-----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, EObEViAjuGH1lX5bzIOXeiUCyfeDH+6quxfAUc8vTDdbUytF/PGiNBQjWxfUF2XI d7rzhV4jjNeV8xi2iWc7JA== /in/edgar/work/0000909012-00-000701/0000909012-00-000701.txt : 20001114 0000909012-00-000701.hdr.sgml : 20001114 ACCESSION NUMBER: 0000909012-00-000701 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000929 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: [1600 ] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00286 FILM NUMBER: 760321 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK STREET 2: SERVICE ROAD EST 173 CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-Q 1 0001.txt QUARTERLY REPORT 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 SEPTEMBER 29, 2000 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, NJ 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: 40,738,243 shares of the Corporation's common stock ($1.00 par value) were outstanding as of September 29, 2000. FOSTER WHEELER CORPORATION INDEX Part I Financial Information: Item 1 - Financial Statements: Condensed Consolidated Balance Sheet at September 29, 2000 and December 31, 1999 Condensed Consolidated Statement of Earnings and Comprehensive Income for Three and Nine Months Ended September 29, 2000 and September 24, 1999 Condensed Consolidated Statement of Cash Flows Nine Months Ended September 29, 2000 and September 24, 1999 Notes to Condensed Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Part II Other Information: Item 1 - Legal Proceedings Item 6 - Exhibits and Reports on Form 8-K Signatures 1 PART I FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands of Dollars) September 29, 2000 December 31, (UNAUDITED) 1999 ------------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents .............................. $ 143,586 $ 170,268 Short-term investments ................................. 3,041 17,053 Accounts and notes receivable .......................... 867,769 918,898 Contracts in process and inventories ................... 441,828 420,033 Prepaid, deferred and refundable income taxes .......... 59,960 61,531 Prepaid expenses ....................................... 26,190 27,313 ----------- ----------- Total current assets .............................. 1,542,374 1,615,096 ----------- ----------- Land, buildings and equipment .......................... 979,294 1,006,016 Less accumulated depreciation .......................... 361,974 357,817 ----------- ----------- Net book value .................................... 617,320 648,199 ----------- ----------- Notes and accounts receivable - long-term .............. 87,568 95,526 Investments and advances ............................... 113,856 108,655 Intangible assets, net ................................. 289,643 301,494 Prepaid pension cost and benefits ...................... 194,923 199,955 Other, including insurance recoveries .................. 386,813 404,313 Deferred income taxes .................................. 69,760 64,871 ----------- ----------- TOTAL ASSETS ................................ $ 3,302,257 $ 3,438,109 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ................. $ 20,611 $ 19,668 Bank loans ............................................. 133,211 63,378 Accounts payable and accrued expenses .................. 664,640 681,596 Estimated costs to complete long-term contracts ........ 490,401 610,023 Advance payments by customers .......................... 41,326 42,801 Income taxes ........................................... 35,837 54,086 ----------- ----------- Total current liabilities ......................... 1,386,026 1,471,552 Corporate and other debt less current installments ..... 285,442 372,847 Special-purpose project debt less current installments . 368,896 329,907 Deferred income taxes .................................. 14,014 12,874 Postretirement and other employee benefits other than pensions .......................................... 161,075 163,536 Other long-term liabilities and minority interest ...... 435,784 424,815 Subordinated Robbins Facility exit funding obligations . 111,715 111,715 Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest Debentures .................... 175,000 175,000 ----------- ----------- TOTAL LIABILITIES ........................... 2,937,952 3,062,246 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock ........................................... 40,748 40,748 Paid-in capital ........................................ 200,963 201,043 Retained earnings ...................................... 231,364 211,529 Accumulated other comprehensive loss ................... (108,677) (77,219) ----------- ----------- 364,398 376,101 Less cost of treasury stock ............................ 93 238 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................. 364,305 375,863 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 3,302,257 $ 3,438,109 =========== =========== See notes to condensed consolidated financial statements.
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FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ---------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999(a,b) 2000 1999(a,b) -------------- --------------- -------------- -------------- Revenues: Operating revenues ................ $ 1,008,350 $ 940,062 $ 2,835,365 $ 2,793,790 Other income ...................... 13,206 16,132 45,230 54,145 ------------ ------------ ------------ ------------ Total revenues .................... 1,021,556 956,194 2,880,595 2,847,935 ------------ ------------ ------------ ------------ Costs and expenses: Cost of operating revenues ........ 926,574 877,476 2,591,255 2,579,000 Selling, general and adminis- trative expenses .............. 53,249 60,886 162,290 175,141 Other deductions/minority interest ...................... 24,123 43,515 75,314 79,691 Dividend on preferred security of subsidiary trust ........... 3,937 3,937 11,812 11,244 ------------ ------------ ------------ ------------ Total costs and expenses .......... 1,007,883 985,814 2,840,671 2,845,076 ------------ ------------ ------------ ------------ Earnings/(loss) before income taxes ... 13,673 (29,620) 39,924 2,859 Provisions/(benefit) for income taxes . 3,528 (6,710) 12,760 4,981 ------------ ------------ ------------ ------------ Net earnings/(loss) ................... 10,145 (22,910) 27,164 (2,122) Other comprehensive (loss)/income: Foreign currency translation adjustment .................... (17,095) 8,243 (31,458) (19,332) ------------ ------------ ------------ ------------ Comprehensive loss .................... $ (6,950) $ (14,667) $ (4,294) $ (21,454) ============ ============ ============ ============ Earnings/(loss) per share: Basic ............................. $ .25 $ (.56) $ .67 $ (.05) ============ ============ ============ ============ Diluted ........................... $ .25 $ (.56) $ .67 $ (.05) ============ ============ ============ ============ Shares outstanding: Basic ............................. 40,805,499 40,745,578 40,792,301 40,735,849 Diluted ........................... 9,504 * 6,769 * ------------ ------------ ------------ ------------ Total diluted ..................... 40,815,003 40,745,578 40,799,070 40,735,849 ============ ============ ============ ============ ............ Cash dividends paid per Common share ...................... $ .06 $ .06 $ .18 $ .48 ============ ============ ============ ============ See notes to condensed consolidated financial statements. (a) Includes in the three and nine months ended September 1999, a pre-tax loss for the Robbins Resource Recovery Facility of $13,200 and $30,600 ($8,600 and $19,900 after tax) respectively. (b) Includes in the three and nine months ended September 1999, a pre-tax charge of $37,600 ($27,600 after tax) for cost realignment. * The effect of the stock options was not included in the calculation of diluted earnings per share as these options were antidilutive due to the loss.
