<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, 1995
-------------
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, 1995 - 184,749,857
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
-----------------------------------
INDEX
-----
Part I - Financial Information: Page No.
- ------------------------------- --------
Item 1 - Financial Statements
Consolidated Balance Sheets as of December 31, 1994, and June 30, 1995.. 1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 1994 and 1995........................................... 2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1994 and 1995........................................... 3
Consolidated Statements of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1994 and 1995...................... 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
<PAGE>
PART I. FINANCIAL INFORMATION
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's omitted, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
------------ -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 36,133 $ 33,605
Receivables, net of allowance of $9,462 in 1994 and $10,195 in 1995............ 230,433 259,939
Inventories.................................................................... 69,220 68,147
Costs and earnings in excess of billings....................................... 28,767 42,780
Other current assets........................................................... 64,220 54,876
---------- ----------
Total current assets........................................................ 428,773 459,347
---------- ----------
Property, plant and equipment, net............................................... 1,680,002 1,642,792
Cost in excess of net assets of acquired businesses, net......................... 230,711 227,375
Investments in affiliates........................................................ 618,971 646,860
Other assets..................................................................... 324,014 319,036
---------- ----------
Total assets............................................................. $3,282,471 $3,295,410
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term project debt.................................... $ 29,213 $ 29,760
Due to WMX Technologies, Inc.................................................... 53,163 -
Accounts payable................................................................ 100,911 115,544
Accrued liabilities............................................................. 189,687 173,818
Advance payments on contracts................................................... 65,966 60,570
---------- ----------
Total current liabilities.................................................... 438,940 379,692
---------- ----------
Long-term project debt............................................................ 735,646 727,826
Deferred income taxes............................................................. 332,617 363,607
Deferred income................................................................... 89,083 83,040
Other long-term liabilities....................................................... 261,303 254,429
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share, 50,000,000 shares authorized, none
issued or outstanding........................................................ - -
Common stock, par value $0.01 per share, 500,000,000 shares authorized,
189,545,407 shares issued in 1994 and 1995................................... 1,895 1,895
Capital in excess of par value.................................................. 877,428 877,052
Cumulative translation adjustments.............................................. (17,650) (8,569)
Treasury stock at cost; 3,270,054 shares in 1994 and 4,984,455 shares in 1995... (47,489) (70,603)
Retained earnings............................................................... 610,698 687,041
---------- ----------
Total stockholders' equity................................................... 1,424,882 1,486,816
---------- ----------
Total liabilities and stockholders' equity................................ $3,282,471 $3,295,410
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995
(000's omitted, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1994 1995 1994 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.......................................... $321,661 $369,994 $602,993 $743,293
Operating expenses............................... 218,508 260,590 414,092 528,483
Selling and administrative expenses.............. 29,615 32,869 55,267 64,627
Interest expense................................. 11,442 15,206 24,082 31,033
Interest income.................................. (3,526) (2,934) (6,930) (5,414)
Equity in earnings of affiliates................. (9,976) (10,952) (18,467) (19,231)
Other income, net................................ (518) (3,415) (2,215) (3,283)
-------- -------- -------- --------
Income before income taxes..................... 76,116 78,630 137,164 147,078
Income tax provision............................. 27,506 25,662 48,414 50,434
-------- -------- -------- --------
Net income..................................... $ 48,610 $ 52,968 $ 88,750 $ 96,644
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding.................. 190,500 185,300 190,400 185,900
======== ======== ======== ========
Earnings per common and common equivalent share.. $ 0.26 $ 0.29 $ 0.47 $ 0.52
