-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIh0F+nf5dTMINwF01CTnEuEsYN7x7oYHZm8UV6qo6k9pf/vbuH61LlNS3B/Sl4a 6idYXdzBZ3zd9Oqmxk7h5g== 0000950123-97-009305.txt : 19971111 0000950123-97-009305.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950123-97-009305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970926 FILED AS OF DATE: 19971110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00286 FILM NUMBER: 97711621 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-Q 1 FOSTER WHEELER CORPORATION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1997 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 (Exact name of registrant as specified in its charter) New York 13-1855904 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Perryville Corporate Park, Clinton, N. J. 08809-4000 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 730-4000 (Not Applicable) 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. Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 26, 1997 was 40,731,864 shares. 2 FOSTER WHEELER CORPORATION INDEX
Page No. -------- Part I Financial Information: Item 1 - Financial Statements: Condensed Consolidated Balance Sheet at September 26, 1997 and December 27, 1996 2 Condensed Consolidated Statement of Earnings Three and Nine Months Ended September 26, 1997 and September 27, 1996 3 Condensed Consolidated Statement of Cash Flows Nine Months Ended September 26, 1997 and September 27, 1996 4 Notes to Condensed Consolidated Financial Statements 5 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 Part II Other Information: Item 6 - Exhibits and Reports on Form 8-K 13
- 1 - 3 ITEM 1. - FINANCIAL STATEMENTS FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands of Dollars)
ASSETS September 26, 1997 December 27, (Unaudited) 1996 - ------ ------------------ ------------ Current Assets: Cash and cash equivalents $ 142,412 $ 267,149 Short-term investments 113,892 137,180 Accounts and notes receivable 860,700 885,785 Contracts in process 317,664 363,716 Inventories 8,360 39,799 Prepaid and refundable income taxes 32,145 38,627 Prepaid expenses 46,310 30,192 ----------- ----------- Total Current Assets 1,521,483 1,762,448 ----------- ----------- Land, buildings and equipment 1,092,443 1,054,786 Less accumulated depreciation 303,541 330,007 ----------- ----------- Net book value 788,902 724,779 ----------- ----------- Notes and accounts receivable - long-term 86,338 74,296 Investments and advances 125,257 73,725 Intangible assets - net 301,534 331,463 Prepaid pension costs and benefits 172,098 180,473 Other, including insurance recoveries 406,856 359,362 Deferred income taxes 6,910 3,788 ----------- ----------- Total Assets $ 3,409,378 $ 3,510,334 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current installments on long-term debt $ 33,296 $ 32,764 Bank loans 54,982 52,278 Accounts payable and accrued expenses 590,945 635,030 Estimated cost to complete long-term contracts 696,510 562,984 Advance payments by customers 80,922 116,903 Income taxes (2,765) 41,935 ----------- ----------- Total Current Liabilities 1,453,890 1,441,894 Other long-term debt 343,819 416,995 Special-purpose project debt 436,122 379,284 Postretirement and other employee benefits other than pensions 160,137 180,210 Other long-term liabilities, deferred credits and minority interest in subsidiary companies 362,119 372,898 Deferred income taxes 27,508 30,095 ----------- ----------- Total Liabilities 2,783,595 2,821,376 ----------- ----------- Stockholders' Equity: Common stock 40,743 40,651 Paid-in capital 201,010 197,970 Retained earnings 433,018 471,177 Accumulated translation adjustment (48,693) (20,545) ----------- ----------- 626,078 689,253 Less cost of treasury stock (295) (295) ----------- ----------- Total Stockholders' Equity 625,783 688,958 ----------- ----------- Total Liabilities and Stockholders' Equity $ 3,409,378 $ 3,510,334 =========== ===========
See notes to financial statements. - 2 - 4 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended ---------------------------------------- ---------------------------------------- September 26, 1997 September 27, 1996 September 26, 1997 September 27, 1996 ------------------ ------------------ ------------------ ------------------ Revenues: Operating revenues $ 1,029,994 $ 960,912 $ 3,025,742 $ 2,775,363 Other income 19,795 7,598 99,648 25,174 ------------ ----------- ------------ ----------- Total revenues 1,049,789 968,510 3,125,390 2,800,537 ------------ ----------- ------------ ----------- Cost and expenses: Cost of operating revenues 1,010,507 832,901 2,772,708 2,412,583 Selling, general and administrative expenses 63,368 74,784 207,352 214,495 Other deductions/Minority interest 17,186 20,683 58,213 58,913 Special charges -- -- 98,500 -- ------------ ----------- ------------ ----------- Total costs and expenses 1,091,061 928,368 3,136,773 2,685,991 ------------ ----------- ------------ ----------- (Loss)/earnings before income taxes (41,272) 40,142 (11,383) 114,546 (Benefit)/provision for income taxes (11,924) 16,177 1,374 42,080 ------------ ----------- ------------ ----------- Net (loss)/earnings $ (29,348) $ 23,965 $ (12,757) $ 72,466 ============ =========== ============ =========== Weighted average number of common shares outstanding 40,687,568 40,620,729 40,657,417 40,576,513 ============ =========== ============ =========== (Loss)/earnings per share $ (.72) $ .59 $ (.31) $ 1.79 ============ =========== ============ =========== Cash dividends paid per common share $ .21 $ .205 $ .625 $ .605 ============ =========== ============ ===========
