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Wheelabrator Technologies Inc/DE · 10-K · For 12/31/95 · EX-13.2

Filed On 3/29/96   ·   Accession Number 950131-96-1320   ·   SEC File 1-10296

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 3/29/96  Wheelabrator Technologies Inc/DE  10-K       12/31/95    9:263K                                   Donnelley R R & S..03/FA

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         43    247K 
 2: EX-10.06    Land Option Agreement                                  3     20K 
 3: EX-10.42    Amendment #2 to Rust Intercorporate Ser. Agmnt.        2     11K 
 4: EX-10.43    Amendment #3 to Intercorporate Ser. Agmnt.             3     20K 
 5: EX-13.1     Management's Discussion and Analysis                  12±    64K 
 6: EX-13.2     Consolidated Balance Sheets                           31±   152K 
 7: EX-21       Subsidiaries of Regitrant                              3     19K 
 8: EX-23       Consent of Independent Public Accountants              1      6K 
 9: EX-27       Financial Data Schedule                                2      9K 


EX-13.2   —   Consolidated Balance Sheets
Exhibit Table of Contents

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11st Page   -   Filing Submission
8WM International
"Rust
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EXHIBIT 13.2 Wheelabrator Technologies Inc. and Subsidiaries Consolidated Balance Sheets [Enlarge/Download Table] ------------------------------------------------------------------------------------------------------ (000s omitted, except share amounts) December 31, 1994 1995 ------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 36,133 $ 78,732 Receivables, net of allowance of $9,462 in 1994 and $12,187 in 1995 216,367 215,080 Inventories 69,220 62,638 Costs and earnings in excess of billings 42,833 50,497 Other current assets 58,360 51,312 ------------------------------------------------------------------------------------------------------ Total current assets 422,913 458,259 ------------------------------------------------------------------------------------------------------ Property, plant, and equipment, net 1,680,002 1,624,159 Cost in excess of net assets of acquired businesses, net 230,711 233,533 Investments in affiliates 618,971 604,656 Other assets 324,014 299,586 ------------------------------------------------------------------------------------------------------ Total assets $3,276,611 $3,220,193 ====================================================================================================== Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt $ 35,749 $ 35,808 Due to WMX Technologies, Inc. 53,163 -- Accounts payable 94,375 93,327 Accrued liabilities 189,687 185,273 Advance payments on contracts 65,966 45,686 ------------------------------------------------------------------------------------------------------ Total current liabilities 438,940 360,094 ------------------------------------------------------------------------------------------------------ Long-term debt 735,933 704,414 Deferred income taxes 326,757 395,645 Deferred income 89,083 77,513 Other long-term liabilities 261,016 232,262 Commitments and contingencies Stockholders' equity: Preferred stock, par value $1.00 per share; 50,000,000 authorized; none issued or outstanding -- -- Common stock, par value $0.01 per share; 500,000,000 authorized; 189,545,407 shares issued in 1994 and 1995 1,895 1,895 Capital in excess of par value 877,428 876,595 Cumulative translation adjustment (17,650) (9,986) Treasury stock at cost; 3,270,054 shares in 1994, 10,112,610 shares in 1995 (47,489) (146,494) Retained earnings 610,698 728,255 ------------------------------------------------------------------------------------------------------ Total stockholders' equity 1,424,882 1,450,265 ------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $3,276,611 $3,220,193 ====================================================================================================== The accompanying notes are an integral part of these balance sheets. 14
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Wheelabrator Technologies Inc. and Subsidiaries Consolidated Statements of Income ------------------------------------------------------------------------------ [Download Table] (000s omitted, except per share amounts) Years Ended December 31, 1993 1994 1995 ------------------------------------------------------------------------------ Revenue $1,142,219 $1,324,567 $1,451,675 ------------------------------------------------------------------------------ Operating expenses 792,719 915,237 1,015,269 Selling and administrative expenses 107,276 119,380 130,976 Interest expense 64,484 52,454 60,726 Interest income (18,278) (14,250) (11,123) Equity in earnings of affiliates (1995 reduced by $25.6 million related to a special charge recorded by WM International) (38,462) (29,348) (4,998) Gains from stock transactions of affiliates (7,680) -- -- Other income, net (4,530) (1,589) (2,612) ------------------------------------------------------------------------------ Income from continuing operations before income taxes 246,690 282,683 263,437 Income tax provision 89,935 102,521 101,288 ------------------------------------------------------------------------------ Income from continuing operations 156,755 180,162 162,149 Equity income from discontinued operations (Note 3) 6,347 4,733 5,789 Equity in provision for loss on disposal of discontinued operations (Note 3) -- -- (30,080) ------------------------------------------------------------------------------ Net income $ 163,102 $ 184,895 $ 137,858 ============================================================================== Weighted average common and common equivalent shares outstanding 188,900 189,900 185,000 ============================================================================== Earnings (loss) per common and common equivalent share: Continuing operations $ 0.83 $ 0.95 $ 0.88 Discontinued operations 0.03 0.02 (0.13) ------------------------------------------------------------------------------ Net income $ 0.86 $ 0.97 $ 0.75 ============================================================================== The accompanying notes are an integral part of these financial statements. 15
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Wheelabrator Technologies Inc. and Subsidiaries Consolidated Statements of Cash Flows [Enlarge/Download Table] ----------------------------------------------------------------------------------------------------------------- (000s omitted) Years Ended December 31, 1993 1994 1995 ----------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 163,102 $ 184,895 $ 137,858 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 75,323 95,254 107,814 Deferred income taxes 61,477 48,909 59,295 Undistributed earnings of affiliates (38,462) (29,348) (4,998) Equity in discontinued operations (6,347) (4,733) 24,291 Gains from stock transactions of affiliates (7,680) -- -- Deferred lease expense (7,349) (7,530) (10,523) Changes in assets and liabilities, net of effects of acquired and contributed businesses: Receivables, net (21,578) (29,258) (11,195) Inventories 4,101 (9,517) 5,014 Costs and earnings in excess of billings (12,879) (2,097) (7,664) Other current assets (2,439) (2,826) 12,296 Accounts payable (32,008) 10,525 (542) Accrued liabilities (21,965) (19,400) (933) Advance payments on contracts 380 (2,594) (27,637) Other long-term liabilities 23,822 (46,534) (36,713) Other, net (23,957) (6,883) (9,039) ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 153,541 178,863 237,324 ----------------------------------------------------------------------------------------------------------------- Investing Activities Capital expenditures (291,637) (105,459) (37,805) Proceeds