10-K405
1
FORM 10-K
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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, 1994
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)
LIBERTY LANE
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
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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
$1,288,835,000 AT FEBRUARY 1, 1995 (BASED ON THE CLOSING SALE PRICE ON THE NEW
YORK STOCK EXCHANGE COMPOSITE TAPE ON JANUARY 31, 1995, AS REPORTED BY THE WALL
STREET JOURNAL (MIDWEST EDITION)). AT MARCH 1, 1995, THE REGISTRANT HAD ISSUED
AND OUTSTANDING AN AGGREGATE OF 185,593,330 SHARES OF ITS COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE
YEAR ENDED DECEMBER 31, 1994 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 MAY 4, 1995 ARE INCORPORATED BY REFERENCE INTO PART
III. PORTIONS OF THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1994 OF RUST INTERNATIONAL INC. ARE INCORPORATED BY REFERENCE INTO PARTS II AND
IV. RUST INTERNATIONAL INC.'S FILE NUMBER UNDER THE SECURITIES EXCHANGE ACT OF
1934 IS 1-11896.
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PART I
ITEM 1 -- BUSINESS
GENERAL
Wheelabrator Technologies Inc. provides a wide array of environmental
products and services in North America and abroad through three principal
business lines. The Company's energy group ("Wheelabrator Clean Energy") is a
leading developer of facilities and systems for, and provider of services to,
the trash-to-energy, energy and independent power markets. Through the
subsidiaries comprising Wheelabrator Clean Energy, 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 energy in the form of electricity and steam.
The Company's water group ("Wheelabrator Clean Water") is comprised of
several subsidiaries principally involved in the design, manufacture and
operation of facilities and systems used to purify water, to treat municipal and
industrial wastewater, to treat and manage biosolids resulting from the
treatment of wastewater by converting them into useful fertilizers, and to
recycle organic wastes into compost material useable for horticultural and
agricultural purposes. Wheelabrator Clean Water also designs and manufactures
various products and systems used in water and wastewater treatment facilities
and industrial processes, precision profile wire screens for use in groundwater
wells and other industrial and municipal applications, and certain other
industrial equipment.
The Company's air group ("Wheelabrator Clean Air") designs, fabricates and
installs technologically-advanced air pollution control and measurement systems
and equipment, including systems which remove pollutants from the emissions of
the Company's trash-to-energy facilities as well as power plants and other
industrial facilities. Wheelabrator Clean Air also provides technologies and
systems designed to treat air streams which contain nitrogen oxide ("NOx") and
volatile organic compounds ("VOCs"), the major contributors to the creation of
smog.
The majority of the businesses of the Company have been managed together as
a group since the early 1980s. The Company's predecessor companies and
subsidiaries have been active in project development for approximately 20 years,
and in related activities since the turn of the century. Unless the context
indicates to the contrary, as used in this report, the terms "Company" and "WTI"
refer 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, 1994.
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.
Approximately 56% of the Company's common stock, par value $0.01 per share
(the "Common Stock"), outstanding as of March 1, 1995 was owned by WMX
Technologies, Inc. ("WMX") or its affiliates. All Common Stock share and per
share figures have been adjusted to reflect the two-for-one stock split in the
form of a 100% stock dividend distributed in January 1993.
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ORGANIZATION OF RUST INTERNATIONAL INC.
On December 31, 1992, WTI entered into an Organizational Agreement (the
"Organizational Agreement") with Chemical Waste Management, Inc., which as of
that date was an approximately 79%-owned subsidiary of WMX ("CWM"), and The
Brand Companies, Inc., which as of that date was an approximately 56%-owned
subsidiary of CWM ("Brand"), pursuant to which WTI and CWM agreed to organize
Rust International Inc. ("Rust") and to acquire newly issued shares of Rust in
exchange for contributing certain of their respective businesses and assets to
Rust. Pursuant to the Organizational Agreement, on January 1, 1993 WTI
contributed 100% of the stock of its engineering, design, construction and
environmental consulting subsidiaries, 100% of the stock of its international
engineering unit based in London, certain disposal credits for use at facilities
owned or operated by subsidiaries of WMX (see "Patents, Trademarks, Licenses and
Other Agreements"), and cash, prefunded acquisition costs and promissory notes
having an aggregate value of approximately $68 million. CWM contributed its
hazardous substances remediation services business and all of its shares of
Brand, as well as its 12% interest in the ordinary shares of Waste Management
International plc ("WM International") and approximately $141 million in
indebtedness due to CWM from Brand. On May 7, 1993, Brand merged into a
subsidiary of Rust. Pursuant to such merger, Brand stockholders (other than
Rust) received one share of common stock of Rust or, at the option of each
Brand stockholder, $18.75 in cash for each share of Brand common stock. As a
result of such merger, Rust is owned approximately 40% by WTI, 56% by CWM, and
4% by public stockholders. The business of Rust is discussed under "Equity
Investments - Rust International Inc."
The organization of Rust had no effect on the Company's 1992 and prior
historical financial statements. The Company accounts for its investment in
Rust using the equity method, which resulted in a reduction of revenue,
operating expenses and selling and administrative costs for 1993 and 1994
compared to prior years.
SERVICES AND PRODUCTS
Prior to January 1, 1993, the Company's operations were categorized into
two business segments - environmental operations and environmental and
infrastructure engineering services. Environmental operations accounted for 63%
of the Company's total consolidated revenue in 1992 and 100% in 1993 and 1994.
Environmental and infrastructure engineering services accounted for 37% of the
Company's total consolidated revenue in 1992. The operations which comprised
the environmental and infrastructure engineering services were contributed to
Rust on January 1, 1993. See "Equity Investments - Rust International Inc."
For information relating to revenues, operating profit and identifiable assets
attributable to the Company's segments in 1992, see Note 9 to the Company's
Consolidated Financial Statements incorporated by reference into this part. For
1994, the Company reports in a single segment with three lines of business:
Wheelabrator Clean Energy, Wheelabrator Clean Water and Wheelabrator Clean Air.
Wheelabrator Clean Energy
The Company, through Wheelabrator Environmental Systems Inc. and its
subsidiaries, is a leading developer, operator and owner of trash-to-energy and
independent power facilities in the United States. These facilities, either
owned, operated or under construction, give WTI approximately 854 megawatts of
electric generating capacity, which ranks it among the nation's largest
independent power producers. WTI's trash-to-energy projects utilize proven
boiler and grate technology capable of processing up to 2,250 tons of trash per
day per facility. The heat from this combustion process is converted into high-
pressure steam, which typically is used to generate electricity for sale to
public utility companies under long-term contracts.
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WTI's trash-to-energy development activities involve 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 often identifies and acquires
sites for the facility and for the disposal of residual ash produced by the
facility and obtains necessary permits and licenses from local, state and
federal regulatory authorities.
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 utilities. Cogeneration is a technology
which allows the consecutive use of two or more useful forms of energy from a
single primary fuel source, thus providing a more efficient use of a fuel's
total energy content. 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 insure the efficient burning of fuel with reduced
emission levels.
One of the most significant costs of developing and operating the Company's
energy and biosolids projects may be debt service or lease rentals payable in
connection with financing for the project. See "Wheelabrator Clean Water."
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 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. For a description of some of the methods used to finance WTI's
facilities, see "Financing Capabilities and Funding Support Agreements."
A description of Wheelabrator Clean Energy projects in operation or under
construction 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 WTI's
control. Such contingencies include, without limitation, obtaining required
permits or approvals, obtaining equity and/or debt financing and consummating
required project agreements.
Wheelabrator Clean Water
Through Wheelabrator Clean Water, the Company develops projects that purify
water, treat wastewater, treat and manage biosolids, and compost organic wastes.
The Company also provides technologies and services used to treat drinking water
as well as industrial and municipal process and wastewater.
The Company offers generators of biosolids, consisting of the non-hazardous
sludges resulting from treatment of industrial and municipal wastewater,
alternatives to landfilling or ocean dumping. Wheelabrator Clean Water provides
a range of biosolids management services to approximately 350 communities,
including land application, drying, pelletizing, stabilization and composting of
non-hazardous biosolids. See "Regulations - Environmental Regulations."
Wheelabrator Clean Water typically enters into multi-year contracts with
biosolids generators under which the Company is paid by the generator to
beneficially use the biosolids. Regulations governing sludge management were
issued by the Environmental Protection Agency ("EPA") in December 1992 under the
Clean Water Act. The regulations 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
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application designed to protect human health and the environment. These
regulations are expected to expand opportunities available to the Company.
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 sludges are often stabilized prior
to application using proprietary technology. Wheelabrator Clean Water also
develops and operates facilities at which biosolids are dried and pelletized.
The Company has four facilities currently in operation, including a recently
completed facility in Baltimore, Maryland, and one other facility in the
advanced stages of development in Baltimore, Maryland. 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 565 dry-tons-per-day of biosolids drying capacity
either in operation or under construction. Biosolids which have been dried are
generally used as fertilizer by farmers, commercial landscapers and nurseries
and as a bulking agent by fertilizer manufacturers.
Development of dryer facilities generally involves various contractual
arrangements with a variety of private and public entities, including
municipalities (which generate the biosolids), lenders, contractors and
subcontractors which build the facilities, and end-users of the fertilizer
generated from the treatment process. See "Financing Capabilities and Funding
Support Agreements." A description of dryer projects in operation or under
construction which are owned or operated by Wheelabrator Clean Water under long-
term operating agreements is contained in Item 2--Properties.
Wheelabrator Clean Water is also a leading provider of a comprehensive
range of water and wastewater treatment services to municipalities throughout
the United States. The Company provides services pursuant to approximately 30
contracts, including water and wastewater treatment plant start-up assistance,
plant operations and maintenance, planning and management, training of plant
supervisors, operators and laboratory and maintenance personnel, refining
process systems, management systems for process control, and plant diagnostic
evaluations and energy audits. The Company also provides specialty repair and
cleaning services for industrial water and wastewater management equipment.
During 1993, Wheelabrator Clean Water geographically expanded its operations by
obtaining contracts to operate two industrial wastewater treatment facilities in
Canada. Plant maintenance and operation agreements generally range in length
from three to 10 years and often provide the owner of the facility with renewal
options. The majority of the contracts are fixed price or lump sum contracts.
During 1994, the Company completed negotiations with three municipalities and a
water district for the privatization of a publicly-owned water and wastewater
treatment system pursuant to an Executive Order issued in 1992 by President Bush
to facilitate the privatization of municipally-owned facilities. Municipal
approvals for the transaction have been received, and the parties are awaiting
regulatory approvals from federal authorities. In addition, during 1994 the
Company continued negotiations with several industrial concerns towards the
development, ownership and operation of wastewater treatment facilities adjacent
to existing industrial facilities. In December 1994, the Company entered into a
10-year contract with one such industrial concern pursuant to which it will
operate certain existing wastewater treatment, recycling and steam facilities.
Because development of such facilities will generally involve a variety of
contractual arrangements, as with development of the Company's other projects,
there can be no assurance that such discussions will result in the development
of any such facilities.
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Wheelabrator Clean Water also designs and supplies enclosed automated
composting systems which recycle organic wastes into beneficial products which
are used by commercial landscapers, nurseries and fertilizer manufacturers.
These composting systems, which consist of a series of parallel concrete bays
through which organic waste is advanced and agitated during the composting
process, are sold to municipalities and landfill operators, among others. The
Company has provided its proprietary and automated in-vessel composting
technology to 25 facilities in operation and 10 more under construction. The
Company is reviewing opportunities to own and operate such facilities.
Through its Wheelabrator Engineered Systems Inc. subsidiary, Wheelabrator
Clean Water engineers and manufactures a variety of environmental products and
systems. The Company provides single-source, advanced-systems solutions for the
treatment of municipal drinking water, industrial process water and wastewater,
and for slurry pumping and high solids dewatering. It also provides systems
designed to remove solids from liquid streams through the use of self-cleaning
bar/filter screens, grinders, macerators, conveyors and compactor systems. The
Company provides high technology water purification and wastewater treatment
systems that utilize a variety of technologies including demineralizers, reverse
osmosis and vacuum degasification. In addition, the Company designs and
installs process technology systems utilizing evaporators, crystallizers,
electrodialysis, dialysis, reverse osmosis, membranes and ultrafiltration for
treating industrial process wastewater. The Company provides a number of these
technologies to industrial customers abroad through its operations in Spain, The
Netherlands and Singapore. Through its Johnson Screens unit, the Company
produces profile wire screen products for groundwater production, hydrocarbon
processing, food processing and coal/mineral processing.
The Company's engineered products are provided to municipal and industrial
customers. In most situations, the Company will provide assistance to help the
end-user select the appropriate technology for a given application. Turnkey
systems provided by the Company range in value from $250,000 to over $30
million, and are typically designed and installed within 12 months following
acceptance of a customer order. On such projects, the Company typically enters
into lump-sum contracts under which the Company receives payments throughout the
contract term based upon a predetermined schedule.
The Company also manufactures a line of nonpolluting materials cleaning
systems for use by a variety of industrial customers, including foundries, steel
processors, automobile producers and rubber and plastics producers, in cleaning
and finishing metal and other materials. The Company manufactures portable,
fully-enclosed units for cleaning difficult-to-clean surfaces such as ship decks
and hulls. These systems capture the emissions particulate generated by such
operations, preventing contamination of the environment. In addition, spare
parts for materials cleaning systems are produced. The Company also
manufactures high-alloy combustion grates used in the high-temperature furnaces
of its trash-to-energy facilities.
Wheelabrator Clean Air
Wheelabrator Clean Air designs, fabricates and installs advanced air
pollution control and measurement technologies. The Company offers
electrostatic precipitators, flue-gas desulfurization systems (scrubbers),
fabric-filter systems (baghouses) and NOx control systems, which remove
pollutants from the emissions of WTI's trash-to-energy facilities, as well as
power plants and other industrial facilities. Wheelabrator Clean Air 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 are used in the design and construction of the Company's trash-to-
energy and biosolids facilities. The Company believes these capabilities
strengthen its competitive position.
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Wheelabrator Clean Air's activities involve both custom and pre-engineered
systems for emissions control. The custom engineering division licenses a
patented process for the removal of hydrogen sulfide from gaseous and liquid
streams. The process controls hazardous gases and sulfur dioxide emissions,
thereby reducing acid rain and odor problems. Wheelabrator Clean Air also
provides a full range of technologies and services for destroying or recycling
VOCs from air and liquid sources and NOx from air sources. Both VOCs and NOx
are detrimental to air quality and the environment generally. The Company's VOC
and NOx control systems are utilized by customers in a variety of industries,
including oil refineries, chemical plants and automobile production facilities.
Complementing the emission control divisions is a measurement division which
designs and installs continuous emissions monitoring systems ("CEMs") for the
utility, trash-to-energy, industrial furnace and petrochemical industries, all
of which are affected by regulations requiring the continuous monitoring of
stack emissions.
WTI anticipates that the enforcement of the Clean Air Act Amendments of
1990, together with existing and proposed regulations issued thereunder, will
generate additional business opportunities to apply its expertise in VOC and NOx
control systems and scrubbers, as well as additional applications for CEMs.
Pursuant to the Clean Air Act Amendments, the EPA has issued a list of hazardous
chemicals, over half of which are VOCs, and emissions sources that will require
the implementation of maximum available control technology ("MACT") to limit
emissions. The existing MACT rules, as well as those in development, require
compliance from both new and existing VOC emissions sources. The "acid rain"
provisions of the Clean Air Act Amendments require additional controls for NOx
emissions from a variety of sources. See "Regulations - Environmental
Regulations."
REGULATIONS
Environmental Regulations
The Company's businesses benefit in general from the enforcement of
increased governmental regulations relating to solid waste, wastewater, air
pollution and other environmental concerns. Increasingly stringent air and
water quality regulations benefit its air pollution control and water and
biosolids treatment businesses. WTI's business activities are also 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").
WTI believes that it conducts its businesses in an environmentally
responsible manner and believes itself to be in material compliance with
applicable laws and regulations. WTI 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,
pursuant to the Clean Air Act Amendments it is probable that the air pollution
control systems at certain trash-to-energy projects owned or operated by the
Company's subsidiaries will be required to be modified by the end of the decade
to comply with the more stringent regulations promulgated thereunder. Although
the expenditures related to such modifications, to the extent required, will
likely be significant, they are not expected to have a material adverse effect
on the Company's liquidity or results of operations because WTI frequently
obtains the right to pass on to the long-term contract users of its trash-to-
energy facilities increased capital and operating costs resulting from changes
in law. There can be no assurance, however, that in such event WTI would be able
to recover, for each project, all such increased costs from its customers.
Moreover, it is possible that future developments, such as increasingly strict
requirements of environmental laws and enforcement policies thereunder, could
affect the manner in which WTI operates its projects and conducts
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its business, including the handling, processing or disposal of the wastes, by-
products and residues generated thereby. See Item 3 -- Legal Proceedings -
Regulatory.
In September 1994, the EPA released its draft Dioxin Reassessment Report,
intended to update the EPA's scientific understanding of dioxin sources, the
fate of dioxin emissions in the environment, and the potential link between
dioxin in environmental media and any adverse human health effects. The EPA is
in the process of revising its estimates of the annual contribution of trace
dioxin emissions from trash-to-energy facilities and has indicated that, upon
compliance with new air emissions standards proposed by the EPA in 1994, the
trash-to-energy industry will contribute less than 50 grams of dioxin a year.
The Company does not believe that the EPA's reassessment of dioxin, or
compliance with the proposed air emissions standards, will have a material
adverse effect on the Company's operations or financial position.
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 tested and
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, is expected to enable the Company to continue to
manage its residual ash as non-hazardous waste. The EPA also announced that it
will clarify the application of land disposal restrictions in the event ash must
be disposed of as a hazardous waste. Incremental expenditures required to treat
and test residual ash at the impacted facilities, net of expected contractual
reimbursements from customers, have not had and are not expected to have a
material adverse impact on Wheelabrator's financial condition or results of
operations.
Also in May 1994, the U.S. Supreme Court ruled that state and local
governments may not 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. The Company expects that legislation will be proposed in 1995 to
effectively grandfather existing flow control mandates. The Company has
experienced no tonnage decreases as a result of the Supreme Court's ruling, and
regardless of whether such legislation is passed, does not believe the decision
will have a material adverse impact on its financial condition or results of
operations.
Public Utility Regulatory Policies Act
Wheelabrator Clean Energy's business is subject to the provisions of
various energy-related laws and regulations, including the Public Utility
Regulatory Policies Act of 1978 ("PURPA"). The ability of WTI's trash-to-energy
and small power production facilities to sell power to electric utilities on
advantageous terms and conditions and to avoid burdensome public utility
regulation depends, in part, upon the continuing applicability of certain
provisions of PURPA, which generally exempts WTI from state and federal
regulatory control over electricity prices charged by, and the finances of, WTI
and its energy producing subsidiaries. While the recent changes in
Congressional leadership may increase the likelihood of a repeal or modification
of PURPA, it remains unlikely that such action would retroactively abrogate the
long-term contracts and rate orders pursuant
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to which most of WTI's existing projects sell electricity. Several recent
rulings by state public utilities commissions, federal courts, and the Federal
Energy Regulatory Commission have upheld the provisions of PURPA power contracts
against utility company rate challenges. Furthermore, the future growth of the
Company's trash-to-energy and other small power production facilities business
is not expected to be materially and adversely affected if the various benefits
of PURPA were repealed or substantially reduced on a prospective basis, due to
the passage of the Energy Policy Act of 1992 ("EPACT"). EPACT created an
alternative ownership mechanism by which independent power producers can
participate in the electricity generation industry without the burdens of
traditional public utility regulation.
