-----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, M3bJAGtAORIrtXAW05ltlkwgRKjHTdzbBcdERNYEKMSkhNvo8zeskHXs+3ZUzHOP wfOWr1aW+EX2JN6eoBGpvQ== 0000950123-99-004389.txt : 19990511 0000950123-99-004389.hdr.sgml : 19990511 ACCESSION NUMBER: 0000950123-99-004389 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990326 FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00286 FILM NUMBER: 99615360 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 FORM 10-Q 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 26, 1999 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: 40,725,887 shares of the Corporation's common stock ($1.00 par value) were outstanding as of March 26, 1999. 2 FOSTER WHEELER CORPORATION INDEX Part I Financial Information: Item 1 - Financial Statements: Condensed Consolidated Balance Sheet at March 26, 1999 and December 25, 1998 Condensed Consolidated Statement of Earnings and Comprehensive Income Three Months Ended March 26, 1999 and March 27, 1998 Condensed Consolidated Statement of Cash Flows Three Months Ended March 26, 1999 and March 27, 1998 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 4 - Submission of Matters to a Vote of Security Holders Item 6 - Exhibits and Reports on Form 8-K Signatures 1 3 PART I FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands of Dollars)
March 26, 1999 December 25, ASSETS (Unaudited) 1998* ----------- ----------- CURRENT ASSETS: Cash and cash equivalents .............................. $ 166,504 $ 180,068 Short-term investments ................................. 46,389 61,223 Accounts and notes receivable .......................... 908,967 857,005 Contracts in process and inventories ................... 431,698 478,481 Prepaid, deferred and refundable income taxes .......... 61,496 66,068 Prepaid expenses ....................................... 31,535 29,997 ----------- ----------- Total current assets .......................... 1,646,589 1,672,842 ----------- ----------- Land, buildings and equipment .......................... 1,026,724 1,015,795 Less accumulated depreciation .......................... 343,954 339,009 ----------- ----------- Net book value .................................... 682,770 676,786 ----------- ----------- Notes and accounts receivable - long-term .............. 101,615 103,612 Investments and advances ............................... 100,421 95,827 Intangible assets, net ................................. 280,849 285,245 Prepaid pension cost and benefits ...................... 198,433 196,812 Other, including insurance recoveries .................. 289,150 286,886 Deferred income taxes .................................. 6,932 4,291 ----------- ----------- TOTAL ASSETS .................................. $ 3,306,759 $ 3,322,301 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ................. $ 19,931 $ 19,751 Bank loans ............................................. 98,939 107,051 Accounts payable and accrued expenses .................. 673,323 718,337 Estimated costs to complete long-term contracts ........ 576,739 563,271 Advance payments by customers .......................... 55,416 56,630 Income taxes ........................................... 24,072 26,626 ----------- ----------- Total current liabilities ..................... 1,448,420 1,491,666 Corporate and other debt less current installments ..... 403,647 540,827 Special-purpose project debt less current installments . 293,417 294,898 Deferred income taxes .................................. 80,221 85,484 Postretirement and other employee benefits other than pensions ............................... 166,030 168,799 Other long-term liabilities and minority interest ...... 175,739 168,509 Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest Debentures .................... 175,000 -- ----------- ----------- TOTAL LIABILITIES ............................. 2,742,474 2,750,183 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock ........................................... 40,748 40,748 Paid-in capital ........................................ 201,057 201,158 Retained earnings ...................................... 384,002 377,147 Accumulated other comprehensive loss ................... (61,212) (46,349) ----------- ----------- 564,595 572,704 Less cost of treasury stock ............................ 310 586 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................... 564,285 572,118 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $ 3,306,759 $ 3,322,301 =========== ===========
See notes to financial statements. * Reclassified to conform to 1999 presentation, see Note 1. 2 4 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
March 26, 1999 March 27, 1998 ------------ ------------ Revenues: Operating revenues ......................... $ 998,770 $ 1,027,961 Other income ............................... 19,208 9,793 ------------ ------------ Total revenues ............................. 1,017,978 1,037,754 ------------ ------------ Cost and expenses: Cost of operating revenues ................. 913,229 941,834 Selling, general and administrative expenses 55,212 56,414 Other deductions/minority interest ......... 24,722 18,282 Dividend on preferred securities of subsidiary trust ........................ 3,281 -- ------------ ------------ Total costs and expenses ................... 996,444 1,016,530 ------------ ------------ Earnings before income taxes ................. 21,534 21,224 Provision for income taxes ................... 6,131 7,939 ------------ ------------ Net earnings ................................. 15,403 13,285 Other comprehensive loss: Foreign currency translation adjustment .... (14,863) (7,793) ------------ ------------ Comprehensive income ......................... $ 540 $ 5,492 ============ ============ Earnings per share: Basic ...................................... $ .38 $ .33 ============ ============ Diluted .................................... $ .38 $ .33 ============ ============ Shares outstanding: Basic: Weighted average number of shares outstanding ....................... 40,729,835 40,734,864 Diluted: Effect of stock options .................... 50 7,238 ------------ ------------ Total diluted ......................... 40,729,885 40,742,102 ============ ============ Cash dividends paid per common share ............................... $ .21 $ .21 ============ ============
