<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1998
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
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 the latest practicable date: 40,734,864 shares of the
Corporation's common stock ($1.00 par value) were outstanding as of March 27,
1998.
<PAGE> 2
FOSTER WHEELER CORPORATION
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at
March 27, 1998 and December 26, 1997
Condensed Consolidated Statement of Earnings and
Comprehensive Income
Three Months Ended March 27, 1998 and
March 28, 1997
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 27, 1998 and
March 28, 1997
Notes to Condensed Consolidated Financial
Statements
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition
Part II Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
- 1 -
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 27, 1998 December 26,
ASSETS (Unaudited) 1997
- ------ -------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 141,476 $ 167,417
Short-term investments 83,074 91,888
Accounts and notes receivable 779,760 799,375
Contracts in process and inventories 399,874 415,186
Prepaid and refundable income taxes 47,024 46,175
Prepaid expenses 25,767 25,230
----------- -----------
Total Current Assets 1,476,975 1,545,271
----------- -----------
Land, buildings and equipment 1,144,982 1,138,098
Less accumulated depreciation 322,148 313,646
----------- -----------
Net book value 822,834 824,452
----------- -----------
Notes and accounts receivable - long-term 87,833 86,353
Investments and advances 126,497 127,629
Intangible assets - net 296,213 298,217
Prepaid pension costs and benefits 178,962 187,200
Other, including insurance recoveries 287,454 275,582
Deferred income taxes 18,703 21,659
----------- -----------
Total Assets $ 3,295,471 $ 3,366,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments on long-term debt $ 34,331 $ 33,528
Bank loans 61,722 53,748
Accounts payable and accrued expenses 615,826 626,160
Estimated costs to complete long-term contracts 555,957 603,224
Advance payments by customers 98,910 98,865
Income taxes 27,221 21,527
----------- -----------
Total Current Liabilities 1,393,967 1,437,052
Special-purpose project debt 428,906 432,772
Other long-term debt 406,022 422,896
Postretirement and other employee benefits
other than pensions 166,583 169,212
Other long-term liabilities, deferred credits and
minority interest in subsidiary companies 245,408 250,853
Deferred income taxes 34,124 34,148
----------- -----------
Total Liabilities 2,675,010 2,746,933
----------- -----------
Stockholders' Equity:
Common stock 40,746 40,746
Paid-in capital 201,105 201,105
Retained earnings 435,585 426,761
Accumulated other comprehensive income (56,680) (48,887)
----------- -----------
620,756 619,725
Less cost of treasury stock (295) (295)
----------- -----------
Total Stockholders' Equity 620,461 619,430
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,295,471 $ 3,366,363
=========== ===========
</TABLE>
See notes to financial statements.
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<PAGE> 4
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 27, 1998 March 28, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Operating revenues $ 1,027,961 $ 965,114
Other income 9,793 13,365
------------ ------------
Total revenues 1,037,754 978,479
------------ ------------
Costs and expenses:
Cost of operating revenues 935,525 854,515
Selling, general and administrative expenses 56,414 70,917
Other deductions/minority interest 18,282 19,686
------------ ------------
Total costs and expenses 1,010,221 945,118
------------ ------------
Earnings before income taxes 27,533 33,361
Provision for income taxes: 10,147 13,140
------------ ------------
Net earnings 17,386 20,221
Other comprehensive income:
Foreign currency translation adjustment (7,793) (24,627)
------------ ------------
Comprehensive income/(loss) $ 9,593 $ (4,406)
============ ============
Earnings per share:
Basic $ .43 $ .50
============ ============
Diluted $ .43 $ .50
============ ============
Shares outstanding:
Basic:
Weighted average number
of shares outstanding 40,734,864 40,641,512
Diluted:
Effect of stock options 7,238 140,034
------------ ------------
Total Diluted 40,742,102 40,781,546
============ ============
Cash dividends paid per common share $ .21 $ .205
============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 5
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 27, 1998 March 28, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 17,386 $ 20,221
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation and amortization 14,709 15,707
Noncurrent deferred tax 2,844 (7,252)
Equity earnings, net of dividends (1,172) (350)
Other (1,848) (1,094)
Changes in assets and liabilities:
Receivables 11,204 (90,964)
Contracts in process and inventories 11,026 (751)
Accounts payable and accrued expenses (16,339) (43,103)
Estimated costs to complete long-term contracts (40,661) 58,894
Advance payments by customers 137 (18,186)
Income taxes 4,381 5,570
Other assets and liabilities (6,188) (15,203)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (4,521) (76,511)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (13,190) (33,314)
Proceeds from sale of properties 1,021 349
Increase in investments and advances (2,124) (4,201)
Decrease/(increase) in short-term investments 6,774 (32,479)
Partnership distributions (4,256) (4,800)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (11,775) (74,445)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (8,562) (8,328)
Proceeds from the exercise of stock options -- 53
Increase in short-term debt 9,493 7,736
Proceeds from long-term debt 153 110,952
Repayment of long-term debt (19,985) (2,543)
--------- ---------
NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES (18,901) 107,870
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 9,256 (13,201)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (25,941) (56,287)
Cash and cash equivalents at beginning of year 167,417 267,149
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 141,476 $ 210,862
========= =========
Cash paid during period:
Interest (net of amount capitalized) $ 2,376 $ 2,580
Income taxes $ 3,631 $ 2,268
</TABLE>
See notes to financial statements.
