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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-----------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-14246
WHEELABRATOR TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2678047
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4 LIBERTY LANE WEST
HAMPTON, NEW HAMPSHIRE 03842
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 603/929-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held
by stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$958,284,304 at February 3, 1997 (based on the closing sale price on the New
York Stock Exchange Composite Tape on January 31, 1997, as reported by The Wall
Street Journal (Midwest Edition)). At March 19, 1997, the registrant had issued
and outstanding an aggregate of 161,597,573 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the
year ended December 31, 1996 are incorporated by reference into Parts II and IV.
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 30, 1997 are incorporated by reference into
Part III.
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PART I
Item 1 -- Business
General
Wheelabrator Technologies Inc. is a leading developer of facilities and
systems for, and provider of services to, the trash-to-energy and waste fuel
powered independent power markets. The Company 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. The Company is also pursuing the development, ownership and/or operation
of power plants for industrial customers. In addition, the Company is involved
in the treatment and management of biosolids resulting from the treatment of
wastewater by converting them into useful fertilizers and the recycling of
organic wastes into compost material useable for horticultural and agricultural
purposes. Finally, the Company designs and installs technologically-advanced air
pollution control systems and equipment.
The Company's predecessor companies and subsidiaries have been active in
project development for approximately 22 years, and in related activities since
the turn of the century. A description of projects in operation which are owned,
leased or operated under long-term operating agreements by the Company's
subsidiaries or affiliates is contained in Item 2 -- Properties. In addition to
the projects described in Item 2, the Company has domestic and international
projects in various stages of development that, in most cases, are subject to
contingencies, many of which are beyond the Company's control. Such
contingencies include, without limitation, obtaining required permits or
approvals, obtaining equity and/or debt financing and consummating required
project agreements.
The Company (then known as The Henley Group, Inc.) was incorporated in
Delaware in December 1985. The name of the Company was changed in December 1988
to The Wheelabrator Group Inc. and again in August 1989 to Wheelabrator
Technologies Inc. Unless the context indicates to the contrary, as used in this
report, the term "Company" refers to Wheelabrator Technologies Inc. and its
subsidiaries. Unless otherwise indicated, all statistical and financial
information under Item 1 and Item 2 of this report is given as of December 31,
1996.
Approximately 65% of the Company's common stock, par value $0.01 per share
(the "Common Stock"), outstanding as of March 1, 1997, was owned by WMX
Technologies, Inc. ("WMX") or its affiliates.
Services and Products
As further described herein, in 1996 the Company disposed of its water
process, manufacturing and custom engineered businesses and is in the process of
divesting the water contract operations, outsourcing and privatization
businesses. The Company has therefore reported its continuing operations as
being within one industry segment.
Energy Projects The Company, through Wheelabrator Environmental Systems
Inc. and its subsidiaries, is a leading developer, operator and owner of trash-
to-energy and waste fuel powered independent power facilities in the United
States. These facilities, either owned or operated, give the Company
approximately 920 megawatts per hour of electric generating capacity. The
Company's trash-to-energy projects utilize proven boiler and grate technology
and are capable of processing up to 23,750 tons of trash per day. 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.
The Company'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, the Company'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.
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The Company 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 customers, including utilities
and private industry. Cogeneration is a technology which allows the simultaneous
production 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.
These power systems use waste wood, waste tires, waste coal or natural gas as
fuel, and employ state-of-the-art technology, such as fluidized-bed combustion,
to ensure the efficient burning of fuel with reduced emission levels. The
Company acquired two industrial cogeneration plants (so-called "inside-the-
fence" facilities) during the year as part of its strategy to leverage its
energy plant operating capabilities and project financing expertise by owning
and/or operating power plants for industrial customers. The first facility,
located in Martell, California, was acquired in May 1996 and the second plant,
located in Anderson, California, near one of the Company's other facilities, was
purchased in November 1996.
BIOSOLIDS MANAGEMENT Through Wheelabrator Water Technologies Inc. and
its subsidiaries, the Company develops, operates and owns projects that compost
organic wastes and treat and manage biosolids. The Company offers generators of
biosolids (the non-hazardous sludges resulting from treatment of municipal and
industrial wastewater) alternatives to landfilling or other disposal options.
The Company currently provides a range of management services, including land
application, drying, pelletizing, alkaline stabilization and composting to more
than 400 communities, typically pursuant to multi-year contracts under which the
Company is paid by the generator to make beneficial use of the biosolids.
Regulations issued by the United States Environmental Protection Agency ("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.
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. Land-applied biosolids are often
stabilized prior to application using proprietary technology. The Company also
develops and operates facilities at which biosolids are dried and pelletized,
and has three facilities currently in operation and one other facility presently
undergoing start-up activities. 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. These facilities incorporate a
variety of biosolids drying and emission control technologies, some proprietary
and some licensed to the Company under exclusive licensing arrangements. See
"Patents, Trademarks, Licenses and Other Agreements." The Company has
approximately 635 dry-tons-per-day of biosolids drying capacity either in
operation or under construction. Biosolids which have been dried and pelletized
are generally used as fertilizer by farmers, commercial landscapers and
nurseries and as a bulking agent by fertilizer manufacturers.
AIR QUALITY The Company's subsidiaries design and install advanced air
pollution control equipment. The Company offers electrostatic precipitators,
flue-gas desulfurization systems (scrubbers), and fabric-filter systems
(baghouses), which remove pollutants from the emissions of the Company's trash-
to-energy facilities as well as power plants and other industrial facilities.
The Company also designs, constructs and maintains tall concrete chimneys and
storage silos. The Company's expertise in air pollution control technologies and
chimney design and construction is used in the design and construction of the
Company's trash-to-energy facilities, which the Company believes strengthens its
competitive position.
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REGULATION
While, in general, the Company's businesses have benefited
substantially from increased governmental regulation, the 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 government agencies or programs, in the future may
affect its operations.
The Company's business activities are subject to environmental
regulation under the same federal, state and local laws and regulations which
apply to the Company's customers, including the Clean Air Act, as amended, the
Clean Water Act, as amended, and the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"). The Company believes that it conducts its businesses
in an environmentally responsible manner and believes itself to be in material
compliance with applicable laws and regulations. The Company does not anticipate
that 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, within the next several years, the air pollution
control systems at certain trash-to-energy facilities owned or leased by the
Company most likely will be required to be modified to comply with more
stringent air pollution control standards adopted by the EPA in December 1995
for municipal waste combusters. The compliance dates will vary by facility, but
subject to the final decision in certain litigation which could result in up to
an 18-month delay in the deadlines, all affected facilities most likely will be
required to be in compliance with the standards by the end of the year 2000.
Currently available technologies will be adequate to meet the new standards.
Although the total expenditures required for such modifications are estimated to
be $190 million to $230 million, they are not expected to have a material
adverse effect on the Company's liquidity or results of operations because
provisions in the impacted facilities' long-term waste supply agreements
generally allow the Company to recover from customers the majority of
incremental capital and operating costs. There can be no assurance, however,
that the Company 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 the Company operates its
projects and conducts its business, including the handling, processing or
disposal of the wastes, by-products and residues generated thereby.
The EPA released a draft Dioxin Reassessment Report in 1994 which was
intended to update the Agency's scientific understanding of the sources of
dioxin emissions, the fate and transport of those emissions, and any potential
links between dioxin in environmental media and adverse human health effects.
The EPA has substantially revised its estimates of dioxin emissions downward
from 1990 to 1995. It is estimated by the EPA Office of Air Quality that the
trash-to-energy industry will be contributing approximately 24 grams of dioxins
per year by 2000 (less than 1 percent of overall dioxin emissions) due to a
strict dioxin emission limit adopted in December 1995. The Company does not
believe that the EPA's dioxin reassessment, or compliance with the new dioxin
emissions limit, will have a material adverse effect on the Company's operations
or financial condition.
In May 1994, the U.S. Supreme Court ruled that residual ash from the
combustion of municipal solid waste is not exempt from federal hazardous waste
regulations. The EPA and most states had previously taken the position that
residual ash was exempt from such regulation pursuant to the Clarification of
Household Waste Exclusion contained in RCRA. As a result of the Supreme Court's
decision, the EPA announced that ash from the combustion of municipal solid
waste is subject to regulation as a hazardous waste if, when characterized, it
exhibits hazardous characteristics. In response to these developments, the
Company installed its patented WES-PHix(R) technology at all of its trash-to-
energy facilities not previously subject to characterization requirements. In
January 1995, the EPA resolved a significant issue with respect to
characterization of such ash with its determination that ash is only required to
be characterized at the end of the trash-to-energy process in the majority of
such facilities. This determination by the EPA, coupled with the use of the WES-
PHix technology, has enabled the Company to continue to manage its residual ash
as non-hazardous waste. Incremental expenditures required to treat and test
residual ash at the impacted facilities, net of expected
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contractual reimbursements from customers, have not had and are not expected to
have a material adverse impact on the Company's financial condition or results
of operations.
Flow Control
Also in May 1994, the U.S. Supreme Court ruled that state and local
governments may not constitutionally restrict the free movement of trash in
interstate commerce through the use of flow control laws. Such laws typically
involve a municipality specifying the disposal site for all solid waste
generated within its borders. Since the ruling, several decisions of state or
federal courts have invalidated regulatory flow control schemes in a number of
jurisdictions. Other judicial decisions have upheld non-regulatory means by
which municipalities may effectively control the flow of municipal solid waste.
There can be no assurance that such alternatives to regulatory flow control will
in every case be found to be lawful. For example, the Company's Gloucester
County, New Jersey, facility relies on a disposal franchise for substantially
all of its supply of municipal solid waste. In July 1996, a Federal District
Court permanently enjoined the State of New Jersey from enforcing its solid
waste regulatory flow control system, which was held to be unconstitutional, but
stayed the injunction for as long as its ruling is on appeal plus an additional
period of two years to enable the State to devise an alternative
nondiscriminatory approach. The State has indicated that it will continue to
enforce flow control during the two-year transition period and has filed an
appeal of the Federal District Court's ruling. The New Jersey legislature is now
considering a bill to authorize counties and authorities, including the
Gloucester County Improvement Authority, which administers the Company's
franchise there, to implement a constitutionally permissible system of "economic
flow control" designed to recover waste disposal costs incurred in reliance on
the state's franchise system. In addition, plaintiffs have asked the Third
Circuit Court of Appeals to shorten the stay period. A decision by the appeals
court is expected during the second quarter of 1997.
The Supreme Court's 1994 ruling and subsequent court decisions have
not to date had a material adverse effect on any of the Company's trash-to-
energy operations. Federal legislation has been proposed, but not yet enacted,
to effectively grandfather existing flow control mandates. In the event that
such legislation is not adopted, the Company believes that affected
municipalities will endeavor to implement alternative lawful means to continue
controlling the flow of waste. In view of the uncertain state of the law at this
time, however, the Company is unable to predict whether such efforts would be
successful or what impact, if any, this matter might have on its trash-to-energy
facilities.
Public Utility Regulatory Policies Act
The Company's energy facilities are subject to the provisions of
various energy-related laws and regulations, including the Public Utility
Regulatory Policies Act of 1978 ("PURPA"). The ability of the Company'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 applicability of
certain provisions of PURPA, which generally exempts the Company from state and
federal regulatory control over electricity prices charged by, and the finances
of, the Company and its energy producing subsidiaries. As the states and the
United States Congress have accelerated their consideration of the manner in
which economic efficiencies can be gained by deregulating the electric
generation industry, utilities and others have taken the position that power
sales agreements entered into pursuant to PURPA which provide for rates in
excess of current market rates should be voidable as "stranded assets." The
Company's 25 power production facilities are qualifying facilities under PURPA
and depend on the sanctity of their power sales agreements for their economic
viability. Although a repeal or modification of PURPA is possible within the
next two years, the Company believes it unlikely that such action would
retroactively abrogate the long-term contracts and rate orders pursuant to which
most of the Company's existing projects sell electricity. Furthermore, the
operations of the Company's existing trash-to-energy and other small power
production facilities business are not expected to be materially and adversely
affected if the various benefits of PURPA are repealed or substantially reduced
on a prospective basis. Finally, the passage of the Energy Policy Act of 1992
created an alternative ownership mechanism by which the Company's future
independent power projects would be able to participate in the electricity
generation industry without the burdens of traditional public utility
regulation. Notwithstanding the above, however, the Company can give no
assurances that future utility restructurings, court decisions, or legislative
or administrative action in this area will not have a material adverse impact
upon the Company's financial position or results of operations.
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COMPETITION
The Company experiences substantial competition in all aspects of its
business. It competes with a number of firms, both nationally and
internationally, some of which may have substantially greater financial and
technical resources than the Company.
The principal competitive factors with respect to the Company's
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 ultimately being selected. Competition
for attractive development opportunities is intense, as there are a number of
competitors in the trash-to-energy, independent power, and biosolids management
industries interested in such opportunities. The Company believes that its
comprehensive project development capabilities, operating experience and
financing capabilities will enable it to continue to compete effectively.
In its biosolids management business, the Company competes with
several large national and regional firms and numerous competitors which provide
service in local markets. In the biosolids market, the principal competitive
factors are price, availability of sites for temporary storage and beneficial
reuse of biosolids and technical experience. In the air pollution control
business, the Company competes with several large and small firms, both
nationally and internationally, depending on the type and size of project being
performed. The principal competitive factors in the air pollution control
industry are price, technological capabilities and service.
At the time of the 1990 merger between the Company and a subsidiary of
WMX which resulted in WMX's acquisition of a controlling interest in the Company
(the "1990 Merger"), the Company was granted an option to acquire an equity
interest in WMX's international waste services operations, now conducted through
WM International plc ("WM International"), a majority-owned subsidiary of WMX.
In connection with the acquisition of an equity interest in WM International in
1991, the Company agreed that it would not conduct waste management services
operations or engage in the operation and maintenance of water and wastewater
treatment facilities outside of North America, other than through its ownership
interest in WM International, until the later of (i) July 1, 2000 or (ii) the
date on which WMX ceases to beneficially own a majority of the outstanding
shares of common stock or a majority of all outstanding voting equity interests
of WM International.
Notwithstanding the foregoing, in 1995, the Company and WM
International entered into a joint venture agreement whereby the Company will
have primary responsibility for the early stage development of trash-to-energy
projects outside North America (except in Italy and Germany) and WM
International will have the right to acquire up to 49% of all equity of any such
project available to WM International, the Company and their affiliates, with
the Company or other investors owning the balance. Subject to some exceptions,
the Company has committed to expend $10 million in development costs during the
initial term of the joint venture, which expires on July 1, 2000. Thereafter,
the joint venture will continue indefinitely, subject to the right of either WM
International or the Company to terminate it by giving one year's written
notice.
In connection with the initial public offering of ordinary shares of
WM International, the Company, WM International, Chemical Waste Management, Inc.
("CWM") and WMX entered into an International Business Opportunities Agreement
which incorporates certain previously existing agreements among certain of the
parties thereto made in connection with the 1990 Merger. The International
Business Opportunities Agreement was amended and restated in connection with the
organization of Rust International Inc. ("Rust"), to which the Company
transferred, among other things, its engineering, environmental consulting and
construction businesses in 1993 in exchange for an equity interest in Rust, and
Rust became a party thereto. Under the Amended and Restated International
Business Opportunities Agreement, the parties agreed that in order to minimize
the potential for conflicts of interest among various subsidiaries under the
common control of WMX, WMX has the right to direct business opportunities to the
WMX controlled subsidiary which, in the reasonable and good faith judgment of
WMX, has the most experience and expertise in the particular line of business
involved. Opportunities in North America relating to (i) the operation and
maintenance and, with respect to item (c) below, design, engineering and
construction, of (a) municipal trash-to-energy facilities, (b) water, wastewater
and sewage treatment facilities (excluding facilities designed to treat
hazardous waste streams), (c) chimneys and air pollution control equipment and
facilities (which allocation is worldwide), and (d) small power projects and
independent power generation facilities (except for landfill gas recovery
facilities which are covered under the Intellectual Property Licensing Agreement
described under "Patents, Trademarks, Licenses and Other Agreements"); and (ii)
facilities which treat or otherwise stabilize ash residues from trash-to-energy
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facilities, have been allocated to the Company. The Agreement allocates certain
business opportunities, some of which were previously allocated to the Company,
to Rust.
In connection with the Company's sale of its water process,
manufacturing and custom engineering business, WMX and the Company agreed with
the purchaser of such businesses not to engage in such businesses in the United
States or any other country in which the Company conducted such business at the
time of sale until 2001.
RESEARCH AND DEVELOPMENT
The Company undertakes research and development in numerous areas of
its operations, including energy generation, environmental control and the
handling and recovery of waste materials and waste gases. The Company's
expenditures for research and development for its continuing operations are not
material to its business. Significant technological benefits are also realized
through the Company's experience in operating its existing projects.
PATENTS, TRADEMARKS, LICENSES AND OTHER AGREEMENTS
The Company owns or licenses a number of patents and patent
applications or other proprietary technology that are important to various
aspects of its business. While certain of such licenses or patented technology
may be material to the development of a given project, the Company believes that
its overall business depends primarily on such factors as project development
capability, engineering skill, and research and production techniques rather
than on patent protection. The Company owns several patents for a heavy metal
stabilization technology marketed worldwide as the WES-Phix Process. The Company
uses this process to stabilize ash residues from its trash-to-energy facilities,
and also licenses the process to other facilities. In 1997, the Company plans to
market the process to other industries for the stabilization of wastes such as
foundry sands, baghouse dusts and contaminated soils.
Pursuant to a long-standing arrangement between the Company and von
Roll Ltd. ("von Roll"), the Company has an exclusive license in the United
States and Mexico to use certain combustion-grate technology owned by von Roll.
The Company uses this technology in its trash-to-energy projects. The license
agreement runs through December 31, 1998, subject to additional three-year-term
renewals unless either party gives 12 months written notice of termination to
the other. Either party to the license agreement may also terminate the contract
upon one year's written notice and payment of a termination fee. Neither party
has provided a termination notice.
The Company has an agreement (the "Boiler Purchase Agreement") with
Babcock & Wilcox Company ("B&W"), whereby B&W has agreed to provide, and the
Company has agreed to purchase, certain boilers suitable for use in the
Company's trash-to-energy facilities having a combustion capacity equal to or
greater than 250 tons-per-day. In addition, B&W agrees to maintain the
confidentiality of the Company's proprietary information incorporated in the
boiler design, and not to use such information except for the purpose of
manufacturing boilers for sale to the Company or its affiliates. The
confidentiality provisions will survive the termination of the Boiler Purchase
Agreement. The Boiler Purchase Agreement will remain in effect until June 30,
1997, subject to additional three-year-term renewals.
The Company possesses foreign and domestic patents on various
biosolids treatment processes. In August 1994, the Company entered into a Know-
How and Patent License Agreement with SC Technology AG of Switzerland pursuant
to which the Company obtained certain exclusive patent and proprietary rights in
the United States with respect to Swiss Combi dryer technology applicable to the
drying and pelletizing of non-hazardous biosolids. The agreement has a five-year
term with certain renewal rights. The Swiss Combi technology has been
incorporated into the Baltimore, Maryland dryer and pelletizer facility which is
now under construction. In addition, the Company holds several patents relating
to the processing of biosolids through a direct biosolids dryer system.
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The Company is a party to a Land Option Agreement, as amended (the
"Land Option Agreement"), with Waste Management, Inc. ("Waste Management"), a
wholly-owned subsidiary of WMX, providing the Company until December 31, 2020,
with the right, subject to certain restrictions, to acquire or lease sites for
future trash-to-energy, biosolids management, organic waste composting or,
subject to certain pre-conditions, medical waste incineration and autoclave
facilities at any of Waste Management's existing or future landfills in the
United States and Canada. Under the Land Option Agreement, Waste Management is
obligated to pay the Company, at the end of the stated term of the agreement, an
amount in cash equal to the Company's book value (less related deferred taxes)
for such portion of the option as has not been allocated to acquired or leased
parcels. In addition, the Company is a party to an Airspace Dedication
Agreement, as amended, with Waste Management permitting the Company, for a
period ending August 12, 2008, and subject to certain conditions and
restrictions, to reserve capacity at Waste Management landfills for the disposal
of certain wastes for fees generally on terms at least as favorable as those
charged to other customers, and granting disposal credits to be credited against
future disposal fees.
In connection with the 1990 Merger, the predecessor of WM
International, Waste Management International, Inc. ("WMII"), and Waste
Management entered into an Intellectual Property Licensing Agreement with the
Company. WM International has succeeded to the rights and obligations of WMII
under the Intellectual Property Licensing Agreement as well as certain other
agreements to which the Company and WMII were parties. Pursuant to the
Intellectual Property Licensing Agreement: (i) WM International granted the
Company a 10-year, non-exclusive, royalty-free license, with two successive 5-
year renewal options, to the "BRINI" recycling and composting technology owned
by WM International; (ii) Waste Management granted the Company a 10-year, non-
exclusive, royalty-free license, with two successive 5-year renewal options, to
the Recycle America(R) and Recycle Canada(R) trademarks and logos and the
related materials separation and processing technology of Waste Management for
use in conjunction with recycling operations at or adjacent to any Company
facility; (iii) Waste Management agreed to use reasonable efforts to enable the
Company to sell recyclable materials to joint ventures or other markets
developed by Waste Management; (iv) Waste Management agreed, to the extent
consistent with its business plans, to use good faith efforts to develop its
curbside recycling programs and free-standing recyclable materials recovery
facilities to also support Company facilities; (v) the Company agreed to
designate Waste Management as the provider of recyclable collection services for
Company facilities to the extent possible, before offering such opportunity to
any third party; (vi) Waste Management granted the Company a 10-year, non-
exclusive, royalty-free license, with two successive 5-year renewal options, to
all of Waste Management's proprietary technology and know-how in the area of
landfill gas recovery and the conversion of such gas to energy (such license
does not extend to the use by the Company of technology and know-how at sanitary
landfill sites owned, operated or maintained by Waste Management or its
subsidiaries and affiliates, other than the Company and its subsidiaries); and
(vii) Waste Management agreed that only the Company, and not Waste Management,
may develop the business of designing, constructing, operating and maintaining
landfill gas recovery facilities for governmental, industrial and third party
customers. To the extent the Company develops landfill gas recovery technology
and know-how during the period of its license (and renewals) from Waste
Management, it will share such technology and know-how with Waste Management on
a similar royalty-free basis. The Company may waive its rights to develop
landfill gas recovery systems on a case-by-case basis in those situations in
which financial objectives specified by the Company's Board of Directors cannot
be achieved by the Company through development of such projects. Projects waived
by the Company may be developed by Waste Management.
The licenses and related rights and obligations to conduct business
granted under the Intellectual Property Licensing Agreement terminate, as to
facilities not already operational, contractually committed or the subject of,
or contemplated by, a bid or other submission previously made by the Company or
Waste Management, as the case may be, at the earlier of the termination of the
stated license periods, the expiration of any patent licensed under the
agreement, or the date on which the Company is no longer a majority-owned
subsidiary of WMX.
The Company, WMX, CWM, Rust and WM International are also parties to a
First Amended and Restated Master License Agreement. Under the Master License
Agreement, as amended, each of the Company, WMX, Rust and CWM, on the one hand,
and WM International, on the other, is granted the right to license, on a non-
exclusive basis, certain proprietary rights of the other. The consideration for
any such license will be based upon the fair market value of a license for the
licensed technology at the time of grant, but may not exceed the most favorable
price charged an unaffiliated licensee for a comparable license.
7
<PAGE>
RAW MATERIALS
Raw materials used by the Company, including fuel for its projects
(such as trash, waste wood, waste tires, waste coal and natural gas), are
generally readily available from many different suppliers. The majority of the
solid waste disposed at the Company's energy projects is commonly obtained
through long-term supply contracts with solid waste disposal authorities and
municipalities under which minimum disposal fees are fixed and which generally
provide for escalation in accordance with various price indexes.