COMPETITION
WTI 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 greater financial and technical resources than WTI. The
principal competitive factors with respect to its Wheelabrator Clean Water and
Wheelabrator Clean Energy project development activities include technological
performance, service, technical know-how, price and performance guarantees.
Competing for selection as a project developer may require commitment of
substantial resources over a long period of time, without any certainty of being
ultimately selected. Competition for attractive development opportunities is
intense, as there are a number of competitors in the trash-to-energy,
independent power, biosolids management and water and wastewater treatment
industries interested in such opportunities. The Company believes that its
comprehensive project development capabilities, operating experience, financing
capabilities and, through its affiliation with Rust, engineering and turnkey
construction experience, will enable it to continue to compete effectively.
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 primary competitive factors in
the air pollution control industry are price, technological capabilities and
service. In its biosolids handling and treatment and composting businesses, the
Company competes with several large national and regional firms and numerous
competitors who provide service in local markets. In the biosolids and
composting markets, the principal competitive factors are price, availability of
sites for beneficial reuse of biosolids, and technical experience. See
"Patents, Trademarks, Licenses and Other Agreements."
At the time of the 1990 merger between WTI 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. 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 and (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.
In connection with the initial public offering of ordinary shares of WM
International, the Company, WM International, 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,
described above under "Organization of Rust International Inc.," and Rust became
a party thereto. Under the Amended and Restated International Business
Opportunities Agreement, the parties
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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 manufacture or assembly of well screens, materials cleaning
equipment, pumps and packaged water and wastewater treatment facilities; (ii)
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 (iii) facilities which treat or otherwise stabilize ash residues from trash-
to-energy facilities, have been allocated to the Company. The Agreement
allocates certain business opportunities, some of which were previously
allocated to WTI, to Rust in connection with the transfer (described above) of
WTI's engineering, environmental consulting and construction businesses to Rust.
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, water, wastewater and
industrial process water technologies, and VOC catalyst and control
technologies. WTI spent approximately $2.6 million, $4.1 and $3.5 million on
research and development during 1992, 1993 and 1994, respectively. In addition,
WTI receives significant benefits from technological advances realized in
connection with specific projects undertaken on its own behalf or under
contracts with customers. Significant technological benefits are also realized
through WTI'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.
In January 1995, WTI acquired from Champion International Corporation
("Champion") the exclusive, worldwide license rights for a proprietary plant
effluent recycling process used in bleached kraft pulp mills and, from Sterling
Pulp Chemicals, Ltd. ("Sterling"), the chloride removal process technology
incorporated therein. The Company has a license agreement of unlimited duration
with each of Champion and Sterling, subject to the Company fulfilling certain
minimum obligations specified therein. The Company plans to design and market
zero-liquid-discharge process water systems utilizing the licensed technology to
remove chlorinated organics.
In March 1995, the Company acquired from EMCON a patented landfill leachate
evaporation system which the Company plans to market in order to provide
landfill operators with a significantly less expensive alternative to hauling
leachate for offsite disposal.
9
Pursuant to a long-standing arrangement between WTI and von Roll Ltd. ("von
Roll"), WTI has an exclusive license in the United States and Mexico to use
certain combustion-grate technology owned by von Roll. WTI uses this technology
in its trash-to-energy projects. The license agreement runs through December
31, 1995, 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.
WTI has an agreement (the "Boiler Purchase Agreement") with Babcock &
Wilcox Company ("B&W"), whereby B&W has agreed to provide, and WTI has agreed to
purchase, certain boilers suitable for use in WTI'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 WTI 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. The Company has a license agreement with Seghers
Engineering N.V. of Bruges, Belgium, granting Wheelabrator Clean Water the
exclusive right to use and market the Seghers Zerofuel sludge incineration
system, including the Seghodryer indirect multi-stage dryer for biosolids,
within the United States and Canada. The license will remain in effect through
the year 2011 provided that Wheelabrator Clean Water meets specified levels of
equipment orders or makes certain minimum payments under the agreement. The
agreement also gives Wheelabrator Clean Water additional options with respect to
pricing and manufacturing. In August 1994, the Company entered into a Know-How
and Patent License Agreement with SC Technology AG of Switzerland pursuant to
which Wheelabrator Clean Water 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 is intended to be incorporated into the Baltimore, Maryland dryer and
pelletizer facility which is now in the advanced stages of development. In
addition, Wheelabrator Clean Water holds several patents relating to the
processing of biosolids through an indirect biosolids dryer system.
In 1988, the Company entered into a Land Option Agreement, amended as of
June 1, 1992, with Waste Management of North America, Inc., now known as Waste
Management, Inc. ("WMI"), a wholly-owned subsidiary of WMX, providing WTI with
the right, subject to certain restrictions and payment of a $10 million option
renewal fee after 10 years, 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
WMI's existing or future landfills in the United States and Canada. In
addition, in 1988 the Company entered into an Airspace Dedication Agreement (the
"ADA") with WMI permitting WTI, for a period ending August 12, 2008, and
subject to certain conditions and restrictions, to reserve capacity at WMI
landfills for the disposal of ash residue ("Ash Residue") from the Company's
trash-to-energy facilities, to dispose of such residues and waste at such
landfills for fees generally on terms at least as favorable as those charged to
other customers, and granting disposal credits aggregating $70 million to be
credited against future Ash Disposal fees (of which $30 million in disposal
credits were transferred to Rust on January 1, 1993). In 1992, the ADA was
amended and restated to expand the types of waste covered by the ADA to include
non-hazardous biosolids, by-pass waste from facilities owned or operated by WTI
and special wastes removed from third-party sites being remediated by WTI or any
of its affiliates (the "Other Waste"). In addition, the definition of Ash
Residue was expanded to include, under certain circumstances, ash residue from
medical waste incineration facilities. As amended and
10
restated, the ADA also provides for disposal credits to be applied against
disposal fees paid by WTI and its subsidiaries under separately negotiated
disposal arrangements with WMI. Under the ADA, as amended and restated, WTI may
reserve not more than 35% of the airspace available for the disposal of the type
of waste proposed for disposal at any disposal site at a price-per-ton rate that
will generally not be greater than the most favorable per ton price charged by
the disposal site to customers other than WTI.
In connection with the 1990 Merger, the predecessor of WM International,
Waste Management International, Inc. ("WMII"), and WMI entered into an
Intellectual Property Licensing Agreement with WTI. 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 WTI and WMII
were parties. Pursuant to the Intellectual Property Licensing Agreement: (i)
WM International granted WTI 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) WMI granted WTI 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 WMI for use in
conjunction with recycling operations at or adjacent to any WTI facility; (iii)
WMI agreed to use reasonable efforts to enable WTI to sell recyclable materials
to joint ventures or other markets developed by WMI; (iv) WMI 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 WTI facilities; (v) WTI agreed to designate WMI as
the provider of recyclable collection services for WTI facilities to the extent
possible, before offering such opportunity to any third party; (vi) WMI granted
WTI a 10-year, non-exclusive, royalty-free license, with two successive 5-year
renewal options, to all of WMI'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 WTI of technology and know-how at sanitary
landfill sites owned, operated or maintained by WMI or its subsidiaries and
affiliates, other than WTI and its subsidiaries); and (vii) WMI agreed that only
WTI, and not WMI, may develop the business of designing, constructing, operating
and maintaining landfill gas recovery facilities for governmental, industrial
and third party customers. To the extent WTI develops landfill gas recovery
technology and know-how during the period of its license (and renewals) from
WMI, it will share such technology and know-how with WMI on a similar royalty-
free basis. WTI 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 can not be achieved by WTI through
development of such projects. Projects waived by WTI may be developed by WMI.
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
WMI, 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.
WTI, 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 WTI, 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.
11
BACKLOG
WTI's backlog was $11.4 billion and $11.2 billion as of December 31, 1993
and 1994, respectively. WTI expects that approximately $981 million, or 9%, of
the December 1994 backlog will be executed during 1995. Approximately $10.7
billion of this backlog relates to long-term contracts associated with trash-to-
energy, cogeneration, biosolids drying and pelletizing, and coal-handling
services at facilities operated by WTI, of which approximately $672 million, or
6%, will be executed during 1995.
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. With respect
to WTI's manufacturing businesses, the principal raw materials are carbon steel,
steel alloy plate, stainless steel wire and plate and scrap metals. The raw
materials necessary to each of the Company's businesses are readily available
from a variety of sources and the Company does not anticipate any difficulty in
obtaining such materials.
EMPLOYEES
As of December 31, 1994, the Company had approximately 4,400 full-time
employees. WTI considers relations with its employees to be satisfactory.
FINANCING CAPABILITIES AND FUNDING SUPPORT AGREEMENTS
Financing Capabilities
Each trash-to-energy, cogeneration, and biosolids drying and pelletizing
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 internal funds and outside 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 WTI, WMX or another project support
entity. WTI 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 WTI, WMX agreed to
use reasonable efforts to assist WTI, at WTI's request, in obtaining and
maintaining a credit rating of "A" or better from Standard & Poor's Corporation
or Moody's Investors Service for WTI's long-term unsecured debt securities.
WMX's obligations under the Restated Funding Agreement, which terminate on
August 12, 2008, may involve
12
anything from contingent credit support obligations to and including WMX's
purchase from WTI of up to $200 million principal amount of WTI 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 WTI to obtain an
"A" rating. In addition, the obligation to purchase any of the Securities will
be suspended if WTI 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 WTI obtains and maintains an "A"
rating and will be reduced to the extent that the purchase of a lesser amount of
Securities will allow WTI 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 twenty-five years following their date of
issuance, and they may be prepaid or redeemed by WTI, at its option, if the
directors of WTI not otherwise affiliated with WMX or WTI 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. WTI has an implied "A" credit rating from Standard & Poor's Corporation
and an implied "A3" credit rating from Moody's Investors Service. The attainment
of such ratings did not involve the sale of any Securities to WMX.
Master Support Agreement
Under a Master Support Agreement between Resco Holdings Inc. ("Resco"), a
wholly-owned subsidiary of WTI, and Allied-Signal Inc. ("Allied Signal"), Resco
is required to reimburse Allied-Signal for any credit support payments Allied-
Signal 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, 1994, 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 Allied-Signal's credit support is provided. Allied-Signal is
providing credit support in respect of two of the Company's trash-to-energy
facilities pursuant to the Master Support Agreement.
Master Intercorporate Agreement
In connection with the 1990 Merger, WTI, WMX and CWM entered into a Master
Intercorporate Agreement. Among other things, WTI 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. Subject to certain restrictions
specified in the agreement, WMX agreed to fund WTI's working capital
requirements at rates equal to or lower than those WTI would otherwise be able
to obtain on the open market. The Company may borrow up to $100 million from WMX
until September 1995 pursuant to the Master Intercorporate Agreement, plus the
amount of cash invested by WTI with WMX. The $100 million funding commitment
expires in September 1995, and the Company intends to negotiate with WMX prior
to such date to obtain an extension or renewal of all or part of the $100
million facility. 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 WTI and (ii) WMX does not exercise,
13
prior to its expiration, the option to maintain majority ownership of the
capital stock of WTI (as provided in the Master Intercorporate Agreement).
ACQUISITIONS
During 1994, the Company acquired a number of businesses engaged in
providing various environmentally-related services. The amounts and types of
consideration generally have been determined by direct negotiations with the
owners of the businesses acquired. The acquisitions involved several businesses
engaged in providing water and air quality-related environmental products and
services and in manufacturing surface finishing equipment.
EQUITY INVESTMENTS
Rust International Inc.
The Company owns approximately 40% of the outstanding common stock of Rust.
Approximately 56% of Rust's common stock is held by CWM and the remaining 4% is
held by public stockholders.
Rust is a leading provider, through its subsidiaries, of engineering,
construction and environmental and infrastructure consulting services, hazardous
and radioactive substances remediation services and other on-site industrial and
related services, primarily to clients in government and in the chemical,
petrochemical, nuclear, energy, utility, pulp and paper, manufacturing,
environmental services and other industries. In addition, Rust provides
engineering and environmental and infrastructure consulting services to clients
in several countries outside of North America.
Rust's engineering, construction and environmental and infrastructure
consulting services business provides process and design engineering,
construction, dismantling and demolition services, architectural, automation,
environmental and infrastructure engineering services and project management
services to clients in federal, state and local governments, to municipalities
and utilities and to clients in the chemical, petrochemical, pulp and paper,
automotive, iron and steel, aerospace, food and beverage, tobacco, mining,
utility and industrial power and general manufacturing industries.
The industrial engineering services provided by Rust are of two general
types -- process engineering and facility design engineering. Process engineers
create the processes by which facilities operate, such as chemical,
petrochemical, energy and pulp and paper plants. Design engineering services
provided by Rust encompass the following disciplines: architectural; electrical;
control systems (which involves developing the logic and instrumentation
necessary to control, for instance, a plant's electrical system); process
piping; mechanical (equipment layout); structural; heating, ventilation and air
conditioning ("HVAC"); and civil (site work, grading and draining). Rust's
design engineering services are provided on a stand-alone basis, but are also
provided together with construction services pursuant to engineering,
procurement and construction contracts.
Rust's environmental and infrastructure 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. Rust provides such services to
private industry as well as to federal, state and local governments,
including the Department of Defense ("DOD") and Department of Energy ("DOE").
Rust's services include performing remedial investigations for the purpose of
characterizing hazardous waste sites and preparing feasibility studies setting
forth recommended remedial actions.
14
Rust also provides services in connection with the siting, permitting,
design and construction oversight (including construction quality assurance) of
solid and hazardous waste landfills and related facilities such as leachate
collection and disposal and gas recovery and electric generation systems. 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. In addition,
Rust designs systems required to properly and safely store, convey, treat and
dispose of industrial, hazardous and radioactive materials and provides
consulting services to its clients regarding disposal and waste minimization
methods and techniques.
Rust performs on-site hazardous chemical and radioactive substances
remediation services for clients in the chemical, petrochemical, automotive and
other manufacturing industries and for federal, state and local government
entities, including the DOD and DOE in connection with such projects as the
remediation of military bases and other government installations, the EPA in
connection with Superfund projects, and various state environmental agencies.
Rust's hazardous substance remediation services also include the containment and
closure of contaminated sites and the cleaning, relining and sealing of liquid
containment and treatment ponds, lagoons and other surface impoundments. In
December 1994, Rust and OHM Corporation ("OHM") entered into an agreement
pursuant to which OHM will acquire Rust's hazardous and radioactive substances
remediation business in exchange for a 40% equity interest in OHM (the "OHM
Transaction"). Consummation of the OHM Transaction is subject to the
satisfaction of various closing conditions, including the approval of OHM's
stockholders.
Rust also provides scaffolding services primarily to the refinery,
chemical, petrochemical and electric utility industries, and to a lesser extent,
pulp and paper plants, nuclear facilities and general commercial clients. In
most cases, Rust's scaffolding services are provided in conjunction with
periodic, routine cleaning and maintenance of refineries, chemical plants and
utilities, although such services are also performed in connection with new
construction projects.
Rust performs eight types of industrial services--water blasting, tank
cleaning, explosives blasting, chemical cleaning, industrial vacuuming, catalyst
handling, specialty chemicals and separation technologies--primarily for clients
in the petrochemical, chemical, and pulp and paper industries, utilities, and to
a lesser extent, the government sector. Rust provides additional on site plant
services to the chemical, petrochemical, and pulp and paper industries as well
as to general commercial and industrial clients, including mechanical and
electrical services, equipment installation, welding, HVAC, warehousing and
inventory management. Rust assists clients in the nuclear and utility industries
in solving electrical, mechanical, engineering and related technical services
problems. Rust also provides spent fuel storage (rerack) services to the nuclear
power industry. In addition, Rust also designs and provides to its clients other
nuclear and utility maintenance service-related products.
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, in which the Company owns a 40% equity interest. The remaining
outstanding ordinary shares of WM International are held by public stockholders.
WM International is a leading international provider of comprehensive waste
management and related services and conducts essentially all of the waste
management operations located outside of North America of WMX and its
affiliates.
15
The operations of WM International are managed on a country by country basis and
are divisible into two broad categories: collection services and treatment and
disposal services.
Collection services provided by WM International include collection and
transportation of solid, hazardous and medical wastes and recyclable material
from residential, commercial and industrial customers. Through its subsidiaries,
WM International provides collection services to governmental and private
customers in ten European countries, Argentina, Australia, Brunei, Hong Kong,
Indonesia, Malaysia, New Zealand and Taiwan. Business is obtained through public
bids or tenders, negotiated contracts, and, in the case of commercial and
industrial customers, direct contracts. At December 31, 1994, WM International's
collection services encompassed approximately 1,630 separate municipal contracts
(the largest number of which are in Italy) serving over 6.6 million households
and commercial and industrial collection services to nearly 240,000 solid waste
customers and approximately 26,200 hazardous waste customers, as well as related
services. The size, specifications, provisions and duration of municipal
contracts vary substantially, with some such contracts also covering landfill
disposal or street-sweeping or other cleaning services. Pricing for municipal
contracts is generally based on volume of waste, number and frequency of
collection pick-ups and disposal arrangements. Longer-term contracts typically
have formulae for periodic price increases or adjustments.
Street, industrial premises, office, parking lot and port cleaning services
are also performed by WM International, along with portable sanitation/toilet
services for such occasions as outdoor concerts and special events.
Treatment and disposal services include processing of recyclable materials,
operation of both solid waste landfills and hazardous waste landfills, operation
of municipal, trash-to-energy and hazardous waste incinerators, provision of
hazardous waste treatment and site remediation services, and water treatment
services. The operation of solid waste landfills is currently WM International's
most significant treatment and disposal service. Treatment and disposal services
are provided under contracts which may be obtained through public bid or tender
or direct negotiation, and are also provided directly to other waste service
companies. At December 31, 1994, WM International operated 22 waste treatment
facilities, 52 recycling and recyclables processing facilities, 11 incinerators
and 57 landfills; 19 of the 22 waste treatment facilities are for hazardous
waste, and four of the 11 incinerators are hazardous waste incinerators. WM
International also operates a trash-to-energy facility.
At present, in most countries in which WM International operates,
landfilling is the predominant disposal method employed. WM International owns
or operates landfills in Italy, Sweden, France, Spain, Australia, the United
Kingdom, Hong Kong, Germany, Denmark, Argentina, New Zealand and Indonesia.
Landfill disposal agreements may be separate contracts or an integrated portion
of collection or treatment contracts. In addition, landfills may accept waste on
a reserved space or per load basis. WM International believes it has access to
sufficient solid waste landfill capacity to meet its current needs.
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 new air pollution requirements. The facility serves the household and
commercial solid waste incineration needs of a population of approximately
600,000 in Hamm and nearby towns. WM International also operates five small
conventional municipal solid waste incinerators in Italy and one small plant in
each of Sweden and New Zealand.
