<PAGE>
____________________________
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For The Quarterly Period Ended June 30, 1994
-------------
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
incorporation or organization) Identification No.)
Liberty Lane, Hampton, New Hampshire 03842
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(603) 929-3000
-------------------------------
(Registrant's telephone number,
including area code)
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
--------- ---------
Number of shares of common stock outstanding at July 31, 1994 - 189,539,016
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
-----------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Part I - Financial Information: Page No.
- ------------------------------- --------
<S> <C>
Item 1 - Financial Statements
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1993 and 1994...................... 1
Consolidated Balance Sheets as of December 31, 1993 and
June 30, 1994............................................ 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1993 and 1994............................. 3
Consolidated Statements of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1993 and 1994.............. 4
Notes to Consolidated Financial Statements...................... 5
Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition................. 8
Part II - Other Information:
- ----------------------------
Item 1 - Legal Proceedings........................................ 14
Item 4 - Submission of Matters to a Vote of Security Holders...... 14
Item 6 - Exhibits and Reports on Form 8-K......................... 15
SIGNATURE......................................................... 16
Exhibit Index..................................................... 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(000's omitted, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1993 1994 1993 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue..................................... $279,978 $321,661 $525,503 $602,993
Operating expenses.......................... 193,643 218,508 365,349 414,092
Selling and administrative expenses......... 27,056 29,615 50,636 55,267
Interest expense............................ 15,981 11,442 32,564 24,082
Interest income............................. (4,407) (3,526) (9,800) (6,930)
Equity in earnings of affiliates............ (11,523) (9,976) (20,938) (18,467)
Gain from stock transactions of affiliate... (7,680) - (7,680) -
Other income, net........................... (3,372) (518) (3,698) (2,215)
-------- -------- -------- --------
Income before income taxes................ 70,280 76,116 119,070 137,164
Income tax provision........................ 20,480 27,506 35,862 48,414
-------- -------- -------- --------
Net income................................ $ 49,800 $ 48,610 $ 83,208 $ 88,750
======== ======== ======== ========
Weighted average common shares outstanding.. 188,500 190,500 188,500 190,400
======== ======== ======== ========
Earnings per common share................... $ 0.26 $ 0.26 $ 0.44 $ 0.47
======== ======== ======== ========
Dividends declared per common share......... $ 0.06 $ 0.10 $ 0.08 $ 0.10
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's omitted, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1993 1994
----------- ----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 36,719 $ 20,091
Receivables, net.......................................................... 188,241 212,104
Costs and earnings in excess of billings.................................. 25,712 32,714
Other current assets...................................................... 84,684 100,004
---------- ----------
Total current assets.............................................. 335,356 364,913
Property, plant and equipment, net.......................................... 1,653,920 1,691,811
Cost in excess of net assets of acquired businesses......................... 205,886 217,055
Investments in affiliates................................................... 561,045 596,624
Other assets................................................................ 334,071 314,406
---------- ----------
Total assets................................................. $3,090,278 $3,184,809
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term project debt............................. $ 33,754 $ 29,421
Accounts payable......................................................... 70,762 88,281
Accrued liabilities...................................................... 197,123 211,338
Advance payments on contracts............................................ 28,147 31,805
---------- ----------
Total current liabilities......................................... 329,786 360,845
---------- ----------
Long-term project debt...................................................... 776,858 768,154
---------- ----------
Deferred income taxes....................................................... 292,364 313,776
---------- ----------
Other long-term liabilities................................................. 404,432 360,344
---------- ----------
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,
188,820,322 shares outstanding in 1993, 189,536,822 shares outstanding
in 1994................................................................. 1,888 1,895
Capital in excess of par value............................................ 874,580 884,189
Cumulative translation adjustments........................................ (33,670) (18,764)
Treasury stock, 43,127 shares in 1993 and 10,247 shares in 1994,
