<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 September 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 October 31, 1995 - 182,780,767
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
----------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Part I - Financial Information: Page No.
- ------------------------------- --------
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of December 31, 1994,
and September 30, 1995.......................................... 1
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1994 and 1995..................................... 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1994 and 1995..................................... 3
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Months Ended September 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 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 BALANCE SHEETS
(000's omitted, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents...................................................... $ 36,133 $ 65,487
Receivables, net of allowance of $9,462 in 1994 and $10,525 in 1995............ 216,367 223,158
Inventories.................................................................... 69,220 66,001
Costs and earnings in excess of billings....................................... 42,833 55,588
Other current assets........................................................... 64,220 47,697
---------- ----------
Total current assets........................................................ 428,773 457,931
---------- ----------
Property, plant and equipment, net............................................... 1,680,002 1,631,753
Cost in excess of net assets of acquired businesses, net......................... 230,711 225,780
Investments in affiliates........................................................ 618,971 657,927
Other assets..................................................................... 324,014 337,510
---------- ----------
Total assets............................................................. $3,282,471 $3,310,901
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term project debt................................... $ 29,213 $ 30,155
Due to WMX Technologies, Inc................................................... 53,163 -
Accounts payable............................................................... 100,911 84,552
Accrued liabilities............................................................ 189,687 183,675
Advance payments on contracts.................................................. 65,966 46,104
---------- ----------
Total current liabilities................................................... 438,940 344,486
---------- ----------
Long-term project debt........................................................... 735,646 723,837
Deferred income taxes............................................................ 332,617 378,330
Deferred income.................................................................. 89,083 79,371
Other long-term liabilities...................................................... 261,303 244,883
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................................................. 877,428 876,888
Cumulative translation adjustments............................................. (17,650) (9,325)
Treasury stock at cost; 3,270,054 shares in 1994 and 4,791,916 shares in 1995.. (47,489) (67,881)
Retained earnings.............................................................. 610,698 738,417
---------- ----------
Total stockholders' equity.................................................. 1,424,882 1,539,994
---------- ----------
Total liabilities and stockholders' equity $3,282,471 $3,310,901
========== ==========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(000's omitted, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- ---------------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.......................................... $334,707 $355,951 $937,700 $1,099,244
Operating expenses............................... 228,624 247,403 642,716 775,886
Selling and administrative expenses.............. 30,055 30,992 85,322 95,619
Interest expense................................. 12,801 14,917 36,883 45,950
Interest income.................................. (4,229) (2,697) (11,159) (8,111)
Equity in earnings of affiliates................. (9,718) (10,728) (28,185) (29,959)
Other (income) or expense, net................... 209 (264) (2,006) (3,547)
-------- -------- -------- ----------
Income before income taxes..................... 76,965 76,328 214,129 223,406
Income tax provision............................. 27,576 24,952 75,990 75,386
-------- -------- -------- ----------
Net income..................................... $ 49,389 $ 51,376 $138,139 $ 148,020
======== ======== ======== ==========
Weighted average common and common
equivalent shares outstanding.................. 190,400 185,500 190,400 185,800
======== ======== ======== ==========
Earnings per common and common equivalent share.. $0.26 $0.28 $0.73 $0.80
======== ======== ======== ==========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(000's omitted)
(unaudited)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................................... $138,139 $148,020
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization............................................................... 69,028 80,379
Deferred income taxes....................................................................... 36,058 43,958
Undistributed earnings of affiliates........................................................ (28,185) (29,959)
Changes in assets and liabilities, net of effects of acquired businesses:
Receivables, net.......................................................................... (46,940) (20,017)
Inventories............................................................................... 10,603 3,219
Costs and earnings in excess of billings.................................................. (6,248) (12,755)
Other current assets...................................................................... (1,515) 16,299
Accounts payable and accrued liabilities.................................................. (5,118) (22,196)
Advance payments on contracts............................................................. 16,602 (19,862)
Other long-term liabilities............................................................... (42,280) (26,132)
Other, net.................................................................................. (14,029) (13,163)