See notes to financial statements. 3 5 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars) (Unaudited)
Three Months Ended March 26, 1999 March 27, 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ............................................... $ 15,403 $ 13,285 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization .............................. 18,234 14,709 Noncurrent deferred tax .................................... (6,916) 2,844 Equity earnings, net of dividends .......................... (4,594) (1,172) Other ...................................................... (5,329) (1,848) Changes in assets and liabilities: Receivables ................................................ (85,586) 11,204 Contracts in process and inventories ....................... 37,951 11,026 Accounts payable and accrued expenses ...................... (13,803) (16,339) Estimated costs to complete long-term contracts ............ 28,637 (34,352) Advance payments by customers .............................. 392 137 Income taxes ............................................... 473 2,173 Other assets and liabilities ............................... (13,798) (6,188) --------- --------- NET CASH USED BY OPERATING ACTIVITIES ...................... (28,936) (4,521) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ....................................... (32,735) (13,190) Proceeds from sale of properties ........................... 396 1,021 Decrease/(increase) in investments and advances ............ 12,131 (2,124) Decrease in short-term investments ......................... 10,505 6,774 Partnership distributions .................................. (4,385) (4,256) --------- --------- NET CASH USED BY INVESTING ACTIVITIES ...................... (14,088) (11,775) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders .................................. (8,548) (8,562) Repurchase of common stock ................................. (860) -- Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holdings Solely Junior Subordinated Deferrable Interest Debentures ........................ 169,178 -- (Decrease)/increase in short-term debt ..................... (2,707) 9,493 Proceeds from long-term debt ............................... 22,444 153 Repayment of long-term debt ................................ (145,893) (19,985) --------- --------- NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES ........... 33,614 (18,901) --------- --------- Effect of exchange rate changes on cash and cash equivalents (4,154) 9,256 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS ...................... (13,564) (25,941) Cash and cash equivalents at beginning of year ............. 180,068 167,417 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 166,504 $ 141,476 ========= ========= Cash paid during period: Interest (net of amount capitalized) ....................... $ 4,505 $ 2,376 Income taxes ............................................... $ 2,584 $ 3,631
See notes to financial statements. 4 6 FOSTER WHEELER CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1. The condensed consolidated balance sheet as of March 26, 1999, and the related condensed consolidated statements of earnings and comprehensive income and cash flows for the three month period ended March 26, 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 this 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 25, 1998 filed with the Securities and Exchange Commission on March 18, 1999. The Condensed Consolidated Balance Sheet as of December 25, 1998 has been derived from the audited Consolidated Balance Sheet included in the 1998 Annual Report on Form 10-K. A summary of Foster Wheeler Corporation's significant accounting policies is presented on pages 27, 28 and 29 (not shown) of its 1998 Annual Report on Form 10-K. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the 1998 Annual Report on Form 10-K when reviewing interim financial results. There has been no material change in the accounting policies followed by the Foster Wheeler Corporation (hereinafter referred to as "Foster Wheeler" or "Corporation") during the first quarter of 1999. 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. In March of 1999, the Corporation reflected its investment in a joint venture in Chile on the equity method of accounting. The December 1998 balance sheet has been reclassified to conform to the March 26, 1999 presentation. This change had no impact on the March and the December 1998 Consolidated Statements of Earnings and Comprehensive Income. The assets and liabilities of the joint venture included in the December balance sheet were as follows: total assets $242,662, total liabilities $182,225 and net assets $60,437. 2. In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management of the Corporation believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts previously provided in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in 5 7 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 March 26, 1999, there were approximately 65,000 claims pending. In 1999, approximately 6,600 new claims were filed and approximately 3,900 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 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. 