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<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 March 27, 1998, and the
related condensed consolidated statements of earnings and comprehensive
income and cash flows for the three month periods ended March 27, 1998
and March 28, 1997 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 26, 1997 filed with the Securities and Exchange
Commission March 19, 1998. The Condensed Consolidated Balance Sheet as
of December 26, 1997 has been derived from the audited Consolidated
Balance Sheet included in the 1997 Annual Report. A summary of the
Corporation's significant accounting policies is presented on pages 36
and 37 (not shown) of its 1997 Annual Report to Stockholders. Users of
financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report to Stockholders
when reviewing interim financial results. There has been no material
change in the accounting policies followed by the company during 1998,
except as described in Note 8 of these Condensed Consolidated Financial
Statements.
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 ordinary course of business, Foster Wheeler Corporation ("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.
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 1970's and prior. As
of March 27, 1998, there were approximately 66,800 claims pending. In
1998, approximately 6,500 new claims were filed and approximately 4,700
were either settled or dismissed without payment. 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 the
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.
- 5 -
<PAGE> 7
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and
regulations. The immediate effect was to eliminate the guaranteed
supply of municipal solid waste to the Camden County Waste-to-Energy
Project (the "Project") with its corresponding tipping fee revenue. As
a result, tipping fees have been reduced to market rate in order to
provide a steady supply of fuel to the plant. Those market-based
revenues are not expected to be sufficient to service the debt on
outstanding bonds which, were issued to construct the plant and to
acquire a landfill for Camden County's use. The Corporation has filed
suit against the involved parties, including the State of New Jersey,
seeking among other things, to void the applicable contracts and
agreements governing the Project. Pending outcome of the litigation and
the results of legislative initiatives in New Jersey to solve the
crisis, management believes that the plant will continue to operate at
full capacity while receiving market rates for waste disposal. At this
time, management cannot determine the ultimate outcome and its effect
on the Project.
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 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.
However, based on reasonable financial and economic assumptions, the
Corporation in 1997 recorded a charge of $60,000 sufficient to cover
the anticipated losses until the year 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 or other
alternatives are undertaken. This time period is subject to
considerable uncertainty.
The ultimate legal and financial liability of the Corporation in
respect to all claims, lawsuits and proceedings cannot be estimated
with certainty. As additional information concerning the estimates used
by the Corporation becomes known, the Corporation reassesses its
position both with respect to gain contingencies and accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change relate to legal matters, which
are subject to change as events evolve and as additional information
becomes available during the administration and litigation process.
3. 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
require the maintenance of a maximum Consolidated Leverage Ratio and a
minimum Consolidated Fixed Charges Coverage Ratio. As of March 27,
1998, the Corporation was in compliance with both of these provisions.
-6-
<PAGE> 8
4. A total of 2,561,718 shares were reserved for issuance under the stock
option plans; of this total 775,916 were not under option.
5. Foster Wheeler Corporation had a backlog of firm orders as of March 27,
1998 of $7,451,646 as compared to a backlog as of March 28, 1997 of
$7,139,495.
6. Basic per share data has been computed based on the weighted average
number of shares of common stock outstanding. Diluted per share data
has been computed on the basic plus the dilution of stock options.
