<S> <C> <C>
Directors (Other than Execu-
tive Officers)
H. Jesse Arnelle............ 0 *
Howard H. Baker, Jr......... 1,000 *
Pastora San Juan Cafferty... 0 *
Jerry E. Dempsey............ 10,000 *
James B. Edwards............ 4,000 *
Donald F. Flynn............. 300,000 *
Peter H. Huizenga........... 550,000 *
Peer Pedersen............... 10,000 *
James R. Peterson........... 0 *
Alexander B. Trowbridge..... 600 *
Executive Officers
Dean L. Buntrock............ 223,200 *
Herbert A. Getz............. 40,000 *
James E. Koenig............. 104,000 *
D. P. Payne................. 400 *
Phillip B. Rooney........... 220,000 *
All directors and executive
officers as a group including
persons named above
(19 persons)................. 1,826,200 *
</TABLE>
- ----------
* Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over WM International shares listed, except
(i) WM International shares covered by options exercisable within 60 days
of February 1, 1996; and (ii) Messrs. Koenig, Payne and Trowbridge, and all
executive officers and directors as a group (including such individuals),
who have shared voting and investment power over 4,000, 400, 600 and 6,000
WM International shares, respectively. Such WM International shares shown
for Messrs. Koenig, Payne and Trowbridge are held jointly with their
respective spouses. Ownership of shares shown for Messrs. Buntrock, Dempsey
and Huizenga includes WM International shares not held directly by them but
held by or for the benefit of their spouses as to which they have neither
investment power nor voting
71
<PAGE>
power. WM International shares were held by or for the benefit of such
spouses of the following persons at February 1, 1996 in the amounts
indicated: Mr. Buntrock--3,000; Mr Dempsey--10,000; and Mr. Huizenga--
30,000. Each of the above named persons disclaim any beneficial ownership
of such shares.
(2) Excludes an aggregate of 300,000,000 WM International shares beneficially
owned by the Company that may be deemed beneficially owned by Messrs.
Buntrock and Rooney because each such person may be deemed to be an
affiliate of the Company. Excludes an aggregate of 45,000,000 WM
International shares beneficially owned by WTI that may be deemed
beneficially owned by Mr. Koenig because he may be deemed to be an
affiliate of WTI. Each such person disclaims any beneficial ownership of
such WM International shares.
(3) The numbers and percentages of WM International shares shown in the table
above are based on the assumption that currently outstanding stock options
covering WM International shares which were exercisable within 60 days of
February 1, 1996 had been exercised as follows: Messrs. Buntrock, Flynn
and Rooney--200,000 each; Mr. Getz--40,000; and Mr. Koenig--100,000; and
all executive officers and directors as a group (including such
individuals)--980,000. Such persons and members of such group disclaim any
beneficial ownership of the shares subject to such options.
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 facilities. As of March 31, 1996, a
Company subsidiary engaged in providing hazardous waste management services
was involved in one such governmental proceeding where it is believed that
sanctions involved may exceed $100,000.
The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under Superfund. The majority of these proceedings are based on
allegations that certain subsidiaries of the Company (or their predecessors)
transported hazardous substances to the facilities in question, often prior to
acquisition of such subsidiaries by the Company. Such proceedings arising
under Superfund typically involve numerous waste generators and other waste
transportation and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be
substantial.
As of December 31, 1995, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 106 locations
listed on the Superfund National Priority List ("NPL"). Of the 106 NPL sites
at which claims have been made against the Company, 19 are sites which the
Company has come to own over time. All of the NPL sites owned by the Company
were initially sited by others as land disposal facilities. At each of the 19
owned facilities, the Company is working in conjunction with the government to
characterize or to remediate identified site problems. In addition, at these
19 facilities the Company has either agreed with other legally liable parties
on an
72
<PAGE>
arrangement for sharing the costs of remediation or is pursuing resolution of
an allocation formula. The 87 NPL sites at which claims have been made against
the Company and which are not owned by the Company are at different procedural
stages under Superfund. At some, the Company's liability is well defined as a
consequence of a governmental decision as to the appropriate remedy and an
agreement among liable parties as to the share each will pay for implementing
that remedy. At others, where no remedy has been selected or the liable parties
have been unable to agree on an appropriate allocation, the Company's future
costs are substantially uncertain.
The Company periodically reviews its role, if any, with respect to each such
location, giving consideration to the nature of the Company's alleged
connection to the location (e.g., owner, operator, transporter or generator),
the extent of the Company's alleged connection to the location (e.g., amount
and nature of waste hauled to the location, number of years of site operation
by the Company or other relevant factors), the accuracy and strength of
evidence connecting the Company to the location, the number, connection and
financial ability of other named and unnamed potentially responsible parties at
the location, and the nature and estimated cost of the likely remedy. Where the
Company concludes that it is probable that a liability has been incurred, a
provision is made in the Company's financial statements for the Company's best
estimate of the liability based on management's judgment and experience,
information available from regulatory agencies and the number, financial
resources and relative degree of responsibility of other potentially
responsible parties who are jointly and severally liable for remediation of a
specific site, as well as the typical allocation of costs among such parties.
If a range of possible outcomes is estimated and no amount within the range
appears to be a better estimate than any other, then the Company provides for
the minimum amount within the range, in accordance with generally accepted
accounting principles. Sites subject to state action under state laws similar
to the federal Superfund statute are treated by the Company in the same way as
NPL sites.
The Company's estimates are subsequently revised, as deemed necessary, as
additional information becomes available. While the Company does not anticipate
that the amount of any such revisions will have a material adverse effect on
the Company's operations or financial condition, the measurement of
environmental liabilities is inherently difficult 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. Such matters could have a material adverse impact on earnings for
one or more fiscal quarters or years.
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's 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 sites. Some of such lawsuits may seek to have the Company or its
subsidiaries pay the costs 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 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 factors. Accordingly, it is possible such matters could
have a material adverse impact on the Company's earnings for one or more fiscal
quarters or years.
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
73
<PAGE>
("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.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. While the outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty, the Company believes that
these matters will not have a material adverse effect on its results of
operations or financial condition.
The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior court in Hudson County, New
Jersey. In this action the Company is seeking a declaratory judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to recover
defense costs and other damages incurred as a result of the assertion of
environmental liabilities against the Company or its subsidiaries for events
occurring over at least the last 25 years at approximately 130 sites and the
defendant insurance carriers' denial of coverage of such liabilities. The
defendants have denied liability to the Company and have asserted various
defenses, including that environmental liabilities of the type for which the
Company is seeking relief are not risks covered by the insurance policies in
question. The defendants are contesting these claims vigorously. Discovery is
currently underway in this proceeding and is expected to continue for several
years. No trial date has been set. The Company is unable at this time to
predict the outcome of this proceeding. No amounts have been recognized in the
Company's financial statements for any future recoveries.
DESCRIPTION OF CAPITAL STOCK
The following summary of the common stock and preferred stock of the Company
is qualified by reference to the Company's Restated Certificate of
Incorporation, as amended, a copy of which has been incorporated by reference
as an exhibit to the registration statement of which this prospectus is a part.
The Company's authorized capital stock consists of 1,500,000,000 shares of
common stock, $1 par value per share, and 50,000,000 shares of preferred stock,
$1 par value per share. Subject to any prior right of the preferred stock, if
and when issued, the holders of shares of common stock of the Company will be
entitled to receive such dividends as the Board of Directors of the Company in
its discretion may from time to time declare out of funds legally available
therefor and, upon liquidation, would be entitled to share ratably in any
assets of the Company legally available for distribution to holders of shares
of common stock. Each outstanding share of common stock is entitled to one vote
on any matter
74
<PAGE>
submitted to a vote of stockholders, with no cumulative voting rights. There
are no conversion, redemption or sinking fund provisions applicable to the
common stock. All of the issued and outstanding shares of the Company are, and
the shares of common stock offered by the Company hereby, when issued, will be,
fully paid and nonassessable. Neither the preferred stock nor the common stock
has any preemptive rights.
The shares of preferred stock may be issued in connection with future
acquisitions or other proper corporate purposes, although there are no present
plans or arrangements for their issuance, other than any issuance which may
occur pursuant to the exercise of preferred stock purchase rights described
below. The Board of Directors is authorized without further stockholder
authorization, to create and issue the preferred stock in series and to
establish the voting powers, designations, preferences and relative
participating, optional or other special rights and any qualifications,
limitations, or restrictions thereof relating to any such series. In January
1987, the Board of Directors designated a series of preferred stock consisting
of 2,500,000 shares of Series A Preferred Stock, $1 par value (the "Preferred
Stock"), issuable in connection with the dividend of preferred stock purchase
rights described below.
The Company's Restated Certificate of Incorporation contains provisions which
prevent "greenmail" payments by the Company, establish safeguards in connection
with certain business transactions, provide that only designated officers and
the Board of Directors may call special meetings of stockholders, require
stockholders to take action only at a formal meeting and provide for a
classified Board of Directors. In addition, the Restated Certificate of
Incorporation requires the concurrence of the holders of shares representing at
least 80% of the outstanding shares of common stock for the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with, any
of the preceding provisions.
In January 1987, the Company declared a dividend of one right (a "Right") for
each outstanding share of common stock, $1 par value, of the Company. Each
Right entitles the registered holder to purchase from the Company one four-
hundredth of a share of Preferred Stock at a price of $68.75 (the "Exercise
Price"), subject to adjustment. The description and terms of the Rights are set
forth in the Rights Agreement (the "Rights Agreement") between the Company and
Harris Trust and Savings Bank, as Rights Agent.
The Rights are evidenced by and transferred with and only with the common
stock until the earlier to occur of (i) ten days following a public
announcement that a person or group, including any affiliates or associates of
such person or group, acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the Company's outstanding voting stock (such person
or group being hereinafter known as an "Acquiring Person") or (ii) ten days
following the commencement of, or first public announcement of the intent to
commence (which intent to commence is not withdrawn within five business days),
a tender offer or exchange offer if, upon consummation thereof, the offeror
would be the beneficial owner of 30% or more of the Company's outstanding
voting stock (the earlier of such dates being called the "Distribution Date").
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights will be mailed to holders of record of the common stock
as of the close of business on the Distribution Date. The Rights are not
exercisable until the Distribution Date and will expire on February 6, 1997,
unless earlier redeemed by the Company as described below. The Exercise Price
payable per Right, and the number of Rights or the number of shares of
Preferred Stock or other securities or property issuable upon exercise of the
Rights are subject to adjustment in certain events from time to time to prevent
dilution.
Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable. Each share of Preferred Stock will have a minimum preferential
quarterly dividend rate of $5 per share, but will be entitled to not less than
an aggregate dividend of 400 times the dividend declared on the common stock.
In the event of liquidation, the holders of the Preferred Stock will receive a
preferential liquidation payment equal to the greater of $100 or 400 times the
payment made per share of common
75
<PAGE>
stock. Each share of Preferred Stock will have 400 votes, voting together with
the common stock. In addition, the Preferred Stock contains class vote
provisions paralleling the class vote requirements for the Company's common
stock which prevent "greenmail" payments by the Company and establish
safeguards in connection with certain business transactions. Finally, in the
event of any merger, consolidation or other transaction in which common stock
is exchanged, each share of Preferred Stock will be entitled to receive 400
times the amount received per share of common stock. These rights are protected
by customary antidilution provisions. Because of the nature of the Preferred
Stock's dividend, liquidation and voting rights, the value of one four-
hundredth interest in a share of Preferred Stock purchasable upon exercise of
each Right is intended to approximate the value of one share of common stock.
In the event that the Company is acquired in a merger or other business
combination transaction, or 50% or more of its assets or earning power are sold
in one transaction or a series of transactions, proper provision shall be made
so that each holder of a Right shall thereafter have the right to receive, upon
the exercise thereof at the then current Exercise Price of the Right, that
number of shares of common stock of the acquiring company (or, in the event
there is more than one acquiring company, the acquiring company receiving the
greatest portion of the assets or earning power transferred) which at the time
of such transaction would have a market value of two times the Exercise Price
of the Right. In the event that the Company is the surviving corporation in a
merger and the common stock is not changed or exchanged, or in the event that
an Acquiring Person engages in one of a number of self-dealing transactions
specified in the Rights Agreement, proper provision shall be made so that each
holder of a Right will thereafter have the right to receive, upon exercise
thereof at the then current Exercise Price, that number of shares of Preferred
Stock having a market value of two times the Exercise Price of the Right. Upon
the occurrence of any of the transactions referred to in this paragraph, any
Rights that are or were at any time beneficially owned by an Acquiring Person
engaging in any of such transactions or receiving the benefits thereof on or
after the time the Acquiring Person became such shall become void.
With certain exceptions, no adjustment in the Exercise Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Exercise Price. No fractional shares need be issued (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock) and,
in lieu thereof, an adjustment in cash may be made based on the market price of
the Preferred Stock on the last trading date prior to the date of exercise.
At any time prior to ten days following a public announcement that an
Acquiring Person exists, the Company may redeem the Rights in whole, but not in
part, at a price of $.0125 per Right (the "Redemption Price"). Immediately upon
the action of the Board of Directors of the Company electing to redeem the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company as a result of the ownership of the Right,
including, without limitation, the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. A copy of the Rights
Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement.
The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank, Chicago, Illinois.
The Company furnishes its stockholders quarterly reports (including unaudited
summary financial information) and annual reports (including audited financial
statements).