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 cover the operating expenses and to service the debt on outstanding bonds that 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 flows. The Corporation has filed suit against the involved parties, 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 resolve the issue, 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 1994, the Corporation entered into a lease agreement for a 1,600-ton-per-day recycling and waste-to-energy plant located in Robbins, Illinois, which went into commercial operation in January 1997. The terms of the agreement are to lease the facility under a long-term operating lease for 32 years. As a result of the partial repeal of the Retail Rate Law and increased operating costs, the facility is not generating cash flows sufficient to cover the required lease payments. Due to the limited liability project structure, annual lease expense will be the aggregate of 1) the annual amortization of prepaid lease cost over the term of the lease, 2) amounts due in accordance with the terms of the lease agreement to the extent of cash flows generated from operations (before lease expense) and 3) the amounts funded under the Corporate guarantees up to the total of $79,600 of Corporate guarantees. These guarantees are estimated to be paid out as follows: $3,500 in 1999, $24,500 for 2000, $20,800 in 2001 and the balance in 2002 or thereafter. Such estimates depend upon the actual results of the project. It is highly unlikely the Robbins Facility will generate sufficient revenues to repay the Robbins Facility debt, which is funded by the lease payments to the Village of Robbins. It is also unlikely that the earnings will justify the recovery of the prepaid lease amount of $47,400. In 1996, the Corporation completed the construction of this project. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership (the "Partnership"), operates 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 6 8 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. The ultimate legal and financial liability of the Corporation with 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 $90,000 with a maturity of 364 days and the second is a $270,000 revolving credit agreement with a maturity of four years (collectively, the "Revolving Credit Agreements"). These Revolving Credit Agreements require, among other things, the maintenance of a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charges Coverage Ratio. As of March 26, 1999, the Corporation was in compliance with both of these provisions. On January 13, 1999, FW Preferred Capital Trust I, a Delaware business trust, 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 will be paid quarterly in arrears on April 15, July 15, October 15 and January 15 of each year, beginning April 15, 1999. The maturity date is January 15, 2029. Foster Wheeler can redeem these Trust Preferred Securities on or after January 15, 2004. The Corporation has a remaining balance of $125,000 under an existing shelf registration statement. 4. A total of 2,555,528 shares of common stock were reserved for issuance under the stock option plans; of this total 362,916 were not under option. 5. 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 9 6. Interest income and cost for the following periods are:
Three Months Ended March 26, 1999 March 27, 1998 -------------- -------------- Interest Income $ 3,298 $ 6,001 ======= ======= Interest Cost $18,553 $16,869 ======= =======
Included in interest cost is interest capitalized on self-constructed assets, which was $622 and $2,864 for the quarters ended March 26, 1999 and March 27, 1998, respectively. Interest cost for 1999 also included $3,281 for dividends on Trust Preferred Securities. 7. The Financial Accounting Standards Board released in June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. This statement addresses the accounting for derivative instruments including certain derivative instruments embedded in other contracts and for hedging activities. The Corporation is currently assessing the impact of adoption of this new Statement. In the second quarter of 1998, the Accounting Standard Executive Committee of the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." This statement provides guidance on financial reporting of start-up costs and organizational costs. This Statement of Position is effective for financial statements for fiscal years beginning after December 15, 1998. This Statement of Position requires start-up costs to be expensed as incurred. The Corporation has adopted this Statement of Position in the first quarter of 1999 without a material impact on the financial results of the Corporation. 8. 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. Under the terms of the agreement, new receivables are added to the pool as collections reduce previously sold accounts receivable. The credit risk of uncollectible accounts receivable has been transferred to the purchaser. The Corporation services, administers and collects the receivables on behalf of the purchaser. Fees payable to the purchaser under this agreement are equivalent to rates afforded high quality commercial paper issuers plus certain administrative expenses and are included in other deductions in the Consolidated Statement of Earnings. The agreement contains certain covenants and provides for various events of termination. At March 26, 1999, $43,700 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable balance in the Condensed Consolidated Balance Sheet. 8 10 9. Changes in equity for the three months ended March 26, 1999 were as follows: (In Thousands of Dollars)
Accumulated Common Stock Other Treasury Stock Total ------------ Paid-in Retained Comprehensive -------------- Stockholders' Shares Amount Capital Earnings Loss Shares Amount Equity ---------- ---------- ---------- --------- ---------- --------- --------- --------- Balance December 25, 1998 40,747,668 $ 40,748 $ 201,158 $ 377,147 $ (46,349) (30,804) $ (586) $ 572,118 Net income 15,403 15,403 Dividends paid - common (8,548) (8,548) Purchase of treasury stock (71,000) (860) (860) Foreign currency translation adjustment (14,863) (14,863) Issued under incentive plan (101) 80,023 1,136 1,035 ---------- ---------- ---------- --------- ---------- --------- --------- --------- Balance March 26, 1999 40,747,668 $ 40,748 $ 201,057 $ 384,002 $ (61,212) (21,781) $ (310) $ 564,285 ========== ========== ========== ========= ========== ========= ========= =========