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WHEELABRATOR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 3O, 1994 AND 1995
(000's omitted)
(unaudited)
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................... $ 88,750 $ 96,644
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization............................................... 44,458 53,575
Deferred income taxes....................................................... 21,424 29,322
Undistributed earnings of affiliates........................................ (18,467) (19,231)
Changes in assets and liabilities, net of effects of acquired businesses:
Receivables, net......................................................... (22,119) (28,220)
Inventories.............................................................. (5,709) 1,073
Costs and earnings in excess of billings................................. (5,708) (14,013)
Other current assets..................................................... (1,152) 9,183
Accounts payable and accrued liabilities................................. (5,388) (21,260)
Advance payments on contracts............................................ (2,548) (5,396)
Other long-term liabilities.............................................. (37,074) (12,917)
Other, net.................................................................. 1,706 (4,753)
--------- --------
Net cash provided by operating activities................................... 58,173 84,007
--------- --------
INVESTING ACTIVITIES:
Capital expenditures.......................................................... (73,311) (12,227)
Proceeds from sale of investments............................................. 1,581 12,658
Investments held by trustees.................................................. 6,229 (895)
Cash paid for acquisitions, net of acquired cash.............................. (3,358) -
Other, net ................................................................... 1,793 (3,819)
--------- --------
Net cash used for investing activities...................................... (67,066) (4,283)
--------- --------
FINANCING ACTIVITIES:
Additions to long-term project debt........................................... 112,985 -
Repayments of long-term project debt.......................................... (126,196) (7,446)
Net borrowings from WMX Technologies, Inc..................................... - (53,163)
Proceeds from exercise of stock options, net.................................. 7,749 930
Stock repurchase program...................................................... - (24,420)
Other, net.................................................................... (2,273) 1,847
--------- --------
Net cash used for financing activities...................................... (7,735) (82,252)
--------- --------
Decrease in cash and cash equivalents......................................... (16,628) (2,528)
Cash and cash equivalents at beginning of period.............................. 36,719 36,133
--------- --------
Cash and cash equivalents at end of period.................................... $ 20,091 $ 33,605
========= ========
Supplemental disclosure:
Interest paid, net of amounts capitalized................................... $ 26,399 $ 30,098
========= ========
Income taxes paid........................................................... $ 47,402 $ 29,075
========= ========
Significant noncash investing activities:
Common stock issued for acquisitions........................................ $ 2,900 $ -
========= ========
Liabilities assumed in acquisitions......................................... $ 22,350 $ -
========= ========
</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, 1994 AND 1995
(000's omitted, except share amounts)
(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, 1993 $1,888 $874,580 $(33,670) $ (717) $444,757 $1,286,838
Net income - - - - 88,750 88,750
Dividends declared ($0.10 per share) - - - - (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
====== ======== ======== ======== ======== ==========
Balance, December 31, 1994 $1,895 $877,428 $(17,650) $(47,489) $610,698 $1,424,882
Net income - - - - 96,644 96,644
Dividends declared ($0.11 per share) - - - - (20,301) (20,301)
Foreign currency translation - - 9,081 - - 9,081
Exercise of stock options - (508) - 1,306 - 798
Tax benefit from stock
options - 132 - - - 132
Stock repurchases (1,797,200 shares) - - - (24,420) - (24,420)
------ -------- -------- -------- -------- ----------
Balance, June 30, 1995 $1,895 $877,052 $ (8,569) $(70,603) $687,041 $1,486,816
====== ======== ======== ======== ======== ==========
</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. ("Wheelabrator" 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.
Wheelabrator is a majority-owned subsidiary of WMX Technologies, Inc.
("WMX"). Wheelabrator and WMX are parties to an agreement which provides, among
other things, for Wheelabrator to lend excess cash to WMX at interest rates at
least as favorable as those Wheelabrator could otherwise obtain. Under the
terms of this agreement, in the event the Company 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
million in excess of amounts loaned by Wheelabrator to WMX. As of June 30,
1995, cash and cash equivalents included approximately $4.9 million of net
investments with WMX under the terms of this agreement.