76
<PAGE>
EXPERTS
The audited financial statements included in this prospectus and the
schedules incorporated by reference elsewhere in the registration statements
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included or
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed one or more registration statements with the Commission
under the 1933 Act with respect to the securities offered hereby. This
prospectus does not contain all the information included in the registration
statements, certain portions of which have been omitted pursuant to the rules
and regulations of the Commission. The registration statements, including the
exhibits filed therewith, may be examined at the office of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, or copies thereof may be obtained
upon request to the Commission on payment of the charge stipulated by the
Commission.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and reference is made
to the copy of such contract or other document as is filed as an exhibit to the
registration statements of which this prospectus forms a part or as
incorporated by reference as an exhibit thereto, each such statement being
qualified in all respects by such reference.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WMX Technologies, Inc. and Subsidiaries--
Report of independent public accountants................................. F-2
Consolidated statements of income for the three years ended December 31,
1995 and (unaudited) for the three months ended March 31, 1995 and 1996. F-3
Consolidated balance sheets as of December 31, 1994 and 1995 and (unau-
dited) March 31, 1996................................................... F-4
Consolidated statements of stockholders' equity for the three years and
(unaudited) three months ended March 31, 1996........................... F-6
Consolidated statements of cash flows for the three years ended December
31, 1995 and (unaudited) for the three months ended March 31, 1995 and
1996.................................................................... F-8
Notes to consolidated financial statements............................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of WMX Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of WMX
Technologies, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1994 and 1995, and the related consolidated statements of income, cash
flows, and stockholders' equity for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WMX Technologies, Inc. and
Subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 5, 1996
F-2
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
----------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $8,636,116 $9,554,705 $10,247,617 $2,445,185 $2,417,191
---------- ---------- ----------- ---------- ----------
Operating Expenses..... $5,907,097 $6,543,687 $ 7,045,070 $1,683,950 $1,679,923
Special Charges........ 550,000 -- 335,193 140,600 --
Goodwill Amortization.. 92,994 108,093 117,482 29,510 31,564
Selling and
Administrative
Expenses.............. 1,104,024 1,159,500 1,174,636 287,530 286,886
Gains from Stock Trans-
actions of Subsidiar-
ies................... (15,109) -- -- -- --
Interest Expense....... 293,040 335,175 424,736 106,523 99,315
Interest Income........ (41,198) (34,488) (39,804) (8,886) (6,842)
Minority Interest...... 52,749 145,760 94,359 29,314 28,075
Sundry Income, Net..... (95,779) (66,487) (75,688) (16,921) (17,359)
---------- ---------- ----------- ---------- ----------
Income From Continuing
Operations Before In-
come Taxes............ $ 788,298 $1,363,465 $ 1,171,633 $ 193,565 $ 315,629
Provision For Income
Taxes................. 345,867 586,974 517,043 92,273 130,451
---------- ---------- ----------- ---------- ----------
Income From Continuing
Operations............. $ 442,431 $ 776,491 $ 654,590 $ 101,292 $ 185,178
---------- ---------- ----------- ---------- ----------
Discontinued Operations:
Income (loss) from
operations, less
applicable income
taxes and minority
interest of $15,765 in
1993, $11,757 in 1994,
$15,040 in 1995 and
$91 in the three
months ended March 31,
1995.................. $ 10,345 $ 7,890 $ 11,958 $ (47) $ --
Provision for loss on
disposal, less
applicable income tax
benefit and minority
interest of $34,151... -- -- (62,649) -- --
---------- ---------- ----------- ---------- ----------
Net Income.............. $ 452,776 $ 784,381 $ 603,899 $ 101,245 $ 185,178
========== ========== =========== ========== ==========
Average Common and
Common Equivalent
Shares Outstanding..... 485,374 484,144 485,972 484,814 489,913
========== ========== =========== ========== ==========
Earnings per Common and
Common Equivalent
Share:
Continuing Operations.. $.91 $1.60 $1.35 $0.21 $0.38
Discontinued Opera-
tions--
Income from opera-
tions................ .02 .02 .02 -- --
Provision for loss.... -- -- (.13) -- --
---------- ---------- ----------- ---------- ----------
Net Income.............. $.93 $1.62 $1.24 $0.21 $0.38
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 123,348 $ 189,031 $ 106,732
Short-term investments................. 19,704 36,243 24,636
Accounts receivable, less reserve of
$64,361 in 1994, $66,840 in 1995 and
$67,706 in 1996....................... 1,878,064 1,880,934 1,866,852
Employee receivables................... 9,859 8,787 9,720
Parts and supplies..................... 194,445 210,864 205,164
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 347,064 334,786 341,245
Prepaid expenses....................... 379,895 360,404 393,482
----------- ----------- -----------
Total Current Assets................ $ 2,952,379 $ 3,021,049 $ 2,947,831
----------- ----------- -----------
Property and Equipment, at cost
Land, primarily disposal sites......... $ 4,158,612 $ 4,575,117 $ 4,738,622
Buildings.............................. 1,332,568 1,572,821 1,516,524
Vehicles and equipment................. 7,118,714 7,498,718 7,650,049
Leasehold improvements................. 91,180 87,986 89,958
----------- ----------- -----------
$12,701,074 $13,734,642 $13,995,153
Less--Accumulated depreciation and am-
ortization............................ (3,477,317) (3,968,943) (4,137,686)
----------- ----------- -----------
Total Property and Equipment, Net... $ 9,223,757 $ 9,765,699 $ 9,857,467
----------- ----------- -----------
Other Assets
Intangible assets relating to acquired
businesses, net....................... $ 3,718,282 $ 4,205,031 $ 4,430,274
Sundry, including other investments.... 1,345,104 1,572,977 1,590,510
Net assets of discontinued operations.. 183,651 130,552 119,305
----------- ----------- -----------
Total Other Assets.................. $ 5,247,037 $ 5,908,560 $ 6,140,089
----------- ----------- -----------
Total Assets...................... $17,423,173 $18,695,308 $18,945,387
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Liabilities
Portion of long-term debt payable
within one year....................... $ 890,686 $ 1,094,165 $ 1,315,189
Accounts payable....................... 971,796 1,072,372 846,712
Accrued expenses....................... 940,507 991,539 1,001,742
Unearned revenue....................... 265,024 263,029 258,151
----------- ----------- -----------
Total Current Liabilities........... $ 3,068,013 $ 3,421,105 $ 3,421,794
----------- ----------- -----------
Deferred Items
Income taxes........................... $ 669,566 $ 956,525 $ 1,005,765
Environmental liabilities.............. 704,015 622,952 583,072
Other.................................. 607,694 684,452 677,801
----------- ----------- -----------
Total Deferred Items................ $ 1,981,275 $ 2,263,929 $ 2,266,638
----------- ----------- -----------
Long-Term Debt, less portion payable
within one year........................ $ 6,044,411 $ 6,420,610 $ 6,385,833
----------- ----------- -----------
Minority Interest in Subsidiaries....... $ 1,536,165 $ 1,385,366 $ 1,346,160
----------- ----------- -----------
Commitments and Contingencies........... $ $ $
----------- ----------- -----------
Put Options............................. $ 252,328 $ 261,959 $ 261,959
----------- ----------- -----------
Stockholders' Equity
Preferred stock, $1 par value (issuable
in series); 50,000,000 shares
authorized; none outstanding during
the periods........................... $ -- $ -- $ --
Common stock, $1 par value;
1,500,000,000 shares authorized;
496,386,758 shares issued in 1994,
498,817,093 in 1995 and 506,057,872 in
1996.................................. 496,387 498,817 506,058
Additional paid-in capital............. 357,150 422,801 646,866
Cumulative translation adjustment...... (150,832) (102,943) (112,482)
Retained earnings...................... 4,181,606 4,486,877 4,596,164
----------- ----------- -----------
$ 4,884,311 $ 5,305,552 $ 5,636,606
Less--1988 Employee Stock Ownership
Plan................................... 19,729 13,062 11,395
Employee Stock Benefit Trust
(12,386,629 shares in 1994,
11,769,788 shares in 1995 and
11,408,128 shares in 1996, at mar-
ket)................................ 323,601 350,151 362,208
----------- ----------- -----------
Total Stockholders' Equity.......... $ 4,540,981 $ 4,942,339 $ 5,263,003
----------- ----------- -----------
Total Liabilities and Stockhold-
ers' Equity...................... $17,423,173 $18,695,308 $18,945,387
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-5
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS AND THREE MONTHS ENDED MARCH 31, 1996 ($000'S OMITTED
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- --------- --------- --------
<S> <C> <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
year.................. $ -- $ -- $ -- $ 452,776 $ -- $ -- $ --
Cash dividends ($.58
per share)............ -- -- -- (280,858) -- -- --
Stock repurchase
(8,443,400 shares).... -- -- -- -- 278,363 -- --
Stock issued upon
exercise of stock
options............... 14 (8,749) -- -- (18,285) -- --
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 357 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 2,825 -- -- -- -- --
Contribution to 1988
ESOP (362,036 shares). -- -- -- -- -- (7,329) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 3,429 -- --
Stock issued upon
conversion of LYONs... -- (4,553) -- -- (7,882) -- --
Stock issued for
acquisitions.......... -- (4,655) -- -- (35,375) -- --
Transfer of equity
interests among
controlled
subsidiaries.......... -- (24,694) -- -- -- -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- (79,021) -- -- -- --
-------- --------- --------- ---------- --------- ------- --------
Balance, December 31,
1993.................... $496,217 $ 668,470 $(245,587) $3,693,108 $ 425,097 $27,659 $ --
-------- --------- --------- ---------- --------- ------- --------
Net income for the
year.................. $ -- $ -- $ -- $ 784,381 $ -- $ -- $ --
Cash dividends ($.60
per share)............ -- -- -- (290,266) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 5,617 -- (5,617) -- -- --
Stock issued upon
exercise of stock
options............... -- (5,948) -- -- (8,250) -- (5,928)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 260 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 1,527 -- -- -- -- --
Contribution to 1988
ESOP (375,312 shares). -- -- -- -- -- (7,930) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 2,741 -- --
Stock issued upon
conversion of LYONs... 96 1,442 -- -- (56) -- --
Common stock issued for
acquisitions.......... 74 1,471 -- -- -- -- --
Temporary equity
related to put
options............... -- (252,328) -- -- -- -- --
Proceeds from sale of
put options........... -- 29,965 -- -- -- -- --
Sale of shares to
Employee Stock Benefit
Trust (12,601,609
shares)............... -- (106,327) -- -- (419,792) -- 313,465
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 16,064 -- -- -- -- 16,064
Transfer of equity
interests among
controlled
subsidiaries.......... -- (2,803) -- -- -- -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- 94,755 -- -- -- --
-------- --------- --------- ---------- --------- ------- --------
Balance, December 31,
1994.................... $496,387 $ 357,150 $(150,832) $4,181,606 $ -- $19,729 $323,601
-------- --------- --------- ---------- --------- ------- --------
Net income for the
year.................. $ -- $ -- $ -- $ 603,899 $ -- $ -- $ --
Cash dividends ($.60
per share)............ -- -- -- (291,421) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 7,207 -- (7,207) -- -- --
Stock issued upon
exercise of stock
options............... 44 (4,405) -- -- (1,763) -- (17,393)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 663 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 2,049 -- -- -- -- --
Contribution to 1988
ESOP (322,508 shares). -- -- -- -- -- (6,667) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 1,100 -- --
Common stock issued
upon conversion of
LYONs................. 150 2,448 -- -- -- -- --
Common stock issued for
acquisitions.......... 2,236 13,908 -- -- -- -- --
Temporary equity
related to put
options............... -- (9,631) -- -- -- -- --
Proceeds from sale of
put options........... -- 21,622 -- -- -- -- --
Settlement of put
options............... -- (12,019) -- -- -- -- --
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 43,943 -- -- -- -- 43,943
Transfer of equity
interests among
controlled
subsidiaries.......... -- 529 -- -- -- -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- 47,889 -- -- -- --
-------- --------- --------- ---------- --------- ------- --------
Balance, December 31,
1995.................... $498,817 $ 422,801 $(102,943) $4,486,877 $ -- $13,062 $350,151
======== ========= ========= ========== ========= ======= ========
</TABLE>
F-6
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS AND THREE MONTHS ENDED MARCH 31, 1996 (CONTINUED)
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... $498,817 $422,801 $(102,943) $4,486,877 $ -- $13,062 $350,151
Net income for the
period................ -- -- -- 185,178 -- -- --
Cash dividends ($.15
per share)............ -- -- -- (74,173) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 1,718 -- (1,718) -- -- --
Stock issued upon
exercise of stock
options............... 48 (2,354) -- -- (1,814) -- (10,969)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 714 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 1,289 -- -- -- -- --
Contribution to 1988
ESOP.................. -- -- -- -- -- (1,667) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 1,100 -- --
Common stock issued
upon conversion of
LYONs................. 100 1,768 -- -- -- -- --
Common stock issued for
acquisitions.......... 7,093 198,618 -- -- -- -- --
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 23,026 -- -- -- -- 23,026
Cumulative translation
adjustment of foreign
currency statements... -- -- (9,539) -- -- -- --
-------- -------- --------- ---------- ------- ------- --------
Balance, March 31, 1996
(Unaudited)............ $506,058 $646,866 $(112,482) $4,596,164 $ -- $11,395 $362,208
======== ======== ========= ========== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH ($000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED MARCH
DECEMBER 31 31
------------------------------------- --------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income for the
period................ $ 452,776 $ 784,381 $ 603,899 $ 101,245 $ 185,178
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization.......... 796,691 880,466 885,384 213,245 222,926
Provision for deferred
income taxes.......... 154,782 298,564 250,828 32,809 65,252