EMPLOYEES
The Company has approximately 2,100 full-time employees in its
continuing operations. The Company considers relations with its employees to be
satisfactory.
FINANCING CAPABILITIES AND FUNDING SUPPORT AGREEMENTS
One of the most significant costs associated with the Company's own-
and-operate projects may be debt service or lease rentals payable in connection
with financing for the projects. Financing structures vary substantially from
transaction to transaction. The amount of annual financing cost is directly
related to the capital cost of the facility, which may vary greatly from plant
to plant, even with regard to similarly sized plants, due to a number of
factors. These factors include the type of technology utilized, the amount of
site preparation required and, where applicable, the form of energy generated
and the proximity to the energy delivery point.
Financing Capabilities
Each trash-to-energy, cogeneration and biosolids pelletizer project
developed by the Company requires substantial amounts of capital that generally
range from $30 million to $400 million. Historically, such capital requirements
have been financed through the issuance of project debt and the investment of
Company funds and third party equity. The debt has primarily consisted of long-
term tax-exempt or taxable bonds secured by a pledge of project revenues and
assets, with certain additional security being provided, in some cases, directly
or indirectly, by the Company, WMX or another project support entity. The
Company has also used partnership, joint venture and sale and leaseback
structures to bring third party equity into its project financings. The Company
expects to finance its working capital requirements with its available cash. To
the extent required, the Company has additional cash available to it pursuant to
the Restated Funding Agreement described below or through the working capital
program established between the Company and WMX described below under "Master
Intercorporate Agreement." Certain agreements with respect to the Company's
financing capabilities and funding support are described below.
Restated Funding Agreement
Pursuant to a Restated Funding Agreement between WMX and the Company,
WMX agreed to use reasonable efforts to assist the Company, at the Company's
request, in obtaining and maintaining a credit rating of "A" or better from
Standard & Poor's Corporation or Moody's Investors Service for the Company's
long-term unsecured debt securities. WMX's obligations under the Restated
Funding Agreement, which terminate on August 12, 2008, may involve anything from
contingent credit support obligations to and including WMX's purchase from the
Company of up to $200 million principal amount of Company securities, which may
be either debt, equity or a combination thereof (the "Securities"). WMX's
obligations will be deemed satisfied by the purchase of such Securities, even if
the purchase of all of the Securities does not enable the Company to obtain an
"A" rating. In addition, the obligation to purchase any of the Securities will
be suspended if the Company does not reasonably demonstrate its ability to pay
interest or cash dividends, as the case may be, on the Securities. WMX's
obligations will also be suspended during any period in which the Company
obtains and maintains an "A" rating and will be reduced to the extent that the
purchase of a lesser amount of Securities will allow the Company to obtain or
maintain such a rating. Any Securities issued to WMX will be subject to
mandatory repayment or redemption in equal annual installments during the 25
years following their date of issuance, and they may be prepaid or redeemed by
the Company, at its option, if the directors of the Company not affiliated with
WMX or the Company conclude that such repayment or redemption is in the best
interests of the Company and its stockholders. Any Securities redeemed or
prepaid prior to August 12, 2008, will restore availability under the $200
million purchase obligation referred to above.
8
<PAGE>
Master Support Agreement
Under a Master Support Agreement between Resco Holdings Inc.
("Resco"), a wholly-owned subsidiary of the Company, and AlliedSignal Inc.
("AlliedSignal"), Resco is required to reimburse AlliedSignal for any credit
support payments AlliedSignal is required to make under various credit support
agreements with respect to trash-to-energy projects of Resco. In addition, Resco
is required to maintain its Consolidated Tangible Net Worth (as defined in the
Master Support Agreement) at an amount equal to $549.8 million, which amount is
automatically increased (but not decreased) to 90% of Resco's Consolidated
Tangible Net Worth at the end of each quarter. As of December 31, 1996, Resco
was in compliance with this provision. Resco is prohibited from paying cash
dividends or acquiring any shares of its capital stock if its Consolidated
Tangible Net Worth is, or would as a consequence of such payment or acquisition
be, less than the required amount. The Master Support Agreement also restricts
the ability of Resco to subject its property or the properties of its
subsidiaries to liens securing indebtedness for money borrowed or similar
indebtedness and may require Resco, under certain circumstances, to refinance
indebtedness of trash-to-energy projects for which AlliedSignal's credit support
is provided. AlliedSignal is providing credit support in respect of one of the
Company's trash-to-energy facilities pursuant to the Master Support Agreement,
which support represents a potential exposure to AlliedSignal of less than $1.8
million.
Master Intercorporate Agreement
In connection with the 1990 Merger, the Company, WMX and CWM entered
into a Master Intercorporate Agreement. Among other things, the Company and WMX
agreed to implement a cash management and working capital program under the
agreement. The agreement was amended and restated in 1993 to modify certain
aspects of the cash management program established thereunder and again in 1995
to extend the term of the $100 million funding commitment, as described below.
Subject to certain restrictions specified in the agreement, WMX agreed to fund
the Company's working capital requirements at rates equal to or lower than those
the Company would otherwise be able to obtain on the open market. The Company
may borrow up to $100 million from WMX through December 1997, with automatic
annual renewal periods thereafter, pursuant to the Master Intercorporate
Agreement, plus the amount of cash invested by the Company with WMX. The
remaining obligations of WMX under the Master Intercorporate Agreement will
terminate at the time that both (i) WMX does not own a majority of the capital
stock of the Company and (ii) WMX does not exercise, prior to its expiration,
the option to maintain majority ownership of the capital stock of the Company
(as provided in the Master Intercorporate Agreement).
ACQUISITIONS AND DISPOSITIONS
During 1996, the Company acquired a 42 megawatt, gas-fired
cogeneration facility in Anderson, California and an 18 megawatt wood waste
cogeneration facility in Martell, California. The consideration paid in these
transactions was determined by direct negotiations with the owners of the
acquired businesses. These acquisitions were not material to the Company's
business as a whole.
During 1996, the Company also acquired a 20% interest in Glegg
Industries, Inc., a privately-held ultrapure water company ("Glegg"). In
conjunction with divestiture of the water business described below, Glegg's
majority owners acquired the right to repurchase Wheelabrator's interest before
March 31, 1999, at the Company's original purchase price.
In the fourth quarter, the Company completed the disposition to United
States Filter Corporation ("U.S. Filter") of its industrial water process,
manufacturing and custom-engineered systems businesses for $369.6 million in
cash. Ten million dollars of the purchase price has been placed in escrow which
will be released to the Company upon the receipt of certain approvals with
respect to the transfer to U.S. Filter of a carbon regeneration facility which
constituted a portion of the purchased assets. In conjunction with the sale, the
parties also entered into a Business Development Agreement which provides that
U.S. Filter will promote to its customers various of the Company's businesses in
consideration of which the Company has agreed to pay to U.S. Filter an aggregate
of $25 million over five years. The businesses that were sold provide a broad
range of water and wastewater engineering, technology and systems, including the
businesses located in the United States, The Netherlands, Singapore, Taiwan,
Australia, England, France, Japan, Germany and Spain.
In early 1997, the Company and U.S. Filter entered into a definitive
agreement pursuant to which U.S. Filter agreed to purchase the Company's water
privatization, industrial outsourcing and contract operations business. The
purchase price is $77.4
9
<PAGE>
million plus the aggregate amount of payments made to U.S. Filter under certain
existing subcontracts between the Company and U.S. Filter. The purchase price is
payable in the stock of U.S. Filter. The Company has agreed not to sell the
stockprior to June 30, 1997. The Company anticipates liquidating such stock
subsequent to that time. The Company and U.S. Filter have also entered into a
Business Development Agreement which provides that U.S. Filter will promote to
its customers various of the Company's businesses in consideration of which the
Company has agreed to pay to U.S. Filter an aggregate of $5 million over three
years. It is anticipated that this transaction will close in the second quarter
of 1997. However, the closing of this transaction is conditioned upon numerous
events and the Company can give no assurances that the conditions precedent will
be met or met by such time.
EQUITY INVESTMENTS
Rust International Inc.
The Company owns approximately 40% of the outstanding common stock of
Rust, and the remaining shares are held by CWM (56%) and WMX (4%). Rust, through
its subsidiaries, provides environmental and infrastructure engineering and
consulting services and on-site industrial cleaning services. Rust also has an
approximately 41% interest in NSC Corporation, a publicly traded provider of
asbestos abatement and other specialty contracting services and an approximately
37% interest in OHM Corporation, a publicly traded provider of environmental
remediation services. It has been announced that it is the intention of Rust to
sell its domestic and international environmental and infrastructure engineering
and consulting businesses. In June 1996, Rust sold its process engineering and
construction business to Raytheon Engineering, Inc.; in September 1996, Rust
sold its scaffolding services business to Brand Scaffold Services, Inc. for
approximately $190 million and during 1996 and early 1997, Rust sold various
industrial service businesses.
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 and related
services business performing projects in various 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 WM International worldwide.
Rust Industrial Services Inc.("RIS"), a subsidiary of Rust, performs
a variety of types of industrial services -- water blasting, tank cleaning,
explosives blasting, chemical cleaning, industrial vacuuming, catalyst handling
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 assists clients in the nuclear and utility industries in
solving electrical, mechanical, engineering and related technical services
problems.
10
<PAGE>
Rust also provides hazardous, radioactive and mixed waste program and
facilities management services primarily to the United States Department of
Energy and other federal government agencies. Such services include waste
treatment, storage, characterization and disposal and privatization services.
Waste Management International plc
The Company owns approximately 12% of the outstanding ordinary shares
of WM International. Approximately 56% of WM International's outstanding
ordinary shares are held indirectly by WMX, and an additional 12% of such shares
are held by Rust. The remaining outstanding ordinary shares of WM International
are held by public stockholders.
WM 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 WM 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,
--------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Collection Services.............. 64% 64% 65%
Treatment and Disposal Services.. 36% 36% 35%
</TABLE>
The bulk of WM International's operations and revenues are derived
from the acquisition from 1990 to 1995 of numerous companies and interests in
Europe. However, with its acquisition goals largely completed, WM International
has engaged in only a few additional small acquisitions since 1995 and has begun
to dispose of certain operations which do not fit its long-term strategy.
In accordance with its objective of maintaining a local identity, WM
International, in certain cases, also operates through other companies or joint
ventures in which WM International and its affiliates own less than a 100%
interest. For example, WM International is a party to a joint venture with
Wessex Water Plc, an English publicly traded company providing water treatment,
water distribution, wastewater treatment and sewerage services ("Wessex"), to
provide waste management and related services in the United Kingdom.
WM International's revenue mix by country varies from year to year.
Countries in which revenue exceeded 10% of WM International's consolidated total
were: Italy (26%) and Germany (12%) in 1994, Italy (23%), Germany (14%), The
Netherlands (11%) and The United Kingdom (11%) in 1995 and Italy (25%), the
United Kingdom (12%), Germany (11%) and The Netherlands (11%) in 1996.
While WM 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.
WM International records and reports its earnings in pounds sterling.
Currency fluctuations affecting the pounds sterling exchange rates will cause
the Company's earnings from WM International to fluctuate. The Company may from
time to time engage in hedging transactions in order to seek to mitigate the
effect of such exchange rate fluctuations.
Following a strategic assessment of the European markets, WM
International intends to reduce its investment in France, Spain and Austria
during 1997 through joint ventures or the sale of various operations within
those countries. WM International intends to focus its resources on those
markets in which it believes it can attain significant market share. WM
International has also written off the investment in its hazardous waste
disposal facility in Germany because recent regulatory changes have adversely
affected its volumes. In addition, WM International has divested itself of the
20% interest it held in Wessex.
11
<PAGE>
COLLECTION SERVICES
Collection services include collection and transportation of solid,
hazardous and medical wastes and recyclable material from residential,
commercial and industrial customers. WM International provided collection
services as of December 31, 1996, to governmental and private customers in ten
European countries, Argentina, Australia and New Zealand. Business is obtained
through public bids or tenders, negotiated contracts, and, in the case of
commercial and industrial customers, direct contracts. WM International operates
318 collection and staging facilities and 76 waste transfer facilities.
Residential solid waste collection is normally performed by WM
International pursuant to municipal contracts. WM International has
approximately 1,420 municipal contracts, serving more than 6.3 million
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 WM
International is in Italy where WM International services approximately 1.85
million residential properties. Pricing for municipal contracts is generally
based on volume of waste, number and frequency of collection pick-up, and
disposal arrangements. Longer-term contracts typically have formulae for
periodic price increases or adjustments. WM International also provides curbside
recycling services.
Street, industrial premises, office and parking lot cleaning services
are also performed by WM International, along with portable sanitation/toilet
services for such occasions as outdoor concerts and special events.
WM 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, WM 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. WM International has
approximately 300,000 commercial and industrial customers. Contract terms and
prices vary substantially among jurisdictions and types of customer. WM
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 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. 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, 1996, WM International owned, operated or maintained 26 waste
treatment facilities, 85 recycling and recyclables processing facilities, 8
incinerators and 56 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 determinants of the
disposal method are the disposal costs at local landfills, as incineration is
generally more expensive, community preference and regulatory provisions.
At present, in most countries in which WM International operates,
landfilling is the predominant disposal method employed. WM International owns
or operates solid waste landfills in Argentina, Australia, Brazil, Denmark,
France, Germany, Hong Kong, 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
12
<PAGE>
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.
WM 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 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 49,000 megawatt hours to the local power grid in 1996.
In 1992, WM 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. During 1995, WM International's
permit application to develop and operate the Gutersloh facility was denied. WM
International believes it is entitled to the permit and is appealing the denial.
During 1996, WM International and the County discussed the viability of the
project, as well as the County's ability to terminate the operations and lease
agreements for the project site, which WM International opposes unless there is
adequate compensation. WM International also operates seven small conventional
municipal solid and other waste incineration facilities. WM International and
the Company have also formed a joint venture to develop trash-to-energy projects
outside Germany, Italy and North America.
WM International owns or operates hazardous waste treatment facilities
in 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.
WM 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. WM International is unable to predict what
impact, if any, this change will have on its operation in Hong Kong.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of the Company's executive
officers (as defined by the regulations of the Securities and Exchange
Commission), the principal positions they hold with the Company and with WMX and
its affiliates as of March 1, 1997, and summaries of their business experience.
Experience shown with the Company includes experience with a predecessor of the
Company prior to the August 1989 merger of such predecessor into Resco.
Executive officers are elected by the Board of Directors and serve at the
discretion of the Board. Dean L. Buntrock, the Company's Chairman, is also an
executive officer of WMX and certain of its affiliates other than the Company
and devotes a majority of his working time to his responsibilities in such other
capacities. However, the Company anticipates that he will devote sufficient time
and attention to the Company's business as reasonably may be required to fulfill
the duties of his office.
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- -------------- --- -------------------
<S> <C> <C>
Dean L. Buntrock,........... 65 A director since 1988 and Chairman of the
Chairman of the Board Board since March 1997. Director and
Chairman of the Board of WMX since 1968 and
Chief Executive Officer of WMX from 1968
until June 1996 and from February 1997 to
the present. Mr. Buntrock is also a director
of Boston Chicken, Inc. and WM International.
John M. Kehoe, Jr........... 63 A director of the Company since May 1996.
President and Chief Appointed Chief Executive Officer in January
Executive Officer 1997. President and Chief Operating Officer
of the Company since January 1993. Vice
President of the Company from December 1991
through December 1992. President of
Wheelabrator Environmental Systems Inc.
("WESI"), a subsidiary of the Company, from
November 1990. Managing Director of the
Company from June 1988 to November 1990.
Robert J. Gagalis........... 42 Vice President, Chief Financial Officer and
Vice President, Chief Treasurer since January 1997. Vice President
Financial Officer and Finance in the Energy Line of Business from
Treasurer March 1996 to January 1997 and Staff Vice
President, Corporate Development from August
1994 to March 1996. Director of Corporate
Development from August 1993 to August 1994.
Vice President and Chief Financial Officer of
Signal Capital Corporation for 1986 to 1993.
Richard S. Haak, Jr. ........ 42 Controller of the Company since November 1993
Vice President and a Vice President since March 1997. Vice
and Controller President and Controller-Operations of WESI
from September 1987 until November 1993.
Lawrence W. Plitch........... 46 Vice President and General Counsel since
Vice President and January 1997. Vice President and General
General Counsel Counsel of WESI from 1994 to 1997. Vice
President and Deputy General Counsel of WESI
from 1992 to 1994 and Assistant General
Counsel of WESI from 1986 to 1992.
</TABLE>
14
<PAGE>
ITEM 2 -- PROPERTIES
The Company owns the building and surrounding grounds comprising its
principal executive offices, located at 4 Liberty Lane West, Hampton, New
Hampshire 03842. The Company believes that its property and equipment are
generally well maintained, in good operating condition and adequate for its
present needs. The inability to renew any short-term real property lease by the
Company or any of its subsidiaries would not have a material adverse effect on
its results of operations. The Company regularly upgrades and modernizes
facilities and equipment and expands its facilities as necessary.
The following tables set forth the Company's principal facility
locations in operation and their use (including those operated by the Company
for others under long-term contracts or similar arrangements) as of December 31,
1996.
DESCRIPTION OF OWNED, LEASED AND/OR LONG-TERM OPERATED PROJECTS
Set forth below is a description of projects in operation or under
construction which are owned, leased or operated under long-term operating
agreements by Company subsidiaries, partnerships or joint ventures controlled by
Company subsidiaries. Unless indicated to the contrary below, each project is
owned by subsidiaries or affiliates of the Company. While the Company
exercises, or will exercise, operating control over each such project, the
Company has no ownership interest in certain of the projects.
<TABLE>
<CAPTION>
Projects in Operation
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------- --------
<S> <C> <C> <C>
1. Amarillo, Texas....... N/A 3,500,000 Owned and operated since
Coal Handling TPY 1976 by the Company and its
Facility predecessors.
2. Anderson,
California............ 42mW N/A Owned and operated by the
Gas fired Company since November
Cogeneration 1996.
Facility
3. Anderson,
California............ 6mW 210 TPD Owned and operated by the
Wood Waste Company since mid-1993.
Cogeneration Facility
4. Baltimore,
Maryland.............. 60mW 2,250 TPD Owned and operated by the
Trash-to-Energy Company from 1985 to 1988.
Facility Operated by the Company
Owner: Ford Motor since 1988 under a
Credit Company long-term lease expiring in
("Ford Credit") 2007, with certain renewal
and purchase options.
5. Baltimore,
Maryland.............. N/A 110 DTPD Owned and operated by the
Biosolids Dryer and Company since January 1995.
Pelletizer (Back
River Project)
6. Bridgeport,
Connecticut........... 70mW 2,250 TPD Operated since 1988 by the
Trash-to-Energy Company under a long-term
Facility lease expiring in 2009,
Owner: Ford Credit with certain renewal and
purchase options.
7. Broward County,
Florida............... 70mW 2,250 TPD Owned and operated by the
South Site Company since mid-1991.
Trash-to-Energy
Facility
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C>
8. Broward County,
Florida............... 70mW 2,250 TPD Owned and operated by the
North Site Company since early 1992.
Trash-to-Energy
Facility
9. Claremont,
New Hampshire......... 5mW 200 TPD Owned and operated by the
Trash-to-Energy Company since 1987.
Facility
10. Concord, New
Hampshire............. 14mW 575 TPD Owned and operated by the
Trash-to-Energy Company since 1989.
Facility
11. Earth, Texas.......... N/A 3,500,000 TPY Owned and operated since
Coal Handling 1982 by the Company and its
Facility predecessors.
12. Falls Township,
Pennsylvania.......... 53mW 1,500 TPD Owned and operated by the
Trash-Energy Facility Company since August 1994.
13. Frackville,
Pennsylvania.......... 47mW 1,700 TPD Owned and operated by the
Anthracite Culm Company since 1989.
Cogeneration Facility
14. Franklin, Ohio........ N/A 4.5 MGD Owned and operated by the
MCD Franklin Company since July 1995
Wastewater Treatment under a long-term contract
Plant expiring in 2015, with
certain renewal options.
This property is a part of
the discontinued operations
to be divested to U.S.
Filter.
15. Hagerstown,
Maryland.............. N/A 16 DTPD Operated by the Company
Biosolids Dryer and since late 1992 under a
Pelletizer lease expiring in 1998,
Owner: Hagerstown, with a renewal option.
Maryland
16. Gloucester
County,
New Jersey............ 14mW 575 TPD Owned and operated by the
Trash-to-Energy Company since 1990.
Facility
17. Lisbon,
Connecticut........... 13mW 500 TPD Operated since January 1996
Trash-to-Energy by the Company under a
Facility long-term contract expiring
Owner: Eastern in 2020.
Connecticut Resource
Recovery Authority
18. Martell,
California............ 18mW 800 DTPD Operated by the Company
Wood Waste since February 1996. Owned
Cogeneration and operated by the Company
Facility since May 1996.
19. Millbury,
Massachusetts......... 45mW 1,500 TPD Operated by the Company
Trash-to-Energy since 1987 under a
Facility long-term lease expiring in
Owner: Ford Credit 2007, with certain renewal
and purchase options.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
20. New York, New York..... N/A 300 DTPD Owned and operated by the
Biosolids Dryer and Company since mid-1993.
Pelletizer
21. North Andover,
Massachusetts.......... 40mW 1,500 TPD Owned and operated by the
Trash-to-Energy Company since 1985.
Facility
22. Norwalk,
California............. 28mW N/A Operated by the Company
Gas Cogeneration since 1988 under a lease
Facility expiring in 2008, with an
Owner: Signal option to buy, subject to
Capital Corporation prior rights of the State
of California to purchase
the lease and the facility
after 2003.
23. Pinellas
County, Florida........ 5mW 3,000 TPD Operated by the Company
Trash-to-Energy since 1983 under a
Facility long-term contract expiring
Owner: Pinellas in 2003.
County, Florida
24. Polk County, Florida... 40mW 1,000 TPD Owned and operated since
Urban Wood August 1995 by a
Waste-to-Energy partnership in which the
Facility Company owns an 81%
interest.
25. Saugus,
Massachusetts.......... 40mW 1,500 TPD Operated by the Company
Trash-to-Energy since 1975; wholly-owned by
Facility the Company since 1987.
26. Shasta County,
California............. 49mW 2,400 TPD Operated by the Company
Wood Waste Small Power since 1988 under a
Production Facility long-term lease expiring in
Owner: Ford Credit 2007, with renewal and
purchase options.
27. Sherman 18mW 800 TPD Operated by a partnership
Station, Maine......... in which the Company has a
Wood Waste 60% interest since 1986.
Cogeneration Facility Leased by the Company under
Owner: Chrysler a long-term contract
Financial expiring in 2006, with
Corporation renewal and purchase
options.
28. Spokane, Washington.... 26mW 800 TPD Operated by the Company
Trash-to-Energy since late 1991 under a
Facility long-term contract expiring
Owner: City of in 2011.
Spokane,
Washington
29. Tampa, Florida......... 20mW 1,000 TPD Operated by the Company
Trash-to-Energy since 1988 under a
Facility long-term contract expiring
Owner: City of in 2005.
Tampa, Florida
30. Westchester County,
New York............... 60mW 2,250 TPD Owned and operated since
Trash-to-Energy 1984 by Westchester Resco
Facility Company L.P. ("Westchester
Resco") (1)
</TABLE>
- ---------------------
(1) Westchester Resco is a limited partnership, 75% held by the Company, and
25% held indirectly by John Hancock Mutual Life Insurance Co. as a limited
partner.
17
<PAGE>
Project Under Construction
<TABLE>
<CAPTION>
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------- --------
<S> <C> <C> <C>
Baltimore, Maryland N/A 110 DTPD Owned by the
Biosolids Dryer and Company.
Pelletizer (Patapsco Construction
Project) expected to be
completed in
mid-1997.