from sale of investments 10,682 583 12,821 Sale of property, plant, and equipment 1,682 8,374 12,498 Investments held by trustees 9,917 5,936 36,810 Cash paid for acquisitions, net of acquired cash (14,983) (25,754) (12,571) Other, net (27,690) (6,206) (5,672) ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities (312,029) (122,526) 6,081 ----------------------------------------------------------------------------------------------------------------- Financing Activities Additions to long-term debt -- 112,985 29,388 Repayments of long-term debt (83,443) (160,335) (61,181) Net borrowings from WMX Technologies, Inc. -- 53,163 (53,163) Proceeds from exercise of stock options 4,205 5,739 3,665 Dividends paid (16,826) (18,954) (20,301) Stock repurchase program -- (47,550) (102,368) Other, net -- (1,971) 3,154 ----------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (96,064) (56,923) (200,806) ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (254,552) (586) 42,599 Cash and cash equivalents at beginning of period 291,271 36,719 36,133 ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 36,719 $ 36,133 $ 78,732 ================================================================================================================= Supplemental disclosure: Interest paid, net of amounts capitalized $ 62,490 $ 56,015 $ 59,812 ================================================================================================================= Income taxes paid $ 85,441 $ 73,790 $ 44,099 ================================================================================================================= Significant noncash investing activities: Net assets contributed to Rust International Inc. $ 244,278 $ -- $ -- ================================================================================================================= Common stock issued for acquisitions $ 30,972 $ 2,900 $ -- ================================================================================================================= Liabilities assumed in acquisitions $ 35,427 $ 74,938 $ 8,232 ================================================================================================================= The accompanying notes are an integral part of these financial statements. 16
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[Enlarge/Download Table] Wheelabrator Technologies Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity --------------------------------------------------------------------------------------------------------------------------- (000s omitted) Capital in Cumulative Common Excess of Translation Treasury Retained Stock Par Value Adjustment Stock Earnings Total --------------------------------------------------------------------------------------------------------------------------- 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 (3,273,800 shares) -- -- -- (47,550) -- (47,550) Investment in Rust International Inc. -- (6,641) -- -- -- (6,641) --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 1,895 877,428 (17,650) (47,489) 610,698 1,424,882 --------------------------------------------------------------------------------------------------------------------------- Net income -- -- -- -- 137,858 137,858 Dividends declared ($0.11 per share) -- -- -- -- (20,301) (20,301) Foreign currency translation -- -- 7,664 -- -- 7,664 Exercise of stock options -- (1,488) -- 5,153 -- 3,665 Tax benefit from stock options -- 655 -- -- -- 655 Stock repurchases (7,194,600 shares) -- -- -- (104,154) -- (104,154) Treasury shares from acquisition adjustments -- -- -- (4) -- (4) --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $1,895 $876,595 $ (9,986) $(146,494) $728,255 $1,450,265 =========================================================================================================================== The accompanying notes are an integral part of these financial statements. 17
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Wheelabrator Technologies Inc. and Subsidiaries Notes to Consolidated Financial Statements (000s omitted in all tables except per share amounts) -------------------------------------------------------------------------------- NOTE 1 BUSINESS DESCRIPTION Wheelabrator Technologies Inc. ("Wheelabrator" or the "Company"), a majority- owned subsidiary of WMX Technologies, Inc. ("WMX"), is a multi-faceted environmental services company involved in two principal global lines of business: Clean Energy and Clean Water. Clean Energy develops, owns, and operates trash-to-energy and independent power facilities that generate electrical power for sale to utilities while providing trash disposal for municipal and commercial customers. Clean Water's products and services include equipment and process systems designed for water and wastewater management, water and wastewater treatment facility operation, and biosolids management. Its customer base is municipal and industrial in nature. The Company also offers air quality control systems for industrial and utility applications and has substantial equity investments in two WMX-controlled companies, Waste Management International plc ("WM International") and Rust International Inc. ("Rust"). Additional financial information by line of business and geographic area appears in Note 10. -------------------------------------------------------------------------------- NOTE 2 SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The Company's financial statements are prepared on a consolidated basis and include the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances are eliminated. Investments in affiliates the Company does not control are accounted for using the equity method after elimination of material interaffiliate transactions. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, income, and expenses and disclosures of contingencies. Future events could alter such estimates. CONCENTRATIONS Wheelabrator's businesses offer a multitude of products and services to a diverse customer base. As of December 31, 1995, the Company believes it has no significant customer, supplier, product line, credit risk, geographic, or other concentrations that could expose the Company to adverse, near-term severe financial impacts. REVENUE RECOGNITION The Company recognizes revenue from certain long-term engineering, equipment supply, and construction contracts on the percentage-of-completion basis, with estimated losses recognized in full when identified. All other revenue is recognized when services are rendered or products are shipped. 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 1993, 1994, and 1995 were not significant. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the Consolidated Statements of Cash Flows, all highly liquid instruments purchased with an original maturity of three months or less, and investments with WMX, are considered to be cash equivalents. Wheelabrator and WMX are parties to a Master Intercorporate Agreement that provides, among other things, for Wheelabrator to lend excess cash to WMX at interest rates at least as favorable as those Wheelabrator could otherwise obtain. In August 1995, this agreement was extended through December 31, 1996, and will automatically renew on an annual basis thereafter unless either party provides 90-day notice of termination. Under the agreement's terms, in the event Wheelabrator requires short-term cash for the conduct of its business and operations, WMX will make available to Wheelabrator such amounts as Wheelabrator requires, up to a total of $100.0 million in excess of amounts loaned by Wheelabrator to WMX. In addition, a right of set-off exists for amounts owed by either Wheelabrator or WMX. As such, net amounts invested with WMX pursuant to this agreement are considered to be highly liquid cash equivalents and are included in cash and cash equivalents on the Company's Consolidated Balance Sheets. At December 31, 1994, the Company had net borrowings from WMX of approximately $53.2 million. As of December 31, 1995, the Company had investments with WMX of $37.3 million. 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, 1995, 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 expired in December 1995, Wheelabrator paid a fixed interest rate of 9.65 percent and received floating interest rate payments from the counterparty at LIBOR without the exchange of the underlying $25 million notional amount. Net differences paid or received were included as part of interest expense over the life of the agreement. Wheelabrator incurred $1.3 million and $0.7 million of net interest expense under this agreement during 1994 and 1995, respectively, which increased the effective interest rate on the related debt by approximately four percent in 1994 and three percent in 1995. CURRENCY AGREEMENTS During 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 -------------------------------------------------------------------------------- 18