Minority interest in
subsidiaries.......... 57,986 149,703 138,162 29,302 28,075
Interest on Liquid
Yield Option Notes
(LYONs) and WMX
Subordinated Notes.... 37,162 33,551 23,021 9,067 2,864
Gain on sale of
property and
equipment, and of
investments by
subsidiary............ (14,061) (14,876) (9,190) (1,899) (2,431)
Contribution to 1988
Employee Stock
Ownership Plan........ 7,329 7,930 6,667 1,667 1,667
Gains from stock
transactions of
subsidiaries.......... (15,109) -- -- -- --
Special charges, net of
tax and minority
interest.............. 285,300 -- 202,492 91,400 --
Provision for loss on
disposal of
discontinued
operations, net of tax
and minority interest. -- -- 62,649 -- --
Changes in assets and
liabilities, excluding
effects of acquired
companies:
Receivables, net....... (112,489) (133,506) 45,232 79,778 31,434
Other current assets... 41,038 (109,174) 48,214 (79,887) (31,351)
Sundry other assets.... (29,445) (42,195) (72,282) (2,782) 17,976
Accounts payable....... 33,328 155,254 39,669 (161,140) (234,807)
Accrued expenses and
unearned revenue...... (298,214) 43,121 (227,700) 50,681 8,745
Deferred items......... (24,015) (259,020) 61,557 (24,041) (59,301)
Minority interest in
subsidiaries.......... (2,021) 14,038 (3,854) 2,665 2,057
----------- ----------- ----------- --------- ---------
Net Cash Provided by
Operating Activities $ 1,371,038 $ 1,808,237 $ 2,054,748 $ 342,110 $ 238,284
----------- ----------- ----------- --------- ---------
Cash flows from
investing activities:
Short-term investments. $ 35,911 $ 2,755 $ (4,196) $ 6,480 $ 11,607
Capital expenditures... (1,719,178) (1,455,628) (1,386,932) (261,680) (280,551)
Proceeds from sale of
property and
equipment, and of
investments by
subsidiary............ 134,169 276,822 141,774 66,562 25,546
Cost of acquisitions,
net of cash acquired.. (581,745) (197,201) (224,304) (42,070) (35,695)
Other investments...... (185,256) (74,446) (44,193) (16,090) (26,496)
Acquisition of minority
interests............. (129,524) (8,200) (68,370) (2,251) --
----------- ----------- ----------- --------- ---------
Net Cash Used for
Investing Activities $(2,445,623) $(1,455,898) $(1,586,221) $(249,049) $(305,589)
----------- ----------- ----------- --------- ---------
Cash flows from
financing activities:
Cash dividends......... $ (280,858) $ (290,266) $ (291,421) $ (72,658) $ (74,173)
Proceeds from issuance
of indebtedness....... 3,407,759 1,710,586 1,803,383 718,956 342,979
Repayments of
indebtedness.......... (1,682,950) (1,752,552) (1,860,451) (554,722) (213,895)
Proceeds from exercise
of stock options, net. 9,193 7,970 14,132 4,265 9,763
Contributions from
minority interests.... 28,072 22,169 24,394 10,761 2,143
Stock repurchases by
Company and
subsidiaries.......... (315,302) (49,665) (102,484) (23,266) (81,811)
Preferred stock
redemption by
subsidiary............ (5,000) -- -- -- --
Proceeds from sale of
put options........... -- 29,965 21,622 6,766 --
Settlement of put
options............... -- -- (12,019) (12,019) --
----------- ----------- ----------- --------- ---------
Net Cash Provided by
(Used for) Financing
Activities $ 1,160,914 $ (321,793) $ (402,844) $ 78,083 $ (14,994)
----------- ----------- ----------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ $ 86,329 $ 30,546 $ 65,683 $ 171,144 $ (82,299)
Cash and cash
equivalents at
beginning of period.... 6,473 92,802 123,348 123,348 189,031
----------- ----------- ----------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 92,802 $ 123,348 $ 189,031 $ 294,492 $ 106,732
=========== =========== =========== ========= =========
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 disclosures
of cash flow
information:
Cash paid during the
period for:
Interest, net of
amounts capitalized... $ 263,716 $ 307,257 $ 401,715 $ 98,093 $ 96,451
Income taxes, net of
refunds received...... $ 331,803 $ 241,657 $ 283,165 $ 36,087 $ 31,538
Supplemental schedule of
noncash investing and
financing activities:
LYONs converted into
common stock of the
Company............... $ 3,329 $ 1,594 $ 2,598 $ 29 $ 1,868
Liabilities assumed in
acquisitions of
businesses............ $ 673,129 $ 244,560 $ 245,918 $ 61,451 $ 89,820
Fair market value of
Company and subsidiary
stock issued for
acquired businesses... $ 64,500 $ 4,773 $ 66,172 $ 5,150 $ 205,711
WMX Subordinated Notes
issued for acquisition
of CWM minority
interest.............. $ -- $ -- $ 436,830 $ 436,830 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 1. BUSINESS AND FINANCIAL STATEMENTS
WMX Technologies, Inc. and its subsidiaries ("WMX" or the "Company") provide
environmental, engineering and consulting, and industrial services to
governmental, residential, commercial, and industrial customers on a worldwide
basis in four core lines of business: waste services, clean energy, clean
water, and environmental and infrastructure engineering and consulting.
Through 1995, process engineering, construction, specialty contracting and
similar services were also provided through businesses the Company intends to
exit (see Note 15). These businesses have been classified as discontinued
operations and are segregated from continuing operations in the accompanying
financial statements and notes thereto.
The accompanying financial statements are prepared on a consolidated basis
and include the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. See Note 13 for
details of certain financial information by subsidiary, line of business and
geographic area.
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.
NOTE 2. SUMMARY OF ACCOUNTING POLICIES
Unaudited Periods
All information in the financial statements and the accompanying notes
related to the three months ended March 31, 1995 and 1996 is unaudited. In the
opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows
for the periods presented. The results for interim periods are not necessarily
indicative of results for the entire year.
Revenue Recognition
The Company recognizes revenue from long-term contracts on the percentage-
of-completion basis with losses recognized in full when identified. Changes in
project performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Other revenues
are recognized when the services are performed.
Foreign Currency
Certain foreign subsidiaries' assets and liabilities are translated at the
rates of exchange at the balance sheet date while income statement accounts
are translated at the average exchange rates in effect during the period. The
resulting translation adjustments are charged or credited directly to
stockholders' equity. Foreign exchange losses (net of related income taxes and
minority interest) of $529,000, $3,610,000 and $1,226,000 are included in the
Consolidated Statements of Income for 1993, 1994 and 1995, respectively.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-9
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Short-Term Investments
The Company's short-term investments primarily consist of securities having
an investment grade of not less than A and a term to maturity generally of
less than one year, and because the investments have always been held to
maturity, are carried at cost. Such investments include tax-exempt securities,
certificates of deposit and Eurodollar time deposits.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The adoption
of FAS 115 did not have a significant effect on earnings for 1994, since the
Company's accounting prior to adoption was substantially in compliance with
the new standard.
Environmental Liabilities
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 potential remedial liabilities at
closed sites which it owns or operated, or to which it transported waste,
including 106 sites listed on the Superfund National Priority List ("NPL").
Where the Company concludes that it is probable that a liability has been
incurred, provision is made in the financial statements, based upon
management's judgment and prior experience, for the Company's best estimate of
the liability. Such estimates are subsequently revised as deemed necessary as
additional information becomes available. See Note 7 for additional
information.
Contracts in Process
Information with respect to contracts in process at December 31, 1994 and
1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Costs and estimated earnings on uncompleted con-
tracts........................................... $ 2,618,921 $ 2,510,898
Less: Billings on uncompleted contracts........... (2,365,334) (2,253,867)
----------- -----------
Total contracts in process...................... $ 253,587 $ 257,031
=========== ===========
Contracts in process are included in the Consolidated Balance Sheets under
the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 347,064 $ 334,786
Billings in excess of costs and estimated earnings
on uncompleted contracts (included in unearned
revenue)......................................... (93,477) (77,755)
----------- -----------
Total contracts in process...................... $ 253,587 $ 257,031
=========== ===========
</TABLE>
All contracts in process are expected to be billed and collected within five
years.
Accounts receivable includes retainage which has been billed, but which is
not due pursuant to contract provisions until completion. Such retainage at
December 31, 1995, is $23,095,000, including $6,724,000 that is expected to be
collected after one year. At December 31, 1994, retainage was $33,743,000.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-10
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Property and Equipment
Property and equipment (including major repairs and improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operations. Disposal sites are carried at cost
and to the extent this exceeds end use realizable value, such excess is
amortized over the estimated life of the disposal site. Disposal site
improvement costs are capitalized and charged to operations over the shorter of
the estimated usable life of the site or the improvement.
Preparation costs for individual secure land disposal cells are recorded as
prepaid expenses and amortized as the airspace is filled. Significant costs
capitalized for such cells include excavation and grading costs, costs relating
to the design and construction of liner systems, and gas collection and
leachate collection systems. Unamortized cell construction cost at December 31,
1994 and 1995 was $154,100,000 and $187,689,000, respectively.
Depreciation and Amortization
The cost, less estimated salvage value, of property and equipment is
depreciated over the estimated useful lives on the straight-line method as
follows: buildings--10 to 40 years; vehicles and equipment--3 to 20 years;
leasehold improvements--over the life of the applicable lease.
Intangible Assets
Intangible assets relating to acquired businesses consist primarily of the
cost of purchased businesses in excess of market value of net assets acquired
("goodwill"). Such goodwill is being amortized on a straight-line basis over a
period of not more than forty years. The accumulated amortization of intangible
assets amounted to $458,167,000 and $572,587,000 as of December 31, 1994 and
1995, respectively.
On an ongoing basis, the Company measures realizability of goodwill by the
ability of the acquired business to generate current and expected future
operating income in excess of annual amortization. If such realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill. Such
adjustments have historically not been material to the Company's financial
statements.
Capitalized Interest
Interest has been capitalized on significant landfills, trash-to-energy
plants and other projects under construction in accordance with FAS No. 34.
Amounts capitalized and netted against Interest Expense in the Consolidated
Statements of Income were $100,591,000 in 1993, $104,512,000 in 1994 and
$81,471,000 in 1995.
Gain Recognition on Sale of Subsidiaries' Stock
It is the Company's policy to record in income gains from the sale or other
issuance of previously unissued stock by its subsidiaries. No such gains were
recorded in 1994 or 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-11
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounting Principles
Effective January 1, 1996, the Company adopted the Financial Accounting
Standards Board ("FASB") 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 FASB 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 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 Company's financial statements.
Restatement
Certain amounts in previously issued financial statements have been restated
to conform to 1996 classifications.
NOTE 3. INCOME TAXES
The following tables set forth income from continuing operations before
income taxes, showing domestic and international sources, and the income tax
provision, showing the components by governmental taxing authority, for the
years 1993 through 1995:
Income From Continuing Operations Before Income Taxes
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Domestic.................................. $616,805 $1,187,938 $1,167,120
International............................. 171,493 175,527 4,513
-------- ---------- ----------
$788,298 $1,363,465 $1,171,633
======== ========== ==========
Income Tax Provision (Benefit)
Current tax expense
U.S. Federal............................ $133,581 $ 215,569 $ 224,924
State and local......................... 29,893 49,549 48,957
Foreign................................. 36,410 30,611 42,810
-------- ---------- ----------
Total current............................. $199,884 $ 295,729 $ 316,691
-------- ---------- ----------
Deferred tax expense
U.S. Federal............................ $ 87,792 $ 215,644 $ 181,873
State and local......................... 29,464 33,689 36,101
Foreign................................. 32,327 44,507 (16,538)
-------- ---------- ----------
Total deferred............................ $149,583 $ 293,840 $ 201,436
-------- ---------- ----------
U.S. Federal benefit from amortization of
deferred
investment credit........................ $ (3,600) $ (2,595) $ (1,084)
-------- ---------- ----------
Total provision........................... $345,867 $ 586,974 $ 517,043
======== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Federal statutory tax rate in 1993, 1994 and 1995 is reconciled to the
effective tax rate as follows:
<TABLE>
<S> <C> <C> <C>
Federal statutory rate.................................... 35.0% 35.0% 35.0%
State and local taxes, net of Federal benefit............. 4.9 4.0 4.7
Amortization of deferred investment credit................ (0.4) (0.2) (0.1)
Amortization of intangible assets relating to acquired
businesses............................................... 4.2 2.2 2.8
Federal tax credits....................................... (1.4) (1.0) (1.2)
Non-taxable gains on issuance of stock by subsidiaries.... (0.7) -- --
Minority interest......................................... 2.8 4.2 3.3
Adjustment of deferred income taxes due to Omnibus Budget
Reconciliation Act....................................... 1.8 -- --
Other, net................................................ (2.3) (1.1) (0.4)
---- ---- ----
Effective tax rate........................................ 43.9% 43.1% 44.1%
==== ==== ====
</TABLE>
The Company uses the deferral method of accounting for investment credit,
whereby the credit is recorded in income over the composite life of the
related equipment.
