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FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 1-286-2
FOSTER WHEELER CORPORATION
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(Exact name of registrant as specified in its charter)
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New York 13-1855904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Perryville Corporate Park, Clinton, N.J. 08809-4000
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (908) 730-4000
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(Not Applicable)
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Former name, former address and former fiscal year, if changed since last
report.
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. X Yes No
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The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1995, was 35,857,427.
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Six months ended June 30, 1995 compared to six months ended July 1, 1994
RESULTS OF OPERATIONS
The Company's consolidated backlog at June 30, 1995 was $5,635.6
million, the highest in the history of the Company. This represented an
increase of $1,371.4 million or 32% over the amount reported for the same
period in 1994. The dollar amount of backlog is not necessarily indicative of
the future earnings of the Company related to the performance of such work.
Although backlog represents only business which is considered firm, there can
be no assurance that cancellations or scope adjustments will not occur. Due to
additional factors outside of the Company's control, such as changes in project
schedules, the Company cannot predict with certainty the portion of backlog not
to be performed. Backlog has been adjusted to reflect project cancellations,
deferrals, and revised project scope and cost. The net reductions in backlog
from project adjustments and cancellations for the six months ended June 30,
1995 was $129.9 million compared with $226.5 million for the six months ended
July 1, 1994. Furthermore, the Company's future award prospects include
several large scale international projects and, because the large size and
uncertain timing can create variability in the Company's contract awards,
future award trends are difficult to predict with certainty.
The environmental activities of the E&C Group, which includes the
former Enserch Environmental Corporation ("Enserch"), accounted for
approximately 77% of the increase in backlog of the Company at June 30, 1995 as
compared to July 1, 1994. The E&C Group had $930.8 million of backlog relating
to environmental activities at June 30, 1995. The Energy Equipment Group
recorded backlog of $1,254.8 million at June 30, 1995, a 23% increase from the
backlog at July 1, 1994 due primarily to the orders taken by the Spanish
subsidiary in the Energy Equipment Group.
New orders awarded for the six months ended June 30, 1995 of $1,849.3
million were 20% higher than new orders awarded for the six months ended July
1, 1994 of $1,542.4 million. Approximately 50% of new orders in the six months
ended June 30, 1995 were for projects awarded to the Company's subsidiaries
located outside of the United States as compared to approximately 58% for the
six months ended July 1, 1994. Key geographic regions contributing to new
orders awarded for the six months ended June 30, 1995 were China, the Middle
East and the United States.
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The principal reasons for the increase in new orders awarded for the
six months ended June 30, 1995 as compared to the same period in 1994 was the
significant amount of new orders awarded to the U.S. environmental subsidiary
in the E&C Group of $443.1 million and the amount of new orders awarded to the
Spanish subsidiary in the Energy Equipment Group of $157.7 million. The
increase reported by these two entities was partially offset by a reduction in
new orders awarded to the U.K. subsidiary in the E&C Group of $448.8 million
and a U.S. subsidiary in the Energy Equipment Group of $156.5 million.
Operating revenues increased in the six months ended June 30, 1995 by
$273.8 million compared to the six months ended July 1, 1994, to $1,314.7
million from $1,040.9 million. The E&C Group was primarily responsible for the
increase in operating revenues, accounting for approximately 90% of this
increase, or $252.6 million. Of the increase in the E&C Group's operating
revenues, $124.2 million was related to U.S. environmental operations, with the
balance attributed to the activities of its European subsidiaries.
Gross earnings from operations, which is equal to operating revenues
minus the cost of operating revenues ("gross earnings") increased $26.3 million
to $180.7 million from $154.4 million or 17% in the six months ended June 30,
1995 as compared to the six months ended July 1, 1994.
Selling, general and administrative expenses increased 12% in the six
months ended June 30, 1995 as compared to the same period in 1994, from $99.1
million to $110.9 million. General and administrative expenses increased by
approximately $11.7 million in the six months ended June 30, 1995 principally
as a result of the increased costs related to the acquisition of Enserch.