</TABLE>
KEY: mW--Megawatts DTPD--Dry Tons Per Day TPD--Tons Per Day
TPY--Tons Per Year MGD--Millions of Gallons Per Day
Non-Project Facilities
Set forth below is a list of all of the primary non-project facilities
owned by the Company as of December 31, 1996, and each of the principal plants
and offices leased by the Company as of that date. Such list does not purport
to be a complete list of all of the Company's leased properties.
<TABLE>
<CAPTION>
LOCATION SITE USE NATURE OF INTEREST
- -------- -------- ------------------
<S> <C> <C>
Annapolis, Maryland Offices Lease
Hampton, New Hampshire Offices Own
Pittsburgh, Pennsylvania Offices Lease
</TABLE>
ITEM 3 -- LEGAL PROCEEDINGS
The business in which the Company is engaged is intrinsically
connected with the protection of the environment and involves the potential for
the 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 in which 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 proceedings relating to the
Company's compliance with various environmental laws and regulations. At
December 31, 1996, the Company was not involved in any proceedings where it is
believed that sanctions involved may exceed $100,000.
In addition, there are other routine lawsuits and claims pending
against the Company and its subsidiaries incidental to their businesses. In the
opinion of the Company's management, the ultimate liability, if any, with
respect to the above proceedings and such other lawsuits and claims will not
have a material adverse effect on the business and properties of the Company,
taken as a whole, or its financial position or results of operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's security holders during the
fourth quarter of 1996.
18
<PAGE>
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on The New York Stock Exchange under the
symbol "WTI." The table below sets forth by quarter, for the last two years, the
high and low sales prices of the Common Stock on The New York Stock Exchange
Composite Tape 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
High Low Declared Per Share
---- --- ------------------
<S> <C> <C> <C>
1995
----
First Quarter $17-1/2 $12-1/2 --
Second Quarter 15-3/4 13-5/8 $0.11
Third Quarter 17 14-1/4 --
Fourth Quarter 16-3/4 14 --
1996
----
First Quarter $17-1/2 $14-3/4 --
Second Quarter 17-1/8 14-3/4 $0.12
Third Quarter 15-1/2 13-7/8 --
Fourth Quarter 16-3/4 14-3/4 --
</TABLE>
The approximate number of holders of record of Common Stock as of
March 19, 1997 was 14,770.
During 1996, the Board of Directors declared, and the Company paid, an
annual dividend in the amount of $0.12 per share. Future cash dividends will be
considered by the Board of Directors based upon the Company's earnings and
financial position and such other business considerations as the Board of
Directors considers relevant.
In February 1997, the Company announced that the Board of Directors
had authorized the repurchase of up to 30 million shares of Common Stock from
time to time during 1997 and 1998 in the open market, in privately negotiated
transactions or through issuer tender offers. During 1996, the Company
repurchased a total of 19,117,200 shares.
19
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected consolidated financial information for each of
the five years in the period ended December 31, 1996, is derived from the
Company's Consolidated Financial Statements, which have been audited by Arthur
Andersen LLP, independent public accountants, whose report thereon is
incorporated by reference in this report. The information below should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Company's Consolidated Financial Statements,
and the related Notes, and the other financial information filed as exhibits to
this report and incorporated herein by reference.
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
------------------------------------
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenue $1,230,983 $ 828,520 $ 926,879 $ 956,088 $ 952,312
Income from continuing
operations 173,342 142,938 150,724 134,283 109,454
Net income 134,152 163,102 184,895 137,858 6 ,498
Weighted average common and common
equivalent shares outstanding 188,200 188,900 189,900 185,000 169,400
Earnings per common and common
equivalent share:
Income from continuing operations $ 0.92 $ 0.76 $ 0.79 $ 0.73 $ 0.65
Net income 0.71 0.86 0.97 0.75 0.04
Dividends declared per common share 0.04 0.08 0.10 0.11 0.12
FINANCIAL CONDITION (at year end)
Total assets $2,905,015 $2,980,787 $3,101,547 $3,069,907 $3,051,419
Working capital 206,270 (14,638) (48,067) 32,286 186,480
Long-term debt 857,330 776,731 734,890 703,855 800,153
Stockholders' equity 1,039,343 1,286,838 1,424,882 1,450,265 1,150,516
</TABLE>
- ----------------------------
. Certain prior period amounts have been reclassified to conform with the
current year presentation.
. 1992 income from continuing operations includes a $47.0 million
nontaxable gain related to the initial public offering of shares by WM
International.
. 1992 net income includes one-time charges of $42.2 million related to
the adoption of two new financial accounting standards: Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", and
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
. Beginning in 1993, the Company no longer consolidates the financial
results of certain businesses contributed to form, in part, Rust. Revenue
from the contributed businesses amounted to approximately $554.7 million in
1992. Beginning in 1993, the Company's share of Rust's net income is
included in equity in earnings of affiliates. See Note 3 of the Notes to
Consolidated Financial Statements.
. 1993 income from continuing operations includes a $7.7 million
nontaxable gain related to issuance of stock by Rust and a $6.5 million
increase in the income tax provision due to revaluing deferred income taxes
as a result of the enactment of the Omnibus Budget Reconciliation Act of
1993.
. 1993, 1994, 1995 and 1996 net income includes equity income from
discontinued operations of Rust of $21.3 million, $19.6 million, $19.9
million, and $4.0 million, respectively. It is not practical to restate
periods prior to 1993 for these discontinued operations. Net income for
1995 and 1996 also includes a $30.1 million and $115.0 million,
20
<PAGE>
respectively, of charges for the Company's equity in Rust's provision for
loss on the disposal of discontinued operations. See Note 3 of the Notes
to Consolidated Financial Statements.
. 1995 and 1996 income from continuing operations includes a reduction in
equity income of $25.6 million and $43.3 million, respectively, related to
special charges recorded by WM International. See Note 3 of the Notes to
Consolidated Financial Statements.
. During 1995 and 1996, the weighted average common and common equivalent
shares outstanding decreased due to stock repurchases. See Note 5 of the
Notes to Consolidated Financial Statements.
. During the fourth quarter of 1996, the Company began implementing a plan
to divest its water business. Accordingly, these businesses have been
segregated as discontinued operations in the financial statements. See
Note 3 of the Notes to Consolidated Financial Statements.
----------------------------------------------
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth on pages 6 through 11 of the
Company's 1996 Annual Report to Stockholders (the "Annual Report") which
discussion is filed as an exhibit to this report and incorporated herein by
reference.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The Consolidated Balance Sheets as of December 31, 1995 and 1996,
Consolidated Statements of Income, Cash Flows and Changes in Stockholders'
Equity for each of the years in the three-year period ended December 31, 1996,
and the Notes to Consolidated Financial Statements set forth on pages 12 through
26 of the Annual Report are filed as an exhibit to thisreport and incorporated
herein by reference.
(b) Selected Quarterly Financial Data (Unaudited) is set forth in Note 10
of the Notes to Consolidated Financial Statements referred to in Item 8(a) above
and incorporated herein by reference.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. The information appearing under the caption "Election of
Directors" on pages 2 through 4 of the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held April 30, 1997 (the "Proxy Statement"), is
incorporated herein by reference.
Executive Officers. Information with respect to executive officers of the
Company is set forth under the caption "Executive Officers of the Registrant" in
Item 1 of this report.
21
<PAGE>
ITEM 11 -- EXECUTIVE COMPENSATION
Information appearing under the caption "Compensation" on pages 7 through
11 of the Proxy Statement is incorporated herein by reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Principal Stockholders" on pages 1
and 2 of the Proxy Statement and under the caption "Securities Ownership of
Management" on pages 4 through 6 of the Proxy Statement is incorporated herein
by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under the caption "Certain Transactions and Other
Matters" on pages 17 through 24 of the Proxy Statement is incorporated herein
by reference.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS:
The following financial statements and supplementary data of the Company
are filed as an exhibit hereto and incorporated herein by reference:
(i) Consolidated Statements of Income for the years ended December
31, 1994, 1995 and 1996.
(ii) Consolidated Balance Sheets as of December 31, 1995 and 1996.
(iii) Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.
(iv) Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Independent Public Accountants - Arthur Andersen LLP.
(2) SCHEDULES:
All schedules have been omitted since they are not applicable, not
required, or the information is included in the above-referenced financial
statements or notes thereto.
(3) EXHIBITS:
The exhibits to this report are listed in the Exhibit Index contained
elsewhere herein. Included in the exhibits listed therein are the following
exhibits which constitute management contracts or compensatory plans or
arrangements:*
(i) Restricted Unit Plan for Non-Employee Directors of the registrant
as amended through June 10, 1991 (incorporated by reference to
Exhibit 19.03 to the registrant's quarterly report on Form 10-Q
for the quarter ended June 30, 1991).
- ------------------------
* 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 0-14246.
22
<PAGE>
(ii) Amendment, dated as of December 6, 1991, to the Restricted Unit
Plan for Non-Employee Directors of the registrant (incorporated by
reference to Exhibit 19.05 to registrant's 1991 annual report on Form
10-K).
(iii) Deferred Director's Fee Plan adopted June 10, 1991 (incorporated by
reference to Exhibit 19.02 to the registrant's quarterly report on Form
10-Q for the quarter ended June 30, 1991).
(iv) 1988 Stock Plan for Executive Employees of Old WTI and its subsidiaries
("1988 Stock Plan") (incorporated by reference to Exhibit 28.1 to
Amendment No. 1 to the registrant's registration statement on Form S-8,
Reg. No. 33-31523).
(v) Amendments, dated as of September 7, 1990, to the 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the registrant's 1990
annual report on Form 10-K).
(vi) Amendment, dated as of November 1, 1990, to the 1988 Stock Plan
(incorporated by reference to Exhibit 19.04 to the registrant's 1990
annual report on Form 10-K).
(vii) Amendment, dated as of December 6, 1991, to the 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the registrant's 1991
annual report on Form 10-K).
(viii) 1986 Stock Plan for Executive Employees of the registrant and its
subsidiaries ("1986 Stock Plan") (incorporated by reference to Exhibit
28.2 to Amendment No. 1 to the registrant's registration statement on
Form S-8, Reg. No. 33-13720).
(ix) Amendment, dated as of November 1, 1990, to the 1986 Stock Plan
(incorporated by reference to Exhibit 19.03 to the registrant's 1990
annual report on Form 10-K).
(x) Amendment, dated as of December 6, 1991, to the 1986 Stock Plan
(incorporated by reference to Exhibit 19.01 to the registrant's 1991
annual report on Form 10-K).
(xi) Wheelabrator Technologies Inc. Corporate Incentive Bonus Plan (as
amended and restated as of March 13, 1995) (incorporated by reference
to Exhibit 10.38 to the registrant's 1994 annual report on Form 10-K).
(xii) Wheelabrator Technologies Inc. Long Term Incentive Plan (as amended and
restated as of March 14, 1994) (incorporated by reference to Exhibit
10.40 to the registrant's 1993 annual report on Form 10-K).
(xiii) Retirement Plan for Non-Employee Directors of the registrant
(incorporated by reference to Exhibit 10.32 to the registrant's 1988
annual report on Form 10-K).
(xiv) Amendment, dated as of September 7, 1990, to the Retirement Plan for
Non-Employee Directors of the registrant (incorporated by reference to
Exhibit 19.01 to the registrant's 1990 annual report on Form 10-K).
(xv) Amendment, dated June 10, 1991, to the Retirement Plan for Non-Employee
Directors of the registrant (incorporated by reference to Exhibit 19.01
to the registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 1991).
(xvi) 1991 Stock Option Plan for Non-Employee Directors ("1991 Directors
Plan") of the registrant adopted June 10, 1991 (incorporated by
reference to Exhibit 19.04 to the registrant's quarterly report on Form
10-Q for the quarter ended June 30, 1991).
23
<PAGE>
(xvii) Amendment to 1991 Directors Plan dated as of December 22, 1993
(incorporated by reference to Exhibit 10.46 to the registrant's 1993
annual report on Form 10-K).
(xviii) Amendment to 1991 Directors Plan dated as of August 29, 1994
(incorporated by reference to Exhibit 10 to the registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 1994).
(xix) 1992 Stock Option Plan of the registrant (incorporated by reference to
Exhibit 10.45 to the registrant's 1991 annual report on Form 10-K).
(xx) Wheelabrator Technologies Inc/Rust International Inc Supplemental
Benefit Plan (as amended and restated effective January 1, 1995)
(incorporated by reference to Exhibit 4.15 to the registrant's
registration statement on Form S-8, Reg. No. 33-64431).
(xxi) First Amendment effective as of May 20, 1996 to the Wheelabrator
Technologies Inc /Rust International Inc. Supplemental Benefit Plan.
(xxii) Second Amendment effective December 2, 1996 to the Wheelabrator
Technologies Inc./Rust International Inc. Supplemental Benefit Plan.
(B) REPORTS ON FORM 8-K:
During the fiscal quarter ended December 31, 1996, the Company filed a
Report dated December 2, 1996, on Form 8-K reporting under Item 2 that the
Company (i) had completed its disposition to United States Filter Corporation
("U.S. Filter") of its industrial water process, manufacturing and custom-
engineered businesses for $369,600,000 in cash and (ii) had entered into a
Business Development Agreement with U.S. Filter. As a part of the Report, the
Company filed the following pro forma financial information:
(i) Wheelabrator Technologies Inc. and Subsidiaries Condensed Consolidated
Balance Sheet and associated notes as of September 30, 1996 (Unaudited).
(ii) Wheelabrator Technologies Inc. and Subsidiaries Condensed Consolidated
Statement of Income and associated notes for the nine months ended
September 30, 1996 (Unaudited).
(iii) Wheelabrator Technologies Inc. and Subsidiaries Condensed Consolidated
Statement of Income and associated notes for the year ended December 31,
1995 (Unaudited).
In addition, during the fiscal quarter ended December 31, 1996, the
Company filed a Report dated December 18, 1996, on Form 8-K reporting under Item
5 that the Company had issued a press release announcing that WM International
had reached an agreement to sell its equity investment in Wessex Water plc. No
financial statements were filed with the report.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Oak Brook, Illinois
on the 26th day of March, 1997.
WHEELABRATOR TECHNOLOGIES INC.
By /s/ JOHN M. KEHOE, JR.
----------------------
JOHN M. KEHOE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Signature Date
---- ----- --------- ----
<S> <C> <C> <C>
Dean L. Buntrock Director, Chairman of /s/ DEAN L. BUNTROCK March 26, 1997
the Board ---------------------
Dean L. Buntrock
John M. Kehoe, Jr. Director, President /s/ JOHN M. KEHOE, JR. March 26, 1997
and Chief Executive -----------------------
Officer John M. Kehoe, Jr.
Robert Gagalis Vice President, /s/ ROBERT GAGALIS March 26, 1997
Treasurer and Chief ------------------
Financial Officer Robert Gagalis
Richard S. Haak, Jr. Vice President, /s/ RICHARD S. HAAK, JR. March 26, 1997
Controller and ------------------------
Principal Accounting Richard S. Haak, Jr.
Officer
Kay Hahn Harrell Director /s/ KAY HAHN HARRELL March 26, 1997
--------------------
Kay Hahn Harrell
Donald F. Flynn Director /s/ DONALD F. FLYNN March 26, 1997
-------------------
Donald F. Flynn
James E. Koenig Director /s/ JAMES E. KOENIG March 26, 1997
-------------------
James E. Koenig
Paul M. Meister Director /s/ PAUL M. MEISTER March 26, 1997
-------------------
Paul M. Meister
Edward J. Noha Director /s/ EDWARD J. NOHA March 26, 1997
------------------
Edward J. Noha
Manuel Sanchez Director /s/ MANUEL SANCHEZ March 26, 1997
------------------
Manuel Sanchez
Thomas P. Stafford Director /s/ THOMAS P. STAFFORD March 26, 1997
----------------------
Thomas P. Stafford
</TABLE>
25
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
- ----------------------------------
1. Inapplicable.
2.01 Agreement and Plan of Merger, dated March 30, 1990
and amended as of July 24, 1990, among the
registrant, WMX Technologies, Inc. ("WMX") and WM
Sub, Inc. (incorporated by reference to Exhibit
2.01 to the registrant's statement on Form S-4,
Reg. No. 33-36118).
2.02 Rust International Inc. Organizational Agreement,
dated as of December 31, 1992 ("Organizational
Agreement"), by and among the registrant, The
Brand Companies, Inc. ("Brand") and Chemical Waste
Management, Inc. ("CWM") (incorporated by
reference to Exhibit 7 to Amendment No. 6 to
Statement on Schedule 13D filed on January 5, 1993
by WMX, the registrant and CWM relating to
securities of Brand, Commission File No. 1-7327).
2.03 Amended and Restated Purchase and Sale Agreement
between the Company and United States Filter
Corporation, dated as of September 14, 1996
(incorporated by reference to Exhibit 2.1 to the
registrant's report on Form 8-K dated December 2,
1996).
2.04 Agreement and Amendment between Company and United
States Filter Corporation, dated as of December 2,
1996 (incorporated by reference to Exhibit 2.2 to
the registrant's report on Form 8-K dated December
2, 1996).
3.01 Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
3.01 to registrant's 1989 annual report on Form
10-K).
3.02 Certificate of Amendment to the registrant's
Restated Certificate of Incorporation dated May 6,
1993 (incorporated by reference to Exhibit 19 to
the registrant's report on Form 10-Q for the
quarter ended March 31, 1993).
3.03 By-Laws of the registrant as amended through
January 30, 1997 .
4. None.
5. Inapplicable.
6. Inapplicable.
7. Inapplicable.
8. Inapplicable.
9. None.
10.01 Master Support Agreement, dated as of February 26,
1986, among AlliedSignal Inc.
- ---------------------
*In the case of incorporation by reference to documents filed by the registrant
under the Securities Exchange Act of 1934, the registrant's file number under
that Act is 0-14246.
<PAGE>
("AlliedSignal"), the registrant and Signal Capital
Corporation, as amended and restated as of January
27, 1987, and as further amended and restated as of
December 7, 1988, among AlliedSignal, Wheelabrator
Technologies Inc. ("Old WTI"), the Guaranteeing
Subsidiaries referred to therein, the Non-Company
Resco Subsidiaries referred to therein, the
registrant and Koll Real Estate Group, Inc.
("KREG") (incorporated by reference to Exhibit
10.22 to Amendment No. 3 on Form 8 to KREG's
registration statement on Form 10, Commission File
No. 0-17189).
10.02 Assignment, Assumption and Release Agreement,
dated as of December 7, 1988, among the
registrant, Old WTI, the Old Guaranteeing
Subsidiaries (as defined therein) and AlliedSignal
(incorporated by reference to Exhibit 10.22B to
Amendment No. 3 on Form 8 to KREG's registration
statement on Form 10, Commission File No. 0-17189).
10.03 Assignment and Assumption Agreement, dated as of
December 7, 1988, among the registrant, Old WTI
and KREG (incorporated by reference to Exhibit
10.18B to KREG's 1988 annual report on Form 10-K,
Commission File No. 0-17189).
10.04 Land Option Agreement ("Land Option Agreement"),
dated as of August 12, 1988, between Old WTI and
Waste Management, Inc. ("WMI") (incorporated by
reference to Exhibit 10.15 to the registrant's
1988 annual report on Form 10-K).
10.05 Amendment No. 1, dated as of June 1, 1992, to Land
Option Agreement between Resco Holdings Inc.
("Resco"), as successor by merger to Old WTI, and
WMI (incorporated by reference to Exhibit 19.01 to
the registrant's 1992 annual report on Form 10-K).
10.06 Amendment No. 2 dated as of November 15, 1995 to
Land Option Agreement (incorporated by reference
to Exhibit 10.06 to the registrant's 1995 annual
report on Form 10-K).
10.07 Second Amended and Restated Airspace Dedication
Agreement, dated as of December 13, 1992, between
Resco and WMI (incorporated by reference to
Exhibit 19.02 to the registrant's 1992 annual
report on Form 10-K).
10.08 Disposal Agreement, dated as of March 1, 1989,
between Waste Management Inc. of Florida and
Broward Waste Energy (incorporated by reference to
Exhibit 10.17A to the registrant's 1988 annual
report on Form 10-K).
10.09 Guaranty, dated August 2, 1988, from WMX to the
registrant and Wheelabrator Technologies of North
America Inc., formerly known as Wheelabrator
Technologies Inc. ("WTNA") (incorporated by
reference to Exhibit 10.19 to the registrant's
1988 annual report on Form 10-K).
10.10 Restricted Unit Plan for Non-Employee Directors of
the registrant, as amended through June 10, 1991
(incorporated by reference to Exhibit 19.03 to the
registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1991).
10.11 Amendment, dated as of December 6, 1991, to the
Restricted Unit Plan for Non-Employee Directors of
the registrant (incorporated by reference to
Exhibit 19.05 to the registrant's 1991 annual
report on Form 10-K).
2
<PAGE>
10.12 Deferred Director's Fee Plan adopted June 10, 1991
(incorporated by reference to Exhibit 19.02 to the
registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1991).
10.13 Lease Agreement, dated as of September 15, 1987,
between Wilmington Trust Company, as Owner
Trustee, lessor, and Wheelabrator Millbury Inc.,
lessee (incorporated by reference to Exhibit 10.51
to the registrant's 1988 annual report on Form
10-K).
10.14 Lease Agreement, dated as of December 30, 1987, as
amended and restated as of April 1, 1988, between
Wilmington Trust Company, as Corporate Owner
Trustee, and Donald E. Smith, as Individual Owner
Trustee, lessor, and Signal Shasta Energy Company
Inc., lessee (incorporated by reference to Exhibit
10.52 to the registrant's 1988 annual report on
Form 10-K).
10.15 Lease Agreement, dated as of September 15, 1988,
between State Street Bank and Trust Company of
Connecticut, N.A., lessor, and Baltimore Refuse
Energy Systems Company, Limited Partnership,
lessee (incorporated by reference to Exhibit 10.40
to registrant's registration statement on Form
S-4, Reg. No. 33-36118).
10.16 Second Amendment and Restatement of Lease
Agreement, dated as of May 1, 1988, between the
First National Bank of Boston, as Corporate Owner
Trustee, James E. Mogavero, as Individual Owner
Trustee, lessor, and Bridgeport Resco, lessee
(incorporated by reference to Exhibit 10.41 to
registrant's registration statement on Form S-4,
Reg. No. 33-36118).
10.17 Modification Agreement, dated as of August 24,
1989, among the registrant, Old WTI, WMI, KREG and
Resco (incorporated by reference to Exhibit 28.01
to the registrant's Form 8-K dated August 24,
1989).
10.18 Assignment, Assumption and Release Agreement,
dated December 18, 1989, among KREG, Henley
Holdings, Inc., Henley, Henley Support Co. Two,
the registrant and Resco amending the Modification
Agreement (incorporated by reference to Exhibit
10.69 to the registrant's registration statement
on Form S-4, Reg. No. 33-36118).
10.19 Letter Agreement, dated October 25, 1990, among
the registrant, WMI, Resco, Henley and Henley
Support Co. Two amending the Modification
Agreement (incorporated by reference to Exhibit
10.46 to the registrant's 1990 annual report on
Form 10-K).
10.20 Letter Agreement, dated November 8, 1991, among
the registrant, Henley, KREG, WMX, WMI, New Henley
Holdings Inc. and WTNA, amending the Modification
Agreement (incorporated by reference to Exhibit
10.23 to the registrant's 1991 annual report on
Form 10-K).
10.21 1988 Stock Plan for Executive Employees of Old WTI
and its subsidiaries ("1988 Stock Plan")
(incorporated by reference to Exhibit 28.1 to
Amendment No. 1 to the registrant's registration
statement on Form S-8, Reg. No. 33-31523).
3
<PAGE>
10.22 Amendments, dated as of September 7, 1990, to the
1988 Stock Plan (incorporated by reference to
Exhibit 19.02 to the registrant's 1990 annual
report on Form 10-K).