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-------------------------------------------------------------------------------- put and call options with different strike prices. The Company received or paid, 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 were not used. Although the Company incurred an expense in connection with these agreements, it recognized 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 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 U.S. Dollars, German Deutsche Marks, British Pounds, French Francs, Italian Lira, and Dutch Guilders forward for delivery at various dates in 1996 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 $828.3 million and $885.2 million on December 31, 1994 and 1995, respectively. The fair value of the Company's long-term debt was determined by discounting future cash flows at the quoted or estimated current rate applicable to each type of debt. See Note 6 for the terms and carrying values of the Company's various debt instruments. The fair value of the Frackville interest rate swap was a liability of approximately $0.6 million on December 31, 1994. 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. 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. Under a land option agreement with a WMX subsidiary, the Company has the exclusive right to purchase or lease sites for trash-to-energy or other facilities at existing or future landfills owned by the subsidiary. These land options are classified as property, plant, and equipment. The option cost attributable to each utilized site will be allocated to a facility and amortized on a straight-line basis over the estimated useful life of the facility upon commencement of operations. During 1994, amortization began on $29.6 million worth of exercised land options as two facilities located on such sites commenced operations. During 1995, the land option agreement was amended to include, among other things, a guarantee of value for Wheelabrator and an extension through 2020. The Company paid $15.0 million to WMX in conjunction with this amendment, which amount was capitalized net of amounts previously accrued and capitalized in conjunction with an earlier extension option. 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 $10.0 million in 1993, $12.1 million in 1994, and $0.1 million in 1995. COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES The excess of cost over fair value of the net assets of acquired businesses ("goodwill") is amortized on a straight-line basis over a maximum of 40 years. The accumulated amortization balances as of December 31, 1994 and 1995, were $15.9 million and $22.3 million, respectively. On an ongoing basis, the Company measures realizability of goodwill by the ability of the acquired businesses to generate current and undiscounted expected future cash flow in excess of unamortized goodwill. If such realizability is in doubt, an adjustment is made to reduce the carrying value of the goodwill. 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. The Company utilized $2.5 million and $3.0 million of disposal credits during 1994 and 1995, respectively. There were approximately $34.2 million and $31.2 million of disposal credits remaining at December 31, 1994 and 1995, respectively. FACILITY MAINTENANCE ACCRUAL In order to match more consistently expenditures for major repair and overhaul activities with revenue, the Company follows a policy of accruing for major maintenance expenditures at its trash-to-energy and independent power facilities. Such accruals are based upon planned maintenance expenditures and are classified as current or noncurrent liabilities based on the expected timing of the expenditures. INCOME TAXES Income taxes are provided based on earnings reported for financial statement purposes. The provision for income taxes differs from the amounts currently payable because of timing differences in the recognition of certain income and expense items for financial reporting and tax reporting purposes. In accordance with Statement of Financial Accounting Standards No. 109, the Company accounts for income taxes using an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities, measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income taxes are not provided on undistributed earnings of affiliates because these earnings are considered to be permanently reinvested. If the reinvested earnings were to be remitted, the U.S. income taxes due under current tax law would not be material. Investment credits have been deferred and are included in income as a reduction of income tax expense over the estimated useful lives of the assets that gave rise to the credits. See Note 4. -------------------------------------------------------------------------------- 19
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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. Although unlikely in the near-term, such ongoing compliance 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 postclosure monitoring costs associated with ash residue monofills for which the Company is responsible include items such as final cap and cover on the site, leachate management, and groundwater monitoring. These costs are recognized in proportion to use of the permitted capacity at such disposal sites. Such costs are estimated based on the technical requirements of EPA or applicable state regulations, whichever are stricter. These accruals for closure and postclosure costs relate to expenditures to be incurred after a monofill ceases to accept ash residue. To the extent similar costs are incurred during the active life of the site, they are expensed as incurred. Preparation costs associated with these sites and their individual cells are capitalized and amortized over the respective estimated life of the disposal site or individual cell. Wheelabrator has instituted procedures to periodically evaluate other potential environmental exposures. When the Company concludes it is probable that a liability has been incurred, provision is made in the financial statements, based upon management's judgment and prior experience, for the Company's best estimate of the liability. Such estimates are subsequently revised as deemed necessary when additional information becomes available. While the Company does not anticipate that any such adjustment would be material to its financial statements, it is reasonably possible that future technological, regulatory or enforcement developments, results of environmental studies, or other factors could alter this expectation and necessitate the recording of additional liabilities, which could be material. The Company has recorded