Deferred income taxes result from the recognition, in different periods, of
revenue and expense for tax and financial statement purposes. The primary
components that comprise the 1994 and 1995 deferred tax (assets) liabilities
are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets
Reserves not deductible until paid............... $ (491,061) $ (526,202)
Deferred revenue................................. (25,708) (24,472)
Net operating losses and tax credit
carryforwards................................... (159,269) (266,898)
Other............................................ (69,812) (73,834)
---------- ----------
Subtotal....................................... $ (745,850) $ (891,406)
---------- ----------
Deferred tax liabilities
Depreciation and amortization.................... $1,103,194 $1,368,258
Other............................................ 233,600 381,068
---------- ----------
Subtotal....................................... $1,336,794 $1,749,326
---------- ----------
Valuation allowance ($29,890,000 at December 31,
1993)............................................... 78,622 98,605
---------- ----------
Net deferred tax liabilities..................... $ 669,566 $ 956,525
========== ==========
</TABLE>
The Company's subsidiaries have approximately $37 million of alternative
minimum tax credit carryforwards that may be used indefinitely. Various
subsidiaries have U.S. Federal and foreign operating loss carryforwards of
approximately $530 million and state operating loss carryforwards of
approximately $513 million. Foreign operating losses of $253 million may be
carried forward indefinitely; the remaining loss carryforwards have expiration
dates through the year 2010. Valuation allowances have been established for
uncertainties in realizing the tax benefits of loss carryforwards
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-13
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and for the basis difference in certain assets. While the Company expects to
realize the deferred tax assets in excess of the valuation allowances, changes
in estimates of future taxable income or in tax laws could alter this
expectation. The increase in the valuation allowance since 1993 is primarily
attributable to uncertainty in realizing the tax benefit of certain foreign
operating loss carryforwards.
The Company has concluded that development and expansion of its foreign
business requires that the undistributed earnings of its foreign subsidiaries
be reinvested indefinitely outside the United States. If the reinvested
earnings were to be remitted, the U.S. income taxes due under current tax law
would not be material.
The following table sets forth the provision for income taxes for continuing
operations for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Currently payable...................................... $60,021 $ 65,393
Deferred............................................... 32,523 65,252
Amortization of deferred investment credit............. (271) (194)
------- --------
$92,273 $130,451
======= ========
</TABLE>
NOTE 4. BUSINESS COMBINATIONS
During 1993, the Company and its principal subsidiaries acquired 189
businesses for $581,745,000 in cash (net of cash acquired) and notes,
$133,941,000 of debt assumed, 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 1994, 119 businesses were acquired for $197,201,000 in cash (net of
cash acquired) and notes, $17,305,000 of debt assumed, 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.
One hundred thirty-six businesses were acquired in 1995 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-14
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following summarizes the pro forma effect on continuing operations of
businesses acquired and accounted for as purchases (including those which
otherwise met pooling of interests criteria but were not significant in the
aggregate) in 1993, 1994 and 1995 as if they had been acquired as of January 1
of the preceding year (unaudited):
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Revenue as reported................... $8,636,116 $ 9,554,705 $10,247,617
Revenue of purchased businesses for
period prior to acquisition as stated
above................................ 555,218 477,040 161,868
---------- ----------- -----------
Pro forma revenue..................... $9,191,334 $10,031,745 $10,409,485
========== =========== ===========
Net income as reported................ $ 442,431 $ 776,491 $ 654,590
Net income of purchased businesses for
period prior to acquisition as stated
above................................ 9,753 32,408 7,237
Adjustment for interest and goodwill
amortization......................... (18,532) (29,066) (7,649)
---------- ----------- -----------
Pro forma net income.................. $ 433,652 $ 779,833 $ 654,178
========== =========== ===========
Earnings per share as reported........ $ .91 $ 1.60 $ 1.35
Effect of purchased businesses prior
to acquisition as stated above....... (.02) .01 --
---------- ----------- -----------
Pro forma earnings per share.......... $ .89 $ 1.61 $ 1.35
========== =========== ===========
</TABLE>
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. The transaction provided for the CWM public shareholders to
receive a convertible subordinated WMX note for every 81.1 CWM shares held. See
Note 5 for additional information. 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.
During the three months ended March 31, 1996, the Company and its principal
subsidiaries acquired 45 businesses for $35,695,000 in cash (net of cash
acquired) and notes, $31,379,000 of debt assumed, and 7,093,075 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-15
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5. DEBT
The details relating to debt (including capitalized leases, which are not
material) as of December 31, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Commercial Paper, weighted average interest 5.8% in
1994 and 5.7% in 1995................................ $ 946,702 $1,119,356
Tailored Rate ESOP Notes, weighted average interest
4.81% in 1994 and 4.74% in 1995...................... 50,000 20,000
Debentures, interest 8 3/4%, due 2018................. 249,085 249,085
Notes, interest 4 5/8% to 8 1/4%, due 1996-2011....... 2,684,170 3,184,170
Step-Up Notes, interest 6.22% through April 29, 1997
and 8% thereafter, due 2004.......................... 150,000 150,000
Solid waste disposal revenue bonds, interest 6% to
7.75%, due 1996- 2013................................ 252,385 251,085
Installment loans and notes payable, interest 5.34% to
10.6%, due 1996-2020................................. 1,298,436 1,233,871
Project Debt, interest 4% to 10.64%, due 1996-2010.... 764,859 735,646
Other long-term borrowings............................ 34,320 32,210
Liquid Yield Option Notes, zero coupon-subordinated,
interest 9%, due 2001................................ 10,721 8,945
Liquid Yield Option Notes, zero coupon-subordinated,
interest 6%, due 2012 ("Exchangeable LYONs")......... 361,438 53,996
Liquid Yield Option Notes, zero coupon-subordinated,
interest 6%, due 2010 ("CWM LYONs").................. 132,981 36,840
WMX Subordinated Notes, interest 5.75%, due 2005...... -- 439,571
---------- ----------
Total debt............................................ $6,935,097 $7,514,775
Less--current portion................................. 890,686 1,094,165
---------- ----------
Long-term portion..................................... $6,044,411 $6,420,610
========== ==========
</TABLE>
The long-term debt as of December 31, 1995, is due as follows:
<TABLE>
<S> <C>
Second year................................................... $ 761,091
Third year.................................................... 2,158,232
Fourth year................................................... 261,103
Fifth year.................................................... 1,132,816
Sixth year and thereafter..................................... 2,107,368
----------
$6,420,610
==========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-16
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Certain of the Company's borrowings are redeemable at the option of the
holders prior to maturity. Such amounts and certain other borrowings which
would otherwise be classified as current liabilities have been classified as
long-term debt because the Company intends to refinance such borrowings on a
long-term basis with $1,503,000,000 of committed long-term borrowing facilities
which it has available. The committed facilities provide for unsecured long-
term loans at interest rates of prime or LIBOR plus 30 basis points and
commitment fees of 6 to 8 basis points per annum. There are no compensating
balance requirements or any informal arrangements in connection with loans
which would be made under these facilities.
In January 1995, the Company acquired the outstanding CWM shares it did not
already own. The transaction provided for the CWM public shareholders to
receive a convertible subordinated WMX note due 2005, with a principal amount
at maturity of $1,000, for every 81.1 CWM shares held, with cash paid in lieu
of issuance of fractional notes. The notes are subordinated to all existing and
future senior indebtedness of WMX. Each note bears cash interest from January
24, 1995 at the rate of two percent per annum of the $1,000 principal amount at
maturity, payable semi-annually. The difference between the principal amount at
maturity of $1,000 and the $717.80 stated issue price of each note represents
the stated discount which, together with the cash interest payable on the
notes, will accrue at a rate of 5.75 percent per annum (determined on a semi-
annual bond equivalent basis) for purposes of determining the prices at which
WMX may purchase or redeem notes, as described below. At the option of the
holder, each note will be purchased for cash by WMX on March 15, 1998, and
March 15, 2000, at prices of $789.95 and $843.03, respectively, which represent
the stated issue price plus accrued stated discount to those dates. Accrued
unpaid interest to those dates will also be paid. The notes will be redeemable
by WMX on and after March 15, 2000, for cash, at the stated issue price plus
accrued stated discount and accrued but unpaid interest through the date of
redemption. In addition, each note is convertible at any time prior to
maturity, unless previously purchased or redeemed by WMX, into 26.078 shares of
WMX common stock, subject to adjustment upon the occurrence of certain events.
Upon any such conversion, WMX will have the option of paying cash equal to the
market value of the WMX shares which would otherwise be issuable. As of
December 31, 1995, there were 549,810 such notes outstanding with a maturity
value amounting to $549,810,000.
As of December 31, 1994, CWM LYONs and the Exchangeable LYONs (together with
the CWM LYONs, the "LYONs") were convertible into or exchangeable for CWM
shares. On January 24, 1995, the LYONs became convertible into the number of
notes discussed in the preceding paragraph to which the holders would have been
entitled had they converted or exchanged the LYONs immediately prior to the
merger approval.
In May 1994, the Company issued, at par, $150,000,000 of ten-year Step-Up
Notes due April 30, 2004. The holders may elect to have the Step-Up Notes or
any portion thereof repaid on April 30, 1997, at 100% of their principal amount
together with accrued interest. The interest rate on the Step-Up Notes is 6.22%
through April 29, 1997, and 8% thereafter. In November 1994, the Company issued
$200,000,000 of 8 1/4% Notes due November 15, 1999, at a price of 99.925%.
Neither of these issues is redeemable at the option of the Company prior to
maturity.
In January 1995, the Company issued $250,000,000 of 8 1/8% Notes due February
1, 1998, at a price of 99.671%. In March 1995, the Company issued $200,000,000
of 7 1/8% Notes due March 22, 1997, at a
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-17
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
price of 99.98%. In May 1995, the Company issued $200,000,000 of 6.65% Notes
due May 15, 2005, at par. The holder of each 6.65% Note may elect to have such
Note, or any portion thereof which is a multiple of $1,000, repaid on May 15,
2000 at 100% of its principal amount, together with accrued interest. The
Company also issued in May 1995, $100,000,000 of 7% Notes due May 15, 2005, at
a price of 99.293%. In June 1995, the Company issued $100,000,000 of 5.84%
Notes due July 3, 1996, at par. In October 1995, the Company issued
$250,000,000 of 6 1/4% Notes due October 15, 2000, at a price of 99.85%. None
of these issues is redeemable at the option of the Company prior to maturity.
In April 1996, the Company issued $150,000,000 of 6.25% Notes due April 1,
1999, at a price of 99.972%. The Notes are not redeemable prior to maturity.
Also in April 1996, the Illinois Development Finance Authority issued and
sold $69,795,000 of 4.625% Environmental Refunding Bonds (WMX Technologies,
Inc.) Series 1996, maturing February 1, 1998, at a price of 100.291% plus
accrued interest and loaned the proceeds to the Company. These Bonds were
issued for the purpose of refunding all of the outstanding Illinois Development
Finance Authority 7.75% Solid Waste Disposal Revenue Bonds (Waste Management,
Inc. Project) Series 1988.
NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, the Company uses derivatives to manage interest rate,
currency and commodity risk. The portfolio of such instruments (which are held
for purposes other than trading) at December 31, 1995, is set forth in the
paragraphs which follow. Where deemed advantageous, management will use
derivatives in the future.
Interest Rate Agreements
Certain of the Company's subsidiaries have entered into interest rate swap
agreements to reduce the impact of changes in interest rates on underlying
borrowings. The agreements are contracts to exchange fixed and floating
interest rate payments periodically over the term without the exchange of the
underlying notional amounts. The notional amounts of such agreements are used
to measure interest to be paid or received and do not represent the amount of
exposure to credit loss. The agreements provide only for the exchange of
interest on the notional amounts at the stated rates, with no multipliers or
leverage.
While the subsidiaries are exposed to market risk to the extent that receipts
and payments under interest rate agreements are affected by market interest
rates, such agreements are entered into as a hedge against interest rate
exposure on existing debt. Accordingly, differences paid or received under the
agreements are recognized as part of interest expense over the life of the
agreements. The impact of swap agreements on consolidated interest expense and
on the effective interest rate on consolidated debt was immaterial. As of
December 31, 1995, interest rate agreements in notional amounts and with terms
as set forth in the following table were outstanding:
<TABLE>
<CAPTION>
NOTIONAL
CURRENCY AMOUNT PAY RECEIVE DURATION OF AGREEMENT
-------- -------- ----- -------- ---------------------
<S> <C> <C> <C> <C>
Sterling....................... 20,000 Fixed Floating Feb. 1995 - Feb. 1999
Hong Kong dollar............... 250,000 Fixed Floating Feb. 1995 - Feb. 1997
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-18
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Currency Agreements
From time to time, the Company and certain of its subsidiaries use foreign
currency derivatives to mitigate the impact of translation on foreign earnings
and income from foreign investees. Typically these have taken the form of
purchased put options or offsetting put and call options with different strike
prices. The Company receives or pays, based on the notional amount of the
option, the difference between the average exchange rate of the hedged currency
against the base currency and the average (strike price) contained in the
option. Complex instruments involving multipliers or leverage are not used.
While the Company may be required to make a payment in connection with these
agreements, it will recognize an offsetting increase in the translation of
foreign earnings or income from foreign investees. Although the purpose for
using such derivatives is to mitigate currency risk, they do not qualify for
hedge accounting under generally accepted accounting principles, and
accordingly must be adjusted to market value at the end of each accounting
period. Gains and losses on currency derivatives to date have not been
material.