10.23 Amendment, dated as of November 1, 1990, to the
1988 Stock Plan (incorporated by reference to
Exhibit 19.04 to the registrant's 1990 annual
report on Form 10-K).
10.24 Amendment, dated as of December 6, 1991, to the
1988 Stock Plan (incorporated by reference to
Exhibit 19.02 to the registrant's 1991 annual
report on Form 10-K).
10.25 1986 Stock Plan for Executive Employees of the
registrant and its subsidiaries ("1986 Stock
Plan") (incorporated by reference to Exhibit 28.2
to Amendment No. 1 to the registrant's
registration statement on Form S-8, Reg. No.
33-31523).
10.26 Amendment, dated as of November 1, 1990, to the
1986 Stock Plan (incorporated by reference to
Exhibit 19.03 to the registrant's 1990 annual
report on Form 10-K).
10.27 Amendment, dated as of December 6, 1991, to the
1986 Stock Plan (incorporated by reference to
Exhibit 19.01 to the registrant's 1991 annual
report on Form 10-K).
10.28 Restated Funding Agreement, dated as of September
7, 1990, among Resco, the registrant and WMX
(incorporated by reference to Exhibit 10.34 to the
registrant's 1990 annual report on Form 10-K).
10.29 Intellectual Property Licensing Agreement, dated
as of September 7, 1990, by and among Waste
Management International, Inc. ("WMII"), WMI and
the registrant (incorporated by reference to
Exhibit 10.37 to the registrant's 1990 annual
report on Form 10-K).
10.30 Amended and Restated Master Intercorporate
Agreement, dated as of November 1, 1993, by and
among WMX, CWM and the registrant (incorporated by
reference to Exhibit 10.36 to the registrant's
1993 annual report on Form 10-K).
10.31 Wheelabrator Technologies Inc. Corporate Incentive
Bonus Plan (as amended and restated as of March
13, 1995) (incorporated by reference to Exhibit
10.38 to the registrant's 1994 annual report on
Form 10-K).
10.32 Wheelabrator Technologies Inc. Long Term Incentive
Plan (as amended and restated as of March 23,
1994) (incorporated by reference to Exhibit 10.40
to the registrant's 1993 annual report on Form
10-K).
10.33 Retirement Plan for Non-Employee Directors of the
registrant (incorporated by reference to Exhibit
10.32 to the registrant's 1988 annual report on
Form 10-K).
10.34 Amendment, dated as of September 7, 1990, to the
Retirement Plan for Non-Employee Directors of the
registrant (incorporated by reference to Exhibit
19.01 to the registrant's 1990 annual report on
Form 10-K).
10.35 Amendment, dated June 10, 1991, to the Retirement
Plan for Non-Employee Directors of the registrant
(incorporated by reference to Exhibit 19.01 to the
registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1991).
10.36 1991 Stock Option Plan for Non-Employee Directors
of the registrant ("1991
4
<PAGE>
Directors Plan") adopted June 10, 1991
(incorporated by reference to Exhibit 19.04 to the
registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1991).
10.37 Amendment to 1991 Directors Plan dated as of
December 22, 1993 (incorporated by reference to
Exhibit 10.46 to the registrant's 1993 annual
10.38 report on Form 10-K).
Amendment to 1991 Directors Plan adopted on August
29, 1994 (incorporated by reference to Exhibit
10.46 to the registrant's quarterly report on Form
10-Q for the quarter ended September 30, 1994).
10.39 1992 Stock Option Plan of the registrant
(incorporated by reference to Exhibit 10.45 to the
registrant's 1991 annual report on Form 10-K).
10.40 Rust Intercorporate Services Agreement ("Rust
Intercorporate Services Agreement"), dated as of
January 1, 1993, by and among the registrant, Rust
International Inc. ("Rust"), WMX and CWM
(incorporated by reference to Exhibit 10.42 to the
registrant's 1992 annual report on Form 10-K).
10.41 Amendment No. 1 dated as of August 10, 1993 to
Rust Intercorporate Services Agreement
(incorporated by reference to Exhibit 10.49 to the
registrant's 1993 annual report on Form 10-K).
10.42 Amendment No. 2 dated as of August 25, 1995 to
Rust Intercorporate Services Agreement
(incorporated by reference to Exhibit 10.42 to the
registrant's 1995 annual report on Form 10-K).
10.43 Amendment No. 3 dated as of December 31, 1995 to
Rust Intercorporate Services Agreement
(incorporated by reference to Exhibit 10.43 to the
registrant's 1995 annual report on Form 10-K).
10.44 Organizational Agreement (see Item 2.02 hereof).
10.45 Third Amended and Restated International
Development Agreement, dated as of January 1,
1993, among the registrant, WMX, CWM, WMII, Waste
Management International B.V. ("WMIBV"), Waste
Management International plc ("WM International"),
Rust, WTI International Holdings Inc. ("WTI
International") and RIH Inc. ("RIH") (incorporated
by reference to Exhibit 19.05 to the registrant's
1992 annual report on Form 10-K).
10.46 First Amended and Restated International Business
Opportunities Agreement ("IBOA"), dated as of
January 1, 1993, by and among the registrant, WMX,
CWM, WM International, WMII and Rust (incorporated
by reference to Exhibit 28 to the registrant's
registration statement on Form S-3, Reg. No.
33-59606).
10.47 Amendment Agreement, dated as of January 28, 1994,
by and among the registrant, WMX, CWM, WM
International, WMII and Rust amending the IBOA
(incorporated by reference to Exhibit 10.53 to the
registrant's 1993 annual report on Form 10-K).
5
<PAGE>
10.48 Amendment Agreement, dated as of July 10, 1995, by
and among the registrant, WMX, CWM, WM
International, WMII and Rust amending the IBOA
(incorporated by reference to Exhibit 10 to the
registrant's quarterly report on Form 10-Q for the
quarter ended September 30, 1995).
10.49 Amended and Restated Master Dividend Deed, dated
December 30, 1992, by and among the registrant,
CWM, WMII, WMX's foreign nominee, WM
International, WMIBV, RIH and WTI International
(incorporated by reference to Exhibit 19.07 to the
registrant's 1992 annual report on Form 10-K).
10.50 Reimbursement Agreement, dated March 10, 1993,
between WMX and the registrant (incorporated by
reference to Exhibit 10.51 to the registrant's
registration statement on Form S-1, Reg. No.
33-47575).
10.51 Wheelabrator Technologies Inc/Rust International
Inc Supplemental Benefit Plan, (as amended and
restated effective January 1, 1995) (incorporated
by reference to Exhibit 4.15 to the registrant's
registration statement on Form S-8, Reg. No.
33-64431
10.52 First Amendment effective as of May 20, 1996 to
the Wheelabrator Technologies Inc /Rust
International Inc. Supplemental Benefit Plan.
10.53 Second Amendment effective December 2, 1996 to the
Wheelabrator Technologies Inc./Rust International
Inc. Supplemental Benefit Plan.
11. None.
12. None.
13.1 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
13.2 Consolidated Financial Statements, Supplementary
Data and Report of Independent Public Accountants.
14. Inapplicable.
15. Inapplicable.
16. None.
17. Inapplicable.
18. None.
19. Inapplicable.
20. Inapplicable.
21. List of subsidiaries of the registrant.
6
<PAGE>
22. None.
23 Consent of Arthur Andersen LLP.
24. None.
25. Inapplicable.
26. Inapplicable.
27. Financial Data Schedule.
28. None.
99. None.
7
<PAGE>
Exhibit 3.03
WHEELABRATOR TECHNOLOGIES INC.
BY-LAWS
As amended through
January 30, 1997
<PAGE>
BY-LAWS
OF
WHEELABRATOR TECHNOLOGIES INC.
ARTICLE I
Offices
Section 1. Delaware Office. The office of Wheelabrator Technologies
Inc. (the "Corporation") within the State of Delaware shall be in the City of
Dover, County of Kent.
Section 2. Other Offices. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Delaware, as the Board of Directors of the Corporation may from
time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All meetings of holders of shares of
capital stock of the Corporation shall be held at the office of the Corporation
in the State of Delaware or at such other place, within or without the State of
Delaware, as may from time to time be fixed by the Board or specified or fixed
in the respective notices or waivers of notice thereof.
Section 2. Annual Meetings. An annual meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (an "Annual Meeting") shall be
held at 9:00 a.m. on the first Wednesday of May of each year (the first Annual
Meeting to be held in May 1987), or on such other date and at such other time as
may be fixed by the Board. If the Annual Meeting shall not be held on the day
designated, the Board shall call a special meeting of stockholders as soon as
practicable for the election of directors.
Section 3. Special Meetings. Special meetings of stockholders, unless
otherwise provided by law, may be called at any time by the Board pursuant to a
resolution adopted by a majority of the then authorized number of directors (as
determined in accordance with Section 2 of Article III of these By-laws), or by
the Chief Executive Officer. Any such call must specify the matter or matters to
be acted upon at such meeting and only such matter or matters shall be acted
upon thereat.
(1)
<PAGE>
Section 4. Notice of Meetings. Except as otherwise may be required by
law, notice of each meeting of stockholders, whether an Annual Meeting or a
special meeting, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the meeting and, unless it is an Annual
Meeting, shall indicate that the notice is being issued by or at the direction
of the person or persons calling the meeting, and a copy thereof shall be
delivered or sent by mail, not less than 10 or more than 60 days before the date
of said meeting, to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be directed to such stockholder at his address as it
appears on the stock records of the Corporation, unless he shall have filed with
the Secretary a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address. Notice
of an adjourned meeting need not be given if the time and place to which the
meeting is to be adjourned was announced at the meeting at which the adjournment
was taken, unless (i) the adjournment is for more than 30 days or (ii) the Board
shall fix a new record date for such adjourned meeting after the adjournment.
Section 5. Quorum. At each meeting of stockholders of the Corporation,
the holders of shares having a majority of the voting power of the capital stock
of the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law.
Section 6. Adjournments. In the absence of a quorum at any meeting of
stockholders or any adjournment or adjournments thereof, holders of shares
having a majority of the voting power of the capital stock present or
represented by proxy at the meeting may adjourn the meeting from time to time
until a quorum shall be present or represented by proxy. At any such adjourned
meeting at which a quorum shall be present or represented by proxy, any business
may be transacted which might have been transacted at the meeting as originally
called if a quorum had been present or represented by proxy thereat.
Section 7. Order of Business. (a) At any Annual Meeting, only such
business shall be conducted as shall have been brought before the Annual Meeting
(i) by or at the direction of the Board of Directors or (ii) by any stockholder
who complies with the procedures set forth in this Section 7.
(b) For business properly to be brought before an Annual Meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the Annual Meeting; provided, however, that in the event that less than 40 days'
notice or prior public disclosure of the date of the Annual Meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the Annual Meeting was mailed or such public
disclosure was made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth in writing as to each matter the stockholder proposes
to bring before the Annual Meeting: (i) a brief description of the business
desired to be brought before the Annual Meeting and the reasons for conducting
such business at the Annual Meeting; (ii) the name and address, as they appear
on the Corporation's books, of the stockholder proposing such business; (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder; and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in the By-laws to the contrary, no business
(2)
<PAGE>
shall be conducted at an Annual Meeting except in accordance with the procedures
set forth in this Section 7. The chairman of an Annual Meeting shall, if the
facts warrant, determine and declare to the Annual Meeting that business was not
properly brought before the Annual Meeting in accordance with the provisions of
this Section 7 and, if he should so determine, he shall so declare to the Annual
Meeting and any such business not properly brought before the Annual Meeting
shall not be transacted.
Section 8. Voting. Except as otherwise provided in the Certificate of
Incorporation or in a resolution of the Board of Directors adopted pursuant to
the Certificate of Incorporation establishing a series of Preferred Stock of the
Corporation ("Preferred Stock"), at each meeting of stockholders, every
stockholder of the Corporation shall be entitled to one vote for every share of
capital stock standing in his name on the stock records of the Corporation (i)
at the time fixed pursuant to Section 6 of Article VII of these By-laws as the
record date for the determination of stockholders entitled to vote at such
meeting, or (ii) if no such record date shall have been fixed, then at the close
of business on the day next preceding the day on which notice thereof shall be
given. At each meeting of stockholders, all matters (except as otherwise
provided in Section 3 of Article III of these By-laws and except in cases where
a larger vote is required by law or by the Certificate of Incorporation of the
Corporation or these By-laws) shall be decided by a majority of the votes cast
at such meeting by the holders of shares of capital stock present or represented
by proxy and entitled to vote thereon, a quorum being present.
Section 9. Inspectors. For each election of directors by the
stockholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be conducted by
inspectors of election, the Board shall appoint two inspectors of election. If,
for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if
the Board shall fail to appoint inspectors, the chairman of the meeting shall
appoint the necessary inspector or inspectors. The inspectors so appointed,
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors with strict impartiality, and according to the
best of their ability, and the oath so taken shall be subscribed by them. Such
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each of the shares represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of election of directors. Inspectors need not be
stockholders.
ARTICLE III
Directors
Section 1. Powers. The business of the Corporation shall be managed
under the direction of the Board. The Board may exercise all such authority and
powers of the Corporation and do all
(3)
<PAGE>
such lawful acts and things as are not by law or otherwise directed or required
to be exercised or done by the stockholders.
Section 2. Number, Election and Terms. The authorized number of
directors may be determined from time to time by a vote of a majority of the
then authorized number of directors or by the affirmative vote of the holders of
at least 80% of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class; provided, however, that such number initially
shall be five; and provided, further, that such number shall not be less than a
minimum of five nor more than a maximum of 15; and provided, further, that such
number and such minimum and maximum may be increased pursuant to resolution of
the Board, adopted pursuant to the Certificate of Incorporation, establishing
any series of Preferred Stock. The directors, other than those who may be
elected by the holders of any series of the Preferred Stock pursuant to a
resolution of the Board adopted pursuant to the Certificate of Incorporation
establishing such series, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, as determined by the Board, one class initially to be elected for a
term expiring at the Annual Meeting to be held in 1987, another class initially
to be elected for a term expiring at the Annual Meeting to be held in 1988, and
another class initially to be elected for a term expiring at the Annual Meeting
to be held in 1989, with the members of each class to hold office until their
successors have been elected and qualified. At each Annual Meeting, the
successors of the class of directors whose term expires at that Annual Meeting
shall be elected to hold office for a term expiring at the Annual Meeting held
in the third year following the year of their election. Except as otherwise
provided in the Certificate of Incorporation, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
directors then in office, even if less than a quorum of the Board, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office until the Annual Meeting at which the term of office
of the class to which such director has been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Board shall shorten the term of any
incumbent director.
Section 3. Nominations of Directors; Election. Nominations for the
election of directors may be made by the Board or a committee appointed by the
Board, or by any stockholder entitled to vote generally in the election of
directors who complies with the procedures set forth in this Section 3.
Directors shall be at least 21 years of age. Directors need not be stockholders.
At each meeting of stockholders for the election of directors at which a quorum
is present, the persons receiving a plurality of the votes cast shall be elected
directors. All nominations by stockholders shall be made pursuant to timely
notice in proper written form to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 60 days prior to the meeting; provided, however, that in the event that
less than 40 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, such stockholder's notice
shall set forth in writing (i) as to each person whom the stockholder proposes
to nominate for election or reelection as a director, all information relating
to such person that is required to be disclosed in
(4)
<PAGE>
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; and (ii) as to the stockholder giving the notice (x) the name and
address, as they appear on the Corporation's books, of such stockholder and (y)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation the information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. In the event
that a stockholder seeks to nominate one or more directors, the Secretary shall
appoint two inspectors, who shall not be affiliated with the Corporation, to
determine whether a stockholder has complied with this Section 3. If the
inspectors shall determine that a stockholder has not complied with this Section
3, the inspectors shall direct the chairman of the meeting to declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws of the Corporation, and the chairman shall so declare
to the meeting and the defective nomination shall be disregarded.
Section 4. Place of Meetings. Meetings of the Board shall be held at
the Corporation's office in the State of Delaware or at such other place, within
or without such State, as the Board may from time to time determine or as shall
be specified or fixed in the notice or waiver of notice or any such meeting.
Section 5. Regular Meetings. Regular meetings of the Board shall be
held in accordance with a yearly meeting schedule as determined by the Board; or
such meetings may be held on such other days and at such other times as the
Board may from time to time determine. Notice of regular meetings of the Board
need not be given except as otherwise required by these By-laws.
Section 6. Special Meetings. Special meetings of the Board may be
called by the Chief Executive Officer and shall be called by the Secretary at
the request of any two of the other directors.
Section 7. Notice of Meetings. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required), stating
the time, place and purposes thereof, shall be mailed to each director,
addressed to him at his residence or usual place of business, or shall be sent
to him by telex, cable or telegram so addressed, or shall be given personally or
by telephone, on 24 hours' notice.
Section 8. Quorum and Manner of Acting. The presence of at least a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board. If a quorum shall not be present at any meeting of the Board, a majority
of the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present. Except where a different vote is required or permitted by law or these
By-laws or otherwise, the act of a majority of the directors present at any
meeting at which a quorum shall be present shall be the act of the Board. Any
action required or permitted to be taken by the Board may be taken without a
meeting if all the directors consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
directors shall be filed with the minutes of the proceedings of the Board. Any
one or more directors may participate in any meeting of the Board by means of a
(5)
<PAGE>
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall be deemed to constitute presence in person at a meeting of
the Board.
Section 9. Resignation. Any director may resign at any time by giving
written notice to the Corporation; provided, however, that written notice to the
Board, the Chairman of the Board, the Chief Executive Officer or the Secretary
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein
and, unless otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective.
Section 10. Removal of Directors. Subject to the rights of the holders
of any series of Preferred Stock, any director may be removed from office only
for cause by the affirmative vote of the holders of at least 80% of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
Section 11. Compensation of Directors. The Board may provide for the
payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
Committees of the Board
Section 1. Appointment and Powers of Executive Committee. The Board
may, by resolution adopted by the affirmative vote of a majority of the
authorized number of directors, designate an Executive Committee of the Board
which shall consist of such number of members as the Board shall determine.
Except as provided by Delaware law, during the interval between the meetings of
the Board, the Executive Committee shall possess and may exercise all the powers
of the Board in the management and direction of all the business and affairs of
the Corporation (except the matters hereinafter assigned to any other Committee
of the Board), in such manner as the Executive Committee shall deem in the best
interests of the Corporation in all cases in which specific directions shall not
have been given by the Board. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business by the
committee and the act of a majority of the members of the committee present at a
meeting at which a quorum shall be present shall be the act of the committee.
Either the Chief Executive Officer or the Chairman of the Executive Committee
may call meetings of the Executive Committee.
Section 2. Appointment and Powers of Audit Committee. The Board may,
by resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board, which shall
consist of such number of members as the Board shall determine. The Audit
Committee shall (i) make recommendations to the Board as to the independent
accountants
(6)
<PAGE>
to be appointed by the Board; (ii) review with the independent accountants the
scope of their examination; (iii) receive the reports of the independent
accountants and meet with representatives of such accountants for the purpose of
reviewing and considering questions relating to their examination and such
reports; (iv) review, either directly or through the independent accountants,
the internal accounting and auditing procedures of the Corporation; and (v)
perform such other functions as may be assigned to it from time to time by the
Board. The Audit Committee may determine its manner of acting and fix the time
and place of its meetings, unless the Board shall otherwise provide. A majority
of the members of the Audit Committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of the committee present at a meeting at which a quorum shall be present
shall be the act of the committee.
Section 3. Compensation Committee; Other Committees. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them, in the respective
resolutions appointing them. Each such committee may determine its manner of
acting and fix the time and place of its meetings, unless the Board shall
otherwise provide. A majority of the members of any such committee shall
constitute a quorum for the transaction of business by the committee and the act
of a majority of the members of such committee present at a meeting at which a
quorum shall be present shall be the act of the committee.
Section 4. Action by Consent; Participation by Telephone or Similar
Equipment. Unless the Board shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
Section 5. Changes in Committees; Resignations; Removals. The Board
shall have power, by the affirmative vote of a majority of the authorized number
of directors, at any time to change the members of, to fill vacancies in, and to
discharge any committee of the Board. Any member of any such committee may
resign at any time by giving notice to the Corporation; provided, however, that
notice to the Board, the Chairman of the Board, the Chief Executive Officer, the
chairman of such committee or the Secretary shall be deemed to constitute notice
to the Corporation. Such resignation shall take effect upon receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, acceptance of such resignation shall not be necessary to make it
effective. Any member of any such committee may be removed at any time, either
with or without cause, by the affirmative vote of a majority of the authorized
number of directors at any meeting of the Board called for that purpose.
(7)
<PAGE>
ARTICLE V
Officers
Section 1. The Officers of the Corporation shall be chosen by the
board of directors and shall be a chairman of the board, one or more vice
chairmen of the board (the number thereof to be determined by the board of
directors), a president, one or more vice presidents (the number and designation
thereof to be determined by the board of directors), a secretary, a treasurer, a
chief financial officer, a general counsel, a controller and such assistant
secretaries, assistant treasurers or other officers as may be elected or
appointed by the board of directors. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board, a
president, one or more vice presidents, a secretary, a treasurer, a chief
financial officer, a general counsel, a controller and may choose one or more
vice chairmen of the board, assistant officers or other officers as it may deem
advisable.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries and other compensation of all officers (other
than assistant officers, unless the board otherwise determines) and agents of
the Corporation appointed by the board shall be as fixed by the board of
directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
Corporation shall be filled by the board of directors.
Chairman of the Board
Section 6. The chairman of the board shall preside at all meetings of
the stockholders and the board of directors. He or she may sign certificates for
shares of the Corporation and any deeds, mortgages, bonds, contracts or other
instruments which the board of directors has authorized to be executed, whether
or not under the seal of the Corporation, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these by-laws to some other officer or agent of the Corporation. The chairman of
the board shall perform such other duties and have such other powers as the
board of directors shall from time to time prescribe.
Vice Chairman (or Vice Chairmen) of the Board
Section 7. In the absence of the chairman of the board or in the event
of his inability or refusal to act, the vice chairman of the board (or in the
event there may be more than one vice chairman of the board, the vice chairman
of the board, in the order designated, or in the absence of any
(8)
<PAGE>
designation, then in the order of their election) shall perform the duties of
the chairman of the board, and when so acting, shall have all the powers of and
be subject to all restrictions upon the chairman of the board. He may sign
certificates for shares of the Corporation and any deeds, mortgages, bonds,
contracts, or other instruments which the board of directors has authorized to
be executed, whether or not under the seal of the Corporation, except in cases
where the signing and execution thereof shall be expressly delegated by the
board of directors or by these by-laws to some other officer or agent of the
Corporation. The vice chairmen of the board shall perform such other duties and
have such other powers as the board of directors or the chairman of the board
may from time to time prescribe.
President
Section 8. The president shall be the chief executive officer of the
Corporation. He or she shall have responsibility for the general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the board of directors are carried into effect. The president may
sign certificates for shares of the Corporation and any deeds, mortgages, bonds,
contracts or other instruments which the board of directors has authorized to be
executed, whether or not under the seal of the Corporation, except in cases
where the signing and execution thereof shall be expressly delegated by the
board of directors or by these by-laws to some other officer or agent of the
Corporation. In the absence of the chairman of the board and the vice chairman
(or, if there be more than one, the vice chairmen) of the board, or in the event
of their inability or refusal to act, the president shall perform the duties of
the chairman of the board, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the chairman of the board. The president
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Vice President(s)
Section 9. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to the restrictions upon the president. The vice presidents shall
perform such other duties and have such other powers as the board of directors,
the chairman of the board or the president may from time to time prescribe.