7. Interest income and cost for the following periods are:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 27, 1998 March 28, 1997
-------------- --------------
<S> <C> <C>
Interest income $ 6,001 $ 5,386
======= =======
Interest cost $16,869 $15,364
======= =======
</TABLE>
Included in interest cost is interest capitalized on self-constructed
assets, which was $2,864 and $1,841 for the quarters ended March
27,1998 and March 28,1997, respectively.
8. In the first quarter of 1998, the Corporation adopted the provisions of
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," No. 130, "Reporting Comprehensive
Income," and No. 131, "Disclosure about Segments of an Enterprise and
Related Information." Where applicable, prior data has been restated to
conform to the 1998 presentation.
- 7 -
<PAGE> 9
9. Changes in equity for the three months ended March 27, 1998 were as follows:
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Paid-in Retained Comprehensive Treasury Stock Stockholders
Shares Amount Capital Earnings Loss Shares Amount Equity
----------- ---------- --------- ---------- ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 26, 1997 40,745,668 $ 40,746 $ 201,105 $ 426,761 $ (48,887) (10,804) $ (295) $ 619,430
Net Earnings 17,386 17,386
Dividends paid - common (8,562) (8,562)
Comprehensive loss (7,793) (7,793)
----------- --------- --------- --------- ---------- ------- ------- ---------
Balance March 27, 1998 40,745,668 $ 40,746 $ 201,105 $ 435,585 $ (56,680) (10,804) $ (295) $ 620,461
=========== ========= ========= ========= ========== ======= ======= =========
</TABLE>
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<PAGE> 10
10. Major Business Groups (In Millions of Dollars)
<TABLE>
<CAPTION>
FOR THREE MONTHS Engineering Corporate and
and Energy Power Financial
Total Construction Equipment Systems Service *
------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ended
March 27, 1998
Unfilled Orders $7,451.6 $5,677.6 $1,541.0 $ 275.1 $ (42.1)
New Orders Booked 1,448.9 1,259.7 140.1 60.4 (11.3)
Revenues 1,037.7 812.8 242.7 43.4 (61.2)
Interest Expense 14.0 2.0 2.1 5.5 4.4
Earnings Before Income Taxes 27.5 23.9 9.2 5.5 (11.1)
Provision for Income Taxes 10.1 8.4 3.4 2.2 (3.9)
-------- -------- -------- -------- --------
Net Earnings $ 17.4 $ 15.5 $ 5.8 $ 3.3 $ (7.2)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Engineering Corporate and
and Energy Power Financial
Total Construction Equipment Systems Service *
------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ended
March 28, 1997
Unfilled Orders $7,139.5 $5,120.5 $1,764.7 $ 383.9 $ (129.6)
New Orders Booked 1,220.7 851.9 351.8 39.4 (22.4)
Revenues 978.5 679.1 279.4 42.0 (22.0)
Interest Expense 13.5 0.6 3.2 5.7 4.0
Earnings Before Income Taxes 33.4 26.4 14.5 4.9 (12.4)
Provision for Income Taxes 13.2 10.2 5.0 2.2 (4.2)
-------- -------- -------- -------- --------
Net Earnings $ 20.2 $ 16.2 $ 9.5 $ 2.7 $ (8.2)
======== ======== ======== ======== ========
</TABLE>
*Includes intersegment eliminations
-9-
<PAGE> 11
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 1997 Annual Report on Form 10-K filed
March 19, 1998.
Results of Operations
Three months ended March 27, 1998 compared to three months ended March 28, 1997
The Corporation's consolidated backlog at March 27, 1998 totaled $7,451.6
million, the highest in the history of the Corporation. This represented an
increase of $312.1 million or 4% over the amount reported as of March 28, 1997.
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 which may not be performed. Backlog has been
adjusted to reflect project cancellations, deferrals, and revised project scope
and cost. The net reduction in backlog from project adjustments and
cancellations for the three months ended March 27, 1998 was $133.5 million,
compared with $17.4 million for the three months ended March 28, 1997. The
Corporation's future award prospects include several large-scale international
projects. The large size and uncertain timing of these projects can create
variability in the Corporation's contract awards, and therefore, future award
trends are difficult to predict.