As of December 31, 1995, the Company was party to the following average rate
currency option (settles at expiration):
<TABLE>
<CAPTION>
CURRENCY
----------------------
NOTIONAL AMOUNT HEDGED AGAINST
--------------- ------------- --------
<S> <C> <C> <C>
Collar, structured as offsetting put
and call with different strike
prices, covering the period January
1 to December 31, 1996............. 100,000 Swedish Krona Sterling
</TABLE>
Significant foreign currency contracts outstanding during 1993, 1994 and 1995
were as follows:
<TABLE>
<CAPTION>
CURRENCY
AVERAGE ---------------------------------
AMOUNT HEDGED AGAINST
---------- ------------------- -------------
<S> <C> <C> <C>
1993............................ 150,000 Sterling Dollar
9,300 Deutschemark Dollar
6,000 Finland Markka Sterling
1994............................ 85,000 Deutschemark Sterling
132,000 French Franc Sterling
184,000 Swedish Krona Sterling
20,000,000 Italian Lire Sterling
10,000,000 Italian Lire Deutschemark
23,000 Deutschemark Dollar
141,000 Sterling Dollar
1995............................ 46,600 Deutschemark Sterling
82,000 French Franc Sterling
13,500 Netherlands Guilder Sterling
180,000 Swedish Krona Sterling
1,500 Dollar Sterling
15,267,000 Italian Lire Sterling
11,820 Deutschemark Dollar
669 Sterling Swedish Krona
35,800 Sterling Dollar
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-19
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Commodity Agreements
The Company utilizes collars, calls and swaps to mitigate the risk of price
fluctuations on the fuel used by its vehicles. Quantities hedged equate to
committed fuel purchases or anticipated usage, and accordingly, gains and
losses are deferred and recognized as fuel is purchased. The following table
summarizes the Company's positions in commodity derivatives as of December 31,
1995:
<TABLE>
<CAPTION>
TYPE COMMODITY QUANTITY EXPIRATION
---- --------- ----------- ----------
<S> <C> <C> <C>
Swaps....................................... Crude oil 3,000 bbls. 1996
Collars..................................... Crude oil 300 bbls. 1996
Swaps....................................... Crude oil 3,000 bbls. 1997
Collars..................................... Crude oil 350 bbls. 1997
Swaps....................................... Crude oil 2,000 bbls. 1998
Collars..................................... Crude oil 200 bbls. 1998
Collars..................................... Crude oil 100 bbls. 1999
</TABLE>
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
December 31, 1995, such amounts were not material.
NOTE 7. ENVIRONMENTAL COSTS AND 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.
The Company provides for estimated closure and post-closure monitoring costs
over the operating life of disposal sites as airspace is consumed. Such costs
for U.S. landfills are estimated based on the technical requirements of the
Subtitle C and D Regulations of the U.S. Environmental Protection Agency or
the applicable state requirements, whichever are stricter, and include such
items as final cap and cover on the site, methane gas and leachate management,
and groundwater monitoring. Substantially the same standards are applied to
estimate costs for foreign sites, even though current regulations in some
foreign jurisdictions are less strict.
The Company has also established procedures to evaluate potential remedial
liabilities at closed sites which it owns or operated, or to which it
transported waste, including 106 sites on the NPL as of December 31, 1995 and
March 31, 1996. In the majority of situations, the Company's connection with
NPL sites relates to allegations that its subsidiaries (or their predecessors)
transported waste to the facilities in question, often prior to the
acquisition of such subsidiaries by the Company. The Company routinely reviews
and evaluates sites requiring remediation, including NPL sites, giving
consideration
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-20
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to the nature (e.g., owner, operator, transporter, or generator), and the
extent (e.g., amount and nature of waste hauled to the location, number of
years of site operation by the Company, or other relevant factors) of the
Company's alleged connection with the site, the accuracy and strength of
evidence connecting the Company to the location, the number, connection and
financial ability of other named and unnamed potentially responsible parties
("PRPs"), and the nature and estimated cost of the likely remedy. Cost
estimates are based on management's judgment and experience in remediating such
sites for the Company as well as for unrelated parties, information available
from regulatory agencies as to costs of remediation, and the number, financial
resources and relative degree of responsibility of other PRPs who are jointly
and severably liable for remediation of a specific site, as well as the typical
allocation of costs among PRPs. These estimates are sometimes a range of
possible outcomes. In such cases, the Company provides for the amount within
the range which constitutes its best estimate. If no amount within the range
appears to be a better estimate than any other amount, then the Company
provides for the minimum amount within the range in accordance with FAS No. 5.
The Company believes that it is "reasonably possible," as that term is defined
in FAS No. 5 ("more than remote but less than likely"), that its potential
liability could be at the high end of such ranges, which would be approximately
$150 million higher in the aggregate than the estimate that has been recorded
in the financial statements as of December 31, 1995.
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. The impact of such future events cannot be estimated at the current
time.
Where the Company believes that both the amount of a particular environmental
liability and the timing of the payments are reliably determinable, the cost in
current dollars is inflated at 3% until expected time of payment and then
discounted to present value at 7%. Had the Company not discounted any portion
of its liability, the amount recorded would have been increased by
approximately $171 million at December 31, 1995.
The Company's active landfill sites have estimated remaining lives ranging
from one to over 100 years based upon current site plans and annual volumes of
waste. During this remaining site life, the Company will provide for an
additional $1.12 billion of closure and post-closure costs, including accretion
for the discount recognized to date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-21
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 31, the Company's liabilities for closure, post-closure
monitoring and environmental remediation costs were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Current portion, included in Accrued Expenses......... $ 108,750 $ 138,603
Non-current portion................................... 704,015 622,952
---------- ----------
Total recorded...................................... $ 812,765 $ 761,555
Amount to be provided over remaining life of active
sites, including discount of $169 million in 1994 and
$171 million in 1995................................. 1,149,617 1,118,739
---------- ----------
Expected aggregate undiscounted environmental liabili-
ties................................................. $1,962,382 $1,880,294
========== ==========
</TABLE>
Anticipated payments of environmental liabilities at December 31, 1995, are
as follows:
<TABLE>
<S> <C>
1996........................................................... $ 138,603
1997........................................................... 97,621
1998........................................................... 49,416
1999........................................................... 40,586
2000........................................................... 32,115
Thereafter..................................................... 1,521,953
----------
$1,880,294
==========
</TABLE>
The change in the expected aggregate undiscounted amount results primarily
from changes in available airspace.
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.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. The carriers involved have denied coverage and are defending
these claims. No amounts have been recognized in the financial statements for
any future insurance recoveries.
NOTE 8. STOCK OPTIONS
The Company has three stock option plans currently in effect under which
future grants may be issued: the 1992 Stock Option Plan (the "1992 Plan"), the
1992 Stock Option Plan for Non-Employee Directors (the "Directors' Plan") and
the 1996 Replacement Stock Option Plan established in February 1996 (the
"Replacement Plan").
Options granted under the 1992 Plan are generally exercisable in equal
cumulative installments over a three- to five-year period beginning one year
after the date of grant. Options granted under
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-22
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the Directors' Plan become exercisable in five equal annual installments
beginning six months after the date of grant. Options granted under the
Replacement Plan are exercisable at the time or times determined by the
committee administering the plan at the date of grant.
Under the 1992 Plan, non-qualified stock options may be granted at a price
equal to 100% of the market value on the date of grant, for a term of not less
than five years nor more than ten years. Twelve million five hundred thousand
shares of the Company's common stock were initially reserved for issuance under
this plan.
Pursuant to the Directors' Plan, 150,000 shares of the Company's common stock
were initially reserved. Options for 15,000 shares are to be granted, at the
time of election to the Board, to each person who is not an officer or full-
time employee of the Company or any of its subsidiaries.
Under the Replacement Plan, non-qualified options may be granted to persons
holding options to acquire stock of a Corporation being acquired by the Company
at a price and for such term (not to exceed ten years) determined by the
committee administering the plan at the date of grant. Seven hundred thousand
shares of the Company's common stock were initially reserved for issuance under
this plan.
As part of the acquisitions of the CWM and Rust shares not previously owned
by the Company, as discussed in Note 4, outstanding CWM stock options were
converted into options to acquire approximately 2,873,000 Company shares at
prices of $21.97 to $63.33 per share and outstanding Rust stock options were
converted into options to acquire approximately 1,976,000 Company shares at
prices of $21.39 to $40.10 per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-23
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The status of the plans, including predecessor plans and replacement plans
(together "Prior Plans") under which options remain outstanding, during the
three years ended December 31, 1995, was as follows:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
------ ---------------
<S> <C> <C>
January 1, 1993--
Outstanding........................................... 9,783 $ 3.46 - $41.80
Available for future grant............................ 14,822 -
------
1993--
Granted................................................. 2,957 $30.90 - $38.45
Exercised............................................... 551 $ 3.46 - $35.44
Cancelled--
Prior Plans........................................... 179 $18.84 - $41.80
Current plans......................................... 328 $30.69 - $41.80
------
December 31, 1993--
Outstanding........................................... 11,682 $ 4.33 - $41.80
Available for future grant............................ 12,193 -
------
1994--
Granted................................................. 3,729 $24.33 - $29.03
Exercised............................................... 462 $ 4.33 - $25.72
Cancelled--
Prior Plans........................................... 312 $14.72 - $41.80
Current plans......................................... 826 $ 8.57 - $41.80
Additional shares available for future grant............ 6,000 -
------
December 31, 1994--
Outstanding........................................... 13,811 $ 7.20 - $41.80
Available for future grant............................ 15,290 -
------
1995--
Granted................................................. 3,117 $23.21 - $28.90
Exercised............................................... 721 $ 7.20 - $30.69
Cancelled--
Prior Plans........................................... 1,111 $21.39 - $63.33
Current plans......................................... 316 $26.48 - $41.80
Converted CWM and Rust stock options.................... 4,849 $21.39 - $63.33
Shares no longer available for future grant............. 2,914 -
------
December 31, 1995--
Outstanding........................................... 19,629 $ 8.57 - $63.33
Available for future grant............................ 4,726 -
======
</TABLE>
Options were exercisable with respect to 9,859,656 shares at December 31,
1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-24
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 9. CAPITAL STOCK
The Board of Directors has the authority to create and issue up to
50,000,000 shares of $1 par preferred stock at such time or times, in such
series, with such designations, preferences and relative participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as it may determine. No shares of the preferred stock
have been issued.
Pursuant to a plan adopted by the Company in January 1987, each share of the
Company's common stock carries the right (referred to herein as a "Right") to
purchase one four-hundredth (subject to adjustment) of a share of Series A
Preferred Stock, $1.00 par value ("Preferred Stock"), at a price of $68.75
(subject to adjustment). The Rights are tradeable only with the Company's
common stock until they become exercisable. The Rights become exercisable ten
days after the earlier of a public announcement that a person has acquired 20%
or more of the Company's outstanding voting stock or a person's commencement
or announcement of a tender or exchange offer that would result in his owning
30% or more of the Company's outstanding voting stock. The Rights are subject
to redemption by the Company at a price of $.0125 per Right, subject to
certain limitations, and will expire on February 6, 1997. The Preferred Stock
carries certain preferential dividend and liquidation rights and certain
voting and other rights.
If the Company or its assets are acquired in certain merger or other
transactions after a person acquires Company voting stock or commences or
announces an offer as provided above, each holder of a Right may purchase at
the exercise price of the Right, shares of common stock of the acquiring
company having a market value of two times the exercise price of the Right. If
the Company is the survivor in certain merger transactions or in the event of
certain other "self-dealing" transactions, each holder of a Right may purchase
at the exercise price of the Right, shares of Preferred Stock having a market
value of twice the exercise price of the Right. Rights held by an acquiring
person become void upon the occurrence of such events.
On December 8, 1995, the Board of Directors of the Company authorized the
repurchase by the Company of up to 25 million shares of its common stock from
time to time in the open market or in privately negotiated transactions over a
24-month period. On the same date, the Board of Directors of WTI authorized
WTI to repurchase up to 20 million shares of its common stock over a 24-month
period. Both authorizations replaced existing common stock repurchase
programs. WTI has repurchased 3.8 million shares, including 3 million shares
during the first quarter of 1996. Through the first quarter of 1996, WMX had
not repurchased any shares under this program.
NOTE 10. EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number
of common and common equivalent shares outstanding during each period. Common
stock equivalents relate primarily to the impact of options outstanding under
the Company's stock option plans.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-25
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following table reconciles the number of common shares shown as
outstanding in the Consolidated Balance Sheets with the number of common shares
used in computing earnings per share:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Common shares issued, net of Employee Stock Benefit
Trust shares per Consolidated Balance Sheets......... 484,000 487,047
Effect of shares issuable under stock options after
applying the "treasury stock" method................. 396 627
Effect of using weighted average common shares
outstanding during the year.......................... (252) (1,702)
------- -------
Common shares used in computing earnings per share.... 484,144 485,972
======= =======
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company leases several of its operating and office facilities for various
terms. Rents charged to costs and expenses in the Consolidated Statements of
Income amounted to $178,039,000 in 1993, $197,969,000 in 1994 and $186,248,000
in 1995. These amounts include rents under long-term leases, short-term
cancellable leases and rents charged as a percentage of revenue, but are
exclusive of financing leases capitalized for accounting purposes.
The long-term rental obligations as of December 31, 1995, are due as follows:
<TABLE>
<S> <C>
First year.................................................... $ 170,311
Second year................................................... 152,711
Third year.................................................... 140,162
Fourth year................................................... 132,892
Fifth year.................................................... 126,872
Sixth through tenth years..................................... 545,675
Eleventh year and thereafter.................................. 329,046
----------
$1,597,669
==========
</TABLE>
During 1994 and 1995, the Company sold put options on 31.6 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. Proceeds from the sale of put options were credited to additional paid-
in capital. The amount the Company would be obligated to pay to repurchase
shares of its common stock if all outstanding put options were exercised has
been reclassified to a temporary equity account. 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.