Other income in the six months ended June 30, 1995 as compared to
July 1, 1994 decreased to $15.1 million from $16.7 million. Approximately 76%
of other income in the six months ended June 30, 1995 was interest income,
amounting to $11.5 million.
Other deductions in the six months ended June 30, 1995 increased $8.6
million and were primarily due to higher interest expense and increased
amortization of costs in excess of net assets of subsidiaries acquired due to
the Enserch acquisition.
Net earnings increased by $4.7 million or 15% for the six months
ended June 30, 1995 as compared to the same period in 1994, from $32.1 million
to $36.8 million. The increase was primarily due to the increased earnings in
the E&C Group's U.K. and Italian subsidiaries and the inclusion of its U.S.
environmental subsidiary for the 1995 period, offset by a $3.2 million decrease
in earnings of the U.S. subsidiary of the Energy Equipment Group serving the
power generation segment.
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FINANCIAL CONDITION
The Company's consolidated financial condition improved during the
six months ended June 30, 1995 as compared to the six months ended July 1,
1994. Stockholders' equity for the six months ended June 30, 1995 increased
$31.8 million.
During the six months ended June 30, 1995, the Company's long-term
investments in land, buildings and equipment were $21.0 million as compared to
$18.0 million for the comparable period in 1994.
As of June 30, 1995, the Company had entered into an agreement to
acquire Pyropower and memoranda of understanding for (i) the purchase for
approximately $2.5 million of the assets of Zack Power and Industrial Company,
a construction company in Gary, Indiana, the closing of which occurred in
September 1995; and (ii) the purchase for approximately $16.0 million of the
assets of TPA, Inc., a supplier of sulfur recovery equipment based in Dallas,
Texas, the closing of which also occurred in September 1995. During the next
few years, capital expenditures will continue to be directed primarily toward
strengthening and supporting the Company's core businesses.
Long-term debt, including current installments, and bank loans
increased by $49.0 million, net of repayments of $5.6 million at June 30, 1995
as compared to December 30, 1994.
In the ordinary course of business, the Company and its subsidiaries
enter into contracts providing for assessment of damages for nonperformance or
delays in completion. Suits and claims have been or may be brought against the
Company by customers alleging deficiencies in either equipment design or plant
construction. Based on its knowledge of the facts and circumstances relating
to the Company's liabilities, if any, and to its insurance coverage, management
of the Company believes that the disposition of such suits will not result in
charges against assets or earnings materially in excess of amounts previously
provided in the accounts.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $199.7 million at June 30, 1995, a
decrease of $36.1 million from fiscal year end 1994. During the first six
months of fiscal 1995, the Company paid $13.6 million in stockholder dividends
and repaid debt of $5.6 million. New borrowings totaled $54.6 million
resulting primarily from increased working capital needs.
During the first six months of fiscal 1995, cash flow used by
operating activities amounted to $101.6 million. This was funded by changes in
short-term investments and borrowings under long-term and short-term credit
facilities. These reductions in cash flow from operating activities during a
period of improving profitability resulted from an increase in the Company's
working capital needs which vary from period to period depending on the mix,
stage of completion and
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commercial terms and conditions of the Company's contracts. Working capital
needs have increased as a result of the Company satisfying requests from its
Energy Equipment Group customers for more favorable payment terms under
contracts. Such requests generally include reduced advance payments and more
favorable payment schedules. Such terms requiring the Company to defer receipt
of payments from its customers had a negative impact on the Company's available
working capital. The Company's contracts in process and inventories increased
by $79.4 million during the first six months of fiscal 1995 to $278.2 million
at June 30, 1995, from $198.8 million at year end 1994. In addition, the
Company's balance of accounts receivable increased by $88.8 million during the
first six months of fiscal 1995 to $585.8 million at June 30, 1995, from $497.0
million at fiscal year end 1994.
Management of the Company expects its customers' requests for more
favorable terms under Energy Equipment Group contracts to continue as a result
of the competitive markets in which the Company operates, thereby maintaining
the existing demands on its working capital. The Company intends to satisfy
its continuing working capital needs by borrowing under its Revolving Credit
Facilities, through internal cash generation and third-party financings in the
capital markets. The Company's pricing of contracts recognizes costs
associated with the use of working capital.