The Engineering and Construction Group ("E & C Group") had a backlog of $5,677.6
million at March 27, 1998. This represented an increase of $557.1 million or
11% from March 28, 1997 due primarily to orders awarded to the United Kingdom
subsidiary. The Energy Equipment Group had backlog of $1,541.0 million at March
27, 1998, which represented a 13% decrease from backlog at March 28, 1997.
Approximately 50% of this decrease was due to the sale of the assets of Glitsch
International Inc.(Glitsch) at the end of the second quarter of 1997.
New orders awarded for the three months ended March 27, 1998 of $1,448.9 million
were 19% higher than new orders awarded for the three months ended March 28,
1997 of $1,220.7 million. Approximately 45% of new orders in the three months
ended March 27, 1998 were for projects awarded to the Corporation's subsidiaries
located outside the United States. Key geographic regions contributing to new
orders awarded for the three months ended March 27, 1998 were the United States,
Europe, and the Middle East.
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<PAGE> 12
Operating revenues increased in the three months ended March 27, 1998 by $62.9
million compared to the three months ended March 28, 1997 to $1,028.0 million
from $965.1 million. The E & C Group was primarily responsible for the increase
in operating revenues, accounting for $134.5 million of this increase.
Approximately $65.6 million was related to the affiliates in the United States
and $126.0 million to an increase in the United Kingdom, offset by a decrease in
the Italian affiliate. The increase in the E & C Group's operating revenues was
partially offset by a decrease in the Energy Equipment Group of approximately
$31.8 million, primarily attributable to the sale of Glitsch.
Gross earnings from operations, which are equal to operating revenues minus the
cost of operating revenues ("gross earnings"), declined $18.2 million to $92.4
million from $110.6 million, or 16% in the three months ended March 27, 1998, as
compared with the three months ended March 28, 1997. The decrease in gross
earnings can be attributed to the sale of Glitsch which amounted to $17.4
million in the first quarter of 1997.
Selling, general and administrative expenses decreased 20% in the three months
ended March 27, 1998 as compared with the same period in 1997, from $70.9
million to $56.4 million; of this decrease, $11.2 million can be attributed to
the sale of Glitsch. Other income in the three months ended March 27, 1998 as
compared with March 28, 1997 decreased to $9.8 million from $13.4 million.
Approximately 60% of other income in the three months ended March 27, 1998 was
interest income compared to 40% for the three months ended March 28, 1997. Also
included in other income for the period ended March 28, 1997 was approximately
$2.0 million related to Glitsch International. Other deductions for the periods
ended March 27, 1998 and March 28, 1997 was $18.0 million and $18.2 million,
respectively.
The effective tax rate for the three months ending March 27, 1998 was 36.9%,
which exceeds the U.S. statutory rate primarily due to state taxes and the
impact of foreign earnings.
Net earnings decreased by $2.8 million, or 14%, to $17.4 million for the three
months ended March 27, 1998 as compared to the same period in 1997. The E & C
Group reported decreased net earnings of $0.7 million. Net earnings for the
Energy Equipment Group decreased by $3.7 million, attributable to the sale of
Glitsch International which contributed $4.8 million of net earnings in the
first quarter of 1997.
Financial Condition
The Corporation's consolidated financial condition slightly improved during the
three months ended March 27, 1998 as compared to December 26, 1997.
Stockholders' equity for the three months ended March 27, 1998 increased by $1.0
million, due to earnings reduced by dividends and the accumulated translation
adjustment.
During the three months ended March 27, 1998, the Corporation's long-term
investments in land, buildings and equipment were $13.2 million as compared with
$33.3 million for the comparable period in 1997. Approximately $4.9 million was
invested by the Power Systems Group in build, own and operate projects during
the first three months of 1998. During the next few years, capital expenditures
will continue to be directed primarily toward strengthening and supporting the
Corporation's core businesses.
- 11 -
<PAGE> 13
Since December 26, 1997, long-term debt, including current installments, and
bank loans decreased by $10.4 million.
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 provided in the accounts.
Liquidity and Capital Resources
Cash and cash equivalents totaled $141.5 million at March 27, 1998, a decrease
of $25.9 million from fiscal year end 1997. Short-term investments decreased by
$8.8 million to $83.1 million. During the first three months of fiscal 1998, the
Corporation paid $8.6 million in dividends to stockholders. Cash used by
operating activities amounted to $4.5 million. The Power Systems Group invested
approximately $4.9 million in the construction of waste-to-energy, cogeneration
and hydrogen plants.