liabilities for closure and postclosure monitoring and environmental remediation costs as follows: [Download Table] December 31, 1994 1995 --------------------------------------------------- Current portion, included in accrued liabilities $ 4,562 $11,452 Noncurrent portion, included in other long-term liabilities 17,145 6,677 ------- ------- Total environmental liabilities $21,707 $18,129 ======= ======= During the remaining life of active sites, the Company anticipates providing an additional $2.1 million of closure and postclosure costs. CONTRACTS IN PROCESS Information with respect to contracts in process at December 31, 1994 and 1995, is as follows: [Download Table] December 31, 1994 1995 --------------------------------------------------------------- Costs and estimated earnings on uncompleted contracts $ 601,650 $ 450,202 Less: Billings on uncompleted contracts (624,783) (445,391) --------- --------- Total contracts in process $ (23,133) $ 4,811 ========= ========= Contracts in process are included in the Consolidated Balance Sheets under the following captions: December 31, 1994 1995 --------------------------------------------------------------- Costs and earnings in excess of billings $ 42,833 $ 50,497 Advance payments on contracts (65,966) (45,686) --------- --------- Total contracts in process $ (23,133) $ 4,811 ========= ========= All contracts in process are expected to be billed and collected within three years. Accounts receivable includes retainage that has been billed but is not due pursuant to contract provisions until completion. Such retainage at December 31, 1995, is $14.2 million, including $1.3 million that is expected to be collected after one year. At December 31, 1994, retainage was $14.6 million. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common and common equivalent share is calculated by dividing net income by the weighted average number of shares outstanding, including the effect of common stock equivalents determined using the treasury stock method. Common stock equivalents consist of unexercised stock options. The treasury stock method assumes that options with an exercise price below the average market price for the period are exercised at the beginning of the period and the proceeds from the exercise of such options are used to repurchase common stock. The following table reconciles the number of common shares shown as outstanding in the Consolidated Balance Sheets with the number of common shares used in computing earnings per share: [Download Table] Years Ended December 31, 1994 1995 ---------------------------------------------------------------------- Common shares issued, net of treasury stock per Consolidated Balance Sheets 186,275 179,433 Effect of shares issuable under stock options after applying the "treasury stock" method 782 643 Effect of using weighted average common shares outstanding during the year 2,843 4,924 ------- ------- Common shares used in computing earnings per share 189,900 185,000 ======= ======= 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 20
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-------------------------------------------------------------------------------- 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. The Company is required to adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), beginning in 1996. Wheelabrator does not believe the adoption of FAS 121 will have a material impact on its financial statements. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which the Company also must adopt in 1996. FAS 123 provides an optional new method of accounting for employee stock options and expands required disclosure about stock options. If the new method of accounting is not adopted, the Company will be required to disclose pro forma net income and earnings per share as if it were. The Company is studying FAS 123 and is gathering data necessary to calculate compensation in accordance with its provisions, but has not decided whether to adopt the new method or quantified its impact on the financial statements. RECLASSIFICATION Certain prior period amounts have been reclassified to conform with the current year presentation. -------------------------------------------------------------------------------- NOTE 3 CAPITAL TRANSACTIONS, ACQUISITIONS, AND DIVESTITURES  WM INTERNATIONAL Wheelabrator owns approximately 12 percent of WM International, a WMX subsidiary that owns substantially all of WMX's waste management services operations outside of North America. The investment is accounted for using the equity method due to the significance, through WMX, of Wheelabrator's influence over WM International. As of December 31, 1995, WM International was owned approximately 12 percent by Wheelabrator, 12 percent by Rust, 56 percent by WMX, and 20 percent by the public. During 1993, 1994, and 1995, respectively, Wheelabrator recorded equity in net income (loss) of WM International of $13.8 million, $15.2 million, and $(5.1) million. The Company's equity income was reduced by approximately $25.6 million during the fourth quarter of 1995 for its share of a largely noncash special charge recorded by WM International. The charge related to actions WM International is taking to sell or otherwise dispose of noncore businesses and investments as well as core businesses and investments in low potential markets, abandon certain hazardous waste treatment and processing technologies, and streamline its country management organization. The charge followed a thorough review of WM International's operations and management structure, and reflects WM International's intention to refocus on its core waste services business. Wheelabrator's investment in WM International totaled approximately $226.0 million and $228.7 million as of December 31, 1994 and 1995, respectively. Included within these investment balances are undistributed earnings of approximately $52.0 million and $47.0 million as of December 31, 1994 and 1995, respectively. As of December 31, 1995, the market value of the Company's WM International investment exceeded its book value by approximately $13.2 million. A summary of certain financial information for WM International follows: [Download Table] December 31, 1994 1995 -------------------------------------------------------------------------------- Current assets $ 828,011 $ 859,591 Noncurrent assets 3,216,661 3,375,998 Current liabilities 788,769 1,077,746 Noncurrent liabilities 1,042,062 893,717 Minority interest 330,172 357,934 Years Ended December 31, 1993 1994 1995 -------------------------------------------------------------------------------- Revenue $1,411,211 $1,710,862 $1,865,081 Gross profit 402,065 466,265 260,206 Net income (loss) 114,246 126,753 (42,112)  RUST Wheelabrator owns approximately 40 percent of Rust, an environmental and infrastructure engineering and consulting company. The remaining 60 percent of Rust is owned directly or indirectly by WMX. During 1993, 1994, and 1995, Wheelabrator recorded equity in income from continuing operations of Rust of $25.0 million, $14.4 million, and $10.2 million, respectively. During 1993, the Company also recognized a nontaxable gain of $7.7 million from Rust's issuance of additional shares of its common stock. Wheelabrator's investment in Rust totaled approximately $387.2 million and $373.1 million as of December 31, 1994 and 1995. The investment balance includes approximately $51.5 million and $37.4 million of undistributed earnings as of December 31, 1994 and 1995, respectively. A summary of certain financial information for Rust follows: [Download Table] December 31, 1994 1995 -------------------------------------------------------------------------------- Current assets $ 494,595 $ 258,033 Noncurrent assets(1) 1,277,060 1,260,844 Current liabilities 