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WM International owns or operates hazardous waste treatment facilities in
Australia, France, Finland, Italy, Sweden, Germany, the United Kingdom, The
Netherlands, Hong Kong, Indonesia and New Zealand, and has entered into an
agreement with a regional government in Spain and agreements in Argentina and
Thailand with respect to the development of hazardous waste treatment
facilities.
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.
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 mitigate the effect of
such exchange rate fluctuations.
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 December 31, 1994, and summaries of their business experience. Experience
shown with WTI includes experience with a predecessor of WTI 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 of Directors.
Phillip B. Rooney, the Company's Chairman and Chief Executive Officer, is also
an executive officer of WMX and certain of its affiliates. While he will
devote less than all of his working time to WTI's business, the Company
anticipates that he will devote sufficient time to the Company's business as
reasonably may be required to fulfill the duties of his office.
NAME AND TITLE AGE BUSINESS EXPERIENCE
-------------- --- -------------------
Phillip B. Rooney........... 50 A director of WTI since September 1988. Chairman of the
Chairman of the Board and Board and Chief Executive Officer of WTI since November
Chief Executive Officer 1990. President and Chief Operating Officer of WMX since
November 1984. Chairman of the Board of Rust since January
1993. Chairman of the Board and Chief Executive Officer of
WMI since January 1994. Mr. Rooney is also a director of
WMX, WM International and Rust.
John M. Kehoe, Jr........... 61 President and Chief Operating Officer of WTI since January
President and 1993. Vice President of WTI from December 1991 through
Chief Operating Officer December 1992. President of Wheelabrator Environmental
Systems Inc. ("WESI"), a subsidiary of WTI, from November
1990. Managing Director of WTI from June 1988 to November
1990.
17
Richard S. Haak, Jr......... 40 Controller of WTI since November 1993. Vice President and
Controller Controller-Operations of WESI from September 1987 until
November 1993.
Ray L. Patel................ 49 President of Wheelabrator Engineered Systems Inc.
President and Chief ("Engineered Systems") since January 1993. Chief Executive
Executive Officer Officer of Engineered Systems since April 1993. President of
Wheelabrator Engineered Johnson Filtration Systems Inc., Engineered Systems'
Systems Inc. predecessor, from April 1988 through December 1992. Division
President of Wheelabrator Clean Water from November 1990 to
July 1991.
Mark P. Paul................ 45 Vice President and General Counsel of WTI since May 1993.
Vice President and Associate General Counsel and Staff Vice President of WTI
General Counsel from February 1993 to May 1993. Vice President and General
Counsel of WESI from September 1987 to May 1993.
John D. Sanford............. 41 Vice President, Chief Financial Officer and Treasurer of WTI
Vice President, since May 1993. Staff Vice President-Finance of WTI from
Chief Financial Officer February 1993 to May 1993. Vice President and Chief Financial
and Treasurer Officer of WESI from August 1987 to May 1993.
James F. Wood............... 52 Senior Vice President and General Manager of WESI since
Senior Vice President November 1992. Vice President-Plant Operations of WESI from
and General Manager September 1990 to November 1992. Managing Director of WTI
Wheelabrator Environmental from April 1989 to September 1990. Vice President-Plant
Systems Inc. Services of WESI from May 1988 to April 1989.
ITEM 2--PROPERTIES
In December 1994, the Company purchased the building and surrounding
grounds comprising its principal executive offices, located at Liberty Lane,
Hampton, New Hampshire 03842. These offices also serve as the headquarters of
the Company's Wheelabrator Clean Energy group and certain Wheelabrator Clean
Water group operations. 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. WTI 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 or under construction and their use (including those operated by
the Company for others under long-term contracts or similar arrangements) as of
December 31, 1994.
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 WTI subsidiaries, partnerships or joint ventures controlled
18
by WTI subsidiaries. Unless indicated to the contrary below, each project is
owned by subsidiaries or affiliates of the Company. While WTI exercises, or
will exercise, operating control over each such project, WTI has no ownership
interest in certain of the projects.
Projects in Operation
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------- --------
1. Amarillo, Texas N/A 3,500,000 Owned and operated since 1976 by
Coal Handling Facility TPY WTI and its predecessors.
2. Anderson, California 6mW 210 TPD Owned and operated by WTI since
Wood Waste Cogeneration mid-1993.
Facility
3. Baltimore, Maryland 60mW 2,250 TPD Owned and operated by WTI from
Trash-to-Energy Facility 1985 to 1988. Operated by WTI
Owner: Ford Motor Credit since 1988 under a long-term lease
Company ("Ford Credit") expiring in 2007, with certain renewal
and purchase options.
4. Baltimore, Maryland N/A 110 DTPD Owned and operated by WTI since
Biosolids Dryer and January 1995.
Pelletizer
5. Bridgeport, Connecticut 70mW 2,250 TPD Operated since 1988 by WTI under a
Trash-to-Energy Facility long-term lease expiring in 2009, with
Owner: Ford Credit certain renewal and purchase options.
6. Broward County, Florida 70mW 2,250 TPD Owned and operated by WTI since
South Site mid-1991.
Trash-to-Energy Facility
7. Broward County, Florida 70mW 2,250 TPD Owned and operated by WTI since
North Site early 1992.
Trash-to-Energy Facility
8. Claremont, 5mW 200 TPD Owned and operated by WTI since
New Hampshire 1987.
Trash-to-Energy Facility
9. Cobb County, Georgia N/A 35 DTPD Operated by WTI since late 1992
Biosolids Dryer and under a subcontract expiring in 1996,
Pelletizer with a renewal option.
Owner: Cobb County,
Georgia
10. Concord, New Hampshire 14mW 575 TPD Owned and operated by WTI since
Trash-to-Energy Facility 1989.
19
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------------- ---------------------------------------
11. Earth, Texas N/A 3,500,000 Owned and operated since 1982 by
Coal Handling Facility TPY WTI and its predecessors.
12. Falls Township, 53mW 1,500 TPD Owned and operated by WTI since
Pennsylvania Trash-to- August 1994.
Energy Facility
13. Frackville, Pennsylvania 47mW 1,700 TPD Owned and operated by WTI since
Anthracite Culm 1989.
Cogeneration Facility
14. Hagerstown, Maryland N/A 16 DTPD Operated by WTI since late 1992
Biosolids Dryer and under a lease expiring in 1998, with a
Pelletizer renewal option.
Owner: Hagerstown,
Maryland
15. Gloucester County, 14mW 575 TPD Owned and operated by WTI since
New Jersey 1990.
Trash-to-Energy Facility
16. Millbury, Massachusetts 45mW 1,500 TPD Operated by WTI since 1987 under a
Trash-to-Energy Facility long-term lease expiring in 2007, with
Owner: Ford Credit certain renewal and purchase options.
17. New York, New York N/A 300 DTPD Owned and operated by WTI since
Biosolids Dryer and mid-1993.
Pelletizer
18. North Andover, Massachusetts 40mW 1,500 TPD Owned and operated by WTI since
Trash-to-Energy Facility 1985.
19. Norwalk, California 28mW 5,600 MCF Operated by WTI since 1988 under a
Gas Cogeneration Facility per day lease expiring in 2008, with an option
Owner: Signal Capital to buy, subject to prior rights of the
Corporation State of California to purchase the
lease and the facility after 2003.
20. Pinellas County, Florida 75mW 3,000 TPD Operated by WTI since 1983 under a
Trash-to-Energy Facility long-term contract expiring in 2003.
Owner: Pinellas County,
Florida
21. Polk County, Florida 40mW 1,000 TPD Owned and operated since August
Urban Wood Waste-to- 1994 by a partnership in which WTI
Energy Facility owns an 81% interest.
22. Saugus, Massachusetts 40mW 1,500 TPD Operated by WTI since 1975; wholly-
Trash-to-Energy Facility owned by WTI since 1987.
20
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------------- ---------------------------------------
23. Shasta County, California 49mW 2,400 TPD Operated by WTI since 1988 under a
Wood Waste Small Power long-term lease expiring in 2007, with
Production Facility renewal and purchase options.
Owner: Ford Credit
24. Sherman Station, Maine 18mW 800 TPD Operated by a partnership in which
Wood Waste Cogeneration WTI has a 60% interest since 1986.
Facility Leased by WTI under a long-term
Owner: Chrysler Financial contract expiring in 2006, with
Corporation renewal and purchase options.
25. Spokane, Washington 26mW 800 TPD Operated by WTI since late 1991
Trash-to-Energy Facility under a long-term contract expiring
Owner: City of Spokane, in 2011.
Washington
26. Tampa, Florida 20mW 1,000 TPD Operated by WTI since 1988 under a
Trash-to-Energy Facility long-term contract expiring in 2005.
Owner: City of Tampa,
Florida
27. Westchester County, 60mW 2,250 TPD Owned and operated since 1984 by
New York Westchester Resco Company L.P.
Trash-to-Energy Facility ("Westchester Resco") (1)
---------------------
(1) Westchester Resco is a limited partnership, 75% held by WTI, and 25% held
indirectly by John Hancock Mutual Life Insurance Co. as a limited partner.
-----------------------------
Projects Under Construction
DESIGN DESIGN
PROJECT OUTPUT CAPACITY COMMENTS
------- ------ -------- --------
Lisbon, Connecticut 13mW 500 TPD Construction expected to be completed
Trash-to-Energy Facility in mid-1995. Will be operated by WTI
Owner: Eastern Connecticut under a long-term contract expiring 25
Resource Recovery Authority years from commencement of principal
operations.
KEY: mW--Megawatts DTPD--Dry Tons Per Day TPD--Tons Per Day
TPY--Tons Per Year MCF--Thousands of Cubic Feet
21
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, 1994, 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.
LOCATION SITE USE NATURE OF INTEREST
-------- -------- ------------------
Annapolis, Maryland......... Offices Lease
Almelo, The Netherlands..... Manufacturing facility and office space Own
Bilboa, Spain............... Offices Lease
Billerica, Massachusetts.... Manufacturing facility and office space Lease
Charleville, France......... Manufacturing facility and office space Lease
Chatelleurault, France...... Manufacturing facility Own
Cheshire, United Kingdom.... Manufacturing facility and office space Own
Cologne, Germany............ Manufacturing facility and office space Lease
Commerce, California........ Manufacturing facility and office space Lease
Dublin, Ireland............. Manufacturing facility Own
Hampton, New Hampshire...... Offices Own
LaGrange, Georgia........... Manufacturing facility and office space Own
Largo, Florida.............. Manufacturing facility Lease
Moorpark, California........ Manufacturing facility and office space Lease
New Brighton, Minnesota..... Manufacturing facility and office space Own
Naperville, Illinois........ Offices Lease
Parker, Arizona............. Carbon regeneration facility Own building/lease site
Pittsburgh, Pennsylvania.... Offices Lease
Rochester, New Hampshire.... Biosolids compost facility Own building/lease site
Schaumburg, Illinois ....... Offices Lease
Singapore, Singapore........ Manufacturing facility and office space Own
Sturbridge, Massachusetts... Manufacturing facility Own
Walterboro, South Carolina.. Foundry Own
Wiehl, Germany.............. Manufacturing facility and office space Own
ITEM 3 -- LEGAL PROCEEDINGS
Regulatory
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
22
or penalties in proceedings relating to the Company's compliance with various
environmental laws and regulations. At December 31, 1994, the Company was
involved in two such proceedings where it is believed that sanctions involved in
each instance may exceed $100,000.
Other
In January 1993, the Internal Revenue Service ("IRS") completed an
examination of the Company's consolidated federal income tax returns for the
period 1986-1988. The IRS proposed a significant adjustment related to the 1988
sale of a former subsidiary, which the Company disputed. In March 1994, WTI and
the IRS filed a Stipulation of Settlement with the U.S. Tax Court to resolve the
treatment of the disputed matter for an aggregate amount of approximately $70
million. On October 4, 1994, the U.S. Tax Court accepted the Stipulation of
Settlement.
Under a tax sharing agreement between the Company and a former affiliate of
the Company now known as Koll Real Estate Group, Inc. ("KREG"), the Company was
indemnified by KREG and a former subsidiary of KREG, Abex, Inc. ("Abex"), for
approximately $40 million of the tax liability. Under the tax sharing agreement
and a similar agreement between KREG and Abex, the parties had agreed generally
that WTI would be responsible for tax liability related to the 1986-1988 tax
period up to a specified amount, KREG would be liable for the next $25 million
over the Company's allocated liability, and Abex would pay all excess amounts.
On April 15, 1994, the Company paid approximately $29.8 million, its share of
the stipulated settlement liability, and Abex paid its share of the liability
pursuant to its indemnity obligations to KREG. The Company's obligation had
been previously recorded in its consolidated balance sheets. Prior to April 15,
1994, KREG advised the Company and Abex that it would not pay its approximately
$21 million share of the settlement liability. Accordingly, the Company and
Abex filed a lawsuit against KREG seeking to require KREG to honor its
contractual obligation to pay. A trial was held in September 1994, and in
December 1994 the Delaware Chancery Court issued its opinion finding in favor of
the Company and Abex. In January 1995, the Chancery Court entered a judgment
ordering KREG to pay its obligation under the tax sharing agreements. On
February 6, 1995, KREG paid the obligation.
In addition, there are other routine lawsuits and claims pending against
WTI 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
None.
23
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:
Market Price (1)
------------------ Cash Dividends
1993 High Low Declared Per Share
---- ------- ------- ------------------
First Quarter $23-1/2 $18-1/8 $0.02
Second Quarter $21-1/4 $17-5/8 $0.06
Third Quarter $20 $14-3/4 --
Fourth Quarter $18-1/8 $14-5/8 --
1994
----
First Quarter $21-1/4 $17-1/4 --
Second Quarter $20-5/8 $17-3/4 $0.10
Third Quarter $18-3/4 $15-1/4 --
Fourth Quarter $15-1/2 $13-1/4 --
--------------------------
(1) All per share prices and dividends have been adjusted to reflect the two-
for-one stock split in the form of a 100% stock dividend distributed in
January 1993.
-----------------------
The approximate number of holders of record of Common Stock as of March 1,
1995 was 18,642.
During 1994, the Board of Directors declared, and the Company paid, an
annual dividend in the amount of $0.10 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.
On March 15, 1994, WTI announced that the Board of Directors had authorized
the repurchase of up to 3.8 million shares of Common Stock from time to time
over the following 24-month period in the open market or in privately negotiated
transactions. During 1994, the Company repurchased a total of 3,273,800 shares.
In February 1995, the Company's Board of Directors increased the number of
shares of Common Stock authorized to be repurchased by 10 million.
24
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected consolidated financial information for each of the
five years in the period ended December 31, 1994 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 which are filed as exhibits to this
report and incorporated herein by reference.
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
(000's omitted except per share amounts)
Years Ended December 31
--------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS
Revenue $1,151,873 $1,173,449 $1,483,054 $1,142,219 $1,324,567
Income before extraordinary
item and accounting changes 47,406 126,059 176,382 163,102 184,895
Net income (loss) (70,190) 126,059 134,152 163,102 184,895
Earnings (loss) per common and common
equivalent share:
Before extraordinary item and
accounting changes 0.30 0.73 0.94 0.86 0.97
Net income (loss) (0.44) 0.73 0.71 0.86 0.97
Weighted average common and common
equivalent shares outstanding 158,400 172,400 188,200 188,900 189,900
Dividends declared per common share -- -- 0.04 0.08 0.10
FINANCIAL CONDITION (at year end)
Total assets $2,325,818 $2,743,830 $2,997,073 $3,090,278 $3,282,471
Working capital 265,363 516,084 251,464 5,570 (10,167)
Long-term project debt 987,949 987,058 857,625 776,858 735,646
Stockholders' equity 545,978 891,351 1,039,343 1,286,838 1,424,882
----------------------------
. The 1990 loss of $70.2 million, or $0.44 per share, reflects a restructuring
charge, an unrealized loss on investments in common stock and the cumulative
effect of a change in accounting method for investment tax credits from the
flow-through to the deferral method.
. 1991 net income includes a $47.1 million pretax gain on the sale of certain
foreign equity investments.
. 1992 income before extraordinary item and accounting changes includes a $47.0
million nontaxable gain related to the initial public offering of shares by
WM International. See Note 2 of the Notes to Consolidated Financial
Statements.
. 1992 net income includes one-time charges of $42.2 million related to the
adoption of two new financial accounting standards. See Notes 1, 3 and 6
of the Notes to Consolidated Financial Statements.
25
. 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 $423.8 million, $397.8
million and $554.7 million in 1990, 1991 and 1992, respectively. Beginning
in 1993, the Company's share of Rust's net income is included in equity in
earnings of affiliates. See Note 2 of the Notes to Consolidated Financial
Statements.
. 1993 income 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. See Notes 2 and 3 of the Notes
to Consolidated Financial Statements.
. Share and per share data for all periods reflect a two-for-one stock
split effected on January 7, 1993. See Notes 1 and 4 of the Notes to
Consolidated Financial Statements.
. The increases in weighted average common and common equivalent shares
outstanding in 1991 and 1992 are largely due to shares issued in connection
with acquisitions. See Note 2 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 29 through 35 of the
Company's 1994 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, 1993 and 1994,
Consolidated Statements of Income, Cash Flows and Changes in Stockholders'
Equity for each of the years in the three-year period ended December 31, 1994
and the Notes to Consolidated Financial Statements set forth on pages 36 through
55 of the Annual Report are filed as an exhibit to this report 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.
(c) Rust International Inc.'s Consolidated Balance Sheets as of December 31,
1993 and 1994, Consolidated Statements of Income, Cash Flows and Changes in
Stockholders' Equity for each of the years in the three-year period ended
December 31, 1994 and the Notes to Consolidated Financial Statements are
incorporated herein by reference to pages F-1 through F-22 of Rust's 1994 annual
report on Form 10-K. Rust's file number under the Securities Exchange Act of
1934 is 1-11896.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
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 May 4, 1995 (the "Proxy Statement"), is
incorporated herein by reference.
Executive Officers. Information with respect to executive officers of WTI
is set forth under the caption "Executive Officers of the Registrant" in Item 1
of this report.
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 Stockholder" on page 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 18 through 25 of the Proxy Statement, under the last full
paragraph on page 2 of the Proxy Statement and under the fifth full paragraph on
page 3 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,
1992, 1993 and 1994.
(ii) Consolidated Balance Sheets as of December 31, 1993 and 1994.
(iii) Consolidated Statements of Cash Flows for the years ended
December 31, 1992, 1993 and 1994.
(iv) Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1992, 1993 and 1994.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Independent Public Accountants -- Arthur Andersen LLP.
27
Rust International Inc.'s Consolidated Balance Sheets as of December 31,
1993 and 1994, Consolidated Statements of Income, Cash Flows and Changes in
Stockholders' Equity for each of the years in the three-year period ended
December 31, 1994 and Notes to Consolidated Financial Statements are
incorporated herein by reference to pages F-1 through F-22 of Rust's 1994 annual
report on Form 10-K. Rust's file number under the Securities Exchange Act of
1934 is 1-11896.
(2) SCHEDULES:
Financial Statement Schedule II of the Company and the corresponding Report
of Independent Public Accountants on Schedule are included in this report.
Financial Statement Schedule II of Rust International Inc. is incorporated
by reference to pages F-23 and F-24 of Rust's 1994 annual report on Form 10-K.
Rust's file number under the Securities Exchange Act of 1934 is 1-11896.
All other 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).