at cost................................................................. (717) (183)
Retained earnings......................................................... 444,757 514,553
---------- ----------
Total stockholders' equity........................................ 1,286,838 1,381,690
---------- ----------
Total liabilities and stockholders' equity................... $3,090,278 $3,184,809
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(000's omitted)
(unaudited)
<TABLE>
<CAPTION>
1993 1994
---------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income..................................................................... $ 83,208 $ 88,750
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization................................................ 29,301 44,458
Deferred taxes............................................................... 21,153 21,424
Undistributed earnings of affiliate.......................................... (20,938) (18,467)
Gains from stock transactions of affiliates.................................. (7,680) -
Changes in assets and liabilities, net of effects of acquired and contributed
businesses:
Receivables, net............................................................. (27,004) (22,119)
Costs and earnings in excess of billings..................................... (5,701) (5,708)
Other current assets......................................................... (14,909) (6,861)
Accounts payable and accrued liabilities..................................... (57,313) (5,388)
Advance payments on contracts................................................ 1,991 (2,548)
Other long-term liabilities.................................................. (15,758) (37,074)
Other, net................................................................... 5,438 1,706
--------- ---------
Net cash provided by (used for) operating activities......................... (8,212) 58,173
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures........................................................... (125,674) (73,311)
Investments held by trustees................................................... 7,943 6,229
Cash paid for acquisitions, net of acquired cash............................... (9,053) (3,358)
Other.......................................................................... - 3,374
--------- ---------
Net cash used for investing activities....................................... (126,784) (67,066)
--------- ---------
FINANCING ACTIVITIES:
Additions to long-term project debt............................................ - 112,985
Repayments of long-term project debt........................................... (58,727) (126,196)
Proceeds from exercise of stock options........................................ 5,634 7,749
Dividends paid................................................................. (5,599) -
Other.......................................................................... 782 (2,273)
--------- ---------
Net cash used for financing activities....................................... (57,910) (7,735)
--------- ---------
Decrease in cash and cash equivalents.......................................... (192,906) (16,628)
Cash and cash equivalents at beginning of period............................... 291,271 36,719
--------- ---------
Cash and cash equivalents at end of period..................................... $ 98,365 $ 20,091
========= =========
Supplemental disclosure:
Interest paid, net of amounts capitalized.................................... $ 36,600 $ 26,399
========= =========
Income taxes paid............................................................ $ 49,528 $ 47,402
========= =========
Significant noncash investing activities:
Net assets contributed to Rust International Inc............................. $ 244,278 $ -
========= =========
Businesses acquired for common stock......................................... $ 3,772 $ 2,900
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(000's omitted)
(unaudited)
<TABLE>
<CAPTION>
Capital in Cumulative
Common Excess of Translation Treasury Retained
Stock Par Value Adjustment Stock Earnings Total
------ ---------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,865 $758,646 $(17,785) $ - $296,617 $1,039,343
Net income - - - - 83,208 83,208
Dividends declared - - - - (14,962) (14,962)
Foreign currency translation - - (7,642) - - (7,642)
Exercise of stock options 4 4,177 - - - 4,181
Tax benefit from stock
options - 1,453 - - - 1,453
Common stock issued
for acquisitions 2 3,770 - - - 3,772
Investment in Rust
International Inc. - 77,662 - - - 77,662
------ -------- -------- ------ -------- ----------
Balance, June 30, 1993 $1,871 $845,708 $(25,427) $ - $364,863 $1,187,015
====== ======== ======== ====== ======== ==========
Balance, December 31, 1993 $1,888 $874,580 $(33,670) $ (717) $444,757 $1,286,838
Net income - - - - 88,750 88,750
Dividends declared - - - - (18,954) (18,954)
Foreign currency translation - - 14,906 - - 14,906
Exercise of stock options 5 4,598 - 1,033 - 5,636
Tax benefit from stock
options - 2,113 - - - 2,113
Common stock issued
for acquisitions 2 2,898 - - - 2,900
Treasury stock received as
settlement for claims - - - (499) - (499)
------ -------- -------- ------ -------- ----------
Balance, June 30, 1994 $1,895 $884,189 $(18,764) $ (183) $514,553 $1,381,690
====== ======== ======== ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying financial statements have been prepared by Wheelabrator
Technologies Inc. ("WTI" or the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations.