Options on 17.9 million shares expired unexercised in 1994 and 1995, as the
price of the Company's stock was in excess of the strike price at maturity.
Options on 4.7 million shares were exercised in February 1995, and the Company
elected to settle them for cash at a total cost of $12,019,000. The remaining
9.0 million options (which were also outstanding at March 31, 1996) expire at
various dates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-26
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
in 1996, at strike prices ranging from $27.34 to $31.45 per share. 4.3 million
of these options subsequently expired unexercised in the second quarter as the
price of the Company's stock was in excess of the strike price at maturity. The
Company has sold and expects to continue to sell additional put options during
1996.
The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and pollutants.
Management believes that the coverage terms, available limits of liability, and
costs currently offered by the insurance market do not represent sufficient
value to warrant the purchase of "non-sudden and accidental" pollution
liability insurance coverage. As such, the Company has chosen not to purchase
risk transfer "non-sudden and accidental" pollution liability insurance
coverage. To satisfy existing government requirements, the Company has secured
non-risk transfer pollution liability insurance coverage in amounts believed to
be in compliance with Federal and State law requirements for "non-sudden and
accidental" pollution. The Company must reimburse the insurer for losses
incurred and covered by this insurance policy. In the event the Company
continues not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage, the Company's net income could be adversely
affected in the future if "non-sudden and accidental" pollution losses should
occur.
The Company has issued or is a party to approximately 3,120 bank letters of
credit, performance bonds and other guarantees. Such financial instruments
(averaging approximately $639,000 each), including those provided for
affiliates and not otherwise recorded, are given in the ordinary course of
business. Because virtually no claims have been made against these financial
instruments in the past, management does not expect these instruments will have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
Since 1994, WTI has been involved in litigation involving permits for the
construction and operation of the Lisbon, Connecticut, trash-to-energy plant.
These matters were resolved during 1995 and the plant began commercial
operations in January 1996.
During the first quarter of 1995, Waste Management International plc ("WM
International") received an assessment of approximately 417 million Krona
(approximately $62 million) from the Swedish Tax Authority, relating to a
transaction completed in 1990. WM International believes that all appropriate
tax returns and disclosures were properly filed at the time of the transaction
and intends to vigorously contest the assessment.
A subsidiary of Waste Management, Inc. ("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"). Although a lower court 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
November 1995, the Superior Court ordered the WMI 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 has appealed the Superior Court order to the state Supreme Court.
The Company is unable to predict the outcome of the appeal or the nature and
extent of the removal action that may ultimately
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-27
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
be required following further appeals or as a result of the permitting process.
However, if the Superior 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.
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, are material to its business or
financial condition.
NOTE 12. BENEFIT PLANS
The Company has a defined benefit pension plan for all eligible non-union
domestic employees of WMX, CWM and WMI. The benefits are based on the
employee's years of service and compensation during the highest five
consecutive years out of the last ten years of employment. The Company's
funding policy is to contribute annually the minimum required amount determined
by its actuaries.
Net periodic pension expense for 1993, 1994 and 1995, based on discount rates
of 8.50% for all three years, included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the
year..................................... $ 10,785 $ 11,075 $ 11,752
Interest cost on projected benefit obliga-
tion..................................... 9,507 11,532 13,228
Expected return on plan assets............ (11,055) (12,335) (13,237)
Net amortization and deferral............. (1,451) (1,310) 33
-------- -------- --------
Net periodic pension expense.............. $ 7,786 $ 8,962 $ 11,776
======== ======== ========
</TABLE>
Assumptions, used to determine the plan's funded status as of December 31,
are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Discount rate................................................. 8.5% 7.75%
Rate of increase in compensation levels....................... 4.0% 4.0%
Expected long-term rate of return on assets................... 9.0% 9.0%
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-28
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following table sets forth the plan's funded status and the amount
recognized in the Company's Consolidated Balance Sheets at December 31, 1994
and 1995 for its pension plan:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $120,881 and $152,031 at December 31,
1994 and 1995, respectively........................ $(136,713) $(167,287)
========= =========
Projected benefit obligation........................ $(156,609) $(191,059)
Plan assets at fair value, primarily common stocks,
bonds and real estate................................ 136,740 167,068
--------- ---------
Plan assets less than projected benefit obligation.... $ (19,869) $ (23,991)
Unrecognized net loss................................. 39,304 29,801
Unrecognized overfunding at date of adoption (January
1, 1985)
of FAS No. 87, net of amortization, being recognized
over 15 years........................................ (8,727) (6,422)
--------- ---------
Pension cost included in prepaid (accrued) expenses... $ 10,708 $ (612)
========= =========
</TABLE>
The Company also has a non-qualified defined benefit plan for officers of
WMX, CWM and WMI who have served in such capacities for at least 10 years at
the time of retirement. The benefits are based on the officer's years of
service and compensation during the highest three consecutive years out of the
last ten years of employment. The benefits are reduced by such officer's
benefits under the pension plan. This plan is not funded. Expense for 1993,
1994 and 1995 for this plan was $2,551,000, $3,418,000 and $4,202,000,
respectively.
WM International participates in both defined benefit and defined
contribution retirement plans for its employees in various countries. The
projected benefit obligation and the plan assets of the WM International
defined benefit plans are not material. Other subsidiaries participate in
various multi-employer pension plans covering certain employees not covered
under the Company's pension plan, pursuant to agreements with collective
bargaining units who are members of such plans. These plans are generally
defined benefit plans; however, in many cases, specific benefit levels are not
negotiated with or known by the employer-contributors. Contributions of
$15,242,000, $16,194,000 and $18,369,000 for subsidiaries' defined contribution
plans were made and charged to income in 1993, 1994 and 1995, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-29
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following table analyzes the obligation for postretirement benefits
other than pensions (primarily health care costs), which is included in other
deferred items on the Consolidated Balance Sheets, as of December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accumulated Postretirement Benefit Obligations:
Retirees.................................................. $57,216 $52,255
Other fully eligible participants......................... 10,960 9,682
Other active participants................................. 9,478 10,695
------- -------
$77,654 $72,632
Unrecognized:
Prior service cost........................................ 627 566
Gain...................................................... 9,501 7,911
------- -------
$87,782 $81,109
======= =======
</TABLE>
For measurement purposes, an 8.5% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1996; the rate was assumed
to decrease by 0.5% per year to 6.0% in 2001 and remain at that level
thereafter. Increasing the assumed health care cost trend by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by approximately $4,341,000, and the
aggregate of the service and interest cost components of net postretirement
health care cost for 1995 by approximately $403,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 8.5% in 1994 and 7.75% in 1995.
The expense for postretirement health care benefits was $7,300,000 in 1993,
$4,668,000 in 1994 and $5,359,000 in 1995. The service and interest components
of the expense were $3,000,000 and $4,300,000, respectively, in 1993,
$1,049,000 and $3,619,000, respectively, in 1994, and $1,094,000 and
$4,265,000, respectively, in 1995.
The Company has an Employee Stock Ownership Plan ("1988 ESOP") for all
eligible non-union United States and Canadian employees of WMX, CWM and WMI.
The benefits are based on the employee's years of service and compensation.
The Company contributes each year an amount, if any, determined by the Board
of Directors of the Company.
Information concerning the 1988 ESOP is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Expense recorded (contribution)........................ $7,329 $7,930 $6,667
====== ====== ======
Interest expense on 1988 ESOP debt..................... $1,510 $1,965 $1,147
====== ====== ======
Dividends on unallocated 1988 ESOP shares used by the
1988 ESOP............................................. $ 964 $ 780 $ 555
====== ====== ======
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-30
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company has a Profit Sharing and Savings Plan ("PSSP") available to
certain employees of WMX, CWM and WMI. The terms of the PSSP allow for annual
contributions by the Company as determined by the Board of Directors as well as
a match of employee contributions up to $500 per employee ($750 effective
January 1, 1996). Charges to operations for the PSSP were $11,589,000 in 1993,
$27,334,000 in 1994 and $24,882,000 in 1995. Rust, WTI and WM International
also sponsor non-contributory and contributory defined contribution plans
covering both salaried and hourly employees. Employer contributions are
generally based upon fixed amounts of eligible compensation and amounted to
$18,614,000, $23,431,000 and $23,017,000 during 1993, 1994 and 1995,
respectively.
Effective January 1, 1994, the Company and its principal subsidiaries adopted
FAS No. 112, "Employers' Accounting for Postemployment Benefits." This new
statement established accounting standards for employers who provide benefits
to former or inactive employees after employment but before retirement. The
adoption of FAS 112 did not have a significant effect on earnings, because the
Company's accounting prior to adoption was substantially in compliance with the
new standard.
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.
NOTE 13. COMPANY'S OPERATIONS IN DIFFERENT INDUSTRIES AND GEOGRAPHICAL AREAS
The analysis of operations by industry segment which follows reflects the
Company's traditional management structure of five principal subsidiaries, each
of which has operated in a relatively discrete portion of the environmental
services industry or geographic area. WMI has provided integrated solid waste
services and CWM has provided hazardous waste collection, transportation,
treatment and disposal services in North America. WM International has provided
these services, as well as trash-to-energy services, outside North America. WTI
has been 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 has served the environmental and
infrastructure engineering and consulting, and on-site industrial and related
services markets in the United States and a number of foreign countries.
Whereas solid waste, hazardous waste and trash-to-energy operations have been
performed by three distinct organizations in North America, these services have
been provided internationally by a single management organization. Because of
the different business environment for international operations, the Company
has managed these as a discrete segment. Following is an analysis of the
Company's continuing operations by these historical segments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-31
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ENGI- TRASH-TO- INTERNA-
NEERING, ENERGY, WATER TIONAL
INDUSTRIAL TREATMENT, WASTE CORPO-
AND AIR QUALITY MANAGE- RATE AND
SOLID HAZARD- RELATED AND RELATED MENT ELIMINA- CONSOLI-
WASTE OUS WASTE SERVICES SERVICES SERVICES TIONS(1) DATED
---------- ---------- ---------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
Revenue................ $4,702,166 $ 661,860 $1,035,004 $1,142,219 $1,411,211 $(316,344) $ 8,636,116
Operating expenses
including goodwill
amortization.......... 3,193,183 506,264 808,694 792,719 1,009,145 (309,914) 6,000,091
Special charge......... -- 550,000 -- -- -- -- 550,000
Selling and
administrative
expenses.............. 547,413 128,058 131,575 107,276 198,969 (9,267) 1,104,024
---------- ---------- ---------- ---------- ---------- --------- -----------
Income from operations. $ 961,570 $ (522,462) $ 94,735 $ 242,224 $ 203,097 $ 2,837 $ 982,001
========== ========== ========== ========== ========== ========= ===========
Identifiable assets.... $6,912,271 $1,498,631 $1,360,703 $3,081,709 $3,315,621 $(169,169) $15,999,766
========== ========== ========== ========== ========== ========= ===========
Depreciation and
amortization expense.. $ 461,963 $ 63,971 $ 43,971 $ 75,323 $ 121,050 $ 22,084 $ 788,362
========== ========== ========== ========== ========== ========= ===========
Capital
expenditures(2)....... $1,139,004 $ 157,786 $ 124,754 $ 303,905 $ 403,326 $ 26,009 $ 2,154,784
========== ========== ========== ========== ========== ========= ===========
1994
Revenue................ $5,117,871 $ 649,581 $1,140,294 $1,324,567 $1,710,862 $(388,470) $ 9,554,705
Operating expenses
including goodwill
amortization.......... 3,502,445 454,765 915,129 915,237 1,244,597 (380,393) 6,651,780
Selling and
administrative
expenses.............. 549,608 105,736 153,230 119,380 230,014 1,532 1,159,500
---------- ---------- ---------- ---------- ---------- --------- -----------
Income from operations. $1,065,818 $ 89,080 $ 71,935 $ 289,950 $ 236,251 $ (9,609) $ 1,743,425
========== ========== ========== ========== ========== ========= ===========
Identifiable assets.... $7,388,766 $1,375,341 $1,472,263 $3,276,611 $4,037,922 $(311,381) $17,239,522
========== ========== ========== ========== ========== ========= ===========
Depreciation and
amortization expense.. $ 479,333 $ 59,381 $ 57,542 $ 95,254 $ 154,575 $ 24,514 $ 870,599
========== ========== ========== ========== ========== ========= ===========
Capital
expenditures(2)....... $ 950,383 $ 57,983 $ 57,242 $ 115,082 $ 304,999 $ 20,397 $ 1,506,086
========== ========== ========== ========== ========== ========= ===========
1995
Revenue................ $5,642,857 $ 613,883 $1,027,430 $1,451,675 $1,865,081 $(353,309) $10,247,617
Operating expenses
including goodwill
amortization.......... 3,806,798 463,984 816,528 1,015,269 1,410,282 (350,309) 7,162,552
Special charges........ -- 140,600 -- -- 194,593 -- 335,193
Selling and
administrative
expenses.............. 578,290 94,551 135,012 130,976 235,807 -- 1,174,636
---------- ---------- ---------- ---------- ---------- --------- -----------
Income from operations. $1,257,769 $ (85,252) $ 75,890 $ 305,430 $ 24,399 $ (3,000) $ 1,575,236
========== ========== ========== ========== ========== ========= ===========
Identifiable assets.... $8,506,954 $1,159,467 $1,387,565 $3,220,193 $4,235,589 $ 54,988 $18,564,756
========== ========== ========== ========== ========== ========= ===========
Depreciation and
amortization expense.. $ 457,820 $ 48,860 $ 49,796 $ 107,814 $ 181,341 $ 32,041 $ 877,672
========== ========== ========== ========== ========== ========= ===========
Capital
expenditures(2)....... $1,101,312 $ 65,080 $ 34,606 $ 45,101 $ 263,352 $ 31,624 $ 1,541,075
========== ========== ========== ========== ========== ========= ===========
</TABLE>
- ----------
(1) Includes corporate office and elimination of intercompany transactions.