254,068 123,207 Noncurrent liabilities 545,624 450,696 (1) 1995 noncurrent assets include approximately $130.6 million of net assets held for sale. [Download Table] Years Ended December 31, 1993 1994 1995 -------------------------------------------------------------------------------- Revenue $1,035,004 $1,140,294 $1,027,430 Gross profit 226,198 225,165 210,902 Income from continuing operations 64,355 43,754 25,514 Net income (loss) 79,964 55,587 (35,213) DISCONTINUED OPERATIONS In the fourth quarter of 1995, Rust announced that as a result of its ongoing strategic review, it will sell or discontinue its process engineering, construction, specialty contracting, and similar lines of business and focus on its environmental and infrastructure engineering and consulting business. Rust has classified the businesses to be disposed of as discontinued operations. Wheelabrator has a 40 percent equity interest in Rust, and accordingly, has recorded 40 percent of Rust's provision for loss on the disposal of these operations. The Company's equity in the income from this segment of Rust has also been reported separately from continuing operations. The provision for loss on disposal of discontinued operations includes management's best estimates of the amounts expected to be realized on the sale of these businesses. The amounts Rust will ultimately realize could differ materially in the near-term from the amounts estimated in arriving at the provision for loss. 21
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Wheelabrator Technologies Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) -------------------------------------------------------------------------------- During 1993, 1994, and 1995, Wheelabrator paid Rust approximately $144.7 million, $101.6 million, and $26.8 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. 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 nine businesses engaged in providing air and water quality-related environmental products and services and in manufacturing surface finishing equipment. During 1995, Wheelabrator completed the privatization of the Miami Conservancy District wastewater treatment plant located in Franklin, Ohio, at a cost of approximately $6.8 million. Also during 1995, the Company acquired a Taiwanese company engaged in the design and engineering of water treatment equipment for approximately $5.8 million, net of cash acquired. 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 estimated fair market values. The results of operations of acquired entities have been included in Wheelabrator's financial statements from their respective dates of acquisition. The pro forma effect of the acquisitions made during 1993, 1994, and 1995 is not material. -------------------------------------------------------------------------------- NOTE 4 INCOME TAXES Summaries of the Company's income from continuing operations before income taxes and its income tax provisions are given below. [Download Table] INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Years Ended December 31, 1993 1994 1995 -------------------------------------------------------------------------------- Domestic $235,680 $272,650 $250,249 International 11,010 10,033 13,188 -------- -------- -------- Total $246,690 $282,683 $263,437 ======== ======== ======== INCOME TAX PROVISION (BENEFIT) Years Ended December 31, 1993 1994 1995 -------------------------------------------------------------------------------- Current tax expense U.S. Federal $ 16,021 $ 37,152 $ 25,945 State and local 9,333 13,636 10,062 Foreign 3,883 3,603 6,765 -------- -------- -------- Total current 29,237 54,391 42,772 -------- -------- -------- Deferred tax expense U.S. Federal 54,780 43,713 51,046 State and local 6,697 4,860 9,855 Foreign -- 336 (1,606) -------- -------- -------- Total deferred 61,477 48,909 59,295 -------- -------- -------- U.S. Federal benefit from amortization of deferred investment credit (779) (779) (779) -------- -------- -------- Total provision $ 89,935 $102,521 $101,288 ======== ======== ======== The principal items accounting for the difference in income taxes computed at the U.S. statutory rates and as recorded are as follows: [Download Table] Years Ended December 31, 1993 1994 1995 -------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes after federal income tax benefit 4.2 4.3 4.9 Equity income (5.5) (3.6) (0.7) Deferred tax revaluation relating to Omnibus Budget Reconciliation Act 2.6 -- -- Other, net 0.2 0.6 (0.8) ---- ---- ---- Effective tax rate 36.5% 36.3% 38.4% ==== ==== ==== During 1993, the Company recorded a $6.5 million increase in deferred income taxes due to the impact that the tax rate increase enacted in the Omnibus Budget Reconciliation Act of 1993 had on the net deferred income tax liability. The principal items that comprise the 1994 and 1995 deferred tax (assets) and liabilities are as follows: [Download Table] December 31, 1994 1995 -------------------------------------------------------------------------------- Reserves not deductible until paid $(107,761) $(102,400) Deferred income (25,233) (22,907) Basis difference in investments and capital loss carryforwards (12,904) (8,579) Alternative minimum tax credit carryforwards (17,289) (24,581) State net operating loss carryforwards (12,431) (13,435) Other (13,787) (410) Less: Valuation allowance 15,989 10,952 --------- --------- Subtotal (173,416) (161,360) --------- --------- Property, plant, and equipment 444,127 508,468 Nondeductible prepaid expenses 13,876 11,817 Other 42,170 36,720 --------- --------- Subtotal 500,173 557,005 --------- --------- Total deferred tax liability $ 326,757 $ 395,645 ========= ========= The Company has approximately $24.6 million of alternative minimum tax credit carryforwards that may be carried forward indefinitely. The Company has capital loss carryforwards of approximately $15 million with an expiration date of 1998. Also, various subsidiaries have state operating loss carryforwards of approximately $310 million with expiration dates through the year 2010. Valuation allowances have been established due to the uncertainty of ultimately realizing the tax benefit of certain state net operating loss carryforwards and the tax benefits attributed to basis differences in certain investments. While the Company expects to realize the deferred tax assets in excess of the valuation allowances, changes in estimates of future taxable income or tax laws could alter this expectation. The valuation allowance decreased $4.4 million during 1994 primarily as a result of the realization of tax benefits due to the disposition of certain investments. During 1995, the valuation allowance decreased $5.0 million due primarily to the realization of capital loss carryforwards. 22