9 11 10. Major Business Groups
FOR THREE MONTHS Engineering Corporate and and Energy Power Financial Total Construction Equipment Systems Service(1) ---------- ---------- ---------- ---------- ---------- Ended March 26, 1999 Revenues $1,017,978 $ 804,035 $ 171,521 $ 58,703 $ (16,281) Interest expense(2) 17,931 1,962 3,294 6,862 5,813 Earnings/(loss) before income taxes 21,534 24,777 6,904 2,416 (12,563) Income taxes/(benefit) 6,131 7,521 2,212 798 (4,400) ---------- ---------- ---------- ---------- ---------- Net earnings/(loss) $ 15,403 $ 17,256 $ 4,692 $ 1,618 $ (8,163) ========== ========== ========== ========== ========== Ended March 27, 1998 Revenues $1,037,754 $ 812,839 $ 242,749 $ 43,422 $ (61,256) Interest expense 14,005 2,005 2,116 5,516 4,368 Earnings/(loss) before income taxes 21,224 23,920 9,235 (781) (11,150) Income taxes/(benefit) 7,939 8,385 3,461 19 (3,926) ---------- ---------- ---------- ---------- ---------- Net earnings/(loss) $ 13,285 $ 15,535 $ 5,774 $ (800) $ (7,224) ========== ========== ========== ========== ==========
(1) Includes intersegment eliminations (2) Includes dividend on trust preferred securities. 10 12 11. Consolidating Financial Information Separate financial statements and other disclosures with respect to the subsidiary guarantees have not been made because Management has determined that such information is not material to holders of the Notes, (as defined below). The following represents summarized consolidating financial information as of March 26, 1999 and for the three months ended March 26, 1999, with respect to the financial position, 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. None of the subsidiary guarantors are restricted from making distributions to the Corporation. CONDENSED CONSOLIDATING BALANCE SHEET March 26, 1999
Assets FWC Guarantor Non-Guarantor Eliminations Consolidated Subsidiaries Subsidiaries Current assets $ 523,379 $ 426,793 $ 1,586,165 $ (889,748) $ 1,646,589 Investment in subsidiaries 898,954 308,340 9,596 (1,216,890) -0- Land, buildings & equipment (net) 51,377 30,018 608,204 (6,829) 682,770 Notes and accounts receivable - long- term 87,901 11,468 471,568 (469,322) 101,615 Intangible assets (net) -0- 90,803 190,046 -0- 280,849 Other non-current assets 267,900 22 293,826 33,188 594,936 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS $ 1,829,511 $ 867,444 $ 3,159,405 $(2,549,601) $ 3,306,759 =========== =========== =========== =========== =========== Liabilities & Stockholders' Equity Current liabilities $ 403,884 $ 404,363 $ 1,521,908 $ (881,735) $ 1,448,420 Long-term debt 581,826 23,000 572,415 (480,177) 697,064 Other non-current liabilities 279,516 6,140 220,065 (83,731) 421,990 Preferred trust securities -0- -0- 175,000 -0- 175,000 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES 1,265,226 433,503 2,489,388 (1,445,643) 2,742,474 TOTAL STOCKHOLDERS' EQUITY 564,285 433,941 670,017 (1,103,958) 564,285 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,829,511 $ 867,444 $ 3,159,405 $(2,549,601) $ 3,306,759 =========== =========== =========== =========== ===========
11 13 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA For the Three Months Ended March 26, 1999
FWC Guarantor Non-Guarantor Eliminations Consolidated Subsidiaries Subsidiaries Revenues $ 5,916 $ 252,480 $ 839,664 $ (80,082) $1,017,978 Cost of operating revenues -0- 238,208 740,598 (65,577) 913,229 Selling, general and administrative, other deductions and minority interests 18,557 11,125 68,038 (14,505) 83,215 Equity in net earnings of subsidiaries 23,677 3,169 -0- (26,846) -0- ---------- ---------- ---------- ---------- ---------- Earnings before income taxes 11,036 6,316 31,028 (26,846) 21,534 Provisions for income taxes (4,367) 1,139 9,359 -0- 6,131 ---------- ---------- ---------- ---------- ---------- Net earnings $ 15,403 $ 5,177 $ 21,669 $ (26,846) $ 15,403 ========== ========== ========== ========== ==========
12 14 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA For the Three Months Ended March 26, 1999
FWC Guarantor Non-Guarantor Eliminations Consolidated Subsidiaries Subsidiaries NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES $ (4,726) $ (36,613) $ 8,538 $ 3,865 $ (28,936) ---------- ---------- ---------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (123) (1,985) (30,627) (32,735) Proceeds from sale of properties 396 396 Decrease in investment and advances 1,629 10,329 173 12,131 Decrease in short-term investments 10,505 10,505 Other (4,385) (4,385) ---------- ---------- ---------- --------- --------- NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES 1,506 (1,985) (13,782) 173 (14,088) ---------- ---------- ---------- --------- --------- CASH FLOW FROM FINANCING ACTIVITIES Dividends to Stockholders (8,548) (8,548) Issuance of trust preferred securities 169,178 169,178 Increase/(decrease) in short-term debt 4,300 (7,007) (2,707) Proceeds from long-term debt 20,000 2,444 22,444 Repayment of long-term debt (140,000) (5,893) (145,893) Other 120,830 34,988 (152,640) (4,038) (860) ---------- ---------- ---------- --------- --------- NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES (3,418) 34,988 6,082 (4,038) 33,614 ---------- ---------- ---------- --------- --------- Effect of exchange rate changes on cash and cash equivalents (4,154) (4,154) Decrease in cash and cash equivalents (6,638) (3,610) (3,316) (13,564) Cash and cash equivalents, beginning of period 13,720 6,552 159,796 180,068 ---------- ---------- ---------- --------- --------- Cash and cash equivalents, end of period $ 7,082 $ 2,942 $ 156,480 $ -0- $ 166,504 ========== ========== ========== ========= =========
13 15 12. 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.