(9)
<PAGE>
Secretary
Section 10. The secretary shall: (a) keep the minutes of stockholders,
board of directors and board of directors committee meetings in one or more
books provided for the purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares prior
to the issue thereof and to all documents, the execution of which on behalf of
the Corporation under its seal is necessary or desirable; (d) keep or cause to
be kept a register of the mailing address of each stockholder which shall be
furnished to the secretary or the transfer agent of the Corporation by such
stockholder; (e) sign with the chairman of the board, a vice chairman of the
board, the president, or a vice president, certificates for shares of the
Corporation, the issue of which shall have been authorized by resolution of the
board of directors; (f) have general charge of stock transfer books of the
Corporation (g) attest to the genuineness of the signature on behalf of the
Corporation of any officer or agent of the Corporation on any deeds, mortgages,
bonds, contracts or other instruments; (h) certify the authenticity of any
instrument or record of the Corporation; and (i) in general perform all duties
incident to the office of secretary and such other duties as the board of
directors or the chairman of the board or the president may from time to time
prescribe.
Treasurer
Section 11. If required by the board of directors, the treasurer shall
give a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the board of directors shall determine. He shall: (a) have
charge and custody of and be responsible for all funds and securities of the
Corporation, and the deposit of all moneys in the name of the Corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with resolutions of the board of directors; and (b) in general
perform all the duties incident to the office of treasurer and such other duties
as the board of directors or the chairman of the board or the president may from
time to time prescribe.
Chief Financial Officer
Section 12. The chief financial officer shall have the general powers
and duties of supervision and management with respect to the financial affairs
of the Corporation usually vested in the chief financial officer of a
corporation, and such other duties as the board of directors or the chairman of
the board or the president may from time to time prescribe.
General Counsel
Section 13. The general counsel shall be the chief legal adviser of
the Corporation as to all matters affecting the Corporation or its business. In
general he shall perform all the duties incident to the office of general
counsel and such other duties as the board of directors, the chairman of the
board or the president may from time to time prescribe.
(10)
<PAGE>
Controller
Section 14. The controller shall be the principal accounting officer
of the Corporation and shall supervise the preparation and maintenance, on a
current basis, of such accounting books, records and reports as may be necessary
for directors, officers and executives of the Corporation to discharge their
duties or as may be required by law. In general, he shall perform all duties
incident to the office of controller and such other duties as the board of
directors or the chairman of the board or the president may from time to time
prescribe.
Assistant Treasurers and Assistant Secretaries
Section 15. The assistant secretaries as thereunto authorized by the
board of directors may sign with the chairman of the board, a vice chairman of
the board, the president, or a vice president certificates for shares of the
Corporation, the issue of which shall have been authorized by a resolution of
the board of directors, may attest to the genuineness of the signature on behalf
of the Corporation of any officer or agent of the Corporation on any deeds,
mortgages, bonds, contracts or other instruments and may certify the
authenticity of any instrument or record of the Corporation. The assistant
treasurers may sign with the chairman of the board, a vice chairman of the
board, the president or a vice president, certificates for shares of the
Corporation, the issue of which shall have been authorized by resolution of the
board of directors. The assistant treasurers shall, respectively, if required by
the board of directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the board of directors shall determine. The
assistant secretaries and assistant treasurers in general shall perform such
duties as the secretary or the treasurer, respectively, or the board of
directors or the chairman of the board or the president may from time to time
prescribe.
ARTICLE VI
Contracts, Checks, Loans, Deposits, etc.
Section 1. Contracts. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
Section 2. Checks, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
Section 3. Loans. No loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances. All bonds, debentures, notes and other obligations or
(11)
<PAGE>
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as may be selected by or in
the manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect as such bank accounts, not
inconsistent with the provisions of the Certificate of Incorporation or these
By-laws, as they may deem advisable.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each stockholder shall be entitled to
have, in such form as shall be approved by the Board, a certificate or
certificates signed by the Chairman of the Board or the Chief Executive Officer,
and by either the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary (except that, when any such certificate is countersigned by
a transfer agent or registered by a registrar other than the Corporation or an
employee of the Corporation, the signatures of any such officers may be
facsimiles, engraved or printed), which may be sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed), certifying the
number of shares of capital stock of the Corporation owned by such stockholder.
In the event any officer who has signed or whose facsimile signature has been
placed upon any such certificate shall have ceased to be such officer before
such certificate is issued, such certificate may be issued by the Corporation
with the same effect as if he were such officer at the date of its issue.
Section 2. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make or cause to be prepared or made, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares of capital stock registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting for the duration thereof, and may be inspected by any stockholder of
the Corporation who is present.
Section 3. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2 of this Article VII or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 4. Transfers of Capital Stock. Transfers of shares of capital
stock of the Corporation shall be made only on the stock ledger of the
Corporation by the holder of record thereof,
(12)
<PAGE>
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation, or by the transfer agent of the
Corporation, and only on surrender of the certificate or certificates
representing such shares, properly endorsed or accompanied by a duly executed
stock transfer power. The Board may make such additional rules and regulations
as it may deem advisable concerning the issue and transfer of certificates
representing shares of the capital stock of the Corporation.
Section 5. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividends or other distributions or allotments of any rights, or entitled to
exercise any rights in respect to any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by law.
ARTICLE VIII
Fiscal Year
The Corporation's fiscal year shall coincide with the calendar year.
(13)
<PAGE>
ARTICLE IX
Seal
The Corporation's seal shall be circular in form and shall include the
words "WHEELABRATOR TECHNOLOGIES INC., Delaware, 1985, Seal."
ARTICLE X
Waiver of Notice
Whenever any notice is required by law, the Certificate of
Incorporation or these By-laws to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether signed before or after the time stated
in such written waiver, shall be deemed equivalent to such notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when such person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business on the
grounds that the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE XI
Amendments
These By-laws or any of them may be amended or supplemented in any
respect at any time, either (i) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting shall
have been described or referred to in the notice of such meeting; or (ii) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or referred to in the
notice of such meeting or an announcement with respect thereto shall have been
made at the last previous Board meeting, and provided further that no amendment
or supplement adopted by the Board shall vary or conflict with any amendment or
supplement adopted by the stockholders. Notwithstanding the preceding sentence,
the affirmative vote of the holders of at least 80% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provisions inconsistent with,
Section 3 of Article II of these By-laws, Section 2 or Section 10 of Article III
of these By-laws, or this sentence.
(14)
<PAGE>
ARTICLE XII
Inapplicability of Section 203
The Corporation expressly elects not to be governed by Section 203 of
the Delaware General Corporation Law.
(15)
<PAGE>
Exhibit 10.52
AMENDMENT TO
THE WHEELABRATOR-RUST
SUPPLEMENTAL BENEFIT PLAN
The Wheelabrator-Rust Supplemental Benefit Plan is hereby amended as
follows:
1. Section 3.2 is hereby amended to add a new paragraph at the end
thereof to read as follows:
"Notwithstanding any of the foregoing provisions of this Section 3.2,
a Participant who was employed by the engineering, design, procurement,
construction, construction management and plant operation and maintenance
services and other businesses operated by Rust Engineering & Construction
Inc., certain of its subsidiaries and the Rust Engineering Company of New
York, Inc. (collectively "Rust E&C") on May 20, 1996, whose participation
in the Plan terminated due to the sale of certain assets of Rust E&C to
Raytheon Engineers & Constructors, Inc. ("Raytheon") (the "Raytheon
Transaction") and who became employed by Raytheon or one of its affiliates
immediately following the closing of the Raytheon Transaction shall become
fully vested in his or her Account balances."
<PAGE>
Exhibit 10.53
AMENDMENT TO
THE WHEELABRATOR-RUST
SUPPLEMENTAL BENEFIT PLAN
The Wheelabrator-Rust Supplemental Benefit Plan is hereby amended as
follows:
1. Section 3.2 is hereby amended to add a new paragraph at the end
thereof to read as follows:
"Notwithstanding any of the foregoing provisions of this Section 3.2,
a Participant who is employed by the Johnson Screens, Wheelabrator
Corporation and Water Process (including the HPD, CPC Engineering, Wiesmann
and Memtek business lines) divisions of Wheelabrator Water Technologies
Inc. (collectively the "WWTI Entities"), and Westates Carbon-Arizona, Inc.,
Wheelabrator Water Technologies International Holdings, Inc., and
Wheelabrator Clean Air Systems Inc. (collectively the "WWTI Subsidiaries")
on the closing date of the sale of the WWTI Entities and the WWTI
Subsidiaries to United States Filter Corporation ("U.S. Filter
Transaction") shall become fully vested in his or her Account balances."
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Wheelabrator Technologies Inc. ("Wheelabrator" or the "Company") is primarily
engaged in the ownership and operation of trash-to-energy, waste-fuel powered
independent power, and biosolids pelletizer facilities as well as providing
biosolids land application services and air quality control equipment design and
installation services (collectively the "Core Operations"). Wheelabrator is a
majority-owned subsidiary of WMX Technologies, Inc. ("WMX") and holds minority
interests in two other WMX-controlled subsidiaries, Waste Management
International plc ("WM International") and Rust International Inc. ("Rust").
Results of Operations
Consolidated revenue from continuing operations totaled $952.3 million in 1996
compared with $956.1 million in 1995 and $926.9 million in 1994. Revenue in 1995
and 1994 included $37.5 million and $54.3 million, respectively, of construction
revenue related to the Lisbon, Connecticut, trash-to-energy facility built and
operated by Wheelabrator for the Eastern Connecticut Resource Recovery
Authority. Net income from continuing operations was $109.5 million, or $0.65
per share, for 1996 versus $134.3 million, or $0.73 per share, in 1995 and
$150.7 million, or $0.79 per share, in 1994. Net income for 1996 was $6.5
million, or $0.04 per share, compared with $137.9 million, or $0.75 per share,
in 1995 and $184.9 million, or $0.97 per share, in 1994.
Net income in all three years included discontinued operations, and 1995 and
1996 included the impact of special charges by WM International. The following
table reconciles reported earnings per share to earnings per share from
continuing operations excluding these items:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Reported earnings per share $ 0.97 $ 0.75 $ 0.04
Income and equity in income from
discontinued operations
(see Note 3 to Consolidated
Financial Statements) (0.18) (0.18) (0.07)
Equity in provision for loss on disposal
of Rust operations (see Note 3 to
Consolidated Financial Statements) -- 0.16 0.68
------ ------ ------
Reported earnings per share from
continuing operations 0.79 0.73 0.65
WM International special charges
(see Note 3 to Consolidated
Financial Statements) -- 0.14 0.28
------ ------ ------
Earnings per share from continuing
operations excluding above items $ 0.79 $ 0.87 $ 0.93
====== ====== ======
Contributed by--
Core Operations $ 0.72 $ 0.77 $ 0.84
Equity in earnings of affiliates,
excluding WM International special
charges noted above 0.07 0.10 0.09
------ ------ ------
$ 0.79 $ 0.87 $ 0.93
====== ====== ======
</TABLE>
The earnings per share contribution from the Company's Core Operations
increased between 1994 and 1995 primarily because of the net income growth
associated with new facilities coupled with share repurchases. Continued share
buy-back activity accounted for the growth between 1995 and 1996. Net income
from Core Operations declined slightly during 1996 due to a $7.3 million after-
tax restructuring charge in the Company's biosolids land application business.
During 1996, Wheelabrator undertook a review of its strategic options for its
water businesses. The study concluded that, given the multiples being paid for
water companies in the marketplace, the best strategy was to sell these
businesses. Consequently, negotiations were begun that led to the November sale
of Wheelabrator's equipment manufacturing and process systems businesses to
United States Filter Corporation ("U.S. Filter") for $369.6 million in cash.
These negotiations also led to a definitive agreement with U.S. Filter in early
1997 to sell the Company's water and wastewater facility operations and
privatization business for $77.4 million worth of U.S. Filter common stock. The
Company intends to liquidate this stock. These businesses (collectively the
"Water Business") have been accounted for as discontinued operations in the
accompanying financial statements. The second and final stage of the Water
Business divestiture is expected to close in the second quarter of 1997.
Wheelabrator expects to realize a gain on the Water Business divestiture upon
its completion.
During the fourth quarter of 1995, Rust announced that it would sell or
discontinue its process engineering, construction, specialty contracting and
similar lines of business. In 1996, Rust sold the engineering and construction
business, as well as its industrial scaffolding business, and announced that it
also planned to divest its remaining domestic and international environmental
and infrastructure engineering and consulting businesses. Rust recorded
provisions for losses in both years for the disposition of the discontinued
businesses. Wheelabrator's equity income or loss from these businesses is
included in discontinued operations.
In 1995, WM International recorded a fourth quarter pretax charge related to
actions it had decided to take to sell or otherwise dispose of noncore
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. In 1996, WM
International wrote down its investments in France, Austria and Spain, in
contemplation of exiting all or part of these markets or forming joint ventures,
and wrote off a hazardous waste disposal facility in Germany because regulatory
changes adversely affected its volumes. It also recognized a provision for loss
related to an agreement to sell its interest in Wessex Water Plc. The Company's
equity in these charges is included in Equity in (earnings) loss of affiliates
in the Consolidated Statements of Income.
The Company has reorganized and streamlined its operating structure in
conjunction with the Water Business divestiture. The biosolids pelletizer
facilities, which have long-term contractual obligations, operating
characteristics, customers, and capital requirements similar to trash-to-energy
facilities, have been integrated into the Company's energy plant operating
organization. In light of this reorganization and the sale of the Water
Business, the Company will now report its operating results in one industry
segment. Wheelabrator's biosolids land application and air pollution control
businesses, which are not significant, will also be included in this segment.
Results from prior years, during which the Company reported its results in two
industry segments, Clean Energy and Clean Water, have been restated to conform
with the current presentation.
6
<PAGE>
1995 Operations Compared with 1994
Excluding the no-margin revenue from construction of the Lisbon facility,
revenue grew $46.0 million or 5.3% in 1995, from $872.6 million the previous
year to $918.6 million. New facilities were primarily responsible for the growth
and included the Falls Township trash-to-energy facility located outside
Philadelphia, Pennsylvania, the Ridge Generating Station in Polk County,
Florida, and the Baltimore I biosolids pelletizer plant in Baltimore, Maryland.
Both the Falls Township and Ridge Generating Station facilities began operation
during 1994, while the Baltimore I facility commenced operations at the start of
1995. Revenue from existing energy and pelletizer facilities grew $10.9 million
during 1995. Contractual price escalation on long-term contracts, offset in part
by increased curtailment of electrical purchases by certain utility customers,
accounted for this increase. Spot trash pricing, on the whole, was stable since
competition-driven declines in the Dade County, Florida, and metro New York City
areas were offset by increases in other regions. Biosolids land application
revenue increased $13.4 million and represented 9.2% of consolidated 1995
revenue compared with 8.0% in 1994. Offsetting these increases was a marked
decline in air business revenue attributable to a lull in air pollution control
retrofit activity by utilities between Phases I and II of the Clean Air Act
Amendments of 1990 (the "CAAA") and limited enforcement of industrial air
pollution standards. The air pollution control business generated 10.0% and
7.5%, respectively, of 1994 and 1995 revenue.
Operating income increased $12.8 million, or 4.8%, from $268.1 million in 1994
to $280.9 million in 1995, and also increased as a percent of revenue by 0.5
percentage point to 29.4%. Gross margin improved 0.9 percentage point to 35.2%,
while selling and administrative expenses increased to 5.8% of 1995 revenue
compared with 5.4% in the previous year. The gross margin improvement resulted
from reduced recognition of no-margin Lisbon facility construction revenue as
well as cost optimization programs at operating facilities focused on areas such
as chemical usage, maintenance, and manpower. Higher corporate costs to support
the growth of the Water Business was the primary reason for the selling and
administrative cost increase. In addition, the energy business' international
development activity expanded modestly following the July 1995 formation of a
trash-to-energy development joint venture with WM International. Previously,
under the terms of an intercompany business allocation agreement, Wheelabrator
was not permitted to develop trash-to-energy projects outside North America.
1996 Operations Compared With 1995
After adjusting for 1995 Lisbon construction revenue, 1996 revenue grew $33.8
million, or 3.7%, to $952.3 million. Commercial operations of the Lisbon
facility, which began in January 1996, contributed $18.4 million of the
increase. The Company acquired two industrial cogeneration plants (so-called
"inside-the-fence" facilities) during the year as part of its strategy to
leverage its energy plant operating capabilities and project financing expertise
by owning and/or operating power plants for industrial customers. The first
facility, located in Martell, California, was acquired in February. The second
plant, known as the "Lassen facility," located in Anderson, California, near the
existing Shasta facility, was purchased in November. Together these two inside-
the-fence acquisitions contributed an additional $7.3 million of 1996 revenue
growth. Contractual price escalation at existing energy and pelletizer
facilities, additional processing at several trash-to-energy facilities, lower
curtailment, and the addition of new biosolids land spreading contracts on the
West Coast were responsible for the balance of the growth. Overall, spot pricing
was stable during the year as continued degradation in the Dade County area of
Florida was offset by modest gains elsewhere. The biosolids land spreading and
air pollution control businesses accounted for 9.9% and 7.0%, respectively, of
1996 revenue.
Operating income grew $8.7 million, or 3.1%, to $289.6 million in 1996 and
also increased as a percent of revenue by one percentage point to 30.4%. Lower
selling and administrative expenses accounted for the improvement. Operating
expenses remained relatively flat compared with the prior year both in absolute
dollars and as a percent of revenue. Gross margin improvements realized through
the absence of no-margin Lisbon construction revenue and from continued cost
reduction efforts at operating facilities were offset by higher biosolids land
application costs and an $8.3 million pretax fourth quarter restructuring
charge. The charge related to rationalizing the biosolids land application
business and exiting certain unprofitable market regions. Overall gross margin
was 35.0% of revenue compared with 35.2% in 1995. The selling and administrative
cost reduction, which totals $11.8 million or 21.2%, reflects primarily the
impact of air business downsizing efforts undertaken in 1995 along with sharply
reduced corporate overhead.
Other Items
Interest Interest expense increased $8.1 million to $59.9 million during 1995
because a reduction in interest capitalization more than offset the benefit of
lower average project debt balances. Interest costs associated with three major
facilities (Falls Township, Ridge Generating Station, and Baltimore I) were
capitalized during 1994 prior to these plants commencing commercial operations.
One Company-owned facility, a second pelletizer in Baltimore (the "Baltimore II
facility"), was in the early stage of construction during 1995. Interest expense
declined $2.4 million during 1996 to $57.5 million, primarily as a result of
lower average project debt balances. Interest income decreased from $13.5
million in 1994 to $9.8 million and $6.1 million in 1995 and 1996, respectively,
because of lower average investment balances with WMX and lower rates.
Equity in Earnings of Affiliates Equity earnings from the continuing operations
of Wheelabrator's affiliates was a loss of $8.9 million in 1995 compared with
income of $14.7 million in 1994. WM International recognized a special charge in
1995 related to the actions it took to exit noncore 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 followed a thorough review of WM
International's operations and management structure and reflected WM
International's intention to refocus on its core waste services business.
Wheelabrator's share of this charge, including the Company's equity in the
portion recognized by Rust, was $25.6 million and was the principal reason for
the decline in equity income from continuing operations. Wheelabrator's
7
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Management's Discussion and Analysis
of Results of Operations and Financial Condition (continued)
share of WM International's 1995 earnings excluding the special charge declined
$2.0 million from the prior year to $13.2 million. The Company's equity in the
earnings of Rust's continuing operations was relatively flat from 1994 to 1995
after excluding the impact of the WM International special charge on Rust.
Wheelabrator's equity in the continuing earnings of its affiliates declined to
a loss of $27.8 million in 1996 and was impacted by the previously discussed WM
International special charges as well as lower earnings at Rust. Wheelabrator's
share of these charges, including the Company's equity in the portion recognized
by Rust, totaled $43.3 million. In addition, the Company recorded a $4.6 million
deferred tax liability related to passive foreign income associated with the
Wessex sale. Excluding these one-time items, the Company's equity in WM
International's earnings increased $0.9 million to $14.1 million, reflecting the
benefits of the prior year restructuring partially offset by a stronger dollar
versus pound exchange rate. Reduced earnings from Rust's continuing businesses,
as well as the impact of the WM International charges on Rust, resulted in the
Company reporting a 1996 loss on its equity investment in Rust.
Income Taxes The Company's effective tax rates for continuing operations
(excluding equity income, which is reported net of tax), were approximately
40.8%, 38.9%, and 42.6% in 1994, 1995, and 1996, respectively. The decreased
1995 rate reflected the impact of ongoing tax planning activities and certain
tax benefits associated with the liquidation of Wheelabrator's investment in
Abex, Inc. Domestic taxes related to the Company's share of WM International's
tax gain on the Wessex sale, coupled with the write-off of nondeductible
goodwill as part of the biosolids land application restructuring charge, made
the 1996 rate unusually high. (See Note 4 of the Notes to Consolidated Financial
Statements for additional tax information.)
Discontinued Operations As discussed previously, the Company decided in 1996 to
divest its Water Business. These businesses include the Company's domestic and
international water process systems and equipment manufacturing units, its water
and wastewater treatment plant operations and privatization businesses, its
materials cleaning company, and certain specialized air pollution control units.
Revenue for these businesses, which are being accounted for as discontinued
operations, was $397.7 million in 1994, $495.6 million in 1995, and $447.4
million in 1996. Their net income totaled $14.5 million, $13.8 million, and $8.0
million in 1994, 1995, and 1996, respectively.
During the fourth quarter of 1995, Rust announced that it would sell or
discontinue its process engineering, construction, specialty contracting and
similar lines of business. In 1996, Rust sold the engineering and construction
business, as well as its industrial scaffolding business, and announced that it
also planned to divest its remaining domestic and international environmental
and infrastructure engineering and consulting businesses. Accordingly,
Wheelabrator has reported its 40 percent equity interest in the historical
operating results of these businesses and the provisions for losses on their
disposal separately from continuing operations. (See Note 3 of the Notes to
Consolidated Financial Statements for additional information.)
Environmental Matters The majority of Wheelabrator's businesses are involved
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, 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
products and services are priced accordingly. Although unlikely in the near-
term, such ongoing compliance costs may increase in the future as a result of
legislation or regulation. (See Note 9 of the Notes to Consolidated Financial
Statements for additional information.) However, the Company believes that in
general it benefits from increased government regulation, which may increase the
demand for its products and services, and that it has the resources and
experience to manage environmental risk.
Estimated closure and postclosure monitoring costs associated with ash residue
monofills for which the Company is responsible include items such as final cap
and cover on the site, leachate management, and groundwater monitoring. These
costs are recognized in proportion to use of the permitted capacity at such
disposal sites. Such costs are estimated based on the technical requirements of
the United States Environmental Protection Agency ("EPA") or applicable state
regulations, whichever are stricter. The accruals for closure and postclosure
costs relate to expenditures to be incurred after a monofill ceases to accept
ash residue. To the extent similar costs are incurred during the active life of
the site, they are expensed as incurred. Preparation costs associated with these
sites and their individual cells are capitalized and amortized over the
respective estimated life of the disposal site or individual cell.
Wheelabrator has instituted procedures to periodically evaluate other
identified and potential environmental exposures. When the Company concludes 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 when additional information becomes available. While
the Company does not anticipate that any such adjustment would be material to
its financial statements, it is reasonably possible that future technological,
regulatory, or enforcement developments, results of environmental studies, or
other factors could alter this expectation and necessitate the recording of
additional liabilities, which could be material.
Wheelabrator also becomes involved, in the normal course of business, in
judicial and administrative proceedings related to alleged violations of
licenses, permits, laws or regulations, or differing interpretations of
applicable requirements. From time to time, the Company pays fines and penalties
as a result of such proceedings. To date, such fines and penalties have not been
material and, in the opinion of management, the ultimate liability, if any, with
respect to these matters will not have a material adverse effect on the business
and properties of the Company, taken as a whole, or its financial position or
results of operation.