(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).
-----------------
/*/ 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. Exhibits not incorporated by reference are filed with this report.
28
(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) 1991 Performance Unit Plan of the registrant (incorporated by
reference to Exhibit 10.48 of the registrant's 1990 annual report
on Form 10-K).
(xii) Wheelabrator Technologies Inc. Corporate Incentive Bonus Plan (as
amended and restated as of March 14, 1994) (incorporated by
reference to Exhibit 10.39 to the registrant's 1993 annual report
on Form 10-K).
(xiii) Wheelabrator Technologies Inc. Corporate Incentive Bonus Plan (as
amended and restated as of March 13, 1995).
(xiv) 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).
(xv) 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).
(xvi) 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).
(xvii) 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).
(xviii) 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).
(xix) 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).
29
(xx) 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).
(xxi) 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).
(B) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the fiscal quarter
ended December 31, 1994.
30
WHEELABRATOR TECHNOLOGIES INC.
SCHEDULE II - RESERVES
(000'S OMITTED)
BALANCE AT ACCOUNTS BALANCE AT
BEGINNING CHARGED WRITTEN END
OF YEAR TO INCOME OFF OTHER(1) OF YEAR
---------- --------- --------- ----------- ----------
1992
Reserve for doubtful accounts $ 8,634 $5,861 ($1,970) $ 1,717 $14,242
1993
Reserve for doubtful accounts $14,242 $2,754 ($1,917) ($5,795) $ 9,284
1994
Reserve for doubtful accounts $ 9,284 $2,783 ($2,955) $ 350 $ 9,462
(1) Reserves of purchased companies and transfers to affiliates.
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders of Wheelabrator Technologies Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the Wheelabrator Technologies
Inc. Annual Report to Stockholders for 1994 incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 6, 1995. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule of Wheelabrator Technologies Inc. included on page 31 of
this Form 10-K is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York,
February 6, 1995
32
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 29th day of March 1995.
WHEELABRATOR TECHNOLOGIES INC.
By /s/ PHILLIP B. ROONEY
---------------------------
PHILLIP B. ROONEY,
CHAIRMAN OF THE BOARD 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.
Name Title Signature Date
--------------------------- ---------------------------- --------------------------- --------------
Phillip B. Rooney Director, Chairman of the /s/ PHILLIP B. ROONEY March 29, 1995
Board and Chief Executive ---------------------------
Officer Phillip B. Rooney
John D. Sanford Vice President, Treasurer /s/ JOHN D. SANFORD March 29, 1995
and Chief Financial Officer ---------------------------
John D. Sanford
Richard S. Haak, Jr. Controller and Principal /s/ RICHARD S. HAAK, JR. March 29, 1995
Accounting Officer ---------------------------
Richard S. Haak, Jr.
Dean L. Buntrock Director /s/ DEAN L. BUNTROCK March 29, 1995
---------------------------
Dean L. Buntrock
William M. Daley Director /s/ WILLIAM M. DALEY March 29, 1995
---------------------------
William M. Daley
Donald F. Flynn Director /s/ DONALD F. FLYNN March 29, 1995
---------------------------
Donald F. Flynn
Paul M. Montrone Director /s/ PAUL M. MONTRONE March 29, 1995
---------------------------
Paul M. Montrone
James E. Koenig Director /s/ JAMES E. KOENIG March 29, 1995
---------------------------
James E. Koenig
Manuel Sanchez Director /s/ MANUEL SANCHEZ March 29, 1995
---------------------------
Manuel Sanchez
Thomas P. Stafford Director /s/ THOMAS P. STAFFORD March 29, 1995
---------------------------
Thomas P. Stafford
33
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).
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 November 1, 1990 (incorporated
by reference to Exhibit 3.03 to the registrant's 1990 annual report on Form 10-K).
4. None.
5. Inapplicable.
6. Inapplicable.
7. Inapplicable.
8. Inapplicable.
9. None.
10.01 Tax Sharing Agreement ("TSA"), dated as of December 15, 1988, between the
registrant and Koll Real Estate Group, Inc. ("KREG") (incorporated by reference
to Exhibit 10.02 to Amendment No. 3 on Form 8 to KREG's registration
statement on Form 10, Commission File No. 0-17189).
---------------
* 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.
E-1
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.02 Amendment to the TSA dated February 14, 1994 (incorporated by reference to
Exhibit 10.02 to registrant's 1993 annual report on Form 10-K).
10.03 Master Support Agreement, dated as of February 26, 1986, among Allied-Signal
Inc. ("Allied Signal"), 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 Allied-Signal, Wheelabrator Technologies Inc. ("Old
WTI"), the Guaranteeing Subsidiaries referred to therein, the Non-Company Resco
Subsidiaries referred to therein, the registrant and 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).
10.04 Assignment, Assumption and Release Agreement, dated as of December 7, 1988,
among the registrant, Old WTI, the Old Guaranteeing Subsidiaries (as defined
therein) and Allied-Signal (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).
10.05 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).
10.06 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).
10.07 Amendment No. 1 to Land Option Agreement, dated as of June 1, 1992, 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).
10.08 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).
10.09 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).
---------------
* 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.
E-2
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.10 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).
10.11 Development Agreement, dated as of August 12, 1988, between Old WTI and
WMI (incorporated by reference to Exhibit 10.21 to the registrant's 1988 annual
report on Form 10-K).
10.12 Amendment No. 1 to Development Agreement, dated as of January 15, 1990,
between Old WTI and WMI (incorporated by reference to Exhibit 10.63 to
registrant's registration statement on Form S-4, Reg. No. 33-36118).
10.13 Amendment No. 2 to Development Agreement, dated as of June 1, 1992, between
Resco and WMI (incorporated by reference to Exhibit 19.03 to the registrant's
1992 annual report on Form 10-K).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
---------------
* 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.
E-3
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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).
---------------
* 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.
E-4
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33 Medical Waste Option Agreement, dated as of September 7, 1990, between WMI
and the registrant (incorporated by reference to Exhibit 10.36 to the registrant's
1990 annual report on Form 10-K).
10.34 Amendment No. 1 to Medical Waste Option Agreement, dated as of June 1, 1992,
between WMI and the registrant (incorporated by reference to Exhibit 19.04 to the
registrant's 1992 annual report on Form 10-K).
10.35 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).
10.36 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).
10.37 Wheelabrator Technologies Inc. Corporate Incentive Bonus Plan (as amended and
restated as of March 14, 1994) (incorporated by reference to Exhibit 10.39 to the
registrant's 1993 annual report on Form 10-K).
10.38 Wheelabrator Technologies Inc. Corporate Incentive Bonus Plan (as amended and
restated as of March 13, 1995).
---------------
* 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.
E-5
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.39 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).
10.40 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).
10.41 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).
10.42 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).
10.43 1991 Stock Option Plan for Non-Employee Directors of the registrant ("1991
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).
10.44 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).
10.45 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).
10.46 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).
10.47 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 registrants's 1992 annual report
on Form 10-K).
10.48 Amendment No. 1 to Rust Intercorporate Services Agreement dated as of August
10, 1993 by and among the registrant, Rust, WMX and CWM (incorporated by
reference to Exhibit 10.49 to the registrant's 1993 annual report on Form 10-K).
10.49 Organizational Agreement (see Item 2.02 hereof).
---------------
* 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.
E-6
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
10.50 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).
10.51 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).
10.52 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).
10.53 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).
10.54 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).
11. None.
12. None.
13.1 Management's Discussion and Analysis of Financial Condition and Results of
Operations.
13.2 Consolidated Financial Statements and Supplementary Data.
14. Inapplicable.
15. Inapplicable.
16. None.
---------------
* 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.
E-7
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit*
----------------------------------
17. Inapplicable.
18. None.
19. Inapplicable.
20. Inapplicable.
21. List of subsidiaries of the registrant.
22. None.
23.1 Consent of Arthur Andersen LLP regarding the registrant.
23.2 Consent of Arthur Andersen LLP regarding Rust.
24. None.
25. Inapplicable.
26. Inapplicable.
27. Financial Data Schedule.
28. None.
99.01 Rust's Consolidated Balance Sheets as of December 31, 1993 and 1994,
Consolidated Statements of Income, Cash Flows and Changes in Stockholders'
Equity for each of the years in the three-year period ended December 31, 1994
and Notes to Consolidated Financial Statements (incorporated by reference to
pages F-1 through F-22 of Rust's 1994 annual report on Form 10-K, Commission
File No. 1-11896).
99.02 Financial statement schedules of Rust (incorporated by reference to pages F-23
through F-24 of Rust's 1994 annual report on Form 10-K, Commission File No.
1-11896).
---------------
* 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.
E-8
EX-10.38
2
AMENDED INCENTIVE BONUS
Exhibit 10.38
WHEELABRATOR TECHNOLOGIES INC.
CORPORATE INCENTIVE BONUS PLAN
(AS AMENDED AND RESTATED AS OF MARCH 13, 1995)
----------------------------------------------
1. PURPOSE. The principal purpose of the Wheelabrator Technologies Inc.
Corporate Incentive Bonus Plan (the "Plan") is to advance the interests of
Wheelabrator Technologies Inc. (the "Company") by providing for annual bonuses
for corporate officers and other key employees of the Company, its direct and
indirect subsidiaries and its direct or indirect parent companies (collectively,
the "Affiliates"), so as to attract and retain such officers and key employees,
make their compensation competitive with other opportunities, and to the extent
provided herein provide them with an incentive to strive to achieve the
Company's financial and other business objectives.
2. ADMINISTRATION. With respect to participation in the Plan by individuals
who are either executive officers of the Company or the chief operating officer
of one of the Company's principal operating groups (the "Operating Group
Officers"), the Plan shall be administered by the Compensation and Stock Option
Committee (the "Committee") of the Board of Directors of the Company (the
"Board"). The Board may in its discretion designate the Board or a committee
other than the Committee to administer the Plan, in which event the Board or
such other committee shall be deemed the "Committee" hereunder. Notwithstanding
the foregoing, with respect to participation in the Plan by key employees who
are not described in the first sentence of this Section 2, the Plan shall be
administered by a management committee composed of the Company's Chairman of the
Board, President and Chief Operating Officer, and Chief Financial Officer (or
one or more persons designated by them), and all references herein to the
"Committee" shall be deemed to mean such committee as to matters involving the
participation in the Plan of such individuals who are not described in the first
sentence of this Section 2..
3. ELIGIBILITY; TERMINATION OF EMPLOYMENT.
(a) Participants in the Plan shall be selected by the Committee on an
annual basis from among the officers or other key employees of the Company or
any of its Affiliates.
(b) Notwithstanding the foregoing, individuals who become eligible to
participate in the Plan after the beginning of a calendar year (a "Plan Year")
shall, subject to selection and approval by the Committee, be entitled to a
bonus prorated to reflect such participant's number of months of participation
during the Plan Year.
(c) A participant whose employment with the Company or its Affiliates
terminates during the Plan Year shall not be entitled to the payment of a bonus
under the Plan, except as the Committee may otherwise determine in its sole
discretion.
Nothing contained in the Plan shall confer upon any participant any right to be
continued in the employ of the Company or any of its Affiliates or interfere in
any way with the right of the Company or any of its Affiliates to terminate a
participant's employment at any time.
4. BONUSES.
(a) Each participant in the Plan shall be eligible to receive such bonus,
if any, for each Plan Year as may be payable pursuant to the applicable
performance criteria described below. The Committee shall, on an annual basis,
establish a "target bonus" for each participant equal to a percentage of such
participant's annual base salary as of the last day of such Plan Year.
(b) Participants shall have their bonuses, if any, determined on the basis
of the degree of achievement of performance goals which shall be established by
the Committee in writing and which goals shall be stated in terms of the
attainment of specified levels of or percentage changes (as compared to a prior
measurement period or the current year's budget) in any one or more of the
following measurements: the Company's revenue, earnings per share of common
stock (the "Common Stock"), pretax income, pretax income net of earnings from
equity investees, cash flow from operations, total cash flow, return on equity,
return on capital, return on assets, net operating profits after taxes, economic
value added, total stockholder return or return on sales, or any individual
performance objective which is measured solely in terms of the attainment of
quantitative targets related to the Company's business, or any combination
thereof. The Committee shall for each Plan Year establish the performance goal
or goals from among the foregoing to apply to each participant and a formula or
matrix prescribing the extent to which such participant's target bonus shall be
earned based upon the degree of achievement of such performance goal or goals.
The Committee may also designate any other factor or factors to serve as
performance goals. The Committee may determine that the bonus payable to any
participant shall be based upon the attainment of performance goals comparable
to those specified above but in whole or in part applied to the results of an
Affiliate, a subsidiary, business unit, operating group, division or department
of the Company.
(c) A participant whose target bonus or performance goals are changed by
the Committee during the Plan Year to reflect a change in responsibilities or
otherwise shall have his or her bonus award, if any, based on the amount of base
salary earned and the performance goals applicable while in each target bonus
category during the Plan Year.
(d) The earnings per share of the Common Stock for any year shall be as
determined by the Company's independent public accountants on a primary, rather
than fully-diluted, basis. All financial measurements which are used as the
2
performance goals set forth in this Section 4 (or as a component of such
performance goals) shall be determined in accordance with generally accepted
accounting principles, excluding the effects of changes in accounting standards
or methods and special, unusual or nonrecurring events that would have the
effect of reducing bonuses otherwise payable hereunder.
(e) The Committee may, in its sole discretion, (i) award or increase the
amount of bonuses payable to one or more participants even though not earned in
accordance with the performance goals established pursuant to this Section 4, or
(ii) decrease the amount of bonuses otherwise payable to one or more
participants even though earned in accordance with the performance goals
established pursuant to this Section 4. No bonus shall be payable in any event
to the Chief Executive Officer or Chief Operating Officer of the Company if the
Committee determines that he has not established programs and systems which are
adequate to further the implementation of each of the Principles in the
Wheelabrator Technologies Inc. Environmental Policy.
5. PAYMENT. Subject to Section 6 below, payment of bonuses for any Plan Year
shall be made in cash as promptly as practicable after the end of such Plan
Year.
6. DEFERRAL. In accordance with procedures to be established by the Committee,
a participant in the Plan may elect to defer payment of all or any portion of a
bonus award which may be earned under the Plan for a Plan Year. Amounts so
deferred shall be credited by the Company to a bookkeeping account for the
participant and shall be deemed to be invested, pursuant to elections made by
the participant from time to time, in accordance with procedures to be
established by the Committee, in shares of Common Stock or such other investment
vehicles as the Committee may authorize from time to time for this purpose. The
Committee shall also have the authority on an annual basis at the time it
selects participants for any Plan Year to condition such selection upon receipt
of an agreement from one or more participants, containing such terms and
conditions as the Committee deems appropriate, to defer in the manner herein
specified, as a deemed investment in shares of Common Stock, payment of all or a
portion of any bonus award which may be earned under the Plan. Subject to such
conditions and limitations as the Committee may approve, amounts deferred
pursuant to this Section 6 shall be paid upon termination of the participant's
employment by reason of retirement, death or permanent disability or otherwise,
either in a lump sum or in installments as determined by the Company.
7. ADJUSTMENTS FOR CHANGES IN STOCK; MERGERS; ETC. In the event of dividends
payable in Common Stock or in the case of the subdivision or combination of
Common Stock (or in the case of any of the foregoing events involving common
stock of any Affiliate upon whose results a portion of a bonus award is based),
appropriate revision shall be made in any earnings per share criteria
established by the Committee pursuant to Section 4 above. In the event of a
Change in Control (as such term is defined in the Wheelabrator Technologies Inc.
1992 Stock Option Plan, as amended from time
3
to time) of the Company (i) the Plan Year shall end as of the end of the
calendar quarter coincident with or next following the date of such Change in
Control (or such other date as established by the Committee), (ii) the Committee
shall cause any bonus awards payable to participants to be promptly calculated
and (iii) the Company shall pay such bonus awards to participants as promptly as
practicable following the Committee's determination, notwithstanding any other
Plan provision to the contrary. In calculating the bonuses payable to
participants in connection with a Change in Control, the Committee is authorized
to take into consideration such factors as the shortened Plan Year, and any
other equitable adjustments to the formulae or matrices established by the
Committee pursuant to Section 4 as it deems appropriate.
8. PARTICIPANT'S INTERESTS. A participant's interest in any bonus awards
hereunder (including any payment deferred as contemplated by Section 6 hereof)
shall at all times be reflected on the Company's books as a general unsecured
and unfunded obligation of the Company subject to the terms and conditions of
the Plan. The Plan shall not give any person any right or security interest in
any asset of the Company or any fund in which any deferred payment is deemed
invested. None of the Company, the Board, or the Committee shall be responsible
for the adequacy of the general assets of the Company to discharge the payment
of its obligations hereunder nor shall the Company be required to save or set
aside funds therefore.
9. NON-ALIENATION OF BENEFITS; BENEFICIARY DESIGNATION. All rights and
benefits under the Plan are personal to the participant and neither the Plan nor
any right or interest of a participant or any person arising under the Plan is
subject to voluntary or involuntary alienation, sale, transfer, or assignment
without the Company's consent. Subject to the foregoing, the Company shall
establish such procedures as it deems necessary for a participant to designate
one or more beneficiaries to whom any bonus payment the Committee determines to
make and any deferred amounts would be payable in the event of the participant's
death.
10. WITHHOLDING FOR TAXES. Notwithstanding any other provisions of this Plan,
the Company may withhold from any payment made by it under the Plan such amount
or amounts as may be required for purposes of complying with the tax withholding
or other provisions of the Internal Revenue Code or the Social Security Act or
any state's income tax act or for purposes of paying any estate, inheritance or
other tax attributable to any amounts payable hereunder.
11. NO EMPLOYMENT RIGHTS. The Plan is not a contract of employment and
participation in the Plan will not cause any participant to have any rights to
continue as an employee of the Company or any of its Affiliates, or any right or
claim to any benefit under the Plan except as specifically provided herein.
12. GENDER AND NUMBER. Where the context admits, words denoting men include
women, the plural includes the singular, and the singular includes the plural.
4
13. COMMITTEE OR COMPANY DETERMINATIONS FINAL. Each determination provided for
in the Plan shall be made by the Committee or the Company, as the case may be,
under such procedures as may from time to time be prescribed by the Committee or
the Company and shall be made in the sole discretion of the Committee or the
Company as the case may be. Any such determination shall be conclusive.
14. AMENDMENT OR TERMINATION. The Committee may in its sole discretion
terminate or amend the Plan from time to time. No such termination or amendment
shall alter a participant's right to receive a distribution as previously
awarded or a deferred payment owed to such participant, as to which this Plan
shall remain in effect following its termination until all such amounts have
been paid, except as the Committee may otherwise determine.
15. SUCCESSORS. The Plan is binding on and will inure to the benefit of any
successor to the Company, whether by way of merger, consolidation, purchase or
otherwise.
16. CONTROLLING LAW. The Plan shall be construed in accordance with the
internal laws of the State of Illinois.