The financial information presented herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain prior period amounts have been reclassified to
conform with the current presentation. The results for interim periods are not
necessarily indicative of the results to be expected for the full year.
WTI is a majority-owned subsidiary of WMX Technologies, Inc. ("WMX"). WTI
and WMX are parties to an agreement which provides, among other things, for WTI
to lend excess cash to WMX at interest rates at least as favorable as those WTI
could otherwise obtain. Under the terms of this agreement, in the event WTI
requires short-term cash for the conduct of its business and operations, WMX
will make available to WTI such amounts as WTI requires, up to a total of $100
million in excess of amounts loaned by WTI to WMX. As of June 30, 1994, accrued
liabilities included approximately $1 million of net borrowings from WMX under
the terms of this agreement.
From time to time, the Company uses foreign currency derivatives to
mitigate the impact of currency fluctuations on its equity income from Waste
Management International plc ("WM International"). Although the Company's
purpose for using such derivatives is to hedge currency risk, they do not
qualify for hedge accounting under generally accepted accounting principles and
accordingly, must be marked to market at the end of each accounting period.
Gains and losses on currency derivatives to date have not been material.
As of June 30, 1994, the Company was a party to the following average rate
currency collars, structured as offsetting puts and calls with different strike
prices (all options settle at expiration of the option period):
Notional
Currency Amount Duration
-------- ------ --------
Sterling 21,000,000 Feb-Dec '94
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
----------------------------------------------------
The notional amounts of the contracts are used to measure cash payments at
settlement and do not represent the amount of exposure to credit loss. In
addition, the counterparties are major financial institutions which are expected
to fully perform under the terms of the contracts.
Earnings per common share are calculated using the weighted average number
of shares outstanding for each period, including the effect of common stock
equivalents using the treasury stock method. Common stock equivalents consist
of unexercised stock options.
Effective January 1, 1994, WTI adopted Statement of Financial Accounting
Standards No. 112, Employer's Accounting for Postemployment Benefits ("FAS
112"). The adoption of FAS 112 did not have a significant effect on earnings
for the three and six months ended June 30, 1994 and is not expected to
materially impact the Company's 1994 results of operations, since WTI's
accounting prior to adoption of FAS 112 was substantially in compliance with the
new standard.
NOTE 2 - ACQUISITIONS
During the first six months of 1994, WTI acquired wastewater treatment
operating contracts and five businesses engaged in providing water quality
related environmental products and services and in manufacturing shot blast
machinery in exchange for approximately 156 thousand shares of WTI common stock
and $3 million of cash. During 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 WTI common stock and $15 million of cash. The proforma effect of
these 1993 and 1994 acquisitions on the Company's results of operations for 1993
and the six months ended June 30, 1994 is not material.
NOTE 3 - TAXES
WTI and Koll Real Estate Group, Inc. ("KREG") are parties to a tax sharing
agreement which covers periods ending prior to December 31, 1988, during which
the Company, KREG, The Henley Group Inc. ("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 Inc. ("Abex")
has assumed certain of Henley's obligations to KREG under a similar tax sharing
agreement.
In March 1994, WTI and the Internal Revenue Service 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 $30 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. WTI's obligation had been
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
previously recorded in the Company's 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. As a result, the
Company and Abex have filed a lawsuit against KREG seeking to require KREG to
honor its obligations under the tax sharing agreement. Although the Company may
be obligated to initially pay the portion of the settlement liability applicable
to KREG pending resolution of the lawsuit relating to the tax sharing agreement,
it does not believe the ultimate resolution of this matter will have a material
adverse effect on its financial condition or results of operations.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On February 16, 1994, a Connecticut Superior Court judge issued a decision
on appeals of the Connecticut Department of Environmental Protection's ("DEP")
issuance of a permit to construct the Lisbon, Connecticut trash-to-energy
facility currently being built by WTI. 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 pursue a favorable resolution of this permit remand through
appropriate judicial and regulatory proceedings. Although WTI 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 the Eastern
Connecticut Resource Recovery Authority, 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.