Earnings per common and common equivalent 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.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
NOTE 2 - COMMITMENTS AND CONTINGENCIES
In 1994, a Connecticut Superior Court issued a decision with respect to
appeals brought by certain project opponents of the Connecticut Department of
Environmental Protection's ("DEP") issuance to Wheelabrator of a permit to
construct the $92 million Lisbon, Connecticut, trash-to-energy facility. In the
ruling, the Court 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. Following a series of judicial proceedings, the permit
was remanded to the DEP in July of this year. During these proceedings, the
Company continued to construct the facility, which is complete and ready to
undergo start-up and shakedown activities but lacks the necessary temporary
operating permit to do so. If the Company does not prevail in the construction
permit remand, the temporary operating permit cannot be obtained. Through a
guarantee agreement with the Eastern Connecticut Resource Recovery Authority
("ECRRA"), the facility's owner, such a consequence may require the Company to
redeem the debt issued to finance the facility, and the resulting payments could
have a material adverse impact on the Company's financial condition and results
of operations. The Company reached a settlement in July 1995 with a major
opponent of the project pursuant to which this opponent withdrew all legal
actions against the Lisbon project and agreed to support permitting the
construction and operation of the facility. In light of this settlement, the
Company continues to believe that the probability of an adverse determination by
the DEP as a result of the Superior Court's construction permit remand is
remote. Further, the Company believes that it will be successful in securing
the construction and temporary operating permits necessary for the facility to
generate electricity prior to the July 1996 delivery deadline contained in the
facility's power contract.
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 has been requested
by 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.
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.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
NOTE 3 - ACCOUNTING PRONOUNCEMENT
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. The Company
is studying FAS 121, but has not yet determined what, if any, effect its
adoption will have on the Company's financial statements.
7
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition
----------------------------------
RESULTS OF OPERATIONS
Consolidated revenue for the quarter ended June 30, 1995, grew $48.3
million to $370.0 million, a 15 percent increase over the prior year. First
half 1995 consolidated revenue of $743.3 million represents an increase of
$140.3 million, or 23 percent, compared to the first six months of 1994.
Acquisitions, primarily of industrial water businesses, accounted for
approximately 60 percent and 40 percent of second quarter and first half growth,
respectively. New plants along with existing businesses were responsible for
the remaining 40 percent of the second quarter's increased revenue as well as
for slightly over 40 percent of the first half pick-up. The balance of the
increase for the six months ended June 30, 1995, came from first quarter
construction revenue associated with the Lisbon, Connecticut, trash-to-energy
facility being built by Wheelabrator.
Second quarter revenue from energy businesses grew $9.5 million, or six
percent, from 1994 levels and contributed 47 percent of Wheelabrator's total
revenue versus 51 percent in the year-earlier period. For the six months ended
June 30, 1995, energy revenue increased $63.7 million, or 20 percent, and
represented 51 percent of the Company's revenue. The comparable 1994 revenue
contribution was 52 percent. Wheelabrator's Falls Township trash-to-energy
facility located outside of Philadelphia, Pennsylvania, and the Polk County,
Florida, urban wood waste-to-energy facility, both of which began commercial
operation in the third quarter of last year, provided nearly 160 percent of the
second quarter 1995 energy revenue increase. Revenue from existing plants
declined during the second quarter compared to last year due mainly to greater
curtailment of electrical purchases by the utility customers of the Company's
California independent power facilities. Availability of lower cost hydropower
associated with late spring snow melt prompted this curtailment. The Falls
Township and Polk County facilities accounted for almost 50 percent of energy's
first half revenue growth, with construction revenue recognized on the Lisbon
plant contributing an additional 40 percent. Contractual price escalation along
with a shift in trash deliveries toward higher-priced municipal contract sources
principally accounted for the balance of the first half energy revenue growth.
Wheelabrator's second quarter water business revenue grew $54.3 million or
48 percent compared to the same period in 1994. Water revenue for the six
months ended June 30, 1995, increased $92.3 million, which represents growth of
45 percent over the prior year. Acquisitions generated over 50 percent and 60
percent of second quarter and first half growth, respectively. The companies
purchased during the past 12 months include Procesos y Sistemas de Separacion,
S.A. in Spain, Darchet Engineering and Water Treatment in Singapore, Rossmark in
The Netherlands, and a number of smaller companies. These acquisitions
strengthened the Company's global ability to design and supply high-technology
industrial water and wastewater treatment systems. Existing businesses and the
Baltimore I biosolids pelletizer facility, which began commercial operations in
January of this year, accounted for the balance of the water revenue increase.