-------- --------
Net cash provided by operating activities................................................... 126,115 147,791
-------- --------
INVESTING ACTIVITIES:
Capital expenditures.......................................................................... (90,743) (19,668)
Proceeds from sale of investments............................................................. 1,581 12,821
Investments held by trustees.................................................................. 6,132 (1,004)
Cash paid for acquisitions, net of acquired cash.............................................. (16,114) (6,835)
Other, net ................................................................................... 5,283 (262)
-------- --------
Net cash used for investing activities...................................................... (93,861) (14,948)
-------- --------
FINANCING ACTIVITIES:
Additions to long-term project debt........................................................... 112,985 -
Repayments of long-term project debt.......................................................... (131,037) (11,129)
Net borrowings from WMX Technologies, Inc..................................................... - (53,163)
Proceeds from exercise of stock options....................................................... 5,681 3,033
Stock repurchase program...................................................................... (1,382) (24,420)
Dividends paid................................................................................ (18,954) (20,301)
Other, net.................................................................................... (2,615) 2,491
-------- --------
Net cash used for financing activities...................................................... (35,322) (103,489)
-------- --------
Net increase (decrease) in cash and cash equivalents.......................................... (3,068) 29,354
Cash and cash equivalents at beginning of period.............................................. 36,719 36,133
-------- --------
Cash and cash equivalents at end of period.................................................... $ 33,651 $ 65,487
======== ========
Supplemental disclosure:
Interest paid, net of amounts capitalized................................................... $ 34,715 $ 40,059
======== ========
Income taxes paid........................................................................... $ 63,361 $ 33,937
======== ========
Significant noncash investing activities:
Common stock issued for acquisitions........................................................ $ 2,900 $ -
======== ========
Liabilities assumed in acquisitions......................................................... $ 27,630 $ -
======== ========
</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 NINE MONTHS ENDED SEPTEMBER 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 - - - - 138,139 138,139
Dividends declared ($0.10 per share) - - - - (18,954) (18,954)
Foreign currency translation - - 19,730 - - 19,730
Exercise of stock options 5 4,460 - 1,216 - 5,681
Tax benefit from stock options - 2,127 - - - 2,127
Common stock issued
for acquisitions 2 2,898 - - - 2,900
Stock repurchases (87,500 shares) - - - (1,382) - (1,382)
Treasury stock received as
settlement for claims - - - (499) - (499)
------ ---------- ----------- -------- -------- ----------
Balance, September 30, 1994 $1,895 $884,065 $(13,940) $ (1,382) $563,942 $1,434,580
====== ========== =========== ======== ======== ==========
Balance, December 31, 1994 $1,895 $877,428 $(17,650) $(47,489) $610,698 $1,424,882
Net income - - - - 148,020 148,020
Dividends declared ($0.11 per share) - - - - (20,301) (20,301)
Foreign currency translation - - 8,325 - - 8,325
Exercise of stock options - (999) - 4,032 - 3,033
Tax benefit from stock options - 459 - - - 459
Stock repurchases (1,797,200 shares) - - - (24,420) - (24,420)
Treasury stock received as
settlement for claims - - - (4) - (4)
------ ---------- ----------- -------- -------- ----------
Balance, September 30, 1995 $1,895 $876,888 $ (9,325) $(67,881) $738,417 $1,539,994
====== ========== =========== ======== ======== ==========
</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 September 30,
1995, cash and cash equivalents included approximately $37.3 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 - ACQUISITIONS
During July 1995, Wheelabrator completed the privatization of the Miami
Conservancy District wastewater treatment plant located in Franklin, Ohio, (the
"Franklin facility") at a cost of approximately $6.8 million. During the first
nine months of 1994, in exchange for approximately 156 thousand shares of
Wheelabrator common stock and $16.1 million of cash, the Company acquired
certain wastewater treatment operating contracts and eight businesses engaged in
providing air and water quality related environmental products and services and
in manufacturing surface finishing equipment. The proforma effect of the
acquisitions made during 1994 and 1995 is not material.
NOTE 3 - 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. Prior to the commencement of the
remand proceedings, Wheelabrator filed a motion with the Connecticut Superior
Court to dismiss the original appeals of the DEP decision to issue the
construction permit based on the grounds that such appeals were not timely
filed. This motion was granted in September 1995, prior to which time the
Company reached settlements with two major opponents of the project, pursuant to
which they withdrew all legal actions against the project and agreed to support
the permitting for the project's construction and operation. The effect of the
decision was to reinstate the DEP's decision to issue the permit. On October
17th, following a 30-day notice and comment period, the DEP issued temporary
operating permits, which enabled the Company to commence performance testing of
the facility. The facility had been complete and ready to undergo startup and
shakedown activities since the second quarter of 1995 but lacked these temporary
permits. In light of these settlements and the issuance of the temporary
operating permits, the Company believes that it will be successful in generating
electricity at the facility prior to the July 1996 delivery deadline contained
in the facility's power contract. Through a guarantee agreement with the
Eastern Connecticut Resource Recovery Authority ("ECRRA"), the facility's owner,
failure to meet such deadline 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.