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FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars) (Unaudited) NINE MONTHS ENDED ----------------- SEPTEMBER 29, SEPTEMBER 24, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings/(loss) ......................................... $ 27,164 $ (2,122) Adjustment to reconcile net earnings to cash flows from operating activities: Depreciation and amortization ............................... 43,931 45,136 Deferred tax ................................................ (2,711) (1,698) Equity earnings, net of dividends ........................... (4,765) (7,099) Other ....................................................... (7,727) 5,659 Changes in assets and liabilities: Receivables ................................................. (2,670) (119,239) (41,016) Contracts in process and inventories ........................ (47,773) 19,989 Accounts payable and accrued expenses ....................... 15,858 (38,617) Estimated costs to complete long-term contracts ............. (77,048) 86,510 Advance payments by customers ............................... 794 (5,043) Income taxes ................................................ (17,209) (35,314) Other assets and liabilities ................................ 6,468 7,231 --------- --------- NET CASH USED BY OPERATING ACTIVITIES ....................... (65,688) (44,607) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ........................................ (39,120) (103,033) Proceeds from sale of properties ............................ 22,651 140,422 Decrease in investments and advances ........................ 28,745 26,009 Decrease in short-term investments .......................... 14,012 34,760 Partnership distributions ................................... (2,599) (4,385) --------- --------- NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES ............ 23,689 93,773 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividend to stockholders .................................... (17,329) (19,539) Repurchase of common stock .................................. (83) (860) Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holdings Solely Junior Subordinated Deferrable Interest Debentures ..................................... -- 169,178 Increase/(decrease) in short-term debt ...................... 75,371 (48,103) Proceeds from long-term debt ................................ 48,029 45,377 Repayment of long-term debt ................................. (95,353) (176,267) --------- --------- NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES ............ 20,635 (30,214) --------- --------- Effect of exchange rate changes on cash and cash equivalents (5,318) (13,536) --------- --------- DECREASE/(INCREASE) IN CASH AND CASH EQUIVALENTS ............ (26,682) 5,416 Cash and cash equivalents at beginning of year .............. 170,268 180,068 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 143,586 $ 185,484 ========= ========= Cash paid during period: Interest (net of amount capitalized) ........................ $ 44,673 $ 38,501 Income taxes ................................................ $ 24,692 $ 22,865 See notes to condensed consolidated financial statements.
4 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 29, 2000, and the related condensed consolidated statements of earnings and comprehensive income and cash flows for the three and nine month period ended September 29, 2000 and September 24, 1999 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 the requirements of 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 31, 1999 (1999 Form 10K) filed with the Securities and Exchange Commission on March 1, 2000. The Condensed Consolidated Balance Sheet as of December 31, 1999 has been derived from the audited Consolidated Balance Sheet included in the 1999 Form 10-K. A summary of Foster Wheeler Corporation's significant accounting policies is presented on pages 29, 30, and 31 in its 1999 Form 10-K. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the 1999 Form 10-K when reviewing interim financial results. There has been no material change in the accounting policies followed by Foster Wheeler Corporation (hereinafter referred to as "Foster Wheeler" or the "Corporation") during the first nine months of 2000. 2. The preparation of financial statements in conformity with generally accepted accounting principles requires management to 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 revenues and expenses during the period reported. Actual results could differ from those estimates. Significant estimates are used when accounting for long-term contracts including customer and vendor claims, depreciation, employee benefit plans, taxes, and contingencies, among others. As of September 29, 2000, costs of approximately $175,000 were included in assets, primarily in receivables and contracts in process, representing amounts expected to be realized from claims to customers. This compares to assets of $120,000 at December 31, 1999. These claims have been recognized in accordance with the AICPA's Statement of Position 81-1, "Accounting for Performance of Construction - Type and Certain Production-Type Contracts". This Statement requires that it be probable that the claim will result in additional contract revenue and the amount can be reliably estimated. Such claims are currently in various stages of negotiation, arbitration and other legal proceedings. Accordingly, it is possible that the amounts realized could differ materially from the balances included in the financial statements. Management believes that these matters will be resolved without a material effect on the Corporation's financial position or results of operations. 3. The Corporation has entered into two revolving credit agreements (the "Revolving Credit Agreements"). On February 12, 1999, the Corporation entered into a revolving credit agreement (the "Long Term Revolving Credit Agreement") in the amount of $270 million with a term of four years. The Long Term Revolving Credit Agreement bears interest at a floating rate. On December 1, 1999 the Long Term Revolving Credit Agreement was amended and restated. On May 31, 2000, the Corporation entered into a revolving credit agreement (the "Short Term Revolving Credit Agreement") in the amount of $76.25 million with a term of 364 days. The Short Term Revolving Credit Agreement bears interest at a floating rate. Loans under the Revolving Credit Agreements were used to repay loans under previous revolving credit agreements and for general corporate purposes. At September 29, 2000, $131 million was borrowed under the Revolving Credit Agreements. The Corporation pays various fees to the lenders under these agreements. 5 The Revolving Credit Agreements require, among other things, that the Corporation maintain a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. The Corporation was in compliance with covenants under the Revolving Credit Agreements as of September 29, 2000. On January 13, 1999, FW Preferred Capital Trust I, a Delaware business trust owned by the Corporation, issued $175,000 in Trust Preferred Securities. These Trust Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of 9.0%. Distributions are paid quarterly in arrears on April 15, July 15, October 15 and January 15 of each year. Such distributions may be deferred for periods up to five years. The maturity date is January 15, 2029. Foster Wheeler can redeem these Trust Preferred Securities on or after January 15, 2004. 