Compared with 1994, existing water business growth came principally from
increased land application volumes and new contracts, contractual price
8
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
escalation at the Company's New York Organic Fertilizer Company biosolids
pelletizer facility, and improved screen product sales, primarily in North
America and Australia. Water-related businesses contributed 45 percent of the
Company's consolidated second quarter revenue versus 35 percent in the year-
earlier quarter and represented 40 percent of total first half revenue compared
with 34 percent in 1994.
Air business revenue declined 35 percent in the second quarter when
compared to the same 1994 period and provided eight percent of total revenue
versus 14 percent a year ago. Through six months, air businesses contributed
nine percent of Wheelabrator's revenue compared to 14 percent last year. The
declines are consistent with general air industry trends and reflect a lull in
air pollution control retrofit activities by utilities between Phases I and II
of the Clean Air Act Amendments of 1990 (the "CAAA"), spotty enforcement of
existing regulations, and uncertainty associated with the current national
political debate on environmental regulatory reform. Management down-sized
certain of the Company's air businesses during the second quarter to reflect
expected market demands during this lull period.
Gross margin was 29.6 percent in the second quarter of 1995 and 28.9
percent through six months. Comparable prior year margins were 32.1 percent and
31.3 percent, respectively. The margin decline versus the second quarter of
last year reflects the increased revenue contribution of lower-margin water
businesses, decreased air business profitability, and the energy business' very
strong margins during 1994's second quarter. An additional factor impacting the
year-to-date margin decline was Lisbon construction revenue being offset by a
corresponding amount of construction expense. Consequently, the $25.7 million
of incremental first half revenue from Lisbon contributed no margin. Overall
margins are expected to remain at approximately second quarter 1995 levels for
the balance of the year as modest improvement in air business results are offset
by the impact of continued growth of the Company's lower-margin process
equipment and contract operation water businesses.
Selling and administrative expenses as a percent of revenue for both the
second quarter and the first half of 1995 declined compared with last year,
reflecting primarily revenue growth at a rate faster than associated selling and
overhead cost increases. Furthermore, the percentage decrease for the six
months ended June 30, 1995, was strongly influenced by the incremental Lisbon
construction revenue, which has no associated selling and administrative
expenses. On an absolute basis, selling and administrative costs increased $3.3
million and $9.4 million over the second quarter and first half of 1994,
respectively, mainly due to the impact of 1994 acquisitions.
Second quarter and six month 1995 interest expense increased compared to
1994 because a reduction in interest capitalization more than offset the benefit
of lower outstanding project debt balances. One Company-owned facility was in
the early stage of construction during the first six months of 1995, while three
Company-owned facilities were nearing completion during the comparable 1994
time-frame. Interest income decreased compared to 1994 due to lower
9
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
investment balances with WMX. Wheelabrator's equity in the earnings of Waste
Management International plc ("WM International") and Rust International Inc.
("Rust") increased versus 1994 because of improved performance at Rust. WM
International's U.S. dollar results were approximately ten percent under prior
year results for both the second quarter and first half of 1995. The Company's
effective tax rate excluding equity income, which is reported net of tax, was
37.9 percent for the second quarter and 39.4 percent through the first six
months of the year. Both rates are lower than comparable prior year figures and
reflect ongoing tax planning activities as well as certain tax benefits
associated with the Company's liquidation during 1995's second quarter of its
investment in Abex, Inc. A book gain associated with this stock sale is
included in other income. Going forward, Wheelabrator expects its effective tax
rate to be around 40 percent.
Net income in the second quarter increased nine percent to $53.0 million,
or $0.29 per share, compared to $48.6 million, or $0.26 per share, in the second
quarter of 1994. Similarly, net income for the first six months of 1995
increased nine percent to $96.6 million, or $0.52 per share, versus $88.8
million, or $0.47 per share, during the same period in 1994. The difference
between revenue and net income growth rates is primarily attributable to Lisbon
construction revenue, the second quarter gross margin decline, the absence of
interest capitalization, decreased interest income, and slower earnings growth
at the Company's equity affiliates.