See notes to financial statements. -3- 5 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars) (Unaudited)
Nine Months Ended ------------------------------------------ September 26, 1997 September 27, 1996 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)/ earnings $ (12,757) $ 72,466 Adjustments to reconcile net (loss)/earnings to cash flows from operating activities: Depreciation and amortization 46,173 45,985 Noncurrent deferred tax (4,903) 8,889 Gain on sale of subsidiary (56,400) -- Special charges 98,500 -- Other (17,849) (4,212) Changes in assets and liabilities, net of effects of divestitures: Receivables (109,555) (40,870) Contracts in process and inventories 13,923 (38,630) Accounts payable and accrued expenses (34,589) (28,474) Estimated cost to complete long-term contracts 118,050 5,957 Advance payments by customers (17,391) 25,118 Income taxes (46,566) 14,512 Other assets and liabilities (80,344) (15,714) --------- --------- NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES (103,708) 45,027 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (135,794) (92,261) Proceeds from sale of subsidiary 195,283 -- Proceeds from sale of properties 5,038 1,525 Increase in investments and advances (46,712) (5,567) Decrease/(increase) in short-term investments 14,099 (23,876) Partnership distributions (4,800) (4,859) --------- --------- NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES 27,114 (125,038) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends to stockholders (25,403) (24,539) Proceeds from exercise of stock options 2,671 3,545 Increase in short-term debt 7,229 6,872 Proceeds from long-term debt 64,915 149,677 Repayment of long-term debt (77,311) (22,467) --------- --------- NET CASH (USED)/ PROVIDED BY FINANCING ACTIVITIES (27,899) 113,088 Effect of exchange rate changes on cash and cash equivalents (20,244) 67 --------- --------- (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (124,737) 33,144 Cash and cash equivalents at beginning of year 267,149 167,131 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 142,412 $ 200,275 ========= ========= Cash paid during period: -Interest (net of amount capitalized) $ 22,681 $ 23,155 -Income taxes $ 20,161 $ 11,710
See notes to financial statements. - 4- 6 FOSTER WHEELER CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands of Dollars, Except Per Share Amounts) (Unaudited) 1. The condensed consolidated balance sheet as of September 26, 1997, and the related condensed consolidated statements of earnings for the three and nine month periods ended September 26, 1997 and September 27, 1996 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments only consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented in accordance with Form 10-Q and do not contain certain information included in Foster Wheeler Corporation's Annual Report on Form 10-K for the fiscal year ended December 27, 1996 filed with the Securities and Exchange Commission March 21, 1997, which should be read in conjunction with this report. In conformity with generally accepted accounting principles, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. 2. In the second quarter of 1997 the Corporation recorded a special pretax charge of $98,500 and $56,400 pretax gain on the sale of a subsidiary. The net amount of $42,100 ($27,365 after tax or $.67 per share) included the following: (a) $60,000 against the Power Systems Group with respect to the Robbins Resource Recovery facility. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership, operates this facility under a long-term operating lease. By virtue of this facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." The State has repealed the Retail Rate Law insofar as it applied to this facility. As the result of the failure of the bill introduced in the Illinois State Legislature, which would have reinstated the Retail Rate Law and a recent decision in State court regarding procedural matters, Management of the Corporation determined that a charge against current earnings was required. Management considers this charge to be sufficient to cover the anticipated losses until the end of 1999, reflecting the time period within which the Corporation expects the Courts to provide relief from the state government's repeal of the Illinois Retail Rate Law. This charge includes $23,000 for modifications to the nonboiler systems of the plant, the associated