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
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------
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 advise of counsel, the ultimate resolution of these
matters will not have a material adverse effect on the financial condition or
results of operations of the Company.
NOTE 4 - ACCOUNTING PRONOUNCEMENTS
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, effects its
adoption will have on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Acccounting 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 proforma 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.
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 September 30, 1995, grew $21.2
million to $356.0 million, a six percent increase over the prior year.
Wheelabrator recognized $21.2 million of construction revenue associated with
the Lisbon, Connecticut, trash-to-energy facility during the third quarter of
1994. No Lisbon construction revenue was recognized in the current year third
quarter because plant construction was substantially completed earlier in 1995.
After excluding the Lisbon-related revenue from 1994's results, third quarter
1995 revenue increased $42.4 million, or slightly more than 13 percent, with
approximately 40 percent of the growth coming from water business acquisitions
and the remainder coming from internal growth and the addition of new plants.
For the nine months ended September 30, 1995, consolidated revenue grew $161.5
million to $1,099.2 million, a 17 percent increase over the prior year.
Acquisitions accounted for approximately 46 percent of the nine-month revenue
growth, with the balance split almost evenly between new plants and internal
growth. The impact of Lisbon construction activities on the nine-month revenue
growth was minimal.
Third quarter revenue from energy businesses declined $13.3 million, or
seven percent, from 1994 levels and contributed 47 percent of Wheelabrator's
total revenue versus 54 percent in the year-earlier period. The absence of
Lisbon construction revenue accounted for nearly 160 percent of the quarter's
decrease. Revenue growth from Wheelabrator's Falls Township, Pennsylvania,
trash-to-energy facility and Polk County, Florida, urban wood waste-to-energy
facility, both of which began commercial operation in August of 1994, mitigated
approximately one quarter of this construction revenue decline. Increased
revenue from existing plants offset an additional 15 percent of the shortfall.
For the nine months ended September 30, 1995, energy revenue increased $50.3
million, or 10 percent, and represented 50 percent of the Company's revenue.
The comparable 1994 revenue contribution was 53 percent. The Falls Township and
Polk County facilities accounted for slightly over 70 percent of energy's first
nine month revenue growth, with existing plants contributing an additional 20
percent. Revenue recognized on Lisbon construction activity provided the
balance of first three quarter energy revenue growth. The quarter and year-to-
date growth in existing plants has been due largely to contractual price
escalation and greater waste processing and associated energy generation offset,
in part, by increased curtailment of electrical purchases by the utility
customers of the Company's California independent power facilities.
Wheelabrator's third quarter water business revenue grew $43.9 million or
39 percent compared to the same period in 1994. Water revenue for the nine
months ended September 30, 1995, increased $136.2 million, which represents
growth of 43 percent over the prior year. Acquisitions generated approximately
37 percent and 53 percent of third quarter and first nine month growth,
respectively. The companies purchased during 1994 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
8
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition (continued)
and wastewater treatment systems. During July of this year, Wheelabrator
successfully privatized the Miami Conservancy District wastewater treatment
plant in Franklin, Ohio. This municipal asset acquisition represents the first
privatization of a municipal wastewater treatment plant under Executive Order
12803 issued by President Bush in 1992. 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. Existing
water business growth came principally from increased land application volumes
and new contracts, contractual price escalation at the Company's New York
Organic Fertilizer Company biosolids pelletizer facility, and improved worldwide
equipment and screen product sales. Wheelabrator's domestic industrial water
process business has experienced several delays in customer orders due to
extended bidding cycles on larger projects and reluctance by some customers to
undertake environment-related capital spending. Water-related businesses
contributed 44 percent of the Company's consolidated third quarter revenue
versus 34 percent in the year-earlier quarter and represented 41 percent of
nine-month 1995 revenue compared to 34 percent in 1994.