8
<PAGE>
Accounting Pronouncements Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of FAS 121 did not have a material impact on its financial
statements since Wheelabrator's accounting was substantially in compliance with
the new standard.
Also during 1996, FAS No. 123, "Accounting for Stock-Based Compensation,"
became effective. FAS 123 provides an optional new method of accounting for
employee stock options and expands required disclosure about stock options. If
the optional method of determining compensation cost is not adopted, disclosure
is to be made, if material, of pro forma net income and earnings per share as if
it were. The impact on net income and earnings per share of applying the
optional new method was immaterial, and the Company has elected not to adopt the
optional new accounting methodology.
In October 1996, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
96-1, "Environmental Remediation Liabilities," which is effective beginning in
1997. The SOP provides that environmental remediation liabilities should be
accrued when the criteria of FAS No. 5, "Accounting for Contingencies," are met.
Included in the SOP are benchmarks to aid in the determination of when such
criteria are met and when environmental remediation liabilities should be
recognized. The SOP provides that an accrual for environmental liabilities
should include costs of compensation and benefits for employees expected to
devote a significant amount of time directly to the remediation effort.
Wheelabrator does not believe the adoption of SOP 96-1 will have a material
impact on its financial statements since its current accounting is in
substantial compliance with the new standard.
Financial Condition
Liquidity and Capital Resources Operating activities continue to be
Wheelabrator's principal source of liquidity and provided $266.3 million of cash
in 1996 compared with $237.3 million in 1995 and $178.9 million in 1994.
Operating cash flows increased $58.5 million between 1994 and 1995, with $29.8
million of the pick-up accounted for by a 1994 payment to the Internal Revenue
Service for previously recorded indemnities. Higher net income before
depreciation and amortization and before equity in the earnings and provision
for discontinued operations of affili-ates contributed an additional $18.9
million of the increase. An increase in deferred income tax benefits and lower
cash funding of working capital growth, net of a decrease in long-term
liabilities, was responsible for the balance. Cash provided by operating
activities improved an additional $29.0 million between 1995 and 1996. Internal
emphasis on working capital reduction provided $18.2 million of the growth.
Increased long-term liabilities provided $22.8 million of cash, which was
partially offset by lower depreciation and amortization and lower net income
before undistributed earnings of affiliates and provision for the Company's
equity in discontinued operations of Rust. The Company expects to generate
approximately $220 million of operating cash flow from its continuing operations
during 1997. This amount excludes approximately $85 million of taxes due on the
portion of the Water Business divestiture that closed during 1996.
Investing activities utilized $137.6 million of cash in 1994, but generated
$4.8 million and $198.5 million of cash in 1995 and 1996, respectively. Lower
capital spending for new project construction was the main reason for the change
between 1994 and 1995, coupled with a reduction in acquisition activity and
substitution of Company-backed letters of credit or guarantees for certain
investments held by trustees. Proceeds from the Water Business sale received in
1996, which totaled $348.9 million before taxes and net of cash relinquished and
certain amounts held in escrow, account for the increased cash generated by
investing activities between 1995 and 1996. Higher capital expenditures, greater
acquisition spending, and higher investments held by trustees partially offset
these sale proceeds. Wheelabrator spent $77.0 million on energy and pelletizer
project construction during 1994 compared with $5.1 million in 1995 and $23.5
million in 1996. During 1994, construction was completed on the Falls Township,
Ridge Generating Station, and Baltimore I facilities. Baltimore II construction
accounts for the project spending in 1995 and 1996. Non-project capital
expenditures for Wheelabrator's continuing businesses were $23.0 million, $22.3
million, and $18.2 million for 1994, 1995, and 1996, respectively. The balance
of capital spend-ing in all three years related to the discontinued Water
Business.
Cash payments for acquisitions, net of acquired cash, were $36.0 million in
1996 compared to $12.6 million in 1995 and $25.8 million in 1994. Acquisitions
made in 1994 and 1995 related to the discontinued Water Business, with the
decreased spending reflecting management's concern that the prices being paid
for water companies were inconsistent with the creation of long-term shareholder
value. The Martell and Lassen inside-the-fence energy facilities accounted for
1996 acquisition spending. The pro forma effect of the 1996 acquisitions on the
Company's results of operations is not material. During 1996, the Company also
acquired a 20% interest in Glegg Industries, a privately-held ultrapure water
company. In conjunction with the Water Business divestiture, Glegg's majority
owners acquired the right to repurchase Wheelabrator's interest before March 31,
1999, at the Company's original purchase price. Accordingly, this investment is
being accounted for on a cost basis.
Financing activities required $212.7 million of cash in 1996 versus $56.9
million and $200.8 million in 1994 and 1995, respectively. Major uses included
debt repayments, stock repurchases, and dividends. Dividend payments totaled
$19.0 million in 1994, $20.3 million in 1995, and $20.7 million in 1996 as the
Company increased its declared dividends from $0.10 per common share in 1994 to
$0.11 and $0.12 per common share in 1995 and 1996, respectively. During 1994,
1995, and 1996, Wheelabrator repurchased 3.3 million, 7.2 million, and 19.1
million shares of its common stock at an aggregate cost of $47.6 million, $104.2
million, and $306.0 million, respectively. Short-term borrowings pursuant to the
Master Intercorporate Agreement between the
9
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Management's Discussion and Analysis
of Results of Operations and Financial Condition (continued)
Company and WMX funded the 1994 share repurchases and were repaid using
operating cash flow during the first half of 1995. The Company is authorized to
repurchase an additional 30.0 million shares of its common stock through mid-
August 1998 on the open market or in privately negotiated or other transactions.
In addition to making scheduled repayments thereon, during 1994 and 1995,
Wheelabrator refinanced at lower interest rates or repaid prior to maturity
certain of its existing project debt. Private placement debt of $11.3 million
associated with the Saugus, Massachusetts, trash-to-energy plant was retired in
1994. The remaining $113.0 million of project debt associated with the
Westchester County facility was refinanced the same year. Half of the interest
savings of approximately 4.7 percentage points is being shared with Westchester
County in exchange for certain agreements covering the County's involvement in
the retrofit of the facility to meet CAAA requirements and a five-year extension
of the solid waste disposal agreement with the County. In December 1995,
Wheelabrator refinanced the remaining $28.6 million of bank debt connected with
its Frackville, Pennsylvania, independent power facility. This refinancing
lowered the interest rate on this floating rate debt by slightly under 1.2
percentage points and included a Wheelabrator guarantee of the project's debt
obligations. Net of refinancing proceeds, $47.4 million and $31.8 million of
cash was used to retire long-term debt in 1994 and 1995. The Company issued
$58.6 million of tax-exempt project debt in June 1996 to provide long-term
financing for the Baltimore I and II pelletizers. An additional $71.9 million of
long-term, tax-exempt project debt was issued in December 1996 to finance
upcoming CAAA-related retrofits at the Westchester facility. The proceeds of
both issues are held by trustees until needed by the projects.
The Company currently expects its major uses of capital during 1997 to include
capital spending on CAAA-related facility retrofits, continued acquisitions of
inside-the-fence industrial cogeneration facilities, project investments, and
stock repurchases in addition to dividends, scheduled debt repayments, and
nonproject capital expenditures. Planned project investments, which include
completion of the Baltimore II pelletizer, are expected to require approximately
$12 million of cash, and retrofit spending, which will be partially funded by
debt proceeds held by trustees, is expected to total approximately $30 million.
Nonproject capital spending is expected to require approximately $20 million of
cash, consistent with prior years. The Company completed a $13.9 million
refinancing of the tax-exempt project debt on its Claremont, New Hampshire,
facility in January 1997 and intends to secure approximately $25 million of
limited-recourse financing associated with the Lassen facility in the first half
of 1997.
Wheelabrator had net working capital of $186.5 million as of December 31,
1996, compared with $32.3 million at the previous year-end. Included in year-end
1996 working capital was $306.1 million of cash and cash equivalents. This cash,
short-term borrowings from WMX, and cash generated by operating activities are
expected to be sufficient to meet the Company's anticipated short-term capital
expenditure, dividend payment, debt retirement, and operating liquidity needs.
Pursuant to the Master Intercorporate Agreement, which governs borrowing and
lending between the Company and WMX, Wheelabrator may borrow up to $100.0
million in excess of any amounts loaned to WMX. This agreement automatically
renews annually unless either party provides 90-day notice of termination. In
addition to using available internally-generated cash, the proceeds of the 1997
Lassen project financing and the after-tax proceeds from liquidation of the U.S.
Filter stock received in connection with the second-stage Water Business
divestiture transaction, expected share repurchase and acquisition activities
may also be funded by external, long-term financing of certain unleveraged
projects. Wheelabrator's ratio of total debt to total capital was approximately
42% at the end of 1996, which the Company believes to be indicative of
additional unused borrowing capacity given its historically strong ability to
generate cash from operations.
Derivatives From time to time, the Company has used foreign currency
derivatives to attempt to mitigate the impact of currency fluctuations on its
equity income from WM International and on certain specifically identified
transactions. Derivatives used are confined to simple instruments that do not
involve multipliers or leverage. Wheelabrator's use of derivatives has not been
and is not expected to be material to the Company's financial statements.
Contingencies In May 1994, the U.S. Supreme Court ruled that state and local
governments may not constitutionally restrict the free movement of trash in
interstate commerce through the use of flow control laws. Such laws typically
involve a municipality specifying the disposal site for all solid waste
generated within its borders. Since the ruling, several decisions of state or
federal courts have invalidated regulatory flow control schemes in a number of
jurisdictions. Other judicial decisions have upheld nonregulatory means by which
municipalities may effectively control the flow of municipal solid waste. The
Company's Gloucester County, New Jersey, facility relies on a disposal franchise
for substantially all of its supply of municipal solid waste. In July 1996, a
Federal District Court permanently enjoined the State of New Jersey from
enforcing its solid waste regulatory flow control system, which was held to be
unconstitutional, but stayed the injunction for as long as its ruling is on
appeal plus an additional period of two years to enable the State to devise an
alternative nondiscriminatory approach. The State has indicated that it will
continue to enforce flow control during the two-year transition period and has
filed an appeal of the Federal District Court's ruling. The New Jersey
legislature is now considering a bill to authorize counties and authorities,
including the Gloucester County Improvement Authority, to implement a
constitutionally permissible system of "economic flow control" designed to
recover waste disposal costs incurred in reliance on the State's franchise
system. In addition, plaintiffs have asked the Third Circuit Court of Appeals to
shorten the stay period. A decision by the appeals court is expected during the
second quarter of 1997.
10
<PAGE>
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse effect on any of the Company's trash-to-energy
operations. Federal legislation has been proposed, but not yet enacted, to
effectively grandfather existing flow control mandates. In the event that such
legislation is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling the
flow of waste. In view of the uncertain state of the law at this time, however,
the Company is unable to predict whether such efforts would be successful or
what impact, if any, this matter might have on its trash-to-energy facilities.
Within the next several years, the air pollution control systems at certain
trash-to-energy facilities owned or leased by Wheelabrator most likely will be
required to be modified to comply with more stringent air pollution control
standards (the "MACT Standards") adopted by the EPA in December 1995 for
Municipal Waste Combusters ("MWCs"). The compliance dates will vary by facility,
but subject to the final decision in the case of Davis County vs. EPA, all
affected facilities most likely will be required to be in compliance with the
new rules by the end of the year 2000. The Davis County vs. EPA case involves
the methodology the EPA used to set the MACT Standards, and its outcome could
delay implementation deadlines by an estimated six to eighteen months. Currently
available technologies will be adequate to meet the new standards. Although the
total expenditures required for such modifications are estimated to be in the
$190-$230 million range, they are not expected to have a material adverse effect
on the Company's liquidity or results of operations because provisions in the
impacted facilities' long-term waste supply agreements allow the Company to
generally recover from customers the majority of incremental capital and
operating costs.
As the states and the U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market power sales agreements
entered into pursuant to the Public Utilities Regulatory Policies Act of 1978
("PURPA") should be voidable as "stranded assets." The Company's 25 power
production facilities are qualifying facilities under PURPA and depend on the
sanctity of their power sales agreements for their economic viability. Recent
state and federal agency and court decisions have unanimously upheld the
inviolate nature of these contracts. While the Company believes that federal law
offers strong protections to its PURPA contracts, there is a risk that future
court decisions and/or legislative initiatives in this area will have a material
and adverse effect on the business of the Company.
Outlook
The Company's focus in 1997 will be on further optimizing operations while
pursuing domestic opportunities to own and operate inside-the-fence power plants
for industrial customers. In addition, development or acquisition of trash-to-
energy and other waste fuel-fired power plants will be pursued on an
opportunistic basis both domestically and internationally. Such development
activities typically require multi-year efforts.
The Company expects the profitability of two of its facilities to be
negatively impacted beginning in 1998. The Shasta project will reach the end of
the ten-year fixed price portion of its power sales contract with Pacific Gas
and Electric Co. and will begin to receive significantly lower, avoided cost-
based electric rates. In addition, the New York Organic Fertilizer Company
biosolids pelletizer project ("NYOFCO") will reach the end of its initial five-
year contract with New York City the same year. The Company has been awarded a
15-year renewal of this contract, which is subject to final negotiation. The
terms of the proposed renewal are anticipated to result in lower revenue and
lower operating margins, in part because the initial contract provided for
Wheelabrator to recover its invested capital in NYOFCO during the initial five-
year contract. On a combined basis, these two contract matters are expected to
decrease 1998 revenue and net income by approximately $44 million and $17
million, respectively. Revenue and net income are anticipated to decline
approximately an additional $31 million and $9 million, respectively, in 1999 as
the full year impact of these contract changes is recognized.
Based on present growth prospects for its existing businesses and its
anticipated share repurchase activities, the Company expects 1997 earnings per
share from continuing operations to be between $1.20-$1.25 per share. After
factoring in the impact of the NYOFCO and Shasta contract issues, and assuming
completion of its authorized share repurchases, Wheelabrator's earnings per
share goals are $1.20-$1.25 per share for 1998 and $1.15-$1.20 for 1999. The
above earnings per share figures are based on assumed average outstanding common
shares of approximately 144 million in 1997 and 134 million in 1998 and 1999.
Forward-Looking Information Except for historical data, the information herein
constitutes forward-looking statements. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed with
caution. Actual results or experience could differ materially from the forward-
looking statements as a result of many factors, including, but not limited to,
fluctuation in spot pricing for trash disposal, unanticipated plant maintenance
or repair expense, adverse weather conditions, increased project development
opportunities, slowing of the overall economy, increased interest costs, the
nature and timing of electric utility deregulation, adverse flow control
developments, and the cost and timing of the Company's stock repurchase
programs. The Company makes no commitment to disclose any revisions to forward-
looking statements, or any facts, events or circumstances after the date hereof,
that may bear upon forward-looking statements.
11
<PAGE>
Wheelabrator Technologies Inc. and Subsidaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(000s omitted, except share amounts)
December 31, 1995 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 54,003 $ 306,072
Receivables, net of allowance of $7,754 in 1995 and $5,094 in 1996 120,819 123,164
Costs and earnings in excess of billings 25,429 10,632
Other current assets 51,865 72,148
- --------------------------------------------------------------------------------------------------------
Total current assets 252,116 512,016
- --------------------------------------------------------------------------------------------------------
Property, plant, and equipment, net 1,566,754 1,561,925
Cost in excess of net assets of acquired businesses, net 71,683 63,707
Investments in affiliates 601,768 484,141
Net assets of discontinued operations 286,387 54,776
Other assets 291,199 374,854
- --------------------------------------------------------------------------------------------------------
Total assets $3,069,907 $3,051,419
========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 31,999 $ 35,832
Accounts payable 38,636 37,084
Accrued liabilities 136,145 236,426
Advance payments on contracts 13,050 16,194
- --------------------------------------------------------------------------------------------------------
Total current liabilities 219,830 325,536
- --------------------------------------------------------------------------------------------------------
Long-term debt 703,855 800,153
Deferred income taxes 400,889 445,582
Deferred income 77,513 67,678
Other long-term liabilities 217,555 261,954
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share; 50,000,000 authorized;
none issued or outstanding -- --
Common stock, par value $0.01 per share; 500,000,000 authorized;
189,545,407 shares issued in 1995 and 1996 1,895 1,895
Capital in excess of par value 876,595 875,584
Cumulative translation adjustment (9,986) (4,721)
Treasury stock at cost; 10,112,610 shares in 1995, 28,094,425 shares in 1996 (146,494) (436,306)
Retained earnings 728,255 714,064
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,450,265 1,150,516
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,069,907 $3,051,419
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
12
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
(000s omitted, except per share amounts)
Years Ended December 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $926,879 $956,088 $ 952,312
- ---------------------------------------------------------------------------------------------------
Operating expenses 608,911 619,403 618,779
Selling and administrative expenses 49,917 55,794 43,949
Interest expense 51,839 59,916 57,514
Interest income (13,456) (9,761) (6,054)
Equity in (earnings) loss of affiliates
(1995 and 1996 reduced by $25.6 million
and $43.3 million, respectively, related to
special charges recorded by WM International) (14,717) 8,916 27,803
Other income, net (104) (3,541) (1,081)
- ---------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 244,489 225,361 211,402
Income tax provision 93,765 91,078 101,948
- ---------------------------------------------------------------------------------------------------
Income from continuing operations 150,724 134,283 109,454
Discontinued operations:
Income from discontinued operations
less applicable income taxes of $8.8 million in 1994,
$10.2 million in 1995 and $9.2 million in 1996 (Note 3) 14,548 13,797 8,039
Equity income from Rust discontinued operations (Note 3) 19,623 19,858 4,005
Equity in provision for loss on disposal
of Rust discontinued operations -- (30,080) (115,000)
- ---------------------------------------------------------------------------------------------------
Net income $184,895 $137,858 $ 6,498
===================================================================================================
Weighted average common and common equivalent shares outstanding 189,900 185,000 169,400
===================================================================================================
Earnings (loss) per common and common equivalent share:
Continuing operations $ 0.79 $ 0.73 $ 0.65
Income from discontinued operations 0.08 0.08 0.05
Equity income (loss) from Rust discontinued operations 0.10 (0.06) (0.66)
- ---------------------------------------------------------------------------------------------------
Net income $ 0.97 $ 0.75 $ 0.04
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(000s omitted)
Years Ended December 31, 1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 184,895 $ 137,858 $ 6,498
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 95,254 107,814 103,537
Deferred income taxes 48,909 59,295 60,713
Undistributed (earnings) loss of affiliates (14,717) 8,916 27,803
Equity in discontinued operations of Rust (19,623) 10,222 110,995
Deferred lease expense (7,530) (10,523) (12,660)
Changes in assets and liabilities, net of effects
of acquisitions and dispositions:
Receivables, net (29,258) (11,195) (7,696)
Costs and earnings in excess of billings (2,097) (7,664) 14,592
Other current assets (12,343) 17,310 (2,903)
Accounts payable 10,525 (542) (7,263)
Accrued liabilities (19,400) (933) (5,132)
Advance payments on contracts (2,594) (27,637) (4,067)
Other long-term liabilities (46,534) (36,713) (13,952)
Other, net (6,624) (8,884) (4,185)
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 178,863 237,324 266,280
- ------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (105,459) (37,805) (70,602)
Proceeds from sale of investments 583 12,821 1,587
Cash paid for investment -- -- (15,415)
Proceeds from discontinued operations,
net of cash relinquished -- -- 348,899
Sale of property, plant, and equipment 8,374 12,498 1,954
Investments held by trustees 5,936 36,810 (62,425)
Cash paid for acquisitions, net of acquired cash (25,754) (12,571) (35,983)
Other, net (21,257) (6,928) 30,475
- ------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (137,577) 4,825 198,490
- ------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 112,985 29,388 130,495
Repayments of long-term debt (160,335) (61,181) (29,609)
Net borrowings from WMX Technologies, Inc. 53,163 (53,163) --
Proceeds from exercise of stock options 5,739 3,665 13,444
Dividends paid (18,954) (20,301) (20,689)
Stock repurchase program (47,550) (102,368) (306,011)
Other, net (1,971) 3,154 (331)
- ------------------------------------------------------------------------------------------
Net cash used for financing activities (56,923) (200,806) (212,701)
- ------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (15,637) 41,343 252,069
Cash and cash equivalents at beginning of period 28,297 12,660 54,003
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,660 $ 54,003 $ 306,072
==========================================================================================
Supplemental disclosure:
Interest paid, net of amounts capitalized $ 56,015 $ 59,812 $ 57,102
==========================================================================================
Income taxes paid $ 73,790 $ 44,099 $ 44,495
==========================================================================================
Significant noncash investing activities:
Common stock issued for acquisitions $ 2,900 $ -- $ --
==========================================================================================
Liabilities assumed in acquisitions $ 74,938 $ 8,232 $ 4,211
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(000s omitted, except share amounts)
Capital in Cumulative
Common Excess of Translation Treasury Retained
Stock Par Value Adjustment Stock Earnings Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $1,888 $874,580 $(33,670) $ (717) $444,757 $1,286,838
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 184,895 184,895
Dividends declared ($0.10 per share) -- -- -- -- (18,954) (18,954)
Foreign currency translation -- -- 16,020 -- -- 16,020
Exercise of stock options 5 4,457 -- 1,277 -- 5,739
Tax benefit from stock options -- 2,134 -- -- -- 2,134
Stock issued for acquisitions 2 2,898 -- -- -- 2,900
Treasury shares from acquisition adjustments -- -- -- (499) -- (499)
Stock repurchases (3,273,800 shares) -- -- -- (47,550) -- (47,550)
Investment in Rust International Inc. -- (6,641) -- -- -- (6,641)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,895 877,428 (17,650) (47,489) 610,698 1,424,882
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 137,858 137,858
Dividends declared ($0.11 per share) -- -- -- -- (20,301) (20,301)
Foreign currency translation -- -- 7,664 -- -- 7,664
Exercise of stock options -- (1,488) -- 5,153 -- 3,665
Tax benefit from stock options -- 655 -- -- -- 655
Stock repurchases (7,194,600 shares) -- -- -- (104,154) -- (104,154)
Treasury shares from acquisition adjustments -- -- -- (4) -- (4)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,895 876,595 (9,986) (146,494) 728,255 1,450,265
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 6,498 6,498
Dividends declared ($0.12 per share) -- -- -- -- (20,689) (20,689)
Foreign currency translation -- -- 4,045 -- -- 4,045
Amount transferred to operations resulting
from sale of Water Business -- -- 1,220 -- -- 1,220
Exercise of stock options -- (2,849) -- 16,590 -- 13,741
Tax benefit from stock options -- 1,838 -- -- -- 1,838
Common stock received in connection with
exercise of stock options (18,623 shares) -- -- -- (297) -- (297)
Stock repurchases (19,117,200 shares) -- -- -- (306,011) -- (306,011)
Treasury shares from acquisition adjustments -- -- -- (94) -- (94)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $1,895 $875,584 $ (4,721) $(436,306) $714,064 $1,150,516
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (000s omitted in all tables except
per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 BUSINESS DESCRIPTION
Wheelabrator Technologies Inc. ("Wheelabrator" or the "Company") is primarily
engaged in the ownership and operation of trash-to-energy, waste-fuel powered
independent power, and biosolids pelletizer facilities as well as providing
biosolids land application services and air quality control equipment design and
installation services. Wheelabrator is a majority-owned subsidiary of WMX
Technologies, Inc. ("WMX") and holds minority interests in two other WMX-
controlled subsidiaries: Waste Management International plc ("WM International")
and Rust International Inc. ("Rust").
- --------------------------------------------------------------------------------
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company's financial statements are prepared on a consolidated basis and
include the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances are eliminated. Investments in affiliates
the Company does not control are accounted for using the equity method after
elimination of material interaffiliate transactions.
Use of Estimates
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.
Concentrations
Wheelabrator's businesses offer a range of services to a diverse customer base.