(2) Includes property and equipment of purchased businesses.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-32
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of a strategic review begun in 1994, management and operations of
the Company have been realigned on the basis of four principal global lines of
business--waste services, clean energy, clean water, and environmental and
infrastructure engineering and consulting. The following table analyzes
continuing operations on a line-of-business basis.
<TABLE>
<CAPTION>
ENVIRONMENTAL AND
INFRASTRUCTURE
WASTE CLEAN CLEAN ENGINEERING AND CORPORATE AND
SERVICES ENERGY WATER CONSULTING ELIMINATIONS (2) CONSOLIDATED
----------- ---------- -------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1993
Revenue................. $ 7,457,371 $ 804,016 $392,194 $298,879 $(316,344) $ 8,636,116
Operating expenses
including goodwill
amortization........... 5,259,571 532,619 294,525 223,290 (309,914) 6,000,091
Special charge.......... 550,000 -- -- -- -- 550,000
Selling and
administrative
expenses............... 956,588 46,899 63,937 45,867 (9,267) 1,104,024
----------- ---------- -------- -------- --------- -----------
Income from operations.. $ 691,212 $ 224,498 $ 33,732 $ 29,722 $ 2,837 $ 982,001
=========== ========== ======== ======== ========= ===========
Identifiable assets..... $12,356,320 $2,196,145 $485,349 $297,258 $ 664,694 $15,999,766
=========== ========== ======== ======== ========= ===========
Depreciation and
amortization expense... $ 693,819 $ 62,777 $ 21,446 $ 10,320 $ -- $ 788,362
=========== ========== ======== ======== ========= ===========
Capital expenditures(1). $ 1,802,781 $ 209,091 $112,965 $ 26,718 $ 3,229 $ 2,154,784
=========== ========== ======== ======== ========= ===========
1994
Revenue................. $ 8,140,785 $ 888,037 $489,295 $425,058 $(388,470) $ 9,554,705
Operating expenses
including goodwill
amortization........... 5,738,990 589,610 369,592 333,981 (380,393) 6,651,780
Selling and
administrative
expenses............... 971,075 44,032 78,615 64,246 1,532 1,159,500
----------- ---------- -------- -------- --------- -----------
Income from operations.. $ 1,430,720 $ 254,395 $ 41,088 $ 26,831 $ (9,609) $ 1,743,425
=========== ========== ======== ======== ========= ===========
Identifiable assets..... $13,470,901 $2,152,458 $587,480 $402,053 $ 626,630 $17,239,522
=========== ========== ======== ======== ========= ===========
Depreciation and
amortization expense... $ 751,251 $ 62,460 $ 40,813 $ 16,075 $ -- $ 870,599
=========== ========== ======== ======== ========= ===========
Capital expenditures(1). $ 1,374,893 $ 76,392 $ 35,725 $ 14,576 $ 4,500 $ 1,506,086
=========== ========== ======== ======== ========= ===========
1995
Revenue................. $ 8,634,836 $ 893,513 $618,472 $454,105 $(353,309) $10,247,617
Operating expenses
including goodwill
amortization........... 6,099,597 574,865 477,842 360,557 (350,309) 7,162,552
Special charges......... 325,336 9,857 -- -- -- 335,193
Selling and
administrative
expenses............... 972,018 44,751 89,922 67,945 -- 1,174,636
----------- ---------- -------- -------- --------- -----------
Income from operations.. $ 1,237,885 $ 264,040 $ 50,708 $ 25,603 $ (3,000) $ 1,575,236
=========== ========== ======== ======== ========= ===========
Identifiable assets..... $14,535,905 $2,025,491 $612,824 $392,486 $ 998,050 $18,564,756
=========== ========== ======== ======== ========= ===========
Depreciation and
amortization expense... $ 742,148 $ 73,098 $ 44,744 $ 17,682 $ -- $ 877,672
=========== ========== ======== ======== ========= ===========
Capital expenditures(1). $ 1,485,958 $ 12,404 $ 33,415 $ 9,288 $ 10 $ 1,541,075
=========== ========== ======== ======== ========= ===========
</TABLE>
- ----------
(1) Includes property and equipment of purchased businesses.
(2) Includes corporate office and elimination of intersegment transactions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-33
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign operations in 1995 were conducted in 10 countries in Europe, eight
countries in the Asia Pacific region, and Canada, Brazil, Mexico, Israel, and
Argentina. The information relating to the Company's foreign operations is set
forth in the following tables:
<TABLE>
<CAPTION>
UNITED OTHER
STATES EUROPE FOREIGN CONSOLIDATED
----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1993
Revenue............................ $ 6,994,757 $1,241,811 $399,548 $ 8,636,116
=========== ========== ======== ===========
Income from operations............. $ 754,502 $ 184,412 $ 43,087 $ 982,001
=========== ========== ======== ===========
Identifiable assets................ $12,444,968 $2,955,078 $599,720 $15,999,766
=========== ========== ======== ===========
1994
Revenue............................ $ 7,427,611 $1,504,154 $622,940 $ 9,554,705
=========== ========== ======== ===========
Income from operations............. $ 1,476,067 $ 198,251 $ 69,107 $ 1,743,425
=========== ========== ======== ===========
Identifiable assets................ $12,628,264 $3,725,393 $885,865 $17,239,522
=========== ========== ======== ===========
1995
Revenue............................ $ 7,837,050 $1,800,768 $609,799 $10,247,617
=========== ========== ======== ===========
Income from operations............. $ 1,515,729 $ 17,951 $ 41,556 $ 1,575,236
=========== ========== ======== ===========
Identifiable assets................ $13,769,141 $3,920,962 $874,653 $18,564,756
=========== ========== ======== ===========
</TABLE>
No single customer accounted for as much as 3% of consolidated revenue in
1993, 1994 and 1995.
WM International operates facilities in Hong Kong which are owned by the Hong
Kong government. On July 1, 1997, control of the Hong Kong government transfers
to mainland China. WM International is unable to predict what impact, if any,
this change will have on its operations in Hong Kong. At December 31, 1995, WM
International had identifiable assets of $242.5 million related to its Hong
Kong operations, which generated 1995 pretax income of approximately $16.5
million.
NOTE 14. SPECIAL GAINS AND CHARGES
During the third quarter of 1993, the Company recorded a special charge of
$550.0 million (before tax and minority interest) as a result of CWM recording
a special asset revaluation and restructuring charge. The charge consisted of
$381.0 million to write down assets, primarily incinerators, and $169.0 million
for cash expenditures. Substantially all of the cash expenditures were made as
of December 31, 1994. As a result of this program, overhead, including
depreciation and amortization, was reduced in 1994 by approximately $60 million
on an annualized basis.
Results for 1993 include a non-taxable gain of $15.1 million (before minority
interest) relating to the second quarter issuance of shares by Rust in
connection with the acquisition of the minority interest in a subsidiary.
In 1994, Rust recorded a charge of $9.2 million (before tax and minority
interest) for the writeoff of assets and the recognition of one-time costs
incurred during the fourth quarter in connection with
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-34
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
the discontinuance of its marine construction and dredging operations, and the
closing of offices in a consolidation of its other operations. This charge is
included in Operating Expenses ($6.6 million) and Selling and Administrative
Expenses ($2.6 million) in the Consolidated Statement of Income.
In the first quarter of 1995, in response to the continuing deterioration of
the chemical waste services market, CWM took additional steps to realign its
organization, and in connection therewith, recorded a special charge of $140.6
million before tax ($91.4 million after tax or $.19 per WMX share). The charge
related primarily to a write-off of the investment in facilities and
technologies that CWM abandoned because they do not meet customer service or
performance objectives, but also includes $22.0 million of future cash
payments for rents under non-cancellable leases, guaranteed bank obligations
of a joint venture, and employee severance. The majority of the cash
expenditures were paid in 1995, although certain of the non-cancellable leases
extend through the year 2002.
In the fourth quarter of 1995, WM International recorded an exceptional
charge of $194.6 million ($152.4 million after tax) primarily related to the
actions it is taking to sell or otherwise dispose of non-core businesses and
investments, as well as core businesses and investments in low potential
markets, abandon certain hazardous waste treatment and processing
technologies, and streamline its country management organization. The charge
reduced the Company's income by approximately $153.3 million before tax
($111.0 million after tax). The charge included $34.3 million of cash payments
for employee severance and rents under non-cancellable leases. Approximately
$11.2 million of the cash costs were paid prior to December 31, 1995. The
majority of the balance will be paid in early 1996, although certain rent
payments on leased facilities will continue into the future. WM International
expects that upon completion of these actions, overhead will be reduced by
approximately $20 million annually, which management plans to invest in new
marketing initiatives and operational productivity enhancements.
NOTE 15. DISCONTINUED OPERATIONS
In December 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 engineering and consulting businesses. The
discontinued businesses have been segregated and the accompanying consolidated
balance sheets, statements of income and related footnote information have
been restated.
Rust has engaged investment bankers to assist it in valuing and identifying
potential buyers for the major business units to be sold, and expects to
complete the sales in 1996. On May 20, 1996, the Company announced that Rust
signed an agreement to sell Rust's industrial process engineering and
construction business based in Birmingham, Alabama to Raytheon Engineers &
Constructors, Inc., a subsidiary of Raytheon Company. Provision has been made
for estimated loss on disposal of the discontinued operations, net of related
tax benefits and minority interest, and is included in the 1995 consolidated
statement of income. The provision for loss includes management's best
estimate of the amounts to be realized on the sale of businesses and assets.
The amounts Rust will ultimately realize could differ materially in the near
term from these estimates.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-35
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Revenues of the discontinued businesses were $499,461,000 in 1993,
$542,613,000 in 1994, and $731,731,000 in 1995. Following is a summary of the
assets and liabilities as of December 31, 1994 and 1995, which are reflected on
the consolidated balance sheets as net assets of discontinued operations:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current assets......................................... $ 136,466 $ 163,662
Property and equipment and other noncurrent assets..... 162,926 94,251
Current liabilities.................................... (111,718) (122,529)
Noncurrent liabilities................................. (4,023) (4,832)
--------- ---------
Net assets of discontinued operations................ $ 183,651 $ 130,552
========= =========
</TABLE>
Results of operations for the three months ended March 31, 1996, were not
material and were included in the reserve for loss on disposition provided
previously. Revenue from these businesses was $142.8 million for the three
months ended March 31, 1996, and $159.7 million for the comparable period in
1995.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of FAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company, using available market information and commonly
accepted valuation methodologies. However, considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company or holders of the instruments could realize in a
current market exchange. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value estimates presented herein are based on information available to
management as of December 31, 1994, and December 31, 1995. Such amounts have
not been revalued since those dates, and current estimates of fair value may
differ significantly from the amounts presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nonderivatives--
Assets--
Cash and cash equivalents.... $ 123,348 $ 123,348 $ 189,031 $ 189,031
Receivables.................. 1,887,923 1,887,923 1,889,721 1,889,721
Short-term investments....... 19,704 19,704 36,243 36,243
Liabilities--
Commercial paper............. 946,702 944,837 1,119,356 1,120,209
Project debt................. 764,859 828,320 735,646 880,619
Liquid Yield Option Notes and
WMX Subordinated Notes...... 505,140 500,410 539,352 576,024
Other borrowings............. 4,718,396 4,586,522 5,120,421 5,319,414
Derivatives relating to debt... -- 1,653 -- (74)
Other derivatives carried as--
Assets (in Other Assets)..... 307 307 -- --
Liabilities (in Accrued Ex-
penses)..................... (1,105) (16,245) (65) (16,647)
Letters of credit, performance
bonds and guarantees.......... -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-36
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash, Receivables and Short-Term Investments
The carrying amounts of these items are a reasonable estimate of their fair
value.
Liabilities
For debt issues that are publicly traded, fair values are based on quoted
market prices or dealer quotes. Due to the short-term nature of the ESOP notes,
their carrying value approximates fair value. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues that are not quoted
on an exchange.
Derivatives
The fair value of derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts at December 31,
thereby taking into account unrealized gains and losses. Dealer quotes are
available for most of the Company's derivatives. Deferred gains and losses are
shown as assets and liabilities, as offsetting such amounts against the related
nonderivative instrument is permitted only pursuant to a right of setoff or
master netting agreement.