4. In connection with the Robbins agreements referred to in Part II, Item 1 - Legal Proceedings, Foster Wheeler agreed to fund, on a subordinated basis, the following: (a) 1999C Bonds 7 1/4% interest, installments due October 15, 2000 to 2009 ($17,845) and October 15, 2023 and 2024 ($77,155) $ 95,000 (b) 1999D Bonds accrued at 7% due October 15, 2009 18,000 --------- Total $113,000 ======== 1999C BONDS. The 1999C Bonds are subject to mandatory sinking fund. 5. A total of 4,331,801 shares of common stock were reserved for issuance under various stock option plans; of this total, 1,188,680 were not under option. 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 based on the basic plus the dilution of stock options. In 1999, the Corporation adopted The Directors Deferred Compensation and Stock Award Plan (the "Plan"). Under the Plan, each non-employee director is credited annually with share units of the Corporation's common stock. In addition, each non-employee director may elect to defer receipt of compensation for services rendered as a director, which deferred amount is credited to his or her account in the form of share units. The Corporation makes a supplemental contribution equal to 15% of the deferred amount. As of September 29, 2000, 71,633 share units were credited in participants' accounts and are included in the calculation of basic earnings per share. 7. Interest income and cost for the following periods are: THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999 2000 1999 -------------- ------------- ------------ -------------- Interest Income $ 3,811 $ 2,413 $ 9,586 $ 7,804 ======= ======= ======= ======= Interest Cost $22,103 $19,022 $64,007 $55,868 ======= ======= ======= ======= Included in the interest cost is interest capitalized on self-constructed assets, for the three and nine months ended September 29, 2000 of $1,511 and $4,494, respectively, compared to the $1,106 and $3,167 for the same periods in 1999. Included in interest cost is dividends on Trust Preferred Securities which for the three and nine months ended September 29, 2000 amounted to $3,937 and $11,812, compared to $3,937 and $11,244 for the comparable period in 1999, respectively. 6 8. The Financial Accounting Standards Board released in June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", and in June, 2000 SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133". These Statements address the accounting for derivative instruments including certain derivative instruments embedded in other contracts and for hedging activities. The Corporation does not anticipate that the adoption of the new statements will have a significant impact on the results of operations or the financial position of the Corporation. However, the Corporation is still evaluating the potential impact. The effective date of SFAS No. 133 has been deferred by the issuance of SFAS No. 137 until the fiscal year beginning after June 15, 2000. The Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No.101 Revenue Recognition in Financial Statements, on December 3, 1999. The effective date of SAB No.101 was deferred by SAB No. 101B until the fourth quarter of 2000. These statements relate to the timing of revenue recognition and are not expected to have an impact on the recording of revenue by the Corporation. The Financial Accounting Standards Board released in March 2000, FASB interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, and Interpretation of APB Opinion No. 25". This interpretation relates to the application and diversity in practice of accounting for stock issued to employees. The Corporation does not anticipate an impact from the application of this interpretation. The Financial Accounting Standards Board released in September 2000, Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement revises the standard for accounting for securitizations and other transfers of financial assets and collateral. The new accounting requirements are effective for transfers occurring after March 31, 2001. However, the extended disclosures about securitizations and collateral are effective for fiscal years ending after December 15, 2000. The Corporation is currently assessing the impact of the adoption of this new statement. 9. In the third quarter 1998, a subsidiary of the Corporation entered into a three-year agreement with a financial institution whereby the subsidiary would sell an undivided interest in a designated pool of qualified accounts receivable. The agreement contains certain covenants and provides for various events of termination. At September 29, 2000, $50,000 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable - trade balance in the Condensed Consolidated Balance Sheet. 7 10. Changes in equity for the nine months ended September 29, 2000 were as follows:
ACCUMULATED OTHER COMMON STOCK PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS LOSS ------ ------ ------- -------- ---- Balance December 31, 1999 40,747,668 $ 40,748 $ 201,043 $ 211,529 $ (77,219) Net earnings 27,164 Dividends paid - common (7,329) Purchase of treasury stock Foreign currency translation adjustment (31,458) Shares issued under incentive plan and other plans (80) ----------- ----------- ----------- ----------- ----------- Balance September 29, 2000 40,747,668 $ 40,748 $ 200,963 $ 231,364 $ (108,677) =========== =========== =========== =========== =========== TOTAL TREASURY STOCK STOCKHOLDERS' SHARES AMOUNT EQUITY ------ ------- -------------- Balance December 31, 1999 (16,781) $ (238) $ 375,863 Net earnings 27,164 Dividends paid - common (7,329) Purchase of treasury stock (13,200) (83) (83) Foreign currency translation adjustment (31,458) Shares issued under incentive plan and other plans 20,556 228 148 ----------- ----------- ----------- Balance September 29, 2000 (9,425) $ (93) $ 364,305 =========== =========== ===========
8 11. Major Business Groups
FOR NINE MONTHS - --------------- ENGINEERING CORPORATE AND AND ENERGY FINANCIAL ENDED TOTAL CONSTRUCTION EQUIPMENT(3)(4) SERVICES(1) - ----- ----- ------------ --------------- ----------- SEPTEMBER 29, 2000 - ------------------ Revenues $ 2,880,595 $ 2,201,450 $ 759,969 $ (80,824) Interest expense (2) 59,513 4,550 25,710 29,253 Earnings/(loss) before income taxes 39,924 63,450 31,076 (54,602) Income taxes/(benefit) 12,760 20,718 12,349 (20,307) ----------- ----------- ----------- ----------- Net earnings/(loss) $ 27,164 $ 42,732 $ 18,727 $ (34,296) =========== =========== =========== =========== ENDED SEPTEMBER 24, 1999 Revenues $ 2,847,935 $ 2,167,453 $ 745,258 $ (64,776) Interest expense (2) 52,700 4,815 34,435 13,450 Earnings/(loss) before income taxes 2,859 60,645 257 (58,043) Income taxes/(benefit) 4,981 23,367 235 (18,621) ----------- ----------- ----------- ----------- Net earnings/(loss) (5) $ (2,122) $ 37,278 $ 22 $ (39,422) =========== =========== =========== =========== (1) Includes intersegment eliminations. (2) Includes dividend on Trust Preferred Securities. (3) Includes losses recorded for the Robbins Resource Recovery Facility in 1999 of $30,600 pre-tax ($19,900 after tax). (4) Commencing on January 1, 2000, the Power Systems Group has been combined with the Energy Equipment Group. The 1999 results have been reclassified to conform to the 2000 presentation. (5) Includes in 1999 cost realignment charges of $37,600 pre-tax ($27,600 after tax), the pre-tax charge per group is: Engineering and Construction $19,600, Energy Equipment $2,500, and Corporate and Financial Services $15,500.
