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 31, 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 March 31,
2000.
<PAGE>
FOSTER WHEELER CORPORATION
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at March 31, 2000 and
December 31, 1999
Condensed Consolidated Statement of Earnings and
Comprehensive Income Three Months Ended
March 31, 2000 and March 26, 1999
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 2000 and March 26, 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 4 - Submission of Matters to a Vote of Security Holders
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)
March 31, 2000 December 31,
(UNAUDITED) 1999
------------ ------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................ $ 187,715 $ 170,268
Short-term investments ................................... 15,071 17,053
Accounts and notes receivable ............................ 853,897 918,898
Contracts in process and inventories ..................... 441,646 420,033
Prepaid, deferred and refundable income taxes ............ 53,033 61,531
Prepaid expenses ......................................... 34,889 27,313
----------- -----------
Total current assets ................................ 1,586,251 1,615,096
----------- -----------
Land, buildings and equipment ............................ 998,220 1,006,016
Less accumulated depreciation ............................ 360,792 357,817
----------- -----------
Net book value ...................................... 637,428 648,199
----------- -----------
Notes and accounts receivable - long-term ................ 91,884 95,526
Investments and advances ................................. 113,212 108,655
Intangible assets, net ................................... 296,917 301,494
Prepaid pension cost and benefits ........................ 198,698 199,955
Other, including insurance recoveries .................... 400,147 404,313
Deferred income taxes .................................... 64,414 64,871
----------- -----------
TOTAL ASSETS .................................. $ 3,388,951 $ 3,438,109
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt ................... $ 19,953 $ 19,668
Bank loans ............................................... 83,920 63,378
Accounts payable and accrued expenses .................... 621,221 681,596
Estimated costs to complete long-term contracts .......... 613,817 610,023
Advance payments by customers ............................ 61,694 42,801
Income taxes ............................................. 50,838 54,086
----------- -----------
Total current liabilities ........................... 1,451,443 1,471,552
Corporate and other debt less current installments ....... 362,602 372,847
Special-purpose project debt less current installments ... 329,001 329,907
Deferred income taxes .................................... 13,197 12,874
Postretirement and other employee benefits other than
Pensions ............................................ 159,986 163,536
Other long-term liabilities and minority interest ........ 416,265 424,815
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 ............................. 3,019,209 3,062,246
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock ............................................. 40,748 40,748
Paid-in capital .......................................... 200,963 201,043
Retained earnings ........................................ 217,458 211,529
Accumulated other comprehensive loss ..................... (89,334) (77,219)
----------- -----------
369,835 376,101
Less cost of treasury stock .............................. 93 238
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................... 369,742 375,863
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ..................... $ 3,388,951 $ 3,438,109
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
Revenues:
<S> <C> <C>
Operating revenues .................... $ 822,036 $ 998,770
Other income .......................... 14,260 19,208
------------ ------------
Total revenues ................... 836,296 1,017,978
------------ ------------
Cost and expenses:
Cost of operating revenues ............ 741,558 913,229
Selling, general and adminis-
trative expenses ................. 54,101 55,212
Other deductions/minority
interest ......................... 23,011 24,722
Dividends on preferred security
of subsidiary trust ............ 3,937 3,281
------------ ------------
Total costs and expenses 822,607 996,444
------------ ------------
Earnings before income taxes ............... 13,689 21,534
Provision for income taxes ................. 5,317 6,131
------------ ------------
Net earnings ............................... 8,372 15,403
Other comprehensive (loss)/income:
Foreign currency translation
adjustment .................... (12,115) (14,863)
------------ ------------
Comprehensive (loss)/income ................ $ (3,743) $ 540
============ ============
Earnings per share:
Basic ................................. $ .21 $ .38
============ ============
Diluted ............................... $ .21 $ .38
============ ============
Shares outstanding:
Basic ................................. 40,776,234 40,729,835
Diluted ............................... 338 50
------------ ------------
Total diluted ......................... 40,776,572 40,729,885
============ ============
Cash dividends paid per
common share ......................... $ .06 $ .21
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
THREE MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings ............................................... $ 8,372 $ 15,403
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation and amortization .............................. 15,086 18,234
Deferred tax ............................................... 1,011 (6,916)
Equity earnings, net of dividends .......................... (4,546) (4,594)
Other noncash items ........................................ (3,869) (5,329)
Changes in assets and liabilities:
Receivables ................................................ 55,562 (85,586)
Contracts in process and inventories ....................... (26,155) 37,951
Accounts payable and accrued expenses ...................... (59,528) (13,803)
Estimated costs to complete long-term contracts ............ 14,637 28,637
Advance payments by customers .............................. 19,999 392
Income taxes ............................................... 3,798 473
Other assets and liabilities ............................... (5,726) (13,798)