March 26, 1999 December 25, 1998 -------------- ----------------- Balance Sheet Data: Current assets $ 80,326 $ 83,871 Other assets (primarily buildings and equipment) 520,190 541,507 Current liabilities 36,220 35,126 Other liabilities (primarily long-term debt) 431,575 461,972 Net assets 132,721 128,280 Income Statement Data: Total revenues $ 28,777 Income before income taxes 8,375 Net earnings 9,287
As of March 26, 1999, the Corporation's share of the net earnings and investment in the equity affiliates totaled $4,594 and $100,421, respectively. No dividends were received during the first quarter of 1999. 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. No amounts have been drawn under the letter of credit. The earning results for the first quarter of 1998 were immaterial for these operations. 14 16 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 1998 Annual Report on Form 10-K filed on March 18, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 26, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 27, 1998 CONSOLIDATED DATA
Three Months Ended March 26, 1999 March 27, 1998 -------------- -------------- Backlog $7,050.1 $7,451.6 ======== ======== New orders $ 910.5 $1,448.9 ======== ======== Revenues $1,018.0 $1,037.7 ======== ======== Net earnings $ 15.4 $ 13.3 ======== ========
The Corporation's consolidated backlog at March 26, 1999 totaled $7,050.1, which represented a decrease of 5% from the amount reported as of March 27, 1998. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. The backlog of unfilled orders includes amounts based on signed contracts as well as agreed letters of intent which management has determined are likely to be performed. Although backlog represents only business which is considered firm, cancellations or scope adjustments may occur. Due to factors outside the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. Backlog is adjusted to reflect project cancellations, deferrals, sale of subsidiaries and revised project scope and cost. This adjustment for the three months ended March 26, 1999 was $96.1, compared with $133.5 for the three months ended March 27, 1998. Furthermore, the Corporation's future award prospects include several large-scale international projects and, because the large size and uncertain timing of these projects can create variability in the Corporation's contract awards, future award trends are difficult to predict. New orders awarded for the three months ended March 26, 1999 were $910.5 compared to $1,448.9 for the period ended March 27, 1998. Approximately 67% of new orders booked in the three months ended March 26, 1999 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 three months ended March 26, 1999 were the United States, Europe and the Philippines. Operating revenues decreased slightly in the three months ended March 26, 1999 compared to the three months ended March 27, 1998 to $998.8 from $1,028.0. Gross earnings, which are equal to operating revenues minus the cost of operating revenues, 15 17 decreased by $0.6 in the three months ended March 26, 1999 as compared with the three months ended March 27, 1998 to $85.5 from $86.1. Selling, general and administrative expenses decreased by 2% in the three months ended March 26, 1999 as compared with the same period in 1998, from $56.4 to $55.2. Other income in the three months ended March 26, 1999 as compared with March 27, 1998 increased to $19.2 from $9.8. Approximately, $3.4 of this increase can be attributed to equity earnings of unconsolidated affiliates, primarily due to the cogeneration facilities in Italy. Other deductions and dividends on Trust Preferred for the three months ended March 26, 1999 were $9.1 higher than that reported in the three months ended March 27, 1998. Interest expense and dividends on Trust Preferred increased by approximately $4.0 compared to 1998. Net earnings for the three months ended March 26, 1999 were $15.4 or $.38 per share-basic compared to a net income of $13.3 or $.33 per share-basic for the three months ended March 27, 1998. ENGINEERING AND CONSTRUCTION GROUP
Three Months Ended March 26, 1999 March 27, 1998 -------------- -------------- Backlog $5,631.1 $5,677.6 ======== ======== New orders $ 745.6 $1,259.7 ======== ======== Operating revenues $ 790.5 $ 806.6 ======== ======== Gross earnings from operations $ 48.4 $ 53.2 ======== ========
The Engineering and Construction Group ("E&C Group"), had a backlog of $5,631.1 at March 26, 1999, which represented a decrease of $46.5 from March 27, 1998. New orders booked for the three month period ended March 26, 1999 decreased by 41% compared with the period ended March 27, 1998. These decreases were primarily the result of the significant orders taken by the Continental European and United States operating subsidiaries in the first quarter of 1998, which were not repeated in 1999. Operating revenues for the three month period ended March 26, 1999 decreased 2% compared to the three month period ended March 27, 1998. Gross earnings from operations decreased by 9% for the three month period ended March 26, 1999, compared with the corresponding period ended March 27, 1998. The gross earnings for the three month period were lower primarily due to the decrease reported by the Italian subsidiary ($5.3), which were offset by an increase in equity earnings of unconsolidated subsidiaries. ENERGY EQUIPMENT GROUP
Three Months Ended March 26, 1999 March 27, 1998 -------------- -------------- Backlog $1,255.0 $1,541.0 ======== ======== New orders $ 121.7 $ 140.1 ======== ======== Operating revenues $ 168.8 $ 240.7 ======== ======== Gross earnings from operations $ 26.0 $ 29.3 ======== ========
16 18 The Energy Equipment Group had a backlog of $1,255.0 at March 26, 1999, which represented an 18% decrease from March 27, 1998 due primarily to lower orders awarded during 1999 and 1998. Approximately 45% of the Energy Equipment Group's backlog as of March 26, 1999 represents orders from Asia. These orders are for large utility size boilers, payments under which are supported by financing agreements guaranteed by United States, European or Japanese export credit agencies. New orders booked for the three month period ended March 26, 1999 decreased by 13% from corresponding periods in 1998. Operating revenues for the three month period ended March 26, 1999 decreased by 30% primarily due to low bookings in 1998. Gross earnings from operations decreased by $3.3 for the three month period ended March 26, 1999 compared with the period ended March 27, 1998. POWER SYSTEMS GROUP
Three Months Ended March 26, 1999 March 27, 1998 -------------- -------------- Backlog $209.1 $275.1 ====== ====== New orders $ 47.5 $ 60.4 ====== ====== Operating revenues $ 51.8 $ 40.3 ====== ====== Gross earnings from operations $ 10.6 $ 3.0 ====== ======