As of December 31, 1996, the Company believes it has no significant customer,
supplier, product line, credit risk, geographic, or other concentrations that
could expose the Company to adverse, near-term severe financial impacts.
Revenue Recognition
The Company recognizes revenue from certain long-term engineering, equipment
supply, and construction contracts on the percentage-of-completion basis, with
estimated losses recognized in full when identified. All other revenue is
recognized when services are rendered or products are shipped.
Foreign Currency
Certain foreign subsidiaries' income statement accounts are translated at the
average exchange rates in effect during the period, while assets and liabilities
are translated at the rates of exchange at the balance sheet date. The resulting
balance sheet translation adjustments are charged or credited directly to
stockholders' equity. Foreign exchange transaction gains and losses realized
during 1994, 1995, and 1996 were not significant.
Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, all highly liquid
instruments purchased with an original maturity of three months or less, and
investments with WMX, are considered to be cash equivalents.
Wheelabrator and WMX are parties to a Master Intercorporate Agreement that
provides, among other things, for Wheelabrator to lend excess cash to WMX at
interest rates at least as favorable as those Wheelabrator could otherwise
obtain. This agreement automatically renews annually unless either party
provides 90-day notice of termination. Under the agreement's terms, in the event
Wheelabrator requires short-term cash for the conduct of its business and
operations, WMX will make available to Wheelabrator such amounts as Wheelabrator
requires, up to a total of $100.0 million in excess of amounts loaned by
Wheelabrator to WMX. In addition, a right of set-off exists for amounts owed by
either Wheelabrator or WMX. As such, net amounts invested with WMX pursuant to
this agreement are considered to be highly liquid cash equivalents and are
included in cash and cash equivalents on the Consolidated Balance Sheets. The
Company had investments with WMX of $37.3 million and $285.2 million as of
December 31, 1995, and 1996, respectively.
Derivative Financial Instruments
From time to time, the Company has used foreign currency derivatives to attempt
to mitigate the impact of currency fluctuations on its equity income from WM
International and on certain specifically identified transactions. Derivatives
used are confined to simple instruments that do not involve multipliers or
leverage. Wheelabrator's use of derivatives has not been and is not expected to
be material to the Company's financial statements.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, receivables, investments held by trustees, accounts payable, and
debt instruments. The book values of cash and cash equivalents, receivables,
investments held by trustees, and accounts payable are considered to be
representative of their respective fair values. The aggregate fair market value
of Wheelabrator's long-term debt was approximately $880.8 million and $899.0
million on December 31, 1995 and 1996, respectively. The fair value of the
Company's long-term debt was determined by discounting future cash flows at the
quoted or estimated current rate applicable to each type of debt. See Note 6 for
the terms and carrying values of the Company's various debt instruments.
Property, Plant, and Equipment
Property, plant, and equipment (including major improvements) are capitalized
and stated at cost. Items of an ordinary maintenance or repair nature are
charged directly to operating expense. The cost less estimated salvage value of
property, plant, and equipment (except for land and unutilized land options) is
generally depreciated on a straight-line basis over estimated useful lives that
range from 3 to 35 years.
Under a land option agreement with a WMX subsidiary, the Company has the
exclusive right to purchase or lease sites for trash-to-energy or other
facilities at existing or future landfills owned by the subsidiary. These land
options are classified as property, plant, and equipment. The option cost
attributable to each utilized site will be allocated to a facility and amortized
on a straight-line basis over the estimated useful life of the facility upon
commencement of operations. During 1994, amortization began on $29.6 million
worth of exercised land options as two facilities located on such sites
commenced operations.
During 1995, the Company paid $15.0 million to WMX in conjunction with a land
option agreement amendment that included, among other things, a guarantee of
value for Wheelabrator and an extension through 2020.
Capitalized Interest
The Company capitalizes interest on significant projects under construction in
accordance with Statement of Financial Accounting Standards No. 34. Amounts
capitalized and netted against interest expense in the Consolidated Statements
of Income were $12.1 million in 1994, $0.1 million in 1995, and $1.5 million in
1996.
16
<PAGE>
- --------------------------------------------------------------------------------
Cost in Excess of Net Assets of Acquired Businesses
The excess of cost over fair value of the net assets of acquired businesses
("goodwill") is amortized on a straight-line basis over a maximum of 40 years.
The accumulated amortization balances as of December 31, 1995 and 1996, were
$9.9 million and $11.4 million, respectively. On an ongoing basis, the Company
measures realizability of goodwill by the ability of the acquired businesses to
generate current and undiscounted expected future cash flow in excess of
unamortized goodwill. If such realizability is in doubt, an adjustment is made
to reduce the carrying value of the goodwill.
Restructuring
During the fourth quarter of 1996, the Company restructured its biosolids land
application business. Part of the restructuring plan involved exiting low-margin
projects and territories, which resulted in goodwill write-offs of approximately
$5.7 million and an immaterial amount of severance and other restructuring
accruals.
Disposal Credits
The Company classifies disposal credits as other assets until applied against
the cost of disposing of materials at WMX landfills. These materials include ash
residue from trash-to-energy facilities and biosolids. Disposal credits are
charged to expense as utilized. During 1995 and 1996, the Company utilized $3.0
million and $2.5 million of disposal credits, respectively. There were
approximately $28.7 million of disposal credits remaining at December 31, 1996.
Facility Maintenance Accrual
In order to match more consistently expenditures for major repair and overhaul
activities with revenue, the Company follows a policy of accruing for major
maintenance expenditures at its trash-to-energy and independent power
facilities. Such accruals are based upon planned maintenance expenditures and
are classified as current or noncurrent liabilities based on the expected timing
of the expenditures.
Income Taxes
Income taxes are provided based on earnings reported for financial statement
purposes. The provision for income taxes differs from the amounts currently
payable because of timing differences in the recognition of certain income and
expense items for financial reporting and tax reporting purposes. In accordance
with Statement of Financial Accounting Standards No. 109, the Company accounts
for income taxes using an asset and liability method. The asset and liability
method requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities, measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. Deferred income taxes are not provided on undistributed earnings of
affiliates because these earnings are considered to be permanently reinvested.
If the reinvested earnings were to be remitted, the U.S. income taxes due under
current tax law would not be material. Investment credits have been deferred and
are included in income as a reduction of income tax expense over the estimated
useful lives of the assets that gave rise to the credits. See Note 4.
Environmental Costs and Liabilities
Estimated closure and postclosure monitoring costs associated with ash residue
monofills for which the Company is responsible include items such as final cap
and cover on the site, leachate management, and groundwater monitoring. These
costs are recognized in proportion to use of the permitted capacity at such
disposal sites. Such costs are estimated based on the technical requirements of
the United States Environmental Protection Agency ("EPA") or applicable state
regulations, whichever are stricter. These accruals for closure and postclosure
costs relate to expenditures to be incurred after a monofill ceases to accept
ash residue. To the extent similar costs are incurred during the active life of
the site, they are expensed as incurred. Preparation costs associated with these
sites and their individual cells are capitalized and amortized over the
respective estimated life of the disposal site or individual cell.
Wheelabrator has instituted procedures to periodically evaluate other
potential environmental exposures. When the Company concludes 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 when additional information becomes available.
While the Company does not anticipate that any such adjustment would be
material to its financial statements, it is reasonably possible that future
technological, regulatory or enforcement developments, results of environmental
studies, or other factors could alter this expectation and necessitate the
recording of additional liabilities, which could be material.
The Company has recorded liabilities for closure and postclosure monitoring
and environmental remediation costs as follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current portion, included in accrued liabilities $11,357 $ 1,764
Noncurrent portion, included in other long-term
liabilities 6,677 30,766
------- -------
Total environmental liabilities $18,034 $32,530
======= =======
</TABLE>
During the remaining life of the active sites, the Company anticipates
providing an additional $1.2 million of closure and postclosure costs.
Contracts in Process
Information with respect to contracts in process at December 31, 1995 and 1996,
is as follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts $ 284,748 $ 182,075
Less: billings on uncompleted contracts (272,369) (187,637)
--------- ---------
Total contracts in process $ 12,379 $ (5,562)
========= =========
</TABLE>
Contracts in process are included in the Consolidated Balance Sheets under the
following captions:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Costs and earnings in excess of billings $ 25,429 $ 10,632
Advance payments on contracts (13,050) (16,194)
-------- --------
Total contracts in process $ 12,379 $ (5,562)
======== ========
</TABLE>
All contracts in process are expected to be billed and collected within four
years. Accounts receivable includes retainage that has been billed but is not
due pursuant to contract provisions until completion. Such retainage at December
31, 1996, is $5.3 million, including $1.3 million that is expected to be
collected after one year. At December 31, 1995, retainage was $10.4 million.
17
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
Earnings per Common and Common Equivalent Share
Earnings per common and common equivalent share is calculated by dividing net
income by the weighted average number of shares outstanding, including the
effect of common stock equivalents determined using the treasury stock method.
Common stock equivalents consist of unexercised stock options. The treasury
stock method assumes that options with an exercise price below the average
market price for the period are exercised at the beginning of the period and the
proceeds from the exercise of such options are used to repurchase common stock.
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>
Years Ended December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Common shares issued, net of treasury stock per
Consolidated Balance Sheets 179,433 161,451
Effect of shares issuable under stock options after
applying the "treasury stock" method 643 522
Effect of using weighted average common shares
outstanding during the year 4,924 7,427
------- -------
Common shares used in computing earnings per share 185,000 169,400
======= =======
</TABLE>
Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The adoption of FAS 121 did not
have a material impact on its financial statements since Wheelabrator's
accounting was substantially in compliance with the new standard.
Also during 1996, FAS No. 123, "Accounting for Stock-Based Compensation,"
became effective. FAS 123 provides an optional new method of accounting for
employee stock options and expands required disclosure about stock options. If
the optional method of determining compensation cost is not adopted, disclosure
is to be made, if material, of pro forma net income and earnings per share as if
it were. The impact on net income and earnings per share of applying the
optional new method was immaterial, and the Company has elected not to adopt the
optional new accounting methodology.
In October 1996, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
96-1, "Environmental Remediation Liabilities," which is effective beginning in
1997. The SOP provides that environmental remediation liabilities should be
accrued when the criteria of FAS No. 5, "Accounting for Contingencies," are met.
Included in the SOP are benchmarks to aid in the determination of when such
criteria are met and when environmental remediation liabilities should be
recognized. The SOP provides that an accrual for environmental liabilities
should include costs of compensation and benefits for employees expected to
devote a significant amount of time directly to the remediation effort.
Wheelabrator does not believe the adoption of SOP 96-1 will have a material
impact on its financial statements since its current accounting is in
substantial compliance with the new standard.
Reclassification
Certain prior period amounts have been reclassified to conform with the current
year presentation.
- --------------------------------------------------------------------------------
NOTE 3 CAPITAL TRANSACTIONS, ACQUISITIONS, AND DIVESTITURES
WM International
Wheelabrator owns approximately 12 percent of WM International, a WMX subsidiary
that owns substantially all of WMX's waste management services operations
outside of North America. The investment is accounted for using the equity
method due to the significance, through WMX, of Wheelabrator's influence over WM
International. As of December 31, 1996, WM International was owned approximately
12 percent by Wheelabrator, 12 percent by Rust, 56 percent by WMX, and 20
percent by the public.
During 1994, 1995, and 1996, respectively, Wheelabrator recorded equity in net
income (loss) of WM International of $15.2 million, $(5.1) million, and $(15.5)
million. The Company's equity income was reduced by $25.6 million during the
fourth quarter of 1995 for its share of a largely noncash special charge
recorded by WM International related to actions taken to sell or otherwise
dispose of noncore businesses and investments, as well as core businesses and
investments in low potential markets, to abandon certain hazardous waste
treatment and processing facilities, and to streamline its country management
organization. During the fourth quarter of 1996, as a further refinement of its
core business focus that began in 1995, WM International announced plans to sell
its investment in Wessex Water Plc and recognized a provision for loss on the
sale. In addition, WM International recorded a charge to revalue its investments
in several European countries. Wheelabrator's share of these charges, including
the Company's equity in the portion recognized by Rust, totaled $43.3 million.
In addition, the Company recorded a $4.6 million deferred tax liability related
to passive foreign income associated with the Wessex sale. Wheelabrator's
investment in WM International totaled approximately $228.7 million and $216.8
million as of December 31, 1995 and 1996, respectively. As of December 31, 1996,
the book value of the Company's WM International investment exceeded its market
value by approximately $40 million, which management believes is a temporary
situation.
A summary of certain financial information for WM International follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 859,591 $ 924,975
Noncurrent assets 3,375,998 3,200,235
Current liabilities 1,077,746 1,061,048
Noncurrent liabilities 893,717 838,012
Minority interest 357,934 418,596
Years ended December 31, 1994 1995 1996
- -------------------------------------------------------------------------------
Revenue $1,710,862 $1,865,081 $1,913,793
Gross profit 466,265 260,206 272,248
Net income (loss) 126,753 (42,112) (128,771)
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
Rust
Wheelabrator owns approximately 40 percent of Rust, a provider of environmental
and infrastructure consulting services and other on-site industrial services.
The remaining 60 percent of Rust is owned directly or indirectly by WMX. During
1994, 1995, and 1996, Wheelabrator recorded equity in loss from continuing
operations of Rust of $(0.5) million, $(3.9) million, and $(12.6) million,
respectively. Wheelabrator's investment in Rust totaled approximately $373.1
million and $252.0 million as of December 31, 1995 and 1996.
A summary of certain financial information for Rust follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 57,405 $249,487
Noncurrent assets/(1)/ 1,288,823 986,780
Current liabilities 41,167 262,659
Noncurrent liabilities 360,087 302,836
</TABLE>
(1) 1995 and 1996 noncurrent assets include approximately $400.0 million and
$99.8 million, respectively, of net assets held for sale.
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $527,683 $378,069 $ 262,479
Gross profit 75,489 61,179 32,856
Income (loss) from
continuing operations 6,530 (9,658) (31,500)
Net income (loss) 55,587 (35,213) (308,938)
</TABLE>
Discontinued Operations
During the fourth quarter of 1995, Rust announced that it would sell or
discontinue its process engineering, construction, specialty contracting and
similar lines of business. In 1996, Rust sold the engineering and construction
business, as well as its industrial scaffolding business, and announced that it
also planned to divest its remaining domestic and international environmental
and infrastructure engineering and consulting businesses. Accordingly,
Wheelabrator has reported its 40 percent equity interest in the historical
operating results of these businesses and the provisions for losses on their
disposal separately from continuing operations.
The provision for loss on disposal of the businesses discontinued in the
fourth quarter of 1996 includes management's best estimates of the amounts
expected to be realized on the sale of these businesses. The amounts Rust will
ultimately realize could differ materially in the near-term from the amounts
estimated in arriving at the provision for loss.
During 1996, Wheelabrator undertook a review of its strategic options for its
water businesses. The study concluded that, given the multiples being paid for
water companies in the marketplace, the best strategy was to sell the
businesses. Consequently, negotiations were begun that led to the November sale
of Wheelabrator's equipment manufacturing and process systems businesses,
including substantially all of the Company's foreign operations and also certain
air pollution control units, to United States Filter Corporation ("U.S. Filter")
for $369.6 million in cash. These negotiations also led to a definitive
agreement with U.S. Filter in early 1997 to sell the Company's water and
wastewater facility operations and privatization business for $77.4 million
worth of U.S. Filter common stock. The second and final stage of the Water
Business divestiture is expected to close in the second quarter of 1997. The
discontinued businesses have been segregated and the accompanying consolidated
balance sheets, statements of income and related footnote information have been
restated. Wheelabrator expects to realize a gain on the Water Business
divestiture that will be recognized upon its completion.
In connection with these transactions, Wheelabrator has accrued $25.0 million
pursuant to a Business Development Agreement between Wheelabrator and U.S.
Filter. In accordance with the agreement, Wheelabrator will pay U.S. Filter $5.0
million each year through 2001. In return, U.S. Filter will promote municipal
biosolids, energy plant services and waste-to-energy development opportunities
for Wheelabrator at the facilities of U.S. Filter's customers and to U.S.
Filter's customer base.
Revenues of the discontinued businesses were $397.7 million in 1994, $495.6
million in 1995, and $447.4 million in 1996. Following is a summary of the
assets and liabilities as of December 31, 1995 and 1996, which are reflected in
the Consolidated Balance Sheets as net assets of discontinued operations.
<TABLE>
<CAPTION>
December 31, 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 206,143 $21,161
Noncurrent assets 230,530 40,176
Current liabilities (140,264) (6,367)
Noncurrent liabilities (10,022) (194)
--------- -------
Net assets of discontinued operations $ 286,387 $54,776
========= =======
</TABLE>
At December 31, 1995, current assets consisted primarily of accounts
receivable, costs and earnings in excess of billings, and inventories.
Noncurrent assets consisted of property, plant, and equipment and goodwill.
Liabilities consisted primarily of accounts payable, accrued liabilities and
advance payments on contracts. At December 31, 1996, current assets consisted
primarily of accounts receivable. Noncurrent assets consisted primarily of
property, plant, and equipment. Liabilities consisted primarily of accounts
payable and accrued liabilities.
The Company has reorganized and streamlined its operating structure in
conjunction with the Water Business divestiture. The biosolids pelletizer
facilities, which have long-term contractual obligations, operating
characteristics, customers, and capital requirements similar to trash-to-energy
facilities, have been integrated into the Company's energy plant operating
organization. In light of this reorganization and the sale of the Water
Business, the Company will now report its operating results in one industry
segment. Wheelabrator's biosolids land application and air pollution control
businesses, which are not significant, will also be included in this segment.
Results from prior years, during which the Company reported its results in two
industry segments, Clean Energy and Clean Water, have been restated to conform
to the current presentation.
Acquisitions
In 1994, in exchange for approximately 156 thousand shares of Wheelabrator
common stock and $25.8 million of cash, the Company acquired wastewater
treatment operating contracts and nine businesses engaged in providing air and
water quality-related environmental products and services and in manufacturing
surface finishing equipment. In 1995, Wheelabrator completed the privatization
of the Miami Conservancy District wastewater treatment plant located in
Franklin, Ohio, and also acquired a Taiwanese company engaged in the design and
engineering of water treatment equipment. The total cost of these 1995
acquisitions was $12.6 million, net of cash acquired. During 1996, Wheelabrator
acquired wastewater treatment operating contracts and two industrial
cogeneration facilities in California for approximately $36.0 million in cash
and the assumption of $2.5 million in debt. The Company utilizes the purchase
method of accounting,
19
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
and the purchase price of the foregoing acquisitions has been allocated to their
respective net assets based upon estimated fair market values. The results of
operations of acquired entities have been included in Wheelabrator's financial
statements from their respective dates of acquisition. Also during 1996, the
Company acquired a 20 percent interest in Glegg Industries ("Glegg"), a
privately held ultrapure water company, for $15.4 million. In conjunction with
the Water Business divestiture, Glegg's majority owners acquired the right to
repurchase Wheelabrator's interest before March 31, 1999, at the Company's
original purchase price. Accordingly, this investment is now being accounted for
using the cost method of accounting. The pro forma effect of the acquisitions
made during 1994, 1995, and 1996 is not material.
- --------------------------------------------------------------------------------
NOTE 4 INCOME TAXES
A summary of the Company's income tax provisions from continuing operations is
given below.
Income Tax Provision (Benefit)
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
U.S. Federal $35,448 $22,457 $ 17,785
State and local 13,168 9,254 13,574
------- ------- --------
Total current 48,616 31,711 31,359
------- ------- --------
Deferred tax expense:
U.S. Federal 41,487 50,037 64,840
State and local 4,441 10,109 6,528
------- ------- --------
Total deferred 45,928 60,146 71,368
------- ------- --------
U.S. Federal benefit from amortization
of deferred investment credit (779) (779) (779)
------- ------- --------
Total provision $93,765 $91,078 $101,948
======= ======= ========
</TABLE>
The principal items accounting for the difference in income taxes computed at
the U.S. statutory rates and as recorded are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes after federal income
tax benefit 4.7 5.6 6.2
Equity income (2.1) 1.4 4.6
U.S. tax on foreign income 0.9 -- 2.2
Other, net (0.1) (1.6) 0.2
----- ---- ----
Effective tax rate 38.4% 40.4% 48.2%
===== ==== ====
</TABLE>
The principal items that comprise the 1995 and 1996 deferred tax (assets) and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Reserves not deductible until paid $ (91,984) $ (91,074)
Deferred income (22,859) (14,907)
Basis difference in investments and capital loss
carryforwards (8,579) (6,000)
Alternative minimum tax credit carryforwards (24,581) --
State net operating loss carryforwards (13,435) (13,061)
Other -- (3,024)
Less: valuation allowance 10,952 7,584
--------- ---------
Subtotal (150,486) (120,482)
--------- ---------
Property, plant, and equipment 503,306 506,650
Deferred expenses 20,554 29,881
Nondeductible prepaid expenses 11,817 10,305
Other 15,698 19,228
--------- ---------
Subtotal 551,375 566,064
--------- ---------
Net deferred tax liability $ 400,889 $ 445,582
========= =========
</TABLE>
During 1996, the Company recognized the benefit of all the alternative minimum
tax credit carryforwards available. The Company has capital loss carryforwards
of approximately $13.7 million with an expiration date of 1998. Also, various
subsidiaries have state operating loss carryforwards of approximately $316
million with expiration dates through the year 2011. Valuation allowances have
been established due to the uncertainty of ultimately realizing the tax benefit
of certain state net operating loss carryforwards and the tax benefits
attributed to basis differences in certain investments. While the Company
expects to realize the deferred tax assets in excess of the valuation
allowances, changes in estimates of future taxable income or tax laws could
alter this expectation. During 1995 and 1996, the valuation allowance decreased
$5.0 million and $3.4 million, respectively, due primarily to the realization of
capital loss carryforwards.
- --------------------------------------------------------------------------------
NOTE 5 COMMON STOCK
As of December 31, 1996, 104.6 million shares of the Company's common stock were
held by WMX or its subsidiaries. Under certain circumstances, WMX has options to
purchase at fair market value newly issued shares of Wheelabrator common stock.
WMX also has certain registration rights until August 24, 1999, with respect to
certain of the Wheelabrator common stock it holds.
During 1995 and 1996, the Company repurchased 7.2 million and 19.1 million
shares of its common stock for an aggregate cost of $104.2 million and $306.0
million, respectively. The Company is authorized to repurchase an additional
30.0 million shares of its common stock through mid-August, 1998 on the open
market or in privately negotiated or other transactions. The Company declared
and paid cash dividends totaling $0.10, $0.11, and $0.12 per common share during
1994, 1995, and 1996, respectively.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6 Long-Term Debt and Lease Commitments
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial development revenue bonds
due 1997 to 2016 at rates of 3.95%-9.25% $666,678 $775,146
Private placement bonds
due 2008 at a rate of 10.64% 20,000 20,000
Project financing from commercial
bank due 1997 to 2000 at a rate of
0.325% above LIBOR (an aggregate
of 5.855% at December 31, 1996) 28,641 23,347
Secured notes payable related to
coal-handling facilities due 1997
to 1999 at rates of 9.0%-9.875% 20,327 15,247
Other nonproject debt due 1997
to 2008 at rates of 9.5%-10.0% 208 2,245
-------- --------
735,854 835,985
Less: current portion 31,999 35,832
-------- --------
Total long-term debt $703,855 $800,153
======== ========
</TABLE>
At December 31, 1996, the Company's long-term project debt was collateralized
by property, plant, and equipment with a net book value of $766.7 million and
$108.0 million of investments held by trustees. Investments held by trustees
typically represent proceeds of long-term debt related to trash-to-energy and
independent power projects. These amounts generally consist of reserve funds
maintained pursuant to project financing agreement requirements. The
investments, which are included in other assets in the Consolidated Balance
Sheets, are held in trust and use by the Company is restricted. Also included
within other assets are deferred financing costs, which are amortized over the
term of the related debt using a straight-line method that approximates the
interest method.