Air business revenue declined 23 percent in the third quarter when compared
to the same 1994 period and provided nine percent of total revenue versus 12
percent a year ago. Through nine months, air businesses contributed nine
percent of Wheelabrator's revenue compared to 13 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 1995 to reflect expected market
demands.
Gross margin was 30.5 percent in the third quarter of 1995 and 29.4 percent
through nine months. Comparable prior year margins were 31.7 percent and 31.5
percent, respectively. The quarter and year-to-date margin declines reflect the
increased revenue contribution of lower-margin water businesses coupled with
decreased air business profitability. Overall margins are expected to remain at
approximately third quarter 1995 levels for the balance of the year, reflecting
continued pressure on air business earnings as well as 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
third quarter and the first nine months of 1995 declined compared with last
year, primarily reflecting consolidation of acquired businesses and revenue
growth at a rate faster than associated selling, project development and
overhead cost increases. On an absolute basis, selling and administrative costs
increased $0.9 million and $10.3 million over the third quarter and first nine
months of 1994, respectively, mainly due to the impact of 1994 acquisitions.
9
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition (continued)
Third quarter and nine 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 nine months of 1995, while
interest costs associated with three Company-owned facilities were capitalized
during the comparable 1994 time-frame. Interest income decreased compared to
1994 due to lower 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 third quarter and first nine
months of 1995.
The Company's effective tax rates excluding equity income, which is
reported net of tax, were approximately 38 percent for the third quarter and 39
percent through the first nine months of the year. Both rates are lower than
comparable prior year figures and reflect ongoing tax planning activities,
particularly in the international arena. Additionally, the nine-month rate
includes 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 year-to-date other income. For the
remainder of this year and all of next, Wheelabrator expects its effective tax
rate to be between 39 and 40 percent.
Net income in the third quarter increased four percent to $51.4 million, or
$0.28 per share, compared to $49.4 million, or $0.26 per share, in the third
quarter of 1994. Net income for the first nine months of 1995 increased seven
percent to $148.0 million, or $0.80 per share, versus $138.1 million, or $0.73
per share, during the same period in 1994. The difference between revenue and
net income growth rates is primarily attributable to the 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.
10
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition (continued)
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.
Wheelabrator also becomes involved, in the normal course of business, in
judicial and administrative proceedings related to alleged violations of
licenses, permits, laws or regulations, or differing interpretations of
applicable requirements. Occasionally, 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 nine months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities, which is the Company's principal
source of liquidity, was $147.8 million for the nine months ended September 30,
1995, versus $126.1 million for the comparable 1994 period. The improvement was
driven by increased net income before noncash charges and undistributed earnings
of affiliates and an April 1994 settlement payment to the Internal Revenue
Service related to periods prior to 1989 during which Wheelabrator and certain
other companies were part of a consolidated group for federal income tax
purposes. Working capital required by operating activities utilized $22.7
million more of cash flow during the first three quarters of 1995 than during
the comparable prior year period, primarily because of the timing of payments
and receipts on long-term contracts, including Lisbon, and business growth.
Operating cash flow generated during the first nine months of 1995 was used
primarily for stock repurchases, dividend payments, paydowns of short-term
borrowings from WMX and long-term project debt and capital expenditures. In
July of 1995, the Company completed the privatization of the Franklin facility
for approximately $6.8 million. Capital expenditures totaled $19.7 million
during the first nine months and are expected to increase to approximately $45
million by year-end due, in part, to construction of a second pelletizer plant
in Baltimore. Wheelabrator currently has several other projects in various
stages of development, including
11
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition (continued)
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. The Company 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. In addition to operating cash flows, the
Company may meet short-term funding requirements by borrowing from WMX pursuant
to the Master Intercorporate Agreement between the Company and WMX. Pursuant to
this agreement, the Company may borrow up to $100 million in excess of any
amount loaned to WMX. In August 1995, the 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. Future needs for
long-term external capital are anticipated to be met through debt financing
certain projects, including the two pelletizer facilities in Baltimore.