On August 14, 1995, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission to cover the issuances,
from time to time, of up to $500 million of debt and equity securities,
including securities convertible into debt and equity securities. The senior
unsecured debt and subordinated debt securities covered by the shelf
registration statement were rated BBB and BBB-, respectively, by Standard and
Poor's Corporation. The Company intends to access the capital markets to
refinance borrowings under its Revolving Credit Facilities referred to below.
On September 20, 1995, the Company established two revolving credit
facilities with a syndicate of banks led by National Westminster Bank PLC and
Mellon Bank, N.A. One facility is a short-term revolving credit facility of
$200 million with a maturity of 364 days and the second is a $300 million
revolving credit facility with a maturity of four years (collectively, the
"Revolving Credit Facilities"). Borrowings under these facilities were
incurred to fund a portion of the Pyropower acquisition, to refinance bank debt
previously incurred to fund working capital and the acquisition of Enserch and
to make a scheduled principal installment payment on the Company's 8.58%
unsecured promissory private placement notes (the "Private Notes") as described
below.
On October 1, 1995, the Company made a $22.0 million principal
payment on its Private Notes. The Company made such payment with proceeds from
borrowings under the Revolving Credit Facilities. In September 1995, the
holders of the Private Notes executed a waiver of certain financial covenants
necessitated by the Pyropower acquisition which waiver is effective until
November 21, 1995. The Company has requested that the holders of the Private
Notes amend the covenants of the Private Notes by October 18, 1995 to reflect
substantially similar covenants as those contained in the Revolving Credit
Facilities. If such amendment is not approved by 66-2/3%
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of the holders of the Private Notes, the Company intends to prepay the full
principal amount of the Private Notes, plus a premium to be determined on the
date of such prepayment based on interest rates as of that date. If the
amendment is approved, the Company will be required to pay scheduled principal
installments of $22.0 million on the Private Notes on October 1, 1996, 1997 and
1998. The Company expects to make such payments from internally generated
cash, borrowings under its Revolving Credit Facilities and third-party
financings in the capital markets.
The Company has lease payments due under two long-term operating
leases aggregating $9.2 million in fiscal 1995, $9.1 million in fiscal 1996 and
$87.6 million in fiscal 1997 and other rental payments under leases for office
space. The primary reason for the increase in 1997 is the payment of the first
lease payment for a 1,600-ton-per-day recycling and waste-to-energy plant
located in Robbins, Illinois, which is scheduled to go into operation in 1997.
The Company expects to make these lease payments from cash available from
operations and borrowings under its Revolving Credit Facilities. Leasing
arrangements for equipment, which are short-term in nature, are not expected to
impact the Company's liquidity or capital resources.
The Company and its subsidiaries, along with many other companies,
are codefendants in numerous lawsuits pending in the United States and Canada,
in which plaintiffs claim damages for personal injury or property damage
alleged to have arisen from the exposure to or use of asbestos. At June 30,
1995, there were approximately 63,000 suits pending. Approximately 17,300 new
claims were filed in the six month period ended June 30, 1995 and approximately
6,000 were either settled or dismissed without payment. Any settlement costs
not covered by the Company's insurance carriers were immaterial. The Company
has agreements with insurance carriers covering a substantial portion of its
potential costs relating to pending claims. The management of the Company has
carefully considered the financial viability and legal obligations of its
insurance carriers and has concluded that the insurers will continue to
adequately fund claims and defense costs relating to asbestos litigation.
Management of the Company believes that cash on hand of $199.7
million and short-term investments of $96.2 million at June 30, 1995, combined
with cash flow from operating activities, amounts available under its Revolving
Credit Facilities and access to third-party financings in the capital markets
will be adequate to meet its working capital and liquidity needs for the
foreseeable future.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FOSTER WHEELER CORPORATION
(Registrant)
Dated: October 23, 1995 /s/ David J. Roberts
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Name: David J. Roberts
Title: Vice Chairman and
Chief Financial Officer
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