<PAGE> 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 JUNE 27, 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 June 27, 1997 was 40,645,737 shares.
<PAGE> 2
FOSTER WHEELER CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I Financial Information:
<S> <C>
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at
June 27, 1997 and December 27, 1996 2
Condensed Consolidated Statement of Earnings
Three and Six Months Ended June 27, 1997 and
June 28, 1996 3
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 27, 1997 and
June 28, 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 - 11
Part II Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
</TABLE>
- 1 -
<PAGE> 3
ITEM 1. - FINANCIAL STATEMENTS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS June 27, 1997 December 27,
(Unaudited) 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 268,267 $ 267,149
Short-term investments 82,108 137,180
Accounts and notes receivable 907,899 885,785
Contracts in process 353,937 363,716
Inventories 8,825 39,799
Prepaid and refundable income taxes 49,516 38,627
Prepaid expenses 33,521 30,192
----------- -----------
Total Current Assets 1,704,073 1,762,448
----------- -----------
Land, buildings and equipment 1,026,507 1,054,786
Less accumulated depreciation 300,978 330,007
----------- -----------
Net book value 725,529 724,779
----------- -----------
Notes and accounts receivable - long-term 81,726 74,296
Investments and advances 136,218 73,725
Intangible assets - net 304,784 331,463
Prepaid pension costs and benefits 174,987 180,473
Other, including insurance recoveries 358,197 359,362
Deferred income taxes 24,886 3,788
----------- -----------
Total Assets $ 3,510,400 $ 3,510,334
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments on long-term debt $ 31,437 $ 32,764
Bank loans 48,448 52,278
Accounts payable and accrued expenses 597,861 635,030
Estimated cost to complete long-term contracts 666,777 562,984
Advance payments by customers 122,620 116,903
Income taxes 40,880 41,935
----------- -----------
Total Current Liabilities 1,508,023 1,441,894
Other long-term debt 350,171 416,995
Special-purpose project debt 441,588 379,284
Postretirement and other employee benefits
other than pensions 161,770 180,210
Other long-term liabilities, deferred credits and
minority interest in subsidiary companies 352,686 372,898
Deferred income taxes 30,136 30,095
----------- -----------
Total Liabilities 2,844,374 2,821,376
----------- -----------
Stockholders' Equity:
Common stock 40,657 40,651
Paid-in capital 198,069 197,970
Retained earnings 470,908 471,177
Accumulated translation adjustment (43,313) (20,545)
----------- -----------
666,321 689,253
Less cost of treasury stock (295) (295)
----------- -----------
Total Stockholders' Equity 666,026 688,958
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,510,400 $ 3,510,334
=========== ===========
</TABLE>
See notes to financial statements.
- 2 -
<PAGE> 4
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
June 27, 1997 June 28, 1996 June 27, 1997 June 28, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 1,030,634 $ 970,535 $ 1,995,748 $ 1,814,451
Other income 66,487 7,069 79,853 17,576
------------ ------------ ------------ ------------
Total revenues 1,097,121 977,604 2,075,601 1,832,027
------------ ------------ ------------ ------------
Cost and expenses:
Cost of operating revenues 907,686 853,040 1,762,201 1,579,682
Selling, general and administrative expenses 73,067 67,089 143,984 139,711
Other deductions/Minority interest 21,341 18,778 41,027 38,230
Special charges 98,500 -- 98,500 --
------------ ------------ ------------ ------------
Total costs and expenses 1,100,594 938,907 2,045,712 1,757,623
------------ ------------ ------------ ------------
Earnings/(loss) before income taxes (3,473) 38,697 29,889 74,404
Provision for income taxes 158 13,632 13,298 25,903
------------ ------------ ------------ ------------
Net earnings/(loss) $ (3,631) $ 25,065 $ 16,591 $ 48,501
============ ============ ============ ============
Weighted average number of common
shares outstanding 40,643,171 40,596,135 40,642,341 40,554,405
============ ============ ============ ============
Earnings/(loss) per share $ (.09) $ .62 $ .41 $ 1.20
============ ============ ============ ============
Cash dividends paid per common share $ .21 $ .205 $ .415 $ .40
============ ============ ============ ============
</TABLE>
See notes to financial statements.