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 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 final proposed emission standards issued 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 September 1995, the Connecticut Superior Court dismissed appeals of the
DEP decision to issue the construction permit for the Lisbon facility. Also
during the third quarter, the Company reached settlements with two major
opponents of the project pursuant to which they withdrew all legal actions
against the project and agreed to support the permitting for the construction
and operation of the project. The effect was to reinstate the DEP's decision to
issue the permit. On October 17th, following a 30-day notice and comment
period, the DEP issued temporary operating permits, which enabled the Company to
commence performance testing of the facility. In light of these settlements and
the issuance of the temporary operating permits, the Company believes that it
will be successful in generating electricity at the facility prior to the July
1996 delivery deadline contained in the facility's power contract. Through a
guarantee
12
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition (continued)
agreement with ECRRA, the facility's owner, failure to meet such deadline 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. (See Note 3.)
During 1995, Wheelabrator repurchased approximately 1.8 million shares of
its common stock. None of these repurchases occurred during the third quarter.
The Company is authorized to repurchase an additional 8.7 million shares through
March 1996.
FINANCIAL CONDITION
The Company's financial condition at September 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, dividend payments and
paydowns of short-term borrowings from WMX. Property, plant, and equipment
decreased $48.2 million during the first nine months of the year as a result of
depreciation offset in part by capital expenditures. Net working capital as of
September 30, 1995, increased $123.6 million from year-end 1994 levels to $113.4
million due largely to increased cash and lower advance payments on contracts.
In addition, operating cash flow was used to reduce short-term borrowings from
WMX. At September 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 PRONOUNCEMENTS
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, effects its
adoption will have on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Acccounting 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 proforma 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.
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
September 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.
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
September 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.
November 9, 1995 /s/ John D. Sanford
-----------------------------
John D. Sanford
Executive Vice President and
Chief Financial Officer
16
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
EXHIBIT INDEX
Number and Description of Exhibit/*/
---------------------------------
2 None
4 None
10 Amendment, dated as of July 10, 1995, to the
First Amended and Restated International
Business Opportunities Agreement, dated as of
January 1, 1993, by and among WMX
Technologies, Inc., Chemical Waste Management,
Inc., Wheelabrator Technologies Inc., Waste
Management International Inc., Waste
Management International plc and Rust
International Inc.
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
<PAGE>
Exhibit 10
AMENDMENT AGREEMENT
THIS AMENDMENT (the "Amendment") is made as of the 10th day of July, 1995
by and among WMX TECHNOLOGIES, INC., CHEMICAL WASTE MANAGEMENT, INC.,
WHEELABRATOR TECHNOLOGIES INC. ("WTI"), WASTE MANAGEMENT INTERNATIONAL, INC.,
WASTE MANAGEMENT INTERNATIONAL plc ("WME") and RUST INTERNATIONAL INC.
RECITALS
WHEREAS, the parties hereto are party to a certain First Amended and
Restated International Business Opportunities Agreement dated as of January 1,
1993, as amended (the "Agreement") pursuant to which they have allocated various
business opportunities among themselves.
WHEREAS, WTI and WME intend to enter into a certain International Waste-to-
Energy Framework Agreement dated July 10, 1995 (the "Framework Agreement") to
form a joint venture (the "Joint Venture") to develop waste-to-energy projects
outside of North America, Italy and Germany.
WHEREAS, the parties desire to modify the allocation of waste-to-energy
business opportunities outside of North America in order that they may pursue
the Joint Venture.
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendments. For so long as the Framework Agreement shall remain in
effect:
(a) the allocation to WME of opportunities outside of North America
relating to the design, development, construction, operation and maintenance of
waste-to-energy facilities under Section 3.2(b)(v) of the Agreement shall be
deleted in its entirety; and
(b) the following language shall be inserted as Section 3.2(b)(viii) of the
Agreement:
(viii) opportunities outside of North America, other than in the
countries of Germany and Italy, relating to the design, development,
construction, operation and maintenance of waste-to-energy facilities
shall be governed by the terms of the International Waste-to-Energy
Framework Agreement dated July 10, 1995 by and between WTI and WME;
such waste-to-energy opportunities in the countries of Germany and
Italy shall be allocated to WME exclusively.
<PAGE>
2. Effect of Termination of Framework Agreement. (a) The amendments to
the Agreement set forth in Section 1 of this Amendment shall be of no further
force and effect upon the termination of the Framework Agreement and the
Agreement shall revert to its form as is existed immediately prior to the
execution of this Amendment (subject to any subsequent amendments to the
Agreement made in accordance with its terms).