The majority of Wheelabrator's businesses are intrinsically connected with
the protection of the environment. As such, a significant portion of the
Company's operating costs and capital expenditures could be characterized as
costs of environmental protection. While the Company is faced, in the normal
course of its activities, with the need to expend funds for environmental
protection and remediation, it does not expect such expenditures to have a
material adverse effect on its financial condition or results of operations
because its business is based upon compliance with environmental laws and
regulations and its goods and services are priced accordingly. Such costs may
increase in the future as a result of legislation or regulation. However, the
Company believes that in general it benefits from increased government
regulation, which increases the demand for its products and services, and that
it has the resources and experience to manage environmental risk.
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 has been requested
by 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.
Wheelabrator also becomes involved, in the normal course of business, in
judicial and administrative proceedings related to alleged violations of
licenses, permits, laws or regulations,
10
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
or differing interpretations of applicable requirements. Sometimes, the Company
is required to pay fines and penalties as a result of such proceedings. To
date, such fines and penalties have not been material and, in the opinion of
management, the ultimate liability, if any, with respect to these matters will
not have a material adverse effect on the business and properties of the
Company, taken as a whole, or its financial position or results of operations.
From time to time, the Company uses foreign currency derivatives to
mitigate the impact of currency fluctuations on its equity income from WM
International and on certain specifically identified transactions. Derivatives
used are confined to simple instruments that do not involve multipliers or
leverage. The Company had no material amount of foreign currency derivatives
outstanding during the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of capital during the first six months of 1995 were
stock repurchases, paydowns of short-term borrowings from WMX and long-term
project debt, and lease payments. Capital expenditures totaled $12.2 million
during the first half but are expected to increase during the second half due,
in part, to construction of a second pelletizer plant in Baltimore and the July
privatization of the Miami Conservancy District wastewater treatment plant
located in Franklin, Ohio. Wheelabrator currently has several other projects in
various stages of development, including ones associated with the trash-to-
energy development joint venture with WM International announced in July. Under
this joint venture agreement, which covers areas outside North America,
Wheelabrator will have primary responsibility for early-stage development of
projects outside Germany and Italy, and WM International will have the right to
acquire up to 49 percent of the equity in all joint venture projects. Total
1995 capital expenditures are anticipated to be approximately $75 million. The
Company also intends to continue its diversification through selected
acquisitions of water quality control technologies and companies, both
domestically and internationally.
Wheelabrator believes it has access to sufficient capital resources to
finance its development and construction projects along with future acquisitions
and authorized stock repurchases. 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. Pursuant to this agreement,
the Company may borrow up to $100 million in excess of any amount loaned to WMX,
which commitment was recently extended through December 31, 1996, and will
automatically renew on an annual basis thereafter unless either party provides
90-day notice of termination. Future needs for long-term external capital are
anticipated to be met by permanently financing certain projects.
Before the turn of the century, 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 such as those in the CAAA. Required compliance dates
11
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
for affected facilities are not yet known because the U.S. Environmental
Protection Agency has not issued the final emission regulations and timetables
required by the CAAA. Based on the draft emission standards issued to date as
part of the CAAA rule-making process, currently available technologies will be
adequate to meet the new standards. Although the total expenditures required
for such modifications are estimated to be in the $225 - $275 million range,
they are not expected to have a material adverse effect on the Company's
liquidity or results of operations because provisions in the impacted
facilities' long-term waste supply agreements allow the Company to recover from
customers the majority of incremental capital and operating costs.