down time and lack of revenue during the implementation of the modifications. Approximately 65% of the $60 million is expected to have a cash flow impact in 1997; the balance will be expended over the following two years. (b) $32,000 against the Energy Equipment Group representing the last phase of the Group's reorganization started in 1995 following the Ahlstrom Pyropower acquisition. These actions will result in a further reduction in operating costs with a more efficient product execution capability. This plan includes $14,500 for the discontinuance of certain product lines including incremental costs on certain completed contracts. Approximately $9,200 of the charge relates to the consolidation of the San Diego operations with the Group's activities in New Jersey. The $9,200 includes approximately $5,200 for personnel costs including severance and related benefits. The balance ($4,000) represents write-downs of San Diego assets (primarily land and buildings) in accordance with SFAS No. 121 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of. These San Diego long-lived assets are now considered to be for sale and have been accounted for at their current market value less estimated cost to sell. The remaining balance of approximately $8,300 is primarily related to the write-down of a Canadian co-generation plant in accordance with SFAS No. 121. As a result of the current reorganization this co-generation plant is now considered to be for sale. The basis of this plant has been adjusted to its estimated fair market value less cost to sell. Approximately 70% of the Energy Equipment Groups charges mentioned above will have a cash impact. The expectation is that 50% of this cost will be paid out by year end and that the balance will be paid out during 1998. (c) $6,500 against Corporate and Financial Services Group as the result of the valuation of a subsidiary. This subsidiary (a manufacturer of Copper Extrusions) was not part of the Corporation's three core business groups, and was sold in the third quarter of 1997. -5- 7 (d) In addition the Corporation recorded a $56,400 pretax ($36,660 after tax) gain on the sale of Glitsch International, Inc.'s assets to Koch Engineering Company. This gain was included in other income in the second quarter. The Corporation received approximately $195,000 in cash for the majority of the assets of Glitsch International, Inc. plus approximately $50,000 in net assets to be realized. The remaining net assets of Glitsch International, Inc. have been valued at their current estimated realizable value which are not considered material to the overall operations of the Corporation. For segment reporting purposes, the earnings of Glitsch International, Inc. up to the closing date of June 27, 1997 were included in the operating results of the Corporation within the Energy Equipment Group. 3. In the ordinary course of business, the Corporation 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 Corporation or its subsidiaries by customers alleging deficiencies in either equipment or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's and its subsidiaries' liabilities, if any, and to their insurance coverage, Management of the Corporation believes that the disposition of suits will not result in charges against assets or earnings material in excess of amounts previously provided in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of December 27, 1996, there were approximately 92,600 claims pending. Approximately 25,400 new claims were filed in 1997 and approximately 34,700 claims were either settled or dismissed without payment (including approximately 22,000 claims dismissed by a Federal District Court without prejudice which are subject to being refiled). As a result, on September 26, 1997, there were approximately 83,300 claims pending. Any settlement costs not covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of the potential costs relating to these exposures. The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation. In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership (the "Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State has repealed the Retail Rate Law insofar as it applied to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be a significant adverse financial impact on the operating results of the project. 4. The Corporation maintains two revolving credit agreements with a syndicate of banks. One is a short-term revolving credit agreement of $100,000 with a maturity of 364 days and the second is a $300,000 revolving credit agreement with a maturity of four years (collectively, the "Revolving Credit Agreements"). These Revolving Credit Agreements were amended on June 25, 1997 and contain two financial covenants. The first covenant is that the Consolidated Fixed Charges Coverage Ratio (as defined in the Revolving Credit Agreements) shall be greater than (i) 1.15 for the period from June 25, 1997 to and including December 26, 1997 (ii) 2.00 for the period from and including December 27, 1997 to and including June 26, 1998 and (iii) 2.50 thereafter. The Consolidated Fixed Charges Coverage Ratio for the period ending September 26, 1997 was 1.16:1. The second covenant is that the Consolidated Leverage Ratio (as defined in the Revolving Credit Agreements) (i) shall not at any time prior to December 26, 1997 exceed 0.60 to 1.00, (ii) shall not at any time from December 27, 1997 to and including June 26, 1998 exceed 0.55 to 1.00 and (iii) shall not at any time thereafter exceed 0.50 to 1.00. As of September 26, 1997, the ratio was 0.44:1. 