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-------------------------------------------------------------------------------- NOTE 5 CAPITAL STOCK COMMON STOCK As of December 31, 1995, 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. During 1994 and 1995, the Company repurchased approximately 3.3 million and 7.2 million shares of its common stock for an aggregate cost of approximately $47.6 million and $104.2 million, respectively. The Company is authorized to repurchase an additional 19.2 million shares of its common stock through December 1997 on the open market or in privately negotiated transactions, if market conditions make it attractive to do so. The Company declared and paid cash dividends totaling $0.08, $0.10, and $0.11 per common share during 1993, 1994, and 1995, respectively. -------------------------------------------------------------------------------- NOTE 6 LONG-TERM DEBT AND LEASE COMMITMENTS Long-term debt is as follows: [Download Table] December 31, 1994 1995 -------------------------------------------------------------------------------- Industrial development revenue bonds due 1996 to 2010 at rates of 4.0%-9.25% $686,210 $666,678 Private placement bonds due 2008 at a rate of 10.64% 20,000 20,000 Project financing from syndicate of commercial banks due 1995 to 2000 at a rate of 1.5% above LIBOR (8.44% at December 31, 1994) 33,699 -- Project financing from commercial bank due 1996 to 2000 at a rate of 0.325% above LIBOR (6.2625% at December 31, 1995) -- 28,641 Secured notes payable related to coal-handling facilities due 1996 to 1999 at rates of 9.0%-9.875% 24,950 20,327 Other nonproject debt due 1996 to 2008 at rates of 2.857% to 10.0% 6,823 4,576 -------- -------- 771,682 740,222 Less: Current portion 35,749 35,808 -------- -------- Total long-term debt $735,933 $704,414 ======== ======== At December 31, 1995, the Company's long-term project debt was collateralized by property, plant, and equipment with a net book value of approximately $731.1 million and approximately $45.6 million of investments held by trustees. Investments held by trustees typically represent proceeds of long-term debt related to trash-to-energy and independent power projects. These amounts generally consist of reserve funds maintained pursuant to project financing agreement requirements. The investments, which are included in other assets in the Consolidated Balance Sheets, are held in trust and use by the Company is restricted. Also included within other assets are deferred financing costs, which are amortized over the term of the related debt using a straight-line method that approximates the interest method. Financing for certain trash-to-energy facilities currently operated by the Company has been provided through sale and leaseback transactions arranged in previous years. The leases are classified as operating leases, with lease expense recognized on a straight-line basis over the base and bargain renewal periods of each agreement. Timing differences between lease payments and financial statement lease expense are included in other assets in the Consolidated Balance Sheets. Gains realized on the sale transactions are included in deferred income in the Consolidated Balance Sheets and are amortized on a straight-line basis over the terms of the respective leases. Principal payments on long-term debt and noncancelable operating lease payments for operating and office facilities at December 31, 1995, are due as follows: [Download Table] Long-term Debt Operating Leases -------------------------------------------------------------------------------- 1996 $ 35,808 $ 87,399 1997 34,312 88,555 1998 43,160 89,182 1999 43,541 92,466 2000 43,090 93,156 Thereafter 540,311 651,153 -------- ---------- Total $740,222 $1,101,911 ======== ========== Total rent expense was $71.4 million, $72.7 million, and $70.5 million for the years ended December 31, 1993, 1994, and 1995, respectively. The Company has directly or indirectly guaranteed the payment of debt obligations at certain of its leased or owned facilities (see also Note 9). These guarantees contain various covenants, the most restrictive of which require the maintenance of specified levels of tangible net worth. The Company is in compliance with these covenants as of December 31, 1995. 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, 1995. Resco is also required to maintain a minimum level of tangible net worth (approximately $549.8 million as of December 31, 1995). As of December 31, 1995, 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. 23
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Wheelabrator Technologies Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) -------------------------------------------------------------------------------- NOTE 7 STOCK AND BENEFIT PLANS STOCK OPTION PLANS Wheelabrator's stock option plans provide for the grant to key employees of nonqualified options to purchase shares of the Company's common stock at a price equal to the fair market value at the time of grant. When nonqualified options are exercised, the Company receives a federal income tax deduction 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. The status of the plans (including predecessor plans under which options remain outstanding) through December 31, 1995, was as follows: [Download Table] Shares Option Price ---------------------------------------------------------------- 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 -- -- ------ 1995: Granted 1,283 $13.63 Exercised (341) $ 3.87 - $16.75 Cancelled: Predecessor plans (6) $11.90 Current plans (212) $15.75 - $20.65 ------ December 31, 1995 Outstanding 5,871 $ 3.87 - $20.65 ====== Available for future grant 3,299 -- -- ====== Exercisable at end of year 3,915 $ 3.87 - $20.65 ====== Outstanding options generally have a term of seven years from the date of the grant and expire at various dates through April 1, 2002. SAVINGS AND RETIREMENT PLAN Substantially all employees are participants in the Wheelabrator-Rust Savings and Retirement Plan, which is a qualified defined contribution plan consisting of a savings account component (the "Savings Account") and a retirement account component (the "Retirement Account"). Under the terms of the Savings Account, eligible employees of the Company may elect to contribute a portion of their annual compensation not to exceed 16 percent. The Company is required to match a minimum of 30 percent of the first six percent of eligible compensation contributed by an employee. Under the terms of the Retirement Account, eligible employees of the Company receive an annual contribution equal to a minimum of three percent of their eligible earnings. Employees vest in Company contributions and the associated earnings in the Savings Account at 20 percent per year and in the Retirement Account after five years. Wheelabrator's contributions to such plans during 1993, 1994, and 1995 amounted to approximately $6.2 million, $8.0 million, and $8.5 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. During the fourth quarter of 1995, the Company settled litigation with a group of retirees regarding their level of future benefits. As a result, the accumulated postretirement benefit obligation for retiree health care plans was reduced by approximately $3.6 million. Details of the plans' expense recognized in the Consolidated Statements of Income are as follows: [Download Table] Years Ended December 31, 1993 1994 1995 ---------------------------------------------------- Service cost $ 50 $ 59 $ 64 Interest cost 2,646 2,590 3,155 Net amortization (27) (43) (55) ------ ------ ------ Total expense $2,669 $2,606 $3,164 ====== ====== ====== The following sets forth the plans' funded status reconciled with amounts reported in the Company's Consolidated Balance Sheets: [Download Table] December 31, 1994 1995 ------------------------------------------------------------ Accumulated postretirement benefit obligation (APBO): Retirees $37,727 $36,794 Fully eligible active plan participants 433 467 Other active plan participants 549 432 ------- ------- Total APBO 38,709 37,693 Unrecognized: Prior service cost 627 566 Gain 3,080 1,844 ------- ------- Accrued postretirement benefit liability $42,416 $40,103 ======= ======= For measurement purposes, a 10.0 percent annual rate of increase in the per capita cost of covered health care claims was assumed for 1996, 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, 1995, by approximately $3.5 million and increase the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by $0.3 million. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.5 percent in 1994 and 7.75 percent in 1995 based on expected payout patterns. 24