In 1994, a Connecticut Superior Court issued a decision with respect to
appeals brought by certain project opponents of the DEP issuance to Wheelabrator
of a permit to construct the $92 million Lisbon, Connecticut, trash-to-energy
facility. In the ruling, the Court 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. Following a series of judicial
proceedings, the permit was remanded to the DEP in July of this year. During
these proceedings, the Company continued to construct the facility, which is
complete and ready to undergo start-up and shakedown activities but lacks the
necessary temporary operating permit to do so. If the Company does not prevail
in the construction permit remand, the temporary operating permit cannot be
obtained. Through a guarantee agreement with ECRRA, the facility's owner, such
a consequence may require the Company to redeem the debt issued to finance the
facility, and the resulting payments could have a material adverse impact on the
Company's financial condition and results of operations. The Company reached a
settlement in July 1995 with a major opponent of the project pursuant to which
this opponent withdrew all legal actions against the Lisbon project and agreed
to support permitting the construction and operation of the facility. In light
of this settlement, the Company continues to believe that the probability of an
adverse determination by the DEP as a result of the Superior Court's
construction permit remand is remote. Further, the Company believes that it will
be successful in securing the construction and temporary operating permits
necessary for the facility to generate electricity prior to the July 1996
delivery deadline contained in the facility's power contract.
During the second quarter 1995, Wheelabrator repurchased approximately
89,000 shares of its common stock, which brings the total shares repurchased
during 1995 to approximately 1.8 million shares. The Company is authorized to
repurchase an additional 8.7 million shares through March 1996.
FINANCIAL CONDITION
The Company's financial condition at June 30, 1995, compared to December
31, 1994, generally reflects the results of normal operating activities as well
as the use of funds for stock repurchases and paydowns of short-term borrowings
from WMX. Property, plant, and
12
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (continued)
----------------------------------------------
equipment decreased $37.2 million during the first half of the year as a result
of depreciation offset in part by capital expenditures. Net working capital as
of June 30, 1995, increased $89.8 million from year-end 1994 levels to $79.7
million due largely to increased receivables associated with water business
revenue growth and the use of operating cash flow to reduce short-term
borrowings from WMX. At June 30, 1995, the Company had $100.0 million of short-
term borrowing capability available pursuant to the terms of its Master
Intercorporate Agreement with WMX.
ACCOUNTING PRONOUNCEMENT
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. The Company
is studying FAS 121, but has not yet determined what, if any, effect its
adoption will have on the Company's financial statements.
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 exists 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,
1995, the Company was involved in one such proceeding 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 Wheelabrator 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 4, 1995, one proposal was
submitted to the Company's stockholders. The proposal was to elect William M.
Daley, Paul M. Montrone and Phillip B. Rooney as directors of the Company for
terms expiring at the annual meeting of the Company's stockholders in 1997, and
to elect Kay Hahn Harrell as a director of the Company for a term expiring at
the annual meeting of the Company's stockholders in 1996. The nominees were
elected by the stockholders, with votes cast as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- ----------- --------------
<S> <C> <C>
William M. Daley 168,811,136 1,469,373
Paul M. Montrone 169,709,257 571,252
Phillip B. Rooney 169,717,717 562,792
Kay Hahn Harrell 169,807,171 475,338
</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, 1995.
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 11, 1995 /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
27 Financial Data Schedule
99 None
- --------------------------
* Exhibits not listed are inapplicable
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1995, CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 33,605
<SECURITIES> 0
<RECEIVABLES> 270,134
<ALLOWANCES> 10,195
<INVENTORY> 68,147
<CURRENT-ASSETS> 459,347
<PP&E> 1,999,624
<DEPRECIATION> 356,832
<TOTAL-ASSETS> 3,295,410
<CURRENT-LIABILITIES> 379,692
<BONDS> 727,826
<COMMON> 1,895
0
0
<OTHER-SE> 1,484,921
<TOTAL-LIABILITY-AND-EQUITY> 3,295,410
<SALES> 0
<TOTAL-REVENUES> 743,293
<CGS> 0
<TOTAL-COSTS> 528,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,485
<INTEREST-EXPENSE> 31,033
<INCOME-PRETAX> 147,078
<INCOME-TAX> 50,434
<INCOME-CONTINUING> 96,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,644
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0
</TABLE>