5. A total of 2,564,719 shares were reserved for issuance under the stock option plans; of this total 1,153,416 were not under option. -6- 8 6. Foster Wheeler Corporation had a backlog of firm orders as of September 26, 1997 of $7,222,572 as compared to a backlog as of September 27, 1996 of $6,915,541. 7. (Loss)/earnings per share data have been computed on the weighted average number of shares of common stock outstanding. Outstanding stock options have been disregarded because their effect on earnings per share would not be significant. 8. Interest income and cost for the following periods are:
Three Months Ended Nine Months Ended ------------------ ----------------- September 26, 1997 September 27, 1996 September 26, 1997 September 27, 1996 ------------------ ------------------ ------------------ ------------------ Interest income $ 4,038 $ 5,266 $ 15,205 $14,958 ======= ======== ======== ======= Interest cost $16,106 $14,335 $ 49,414 $44,684 ======= ======= ======== =======
Included in interest cost is interest capitalized on self-constructed assets, for the three and nine months ended September 26, 1997 of $2,772 and $7,498, respectively, compared to $562 and $4,297 for the comparable periods in 1996. -7- 9 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOSTER WHEELER CORPORATION AND SUBSIDIARIES (Unaudited) The following is Management's Discussion and Analysis of certain significant factors that have affected the financial condition and results of operations of the Corporation for the periods indicated below. This discussion and analysis should be read in conjunction with the 1996 Annual Report on Form 10-K filed March 21, 1997. RESULTS OF OPERATIONS General Comments In the third quarter of 1997 the Corporation reported a net loss of $29.3 million or $.72 per share compared with net earnings of $24.0 million or $.59 per share in 1996. The results for the third quarter of 1997 were negatively impacted by the operating results of several locations. The Engineering and Construction Group recorded provisions amounting to approximately $24.0 million ($17.4 million after tax) on several projects for which it is seeking recovery of a significant portion from clients. The ultimate outcome of these claims as to both timing and amount is uncertain. The Energy Equipment Group recorded approximately $30.0 million ($19.5 million after tax) in provisions for increased cost on three projects, which were initially bid and executed out of the San Diego office. As previously announced in July 1997, this operation has been closed and the execution of contracts transferred to the New Jersey headquarters. Earnings of the Power Systems Group were below expectations, primarily due to increased non-capitalizable development costs. The net loss for the nine months ended September 26, 1997 of $12.8 million or $.31 per share included the second quarter special pretax charge of $98.5 million and $56.4 million pretax gain on the sale of a subsidiary. The net amount of $42.1 million ($27.4 million after tax or $.67 per share) included the following: (a) $60 million against the Power Systems Group with respect to the Robbins Resource Recovery facility. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership, operates this facility under a long-term operating lease. By virtue of this facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." The State has repealed the Retail Rate Law insofar as it applied to this facility. As the result of the failure of the bill introduced in the Illinois State Legislature, which would have reinstated the Retail Rate Law and a recent decision in State court regarding procedural matters, Management of the Corporation determined that a charge against current earnings was required. Management considers this charge to be sufficient to cover the anticipated losses until the end of 1999, reflecting the time period within which the Corporation expects the Courts to provide relief from the state government's repeal of the Illinois Retail Rate Law. This charge includes $23 million for modifications to the nonboiler systems of the plant, the associated down time and lack of revenue during the implementation of the modifications. Approximately 65% of the $60 million is expected to have a cash flow impact in 1997; the balance will be expended over the following two years. (b) $32 million against the Energy Equipment Group representing the last phase of the Group's