7
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition
----------------------------------
RESULTS OF OPERATIONS
Revenue for the three and six month periods ended June 30, 1994 increased
15 percent versus revenue in the comparable 1993 periods. Approximately half
of this revenue growth reflects the impact of water businesses acquired during
the last twelve months. The balance of the revenue increase reflects the third
quarter 1993 commencement of commercial operations at the Company's New York
Organic Fertilizer Company ("NYOFCO") biosolids pelletizer facility,
construction revenue from the Lisbon, Connecticut trash-to-energy facility being
built by WTI, and the growth of existing businesses. The Company's energy,
water and air businesses represented approximately 51 percent, 35 percent and 14
percent, respectively, of total revenue during the second quarter of 1994
compared with 52 percent, 28 percent and 20 percent in the second quarter of
1993. Similarly, the energy, water and air businesses contributed approximately
52 percent, 34 percent and 14 percent, respectively, of revenue for the six
months ended June 30, 1994 compared with 53 percent, 29 percent and 18 percent,
respectively, during the same period in 1993. Current year air business revenue
declined from 1993 levels due to the completion in 1993 of certain contracts
related to Phase I of the Clean Air Act Amendments of 1990 (the "CAAA").
Operating expenses constituted 67.9 percent and 68.7 percent of revenue for
the second quarter and first six months of the year, respectively, compared with
69.2 percent and 69.5 percent of revenue during the corresponding three and six
month periods in 1993. These reductions reflect the improved operating
performance of certain of the Company's energy facilities and the addition of
the NYOFCO facility. In addition, second quarter 1994 margins were augmented
by revenue associated with weather-delayed landspreading activities. Selling
and administrative expenses decreased as a percent of revenue to 9.2 percent for
both the second quarter and first half of 1994, versus 9.7 percent and 9.6
percent of revenue for the comparable year earlier periods. This decline is
primarily attributable to the integration of acquired companies into existing
businesses, to on-going Company-wide administrative cost containment activities
and to revenue growth in excess of associated selling and administrative cost
increases.
Second quarter and six-month interest expense declined compared to 1993
principally as a result of lower outstanding debt principal, the March 1994
refinancing of $113 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. As
these projects begin commercial operations, this interest capitalization will
cease and interest expense will increase accordingly. The decline in interest
earnings for both the three and six month periods results from lower cash
balances when compared to the prior year period. WTI's equity in the earnings
of Rust International Inc. ("Rust") decreased compared to prior year results due
to an earnings decline at Rust reflecting a shift in business mix into lower
margin work and postponement of certain project awards and start-ups. Equity
income from the investment in Waste Management International plc increased
slightly in both the quarter and six months of 1994 compared to 1993.
8
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
Excluding the impact of a nontaxable $7.7 million nonoperating gain from
stock transactions of an affiliate in 1993, second quarter net income climbed 15
percent to $48.6 million or $0.26 per share, compared with $42.1 million or
$0.22 per share, in the year earlier period. On a similar basis, net income for
the first six months of 1994 increased 18 percent to $88.8 million, or $0.47 per
share, compared with $75.5 million, or $0.40 per share, in the first half of
1993. The increase in operations-related earnings for the second quarter and
first half of 1994 reflects the strong performance of the Company's energy
facilities, operations at NYOFCO and businesses acquired in the past year.
In May of this year, 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 U.S. Environmental Protection Agency ("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. On May 27, 1994, the EPA
announced its determination as a result of the Supreme Court's decision that ash
from combustion of municipal solid waste is subject to regulation as a hazardous
waste, thereby requiring it to be tested and disposed of appropriately if
hazardous. The EPA also announced that it will develop land disposal
restrictions in the event ash must be disposed of as a hazardous waste. WTI's
energy facilities in New Hampshire and New Jersey are currently subject to such
testing requirements and, after treating the ash with the Company's patented
WES-Phix(R) process, are able to dispose of their residual ash as non-hazardous
waste. The Company has recently completed the installation of WES-Phix(R)
technology at all of its other facilities and does not expect the incremental
expenditures required to treat, test and dispose of residual ash at these
facilities to have a material adverse impact on WTI's financial condition or
results of operations.