The Power Systems Group's gross earnings from operations for the three month period ended March 26, 1999 improved primarily due to losses reported in 1998 for the Robbins Facility of $5.7 as compared to $0.6 in 1999. The future earnings of the Power Systems Group will be negatively impacted by the Robbins Facility due to (1) funding of the Corporation's guarantees of $79.6 and (2) the unamortized prepaid lease expense of $47.4. The future impact is expected to be a reduction in pretax earnings as follows: 1999 by $6.1; 2000 by $27.1; 2001 by $23.4 and the balance of $70.4, thereafter. The timing of the foregoing estimates are subject to change based on numerous factors including the operating results of the Robbins Facility. It is expected that the Robbins Facility will continue to incur losses and will not fully recover lease costs from operations. FINANCIAL CONDITION The Corporation's consolidated financial condition declined during the three months ended March 26, 1999 as compared to December 25, 1998. Stockholders' equity for the three months ended March 26, 1999 decreased by $7.8, due primarily to changes in the foreign currency translation adjustment of $14.9 and dividends paid of $8.5, offset by earnings of $15.4. During the three months ended March 26, 1999, long-term investments in land, buildings and equipment were $32.7 as compared with $13.2 for the comparable period in 1998. Approximately $21.7 was invested in a waste-to-energy project in Italy during the first three months of 1999. Since December 25, 1998, long-term debt, including current installments and bank loans, decreased by $126.2, primarily due to payment of debt from the proceeds of Trust Preferred. On January 13, 1999, FW Preferred Capital Trust I, a Delaware business trust, issued $175,000 in Preferred Trust Securities. These Preferred Trust Securities are entitled to receive 17 19 cumulative cash distributions at an annual rate of 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. Under the terms of the agreement, new receivables are added to the pool as collections reduce previously sold accounts receivable. The credit risk of uncollectible accounts receivable has been transferred to the purchaser. The Corporation services, administers and collects the receivables on behalf of the purchaser. Fees payable to the purchaser under this agreement are equivalent to rates afforded high quality commercial paper issuers plus certain administrative expenses and are included in other deductions in the Consolidated Statement of Earnings. The agreement contains certain covenants and provides for various events of termination. At March 26, 1999, $43.7 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable - trade balance in the Consolidated Balance Sheet. 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 $166.5 at March 26, 1999, a decrease of $13.6 from fiscal year end 1998. Short-term investments decreased by $14.8 to $46.4. During the first quarter of fiscal 1999, the Corporation paid $8.5 in dividends to stockholders. Cash used by operating activities amounted to $28.9. 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 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 estimates payments under the Corporate guarantees for the Robbins Facility to be $3.5 in 1999; $24.5 in 2000; $20.8 in 2001; and $30.8 in 2002 and thereafter. These foregoing estimates are subject to change based on numerous factors including the operating results of the Robbins Facility. Management of the Corporation believes that cash and cash equivalents of $166.5 and short-term investments of $46.4 at March 26, 1999, combined with cash flows from operating activities, amounts available under its Revolving Credit Agreements and access to third-party 18 20 financings 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 up to $300.0 of debt, equity, and other securities, $175.0 of which have been issued as of March 26, 1999. The Corporation is reviewing various methods to monetize selected Power Systems assets and will be concentrating on reducing both corporate and project debt, and improving cash flow. OTHER MATTERS 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 March 26, 1999, there were approximately 65,000 claims pending. During 1999, approximately 6,600 new claims have been filed and approximately 3,900 have been 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, 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. 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 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 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 pledging certain revenue 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 against certain involved parties seeking among other things, to void the applicable contracts and agreements governing the Camden Project. Pending final outcome of the litigation and the 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 this time, management cannot determine the effect of the foregoing on the Camden Project. 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 19 21 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. YEAR 2000 GENERAL For purposes of this statement the "Year 2000 Problem" is defined to mean the inability of a computer or other device to perform properly because it does not interpret date information correctly. It is believed that cases of misinterpretation might result from computer hardware, firmware or software using only two digits to identify year information, and therefore not being able to distinguish the year 1900 from the year 2000. However, other date-related misinterpretations may also occur, including one, which could occur when the date February 29, 2000 is processed. Also for purposes of this statement "Year 2000 Compliant" means that the performance or functionality of a device (including software) is not affected by dates prior to, during or after the Year 2000. STATE OF READINESS/BUSINESS CONTINUATION PLAN The Corporation and its subsidiaries initiated Year 2000 activities in 1996. In 1997 a formal Year 2000 Problem management strategy was prepared. At that time the Corporation formed a company-wide committee (the "Y2K Committee") to develop a Business Continuation Plan focused on the Year 2000 Problem. Each of the Corporation's subsidiaries formed similar committees and coordinated their efforts through Chairmen selected for each Committee. Each subsidiary committee also prepared a Business Continuation Plan. Each Committee Chairman reports on a quarterly basis to the Corporation's Y2K Committee Chairman, who then reports to the Corporation's Executive Committee. In 1997, the Y2K Committee prepared a plan to safeguard against interruption of the