9 12. Consolidating Financial Information The following represents summarized consolidating financial information as of September 29, 2000 and December 31, 1999, with respect to the financial position, and for the nine months ended September 29, 2000, and September 24, 1999, for results of operations and cash flows of the Corporation and its wholly-owned and majority-owned subsidiaries. In February 1999, Foster Wheeler USA Corporation, Foster Wheeler Energy Corporation and Foster Wheeler Energy International, Inc. issued guarantees in favor of the holders of the Corporation's 6 3/4% Notes due November 15, 2005 (the "Notes"). Each of the guarantees is full and unconditional, and joint and several. The summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of the wholly-owned subsidiary guarantors, as management does not believe that such separate financial statements and related disclosures would be material to investors. None of the subsidiary guarantors are restricted from making distributions to the Corporation.
CONDENSED CONSOLIDATING BALANCE SHEET (In Thousands of Dollars) September 29, 2000 FOSTER ASSETS WHEELER GUARANTOR NON-GUARANTOR ------ CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Current assets ................................ $ 325,163 $ 478,280 $ 1,432,123 $ (693,192) $ 1,542,374 Investment in subsidiaries .................... 890,646 310,528 112,885 (1,314,059) Land, buildings & equipment (net) ............. 46,048 27,627 549,868 (6,223) 617,320 Notes and accounts receivable - long-term ..... 48,060 6,750 348,870 (316,112) 87,568 Intangible assets (net) ....................... 86,595 203,048 289,643 Other non-current assets ...................... 512,339 34 227,995 24,984 765,352 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS .................................. $ 1,822,256 $ 909,814 $ 2,874,789 $(2,304,602) $ 3,302,257 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- Current liabilities ........................... $ 430,061 $ 433,250 $ 1,215,907 $ (693,192) $ 1,386,026 Long-term debt ................................ 464,190 511,650 (321,502) 654,338 Other non-current liabilities ................. 563,700 8,256 263,563 (112,931) 722,588 Preferred trust securities .................... 175,000 175,000 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES ............................. 1,457,951 441,506 2,166,120 (1,127,625) 2,937,952 TOTAL STOCKHOLDERS' EQUITY .................................... 364,305 468,308 708,669 (1,176,977) 364,305 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 1,822,256 $ 909,814 $ 2,874,789 $(2,304,602) $ 3,302,257 =========== =========== =========== =========== ===========
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CONDENSED CONSOLIDATING BALANCE SHEET (In Thousands of Dollars) December 31,1999 FOSTER WHEELER GUARANTOR NON-GUARANTOR ASSETS CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ----------- ------------ ------------ ------------ ------------ Current assets ............................ $ 391,364 $ 419,956 $ 1,558,601 $ (754,825) $ 1,615,096 Investment in subsidiaries ................ 915,470 303,241 90,327 (1,309,038) Land, buildings & equipment (net) ......... 47,461 27,709 579,555 (6,526) 648,199 Notes and accounts receivable - long-term . 68,691 8,395 385,515 (367,075) 95,526 Intangible assets (net) ................... 88,450 213,044 301,494 Other non-current assets .................. 544,224 20 188,796 44,754 777,794 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS .............................. $ 1,967,210 $ 847,771 $ 3,015,838 $(2,392,710) $ 3,438,109 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities ....................... $ 469,832 $ 392,751 $ 1,365,793 $ (756,824) $ 1,471,552 Long-term debt ............................ 558,251 513,057 (368,554) 702,754 Other non-current liabilities ............. 563,264 8,256 253,058 (111,638) 712,940 Preferred trust securities ................ 175,000 175,000 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES ......................... 1,591,347 401,007 2,306,908 (1,237,016) 3,062,246 TOTAL STOCKHOLDERS' EQUITY .................................. 375,863 446,764 708,930 (1,155,694) 375,863 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 1,967,210 $ 847,771 $ 3,015,838 $(2,392,710) $ 3,438,109 =========== =========== =========== =========== ===========
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CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA (In Thousands of Dollars) Nine Months Ended September 29, 2000 FOSTER WHEELER GUARANTOR NON-GUARANTOR CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Revenues .............................. $ 16,239 $ 910,017 $ 2,268,217 $ (313,878) $ 2,880,595 Cost of operating revenues ............ 853,107 2,013,236 (275,088) 2,591,255 Selling, general and administrative, other deductions and minority interests ........................... 71,534 39,824 176,848 (38,790) 249,416 Equity in net earnings of subsidiaries 62,879 7,600 (70,479) ----------- ----------- ----------- ----------- ----------- Earnings/ (loss) before income taxes .. 7,584 24,686 78,133 (70,479) 39,924 (Benefit)/provision for income taxes .. (19,580) 7,000 25,340 12,760 ----------- ----------- ----------- ----------- ----------- Net earnings/(loss) ................... $ 27,164 $ 17,686 $ 52,793 $ (70,479) $ 27,164 =========== =========== =========== =========== =========== CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA (In Thousands of Dollars) Nine Months Ended September 24, 1999 FOSTER WHEELER GUARANTOR NON-GUARANTOR CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Revenues .............................. $ 58,140 $ 526,876 $ 2,543,953 $ (281,034) $ 2,847,935 Cost of operating revenues ............ 495,989 2,316,837 (233,826) 2,579,000 Selling, general and administrative, other deductions and minority interests ........................... 79,612 36,872 196,800 (47,208) 266,076 Equity in net earnings of subsidiaries 1,896 12,341 (14,237) ----------- ----------- ----------- ----------- ------------ (Loss)/earnings before income taxes ... (19,576) 6,356 30,316 (14,237) 2,859 (Benefit)/provision for income taxes .. (17,454) (2,647) 25,082 4,981 ----------- ----------- ----------- ----------- ----------- Net (loss)/earnings ................... $ (2,122) $ 9,003 $ 5,234 $ (14,237) $ (2,122) =========== =========== =========== =========== ===========
12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA (In Thousands of Dollars) Nine Months Ended September 29, 2000 FOSTER WHEELER GUARANTOR NON-GUARANTOR ELIMIN- CORPORATION SUBSIDIARIES SUBSIDIARIES ATIONS CONSOLIDATED ----------- ------------ ------------ ------ ------------ NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES ............... $ 1,696 $ 29,157 $ (15,334) $ (81,207) $ (65,688) --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures .................. (5,276) (33,844) (39,120) Proceeds from sale of properties ...... 22,651 22,651 (Increase)/decrease in investment and advances .............................. (20,579) (27,448) 76,772 28,745 Decrease in short-term investments ........................ 70 13,942 14,012 Other ................................. 1,446 (4,045) (2,599) --------- --------- --------- --------- --------- NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES ............... (20,509) (3,830) (28,744) 76,772 23,689 --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to Stockholders ............. (7,329) (103,245) 103,245 (7,329) Increase in short-term debt ........... 76,250 (879) 75,371 Proceeds from long-term debt .......... 48,029 48,029 Repayment of long-term debt ........... (85,000) (10,353) (95,353) Other ................................. 20,893 (27,865) 105,699 (98,810) (83) --------- --------- --------- --------- --------- NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES ............... 4,814 (27,865) 39,251 4,435 20,635 --------- --------- --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ............. (5,318) (5,318) Decrease in cash and cash equivalents ........................ (13,999) (2,538) (10,145) (26,682) Cash and cash equivalents, beginning of period ............................. 16,262 3,080 150,926 170,268 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period ............................. $ 2,263 $ 542 $ 140,781 $ -- $ 143,586 ========= ========= ========= ========= =========