(b) Notwithstanding the foregoing and any other provision of the
Agreement to the contrary, WME and WTI may continue to develop, construct, own
and operate any waste-to-energy project that constitutes an Approved JV Project
(as such term is defined in the Framework Agreement) as of the date on which the
Joint Venture is terminated pursuant to the Framework Agreement.
3. Headings. The headings contained in this Amendment are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Amendment.
4. Third Party Rights. This Amendment shall not provide any third
parties with any remedy, claim, liability, reimbursement, cause of action or
other right in excess of those existing without reference to this Amendment.
5. Affiliates. The parties hereto acknowledge that they often conduct
their business operations through controlled Affiliates (as defined in the
Agreement). The parties hereto therefore agree that they will cause their
respective direct and indirect controlled Affiliates to abide by the terms of
this Amendment as if they were parties hereto to the extent necessary to carry
out the purposes of this Amendment. Further, each party shall be entitled to
cause its obligations hereunder to be satisfied, and to cause its benefits
hereunder to be received, by its controlled Affiliates.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
7. Choice of Law. This Amendment shall be interpreted and construed in
accordance with the internal laws (and not the conflicts of laws rules) of the
State of Illinois applicable to contracts made and to be performed in the State
of Illinois.
8. Assignment. This Amendment and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties and their respective
permitted successors and assigns, but neither this Amendment nor any of the
rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the other parties hereto.
9. Severability. If any provision of this Amendment is prohibited by or
held to be invalid under applicable law, such provision will be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provisions of this Amendment. Each provision in this Amendment shall be read
and construed independently of the other provisions hereof. If any provision of
this Amendment, as applied to any party or to any
2
<PAGE>
circumstances, is adjudged by a court to be invalid or unenforceable for any
reason, such judgment shall in no way affect any other provision of this
Amendment, the application of such provision in any other circumstances or to
any other party or the validity or enforceability of this Amendment. If any
provision or part of a provision in this Amendment is held to be unenforceable
because of the duration of such provision, the geographical area covered by such
provision or the range of activities covered by such provision, the parties
agree that the court making such determination will have the power to reduce the
duration, area and scope of such provisions and to delete specific words or
phrases, if and as necessary under law, and in its reduced form such provision
will then be enforceable and will be enforced.
10. Registration of Agreement. If there is any provision of this
Amendment, or of any agreement or arrangement of which this Amendment forms a
part, which causes or would cause this Amendment or that agreement or
arrangement to be subject to registration under the Restrictive Trade Practices
Act 1976 of Great Britain, then that provision shall not take effect until the
day after particulars of this Amendment or that agreement or arrangement (as the
case may be) have been furnished to the Director General of Fair Trading
pursuant to Section 24 of that Act.
11. Ratification. Except as specifically amended hereby, the Agreement is
hereby ratified, confirmed and approved.
WMX TECHNOLOGIES, INC. CHEMICAL WASTE
MANAGEMENT, INC.
By: /s/ Thomas A. Witt By: /s/ Thomas A. Witt
------------------------------- -------------------------------
Name: Thomas A. Witt Name: Thomas A. Witt
Title: Vice President Title: Secretary
WHEELABRATOR WASTE MANAGEMENT
TECHNOLOGIES INC. INTERNATIONAL, INC.
By: /s/ Stephen P. Stanczak By: /s/ Herbert A. Getz
------------------------------- -------------------------------
Name: Stephen P. Stanczak Name: Herbert A. Getz
Title: Staff Vice President and Secretary Title: Vice President and Secretary
WASTE MANAGEMENT RUST INTERNATIONAL INC.
INTERNATIONAL PLC
By: /s/ Edwin G. Falkman By: /s/ Stephen P. Stanczak
------------------------------- -------------------------------
Name: Edwin G. Falkman Name: Stephen P. Stanczak
Title: Chief Executive Title: Vice President and
Secretary
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the September 30, 1995, consolidated balance sheet and the consolidated
statement of income for the nine-month period ended September 30, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
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<RECEIVABLES> 233,683
<ALLOWANCES> 10,525
<INVENTORY> 66,001
<CURRENT-ASSETS> 457,931
<PP&E> 2,005,219
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<TOTAL-ASSETS> 3,310,901
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0
0
<OTHER-SE> 1,538,099
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<SALES> 0
<TOTAL-REVENUES> 1,099,244
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