5
EX-13.1
3
MANAGEMENT'S DISCUSSION
Exhibit 13.1
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Prior to January 1, 1993, Wheelabrator Technologies Inc. ("Wheelabrator" or the
"Company") conducted business in two industry segments: Environmental Operations
and Environmental and Infrastructure Engineering Services. The businesses within
the Environmental Operations segment are principally involved in providing clean
energy through trash-to-energy and independent power facility ownership and
operation, in providing clean water products and services to industrial and
municipal clients, including process systems and equipment for water and
wastewater management, water and wastewater treatment facility operation and
biosolids management, and in providing clean air through a broad range of air
quality control systems and equipment designed for industrial and utility
applications.
Pursuant to an agreement with Chemical Waste Management, Inc. ("CWM") and The
Brand Companies, Inc. ("Brand"), effective January 1, 1993, Wheelabrator
contributed the businesses that constituted its Environmental and Infrastructure
Engineering Services segment along with certain other assets to form, in part,
Rust International Inc. ("Rust"), a new environmental consulting, site
remediation, and engineering and construction company. In early May 1993, Brand
was merged into a subsidiary of Rust. The Brand merger involved issuance of
additional shares of Rust common stock to acquire certain outstanding Brand
shares and reduced Wheelabrator's ownership of Rust from the approximately 42
percent originally held by the Company to approximately 40 percent. (See Note 2
of the Notes to Consolidated Financial Statements.)
The Rust transaction has no effect on Wheelabrator's 1992 and prior historical
financial statements. The Company has accounted for its investment in Rust using
the equity method, which resulted in a reduction of revenue, operating expenses
and selling and administrative costs for 1993 and thereafter when compared to
years prior to the Rust transaction. Wheelabrator's share of Rust's 1993 and
1994 net income is included in equity in earnings of affiliates.
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis of the Company's results of operations
focuses on the operating results of Wheelabrator's current lines of business
and, as such, is based on proforma 1992 results that assume the Rust transaction
had occurred on January 1, 1992, and historical 1993 and 1994 results. Proforma
information for 1992 is set forth in Note 2 of the Notes to Consolidated
Financial Statements.
Comparative operating results are summarized below (in millions):
Years Ended December 31,
--------------------------
1992 1993 1994
------ -------- --------
Revenue $928.3 $1,142.2 $1,324.6
Operating expenses 633.6 792.7 915.2
Selling and
administrative expenses 97.9 107.3 119.4
------ -------- --------
Income from operations $196.8 $ 242.2 $ 290.0
====== ======== ========
1
1993 COMPARED WITH 1992
-----------------------
Revenue increased $213.9 million to $1,142.2 million in 1993, which represents
an increase of 23 percent compared to 1992's proforma results. Approximately 40
percent of this growth came from water and air quality control companies
acquired during 1992 and 1993, 30 percent was attributable to successful project
development efforts, and the remaining 30 percent came from existing businesses.
Energy business revenue grew $43.4 million or 8 percent during 1993. The full
year impact of the 2,250 ton per day North Broward County, Florida, trash-to-
energy facility, which commenced operations in the second quarter of 1992, and
construction revenue from the Lisbon, Connecticut, trash-to-energy facility
being built by Wheelabrator for the Eastern Connecticut Resource Recovery
Authority ("ECRRA") provided half of this growth. Construction began in the
third quarter of 1993 on the Lisbon facility, which will be operated by the
Company under a long-term contract with ECRRA following completion in mid-1995.
(See Note 8 of the Notes to Consolidated Financial Statements.) The balance of
energy business revenue growth came from increased tonnage at certain trash-to-
energy facilities with related increases in trash disposal and electrical
generation revenue. Pricing for non-contract, or spot, trash disposal remained,
on average, at approximately 1992 levels. The portion of the Company's total
revenue contributed by energy decreased from 59 percent in 1992 to 52 percent in
1993.
Revenue from Wheelabrator's water businesses increased $91.3 million or 33
percent during 1993 and provided 32 percent of total 1993 revenue compared to 30
percent the prior year. The third quarter 1993 start of commercial operations
at the Company's New York Organic Fertilizer Company ("NYOFCO") biosolids
pelletizer facility, located in New York City, accounted for approximately 45
percent of the revenue increase. Acquisitions were responsible for an
additional 53 percent of water business growth, and existing operations provided
the balance. Water businesses acquired in 1992 and 1993 significantly expanded
Wheelabrator's capabilities to meet the water and wastewater management needs of
industrial customers and provided entry into certain regional biosolids markets
as well as additional wastewater treatment technology and process know-how. The
sluggish domestic economy and European recession resulted in slow revenue
expansion at existing water equipment businesses during 1993.
Air business revenue increased $79.2 million or 75 percent compared to 1992 and
represented 16 percent of the Company's 1993 revenue versus 11 percent the prior
year. The full year impact of 1992 acquisitions, which expanded air product
offerings to include volatile organic compound ("VOC"), odor control, and
continuous emission monitoring equipment and technology, accounted for half of
this growth. The remaining air business revenue increase was attributable to
execution of contracts, principally for flue gas scrubbers, associated with the
Phase I requirements of the Clean Air Act Amendments of 1990 (the "CAAA").
Wheelabrator's overall gross margin increased $54.8 million in 1993 compared to
the proforma 1992 amount but decreased as a percentage of revenue to 30.6
percent from 31.7 percent in the prior year. This percentage decline primarily
reflected the effect of changes in the Company's business mix brought about by
the rapid growth of air and water operations. In part because they are less
capital intensive, these businesses typically have lower gross margins than the
Company's energy operations. Increased competition in the biosolids and
municipal water and wastewater treatment plant operation markets also resulted
in lower margin contract renewals and awards, while general economic conditions
limited the Company's ability to pass along increased costs for its air and
water quality control equipment. Selling and administrative expenses increased
$9.4 million compared with proforma 1992 levels but decreased as a percentage of
revenue to 9.4 percent in 1993 compared to 10.5 percent the previous year. This
2
decline was attributable to integration of acquired companies into existing
businesses, to Company-wide administrative cost containment efforts, and to
spreading the fixed component of selling and administrative costs over a larger
revenue base.
Interest expense decreased $11.1 million in 1993, despite the full year impact
of interest costs associated with the North Broward County trash-to-energy
facility, due to the early retirement of certain outstanding long-term project
debt and increased capitalization of interest costs related to major projects
under construction. The $16.4 million decline in 1993 interest earnings
resulted from lower cash balances and interest rates when compared to the prior
year.
The Company recognized a $7.7 million nontaxable gain in 1993 related to Rust's
issuance of additional shares in connection with the Brand merger. (See Note 2
of the Notes to Consolidated Financial Statements.) Prior year results include
a similar nontaxable gain of $47.0 million associated with the initial public
offering ("IPO") of shares by Waste Management International plc ("WM
International"). Proforma 1992 results also include a $19.5 million
nonoperating gain related to Wheelabrator's equity interest in a similar gain
recognized by Rust in connection with WM International's IPO.
Wheelabrator's equity in the operating earnings of its WM International and Rust
affiliates increased compared to proforma prior year results due to internal
growth and acquisitions at Rust. As a result of adverse foreign currency
translation effects, WM International's contribution to equity earnings declined
versus 1992 despite substantially increased local currency earnings. (See
"Derivatives" discussion.)
The Company's 1993 income tax provision included a $6.5 million increase in
deferred income taxes in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("FAS 109"), as a result of the
August enactment of the Omnibus Budget Reconciliation Act of 1993 ("OBRA").
(See Note 3 of the Notes to Consolidated Financial Statements.)
Excluding the above-mentioned 1992 and 1993 nonoperating gains from affiliate
stock transactions and the 1993 deferred tax provision adjustment, net income
for 1993 increased 29 percent to $161.9 million, or $0.86 per share, compared
with proforma 1992 income before accounting changes of $125.5 million, or $0.67
per share. Net income for 1992 reflects one-time charges totaling $42.2
million, or $0.23 per share, relating to the adoption, effective January 1,
1992, of two new accounting standards: Statements of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions ("FAS 106"), and FAS 109. Adopting FAS 106 resulted in a one-time
cumulative after-tax charge of approximately $29.0 million, or $0.16 per share.
The adoption of FAS 109 resulted in a one-time cumulative charge of
approximately $13.2 million, or $0.07 per share. The FAS 109 charge resulted
primarily from increasing previously discounted deferred taxes, a method not
permitted under FAS 109. Operating results for 1992 were not significantly
impacted by these two accounting changes. (See Notes 3 and 6 of the Notes to
Consolidated Financial Statements.)
1994 COMPARED WITH 1993
Consolidated revenue grew $182.3 million to $1,324.6 million in 1994, which
represents a 16 percent increase over the prior year. Businesses acquired in
1993 and 1994 contributed approximately 47 percent of the revenue growth, while
incremental operating and construction revenue from new energy and water
development projects accounted for the remainder. Overall, revenue from
existing businesses was flat in 1994 compared to 1993 largely because of an
expected decline in CAAA-related work and delays in discretionary air and water
equipment purchases by municipal and industrial customers.
3
Revenue from energy businesses grew $96.2 million or 16 percent in 1994 and
constituted approximately 52 percent of Wheelabrator's total revenue. The third
quarter 1994 commencements of commercial operations at the Falls Township trash-
to-energy facility located near Philadelphia, Pennsylvania, and the wood waste,
scrap tire, and landfill gas-fired Ridge Generating Station in Polk County,
Florida, provided slightly over 25 percent of energy's growth. Construction
revenue recognized on the Lisbon trash-to-energy facility provided approximately
an additional 50 percent of the increase. Superior plant operating
performances, particularly by the Company's existing independent power
facilities, coupled with a shift in the mix of waste received at the trash-to-
energy plants from lower-priced spot tons to generally higher-priced contract
municipal tons accounted for the remainder. The economic recovery was the
primary reason for the additional municipal receipts. Spot disposal fees
remained at approximately 1993 levels throughout the year.
Wheelabrator's 1994 water business revenue grew $104.5 million or 29 percent
from the prior year and provided 35 percent of total revenue. Acquisitions
contributed nearly 80 percent of this growth. Companies purchased in 1994
expanded Wheelabrator's presence in the industrial water and wastewater
treatment markets both domestically and internationally and also increased the
breadth of the Company's technology and product offerings. The balance of the
revenue increase came from the full year impact of the NYOFCO biosolids
pelletizer facility, which began commercial operations in the third quarter of
1993. Increased 1994 revenue from sales of water process systems and equipment
to industrial customers was offset by a decline in revenue from the Company's
water, wastewater, and biosolids contract service operations and curtailed
equipment procurement by municipal customers. Increased competition,
particularly in the municipal water and wastewater treatment plant operations
market, was responsible for the decrease in contract service revenue.
Air-related revenue fell $18.3 million or ten percent in 1994 compared to 1993,
primarily because of an expected lull in air pollution control retrofit activity
by utilities between Phases I and II of the CAAA. In addition, many industrial
customers delayed awards for VOC and odor control equipment in response to the
uncertain economy and to rule-making delays and limited enforcement activities
by the U.S. Environmental Protection Agency ("EPA"). Air businesses accounted
for 13 percent of Wheelabrator's 1994 revenue.
The Company's gross margin increased $59.8 million during 1994 and represented
30.9 percent of revenue. The slight percentage improvement over 1993 was
caused by the improved operating performance of certain energy plants and the
addition of the NYOFCO facility. These gains were offset, in part, by general,
competition-related margin declines in the contract service water businesses and
continuing pricing pressures from air and water product customers. Selling and
administrative costs increased $12.1 million compared to the prior year but
decreased as a percent of revenue by 0.4 percentage points to 9.0 percent.
Acquisition integration activities, particularly within the Company's air
businesses, on-going cost containment initiatives, and revenue growth in excess
of associated selling and overhead cost increases led to the improvement.
Interest expense declined $12.0 million compared to 1993 principally as a
result of lower outstanding debt principal, the March 1994 refinancing of the
$113.0 million of project debt associated with the Company's Westchester County,
New York, trash-to-energy facility, and increased capitalization of interest
costs related to projects under construction. Two major energy projects began
commercial operations during the third quarter of 1994, and accordingly, related
interest capitalization ceased and interest expense increased during the fourth
quarter. Interest income for 1994 was $4.0 million lower than 1993 due largely
to lower cash balances throughout the year.
Equity income from Wheelabrator's investment in WM International increased $1.4
million or 11 percent compared to 1993 because of improved local currency
4
earnings and favorable exchange rate movements. (See "Derivatives" discussion.)
The Company's equity in the earnings of its Rust affiliate decreased $12.2
million in 1994 due to an earnings decline at Rust caused by a shift in business
mix to lower margin work, customer postponement of certain project awards and
start-ups, and a special charge related to the discontinuance and consolidation
of certain of Rust's operations. The special charge reduced Wheelabrator's
equity in Rust's earnings by approximately $2.2 million.
Excluding the 1994 Rust charge, the 1993 non-operating gain from the Rust stock
transaction, and the 1993 deferred tax impact of OBRA, the Company's net income
rose 15 percent in 1994 to $187.1 million or $0.99 per share, compared with
$161.9 million or $0.86 per share for the prior year.
Wheelabrator expects its 1995 earnings growth will not exceed ten percent
because of slow growth in domestic trash-to-energy and independent power markets
and a continued shift in its business mix into lower margin air and water
markets.
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 the Resource Conservation and Recovery Act. As a result
of the Supreme Court's decision, the EPA announced that ash from combustion of
municipal solid waste is subject to regulation as a hazardous waste if it
exhibits hazardous characteristics, thereby requiring it to be characterized and
disposed of appropriately. The EPA also announced that it will clarify the
application of land disposal restrictions in the event ash must be disposed of
as a hazardous waste. In response to this situation, the Company installed its
patented WES-Phix(R) technology at all of its trash-to-energy facilities not
previously subject to characterization requirements and, as a result, continues
to manage its residual ash as non-hazardous waste. Incremental capital and
operating expenditures required to treat, test, and dispose of residual ash at
the impacted facilities, net of expected contractual reimbursements from
customers, have not had and are not expected to have a material adverse impact
on Wheelabrator's financial condition or results of operations.
Also in May 1994, the U.S. Supreme Court ruled that state and local governments
may not 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, legislation has been proposed to effectively grandfather existing flow
control mandates. The Company has experienced no tonnage decreases as a result
of the Supreme Court's ruling. Regardless of whether such legislation is
passed, management does not believe the decision will have a material adverse
impact on its financial condition or results of operations.
5
ENVIRONMENTAL MATTERS
The majority of Wheelabrator's businesses are intrinsically connected with the
protection of the environment. As such, a significant portion of the Company's
operating costs and capital expenditures could be characterized as costs of
environmental protection. While the Company is faced, in the normal course of
its activities, with the need to expend funds for environmental protection and
remediation, it does not expect such expenditures to have a material adverse
effect on its financial condition or results of operations because its business
is based upon compliance with environmental laws and regulations and its goods
and services are priced accordingly. Such costs may increase in the future as a
result of legislation or regulation. However, the Company believes that in
general it benefits from increased government regulation, which increases the
demand for its products and services, and that it has the resources and
experience to manage environmental risk.
Estimated closure and post-closure 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
EPA or applicable state regulations, whichever are stricter. The accruals for
closure and post-closure 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.
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.
Wheelabrator has been notified by certain private parties that it may be
potentially responsible for a portion of the remediation costs related to a
certain state-listed remediation site currently undergoing a site assessment
study. Although the Company has been requested by the private parties to share
in these costs, no litigation has been filed and the Company has not been named
as a potentially responsible party. At the present time, there is insufficient
information available to estimate the remediation costs or the extent of
Wheelabrator's responsibility, if any.
Wheelabrator also becomes involved, in the normal course of business, in
judicial and administrative proceedings related to alleged violations of
licenses, permits, law 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.
DERIVATIVES
From time to time the Company uses foreign currency derivatives to mitigate the
impact of currency fluctuations on its equity income from WM International and
6
on certain specifically identified transactions. In addition, Wheelabrator is a
party to an interest rate swap agreement that minimizes the impact of interest
rate fluctuations on and is a required part of the project financing for its
Frackville, Pennsylvania, independent power facility. Derivatives used are
confined to simple instruments that do not involve multipliers or leverage and
have not had and are not expected to have a material impact on the Company's
financial statements. The use of and accounting for these derivative
instruments, all of which are considered non-trading in nature, are discussed
more fully in Note 1 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Principal uses of capital during the past several years were investments in new
projects, acquisitions, repayment of long-term project debt, stock repurchases,
and payments of previously recorded liabilities relating to federal income tax
settlements for the period ended December 31, 1988. Wheelabrator believes it
has access to sufficient capital resources to finance its working capital needs,
project development activities, and capital expenditures along with future
acquisitions. Operating cash flows or borrowings from WMX Technologies, Inc.
("WMX") pursuant to the Master Intercorporate Agreement between the Company and
WMX may be utilized to meet short-term funding requirements. Pursuant to this
agreement, Wheelabrator may borrow up to $100.0 million in excess of any amounts
loaned to WMX until September 1995. As of December 31, 1994, there were $53.2
million of net borrowings outstanding under the terms of this agreement. Future
needs for long-term capital are anticipated to be met by operating cash flows or
by externally financing certain projects. Cash provided by operating
activities, net of dividends, is expected to be approximately $300 million
during 1995.
During 1994, construction was completed on a 1,500 tons per day trash-to-energy
facility and associated recycling center in Falls Township, Pennsylvania, as was
work on a wood waste, scrap tire, and landfill gas-fired power generating
facility in Polk County, Florida. Both of these facilities began commercial
operations in August. Additionally, the Company finished construction of a
biosolids composting facility in Rochester, New Hampshire, that began operations
in the first quarter and completed a biosolids pelletizer facility in Baltimore,
Maryland, that began commercial operations in January 1995. During 1993,
construction was completed on the NYOFCO biosolids pelletizer facility , which
began commercial operations in August of that year after successfully completing
its acceptance tests. Funding for the above projects was provided from the
Company's available cash. Capital expenditures for new project construction
totaled $81.3 million, $262.2 million, and $77.0 million in 1992, 1993, and
1994, respectively. Project-related capital investment in 1995 is anticipated
to include construction of a second pelletizer installation in Baltimore along
with several biosolids composting facilities and will require approximately $60
million of capital. Non-project capital expenditures totaled $66.7 million,
$29.4 million, and $28.5 million in 1992, 1993, and 1994, respectively, and are
expected to remain at approximately 1994 levels in 1995.
Wheelabrator's 1994 acquisitions included 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. Consideration totaled approximately 156 thousand shares of common
stock and $25.8 million of cash. Five of these acquisitions are based in Europe
and Southeast Asia and expand the Company's ability to penetrate global water
process system markets as well as offer additional technologies domestically.
Another company provides clean process water for Mexican industry. During 1993,
the Company purchased seven businesses engaged in providing water and air
quality-related environmental products and services as well as independent power
in exchange for approximately 1.6 million shares of common stock and $15.0
million of cash. The Company acquired 17 businesses during 1992 that provide
environmental engineering, biosolids management, and various clean air
7
technologies. Seven of the 1992 acquisitions serve the air and water quality
control markets, while the other ten were included in the businesses
contributed to the formation of Rust. Wheelabrator paid cash and issued common
stock of approximately $115.5 million and 6.8 million shares for these 1992
acquisitions. The proforma effect of the acquisitions made in 1992, 1993, and
1994 on the Company's results of operations is not material. Wheelabrator
intends to continue its diversification through selected acquisitions of air and
water quality control technologies and companies, both domestically and
internationally.