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 Group 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 1970's and prior. As of March 27, 1998, there were
approximately 66,800 claims pending. In 1998, approximately 6,500 new claims
were filed and approximately 4,700 were either settled or dismissed without
payment. 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 the 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.
- 12-
<PAGE> 14
Management of the Corporation believes that cash and cash equivalents of $141.5
million and short-term investments of $83.1 million at March 27, 1998, 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.
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.
-13-
<PAGE> 15
PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date of Meeting
The Annual Meeting of Stockholders of Foster Wheeler
Corporation was held on April 27, 1998, at the Hunterdon Hills
Playhouse, 88 Route 173 West, Hampton, New Jersey.
(b) Election of Directors
<TABLE>
<CAPTION>
Directors Elected For Withheld
----------------- --- --------
<S> <C> <C>
Eugene D. Atkinson 33,732,602 404,073
E. James Ferland 33,731,249 405,426
Joseph J. Melone 33,727,826 408,849
Richard J. Swift 33,725,319 411,356
</TABLE>
Other Directors continuing in office:
Louis E. Azzato Constance J. Horner
David J. Farris David J. Roberts
Martha Clark Goss John E. Stuart
(c) Additional Matters Voted Upon
Ratification of the selection of Coopers & Lybrand, L.L.P. as auditors
of the Corporation for 1998.
<TABLE>
<S> <C>
For 34,022,630
Against 43,338
Abstain 70,707
</TABLE>
-14-
<PAGE> 16
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
-15-
<PAGE> 17
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: May 8, 1998 /s/ Richard J. Swift
---------------------- ------------------------
Richard J. Swift
Chairman, President and
Chief Executive Officer
Date: May 8, 1998 /s/ David J. Roberts
----------------------- -------------------------
David J. Roberts
Vice Chairman and
Chief Financial Officer
- 16 -
<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>
Fiscal Year
3 months ------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net Earnings/(Loss) $ 17,386 $ (10,463) $ 82,240 $ 28,534 $ 65,410 $ 57,704
Taxes on Income 10,147 5,229 44,626 41,129 41,457 39,114
Total Fixed Charges 21,666 84,541 74,002 60,920 45,412 43,371
Capitalized Interest (2,864) (10,379) (6,362) (1,634) (467) (213)
Capitalized Interest Amortized 546 2,184 2,528 2,273 2,189 2,180
Equity Earnings of non-consolidated
associated companies accounted for
by the equity method, net of
Dividends (1,172) (9,796) (1,474) (1,578) (623) (883)
--------- --------- --------- --------- --------- ---------
$ 45,709 $ 61,316 $ 195,560 $ 129,644 $ 153,378 $ 141,273
Fixed Charges:
Interest Expense $ 14,005 $ 54,675 $ 54,940 $ 49,011 $ 34,978 $ 33,558
Capitalized Interest 2,864 10,379 6,362 1,634 467 213
Imputed Interest on non-capitalized
lease payments 4,797 19,487 12,700 10,275 9,967 9,600
--------- --------- --------- --------- --------- ---------
$ 21,666 $ 84,541 $ 74,002 $ 60,920 $ 45,412 $ 43,371
Ratio of Earnings to Fixed Charges 2.11 0.73 2.64 2.13 3.38 3.26
</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.
-17-
<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 MONTHS
ENDED MARCH 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<CASH> 141,476
<SECURITIES> 83,074
<RECEIVABLES> 779,760
<ALLOWANCES> 0
<INVENTORY> 399,874
<CURRENT-ASSETS> 1,476,975
<PP&E> 1,144,982
<DEPRECIATION> 322,148
<TOTAL-ASSETS> 3,295,471
<CURRENT-LIABILITIES> 1,393,967
<BONDS> 834,928
0
0
<COMMON> 40,746
<OTHER-SE> 579,715
<TOTAL-LIABILITY-AND-EQUITY> 3,295,471
<SALES> 1,027,961
<TOTAL-REVENUES> 1,037,754
<CGS> 991,939
<TOTAL-COSTS> 991,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,005
<INCOME-PRETAX> 27,533
<INCOME-TAX> 10,147
<INCOME-CONTINUING> 17,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,386
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