Also in May of this year, 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. Regardless of whether such
legislation is passed, the Company does not believe the Supreme Court's decision
will have a material adverse impact on WTI's financial condition or results of
operations.
The majority of the businesses in which the Company is engaged are
intrinsically connected with the protection of the environment and involve the
potential for discharge of regulated materials into the environment. In
addition, the Company becomes involved, in the normal course of business, in
judicial and administrative proceedings related to alleged violations of
licenses, permits, laws or regulations or differing interpretations of
applicable requirements.
9
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
WTI has instituted procedures to periodically evaluate potential environmental
exposures. When the Company concludes it is probable that a liability has been
incurred, provision is made in the financial statements for the Company's best
estimate of the liability. These estimates are adjusted as necessary when
additional information becomes available. To date, such provisions have not
been material.
From time to time, the Company uses foreign currency derivatives to
mitigate the impact of currency fluctuations on its equity income from WM
International. Although the Company's purpose for using such derivatives is to
hedge currency risk, they do not qualify for hedge accounting under generally
accepted accounting principles and accordingly, must be marked to market at the
end of each accounting period. Gains and losses on currency derivatives to date
have not been material. See Notes to Consolidated Financial Statements for
further discussion of the use of and accounting for such instruments.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of capital during the first six months of 1994 were
investments in new projects under construction, retirement of project debt and a
$30 million payment of a previously recorded liability relating to a federal
income tax settlement for the period ended December 31, 1988. WTI currently has
several projects in various stages of development and construction, as discussed
in more detail below. The Company also intends to continue its diversification
through selected acquisitions of air and water quality control technologies and
companies, both domestically and internationally.
WTI believes it has access to sufficient capital resources to finance its
development and construction projects along with future acquisitions. Operating
cash flows or borrowings from WMX pursuant to the Master Intercorporate
Agreement between the Company and WMX may be utilized to meet short-term funding
requirements. The Company may borrow up to $100 million in excess of any amount
loaned to WMX until September 1995 pursuant to this agreement. WTI had
approximately $1 million of such net short-term borrowing with WMX outstanding
at June 30, 1994. Future needs for long-term external capital are anticipated
to be met by permanently financing certain projects.
During the first six months of 1994, construction continued on a 1,500
ton-per-day trash-to-energy facility and associated recycling center in Falls
Township, Pennsylvania and on WTI's wood waste and scrap tire power generating
facility in Polk County, Florida. Both of these facilities are in final stages
of start-up and testing activities and are expected to begin commercial
operations early in the third quarter of 1994. Additionally, mechanical
completion has been reached on a biosolids pelletizer facility in Baltimore,
Maryland, with commercial operations expected to begin in the fourth quarter of
1994. The Company also expanded its capabilities within its water quality
control line of business by acquiring several small businesses
10
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
during the quarter. To date, funding for these projects and acquisitions has
been provided from WTI's available cash and interim short-term borrowings from
WMX.
WTI has continued to refinance at lower interest rates, or repay prior to
maturity, certain of its existing project debt. In March 1994, the Company
completed a refinancing of the remaining $113 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 cost of the retrofit and, in turn, the Company has agreed to provide the
funds necessary to pay the remaining costs for the retrofit. WTI 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 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 WTI will be required
to be modified to comply with more stringent air pollution control standards
such as those in the CAAA. Although the expenditures related to such
modifications will likely be significant, 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 great majority of incremental
capital and operating costs.
During the first six months of 1994, WTI acquired wastewater treatment
operating contracts and five businesses engaged in providing water quality
related environmental products and services and in manufacturing shot blast
machinery in exchange for approximately 156 thousand shares of WTI common stock
and $3 million of cash. During 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 WTI common stock and $15 million of cash. The proforma effect of these
1993 and 1994 acquisitions on the Company's results of operations for 1993 and
the six months ended June 30, 1994 is not material.