In April 1994, the Company filed an updated "shelf" registration statement with
the Securities and Exchange Commission covering 11.1 million shares of the
Company's common stock for issuance in connection with future acquisitions.
Over the past several years, Wheelabrator has refinanced at lower interest rates
or repaid prior to maturity certain of its existing project debt. The Company
intends to continue such activities in those instances where it is economic to
do so and permitted by the debt indentures. In the first quarter of 1993, the
Company completed an escrow refinancing of approximately $154.3 million of long-
term project debt underlying the sale leaseback financing of its Baltimore,
Maryland, trash-to-energy facility. The benefit of this refunding, which
reduced the interest rate on the debt from approximately ten percent to seven
percent, is being recognized through lower lease payments over the remaining
life of the operating lease term. In the third quarter of 1992, approximately
$75.2 million of project debt related to its Saugus, Massachusetts, trash-to-
energy facility was retired. In December 1994, the remaining $11.3 million of
Saugus' private placement debt was retired. During the first quarter of 1993,
Wheelabrator retired early, at par value, letter of credit secured debt of
approximately $40.0 million related to its Westchester County, New York, trash-
to-energy facility.
In March 1994, the Company completed a refinancing of the remaining $113.0
million of project debt associated with the Westchester County facility. The
refinancing decreased the interest rate on this debt from approximately 10.25
percent to 5.6 percent. In conjunction with this transaction, the Company
agreed to share one-half of the interest rate savings with Westchester County in
exchange for certain agreements relating to the County's involvement in the
retrofit of the facility to meet the requirements of the CAAA and a five-year
extension of the solid waste disposal agreement with the County. Additionally,
the County has agreed, subject to certain regulatory requirements and other
conditions, to finance 80 percent of the retrofit costs. In turn, the Company
has agreed to provide the funds necessary to pay the remaining costs for the
retrofit. Wheelabrator began realizing the benefits of the refinancing in
March 1994, while the costs associated with the facility retrofit are not
expected to be incurred until the latter part of this decade. Taken together,
these refinancing and retrofit activities are not expected to have a material
impact on the Company's liquidity or results of operations.
Before the turn of the century, the air pollution control systems at certain
other trash-to-energy facilities owned or leased by Wheelabrator will be
required to be modified to comply with more stringent air pollution control
standards such as those in the CAAA. Required compliance dates for affected
facilities, including Westchester County, are not yet known because the EPA has
not issued the final emission regulations and timetables required by the CAAA.
Based on the draft emission standards issued to date as part of the CAAA rule-
making process, currently available technologies will be adequate to meet the
new standards. Although the expenditures required for such modifications are
estimated to be in the $225 - $275 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 recover from customers the majority of incremental capital
and operating costs.
8
Wheelabrator and Koll Real Estate Group, Inc. ("KREG", formerly The Bolsa Chica
Company) are parties to a tax sharing agreement covering periods ending prior to
December 31, 1988, during which Wheelabrator, KREG, The Henley Group, Inc.
("Henley"), and their respective affiliates were included in the same
consolidated group for federal income tax purposes. In January 1993, the
Internal Revenue Service ("IRS") completed an examination of Wheelabrator's
consolidated federal income tax returns for the period 1986-1988. As a result
of this examination and the Company's obligations pursuant to the tax sharing
agreement, Wheelabrator made payments for taxes and interest of approximately
$61.7 million in January 1993 and $29.8 million in April 1994. These
liabilities had previously been recorded. The Company has no further
obligations under the tax sharing agreement. Note 3 of the Notes to
Consolidated Financial Statements provides additional details regarding
resolution of the Company's obligations under the agreement.
During 1992 and 1994, the Company repurchased approximately 4.2 million and 3.3
million shares of its common stock for an aggregate cost of approximately $57.6
million and $47.6 million, respectively. No shares were repurchased in 1993.
The Company is authorized to repurchase an additional 10.5 million shares of its
common stock through March 1996 on the open market or in privately negotiated
transactions provided market conditions make it attractive to do so.
Wheelabrator effected a two-for-one stock split through the issuance on January
7, 1993, of one additional share of common stock for each share outstanding on
December 23, 1992. All share and per share amounts in this report have been
adjusted to reflect the split for the periods presented. During 1992,
Wheelabrator declared cash dividends totaling $0.04 per common share, of which
$0.03 per share was paid in 1992 and $0.01 per share was paid in January 1993.
Additionally, during 1993 and 1994, the Company declared and paid cash dividends
totaling $0.08 and $0.10 per common share, respectively.
In September 1993, the two regional solid waste districts that together form the
major customer of the Company's 200 tons per day trash-to-energy facility in
Claremont, New Hampshire, filed for bankruptcy under Chapter 9 of the Federal
Bankruptcy Code. Wheelabrator filed a motion to dismiss the bankruptcy in the
belief that the districts' actions were an attempt to avoid settling a long-
standing contract payment dispute and were otherwise without merit. In a ruling
issued in February 1994, the United States Bankruptcy Court for the District of
New Hampshire agreed with the Company's position and dismissed the districts'
bankruptcy petition. This ruling has been appealed by the districts.
Wheelabrator has made provision in its financial statements for the expected
cost of these legal proceedings as well as the settlement of amounts in dispute.
Further, even if the districts are successful, the impact on the Company's
financial condition and results of operations will not be material.
In February 1994, a Connecticut Superior Court judge issued a decision on
appeals of the Connecticut Department of Environmental Protection's ("DEP")
issuance of Wheelabrator's permit to construct the $92 million Lisbon,
Connecticut, trash-to-energy facility. In the ruling, the judge agreed with the
Company's position on all issues raised in the appeals but remanded the permit
back to the DEP for further proceedings on an uncontested permit condition that
requires the Lisbon facility to dispose of only Connecticut waste. The Company
continues to construct the facility as it pursues a favorable resolution of this
permit remand through appropriate judicial and regulatory proceedings. As of
December 31, 1994, the facility was 60 percent complete. Although Wheelabrator
believes that the probability of an adverse determination as a result of the
judge's remand order is remote, such a determination could result in the
permanent termination of facility construction. Through a guarantee agreement
with ECRRA, the facility's owner, such a consequence may require the Company to
redeem the debt issued to finance the facility. In the unlikely event this were
to occur, the resulting payments could have a material adverse impact on the
Company's financial condition and results of operations.
9
WMX announced in the third quarter of 1994 that it was undertaking a
comprehensive review of its operations, financial strategies, and organizational
structure. While the review has not been completed, the objective of the study
is to consider potential strategic actions that will enhance the long-term value
of WMX and its majority-owned subsidiaries, including Wheelabrator.
FINANCIAL CONDITION
The Company's financial condition at December 31, 1994, compared to December 31,
1993, generally reflected the results of normal operating activities along with
the use of funds for investments in new projects under construction, retirement
of project debt, stock repurchases, and payment of a previously recorded federal
income tax liability. During 1994, net property, plant, and equipment increased
by approximately $26.1 million as a result of acquisition and project
construction activities offset in part by depreciation. Scheduled and early
debt retirements reduced project debt approximately $45.8 million from
December 31, 1993, levels and successful refinancing activities reduced interest
rates on $113.0 million of long-term debt maturing through July 2009.
Acquisition activities increased goodwill, net of amortization, $24.8 million
during 1994. In addition, other long-term liabilities were reduced by the
payment of the Company's remaining $29.8 million obligation under the tax
sharing agreement with Abex and KREG. Net working capital as of December 31,
1994, was a deficit of $10.2 million due largely to share repurchase-related
short-term borrowings from WMX offsetting growth-related increases in
receivables and inventories.
10
EX-13.2
4
CONSOLIDATED FINANCIAL S
Exhibit 13.2
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(000's omitted, except share amounts)
December 31,
-----------------------
1993 1994
ASSETS
Current assets:
Cash and cash equivalents $ 36,719 $ 36,133
Receivables, net of allowance of $9,284 in 1993
and $9,462 in 1994 188,241 230,433
Inventories 23,130 69,220
Costs and earnings in excess of billings 25,712 28,767
Other current assets 61,554 64,220
---------- ----------
Total current assets 335,356 428,773
Property, plant and equipment, net 1,653,920 1,680,002
Cost in excess of net assets of acquired businesses, net 205,886 230,711
Investments in affiliates 561,045 618,971
Other assets 334,071 324,014
---------- ----------
Total assets $3,090,278 $3,282,471
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term project debt $ 33,754 $ 29,213
Due to WMX Technologies, Inc. - 53,163
Accounts payable 70,762 100,911
Accrued liabilities 197,123 189,687
Advance payments on contracts 28,147 65,966
---------- ----------
Total current liabilities 329,786 438,940
---------- ----------
Long-term project debt 776,858 735,646
---------- ----------
Deferred income taxes 292,364 332,617
---------- ----------
Deferred income 106,562 89,083
---------- ----------
Other long-term liabilities 297,870 261,303
---------- ----------
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;
188,863,449 shares issued in 1993,
189,545,407 shares issued in 1994 1,888 1,895
Capital in excess of par value 874,580 877,428
Cumulative translation adjustment (33,670) (17,650)
Treasury stock at cost; 43,127 shares in 1993,
3,270,054 shares in 1994 (717) (47,489)
Retained earnings 444,757 610,698
---------- ----------
Total stockholders' equity 1,286,838 1,424,882
---------- ----------
Total liabilities and stockholders' equity $3,090,278 $3,282,471
========== ==========
The accompanying notes are an integral part of these balance sheets.
1
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(000's omitted, except per share amounts)
Years Ended December 31,
--------------------------------------
1992 1993 1994
Revenue $1,483,054 $1,142,219 $1,324,567
Operating expenses 1,108,780 792,719 915,237
Selling and administrative expenses 148,355 107,276 119,380
Interest expense 75,569 64,484 52,454
Interest income (34,656) (18,278) (14,250)
Equity in earnings of affiliates (15,365) (44,809) (34,081)
Gains from stock transactions of affiliates (47,000) (7,680) -
Other income, net (5,705) (4,530) (1,589)
---------- ---------- ----------
Income before income taxes and cumulative
effects of accounting changes 253,076 253,037 287,416
Income tax provision 76,694 89,935 102,521
---------- ---------- ----------
Income before cumulative effects of
accounting changes 176,382 163,102 184,895
Cumulative effects of accounting changes:
Postretirement benefits, net (29,010) - -
Income taxes (13,220) - -
---------- ---------- ----------
Net income $ 134,152 $ 163,102 $ 184,895
========== ========== ==========
Weighted average common and common
equivalent shares outstanding 188,200 188,900 189,900
========== ========== ==========
Earnings per common and common
equivalent share:
Before cumulative effects of accounting
changes $ 0.94 $ 0.86 $ 0.97
Cumulative effects of accounting changes:
Postretirement benefits, net (0.16) - -
Income taxes (0.07) - -
---------- ---------- ----------
Net income $ 0.71 $ 0.86 $ 0.97
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
2
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(000's omitted)
Years Ended December 31,
--------------------------------
1992 1993 1994
OPERATING ACTIVITIES
Income before cumulative effects
of accounting changes $176,382 $163,102 $184,895
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 67,879 75,323 95,254
Deferred income taxes 61,604 61,477 48,909
Undistributed earnings of affiliates (15,365) (44,809) (34,081)
Gains from stock transactions of
affiliates (47,000) (7,680) -
Deferred lease expense (10,540) (7,349) (7,530)
Changes in assets and liabilities,
net of effects of acquired and
contributed businesses:
Receivables, net (37,981) (25,283) (29,619)
Inventories (8,863) 4,101 (9,517)
Costs and earnings in excess of
billings (30,601) (9,174) (1,736)
Other current assets (14,138) (26,971) (2,826)
Accounts payable (7,766) (32,008) 9,849
Accrued liabilities 12,614 (22,666) (19,653)
Advance payments on contracts (31,393) 380 (2,594)
Other long-term liabilities 5,317 23,205 (46,854)
Other, net (4,258) (27,267) (9,017)
--------- --------- ---------
Net cash provided by operating
activities 115,891 124,381 175,480
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures (148,025) (291,637) (105,459)
Sale of property, plant and equipment 756 1,682 8,374
Investments held by trustees 18,763 9,917 5,936
Cash paid for acquisitions, net of
acquired cash (145,521) (14,983) (25,754)
Other, net 4,785 7,524 (5,623)
--------- --------- ---------
Net cash used for investing activities (269,242) (287,497) (122,526)
--------- --------- ---------
FINANCING ACTIVITIES
Additions to long-term project debt 652 - 112,985
Repayments of long-term project debt (129,666) (82,185) (159,086)
Net borrowings from WMX Technologies, Inc. - - 53,163
Proceeds from exercise of stock options
and Equity Purchase Program note
repayments, net 31,026 7,575 7,873
Dividends paid (5,553) (16,826) (18,954)
Stock repurchase program (57,629) - (47,550)
Other, net 2,315 - (1,971)
--------- --------- ---------
Net cash used for financing activities (158,855) (91,436) (53,540)
--------- --------- ---------
Decrease in cash and cash equivalents (312,206) (254,552) (586)
Cash and cash equivalents at beginning of
period 603,477 291,271 36,719
--------- --------- ---------
Cash and cash equivalents at end of
period $ 291,271 $ 36,719 $ 36,133
========= ========= =========
Supplemental disclosure:
Interest paid, net of amounts
capitalized $ 78,421 $ 62,490 $ 56,015
========= ========= =========
Income taxes paid $ 22,112 $ 85,441 $ 73,790
========= ========= =========
Significant noncash investing activities:
Net assets contributed to Rust
International Inc. $ - $ 244,278 $ -
========= ========= =========
Common stock issued for acquisitions $ 85,182 $ 30,972 $ 2,900
========= ========= =========
Liabilities assumed in acquisitions $ 63,541 $ 35,427 $ 74,938
========= ========= =========
The accompanying notes are an integral part of these financial statements.
3
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(000's omitted)
Equity
Capital in Purchase Cumulative
Common Excess of Program Translation Treasury Retained
Stock Par Value Notes Adjustment Stock Earnings Total
--------------------------------------------------------------------------------------------------------
Balance,
December 31, 1991 $1,817 $704,639 $(4,524) $ 19,537 $ -- $169,882 $ 891,351
Net income -- -- -- -- -- 134,152 134,152
Dividends declared
($0.04 per share) -- -- -- -- -- (7,417) (7,417)
Foreign currency
translation -- -- -- (37,322) -- -- (37,322)
Exercise of stock
options 8 (3,004) -- -- 21,147 -- 18,151
Equity Purchase
Program -- -- 4,524 -- -- -- 4,524
Tax benefit from
stock options and
Equity Purchase
Program -- 8,351 -- -- -- -- 8,351
Stock issued for
acquisitions 40 85,142 -- -- -- -- 85,182
Stock repurchases -- -- -- -- (57,629) -- (57,629)
Treasury shares
distributed for
stock split -- (36,482) -- -- 36,482 -- --
------ -------- -------- ----------- -------- -------- ----------
Balance,
December 31, 1992 1,865 758,646 -- (17,785) -- 296,617 1,039,343
Net income -- -- -- -- -- 163,102 163,102
Dividends declared
($0.08 per share) -- -- -- -- -- (14,962) (14,962)
Foreign currency
translation -- -- -- (15,885) -- -- (15,885)
Exercise of stock
options 7 4,195 -- -- 3 -- 4,205
Tax benefit from
stock options -- 3,370 -- -- -- -- 3,370
Stock issued for
acquisitions 16 30,707 -- -- 249 -- 30,972
Treasury shares
from acquisition
adjustments -- -- -- -- (969) -- (969)
Investment in Rust
International Inc. -- 77,662 -- -- -- -- 77,662
------ -------- -------- ----------- -------- -------- ----------
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 -- -- -- -- (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
====== ======== ======== =========== ======== ======== ==========
The accompanying notes are an integral part of these financial statements.
4
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(000's omitted in all tables except per share amounts)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Wheelabrator, a majority-owned subsidiary of WMX, is a multi-faceted
environmental services company involved in providing clean energy through trash-
to-energy and independent power facility ownership and operation, in providing
clean water products and services to industrial and municipal clients, including
process systems and equipment for water and wastewater management, water and
wastewater treatment facility operation and biosolids management, and in
providing clean air through a broad range of air quality control systems and
equipment designed for industrial and utility applications.
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. Prior to January 1, 1993, the Company consolidated the financial
results of certain businesses contributed to form, in part, Rust. Beginning in
1993, the Company's investment in Rust has been accounted for using the equity
method (see Note 2).
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.
DEVELOPMENT AGREEMENT Through August 1994, the Company and WMX were parties to
an agreement that provided for reimbursement by WMX of certain project
development expenses incurred by Wheelabrator, subject to certain limitations.
Wheelabrator billed WMX $6.9 million and $7.6 million under this agreement
during 1993 and 1994, respectively.
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 1992, 1993 and 1994 were not significant.
5
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
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 which
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. Under the terms of this agreement, in the event Wheelabrator requires
short-term cash for the conduct of its business and operations, WMX will make
available to Wheelabrator, through September 1995, 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 Company's Consolidated Balance
Sheets. At December 31, 1993, the Company had net investments with WMX of
approximately $14.9 million. As of December 31, 1994, the Company had net
borrowings from WMX of $53.2 million under the terms of this agreement.
DERIVATIVE FINANCIAL INSTRUMENTS From time to time, the Company uses
derivatives to manage currency and interest rate risk. The portfolio of such
instruments (which are held for purposes other than trading) at December 31,
1994, is set forth below:
INTEREST RATE AGREEMENT As part of the long-term financing of the Company's
Frackville, Pennsylvania, independent power facility, Wheelabrator was required
to enter into an interest rate swap agreement to reduce the impact of changes in
interest rates on the underlying variable rate term loans. Under the agreement,
which expires at the end of 1995, Wheelabrator pays a fixed interest rate of
9.65 percent and receives floating interest rate payments from the counterparty
at LIBOR over the term of the agreement without the exchange of the underlying
notional amount. During 1994, Wheelabrator incurred $1.3 million of net interest
expense under this agreement, which increased the effective interest rate on the
related debt by approximately 4 percent. The $25 million notional amount of this
agreement is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss.
While Wheelabrator is exposed to market risk to the extent that receipts and
payments under this agreement are affected by market interest rates, the
agreement was entered into to manage interest rate exposure on the underlying
6
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
project debt. Accordingly, differences paid or received under this agreement are
included as part of interest expense over the life of the agreement.
CURRENCY AGREEMENTS During 1993 and 1994 the Company used foreign currency
derivatives to mitigate the impact of currency fluctuations on its equity in the
earnings of its WM International affiliate. Although the Company's purpose for
using such derivatives was to hedge currency risk, they did not qualify for
hedge accounting under generally accepted accounting principles and,
accordingly, were marked to market at the end of each interim accounting period.
The derivatives in place during 1994 consisted of offsetting put and call
options with different strike prices. The Company receives or pays, based on the
notional amount of the option, the difference between the average exchange rate
of the hedged currency against the base currency and the average (strike price)
contained in the option. Complex instruments involving multipliers or leverage
are not used. While the Company may incur an expense in connection with these
agreements, it will recognize an offsetting increase in the translation of
foreign earnings from foreign investees. All options expired in December 1994.
The gains and losses recognized on these collars during 1994 and on similar
derivatives during 1993 were immaterial. Management carefully monitors market
conditions and may enter similar agreements in the future when it is deemed
beneficial.