Financing for certain trash-to-energy facilities currently operated by the
Company has been provided through sale and leaseback transactions arranged in
previous years. The leases are classified as operating leases, with lease
expense recognized on a straight-line basis over the base and bargain renewal
periods of each agreement. Timing differences between lease payments and
financial statement lease expense are included in other assets in the
Consolidated Balance Sheets. Gains realized on the sale transactions are
included in deferred income in the Consolidated Balance Sheets and are amortized
on a straight-line basis over the terms of the respective leases.
Principal payments on long-term debt and noncancelable operating lease
payments for operating and office facilities at December 31, 1996, are due as
follows:
<TABLE>
<CAPTION>
Long-term Debt Operating Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 35,832 $ 86,618
1998 45,736 86,812
1999 45,902 89,437
2000 45,046 89,801
2001 46,466 85,362
Thereafter 617,003 561,120
-------- --------
Total $835,985 $999,150
======== ========
</TABLE>
Total rent expense of continuing operations was $74.1 million, $72.0 million,
and $74.3 million for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company has directly or indirectly guaranteed the payment of debt
obligations at certain of its leased or owned facilities (see Note 9). These
guarantees contain various covenants, the most restrictive of which require the
maintenance of specified levels of tangible net worth. The Company is in
compliance with these covenants as of December 31, 1996.
Resco Holdings Inc. ("Resco"), a wholly-owned subsidiary of Wheelabrator, and
AlliedSignal Inc. ("AlliedSignal") are parties to an agreement that provides for
specific credit support by AlliedSignal for certain of Resco's trash-to-energy
project subsidiaries. Under the agreement, AlliedSignal may require Resco to
refinance, without AlliedSignal credit support, indebtedness of supported trash-
to-energy projects if it is economical (as defined in the agreement) to do so.
Resco and certain of its subsidiaries have agreed to reimburse AlliedSignal for
all amounts that may be paid by it under the agreement or various related credit
support obligations. No support payments have been made by AlliedSignal as of
December 31, 1996.
Resco owns substantially all of the net operating assets of the Company except
certain net assets consisting principally of cash and investments, and is
required to maintain a minimum level of tangible net worth ($549.8 million as of
December 31, 1996). As of December 31, 1996, Resco was in compliance with this
provision. Resco has agreed not to declare or pay any cash dividends to the
Company at any time Resco's tangible net worth is less than the required amount.
The Company has the ability to pay cash dividends using assets other than those
restricted within Resco.
21
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
NOTE 7 Stock and Benefit Plans
Stock Option Plans
Wheelabrator's stock option plans provide for the grant to key employees of
nonqualified options to purchase shares of the Company's common stock at a price
equal to the fair market value at the time of grant. Outstanding options
generally have a term of seven years from the date of the grant and expire at
various dates through April 1, 2003. Stock options granted generally vest over a
three-year period in equal annual installments beginning one year after the
grant date. The Company applies APB Opinion 25 and related accounting
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its plans. However, when nonqualified options
are exercised, the Company receives a federal income tax deduction equal to the
market value of the shares at exercise less the exercise price. The associated
tax savings are credited to capital in excess of par value. Had compensation
cost for these plans been determined based on the fair value at the grant date
under the optional method prescribed by FAS 123, the impact on the Company's net
income and earnings per share would have been immaterial. Based on current and
anticipated use of stock options, it is expected that the impact of the pro
forma provisions of FAS 123 will be immaterial in future years.
A summary of the status of the Company's stock option plans as of December 31,
1994, 1995, and 1996, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 5,046 $12.43 5,147 $13.65 5,871 $13.67
Granted 815 19.13 1,283 13.63 1,157 16.50
Exercised (593) 9.78 (341) 10.57 (1,156) 11.85
Canceled:
Predecessor plans (23) 11.90 (6) 11.90 (16) 11.90
Current plans (98) 16.52 (212) 18.34 (268) 16.64
----- ----- ------
Outstanding at end of year 5,147 13.65 5,871 13.67 5,588 14.48
===== ===== ======
Options exercisable at year-end 3,474 11.27 3,915 12.65 3,784 13.72
===== ===== ======
Options available for future grant 4,370 3,299 2,410
===== ===== ======
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life (in Years) Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.87 31 0.9 $ 3.87 31 $ 3.87
$ 6.58 - $ 9.24 1,274 2.8 8.30 1,274 8.29
$11.90 - $17.69 3,079 4.5 15.08 1,494 14.47
$18.33 - $20.65 1,204 3.9 19.76 985 19.91
----- -----
$ 3.87 - $20.65 5,588 4.0 14.48 3,784 13.72
===== =====
</TABLE>
Savings and Retirement Plan
Substantially all employees are participants in the Wheelabrator-Rust Savings
and Retirement Plan, which is a qualified defined contribution plan consisting
of a savings account component (the "Savings Account") and a retirement account
component (the "Retirement Account"). Under the terms of the Savings Account,
eligible employees of the Company may elect to contribute a portion of their
annual compensation not to exceed 16 percent. The Company is required to match a
minimum of 30 percent of the first six percent of eligible compensation
contributed by an employee. Under the terms of the Retirement Account, eligible
employees of the Company receive an annual contribution equal to a minimum of
three percent of their eligible earnings. Employees vest in Company
contributions and the associated earnings in the Savings Account at 20 percent
per year and in the Retirement Account after five years. Wheelabrator's
contributions to such plans during 1994, 1995, and 1996 amounted to
approximately $5.1 million, $5.3 million, and $5.6 million, respectively.
Postretirement Benefits Other Than Pensions
The Company provides certain postretirement benefits other than pensions, which
are primarily health care benefits offered to a limited number of former
employees of the manufacturing businesses sold to U.S. Filter. Pursuant to the
purchase and sale agreement, the Company retained the liability for these
benefits. The majority of the Company's active employees will not receive
postretirement benefits other than pensions. During the fourth quarter of 1995,
the Company settled litigation with a group of retirees regarding their level of
future benefits. As a result, the accumulated postretirement benefit obligation
for retiree health care plans was reduced by approximately $3.6 million.
22
<PAGE>
- --------------------------------------------------------------------------------
Details of the plans' expense recognized in the Consolidated Statements of
Income are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 59 $ 64 $ 83
Interest cost 2,590 3,155 2,777
Net amortization (43) (55) (51)
------ ------ ------
Total expense $2,606 $3,164 $2,809
====== ====== ======
</TABLE>
The following sets forth the plans' funded status reconciled with amounts
reported in the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retirees $36,794 $36,155
Fully eligible active plan participants 467 1,224
Other active plan participants 432 --
------- -------
Total APBO 37,693 37,379
Unrecognized:
Prior service cost 566 239
Gain 1,844 2,783
------- -------
Accrued postretirement benefit liability $40,103 $40,401
======= =======
</TABLE>
For measurement purposes, a 7.5 percent annual rate of increase in the per
capita cost of covered health care claims was assumed for 1997, decreasing by
0.5 percent annually to 6.0 percent in 2000 and remaining at that level
thereafter. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1996, by approximately $3.4 million and
increase the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1996 by $0.3 million. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 7.75 percent in 1995 and 1996 based on expected payout patterns.
NOTE 8 ADDITIONAL FINANCIAL INFORMATION
Activity relating to the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
December 31, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,053 $ 5,682 $ 7,754
Provision 1,441 3,971 1,531
Less: write-offs (1,078) (350) (3,973)
Other, net 1,266 (1,549) (218)
------- ------- -------
Balance at end of year $ 5,682 $ 7,754 $ 5,094
======= ======= =======
</TABLE>
Included in other current assets are spare parts and supplies of $29.9 million
and $31.0 million as of December 31, 1995 and 1996, respectively.
The following is a summary of property, plant, and equipment:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 116,629 $ 116,784
Land options 261,703 261,703
Machinery and equipment 1,249,253 1,293,896
Buildings and improvements 278,958 282,158
Construction-in-progress 6,699 32,414
Less: accumulated depreciation (346,488) (425,030)
---------- ----------
Net property, plant,
and equipment $1,566,754 $1,561,925
========== ==========
</TABLE>
Depreciation of property, plant, and equipment included in continuing
operations for the years ended December 31, 1994, 1995, and 1996 was $76.4
million, $83.1 million, and $81.3 million, respectively.
The following is a summary of accrued liabilities:
<TABLE>
<CAPTION>
December 31, 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Wages, salaries, and benefits $ 17,015 $ 23,465
Interest and lease expense 44,534 42,573
Warranties and contract reserves 6,890 14,742
Income taxes payable/(1)/ -- 73,030
Accrued property and
other taxes payable 10,112 18,089
Other 57,594 64,527
-------- --------
Total accrued liabilities $136,145 $236,426
======== ========
</TABLE>
(1) The increase in income taxes payable at December 31, 1996, is primarily
attributable to the Water Business sale.
23
<PAGE>
Wheelabrator Technologies Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE 9 COMMITMENTS AND CONTINGENCIES
The Company has issued or is a party to 290 bank letters of credit, performance
bonds, and other guarantees. Such financial instruments (averaging $2.1 million
each) are given in the ordinary course of business.
In May 1994, the U.S. Supreme Court ruled that state and local governments may
not constitutionally restrict the free movement of trash in interstate commerce
through the use of flow control laws. Such laws typically involve a municipality
specifying the disposal site for all solid waste generated within its borders.
Since the ruling, several decisions of state or federal courts have invalidated
regulatory flow control schemes in a number of jurisdictions. Other judicial
decisions have upheld nonregulatory means by which municipalities may
effectively control the flow of municipal solid waste. The Company's Gloucester
County, New Jersey, facility relies on a disposal franchise for substantially
all of its supply of municipal solid waste. In July 1996, a Federal District
Court permanently enjoined the State of New Jersey from enforcing its solid
waste regulatory flow control system, which was held to be unconstitutional, but
stayed the injunction for as long as its ruling is on appeal plus an additional
period of two years to enable the State to devise an alternative
nondiscriminatory approach. The State has indicated that it will continue to
enforce flow control during the two-year transition period and has filed an
appeal of the Federal District Court's ruling. The New Jersey legislature is now
considering a bill to authorize counties and authorities, including the
Gloucester County Improvement Authority, to implement a constitutionally
permissible system of "economic flow control" designed to recover waste disposal
costs incurred in reliance on the State's franchise system. In addition,
plaintiffs have asked the Third Circuit Court of Appeals to shorten the stay
period. A decision by the appeals court is expected during the second quarter of
1997.
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse effect on any of the Company's trash-to-energy
operations. Federal legislation has been proposed, but not yet enacted, to
effectively grandfather existing flow control mandates. In the event that such
legislation is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling the
flow of waste. In view of the uncertain state of the law at this time, however,
the Company is unable to predict whether such efforts would be successful or
what impact, if any, this matter might have on its trash-to-energy facilities.
Within the next several years, the air pollution control systems at certain
trash-to-energy facilities owned or leased by Wheelabrator most likely will be
required to be modified to comply with more stringent air pollution control
standards (the "MACT Standards") adopted by the EPA in December 1995 for
Municipal Waste Combusters ("MWCs"). The compliance dates will vary by facility,
but subject to the final decision in the case of Davis County vs. EPA, all
affected facilities most likely will be required to be in compliance with the
new rules by the end of the year 2000. The Davis County vs. EPA case involves
the methodology the EPA used to set the MACT Standards, and its outcome could
delay implementation deadlines by an estimated six to eighteen months. Currently
available technologies will be adequate to meet the new standards. Although the
total expenditures required for such modifications are estimated to be in the
$190-$230 million range, they are not expected to have a material adverse effect
on the Company's liquidity or results of operations because provisions in the
impacted facilities' long-term waste supply agreements generally allow the
Company to recover from customers the majority of incremental capital and
operating costs.
As the states and the U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market power sales agreements
entered into pursuant to the Public Utilities Regulatory Policies Act of 1978
("PURPA") should be voidable as "stranded assets." The Company's 25 power
production facilities are qualifying facilities under PURPA and depend on the
sanctity of their power sales agreements for their economic viability. Recent
state and federal agency and court decisions have unanimously upheld the
inviolate nature of these contracts. While the Company believes that federal law
offers strong protections to its PURPA contracts, there is a risk that future
court decisions and/or legislative initiatives in this area will have a material
and adverse effect on the business of the Company.
There are various lawsuits and claims pending against Wheelabrator that have
arisen in the normal course of Wheelabrator's business and relate mainly to
matters of environmental and product liability, personal injury, and property
damage. The outcome of these matters is not presently determinable, but in the
opinion of management, based on the advice of counsel, the ultimate resolution
of these matters will not have a material adverse effect on the financial
condition or results of operations of the Company. It is reasonably possible,
however, that a change in the Company's estimate of its probable liability with
respect to these matters could occur in the near-term.
The Company is self-insured for general liability claims up to $2.0 million
per occurrence. Liability insurance in effect during the last several years
provides coverage for environmental matters only to a limited extent.
24
<PAGE>
- --------------------------------------------------------------------------------
NOTE 10 Selected Quarterly Financial Information (Unaudited)/(1)/
<TABLE>
<CAPTION>
First Second Third Fourth Full Year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Revenue $258,482 $238,021 $232,747 $ 226,838 $956,088
Operating expenses 174,271 153,544 147,987 143,601 619,403
Income from continuing operations/(2)/ 37,854 43,108 42,422 10,899 134,283
Net income (loss) 43,676 52,968 51,376 (10,162) 137,858
Weighted average common and
common equivalent shares outstanding 186,400 185,300 185,500 182,500 185,000
Earnings (loss) per common and
common equivalent shares/(3)/:
Income from continuing operations $ 0.20 $ 0.23 $ 0.23 $ 0.06 $ 0.73
Net income (loss) 0.23 0.29 0.28 (0.06) 0.75
Market price:
High 17 1/2 15 3/4 17 16 3/4 17 1/2
Low 12 1/2 13 5/8 14 1/4 14 12 1/2
1996
Revenue $219,470 $244,436 $242,683 $ 245,723 $952,312
Operating expenses 141,469 157,426 155,745 164,139 618,779
Income (loss) from continuing operations/(2/) 36,750 45,809 44,807 (17,912) 109,454
Net income (loss) 40,570 49,801 48,075 (131,948) 6,498
Weighted average common and
common equivalent shares outstanding 179,600 172,400 162,000 162,000 169,400
Earnings (loss) per common and
common equivalent shares/(3)/:
Income (loss) from continuing operations $ 0.21 $ 0.27 $ 0.28 $ (0.11) $ 0.65
Net income (loss) 0.23 0.29 0.30 (0.81) 0.04
Market price:
High 17 1/2 17 1/8 15 1/2 16 3/4 17 1/2
Low 14 3/4 14 3/4 13 7/8 14 3/4 13 7/8
</TABLE>
(1) Previously reported numbers have been restated for the discontinued
operations.
(2) Fourth quarters of 1995 and 1996 reduced by $25.6 million and $43.3
million, respectively, related to special charges recorded by WM
International.
(3) The sum of earnings per common and common equivalent share for the four
quarters may not equal the full year number due to the impact of the
weighted shares outstanding.
25
<PAGE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Stockholders of Wheelabrator Technologies Inc.:
We have audited the accompanying consolidated balance sheets of Wheelabrator
Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of income, cash flows,
and changes in stockholders' equity for each of the three years in the period
ended December 31, 1996. 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 Wheelabrator Technologies Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York
January 31, 1997
26
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Set forth below is a list of subsidiaries of Wheelabrator Technologies Inc. as
of December 31, 1996. Each subsidiary is organized under the laws of the
jurisdiction indicated in the parenthesis following its name.
Resco Holdings Inc. (Delaware)
Pullman Chimney of Canada Ltd. (Canada)
Pullman Power Products Corporation (Delaware)
Pullman Power Products International Corporation (Delaware)
Pullman Power Products of Ohio, Inc. (Ohio)
Pullman Torkelson Utility Fuels Company (Delaware)
Swindell-Dressler Energy Supply Company (Delaware)
Swindell-Dressler Leasing Company (Delaware)
Wheelabrator Air Pollution Control Inc. (Delaware)
Wheelabrator Water Technologies Inc. (Maryland)
EnviroLand, Incorporated (Michigan)
IPS Rochester Inc. (Delaware)
Soaring Vista Properties, Inc. (Maryland)
Wheelabrator Clean Water New Jersey Inc. (Delaware)
Wheelabrator Cobb Inc. (Delaware)
Enviro-Gro Technologies, Inc. (New York)
NYOFCO Holdings Inc. (Delaware)
Enviro-Gro Technologies II, Inc. (New York)
Wheelabrator Mexicana, S.A. de C.V. (Mexico)
Wheelabrator Servicios Ambientales, S.A. de C.V. (Mexico)
Coplata S.A. de C.V. (Mexico)
Wheelabrator Canada Inc. (Ontario)
Wheelabrator EOS Inc. (Delaware)
Wheelabrator EOS of Ohio Inc. (Delaware)
Wheelabrator EOS Canada Inc. (Ontario)
Wheelabrator Water Technologies Canada Inc. (Ontario)
Wheelabrator Cleanfuel Corporation (Delaware)
Wheelabrator Coal Refinery Inc. (Delaware)
ICRC Company (Delaware)
International Coal Refinery Inc. (Delaware)
Wheelabrator Energy Leasing Company (Delaware)
Wheelabrator Environmental Systems Inc. (Delaware)
Bensalem Power Company (Pennsylvania)
NH/VT Energy Recovery Corporation (New Hampshire)
North Broward Holdings Inc. (Delaware)
Wheelabrator North Broward Inc. (Delaware)
North Broward County Resource Recovery Project, Inc. (Florida)
Riley Energy Systems of Lisbon Corporation (Delaware)
<PAGE>
Riley Energy Systems of Lisbon Connecticut Corp. (Connecticut)
SES Brooklyn Inc. (Delaware)
SES Brooklyn Navy Yard Inc. (Delaware)
SES Connecticut Inc.(Delaware)
Massachusetts Refusetech, Inc. (Delaware)
SES Seattle Inc.(Delaware)
Signal Capital Sherman Station Inc. (Delaware)
Signal RESCO, Inc. (Delaware)
South Broward Holdings Inc. (Delaware)
Wheelabrator South Broward Inc. (Delaware)
South Broward County Resource Recovery Project, Inc. (Florida)
WESI Baltimore Inc. (Delaware)
WESI Capital Inc. (Delaware)
WESI Peekskill Inc. (Delaware)
WESI Westchester Inc. (Delaware)
Wheelabrator Cedar Creek Inc. (Delaware)
Wheelabrator Concord Inc. (Delaware)
Wheelabrator Connecticut Inc. (Delaware)
Wheelabrator Culm Services Inc. (Delaware)
Wheelabrator Energy Systems Inc. (Delaware)
Wheelabrator Epping Inc. (Delaware)
Wheelabrator Falls Inc. (Delaware)
Wheelabrator Frackville Energy Company Inc. (Delaware)
Wheelabrator Frackville Properties Inc. (Delaware)
Wheelabrator Fuel Services Inc. (Delaware)
Wheelabrator Gloucester Inc. (Delaware)
Wheelabrator Hudson Energy Company Inc. (Delaware)
Wheelabrator Lassen Inc. (Delaware)
Wheelabrator McKay Bay Inc. (Florida)
Wheelabrator Martell Inc. (Delaware)
Wheelabrator Mecklenburg Inc. (Delaware)
Wheelabrator Millbury Inc. (Delaware)
Wheelabrator NHC Inc. (Delaware)
Wheelabrator Norwalk Energy Company Inc. (Delaware)
Wheelabrator New Hampshire Inc. (Delaware)
Wheelabrator New Jersey Inc. (Delaware)
Wheelabrator North Shore Inc. (Delaware)
Wheelabrator Penacook Inc. (Delaware)
Wheelabrator Pinellas Inc. (Delaware)
Wheelabrator Plant Services Inc. (Delaware)
Wheelabrator Polk Inc. (Delaware)
Wheelabrator Power Marketing Inc (Delaware)
Wheelabrator Putnam Inc. (Delaware)
Wheelabrator Ridge Energy Inc. (Delaware)
Wheelabrator San Diego Inc. (Delaware)
<PAGE>
Wheelabrator Saugus Inc. (Delaware)
Wheelabrator Shasta Energy Company Inc. (Delaware)
Wheelabrator Sherman Station One Inc. (Delaware)
Wheelabrator Sherman Station Two Inc. (Delaware)
Wheelabrator Shrewsbury Inc. (Delaware)
Wheelabrator Spokane Inc. (Delaware)
Wheelabrator Tidewater Inc. (Delaware)
Wheelabrator Fuels Service Corporation (Delaware)
Wheelabrator Coal Services Company (Delaware)
Wheelabrator Land Resources Inc. (Delaware)
Wheelabrator Utility Services Inc. (Delaware)
WTI International Energy Inc. (Delaware)
WTI China One Inc. (Delaware)
WTI China Two Inc. (Delaware)
WTI China Holdings I Inc. (Cayman Islands)
WTI Taicang LLC (Cayman Islands)
WTI Xuzhou LLC (Cayman Islands)
WTI Yingkou LLC (Cayman Islands)
WTI China Holdings II Inc. (Cayman Islands)
Wheelabrator Guam Inc. (Delaware)
WTI Rust Holdings Inc. (Delaware)
Signal Own-And-Operate Inc. (Delaware)
WTI International Holdings Inc. (Delaware)
Wheelabrator Technologies/Rust International Charitable Foundation Inc.
(Delaware)
SES Bridgeport L.L.C. (Delaware)
Wheelabrator Baltimore L.L.C. (Delaware)
Wheelabrator EOS of Wilmington L.L.C. (Delaware)
Wheelabrator Water Technologies Baltimore L.L.C. (Maryland)
Baltimore Refuse Energy Systems Company, Limited Partnership (Maryland)
Bridgeport Resco Company, L.P. (Delaware)
WTI China I Limited Partnership (Delaware)
Refuse Energy Systems Company, J.V. (Massachusetts)
SES Brooklyn Company, L.P. (Delaware)
Westchester Resco Company, L.P. (Delaware)
Wheelabrator Claremont Company, L.P. (Delaware)
Wheelabrator Concord Company, L.P. (Delaware)
Wheelabrator Gloucester Company, L.P. (New Jersey)
Wheelabrator Sherman Energy Company, G.P. (Maine)
Ridge Generating Station Limited Partnership (Florida)
New York Organic Fertilizer Company (New York)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports to the Stockholders of Wheelabrator
Technologies Inc., incorporated by reference in this Form 10-K, and into
the registrant's previously filed Registration Statements on Form S-8
(registration nos. 33-31523, 33-13720, 33-47989, 33-48837, 33-62281 and 33-
64431) and into the registrant's previously filed Registration Statement on
Form S-4 (registration no. 33-36118) and into the registrant's previously
filed Registration Statement on Form S-3 (registration no. 33-59606).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996, CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 306,072
<SECURITIES> 0
<RECEIVABLES> 128,258
<ALLOWANCES> 5,094
<INVENTORY> 0
<CURRENT-ASSETS> 512,016
<PP&E> 1,986,955
<DEPRECIATION> 425,030
<TOTAL-ASSETS> 3,051,419
<CURRENT-LIABILITIES> 325,536
<BONDS> 800,153
1,895
0
<COMMON> 0
<OTHER-SE> 1,148,621
<TOTAL-LIABILITY-AND-EQUITY> 3,051,419
<SALES> 0
<TOTAL-REVENUES> 952,312
<CGS> 0
<TOTAL-COSTS> 618,779
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,531
<INTEREST-EXPENSE> 57,514
<INCOME-PRETAX> 211,402
<INCOME-TAX> 101,948
<INCOME-CONTINUING> 109,454
<DISCONTINUED> (102,956)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,498
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