-3-
<PAGE> 5
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 27, 1997 June 28, 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 16,591 $ 48,501
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation and amortization 31,085 32,655
Noncurrent deferred tax (21,031) 6,909
Gain on sale of subsidiary (56,400) --
Special charges 98,500 --
Other (3,313) (2,896)
Changes in assets and liabilities, net of effects of divestitures:
Receivables (166,719) 7,746
Contracts in process and inventories (19,724) (11,016)
Accounts payable and accrued expenses (11,868) (80,530)
Estimated cost to complete long-term contracts 83,093 33,686
Advance payments by customers 23,119 31,204
Income taxes (26,295) 6,814
Other assets and liabilities (33,119) (5,780)
--------- ---------
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES (86,081) 67,293
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (70,278) (61,536)
Proceeds from sale of subsidiary 195,283 --
Proceeds from sale of properties 1,914 797
Increase in investments and advances (46,394) (1,429)
Decrease/(increase) in short-term investments 45,826 (21,590)
Partnership distributions (4,800) (4,859)
--------- ---------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES 121,551 (88,617)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (16,859) (16,216)
Proceeds from exercise of stock options 152 2,967
Increase in short-term debt 316 14,090
Proceeds from long-term debt 64,915 140,189
Repayment of long-term debt (67,946) (19,925)
--------- ---------
NET CASH (USED)/ PROVIDED BY FINANCING ACTIVITIES (19,422) 121,105
Effect of exchange rate changes on cash and cash equivalents (14,930) (1,716)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 1,118 98,065
Cash and cash equivalents at beginning of year 267,149 167,131
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 268,267 $ 265,196
========= =========
Cash paid during period:
-Interest (net of amount capitalized) $ 21,307 $ 21,069
-Income taxes $ 11,729 $ 6,144
</TABLE>
See notes to financial statements.
- 4 -
<PAGE> 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 June 27, 1997, and the
related condensed consolidated statements of earnings for the three and six
month periods ended June 27, 1997 and June 28, 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.
-5-
<PAGE> 7
(c) $6,500 against Corporate and Financial Services Group as the result of
the valuation of a subsidiary. Since this subsidiary (a manufacturer of
Copper Extrusions) is not part of the Corporation's three core business
groups, Management of the Corporation reached a decision to sell this
subsidiary which has been valued at the estimated fair value less cost to
sell.
(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 by customers alleging deficiencies in either
equipment 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 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 22,000 of those
claims were dismissed by a Federal District Court, without prejudice and
are subject to being refiled. Approximately 23,900 new claims were filed in
1997 and approximately 9,100 were either settled or dismissed without
payment. As a result, on June 27, 1997, there were approximately 85,400
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.
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 June 27, 1997 was 2.48:1. 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 June 27, 1997, the ratio was 0.44:1.
5. A total of 2,650,846 shares were reserved for issuance under the stock
option plans; of this total 1,153,416 were not under option.
6. Foster Wheeler Corporation had a backlog of firm orders as of June 27, 1997
of $7,436,987 as compared to a backlog as of June 28, 1996 of $6,772,027.
7. 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.
-6-
<PAGE> 8
8. Interest income and cost for the following periods are:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
June 27, 1997 June 28, 1996 June 27, 1997 June 28, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income $ 5,781 $4,478 $ 11,167 $9,692
======= ====== ======== ======
Interest cost $17,944 $16,547 $ 33,308 $30,349
======= ======= ======== =======
</TABLE>
Included in interest cost is interest capitalized on self-constructed assets,
for the three and six months end June 27, 1997 of $2,885 and $4,726,
respectively, compared to $3,665 and $3,735 for the comparable periods in 1996.
-7-
<PAGE> 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
In the second quarter of 1997 the Corporation recorded a 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 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) $6.5 million against the Corporate and Financial Services Group as the
result of the valuation of a subsidiary. Since this subsidiary (a
manufacturer of Copper Extrusions) is not part of the Corporation's three
core business groups, the Management of the Corporation reached a decision
to sell this subsidiary which has been valued at the estimated fair value
less the cost to sell.
(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 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.
-8-
<PAGE> 10
Six months ended June 27, 1997 compared to six months ended June 28, 1996
The Corporation's consolidated backlog at June 27, 1997 totaled $7,437.0
million, the highest in the history of the Corporation. This represented an
increase of $665.0 million or 10% over the amount reported as of June 28, 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 six months ended June 27, 1997
was $116.5 million, compared with $509.0 million for the six months ended June
28, 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
$5,239.0 million at June 27, 1997, which represented a 10% increase from June
28, 1996 due primarily to orders awarded to the United Kingdom subsidiary. The
Energy Equipment Group had backlog of $1,784.8 million at June 27, 1997, which
represented an 8% increase from backlog at June 28, 1996 due primarily to orders
awarded to the North American and Finnish subsidiaries.