Corporation's (and its subsidiaries') business activities as a result of Year 2000 Problems. The plan included an Assessment Step, a Testing Step, a Remediation Step and a Confirmation Step. Since 1996 the Corporation and/or its subsidiaries have been investigating the IT and non-IT equipment, software and services they will use to identify, evaluate, modify and/or replace goods or services which are not Year 2000 Compliant. The Corporation and its subsidiaries have all completed the Assessment Step and are substantially advanced in the Testing and Remediation Steps. Some subsidiaries, such as Foster Wheeler Power Systems, Inc., and its subsidiaries, must wait for scheduled outage periods in order to complete Testing and/or Remediation activities, but all are expected to do so by mid-1999. All subsidiaries have reported that they have completed at least seventy percent (70%) of their Testing Step activities. The primary computerized reporting and control system used by the Corporation and most of its subsidiaries, which was provided by J.D. Edwards, has been confirmed to be Year 2000 Compliant. 20 22 LIABILITY EXPOSURE MANAGEMENT In 1997 the Corporation formed a group to develop a strategy for managing liability exposures which could result from the Year 2000 Problem (the "Y2K Liaison Group"). Since then the Y2K Liaison Group has developed guidelines for the Corporation's subsidiaries that address future, current and completed contract activities, and has also conducted global conferences for the Corporation's subsidiaries to discuss how those guidelines should be implemented. The Corporation's Executive Committee adopted the Group's guidelines as business policies in 1998. Over the past twenty years, the Corporation has owned the stock of various companies which are no longer operating or whose stock or assets were sold to others. When it sold the stock or assets of such companies the Corporation transferred the company's records to the purchaser. The Corporation is currently evaluating its legal obligations in regard to equipment and software that was created and sold by those companies during the time that the Corporation owned them. In a given case the Corporation might be unable to find records that would allow it to identify the nature of the equipment and software or the identities of the owners of the equipment and software. THIRD PARTY REVIEW In 1998 the Corporation engaged a third party to conduct a review of certain aspects of the Corporation's and its subsidiaries' Business Continuation Plans. This review was completed during November 1998, and the resulting report is being acted on by Management. The Corporation also engaged several law firms to prepare reports regarding liabilities which the Corporation and its subsidiaries may face, and recommendations for liability exposure management. This work was completed in August 1998. The Corporation has selected an outside attorney to conduct a legal audit of contracting practices and other business activities. The audit is underway and expected to be completed during the second quarter of 1999. COORDINATION WITH OUTSIDE PARTIES The Corporation and its subsidiaries coordinate with insurers, clients, vendors, contractors and trade organizations to keep abreast of Year 2000 matters. The Corporation also has participated and plans to participate in conferences, seminars and other gatherings to improve its Year 2000 readiness condition as the Year 2000 approaches. COSTS The total cost associated with required modifications to become Year 2000 Compliant is not expected to be material to the Corporation's financial position. The estimated total cost of the Year 2000 Project is approximately $10.0. Items of a capital nature will be capitalized while all other costs will be expensed as incurred. This estimate does not include a share of Year 2000 costs that may be incurred by partnerships and joint ventures in which the Corporation or its subsidiaries participate. The total amount expended on the Business Continuation Plan through March 26, 1999 was $4.5, of which approximately $4.0 related to the cost to repair or replace software and related hardware problems, and approximately $.5 related to the cost of identifying and communicating with vendors and/or contractors. The estimated future cost of 21 23 completing implementation of the Business Continuation Plan is estimated to be approximately $5.5. All Year 2000 expenses will be funded from operations. CONTINGENCY PLANS Although the Corporation and its subsidiaries expect to be ready to continue their business activities without interruption by a Year 2000 Problem, they recognize that they depend on outsiders (such as suppliers, contractors and utility companies) to provide various goods and services necessary for doing business. The Corporation is now developing a contingency plan for itself, and has required each of its subsidiaries to do likewise. Each plan will address alternative arrangements to cope with Year 2000 Problems caused by others, and back-up strategies to follow if a subsidiary's software or equipment does not perform properly, even though it appears now to be Year 2000 Compliant. Contingency Plans are expected to be finalized by mid 1999. RISKS The failure to correct a Year 2000 Problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures are not expected to materially adversely affect the Corporation's results of operations and financial condition. However, due to the general uncertainty inherent in the Year 2000 Problem, resulting in part from the uncertainty about the Year 2000 readiness of vendors, contractors and customers, the Corporation is unable to determine at this time whether the consequences of Year 2000 Problems will have a material impact on the Corporation's results of operations or financial condition. The completion of the Business Continuation Plan is expected to significantly reduce the Corporation's level of uncertainty about the Year 2000 Problem and, in particular, about Year 2000 Compliance and readiness of vendors, contractors and customers. The Corporation believes that the implementation of new business systems and the complete implementation of the Business Continuation Plan should reduce the possibility of significant interruptions of normal operation. It is not possible to describe a "most reasonably likely worst case Year 2000 scenario" without making a variety of assumptions. The Corporation's Business Continuation Plan assumes that parties which provide us goods or services necessary for its operations will continue to do so, or that the contingency features of the Corporation's Plan will respond to address its needs. Based upon those assumptions the Corporation believes that a most likely worst case Year 2000 scenario may make it necessary to replace some suppliers or contractors, rearrange some work plans or even interrupt some field activities. The Corporation does not believe that such circumstances will materially adversely affect the financial condition or results of operations, even if it is necessary to incur costs to do so. Readers are cautioned that forward-looking statements contained in the Year 2000 Statement should be read in conjunction with the Corporation's risk disclosures under the heading: "Safe Harbor Statement." 