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-------------------------------------------------------------------------------- NOTE 8 ADDITIONAL FINANCIAL INFORMATION The following is a summary of inventories: [Download Table] December 31, 1994 1995 -------------------------------------------------------------- Raw materials $ 7,997 $16,595 Work in process 43,961 32,107 Finished goods 17,262 13,936 ------- ------- Total inventories $69,220 $62,638 ======= ======= Included in other current assets are spare parts and supplies of $23.6 million and $30.2 million as of December 31, 1994 and 1995, respectively. The following is a summary of property, plant, and equipment: [Download Table] December 31, 1994 1995 --------------------------------------------------------------- Land $ 118,971 $ 117,427 Land options 256,225 261,703 Machinery and equipment 1,271,152 1,318,223 Buildings and improvements 303,560 312,681 Construction-in-progress 40,367 8,233 Less: accumulated depreciation (310,273) (394,108) ---------- ---------- Total property, plant, and equipment $1,680,002 $1,624,159 ========== ========== Depreciation of property, plant, and equipment for the years ended December 31, 1993, 1994, and 1995 was $62.4 million, $82.6 million, and $90.7 million, respectively. The following is a summary of accrued liabilities: [Download Table] December 31, 1994 1995 ------------------------------------------------------ Wages, salaries, and benefits $ 30,642 $ 30,079 Interest and lease expense 41,158 44,928 Warranties and contract reserves 14,428 20,602 Other 103,459 89,664 -------- -------- Total accrued liabilities $189,687 $185,273 ======== ======== ------------------------------------------------------ NOTE 9 COMMITMENTS AND CONTINGENCIES The Company has issued or is a party to 461 bank letters of credit, performance bonds, and other guarantees. Such financial instruments (averaging approximately $1 million each) are given in the ordinary course of business. Since 1994, the Company was involved in litigation concerning permits for the construction and operation of the Lisbon, Connecticut, trash-to-energy plant. These matters were resolved during 1995, and the plant began commercial operations in January 1996. In May 1994, the U.S. Supreme Court ruled that state and local governments may not constitutionally restrict the free movement of trash in interstate commerce through the use of flow control laws. Such laws typically involve a municipality specifying the disposal site for all solid waste generated within its borders. Since the ruling, several decisions of state or federal courts have invalidated regulatory flow control schemes in a number of jurisdictions. Other judicial decisions have upheld nonregulatory means by which municipalities may effectively control the flow of municipal solid waste. There can be no assurance that such alternatives to regulatory flow control will in every case be found to be lawful. For example, the Company's Gloucester County, New Jersey, facility relies on a disposal franchise for substantially all of its supply of municipal solid waste. A recent federal court ruling in that state invalidated a franchise applicable to construction and demolition waste and has cast doubt on the validity of the municipal solid waste disposal franchise, which is now being challenged in separate litigation. The Supreme Court's ruling has not to date had a material adverse affect on any of the Company's trash-to-energy operations. Federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. In the event that such legislation is not adopted, the Company believes that affected municipalities will endeavor to implement alternative lawful means to continue controlling the flow of waste. In view of the uncertain state of the law at this time, however, the Company is unable to predict whether such efforts would be successful. Within the next five years, the air pollution control systems at certain trash-to-energy facilities owned or leased by Wheelabrator will be required to be modified to comply with more stringent air pollution control standards adopted by the EPA in October 1995. The compliance dates will vary by facility, but all affected facilities will be required to be in compliance with the new rules by the end of the year 2000. Currently available technologies will be adequate to meet the new standards. Although the total expenditures required for such modifications are estimated to be in the $250 - $300 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. 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 subject to an enforcement order that includes a site assessment study. Although the Company is considering joining the private parties to share in these costs, no litigation has been filed and the Company has not been named 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 beyond its possible voluntary sharing of enforcement order costs. An estimate of those costs is included in 1995's results of operations and is not material. There are various lawsuits and claims pending against Wheelabrator that have arisen in the normal course of Wheelabrator's business and relate mainly to matters of product liability, personal injury, and property damage. The outcome of these matters is not presently determinable, but in the opinion of management, based on the advice of counsel, the ultimate resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company. It is reasonably possible, however, that a change in the Company's estimate of its probable liability with respect to these matters could occur in the near-term. The Company is self-insured for general liability claims up to $2.0 million per occurrence. Liability insurance in effect during the last several years provides coverage for environmental matters only to a limited extent. 25
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Wheelabrator Technologies Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) -------------------------------------------------------------------------------- NOTE 10 SEGMENT AND GEOGRAPHIC INFORMATION During 1995, the Company began implementing the recommendations of a strategic review of WMX and its subsidiaries. Part of this implementation involved realigning the Wheelabrator organization and management into two principal industry segments: Clean Energy and Clean Water. Previously, the Company had been managed and reported as one segment. Information concerning the Company's business segments in 1993, 1994, and 1995 follows. Intersegment revenues are at prices that approximate market and are not material. Prior year information has been restated to conform with the current presentation. [Enlarge/Download Table] ----------------------------------------------------------------------------------------------------------------------------- Corporate & Clean Energy(1) Clean Water Eliminations(2) Consolidated --------------------------------------------------------------------------------------------------------------------------------- 1993 Revenue $ 761,558 $392,194 $(11,533) $1,142,219 Operating expenses including goodwill amortization 508,963 294,525 (10,769) 792,719 Selling and administrative expenses 43,861 63,937 (522) 107,276 ---------- -------- -------- ---------- Operating income $ 208,734 $ 33,732 $ (242) $ 242,224 ========== ======== ======== ========== Identifiable assets $2,018,156 $485,349 $578,204 $3,081,709 ========== ======== ======== ========== Depreciation and amortization expense $ 56,026 $ 21,446 $ (2,149) $ 75,323 ========== ======== ======== ========== Capital expenditures(3) $ 194,645 $112,965 $ (3,705) $ 303,905 ========== ======== ======== ========== 1994 Revenue $ 844,703 $489,295 $ (9,431) $1,324,567 Operating expenses including goodwill amortization 556,838 369,592 (11,193) 915,237 Selling and administrative expenses 40,859 78,615 (94) 119,380 ---------- -------- -------- ---------- Operating income $ 247,006 $ 41,088 $ 1,856 $ 289,950 ========== ======== ======== ========== Identifiable assets $2,055,449 $587,480 $633,682 $3,276,611 ========== ======== ======== ========== Depreciation and amortization expense $ 56,678 $ 40,813 $ (2,237) $ 95,254 ========== ======== ======== ========== Capital expenditures(3) $ 74,857 $ 35,725 $ 4,500 $ 115,082 ========== ======== ======== ========== 1995 Revenue $ 839,484 $618,472 $ (6,281) $1,451,675 Operating expenses including goodwill amortization 546,018 477,842 (8,591) 1,015,269 Selling and administrative expenses 41,074 89,922 (20) 130,976 ---------- -------- -------- ---------- Operating income $ 252,392 $ 50,708 $ 2,330 $ 305,430 ========== ======== ======== ========== Identifiable assets $1,952,457 $612,824 $654,912 $3,220,193 ========== ======== ======== ========== Depreciation and amortization expense $ 64,922 $ 44,744 $ (1,852) $ 107,814 ========== ======== ======== ========== Capital expenditures(3) $ 11,676 $ 33,415 $ 10 $ 45,101 ========== ======== ======== ========== (1) Includes Air businesses. (2) Includes unallocated corporate assets, investments in affiliates, and elimination of intercompany transactions. (3) Includes property, plant, and equipment of purchased businesses. Wheelabrator has foreign operations in six European countries, five countries in the Asia-Pacific region, Canada, and Mexico. Information relating to the Company's foreign operations is set forth below: [Enlarge/Download Table] United States Europe Asia-Pacific Other Foreign Consolidated -------------------------------------------------------------------------------------------------- 1993 Revenue $1,074,699 $ 37,612 $15,094 $14,814 $1,142,219 ========== ======== ======= ======= ========== Operating income $ 228,632 $ 2,855 $ 2,807 $ 7,930 $ 242,224 ========== ======== ======= ======= ========== Identifiable assets $3,047,736 $ 20,523 $ 6,397 $ 7,053 $3,081,709 ========== ======== ======= ======= ========== 1994 Revenue $1,212,771 $ 70,399 $23,781 $17,616 $1,324,567 ========== ======== ======= ======= ========== Operating income $ 280,218 $ 6,017 $ 3,365 $ 350 $ 289,950 ========== ======== ======= ======= ========== Identifiable assets $3,139,778 $102,441 $27,505 $ 6,887 $3,276,611 ========== ======== ======= ======= ========== 1995 Revenue $1,240,311 $150,464 $40,340 $20,560 $1,451,675 ========== ======== ======= ======= ========== Operating income $ 290,224 $ 9,915 $ 4,139 $ 1,152 $ 305,430 ========== ======== ======= ======= ========== Identifiable assets $3,062,077 $ 97,664 $51,818 $ 8,634 $3,220,193 ========== ======== ======= ======= ========== 26
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-------------------------------------------------------------------------------- NOTE 11 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(1) [Enlarge/Download Table] First Second Third Fourth Full Year ------------------------------------------------------------------------------------------- 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 Income from continuing operations 39,635 48,028 45,886 46,613 180,162 Net income 40,140 48,610 49,389 46,756 184,895 Weighted average common and common equivalent shares outstanding 190,200 190,500 190,400 188,600 189,900 Earnings per common and common equivalent share: Income from continuing operations $ 0.21 $ 0.25 $ 0.24 $ 0.25 $ 0.95 Net Income 0.21 0.26 0.26 0.25 0.97 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 1995 Revenue $373,299 $369,994 $355,951 $352,431 $1,451,675 Operating expenses 267,893 260,590 247,403 239,383 1,015,269 Income from continuing operations(2) 43,700 49,694 49,900 18,855 162,149 Net income (loss) 43,676 52,968 51,376 (10,162) 137,858 Weighted average common and common equivalent shares outstanding 186,400 185,300 185,500 182,500 185,000 Earnings per common and common equivalent share: Income from continuing operations $ 0.23 $ 0.27 $ 0.27 $ 0.10 $ 0.88 Net income (loss) 0.23 0.29 0.28 (0.06) 0.75 Market price: High 17 1/2 15 3/4 17 16 3/4 17 1/2 Low 12 1/2 13 5/8 14 1/4 14 12 1/2 (1) Previously reported numbers have been restated for the discontinued operations. (2) Fourth quarter of 1995 reduced by $25.6 million related to a special charge recorded by WM International. 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, 1994 and 1995, 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, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wheelabrator Technologies Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSON LLP ARTHUR ANDERSEN LLP New York, New York February 2, 1996 27
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Wheelabrator Technologies Inc. Directors and Officers -------------------------------------------------------------------------------- BOARD OF DIRECTORS Phillip B. Rooney James E. Koenig Chairman of the Board and Sr. Vice President, Chief Executive Officer Chief Financial Officer and Treasurer Wheelabrator Technologies Inc. WMX Technologies, Inc. Dean L. Buntrock Paul M. Montrone Chairman of the Board and President and Chief Executive Officer Chief Executive Officer Fisher Scientific International Inc. WMX Technologies, Inc. William M. Daley Manuel Sanchez Partner Partner Mayer Brown & Platt Sanchez & Daniels Donald F. Flynn Lt. Gen. Thomas P. Stafford Chairman of the Board and President Consultant Flynn Enterprises, Inc. General Technical Services, Inc. Kay Hahn Harrell Chairman and Chief Executive Officer Fairmarsh Consulting -------------------------------------------------------------------------------- OFFICERS Phillip B. Rooney Herbert A. Getz Mark P. Paul Chairman of the Board and Secretary Vice President and Chief Executive Officer General Counsel John J. Goody John M. Kehoe, Jr. Vice President John D. Sanford President and Executive Vice President, Chief Operating Officer Richard S. Haak, Jr. Chief Financial Officer Controller and Treasurer -------------------------------------------------------------------------------- STAFF OFFICERS SUBSIDIARY OFFICERS Robert J. Gagalis Bruno R. Dunn Staff Vice President Vice President Operations Corporate Development Wheelabrator Environmental Systems Inc. Mark P. Hepp Staff Vice President Ray L. Patel Engineering & Construction President and Chief Operating Officer Wheelabrator Water Technologies Inc. Wheelabrator Technologies Inc. Corporate Information -------------------------------------------------------------------------------- STOCKHOLDER INFORMATION Headquarters Wheelabrator Technologies Inc. Liberty Lane Hampton, NH 03842 (603) 929-3000 -------------------------------------------------------------------------------- STOCK TRANSFER AGENT AND REGISTRAR Mellon Securities Transfer Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 -------------------------------------------------------------------------------- STOCK LISTING Wheelabrator Technologies Inc. common stock is listed on the New York Stock Exchange under the stock trading symbol WTI. -------------------------------------------------------------------------------- SHAREHOLDER SERVICES If you have questions concerning Wheelabrator Technologies Inc., or your investment in the Company, we will be pleased to assist you. You may contact Wheelabrator Shareholder Services by calling (800) 443-6474, or by writing Wheelabrator Shareholder Services, P.O. Box 1800, Pittsburgh, PA 14230. -------------------------------------------------------------------------------- CORPORATE REPORTS A copy of the Company's report on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge. 28

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 10-K Filing   Date First   Last      Other Filings
12/31/92411
12/31/93101210-K
1/1/947
12/31/9451410-K405
For The Period Ended12/31/95414
2/2/9614
Filed On / Filed As Of3/29/96
12/31/96510-K405, 10-K405/A
8/24/9910
4/1/0211
 
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