13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA (In Thousands of Dollars) Nine Months Ended September 24,1999 FOSTER WHEELER GUARANTOR NON-GUARANTOR ELIMIN- CORPORATION SUBSIDIARIES SUBSIDIARIES ATIONS CONSOLIDATED ----------- ------------- ------------- ------ ------------ NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES ............... $ (26,862) $ 25,812 $ (53,190) $ 9,633 $ (44,607) --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures .................. (4,738) (98,295) (103,033) Proceeds from sale of properties ...... 140,422 140,422 Decrease in investment and advances ... 10,462 15,184 363 26,009 Decrease in short-term investments .... 34,760 34,760 Other ................................. 500 (4,885) (4,385) --------- --------- --------- --------- --------- NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES ............... 10,462 (4,238) 87,186 363 93,773 --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to Stockholders ............. (19,539) (19,539) Issuance of trust preferred securities 169,178 169,178 Increase/(decrease) in short-term debt (20,000) (28,103) (48,103) Proceeds from long-term debt .......... 45,377 45,377 Repayment of long-term debt ........... (168,000) (8,267) (176,267) Other ................................. 220,455 (24,710) (186,609) (9,996) (860) --------- --------- --------- --------- --------- NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES ............... 12,916 (24,710) (8,424) (9,996) (30,214) --------- --------- --------- --------- --------- Effect of exchange rate changes on Cash and cash equivalents .......... (13,536) (13,536) Decrease in cash and cash equivalents . (3,484) (3,136) 12,036 5,416 Cash and cash equivalents, beginning of period ................................ 13,720 6,552 159,796 180,068 --------- --------- --------- --------- --------- Cash and cash equivalents, end of Period ............................. $ 10,236 $ 3,416 $ 171,832 $ -- $ 185,484 ========= ========= ========= ========= =========
14 13. The Corporation owns a non-controlling equity interest in three cogeneration projects; two of which are located in Italy and one in Chile. In addition, the Corporation owns an equity interest in a hydrogen producing plant in Venezuela. Following is summarized financial information for the Corporation's equity affiliates combined, as well as the Corporation's interest in the affiliates. SEPTEMBER 29, DECEMBER 31, 2000 1999 ------------- -------------- BALANCE SHEET DATA: Current assets .................................$108,482 $104,084 Other assets (primarily buildings and equipment) ............................ 473,952 506,620 Current liabilities ............................ 46,562 48,562 Other liabilities (primarily long- term debt) ................................ 373,535 410,199 Net assets ..................................... 162,337 151,943 INCOME STATEMENT DATA FOR NINE SEPTEMBER 29, DECEMBER 31, MONTHS ENDED: 2000 1999 ------------- -------------- Total revenues .................................$148,191 $ 84,016 Income before income taxes ..................... 33,784 18,184 Net earnings ................................... 22,304 19,174 As of September 29, 2000, the Corporation's share of the net earnings and investment in the equity affiliates totaled $13,603 and $113,855, respectively. This compares to $10,349 and $108,223 in 1999. Dividends of $8,838 were received during the first nine months of 2000. The Corporation has guaranteed certain performance obligations of such projects. The Corporation's obligations under such guarantees are approximately $1,500 per year for the three projects. The Corporation has provided a $10,000 debt service reserve letter of credit providing liquidity for debt service payments on one of these projects. No amount has been drawn under the letter of credit. 14. The Corporation's continuing business strategy is to maintain focus on its core business segments in Engineering and Construction Group and the Energy Equipment Group. In order to remain competitive in these segments and improve margins, in 1999 the Corporation reduced costs through staff reductions and closure of some smaller operating facilities. These changes included the reduction of approximately 1,600 permanent positions, including 500 overhead and other support positions from its worldwide workforce of 11,000. In addition, approximately 800 agency personnel within the Engineering & Construction Group were reduced. The positions eliminated included engineering, clerical, support staff and manufacturing personnel. In connection with this cost realignment plan, the Corporation recorded charges in the third quarter 1999 of approximately $37,600 ($27,600 after-tax). The pre-tax charge by group was as follows: $19,600 for Engineering and Construction, $2,500 for Energy Equipment and $15,500 for Corporate and Financial Services. Approximately $22,600 represents employee severance costs and related benefits and the balance represents asset write-downs and provisions for closing some offices. The cost realignment plan resulted in substantial cost savings and was completed in the second quarter of 2000. 15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 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 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2000. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 29, 2000 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 24, 1999 CONSOLIDATED DATA THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999 2000 1999 ------------ ------------ -------------- ------------- Backlog $ 6,193.7 $ 6,590.9 $ 6,193.7 $ 6,590.9 ========== ========== ========== ========== New orders $ 1,049.3 $ 710.1 $ 3,480.2 $ 2,680.0 ========== ========== ========== ========== Revenues $ 1,021.6 $ 956.2 $ 2,880.6 $ 2,847.9 ========== ========== ========== ========== Net earnings/(loss) $ 10.1 $ (22.9) $ 27.2 $ (2.1) ========== ========== ========== ========== The Corporation's obligations under the Robbins Agreements and the 1999 Cost Realignment Plan significantly affected its results of operations for the three and nine months ended September 24, 1999. The table below shows the Corporation's results if the impact of losses related to the Robbins Facility and the cost realignment plan were excluded. THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ------------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999 2000 1999 ------------ ------------ ------------- ------------- EARNINGS/(LOSS) BEFORE INCOME TAXES AS REPORTED $ 13.6 $ (29.6) $ 39.9 $ 2.9 ----- Adjustment for: Robbins -- 13.2 -- 30.6 Cost realignment plan -- 37.6 -- 37.6 ------- ------- ------- ------- As adjusted $ 13.6 $ 21.2 $ 39.9 $ 71.1 ======= ======= ======= ======= NET EARNINGS/(LOSS) AS REPORTED $ 10.1 $ (22.9) $ 27.2 $ (2.1) Adjustment for: Robbins -- 8.6 -- 19.9 Cost realignment plan -- 27.6 -- 27.6 ------- ------- ------- ------- As adjusted $ 10.1 $ 13.3 $ 27.2 $ 45.4 ======= ======= ======= ======= 16 The Corporation's consolidated backlog at September 29, 2000 totaled $6,193.7, which represented a decrease of 6% from the amount reported as of September 24, 1999, but an increase of 2% from the amount reported as of December 31, 1999. The dollar amount of backlog does not necessarily indicate the amount the Corporation will earn for performing the backlog. Management has determined which agreed letters of intent are likely to be performed and indicated those amounts along with signed contracts in the calculation of the Corporation's backlog. 