22 24 SAFE HARBOR STATEMENT This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report on 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. The Corporation's management continues to evaluate the Corporation's condition of readiness relating to the Year 2000 Problem and the costs and risks arising from the Year 2000 Problem, and is designing and developing the Corporation's contingency plan, based on its best estimates of certain factors, which estimates were derived by relying on numerous assumptions about future events. However, there can be no guarantee that these assumptions or estimates have been correctly made, or that there will not be a delay in, or increased costs associated with, the implementation of the Corporation's Business Continuation Plan. A delay in the implementation of the Business Continuation Plans of the Corporation or of the Corporation's subsidiaries could also affect the Corporation's readiness for the Year 2000. Specific factors that might cause actual outcome to differ from the projected outcome include, without limitation, the continued availability and cost of consulting services and of personnel trained in the computer programming necessary for remediation of the Year 2000 issue, the ability to locate and correct all relevant computer code, timely responses by third parties and suppliers, the ability to implement interfaces between the new systems and the systems not being replaced. 23 25 PART II OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS 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 recently acquired 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 be made with respect to formerly owned properties, that would require the Corporation to incur material expenditures to investigate and/or remediate such conditions. 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 $1.0 million. The Corporation received an Administrative Order and Notice of Civil Administrative Penalty Assessment (the "Administrative Order") dated April 1, 1997 alleging state air act violations at the Camden Project in New Jersey. The Administrative Order seeks a penalty of $32,000 and revocation of the Certificate to Operate. The Corporation requested an administrative hearing 24 26 to challenge the Administrative Order, which request automatically stayed any permit revocation. The Corporation expects an additional penalty demand to increase to more than $100,000 as a result of other violations which the Corporation expects the state to allege. The Corporation believes that it will be able to address all issues of concern to the state and that the resulting civil penalty will not be material to the Corporation. The Corporation received a Complaint for Injunction and Civil Penalties from the State of Illinois dated April 28, 1998 alleging primarily state air act violations at the Robbins Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS, INC., filed in the 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 Corporation has submitted a plan to the state designed to correct all violations and expects that the resulting penalty will not be material to the Corporation. 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 26, 1999, at the Hunterdon Hills Playhouse, 88 Route 173 West, Hampton, New Jersey. (b) Election of Directors Directors Elected For Withheld ----------------- --- -------- Louis E. Azzato 34,282,341 468,361 John P. Clancey 34,269,098 481,604 David J. Farris 34,296,928 453,774 Constance J. Horner 34,279,995 470,707 Other Directors continuing in office: Eugene D. Atkinson David J. Roberts E. James Ferland John E. Stuart Martha Clark Goss Richard J. Swift Joseph J. Melone 25 27
(c) Additional Matters Voted Upon The Proposal to Amend the 1995 Stock Option Plan For 31,190,097 Against 3,310,655 Abstain 249,950 Ratification of the appointment of PricewaterhouseCoopers LLP as Independent Accountants of the Corporation for 1999. For 34,518,460 Against 105,338 Abstain 126,904
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 Report on Form 8-K dated February 16, 1999, relating to the filing of a tax opinion. 26 28 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 7, 1999 /s/ RICHARD J. SWIFT --------------------------------- Richard J. Swift (Chairman, President and Chief Executive Officer) Date: May 7, 1999 /s/ DAVID J. ROBERTS --------------------------------- David J. Roberts (Vice Chairman and Chief Financial Officer) 27 EX-12.1 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12-1 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS ($000'S) UNAUDITED
Fiscal Year 3 months ----------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- --------- Earnings: Net Earnings/(Loss) $ 15,403 $ (31,506) $ 5,624 $ 82,240 $ 28,534 $ 65,410 Taxes on Income 6,131 79,295 13,892 44,626 41,129 41,457 Total Fixed Charges 23,333 88,994 84,541 74,002 60,920 45,412 Capitalized Interest (622) (9,749) (10,379) (6,362) (1,634) (467) Capitalized Interest Amortized 811 2,265 2,184 2,528 2,273 2,189 Equity Earnings of non-consolidated associated companies accounted for by the equity method, net of Dividends (4,594) (7,869) (9,796) (1,474) (1,578) (623) --------- --------- --------- --------- --------- --------- $ 40,462 $ 121,430 $ 86,066 $ 195,560 $ 129,644 $ 153,378 ========= ========= ========= ========= ========= ========= Fixed Charges: Interest Expense $ 17,931 $ 62,535 $ 54,675 $ 54,940 $ 49,011 $ 34,978 Capitalized Interest 622 9,749 10,379 6,362 1,634 467 Imputed Interest on non-capitalized lease payments 4,780 16,710 19,487 12,700 10,275 9,967 --------- --------- --------- --------- --------- --------- $ 23,333 $ 88,994 $ 84,541 $ 74,002 $ 60,920 $ 45,412 ========= ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges 1.73 1.36 1.02 2.64 2.13 3.38 ========= ========= ========= ========= ========= =========
- ---------- * 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. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-26-1999 DEC-26-1998 MAR-26-1999 166,504 46,389 908,967 0 431,698 1,646,589 1,026,724 343,954 3,306,759 1,448,420 697,064 175,000 0 40,748 523,537 3,306,759 998,770 1,017,978 968,441 968,441 0 0 17,931 21,534 6,131 15,403 0 0 0 15,403 .38 .38
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