In February 1994, a Connecticut Superior Court judge issued a decision on
appeals of the DEP's issuance of a permit to construct the Lisbon, Connecticut
trash-to-energy facility currently being built by WTI. 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 pursue a favorable resolution of
this permit remand
11
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
through appropriate judicial and regulatory proceedings and has continued to
construct the facility, which was approximately 16 percent completed as of June
30, 1994. Although WTI 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 the Eastern Connecticut
Resource Recovery Authority, 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.
WTI and KREG are parties to a tax sharing agreement which 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 has assumed certain of Henley's obligations to KREG under a similar tax
sharing agreement. In March 1994, WTI and the Internal Revenue Service 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 $30 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. WTI's
obligation had been previously recorded in the Company's consolidated balance
sheets. Prior to April 15, 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 have filed a lawsuit against KREG seeking to
require KREG to honor its obligations under the tax sharing agreement. Although
the Company may be obligated to initially pay the portion of the settlement
liability applicable to KREG pending resolution of the lawsuit relating to the
tax sharing agreement, it does not believe the ultimate resolution of this
matter will have a material adverse effect on its financial condition or results
of operations.
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 two years in the open market or in privately negotiated
transactions. No shares were repurchased during the first six months of 1994.
In April 1994, WTI filed with the Securities and Exchange Commission an
updated "shelf" registration statement covering 11.1 million shares of the
Company's common stock for issuance in connection with future acquisitions. On
May 9, 1994, the Board of Directors declared an annual cash dividend of $0.10
per common share which was paid on July 7, 1994 to stockholders of record on
June 22, 1994. The 1994 dividend represents a 25 percent increase over total
dividends declared in 1993.
12
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
FINANCIAL CONDITION
- -------------------
The Company's financial condition at June 30, 1994 compared to December 31,
1993 generally reflects the results of normal operating activities as well as
the use of funds for investments in new projects under construction, retirement
of project debt and payment of a previously recorded federal income tax
liability. As a result of construction activities, offset in part by
depreciation, during the first six months of 1994, net property, plant and
equipment increased by approximately $38 million as three significant projects
approached their later stages of completion. Debt retirement and successful
refinancing activities reduced total long-term debt approximately $13 million
from December 31, 1993 levels and reduced interest rates on $113 million of
long-term debt maturing through July 2009.
Net working capital as of June 30, 1994 remained essentially unchanged from
year-end 1993 levels, with approximately $99 million of additional borrowings
available to meet short-term funding requirements under the terms of the
Company's Master Intercorporate Agreement with WMX. In addition, other long-
term liabilities were reduced by the payment of the Company's remaining $30
million obligation under the tax sharing agreement with Abex and KREG as a
result of the stipulated settlement agreement outlined above.
13
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - Legal Proceedings
-----------------
Regulatory - The business in which the Company is engaged is intrinsically
connected with the protection of the environment and 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. At June 30,
1994, the Company was involved in two such proceedings where the Company
believes sanctions involved may exceed $100,000.
Other - In addition, there are other routine lawsuits and claims, including
certain environmental matters, pending against WTI and its subsidiaries which
are incidental to its 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 and results of operations.
ITEM 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's annual meeting of stockholders on May 5, 1994, one
proposal was submitted to the Company's stockholders. The proposal was to elect
Dean L. Buntrock, James E. Koenig and Lt. General Thomas P. Stafford as
directors of the Company for terms expiring at the annual meeting of the
Company's stockholders in 1997. The nominees were elected by the stockholders,
with votes cast as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- ----------- --------------
<S> <C> <C>
Dean L. Buntrock 172,224,743 875,830
James E. Koenig 172,225,757 824,816
Thomas P. Stafford 172,216,234 834,339
</TABLE>
14
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
The exhibits to this report are listed on the Exhibit Index elsewhere
herein.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1994.
15
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHEELABRATOR TECHNOLOGIES INC.
August 12, 1994 /s/ John D. Sanford
-------------------------------
John D. Sanford
Vice President and
Chief Financial Officer
16
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit/*/
---------------------------------
2 None
4 None
10 None
11 None
15 None
18 None
19 None
22 None
23 None
24 None
99 None
- -------------
* Exhibits not listed are inapplicable
17