Off-Balance Sheet Financial Instruments
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk, such as bank letters of credit,
performance bonds and other guarantees, which are not reflected in the
accompanying balance sheets. Such financial instruments are to be valued based
on the amount of exposure under the instrument and the likelihood of
performance being required. In the Company's experience, virtually no claims
have been made against these financial instruments. Management does not expect
any material losses to result from these off-balance-sheet instruments and,
therefore, is of the opinion that the fair value of these instruments is zero.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-37
<PAGE>
WMX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements
of Income by quarter for 1994 and 1995.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1994
Revenue................. $2,170,661 $2,420,106 $2,459,336 $2,504,602 $ 9,554,705
Gross profit............ 649,818 747,041 749,669 756,397 2,902,925
Income from continuing
operations............. 161,777 202,155 207,093 205,466 776,491
Net income.............. 162,612 203,117 212,885 205,767 784,381
Income from continuing
operations per common
and common equivalent
share.................. .33 .42 .43 .42 1.60
Net income per common
and common equivalent
share.................. .34 .42 .44 .42 1.62
1995
Revenue................. $2,445,185 $2,635,665 $2,619,227 $2,547,540 $10,247,617
Gross profit............ 591,125 788,929 794,941 574,877 2,749,872
Income from continuing
operations............. 101,292 212,462 230,801 110,035 654,590
Net income.............. 101,245 219,127 233,848 49,679 603,899
Income from continuing
operations per common
and common equivalent
share.................. .21 .44 .47 .23 1.35
Net income per common
and common equivalent
share.................. .21 .45 .48 .10 1.24
</TABLE>
See Note 14 to Consolidated Financial Statements for a discussion of the
special charges affecting the 1994 fourth quarter and full year results and the
1995 first quarter, fourth quarter and full year results.
See Note 15 to Consolidated Financial Statements for a discussion of the
decision to discontinue certain operations, announced during the fourth quarter
of 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index appearing elsewhere herein, and is hereby
incorporated by reference herein.
(b) FINANCIAL STATEMENT SCHEDULES.
The following information included in Item 14 of the registrant's 1995
annual report on Form 10-K and Arthur Andersen LLP's report thereon are hereby
incorporated by reference herein:
Schedule II--Valuation and Qualifying Accounts.
All other schedules have been omitted because the required information is
not applicable.
S-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT, OR AMENDMENT THERETO, TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN OAK
BROOK, ILLINOIS ON MAY 24, 1996.
WMX Technologies, Inc.
/s/ Dean L. Buntrock
By___________________________________
Dean L. Buntrock,
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT, OR AMENDMENT THERETO, HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dean L. Buntrock
- ------------------------------------
Dean L. Buntrock Director, Chairman of the
Board and Chief Executive
Officer
/s/ Jerry E. Dempsey
- ------------------------------------
Jerry E. Dempsey Director
/s/ Phillip B. Rooney
- ------------------------------------
Phillip B. Rooney Director
/s/ Donald F. Flynn
- ------------------------------------
Donald F. Flynn Director
/s/ Peter H. Huizenga
- ------------------------------------
Peter H. Huizenga Director
/s/ Peer Pedersen
- ------------------------------------
Peer Pedersen Director
/s/ James R. Peterson
- ------------------------------------
James R. Peterson Director
/s/ Alexander B. Trowbridge
- ------------------------------------
Alexander B. Trowbridge Director May 24, 1996
/s/ Howard H. Baker, Jr.
- ------------------------------------
Howard H. Baker, Jr. Director
/s/ H. Jesse Arnelle
- ------------------------------------
H. Jesse Arnelle Director
/s/ Pastora San Juan Cafferty
- ------------------------------------
Pastora San Juan Cafferty Director
/s/ James B. Edwards
- ------------------------------------
James B. Edwards Director
/s/ Thomas C. Hau
- ------------------------------------
Thomas C. Hau Vice President, Controller and
Principal Accounting Officer
/s/ James E. Koenig
- ------------------------------------
James E. Koenig Senior Vice President,
Treasurer and Principal
Financial Officer
</TABLE>
S-2
<PAGE>
WMX TECHNOLOGIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
1. None
2. None
3.1(a) Restated Certificate of Incorporation of registrant, as amended as
of May 24, 1985 (incorporated by reference to Exhibit 4.1 to
registrant's report on Form 10-Q for the quarter ended June 30,
1985)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 23, 1986 (incorporated by reference to
Exhibit 4(c) to registrant's registration statement on Form S-8,
Registration No. 33-6265)
3.1(c) Certificate of Designation of Preferred Stock of registrant, filed
January 30, 1987 (incorporated by reference to Exhibit 3.1(c) to
registrant's 1986 annual report on Form 10-K)
3.1(d) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 15, 1987 (incorporated by reference to
Exhibit 4.5(d) to registrant's registration statement on Form S-4,
Registration No. 33-15518)
3.1(e) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 19, 1989 (incorporated by reference to Exhibit
3(e) to registrant's registration statement on Form S-3,
Registration No. 33-30190)
3.1(f) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 18, 1990 (incorporated by reference to Exhibit
4(h) to registrant's registration statement on Form S-8,
Registration No. 33-35936)
3.1(g) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 14, 1993 (incorporated by reference to Exhibit
4(a) to registrant's report on Form 8-K dated May 14, 1993)
3.1(h) Conformed copy of Restated Certificate of Incorporation of
registrant, as amended (incorporated by reference to Exhibit 4(b) to
registrant's report on Form 8-K dated May 14, 1993)
3.2 By-laws of registrant, as amended and restated as of May 10, 1996
(incorporated by reference to Exhibit 3 to registrant's report on
Form 10-Q for the quarter ended March 31, 1996)
4.1(a) Rights Agreement dated as of February 6, 1987, between the
registrant and Harris Trust and Savings Bank, which includes as
Exhibit A the form of Certificate of Designation of Preferred Stock,
as Exhibit B, the form of Rights Certificate and, as Exhibit C, the
Summary of Rights (incorporated by reference to Exhibit 4 to
registrant's report on Form 8-K dated January 26, 1987)
4.1(b) Certificate of Adjustment relating to April 1987 stock split
pursuant to Section 12 of the Rights Agreement (incorporated by
reference to Exhibit 4.3(b) to registrant's registration statement
on Form S-1, Registration No. 33-13839)
4.1(c) Certificate of Adjustment relating to December 1989 stock split
pursuant to Section 12 of the Rights Agreement (incorporated by
reference to Exhibit 4.3(c) to registrant's 1989 annual report on
Form 10-K)
4.2(a) Trust Indenture dated as of August 1, 1989 (incorporated by
reference to Exhibit 4.3(a) to registrant's 1990 annual report on
Form 10-K)
4.2(b) First Supplemental Indenture dated as of December 1, 1990
(incorporated by reference to Exhibit 4.3(b) to registrant's 1990
annual report on Form 10-K)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
4.3 Trust Indenture dated as of June 1, 1993 (incorporated by reference
to Exhibit 4 to the registrant's current report on Form 8-K dated
July 15, 1993)
5.1 Opinion of Herbert A. Getz (incorporated by reference to Exhibit 5
to registrant's registration statement on Form S-1, Registration No.
33-44849)
5.2 Opinion of Thomas A. Witt (incorporated by reference to Exhibit 5 to
registrant's registration statement on Form S-1, Registration No.
333-01327)
6. None
7. None
8. None
9. None
10.1 1981 Stock Option Plan for Non-Employee Directors of registrant
(incorporated by reference to Exhibit 19 to registrant's report on
Form 10-Q for the quarter ended June 30, 1982)
10.2 WMX Technologies, Inc. 1982 Stock Option Plan, as amended to March
11, 1988 (incorporated by reference to Exhibit 10.3 to registrant's
1988 annual report on Form 10-K)
10.3 Deferred Director's Fee Plan, as amended (incorporated by reference
to Exhibit 10.3 to registrant's 1990 annual report on Form 10-K)
10.4 Director's Phantom Stock Plan (incorporated by reference to Exhibit
10.9 to registrant's 1984 annual report on Form 10-K)
10.5 Employment Agreement, dated as of September 1, 1986, by and between
the registrant and Phillip B. Rooney (incorporated by reference to
Exhibit 19.4 to registrant's report on Form 10-Q for the quarter
ended September 30, 1986)
10.6 WMX Technologies, Inc. Corporate Incentive Bonus Plan (incorporated
by reference to Exhibit B to the registrant's Proxy Statement for
its 1995 Annual Meeting of Stockholders)
10.7 WMX Technologies, Inc. Supplemental Executive Retirement Plan, as
amended and restated as of January 24, 1995 (incorporated by
reference to Exhibit 10.7 to registrant's 1995 annual report on Form
10-K)
10.8 WMX Technologies, Inc. Long Term Incentive Plan, as amended and
restated as of January 27, 1994 (incorporated by reference to
Exhibit A to the registrant's Proxy Statement for its 1995 Annual
Meeting of Stockholders)
10.9 Supplemental Retirement Benefit Agreement, dated as of January 1,
1989, by and between the registrant and Peter H. Huizenga
(incorporated by reference to Exhibit 10.16 to Post-Effective
Amendment No. 2 to registrant's registration statement on Form S-1,
Registration No. 33-13839)
10.10 Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to Chemical Waste
Management, Inc.'s 1989 annual report on Form 10-K)
10.11 WMX Technologies, Inc. Non-Qualified Profit Sharing and Savings Plus
Plan (incorporated by reference to Exhibit 10.11 to registrant's
1995 annual report on Form 10-K)
10.12 Chemical Waste Management, Inc. Deferred Director's Fee Plan
(incorporated by reference to Exhibit 10.5 to Chemical Waste
Management, Inc.'s registration statement on Form S-1, Registration
No. 33-8509)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
10.13 WMX Technologies, Inc. Director's Charitable Endowment Plan
(incorporated by reference to Exhibit 10.20 to registrant's 1989
annual report on Form 10-K)
10.14 Supplemental Retirement Benefit Agreement dated as of January 1,
1991 by and between registrant and Donald F. Flynn (incorporated by
reference to Exhibit 10.17 to registrant's 1990 annual report on
Form 10-K)
10.15 Restricted Unit Plan for Non-Employee Directors of Wheelabrator
Technologies Inc. as amended through June 10, 1991 (incorporated by
reference to Exhibit 19.03 to the report on Form 10-Q of
Wheelabrator Technologies Inc. for the quarter ended June 30, 1991)
10.16 1988 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (incorporated
by reference to Exhibit 28.1 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8,
Registration No. 33-31523)
10.17 Amendments dated as of September 7, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.18 Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.04 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.19 1986 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (incorporated
by reference to Exhibit 28.2 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8,
Registration No. 33-31523)
10.20 Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.03 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.21 Employment Agreement dated as of April 1, 1995 between the
registrant and D. P. Payne (incorporated by reference to Exhibit
10.21 to registrant's 1995 annual report on Form 10-K)
10.22 WMX Technologies, Inc. 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.31 to registrant's registration statement on
Form S-1, Registration No. 33-44849)
10.23 WMX Technologies, Inc. 1992 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.32 to
registrant's registration statement on Form S-1, Registration No.
33-44849)
10.24 Wheelabrator Technologies Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.45 to the 1991 annual report on Form 10-K
of Wheelabrator Technologies Inc.)
10.25 Deferred Director's Fee Plan of Wheelabrator Technologies Inc.
adopted June 10, 1991 (incorporated by reference to Exhibit 19.02 to
the quarterly report on Form 10-Q of Wheelabrator Technologies Inc.
for the quarter ended June 30, 1991)
10.26 Waste Management International plc Share Option Plan (incorporated
by reference to Exhibit 10.1 to the registration statement on Form
F-1 of Waste Management International plc, Registration No. 33-
46511)
10.27 Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.01 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
10.28 Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.29 Amendment dated as of December 6, 1991 to the Restricted Unit Plan
for Non-Employee Directors of Wheelabrator Technologies Inc.
(incorporated by reference to Exhibit 19.05 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.30 First Amended and Restated International Business Opportunities
Agreement by and among registrant, Chemical Waste Management, Inc.,
Wheelabrator Technologies Inc., Waste Management International,
Inc., Waste Management International plc and Rust International
Inc., dated as of January 1, 1993 (incorporated by reference to
Exhibit 28 to the registration statement on Form S-3 of Wheelabrator
Technologies Inc., Registration No. 33-59606)
10.31 Amendment dated as of January 28, 1994 relating to the International
Business Opportunities Agreement (incorporated by reference to
Exhibit 10.19 to the 1993 annual report on Form 10-K of Chemical
Waste Management, Inc.)
10.32 Chemical Waste Management, Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.19 to the 1991 annual report on Form 10-K
of Chemical Waste Management, Inc.)
10.33 Amendment dated as of July 10, 1995 to the International Business
Opportunities Agreement (incorporated by reference to Exhibit 10 to
the quarterly report on Form 10-Q of Wheelabrator Technologies Inc.
for the quarter ended September 30, 1995)
11. None
12. None
13 Inapplicable
14. None
15. None
16. None
17. Inapplicable
18. Inapplicable
19. Inapplicable
20. Inapplicable
21. List of subsidiaries of registrant (incorporated by reference to
Exhibit 21 to registrant's 1995 annual report on Form 10-K)
22. Inapplicable
23. Consent of Independent Public Accountants
24. None
25. None
26. None
27. None
28. None
99. None
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-4
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 5, 1996, to all references to our Firm in Post-
Effective Amendment No. 5 to this Registration Statement on Form S-1,
Registration No. 33-44849, Post-Effective Amendment No. 1 to Registration
Statement on Form S-1, Registration No. 333-01327 and to the incorporation by
reference of such reports in WMX Technologies, Inc.'s previously filed
Registration Statements on Form S-8 (Registration Nos. 33-7201, 33-17447,
33-26733, 33-35936, 33-63702, 33-64266, 33-62285, 33-64427, 33-64431 and 333-
01325).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois May 23, 1996