reorganization started in 1995 following the Ahlstrom Pyropower acquisition. These actions will result in a further reduction in operating costs with a more efficient product execution capability. This plan includes $14.5 million for the discontinuance of certain product lines including incremental costs on certain completed contracts. Approximately $9.2 million of the charge relates to the consolidation of the San Diego operations with the Group's activities in New Jersey. The $9.2 million includes approximately $5.2 million for personnel costs including severance and related benefits. The balance ($4 million) represents write-downs of San Diego assets (primarily land and buildings) in accordance with SFAS No. 121 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of. These San Diego long-lived assets are now considered to be for sale and have been accounted for at their current market value less estimated cost to sell. The remaining balance of approximately $8.3 million is primarily related to the write-down of a Canadian co-generation plant in accordance with SFAS No.121. As a result of the current reorganization this co-generation plant is now considered to be for sale. The basis of this plant has been adjusted to its estimated fair market value less cost to sell. Approximately 70% of the Energy Equipment Group's charges mentioned above will have a cash impact. The expectation is that 50% of this cost will be paid out by year end and that the balance will be paid out during 1998. -8- 10 (c) $6.5 million against the Corporate and Financial Services Group as the result of the valuation of a subsidiary. This subsidiary (a manufacturer of Copper Extrusions) was not part of the Corporation's three core business groups, and was sold in the third quarter 1997. (d) In addition the Corporation recorded a $56.4 million pretax ($36.7 million after tax) gain on the sale of Glitsch International, Inc.'s assets to Koch Engineering Company. This gain was included in other income in the second quarter. The Corporation received approximately $195.0 million in cash for the majority of the assets of Glitsch International, Inc. plus approximately $50.0 million in net assets to be realized. The remaining net assets of Glitsch International, Inc. have been valued at their current estimated realizable value which are not considered material to the overall operations of the Corporation. For segment reporting purposes, the earnings of Glitsch International, Inc. up to the closing date of June 27, 1997 were included in the operating results of the Corporation within the Energy Equipment Group. The Corporation is in the process of establishing a new business unit within its Engineering and Construction Group. The new entity will consolidate Foster Wheeler Italiana, S.p.A., Foster Wheeler France, S.A. and Foster Wheeler Iberia, S.A. under common management, headquartered in Milan, Italy.The existing subsidiary companies will maintain their offices in Milan, Paris and Madrid, respectively. Placing these three companies under the control of centralized management will result in greater economies of scale, work distribution and quality assurance. The Corporation expects the new structure to be in place by January 1, 1998. On a pro forma basis, this business unit had revenues of approximately $1.2 billion in 1996. In addition, the Corporation is also in the process of consolidating its Reading, UK operations into one facility. Currently the Reading, UK operations are housed in five different locations in the Reading area. This consolidation will result in lower occupancy costs and improved operating efficiency. The cost of implementing this reorganization, primarily severance and lease costs, will be provided upon finalization of the detailed plan during the fourth quarter of 1997. The Corporation anticipates recording a pretax charge in the range of $10-$15 million. Nine months ended September 26, 1997 compared to nine months ended September 27, 1996 The Corporation's consolidated backlog at September 26, 1997 totaled $7,222.6 million. This represented an increase of $307.0 million or 4% over the amount reported as of September 27, 1996. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, cancellations or scope adjustments may occur. Due to factors outside the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. Backlog has been adjusted to reflect project cancellations, deferrals, sale of subsidiary and revised project scope and cost. This adjustment for the nine months ended September 26, 1997 was $377.0 million, compared with $678.2 million for the nine months ended September 27, 1996. Furthermore, the Corporation's future award prospects include several large scale international projects and, because the large size and uncertain timing can create variability in the Corporation's contract awards, future award trends are difficult to predict with certainty. The Engineering and Construction Group ("E & C Group"), had a backlog of $5,134.3 million at September 26, 