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 to be performed. The Corporation adjusts its backlog to reflect project cancellations, deferrals, sale of subsidiaries and revised project scope and cost. This adjustment for the nine months ended September 29, 2000 was $145.8, compared with $555.8 for the nine months ended September 24, 1999. New orders awarded for the three and nine months ended September 29, 2000 were $1,049.3 and $3,480.2 compared to $710.1 and $2,680.0 for the same periods ended September 24, 1999. Approximately 65% of new orders booked in the nine months ended September 29, 2000 were for projects awarded to the Corporation's subsidiaries located outside the United States. Key countries and geographic areas contributing to new orders awarded for the nine months ended September 29, 2000 were the United States, Europe and Singapore. Operating revenues increased 7% in the three months ended September 29, 2000 compared to the three months ended September 24, 1999 to $1,008.4 from $940.1. The most recent nine-month period reflects a slight increase in operating revenues of $41.6 from $2,793.8 in 1999 to $2,835.4. The Engineering and Construction Group increased for the nine months of 2000 compared to the same period for 1999 by $40.0. The third quarter of 2000 compared to the same period for 1999 increased $82.0. The Energy Equipment Group increased for the nine months of 2000 compared to 1999 by $23.5, but decreased for the three month period by $2.2. Gross earnings, which are equal to operating revenues minus the cost of operating revenues, increased by $29.3 in the nine months ended September 29, 2000 as compared with the nine months ended September 24, 1999 to $244.1 from $214.8. Selling, general and administrative expenses decreased by 7.3% in the nine months ended September 29, 2000 as compared with the same period in 1999, from $175.1 to $162.3. Other income in the nine months ended September 29, 2000 as compared with September 24, 1999 decreased to $45.2 from $54.1. Approximately $3.3 of this decrease can be attributed to equity earnings of unconsolidated affiliates. Other income in the three months ended September 29, 2000 as compared with the same period in 1999 decreased from $16.1 to $13.2. Other deductions for the nine months ended September 29, 2000 were $4.4 lower than that reported in the nine months ended September 24, 1999. The decrease in other deductions can be attributed to that portion of the 1999 Cost Realignment charged to other deductions of $15.0 offset by higher interest expense of $6.8 and a provision of $6.0 due to a decision by a French court during the second quarter of 2000 on a legal matter regarding a former French subsidiary for which Foster Wheeler indemnified the purchaser. Net earnings for the nine months ended September 29, 2000 were $27.2 or $.67 per share diluted compared to a net loss of $(2.1) or $(.05) diluted per share for the nine months ended September 24, 1999. 17 ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Backlog $ 4,600.3 $ 5,191.4 $ 4,600.3 $ 5,191.4 ========== ========== ========== ========== New orders $ 741.9 $ 559.4 $ 2.401.1 $ 2,050.1 ========== ========== ========== ========== Operating revenues $ 785.7 $ 703.7 $ 2,177.1 $ 2,137.0 ========== ========== ========== ========== Gross earnings from operations $ 47.0 $ 55.2 $ 143.2 $ 155.3 ========== ========== ========== ==========
The Engineering and Construction Group ("E&C Group"), had a backlog of $4,600.3 at September 29, 2000, which represented a decrease of $591.1 from September 24, 1999, and a decrease of $141.2 from December 31, 1999. However, the change from year end has been negatively impacted by $250.0 because of the strengthening of the US dollar which offset the $108.8 increase for the nine-month period. New orders booked for the nine-month period ended September 29, 2000 increased by 17% compared with the period ended September 24, 1999 primarily because of growth in the pharmaceutical industry. Operating revenues for the nine-month period ended September 29, 2000 increased 2% compared to the nine-month period ended September 24, 1999. Gross earnings from operations decreased by 7.8% for the nine-month period ended September 29, 2000, compared with the corresponding period ended September 24, 1999. The gross earnings for the nine-month period were lower primarily due to the decrease reported by its UK subsidiary, which was partially offset by an increase in its U.S. and Continental European subsidiaries. ENERGY EQUIPMENT GROUP
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Backlog $ 1,660.6 $ 1,583.0 $ 1,660.6 $ 1,583.0 ========== ========== ========== ========== New orders $ 314.5 $ 159.0 $ 1,091.5 $ 815.4 ========== ========== ========== ========== Operating revenues $ 266.1 $ 268.3 $ 735.2 $ 711.7 ========== ========== ========== ========== Gross earnings from operations $ 34.4 $ 24.3 $ 99.5 $ 75.2 ========== ========== ========== ==========
On January 1, 2000, the Corporation's Power Systems Group was combined with the Energy Equipment Group. The above table has been adjusted to show information as if this combination had occurred on January 1, 1999. The Energy Equipment Group had a backlog of $1,660.6 at September 29, 2000, which represented a 5% increase from September 24, 1999, and a 15% increase from December 31, 1999. This increase has been negatively impacted by $106.0 because of the strengthening of the US Dollar. New orders booked for the nine-month period ended September 29, 2000 increased by 34% from the corresponding period in 1999, which reflects a demand for Heating Recovery Steam Generators (HRSG) and Selective Catalytic Reduction (SCR) units as well as its Circulating Fluidized Bed (CFB) boilers. Operating revenues for the nine-month period ended September 29, 2000 increased by 3%. Gross earnings from operations increased by $24.3 for the nine-month period ended September 29, 2000 compared with the same period ended September 24, 1999. 18 FINANCIAL CONDITION Stockholders' equity for the nine-months ended September 29, 2000 decreased by $11.6. This decrease was due primarily to changes in the foreign currency translation adjustment of $31.5 and dividends paid of $7.3. These factors were partially offset by earnings of $27.2. During the nine months ended September 29, 2000, additions to land, buildings and equipment were $39.1 as compared with $103.0 for the comparable period in 1999. Approximately $19.3 was invested in a waste-to-energy project in Italy during the first nine months of 2000. Since December 31, 1999, long-term debt, including current installments and bank loans, increased by $28.0. In the third quarter 1998, a subsidiary of the Corporation entered into a three-year agreement with a financial institution whereby the subsidiary would sell an undivided interest in a designated pool of qualified accounts receivable. The agreement contains certain covenants and provides for various events of termination. At September 29, 2000, $50.0 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable - trade balance in the Consolidated Balance Sheet. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $143.6 at September 29, 2000, a decrease of $26.7 from fiscal year end 1999. Short-term investments decreased by $14.0 to $3.0. During the first nine months of fiscal 2000, the Corporation paid $7.3 in dividends to stockholders. Operating activities used $65.7 of cash. Management of the Corporation believes that cash and cash equivalents of $143.6 and short-term investments of $3.0 at September 29, 2000, when combined with amounts available under its Revolving Credit Agreements and access to third-party financing in the capital markets will be adequate to meet its working capital and liquidity needs for the foreseeable future. During the second quarter of 1998, the Corporation filed a Registration Statement on Form S-3 relating to $300.0 of debt, equity, and other securities, $175.0 of which has been issued as of September 29, 2000. The Corporation's liquidity has been negatively impacted by a number of claims relating to projects that have been affected by substantial scope of work changes and other adverse factors. These claims, which have accumulated over a period of time, aggregate to approximately $175,000 at September 29, 2000. While the future collections of these claims will increase cash inflows, the timing of collection of such claims is subject to uncertainty of recoverability as described in note 2 to the financial statements. In the third quarter, a transaction was completed relating to the Petropower project in Chile, which was essentially a monetization of the projected future cash flows of the project. The transaction resulted in an increase of approximately $40.0 of limited recourse debt and a corresponding decrease of corporate debt. The Corporation is reviewing various methods to monetize selected build, own and operate assets and will be concentrating on reducing both corporate and project debt and improving cash flow. OTHER MATTERS 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 processes. 19 YEAR 2000 PLAN The failure to correct a Year 2000 Problem could have resulted in an interruption in, or a failure of, certain normal activities or operations. Such failures were not expected to have a material adverse effect on the Corporation's results of operations and financial condition and no such effect has been experienced thus far. However, it is possible that interruptions might occur later in the year 2000, so the Corporation has kept its Business Continuation Plan in effect. Furthermore, although no claims have been asserted against the Corporation or its subsidiaries, it is possible that claims may yet be asserted. Therefore, the Corporation will continue to follow its liability management strategy until it concludes that any potential exposure from the year 2000 problem is minimal. SAFE HARBOR STATEMENT This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this 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: - -- 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. For additional information about the Corporation, see the Corporation's reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission from time to time. 20 PART II OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS 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 surrounding such claims and of its insurance coverage for such claims, if any, 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 for 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 September 29, 2000, there were approximately 91,800 claims pending. During 2000, approximately 34,900 new claims have been filed and approximately 16,700 were either settled or dismissed without payment. The Corporation has agreements with insurance carriers covering significantly more than a majority of the potential costs relating to these exposures. The Corporation has recorded 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. On November 30, 1999, the United States District Court for the Northern District of Texas handed down a final judgment in the case of KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC., ET AL. Glitsch, Inc. (now known as Tray, Inc.) is an indirect subsidiary of the Corporation. This lawsuit, which claimed damages for patent infringement and trade secret misappropriations, has been pending for over 17 years. The judgment awarded compensatory damages of $20.8 million plus prejudgment interest in an amount yet to be calculated by the Court and punitive damages equal to 50% of compensatory damages. Tray, Inc. has been advised by its counsel that the Court's decision contains numerous legal and factual errors subject to reversal by an appeal. Various motions for relief from the judgment are pending before the trial court. 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 Project. As a result, tipping fees at the Camden Project 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 outstanding bonds, which were issued to construct the plant and to acquire a landfill for Camden County's use. The debt although reflected in the consolidated financial statements of the Corporation has been issued by the Pollution Control Financing Authority of Camden County. This debt is collateralized by a pledge of certain revenues and assets of the project but not the plant. The Corporation's obligation is to fund the debt to the extent the project generates a positive cash flow. The Corporation has filed suit, seeking, among other things, to void the applicable contracts and agreements governing the Camden Project. Pending final outcome of the litigation and results of legislative initiatives in New Jersey to resolve the issues relating to the debt obligations associated with the Camden Project, management believes that the plant will continue to operate at full capacity while earning sufficient revenues to cover its fees as operator of the plant. However, at the same time, management cannot determine the effect of these events on the Camden Project. 21 In 1996, the Corporation completed the construction of a recycling and waste-to-energy project located in the Village of Robbins, Illinois (the "Robbins Facility"). By virtue of the Robbins 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 of Illinois (the "State") was to be reimbursed by the Robbins 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 the Robbins Facility. In October 1999, the Corporation reached an agreement (the "Robbins Agreement") with the holders of bonds issued by the Village of Robbins to finance the construction of the Robbins Facility (the "Bondholders"). As part of the Robbins Agreement, the Corporation agreed to continue to contest this repeal through litigation. Pursuant to the Robbins Agreement, the Corporation has also agreed that any proceeds of such litigation will be allocated in the following order of priority: (1) to redeem all of the outstanding 1999D Bonds, (2) to reimburse the Corporation for any amounts paid by it in respect of the 1999D Bonds (together with interest on the foregoing amounts at a rate of 10.6% per annum) and (3) to reimburse the Corporation for any costs incurred by it in connection with prosecuting the Retail Rate litigation (together with interest on the foregoing amounts at a rate of 10.6% per annum). Then, to the extent there are further proceeds, an amount