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.
<PAGE>
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
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
September 29, 2000 December 31,
(UNAUDITED) 1999
------------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
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.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
<FN>
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.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C>
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.
</TABLE>
4
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
10. Changes in equity for the nine months ended September 29, 2000 were as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS
------ ------ ------- -------- ----
<S> <C> <C> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
8
<PAGE>
11. Major Business Groups
<TABLE>
<CAPTION>
FOR NINE MONTHS
--------------- ENGINEERING CORPORATE AND
AND ENERGY FINANCIAL
ENDED TOTAL CONSTRUCTION EQUIPMENT(3)(4) SERVICES(1)
----- ----- ------------ --------------- -----------
SEPTEMBER 29, 2000
------------------
<S> <C> <C> <C> <C>
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)
=========== =========== =========== ===========
<FN>
(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.
</FN>
</TABLE>
9
<PAGE>
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.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
(In Thousands of Dollars)
September 29, 2000
FOSTER
ASSETS WHEELER GUARANTOR NON-GUARANTOR
------ CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== ===========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
(In Thousands of Dollars)
December 31,1999
FOSTER WHEELER GUARANTOR NON-GUARANTOR
ASSETS CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
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
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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)
=========== =========== =========== =========== ===========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ENGINEERING AND CONSTRUCTION GROUP
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 24,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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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.
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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
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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
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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
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