1997, which represented a 7% increase from September 27, 1996 due primarily to orders awarded to the United Kingdom subsidiary. The Energy Equipment Group had backlog of $1,671.6 million at September 26, 1997, which represented a 6% decrease from backlog at September 27, 1996 due primarily to the sale of the assets of Glitsch International Inc. New orders awarded for the nine months ended September 26, 1997 of $3,832.1 million were slightly lower than the level of orders reported for the nine months ended September 27, 1996 of $3,913.4 million. Approximately 67% of new orders for the nine months ended September 26, 1997 were for projects awarded to the Corporation's subsidiaries located outside the United States. Key geographic regions contributing to new orders awarded for the nine months ended September 26, 1997 were Southeast Asia, Europe, the Middle East and China. Operating revenues increased in the nine months ended September 26, 1997 by $250.4 million compared to the nine months ended September 27, 1996 to $3,025.7 million from $2,775.3 million. The E & C Group's operating revenues increased by $305.9 million due to the increased levels reported by of the United Kingdom subsidiary ($152.2 million), the subsidiaries in the United States ($124.8 million) and the Spanish subsidiary($30.7 million). The increase in the E & C Group's operating revenues was partially offset by a decrease in the Energy Equipment Group of approximately $50.6 million, primarily attributable to the sale of the assets of Glitsch International Inc. -9- 11 Gross earnings, which are equal to operating revenues minus the cost of operating revenues, declined $109.8 million in the nine months ended September 26, 1997 as compared with the nine months ended September 27, 1996 to $253.0 million from $362.8 million. Approximately 70% of this decrease was related to the operations of the Energy Equipment Group. The gross earnings were impacted by the sale of the assets of Glitsch International Inc. and the provisions for increased costs on three projects, which were initially bid and executed out of the San Diego office. This operation has been closed and the execution of contracts transferred to the New Jersey headquarters. In addition the E&C Group recorded provisions amounting to approximately $24.0 million related to several projects for which it is seeking recovery of a significant portion from clients. Selling, general and administrative expenses decreased 3% in the nine months ended September 26, 1997 as compared with the same period in 1996, from $214.5 million to $207.4 million. Other income in the nine months ended September 26, 1997 as compared with September 27, 1996 increased to $99.7 million from $25.2 million, primarily due to the gain on the sale of Glitsch International, Inc.'s assets and the profit on the sale of a gas field in connection with the development of a cogeneration facility in Italy. Other deductions in the nine months ended September 26, 1997, of $56.5 million, were 4% higher than that reported in the nine months ended September 27, 1996 primarily due to increased interest expense. The effective tax rate exceeds the U.S. statutory rate primarily due to state taxes and the impact of foreign source earnings and losses. The net loss for the nine months ended September 26, 1997 was $12.8 million or $.31 per share, which included the special charge stated above of $27.4 million after tax ($.67 per share). The net earnings for the nine months ended September 27, 1996 were $72.5 million or $1.79 per share. Three months ended September 26, 1997 compared to three months ended September 27, 1996 New orders awarded for the three months ended September 26, 1997 of $1,164.7 million were 7% lower than new orders awarded for the three months ended September 27, 1996 of $1,257.7 million. This seven percent decrease was primarily due to a decline in new orders of $228.9 million in the North American subsidiaries in the Energy Equipment Group offset by increased new orders awarded of $217.1 million to the United Kingdom subsidiary in the E & C Group. Approximately 49% of new orders in the three months ended September 26, 1997 were for projects awarded to the Corporation's subsidiaries located outside the United States. Operating revenues increased in the three months ended September 26, 1997 by $69.1 million or 7% compared to the three months ended September 27, 1996 to $1,030.0 million from $960.9 million. The United Kingdom subsidiary accounted for the majority of the increase in revenues in the E & C Group. This was offset by decreased revenues in the Energy Equipment Group primarily due to the sale of the assets of Glitsch International, Inc. Gross earnings decreased $108.5 million to $19.5 million from $128.0 million or 85% in the three months ended September 26, 1997 as compared with the three months ended September 27, 1996. Approximately 55% of this decrease was related to the operations of the Energy Equipment Group. The gross earnings were impacted