equal to the amount distributed pursuant to the preceding clause (2) shall fund payments in respect of the Non-Recourse Robbins Bonds. Thereafter, 80% of any further proceeds shall fund payments on the Non-Recourse Robbins Bonds until an amount sufficient to repay such Bonds in full has been paid over, with the remaining 20% being paid over to the Corporation. After the foregoing payments shall have been made, any remaining proceeds shall be paid over to the Corporation. On August 8, 2000, the Corporation initiated the final phase of its exit from the Robbins Facility. As part of the Robbins Agreement, the Corporation had agreed to operate the Robbins Facility for the benefit of the bondholders for no more than 2 years or earlier if a buyer could be found for the plant, subject to being reimbursed for all costs of operation. Such reimbursement did not occur and, therefore, under the Robbins Agreement, the Corporation on October 10, 2000, completed the final phase of its exit from the project. The Corporation had been administering the project companies through a Delaware business trust, which owns the project on behalf of the bondholders. As a result of its exit from the project, the Corporation is no longer administering the project companies and has no further involvement in the Robbins Facility. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws, the current owner or operator of real property and the past owners or operators of real property (if disposal took place during such past ownership or operation) may be jointly and severally liable for the costs of removal or remediation of toxic or hazardous substances on or under their property, regardless of whether such materials were released in violation of law or whether the owner or operator knew of, or was responsible for, the presence of such substances. Moreover, under CERCLA and similar state laws, persons who arrange for the disposal or treatment of hazardous or toxic substances may also be jointly and severally liable for the costs of the removal or remediation of such substances at a disposal or treatment site, whether or not such site was owned or operated by such person ("off-site facility"). Liability at such off-site facilities is typically allocated among all of the viable responsible parties based on such factors as the relative amount of waste contributed to a site, toxicity of such waste, relationship of the waste contributed by a party to the remedy chosen for the site, and other factors. The Corporation currently owns and operates industrial facilities and has also transferred its interests in industrial facilities that it formerly owned or operated. It is likely that as a result of its current or former operations, such facilities have been impacted by hazardous substances. The Corporation is not aware of any conditions at its currently owned facilities in the United States that it expects will cause the Corporation to incur significant costs. The Corporation is aware of potential environmental liabilities at facilities that it acquired in 1995 in Europe, but the Corporation has the benefit of an indemnity from the seller with respect to any required remediation or other environmental violations that it believes will address the costs of any such remediation or other required environmental measures. The Corporation also may receive claims, pursuant to indemnity obligations from owners of recently sold facilities that may require the Corporation to incur costs for investigation and/or remediation. Based on the available information, the Corporation does not believe that such costs will be material. No assurance can be provided that the Corporation will not discover environmental conditions at its currently owned or operated properties, or that additional claims will not be made with respect to formerly owned properties, requiring the Corporation to incur material expenditures to investigate and/or remediate such conditions. 22 The Corporation had been notified that it was a potentially responsible party ("PRP") under CERCLA or similar state laws at three off-site facilities, excluding sites as to which the Corporation has resolved its liability. At each of these sites, the Corporation's liability should be substantially less than the total site remediation costs because the percentage of waste attributable to the Corporation compared to that attributable to all other PRPs is low. The Corporation does not believe that its share of cleanup obligations at any of the three off-site facilities as to which it has received a notice of potential liability will individually exceed $1 million. Several of the Corporation's former subsidiaries associated with the Robbins Facility received a Complaint for Injunction and Civil Penalties from the State of Illinois, dated April 28, 1998 (amended in July 1998) alleging primarily state air violations at the Robbins Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS, INC., filed in Circuit Court of Cook County, Illinois, County Department, Chancery Division). Although the complaint seeks substantial civil penalties for numerous violations of up to $50,000 for each violation, with an additional penalty of $10,000 for each day of each violation, the maximum allowed under the statute, and an injunction against continuing violations, the relevant subsidiaries have reached a staff-level agreement in principle with the state on a Consent Decree that will resolve all violations. The resulting penalty is not expected to be material. The United States Environmental Protection Agency commenced a related enforcement action at approximately the same time the State action began. 23 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 24 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 10, 2000 /S/ RICHARD J. SWIFT --------------------- ------------------------------- Richard J. Swift (Chairman, President and Chief Executive Officer) Date: NOVEMBER 10, 2000 /S/ GILLES A. RENAUD --------------------- ------------------------------- Gilles A. Renaud (Senior Vice President and Chief Financial Officer) 25 EX-12 2 0002.txt STATEMENT OF COMPUTATION EXHIBIT 12-1 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES ($000'S) UNAUDITED 9 months 2000 ---- EARNINGS: - --------- Net earnings $ 27,164 Taxes on income 12,760 Total fixed charges 72,804 Capitalized interest (4,494) Capitalized interest amortized 1,812 Equity earnings of non-consolidated associated companies accounted for by the equity method, net of dividends (4,765) --------- $ 105,281 ========= FIXED CHARGES: Interest expense (includes dividend on preferred security of $11,812) $ 59,513 Capitalized interest 4,494 Imputed Interest on non-capitalized lease payment 8,797 --------- $ 72,804 ========= Ratio of Earnings to Fixed Charges 1.45 ========= Note: There were no preferred shares outstanding during the period 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 the period indicated. This calculation does not relate to the amended and restated Revolving Credit Agreement covenants. EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary of financial information extracted from the condensed consolidated balance sheet and statement of earnings for the six months ended September 29, 2000 and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-29-2000 JAN-01-2000 SEP-29-2000 143,586 3,041 867,769 0 441,828 1,542,374 979,294 361,974 3,302,257 1,386,026 654,338 175,000 0 40,748 323,557 3,302,257 2,835,365 2,880,595 2,735,545 2,753,545 0 0 59,513 39,924 12,760 27,164 0 0 0 27,164 .67 .67
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