In addition, Wheelabrator has sold an immaterial amount of German Deutschemarks,
British Pounds, French Francs, Italian Lira and Austrian Schillings forward for
delivery at various dates in 1995 to hedge foreign exchange exposure on
specifically identified transactions. Gains or losses on these hedges are
included in the measurement of the subsequent transaction. Where deemed
advantageous, management will enter similar hedges in the future to mitigate
foreign exchange exposure.
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
$978.4 million and $828.3 million on December 31, 1993 and 1994, 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 5 for the terms and carrying values of the Company's
various debt instruments. The fair value of the Frackville interest rate swap
was a
7
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
liability of approximately $1.9 million and $0.6 million on December 31, 1993
and 1994, respectively. The fair value of the interest rate swap was the
estimated amount that the counterparty would have received to terminate the swap
agreement at the balance sheet date and was calculated by applying current rates
to the fixed and variable components of the swap agreement.
INVENTORIES Inventories are stated at the lower of cost (first-in, first-out
method) or market (net realizable value).
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.
The Company holds options to purchase or lease sites at existing or future WMX
landfills for future trash-to-energy or other facilities. 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 WMX sites commenced operations.
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 $2.2 million in 1992, $10.0 million in
1993 and $12.1 million in 1994.
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 for 1993 and 1994 were $10.0 million and $15.9 million,
respectively. On an ongoing basis, the Company measures realizability of
goodwill by the ability of the acquired businesses to generate current and
expected future operating income in excess of unamortized goodwill.
8
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
If such realizability is in doubt, an adjustment is made to reduce the carrying
value of the goodwill. Such adjustments have not historically been material to
the Company's financial statements.
DISPOSAL CREDITS The Company classifies disposal credits as other assets until
applied against the cost of disposing of materials such as biosolids or ash
residue from its trash-to-energy facilities at WMX landfills. These credits are
charged to expense as utilized. On January 1, 1993, $30.0 million of the credits
were contributed to Rust as part of the transaction discussed in Note 2. During
1993 and 1994 the Company utilized $1.9 million and $2.5 million of disposal
credits and at December 31, 1993 and 1994, had approximately $36.7 million and
$34.2 million of disposal credits remaining.
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. The Company adopted FAS 109 effective January 1, 1992 (See Note 3).
The adoption of FAS 109 changed the Company's method of accounting for income
taxes from the deferred method to 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. Further, deferred income taxes are not provided on gains from stock
transactions of affiliates because the Company in conjunction with WMX intends
to control its investment in affiliates to maintain the nontaxable status of
such gains. Investment credits have been deferred and are included in income as
a reduction of income tax expenses over the estimated useful lives of the assets
that gave rise to the credits.
9
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
ENVIRONMENTAL COSTS AND LIABILITIES The Company operates in the environmental
industry and the majority of its 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. Such costs may increase in the future as a result of legislation or
regulation. However, the Company believes that in general it benefits from
increased government regulation, which increases the demand for its products and
services, and that it has the resources and experience to manage environmental
risk.
Estimated closure and post-closure 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
EPA or applicable state regulations, whichever are stricter. These accruals for
closure and post-closure 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 judgement 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.
10
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
The Company has recorded liabilities for closure and post-closure monitoring and
environmental remediation costs as follows:
December 31,
----------------
1993 1994
Current portion, included in
Accrued liabilities $ 8,688 $ 4,562
Non-current portion, included in
Other long-term liabilities 16,142 17,145
------- -------
Total $24,830 $21,707
======= =======
During the remaining life of active sites, the Company anticipates providing an
additional $3.9 million of closure and post-closure costs.
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 and shares pledged under the Company's Equity Purchase
Program (see Note 6). 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 Company effected a two-for-one split of its common stock on January 7, 1993.
Earnings per common and common equivalent share and the number of shares
outstanding have been adjusted to give retroactive effect to the stock split for
all periods presented.
ACCOUNTING PRONOUNCEMENTS Effective January 1, 1994, Wheelabrator adopted
Statement of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits ("FAS 112"). This new statement established accounting
standards for employers who provide benefits to former or inactive employees
after employment but before retirement. The adoption of FAS 112 did not have a
material impact on the Company's financial statements since its accounting prior
to adoption of FAS 112 was substantially in compliance with the new standard.
Also effective during 1994 was Statement of Financial Accounting Standards No.
115, Accounting for Certain Debt and Equity Securities ("FAS 115"). The Company
does not have significant investments and does not contemplate acquiring
significant investments of the type covered in FAS 115.
RECLASSIFICATION Certain prior period amounts have been reclassified to conform
with the current year presentation.
11
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
NOTE 2 - CAPITAL TRANSACTIONS, ACQUISITIONS AND DIVESTITURES
WASTE MANAGEMENT INTERNATIONAL In the third quarter of 1991, Wheelabrator issued
approximately 12.0 million shares of common stock to WMX in exchange for a 15
percent equity interest in a predecessor of WM International. WM International
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. In April 1992, WM International sold previously unissued ordinary
shares in an IPO, thereby reducing Wheelabrator's equity interest in WM
International from 15 percent to 12 percent. Wheelabrator recognized a $47.0
million nontaxable gain as a result of this transaction. As of December 31,
1994, WM International was owned approximately 12 percent by Wheelabrator, 12
percent by Rust, 56 percent by WMX and 20 percent by the public.
During 1992, 1993 and 1994, respectively, Wheelabrator recorded equity in net
income of WM International of $15.6 million, $13.8 million and $15.2 million.
Wheelabrator's investment in WM International totaled approximately $194.0
million and $226.0 million as of December 31, 1993 and 1994.
12
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
A summary of certain financial information for WM International follows:
December 31,
--------------------------------------------------------------------------------
1993 1994
Current assets $ 629,786 $ 828,011
Noncurrent assets 2,694,489 3,216,661
Current liabilities 533,266 788,769
Noncurrent liabilities 904,007 1,042,062
Minority interest 270,640 330,172
Years Ended December 31,
--------------------------------------------------------------------------------
1992 1993 1994
Revenue $1,445,735 $1,411,211 $1,710,862
Gross profit 412,472 402,065 466,265
Net income 120,113 114,246 126,753
RUST INTERNATIONAL Pursuant to an agreement with two WMX subsidiaries, CWM and
Brand, effective January 1, 1993, Wheelabrator contributed its engineering and
construction business, its environmental and infrastructure consulting services
business and certain other assets to form, in part, Rust, a new environmental
consulting, site remediation, and engineering and construction company. CWM
contributed its hazardous substances remediation services group, its 56 percent
equity interest in Brand, its 12 percent interest in WM International and
certain other assets to Rust. In early May 1993, Brand was merged into a
subsidiary of Rust. Under the terms of the merger, those Brand stockholders who
did not elect to receive $18.75 per Brand share in cash received shares of Rust
common stock for their Brand shares on a one-for-one basis. The issuance of
additional Rust shares to acquire the balance of Brand shares resulted in the
Company recognizing a nontaxable gain of $7.7 million and reduced Wheelabrator's
ownership from approximately 42 percent to approximately 40 percent. CWM
currently owns 56 percent of Rust, and four percent is owned by the public. As a
result of the transaction, beginning in 1993 the Company no longer consolidated
the financial results of the businesses that it contributed, but rather
accounted for its investment in Rust using the equity method, which resulted in
a reduction of revenue, operating expenses and selling and administrative costs
compared to prior years. Wheelabrator's share of Rust's 1993 and 1994 net income
is included in equity in earnings of affiliates. The transaction had no effect
on the Company's 1992 and prior financial statements.
13
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
The following shows the proforma effect on the Company's Consolidated Statement
of Income for 1992, as if the Rust transaction, excluding the merger of Brand,
had occurred January 1, 1992 (unaudited):
Year Ended December 31, 1992
---------------------------------------------------------
Rust Proforma As
As Reported Contribution Adjustments Adjusted
-------------------------------------------------------------------------------------------------
Revenue $1,483,054 $(554,741) $ - $928,313
Operating expenses 1,108,780 (475,166) - 633,614
Selling and
administrative expenses 148,355 (50,435) - 97,920
Gains from stock
transactions of affiliates/1/ (47,000) - (19,538) (66,538)
Other, net 19,843 (609) (13,397) 5,837
---------- --------- -------- --------
Income before taxes and
accounting changes 253,076 (28,531) 32,935 257,480
Income tax provision 76,694 (11,260) - 65,434
---------- --------- -------- --------
Income before accounting
changes $ 176,382 $ (17,271) $ 32,935 $192,046
========== ========= ======== ========
Earnings per common share
before accounting changes $ 0.94 $ 1.02
========== ========
During 1993 and 1994 Wheelabrator recorded equity in net income of Rust of $31.3
million and $19.1 million, respectively. Wheelabrator's investment in Rust
totaled approximately $364.9 million and $387.2 million as of December 31, 1993
and 1994.
A summary of certain financial information for Rust follows:
December 31,
--------------------------------------------------------------------------------
1993 1994
Current assets $ 491,639 $ 494,595
Noncurrent assets 1,146,812 1,277,060
Current liabilities 249,350 254,068
Noncurrent liabilities 496,897 545,624
Years Ended December 31,
--------------------------------------------------------------------------------
1993 1994
Revenue $1,534,465 $1,682,907
Gross profit 284,557 281,740
Net income 79,964 55,587
During 1993 and 1994 Wheelabrator paid Rust approximately $144.7 million and
$101.6 million, respectively, for engineering, construction management and other
services. The terms of transactions between the Company and Rust are generally
the same as the terms of comparable transactions with unaffiliated third
parties.
-------------------------------------
/1/The proforma adjustment to gains from stock transactions of affiliates
reflects the gain recognized by Rust in connection with WM International's IPO
in April 1992. Wheelabrator's total proforma equity in Rust's net income for
1992 was $32,935.
14
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
ACQUISITIONS During 1992 the Company acquired 17 businesses that provide
environmental engineering, biosolids management and various clean air
technologies. Seven of the 1992 acquisitions serve the air and water quality
control markets, while the other ten were included in the businesses contributed
to the formation of Rust. Wheelabrator issued 6.8 million shares of common stock
and paid approximately $115.5 million of cash for these acquisitions. In 1993
the Company acquired seven businesses engaged in providing water and air
quality-related environmental products and services as well as independent power
in exchange for approximately 1.6 million shares of Wheelabrator common stock
and $15.0 million of cash. 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 9 businesses engaged in
providing air and water quality related environmental products and services and
in manufacturing surface finishing equipment. The Company utilizes the purchase
method of accounting, and the purchase price of the foregoing acquisitions has
been allocated to their respective net assets based upon fair market values. The
results of operations of acquired entities have been included in Wheelabrator's
financial statements from their respective dates of acquisition. The proforma
effect of the acquisitions made during 1992, 1993 and 1994 is not material.
NOTE 3 - INCOME TAXES
Wheelabrator and KREG are parties to a tax sharing agreement that covers periods
ending prior to December 31, 1988, during which the Company, KREG, Henley and
their respective affiliates were included in the same consolidated group for
federal income tax purposes. Pursuant to a recapitalization of Henley in 1992,
Abex assumed certain of Henley's obligations to KREG under a similar tax sharing
agreement. Wheelabrator is generally responsible for any increase in the income
tax liability (including related interest and penalties) of any consolidated,
combined or unitary tax group that included the Company, Abex, KREG and any of
their predecessors and affiliates for tax periods ending prior to December 31,
1988. However, KREG has agreed to indemnify Wheelabrator to the extent that any
such increased tax liability attributable to Abex and KREG affiliates exceeds
$51.0 million. Wheelabrator's liability for the $51.0 million obligation had
been previously recorded in the Company's Consolidated Balance Sheets. KREG is
15
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
generally indemnified by Abex to the extent that such tax liabilities payable by
KREG exceed $25.0 million.
In March 1994, Wheelabrator and the IRS filed a Stipulation of Settlement with
the U.S. Tax Court resolving the disputed treatment of an issue related to the
1988 sale of a former subsidiary. On April 15, 1994, the Company paid its
approximately $29.8 million share of the stipulated settlement liability
pursuant to the tax sharing agreement and Abex paid its share of the liability
pursuant to its indemnity obligations to KREG. On October 4, 1994, the U.S. Tax
Court issued its decision accepting the Stipulation of Settlement agreed to by
WTI and the IRS. With the resolution of this disputed issue, the Company has
fulfilled its $51.0 million tax sharing obligation described above.
Prior to April 15, 1994, KREG advised the Company and Abex that it would not pay
its approximately $21 million share of the settlement liability. Accordingly,
the Company and Abex filed a lawsuit against KREG seeking to require KREG to
honor its obligations under the tax sharing agreement. Following trial, the
Delaware Chancery Court issued its judgement on January 9, 1995, ordering KREG
to pay its obligation under the tax sharing agreement. On February 6, 1995, KREG
paid this obligation.
The Company implemented FAS 109 effective January 1, 1992. Excluding the one-
time charge of approximately $13.2 million, or $0.07 per share, the adoption of
FAS 109 did not materially impact the Company's 1992 operating results. The
adoption of FAS 109 resulted in an increase in deferred income tax assets and
liabilities generally reflecting the impact of restating assets related to
business combinations consummated before the adoption of FAS 109 to a gross
basis rather than the net-of-tax basis previously used. The charge resulted
primarily from increasing previously discounted deferred taxes, a method not
permitted under FAS 109.
In accordance with FAS 109, during the third quarter of 1993, the Company
recorded a $6.5 million increase in deferred income taxes due to the
impact that the effective tax rate increase enacted in OBRA had on the
net deferred income tax liability.
16
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
A summary of the Company's income tax provision is given below. Income from
foreign sources was not material.
Years Ended December 31,
--------------------------------------------------------------------------------
1992 1993 1994
Federal:
Current $ 9,275 $19,125 $ 39,976
Deferred 48,497 54,780 44,049
State:
Current 5,815 9,333 13,636
Deferred 13,107 6,697 4,860
------- ------- --------
Total $76,694 $89,935 $102,521
======= ======= ========
The principal items accounting for the difference in income taxes computed at
the U.S. statutory rates and as recorded are as follows:
Years Ended December 31,
--------------------------------------------------------------------------------
1992 1993 1994
Statutory federal income tax rate 34.0% 35.0% 35.0%
State income taxes after federal
income tax benefit 4.9 4.1 4.2
Equity income (2.1) (6.2) (4.2)
Nondeductible expenses 0.7 1.0 0.5
Nontaxable gain from stock
transactions of affiliates (6.3) (1.1) --
Deferred tax revaluation relating to
Omnibus Budget Reconciliation Act -- 2.6 --
Other, net (0.9) 0.1 0.2
---- ---- ----
Effective tax rate 30.3% 35.5% 35.7%
==== ==== ====
The principal items that comprise the 1993 and 1994 deferred tax (assets) and
liabilities are as follows:
December 31,
--------------------------------------------------------------------------------
1993 1994
Reserves not deductible until paid $(104,841) $(107,761)
Deferred income (26,948) (25,233)
Basis difference in investments (16,937) (12,904)
Alternative minimum tax credit carryforwards (19,000) (17,289)
State net operating loss carryforwards (11,692) (12,431)
Other (12,335) (7,927)
Less: Valuation allowance 20,413 15,989
--------- ---------
Subtotal (171,340) (167,556)
--------- ---------
Property, plant and equipment 403,570 444,127
Nondeductible prepaid expenses 14,945 13,876
Other 45,189 42,170
--------- ---------
Subtotal 463,704 500,173
--------- ---------
Deferred tax liability $ 292,364 $ 332,617
========= =========
17
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has approximately $17.3 million of alternative minimum tax credit
carryforwards that may be carried forward indefinitely. Also, various
subsidiaries have state operating loss carryforwards of approximately $264.0
million with expiration dates through the year 2009. 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. The change in the
valuation allowance during 1993 and 1994 primarily related to the realization of
tax benefits due to the disposition of certain investments.
NOTE 4 - CAPITAL STOCK
COMMON STOCK As of December 31, 1994, approximately 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.
The Company effected a two-for-one split of its common stock on January 7, 1993,
in the form of a dividend of one additional share of common stock for each share
outstanding on December 23, 1992. Share and per share amounts have been adjusted
to reflect the split for all periods. During 1992 and 1994 the Company
repurchased approximately 4.2 million and 3.3 million shares of its common stock
for an aggregate cost of approximately $57.6 million and $47.6 million,
respectively. The Company is authorized to repurchase an additional 10.5 million
shares of its common stock through March 1996 on the open market or in privately
negotiated transactions, if market conditions make it attractive to do so.
During 1992, Wheelabrator declared cash dividends totaling $0.04 per
common share, of which $0.03 per share was paid in 1992 and $0.01 per
share was paid in January 1993. Additionally, during 1993 and 1994, the
Company declared and paid cash dividends totaling $0.08 and $0.10 per
common share, respectively.
18
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
NOTE 5--LONG-TERM PROJECT DEBT AND LEASE COMMITMENTS
Long-term debt related to Wheelabrator's projects is as follows:
December 31,
--------------------------------------------------------------------------------
1993 1994
Industrial development revenue bonds due 1995
to 2010 at rates of 3.4%-9.25% $709,027 $686,210
Private placement bonds due 2008 at rate
of 10.64% 34,121 20,000
Project financing from syndicate of commercial
banks due 1995 to 2000 at rates of 1.5%
above LIBOR 38,309 33,699
Secured notes payable related to coal-handling facilities
due 1995 to 1999 at rates of 9%-9.875% 29,155 24,950
-------- --------
810,612 764,859
Less: Current portion 33,754 29,213
-------- --------
Total long-term project debt $776,858 $735,646
======== ========
At December 31, 1994, long-term debt was collateralized by property, plant and
equipment with a net book value of approximately $768.1 million and
approximately $82.4 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 are held in trust, and use by the Company is restricted.
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.
19
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
Principal payments on project debt and noncancelable operating lease payments
for operating and office facilities at December 31, 1994, are due as follows:
Project Operating
Debt Leases
-------- ----------
1995 $ 29,213 $ 83,721
1996 31,984 84,127
1997 34,177 85,988
1998 43,025 86,938
1999 43,406 90,667
Thereafter 583,054 734,129
-------- ----------
Total $764,859 $1,165,570
======== ==========
Total rent expense was $88.4 million, $71.4 million and $72.7 million for the
years ended December 31, 1992, 1993 and 1994, respectively.
Resco Holdings Inc. ("Resco"), a wholly-owned subsidiary of Wheelabrator, and
Allied-Signal Inc. ("Allied-Signal") are parties to an agreement that provides
for specific credit support by Allied-Signal for certain of Resco's trash-to-
energy project subsidiaries. Under the agreement, Allied-Signal may require
Resco to refinance, without Allied-Signal 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 Allied-Signal 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 Allied-Signal as of December 31, 1994.
Resco is also required to maintain a minimum level of tangible net worth
(approximately $549.8 million as of December 31, 1994). As of December 31, 1994,
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. Resco owns substantially all of the net operating
assets of the Company except certain net assets including cash and investments.
The Company has the ability to pay cash dividends using assets other than those
restricted within Resco.