by the sale of the assets of Glitsch International Inc. and the provisions for increased costs on three projects, which were initially bid and executed out of the San Diego office. This operation has been closed and the execution of contracts transferred to the New Jersey headquarters. In addition the E&C Group recorded provisions amounting to approximately $24.0 million related to several projects for which it is seeking recovery of a significant portion from clients. Selling, general and administrative expenses decreased 15% in the three months ended September 26, 1997 as compared with the same period in 1996, from $74.8 million to $63.4 million. This reduction was caused by a decline in expenses in the Energy Equipment Group primarily due to the sale of the assets of Glitsch International, Inc. The net loss for the three months ended September 26, 1997 was $29.3 million or $.72 per share. The net earnings for the three months ended September 27,1996 were $24.0 million or $.59 per share. -10- 12 FINANCIAL CONDITION Stockholders' equity for the nine months ended September 26, 1997 decreased $63.2 million, due to the fluctuation in the accumulated translation adjustment resulting from the strengthening U.S. dollar against European currencies, payment of dividends and the loss of $12.8 million recorded for the nine months. During the nine months ended September 26, 1997, the Corporation's long-term investments in land, buildings and equipment were $135.8 million as compared with $92.3 million for the comparable period in 1996. Approximately $92.9 million was invested by the Power Systems Group in build, own and operate projects during the first nine months of 1997. During the next few years, capital expenditures will continue to be directed primarily toward strengthening and supporting the Corporation's core businesses. Since December 27, 1996, long-term debt, including current installments, and bank loans increased by $72.1 million, exclusive of repayments of $77.3 million, primarily due to borrowings to fund investments in build, own and operate projects and current working capital requirements. In the ordinary course of business, the Corporation 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 Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, Management of the Corporation 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 $142.4 million at September 26, 1997, a decrease of $124.7 million from fiscal year end 1996; also, short-term investments decreased by $23.3 million to $113.9 million. During the first nine months of fiscal 1997, the Corporation paid $25.4 million in dividends to stockholders and repaid debt of $77.3 million. Cash used by operating activities amounted to $103.7 million including a $45.0 million initial lease payment on the Robbins Resource Recovery Facility. New borrowings totaled $72.1 million, resulting from investments by the Power Systems Group in build, own and operate projects and requirements to fund current working capital needs. In total, the Power Systems Group invested approximately $92.9 million in the construction of cogeneration and other industrial facilities. Over the last several years working capital needs have increased as a result of the Corporation satisfying its customers' requests for more favorable payment terms under contracts. Such requests generally include reduced advance payments and more favorable payment schedules. Such terms, which require the Corporation to defer receipt of payments from its customers, have had a negative impact on the Corporation's available working capital. The Management of the Corporation expects its customers' requests for more favorable payment terms under the Energy Equipment contracts to continue as a result of the competitive markets in which the Corporation operates. The Corporation intends to satisfy its continuing working capital needs by borrowing under its Revolving Credit Agreements, through internal cash generation and third-party financings in the capital markets. The Corporation's pricing of contracts recognizes costs associated with the use of working capital. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of December 27, 1996 there were approximately 92,600 claims pending. Approximately 25,400 new claims were filed in 1997 and approximately 34,700 were either settled or dismissed without payment (including approximately 22,000 claims dismissed by a Federal District Court without prejudice which are subject to being refiled). As a result, on September 26, 1997, there were approximately 83,300 claims pending. Any settlement costs not covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of the potential costs relating to these exposures. The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable -11- 13 insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation. In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership (the "Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State has repealed the Retail Rate Law insofar