New orders awarded for the six months ended June 27, 1997 of $2,667.4 million
were consistent with the level of new orders reported for the six months ended
June 28, 1996 of $2,655.7 million. Approximately 75% of new orders in the six
months ended June 27, 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 six months ended June 27, 1997 were
Southeast Asia, Europe, the Middle East and China.
Operating revenues increased in the six months ended June 27, 1997 by $181.3
million compared to the six months ended June 28, 1996 to $1,995.7 million from
$1,814.4 million. The E & C Group was primarily responsible for the increase in
operating revenues, accounting for $202.5 million of this increase, of which
$46.3 million was related to the Spanish subsidiary, $56.4 million was due to
increases of the subsidiaries in the United States and $44.0 million was related
to the Italian subsidiary. The increase in the E & C Group's operating revenues
was partially offset by a decrease in the Energy Equipment Group of
approximately $23.3 million, primarily attributed to the operations of the North
American subsidiaries.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, declined slightly ($1.2 million) in the six months ended
June 27, 1997 as compared with the six months ended June 28, 1996 to $233.5
million from $234.7 million.
Selling, general and administrative expenses increased 3% in the six months
ended June 27, 1997 as compared with the same period in 1996, from $139.7
million to $144.0 million. Other income in the six months ended June 27, 1997 as
compared with June 28, 1996 increased to $23.5 million (which excludes the gain
on the sale of Glitsch International, Inc.'s assets of $56.4 million) from $17.6
million. Approximately 48% of other income in the six months ended June 27, 1997
was interest income, compared to 55% for the six months ended June 28, 1996.
Other deductions in the six months ended June 28, 1997, of $38.6 million, were
9% higher than that reported in the six months ended June 28, 1996 primarily due
to increased interest expense.
The effective tax rate of 38.9% exceeds the U.S. statutory rate primarily due to
state taxes and the impact of foreign source earnings.
Net earnings for the six months ended June 27, 1997 were $16.6 million or $.41
per share, which included the special charge stated above of $27.4 million after
tax ($.67 per share). Net earnings before the special charge decreased $4.5
million for the six months ended June 27, 1997 as compared to the same period in
1996 from $48.5 million to $44.0 million. The E&C Group reported a 10% increase
in net earnings, which was offset by the reported results of the other groups.
The Energy Equipment Group reported lower net earnings before special charges
primarily as a result of delays in release of recent contract awards in China.
Three months ended June 27, 1997 to three months ended June 28, 1996
New orders awarded for the three months ended June 27, 1997 of $1,446.7 million
were 17% higher than new orders awarded for the three months ended June 28, 1996
of $1,238.2 million. Approximately 76% of new orders in the three months ended
June 27, 1997 were for projects awarded to the Corporation's subsidiaries
located outside the United States.
-9-
<PAGE> 11
New orders awarded increased primarily due to the significant amount of new
orders awarded to the United Kingdom subsidiary of $719.4 million in the E & C
Group, and also new orders awarded to the Spanish subsidiary of $70.8 million in
the Energy Equipment Group.
Operating revenues increased in the three months ended June 27, 1997 by $60.1
million compared to the three months ended June 28, 1996 to $1,030.6 million
from $970.5 million. The E & C Group was primarily responsible for the increase
in operating revenues, accounting for 92% of this increase, or $55 million. Of
the increase in the E & C Group's operating revenues, $29.7 million was due to
the Spanish subsidiary and $18.2 million to the United Kingdom subsidiary. The
balance of the increase was primarily related to the Power Generation business.
Gross earnings increased $5.5 million to $122.9 million from $117.4 million or
5% in the three months ended June 27, 1997 as compared with the three months
ended June 28, 1996. The E & C Group was primarily responsible for the increase
in gross earnings.
Selling, general and administrative expenses increased 9% in the three months
ended June 27, 1997 as compared with the same period in 1996, from $67.1 million
to $73.1 million. Approximately 90% of the increase was due to the E & C Group,
primarily attributable to increased proposal costs.
The net loss for the three months ended June 27, 1997 was $3.6 million which
included an after tax special charge of $27.4 million. Net earnings before the
special charge decreased $1.3 million for the three months ended June 27, 1997,
as compared to the same period in 1996. The Energy Equipment Group was primarily
responsible for these reduced earnings.
FINANCIAL CONDITION
The Corporation's consolidated financial condition slightly declined during the
six months ended June 27, 1997 as compared to December 27, 1996. Stockholders'
equity for the six months ended June 27, 1997 decreased $22.9 million, primarily
due to the significant fluctuation in the accumulated translation adjustment
resulting from the strengthening U.S. dollar against European currencies.