20
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
NOTE 6 - STOCK AND BENEFIT PLANS
EQUITY PURCHASE PROGRAM In 1986, Wheelabrator established the Equity Purchase
Program, which authorized the issuance and sale of shares of Wheelabrator common
stock to key corporate managers. The Equity Purchase Program also provided that
Wheelabrator lend participants 90 percent of their purchase price. All such
loans matured and were repaid with interest during 1992. No additional shares
may be issued under the Equity Purchase Program.
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 fair market value at the time of grant. When non-
qualified options are exercised, the Company receives a deduction for federal
income tax purposes equal to the market value of the shares at exercise date
less the exercise price. The associated tax savings is credited to capital in
excess of par value.
21
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
The status of the plans (including predecessor plans under which options remain
outstanding) through December 31, 1994, was as follows:
Shares Option Price
---------------------------------------------------------------------
December 31, 1991
Outstanding 6,240 $ 3.87 - $13.35
Available for future grant
392 - -
------
1992: Granted 1,584 $13.55 - $15.75
Exercised (2,211) $ 3.87 - $11.94
Cancelled:
Predecessor plans (91) $ 7.76 - $11.90
Current plans (58) $15.75
Predecessor plan shares cancelled
upon initiation of 1992 plan (152) - -
Additional shares reserved for
future grant under current plans 7,000 - -
------
December 31, 1992
Outstanding 5,464 $ 3.87 - $15.75
Available for future grant 5,714 - -
------
1993: Granted 673 $17.69 - $20.65
Exercised (1,031) $ 3.87 - $15.75
Cancelled:
Predecessor plans (14) $11.90
Current plans (46) $14.25 - $20.65
------
December 31, 1993
Outstanding 5,046 $ 3.87 - $20.65
Available for future grant 5,087 - -
------
1994: Granted 815 $19.13
Exercised (593) $ 3.87 - $15.75
Cancelled:
Predecessor plans (23) $11.90
Current plans (98) $15.75 - $20.65
------
December 31, 1994
Outstanding 5,147 $ 3.87 - $20.65
======
Available for future grant 4,370 - -
======
Exercisable at end of year 3,474 $ 3.87 - $20.65
======
22
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
Outstanding options generally have a term of seven years from the date of the
grant and expire at various dates through April 1, 2001.
SAVINGS AND RETIREMENT PLAN Substantially all employees are participants in the
Wheelabrator 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
salary 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 1992, 1993 and 1994 amounted to approximately
$16.3 million, $6.2 million and $8.0 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. The majority of the
Company's active employees will not receive postretirement benefits other than
pensions.
The Company implemented FAS 106 on the immediate recognition basis effective
January 1, 1992. FAS 106 required a change in accounting for postretirement
benefits other than pensions from a cash to an accrual basis. Excluding the one-
time pretax charge of approximately $44.9 million ($29.0 million, or $0.16 per
share, after tax), the adoption of FAS 106 did not have a significant effect on
earnings for the year ended 1992. The service and interest components of the net
periodic cost of postretirement benefits other than pensions were $0.1 million
and $2.6 million in both 1993 and 1994.
23
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
The following sets forth the plans' funded status reconciled with amounts
reported in the Company's Consolidated Balance Sheets:
December 31,
----------------------------------------------------------------------
1993 1994
Accumulated postretirement benefit
obligation (APBO):
Retirees $43,113 $37,727
Fully eligible active plan participants 623 433
Other active plan participants 789 549
------- -------
Total APBO 44,525 38,709
Unrecognized:
Prior service cost 347 627
Gain/(loss) (2,658) 3,080
------- -------
Accrued postretirement benefit
liability $42,214 $42,416
======= =======
For measurement purposes, an 11 percent annual rate of increase in the per
capita cost of covered health care claims was assumed for 1994, decreasing by
0.5 percent annually to 7.5 percent in 2001 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, 1994, by approximately $3.4 million and
increase the aggregate of the service and interest cost components of net
periodic post retirement benefit cost for 1994 by $0.2 million. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 7 percent in 1993 and 8.5 percent in 1994 based on expected
payout patterns.
NOTE 7 - ADDITIONAL FINANCIAL INFORMATION
The following is a summary of inventories:
December 31,
----------------------------------------------------------------------
1993 1994
Raw materials $ 5,256 $ 7,997
Work in process 7,531 43,961
Finished goods 10,343 17,262
------- -------
$23,130 $69,220
======= =======
Included in other current assets are spare parts and supplies of $24.4 million
and $23.6 million as of December 31, 1993 and 1994, respectively.
24
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
The following is a summary of property, plant and equipment:
December 31,
----------------------------------------------------------------------
1993 1994
Land $ 53,405 $ 53,499
Land options 285,805 256,225
Machinery and equipment 1,076,576 1,372,435
Buildings and improvements 223,463 267,749
Construction-in-progress 247,387 40,367
Less: accumulated depreciation (232,716) (310,273)
---------- ----------
$1,653,920 $1,680,002
========== ==========
The following is a summary of accrued liabilities:
December 31,
----------------------------------------------------------------------
1993 1994
Wages, salaries and benefits $ 30,493 $ 30,642
Interest and lease expense 43,793 41,158
Other 122,837 117,887
-------- --------
$197,123 $189,687
======== ========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has issued or is a party to 440 bank letters of credit, performance
bonds and other guarantees. Such financial instruments (averaging $0.9 million
each) are given in the ordinary course of business.
In February 1994, a Connecticut Superior Court judge issued a decision on
appeals of the DEP issuance of Wheelabrator's permit to construct the $92
million Lisbon, Connecticut, trash-to-energy facility. In the ruling, the judge
agreed with the Company's position on all issues raised in the appeals but
remanded the permit back to the DEP for further proceedings on an uncontested
permit condition that requires the Lisbon facility to dispose of only
Connecticut waste. The Company continues to construct the facility as it pursues
a favorable resolution of this permit remand through appropriate judicial and
regulatory proceedings. As of December 31, 1994, the facility was approximately
60 percent complete. Although Wheelabrator believes that the probability of an
adverse determination as a result of the judge's remand order is remote, such a
determination could result in the permanent termination of facility
construction. Through a guarantee agreement with ECRRA, the facility's owner,
such a consequence may require the Company to redeem the debt issued to finance
the facility. In the unlikely event this were to occur, the resulting payments
could have a material adverse impact on the Company's financial condition and
results of operations.
In May 1994, the U.S. Supreme Court ruled that residual ash from the combustion
25
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
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 the Resource Conservation and Recovery Act. As a result
of the Supreme Court's decision, the EPA announced that ash from combustion of
municipal solid waste is subject to regulation as a hazardous waste if it
exhibits hazardous characteristics, thereby requiring it to be characterized and
disposed of appropriately. The EPA also announced that it will clarify the
application of land disposal restrictions in the event ash must be disposed of
as a hazardous waste. In response to this situation, the Company installed its
patented WES-PHix(R) technology at all of its trash-to-energy facilities not
previously subject to characterization requirements and, as a result, continues
to manage its residual ash as non-hazardous waste. Incremental capital and
operating expenditures, net of expected contractual reimbursement from
customers, required to treat, test and dispose of residual ash at the affected
facilities have not had and are not expected to have a material adverse impact
on Wheelabrator's financial condition or results of operations.
Also in May 1994, the U.S. Supreme Court ruled that state and local governments
may not 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 of all solid waste generated within its borders. Since the
ruling, legislation has been proposed to effectively grandfather existing flow
control mandates. The Company has experienced no tonnage decreases as a result
of the Supreme Court's ruling. Regardless of whether such legislation is passed,
management does not believe the decision will have a material adverse impact on
its financial condition or results of operations.
Wheelabrator has been notified by certain private parties that it may be
potentially responsible for a portion of the remediation costs related to a
certain state-listed remediation site currently undergoing a site assessment
study. Although the Company has been requested by these private parties to share
in these costs, no litigation has been filed, nor has the Company been named as
a potentially responsible party. At the present time, there is insufficient
information available to estimate the remediation costs or the extent of
Wheelabrator's responsibility, if any.
There are various lawsuits and claims pending against Wheelabrator that have
arisen in the normal course of Wheelabrator's business and relate mainly to
26
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
matters of 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.
NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION
During 1992 the Company conducted business in two principal industry segments:
Environmental Operations and Environmental and Infrastructure Engineering
Services.
The businesses within the Environmental Operations segment are principally
involved in providing clean energy through trash-to-energy and independent power
facility ownership and operation, in providing clean water products and services
to industrial and municipal clients, including process systems and equipment for
water and wastewater management, water and wastewater treatment facility
operation and biosolids management, and in providing clean air through a broad
range of air quality control systems and equipment designed for industrial and
utility applications. The Environmental and Infrastructure Engineering Services
segment provided environmental engineering, architectural, scientific and
photogrammetric services, as well as industrial process design and engineering
project management services. Intersegment revenues were at prices which
approximated market and were not material.
Year Ended December 31, 1992
----------------------------------------------
Environmental and
Infrastructure
Environmental Engineering
Operations Services Total
------------- ----------------- ----------
Revenue $ 928,313 $554,741 $1,483,054
Operating expenses 636,126 472,654 1,108,780
Selling and
administrative expenses 90,567 57,788 148,355
---------- -------- ----------
Income from operations $ 201,620 $ 24,299 $ 225,919
========== ======== ==========
Identifiable assets
(at year-end) $2,437,368 $318,734 $2,756,102
========== ======== ==========
Depreciation and
amortization expenses $ 58,410 $ 9,469 $ 67,879
========== ======== ==========
Capital expenditures $ 100,561 $ 47,464 $ 148,025
========== ======== ==========
Identifiable assets excluded unallocated corporate assets of $241.0 million at
year-end 1992.
27
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
Effective January 1, 1993, Wheelabrator contributed the businesses that
constituted its Environmental and Infrastructure Engineering Services segment
along with certain other assets to form, in part, Rust (see Note 2). As a
result, during 1993 and 1994 the Company conducted business solely within the
Environmental Operations industry.
Wheelabrator has foreign operations, primarily in Europe and the Pacific Rim.
Total foreign revenue as a percentage of total consolidated revenue amounted to
5.6 percent, 5.9 percent and 8.4 percent in 1992, 1993 and 1994. Foreign assets,
results of operations and export revenue were not significant.
NOTE 10--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Full Year
-------------------------------------------------------------------------------------
1993
----
Revenue $245,525 $279,978 $283,882 $332,834 $1,142,219
Operating expenses 171,706 193,643 194,619 232,751 792,719
Net income 33,408 49,800(1) 35,734(2) 44,160 163,102
Net income per common and
common equivalent share 0.18 0.26(1) 0.19(2) 0.23 0.86
Weighted average common and
common equivalent shares
outstanding 188,300 188,500 188,900 189,700 188,900
Market price
High 23 1/2 21 1/4 20 18 1/8 23 1/2
Low 18 1/8 17 5/8 14 3/4 14 5/8 14 5/8
1994
----
Revenue $281,332 $321,661 $334,707 $386,867 $1,324,567
Operating expenses 195,584 218,508 228,624 272,521 915,237
Net income 40,140 48,610 49,389 46,756 184,895
Net income per common and
common equivalent share 0.21 0.26 0.26 0.25 0.97
Weighted average common and
common equivalent
shares outstanding 190,200 190,500 190,400 188,600 189,900
Market price
High 21 1/4 20 5/8 18 3/4 15 1/2 21 1/4
Low 17 1/4 17 3/4 15 1/4 13 1/4 13 1/4
(1) Includes gain from issuance of stock by equity investee. See Note 2.
(2) Reflects increase in U.S. federal income taxes under the Omnibus Budget
Reconciliation Act of 1993. See Note 3.
28
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,
1993 and 1994, 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, 1994. 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, 1993 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Notes 3 and 6 to the financial statements, effective January 1,
1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions.
New York, New York ARTHUR ANDERSEN LLP
February 6, 1995
29
EX-21
5
LIST OF SUBSIDIARIES
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Set forth below is a list of subsidiaries of Wheelabrator Technologies Inc. as
of December 31, 1994. Each subsidiary is organized under the laws of the
jurisdiction indicated in parentheses following its name.
Bio Gro Acquisition Sub, Inc. (Delaware)
Resco Holdings Inc. (Delaware)
Johnson Filtration Systems (France) S.A. (France)
Wheelabrator Sisson Lehman S.A. (France)
Johnson Filtration Systems Limited (Ireland)
Johnson Filtration Systems (Australia) Pty. Ltd. (Australia)
Massachusetts Refusetech, Inc. (Delaware)
Pullman Torkelson Utility Fuels Company (Delaware)
Signal Overseas Capital Corporation N.V. (Neth. Ant.)
Swindell-Dressler Energy Supply Company (Delaware)
Swindell-Dressler Leasing Company (Delaware)
WESI Peekskill Inc. (Delaware)
WESI Westchester Inc. (Delaware)
Wheelabrator-Berger (Maschinenfabriken)GmbH (West Germany)
Wheelabrator Clean Air Holdings Inc. (Delaware)
Wheelabrator Clean Air Systems Inc. (Illinois)
Westates Carbon-Arizona Inc. (Arizona)
Pullman Chimney of Canada Ltd. (Ontario)
Pullman Power Products Corporation (Delaware)
Pullman Power Products International Corporation (Delaware)
Pullman Power Products of Ohio, Inc. (Ohio)
Wheelabrator Air Pollution Control Inc. (Delaware)
Wheelabrator Clean Water Holdings Inc. (Delaware)
Wheelabrator Clean Water Systems 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)
Wheelabrator Hagerstown Inc. (Delaware)
Enviro-Gro Technologies, Inc. (New York)
Enviro-Gro Technologies II, Inc. (New York)
Wheelabrator Mexicana, S.A. de C.V. (Mexico)
Compania Mexicana de Aguas, S.A. de C.V. (Mexico)
Complata S.A. de C.V. (Mexico)
Wheelabrator Servicios Ambiantales, S.A. de C.V. (Mexico)
Wheelabrator Clean Water Systems Canada Inc. (Ontario)
Wheelabrator EOS Inc. (Delaware)
Envirotech Operating Services (Petaluma), Inc. (Delaware)
Wheelabrator EOS of Ohio Inc. (Delaware)
Wheelabrator EOS Puerto Rico Inc. (Delaware)
Wheelabrator EOS Canada Inc. (Ontario)
Wheelabrator Cleanfuel Corporation (Delaware)
Wheelabrator Coal Refinery Inc. (Delaware)
The Wheelabrator Corporation (Delaware)
Wheelabrator Canada Inc. (Ontario)
MPF Engineered Filtered Products Inc. (Ontario)
Wheelabrator Technologies (UK) Limited (United Kingdom)
Tilghman Wheelabrator Limited (United Kingdom)
Tilghman Wheelabrator Special Products Ltd. (United Kingdom)
Blastrac Europe Ltd. (United Kingdom)
JFS Limited (United Kingdom)
Neptune Nichols Limited (United Kingdom)
Northedge Limited (United Kingdom)
R.B.S. Pension Trustees Limited (United Kingdom)
St. George's Engineering Ltd. (United Kingdom)
Tilghman (1988) Limited (United Kingdom)
Tilghman (Broadheath) Limited (United Kingdom)
Tilghman (Engineers) Limited (United Kingdom)
Wheelabrator do Brasil Limitada (Brazil)
Wheelabrator Energy Leasing Company (Delaware)
Wheelabrator Energy Systems Inc. (Delaware)
Wheelabrator Engineered Systems Inc. (Delaware)
Johnson Filtration Systems (Japan) Ltd. (Japan)
HPD Canada Limited (Illinois)
Mem Tech Inc. (Illinois)
Wheelabrator HPD Inc. (Illinois)
HPD/Procesos y Sistemas de Separacion, S.A. (Spain)
APEREC (France)
HPD Technologies B.V. (Netherlands)
Wheelabrator Engineered Systems International Holdings Inc. (Delaware)
Darchet Engineering and Water Treatment Pte. Ltd. (Singapore)
Darchet Industrial Water Pte. Ltd. (Singapore)
Darchet (M) Sdn Bhd (Malaysia)
Darchet Industrial Water (M) Sdn Bhd (Malaysia)
Darchet Industrial Water (Penang) Sdn Bhd (Malaysia)
RWB Beheer B.V. (The Netherlands)
Rossmark - van Wijk & Boerma Waterbehandeling B.V. (The Netherlands)
P.V. Pacific Private Ltd. (Singapore)
P.V. Pacific (Malaysia) Sdn.Bhd. (Malaysia)
RWB Belgium N.V./S.A. (Belgium)
Miller-Rossmark Ltd. (United Kingdom)
2
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)
Riley Energy Systems of Lisbon Connecticut Corp. (Connecticut)
SES Bridgeport Inc. (Delaware)
SES Brooklyn Inc. (Delaware)
SES Brooklyn Navy Yard Inc. (Delaware)
SES Connecticut 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 Peabody Inc. (Delaware)
WESI Saugus Inc. (Delaware)
Wheelabrator Albion Inc. (Delaware)
Wheelabrator Albion Power Inc. (Delaware)
Wheelabrator Baltimore Inc. (Delaware)
Wheelabrator Bridgeport Inc. (Delaware)
Wheelabrator Cedar Creek Inc. (Delaware)
Wheelabrator Concord Inc. (Delaware)
Wheelabrator Connecticut Inc. (Delaware)
Wheelabrator Culm Services 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 Genesee Inc. (Delaware)
Wheelabrator Gloucester Inc. (Delaware)
Wheelabrator Hudson Energy Company Inc. (Delaware)
Wheelabrator McKay Bay Inc. (Florida)
Wheelabrator Mecklenburg Inc. (Delaware)
Wheelabrator Millbury Inc. (Delaware)
Wheelabrator NHC Inc. (Delaware)
Wheelabrator Norwalk Energy Company Inc. (Delaware)
Wheelabrator New Hampshire Inc. (Delaware)
3
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 Putnam Inc. (Delaware)
Wheelabrator Ridge Energy Inc. (Delaware)
Wheelabrator San Diego Inc. (Delaware)
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 Sinto do Brasil Equipamentos Industriais Ltda. (Brazil)
Wheelabrator Utility Services Inc. (Delaware)
WTI International Energy Inc. (Delaware)
WTI China One Inc. (Delaware)
WTI China Two Inc. (Delaware)
WTI China Three Inc. (Delaware)
WTI China Four Inc. (Delaware)
WTI Rust Holdings Inc. (Delaware)
Signal Own-And-Operate Inc. (Delaware)
WTI Asia Pacific (Pte) Ltd. (Singapore)
WTI International Holdings Inc. (Delaware)
Wheelabrator Technologies/Rust International Charitable Foundation Inc. (Delaware)
4
EX-23.1
6
CONSENT OF ARTHUR ANDERS
Exhibit 23.1
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 and 33-48837) 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).
ARTHUR ANDERSEN LLP
New York, New York,
March 27, 1995
EX-23.2
7
CONSENT OF ARTHUR ANDERS
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports to the Stockholders and Board of Directors of Rust International
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 and 33-48837) 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).
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 27, 1995
EX-27
8
FINANCIAL DATA SCHEDULE
5
1,000
12-MOS
DEC-31-1994
DEC-31-1994
36,133
0
239,895
9,462
69,220
428,773
1,990,275
310,273
3,282,471
438,940
735,646
1,895
0
0
1,422,987
3,282,471
0
1,324,567
0
915,237
0
2,783
52,454
287,416
102,521
184,895
0
0
0
184,895
.97
0