as it applied to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be a significant adverse financial impact on the operating results of the project. Management of the Corporation believes that cash and cash equivalents of $142.4 million and short-term investments of $113.9 million at September 26, 1997, combined with cash flows from operating activities, amounts available under its Revolving Credit Agreements 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. OTHER ACCOUNTING MATTERS Statement of Financial Accounting Standards No. 128 "Earnings per Share" was issued in February 1997. This statement establishes standards for computing and presenting earnings per share (EPS). This Statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. The Corporation does not anticipate a significant impact from the application of this statement. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 ("Reporting Comprehensive Income") and No. 131 ("Disclosures about Segments of an Enterprise and Related Information"). The Corporation is currently evaluating their impact on the Corporation's financial statement disclosure. SAFE HARBOR STATEMENT This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Form 10-Q contain forward-looking statements that are based on Management's assumptions, expectations and projections about the various industries within which the Corporation operates. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Corporation cautions that a variety of factors, including but not limited to the following, could cause business conditions and results to differ materially from what is contained in forward-looking statements: changes in the rate of economic growth in the United States and other major international economies, changes in investment by the energy, power and environmental industries, changes in regulatory environment, changes in project schedules, changes in trade, monetary and fiscal policies worldwide, currency fluctuations, outcomes of pending and future litigation, protection and validity of patents and other intellectual property rights and increasing competition by foreign and domestic companies. -12- 14 PART II. - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K a) Exhibits
Exhibit Number Exhibit ------- ------- 12-1 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Share Dividend Requirements 27 Financial Data Schedule (For the informational purposes of the Securities and Exchange Commission only.)
b) Reports on Form 8-K None -13- 15 SIGNATURES 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. FOSTER WHEELER CORPORATION (Registrant) Date: November 7, 1997 /S/ Richard J. Swift ---------------- --------------------------- Richard J. Swift Chairman, President and Chief Executive Office Date: November 7, 1997 /S/ David J. Roberts ---------------- --------------------------- David J. Roberts Vice Chairman and Chief Financial Officer -14- EX-12.1 2 STATEMENT OF COMPUTATION 1 EXHIBIT 12-1 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS ($000's) Unaudited
Fiscal Year 9 months --------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- --------- Earnings: Net Earnings/(Loss) $ (12,757) $ 82,240 $ 28,534 $ 65,410 $ 57,704 $ (45,755) Taxes on Income 1,374 44,626 41,129 41,457 39,114 22,321 Cumulative Effect of Change in Accounting Principle 91,259 Total Fixed Charges 64,029 74,002 60,920 45,412 43,371 46,365 Capitalized Interest (7,498) (6,362) (1,634) (467) (213) (1,739) Capitalized Interest Amortized 2,912 2,528 2,273 2,189 2,180 2,111 Equity (Earnings)/Loss of non-consolidated associated companies accounted for by the equity method, net of dividends (11,894) (1,474) (1,578) (623) (883) 771 --------- --------- --------- --------- --------- --------- $ 36,166 $ 195,560 $ 129,644 $ 153,378 $ 141,273 $ 115,333 Fixed Charges: Interest Expense $ 41,916 $ 54,940 $ 49,011 $ 34,978 $ 33,558 $ 34,159 Capitalized Interest 7,498 6,362 1,634 467 213 1,739 Imputed Interest on non-capitalized lease payments 14,615 12,700 10,275 9,967 9,600 10,467 --------- --------- --------- --------- --------- --------- $ 64,029 $ 74,002 $ 60,920 $ 45,412 $ 43,371 $ 46,365 RATIO OF EARNINGS TO FIXED CHARGES 0.56 2.64 2.13 3.38 3.26 2.49
- ---------- *There were no preferred shares outstanding during any of the periods indicated and therefore the consolidated ratio of earnings to fixed charges and combined fixed charges and preferred share dividend requirements would have been the same as the consolidated ratio of earnings to fixed charges and combined fixed charges for each period indicated. -15- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE 9 MONTHS ENDED SEPTEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-26-1997 DEC-28-1996 SEP-26-1997 142,412 113,892 860,700 0 326,024 1,521,483 1,092,443 303,541 3,409,378 1,453,890 779,941 0 0 40,743 585,040 3,409,378 3,025,742 3,125,390 2,772,708 2,980,060 156,713 0 41,920 (11,383) 1,374 (12,757) 0 0 0 (12,757) (0.31) (0.31)
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