During the six months ended June 27, 1997, the Corporation's long-term
investments in land, buildings and equipment were $70.3 million as compared with
$61.5 million for the comparable period in 1996. Approximately $45.1 million was
invested by the Power Systems Group in build, own and operate projects during
the first six 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 $65.2 million, exclusive of repayments of $67.9 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 $268.3 million at June 27, 1997, an increase
of $1.1 million from fiscal year end 1996; however, short-term investments
decreased by $55.1 million to $82.1 million. During the first six months of
fiscal 1997, the Corporation paid $16.9 million in dividends to stockholders and
repaid debt of $67.9 million. Cash used by operating activities amounted to
$86.1 million. New borrowings totaled $65.2 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 $45.1 million in the construction of cogeneration and
other industrial facilities. As stated above, cash of approximately $195.0
million was received from the sale of Glitsch International, Inc.'s assets in
the second quarter of 1997.
-10-
<PAGE> 12
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 22,000 of those claims were
dismissed by a Federal District Court, without prejudice and are subject to
being refiled. Approximately 23,900 new claims were filed in 1997 and
approximately 9,100 were either settled or dismissed without payment. As a
result, on June 27, 1997, there were approximately 85,400 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.
Management of the Corporation believes that cash and cash equivalents of $268.3
million and short-term investments of $82.1 million at June 27, 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 is currently
calculating the impact 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.
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.
-11-
<PAGE> 13
PART II. - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------- -------
<S> <C>
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.)
</TABLE>
b) Reports on Form 8-K
-------------------
None
-12-
<PAGE> 14
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: August 8, 1997 /S/ Richard J. Swift
--------------- --------------------
Richard J. Swift
Chairman, President and
Chief Executive Office
Date: August 8, 1997 /S/ David J. Roberts
---------------- ---------------------
David J. Roberts
Vice Chairman and
Chief Financial Officer
-13-
<PAGE> 15
EXHIBIT INDEX
--------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------- -------
<S> <C>
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.)
</TABLE>
<PAGE> 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
<TABLE>
<CAPTION>
6 months Fiscal Year
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
Earnings:
<S> <C> <C> <C> <C> <C> <C>
Net Earnings/(Loss) $ 16,951 $ 82,240 $ 28,534 $ 65,410 $ 57,704 $ (45,755)
Taxes on Income 13,298 44,626 41,129 41,457 39,114 22,321
Cumulative Effect of Change in
Accounting
Principle 91,259
Total Fixed Charges 43,047 74,002 60,920 45,412 43,371 46,365
Capitalized Interest (4,726) (6,362) (1,634) (467) (213) (1,739)
Capitalized Interest Amortized 1,092 2,528 2,273 2,189 2,180 2,111
Equity Earnings of non-consolidated
associated companies accounted for by
the equity method, net of dividends (689) (1,474) (1,578) (623) (883) 771
--------- --------- --------- --------- --------- ---------
$ 68,973 $ 195,560 $ 129,644 $ 153,378 $ 141,273 $ 115,333
Fixed Charges:
Interest Expense $ 28,578 $ 54,940 $ 49,011 $ 34,978 $ 33,558 $ 34,159
Capitalized Interest 4,726 6,362 1,634 467 213 1,739
Imputed Interest on non-capitalized
lease payments 9,743 12,700 10,275 9,967 9,600 10,467
--------- --------- --------- --------- --------- ---------
$ 43,047 $ 74,002 $ 60,920 $ 45,412 $ 43,371 $ 46,365
RATIO OF EARNINGS TO FIXED CHARGES 1.60 2.64 2.13 3.38 3.26 2.49
</TABLE>
*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.
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE 6 MONTHS
ENDED JUNE 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> JUN-27-1997
<CASH> 268,267
<SECURITIES> 82,108
<RECEIVABLES> 907,889
<ALLOWANCES> 0
<INVENTORY> 362,762
<CURRENT-ASSETS> 1,704,073
<PP&E> 1,026,508
<DEPRECIATION> 300,978
<TOTAL-ASSETS> 3,510,400
<CURRENT-LIABILITIES> 1,508,023
<BONDS> 791,759
0
0
<COMMON> 40,657
<OTHER-SE> 625,369
<TOTAL-LIABILITY-AND-EQUITY> 3,510,400
<SALES> 1,995,748
<TOTAL-REVENUES> 2,075,601
<CGS> 1,906,185
<TOTAL-COSTS> 1,906,185
<OTHER-EXPENSES> 98,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,578
<INCOME-PRETAX> 29,889
<INCOME-TAX> 13,298
<INCOME-CONTINUING> 16,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,591
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