--------- --------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES ........... 18,641 (28,936)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................................... (11,208) (32,735)
Proceeds from sale of properties ........................... 798 396
Decrease in investments and advances ....................... 5,316 12,131
Decrease in short-term investments ......................... 1,982 10,505
Partnership distributions .................................. (2,599) (4,385)
--------- --------
NET CASH USED BY INVESTING ACTIVITIES ...................... (5,711) (14,088)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders .................................. (2,443) (8,548)
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 ..................... 22,569 (2,707)
Proceeds from long-term debt ............................... 3,321 22,444
Repayment of long-term debt ................................ (14,067) (145,893)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 9,297 33,614
--------- --------
Effect of exchange rate changes on cash and cash equivalents (4,780) (4,154)
--------- --------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........... 17,447 (13,564)
Cash and cash equivalents at beginning of year ............. 170,268 180,068
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 187,715 $ 166,504
========= ========
Cash paid during period:
Interest (net of amount capitalized) ....................... $ 9,855 $ 4,505
Income taxes ............................................... $ 4,329 $ 2,584
</TABLE>
See notes to condensed consolidated financial statements
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 March 31, 2000, and
the related condensed consolidated statements of earnings and
comprehensive income and cash flows for the three month period ended
March 31, 2000 and 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
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 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 Annual Report
on Form 10-K. A summary of Foster Wheeler Corporation's significant
accounting policies is presented on pages 29, 30, and 31 of its 1999
Annual Report on Form 10-K. Users of financial information produced
for interim periods are encouraged to refer to the footnotes
contained in the 1999 Annual Report on 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 quarter of 2000.
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.
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 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 31, 2000, there were approximately
83,800 claims pending. In the first quarter of 2000, approximately
13,400 new claims have been filed and approximately 3,200 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
5
<PAGE>
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 16 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 County Waste-to-Energy
Project (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. These
outstanding bonds are public debt, not debt of the Corporation. The
Corporation has filed suit against certain involved parties,
including the State of New Jersey, seeking among other things to void
the applicable contracts and agreements governing the Camden Project.
Pending outcome of the litigation and the results of initiatives by
the state of New Jersey to resolve the crisis, management believes
that the plant will continue to operate at full capacity while
receiving market rates for waste disposal. At this time, management
cannot determine the ultimate outcome or its effect on the Camden
Project.
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 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 bondholders. Pursuant to the Robbins Agreement, the
Corporation has agreed to continue to contest this repeal through the
Retail Rate Litigation. Pursuant to the Robbins Agreement, the
corporation has also agreed that any proceeds of the Retail Rate
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
6
<PAGE>
foregoing payments shall have been made, any remaining proceeds shall
be paid over to the Corporation.
The ultimate legal and financial liability of the Corporation in
respect to all claims, lawsuits and proceedings cannot be estimated
with certainty. As additional information concerning the estimates
used by the Corporation becomes known, the Corporation reassesses its
position both with respect to gain contingencies and accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change relate to legal matters,
which are subject to change as events evolve and as additional
information becomes available during the administration and
litigation process.
3. On February 12, 1999, the Corporation entered into revolving credit
agreements (the "Revolving Credit Agreements"), consisting of a
$270,000 revolving credit agreement with a four-year term and a
$90,000 revolving credit agreement with a 364-day term, each bearing
interest at a floating rate. Loans under the Revolving Credit
Agreements were used to repay the outstanding indebtedness under
previous revolving credit agreements and for general corporate
purposes. At March 31, 2000, $140,000 was outstanding under the
Revolving Credit Agreements. The Corporation also pays various fees
to the lenders thereunder.
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. On December 1,
1999, the Revolving Credit Agreements were amended and restated (the
"Amended and Restated Revolving Credit Agreements"). The Corporation
was in compliance with covenants under the Amended and Restated
Revolving Credit Agreements as of March 31, 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. Foster Wheeler's subordinated obligations under the Exit Funding
Agreement entered into in connection with the restructuring of debt
incurred to finance construction of the Robbins Facility will be
limited to funding:
(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 4,337,801 shares of common stock were reserved for
issuance under the stock option plans; of this total 1,329,166 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
7
<PAGE>
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 March 31,
2000, 51,038 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
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
Interest Income $ 2,750 $ 3,298
======= ========
Interest Cost $ 20,886 $ 18,553
======== ========
Included in the interest cost is interest capitalized on
self-constructed assets, which was $1,475 and $622 for the quarters
ended March 31, 2000 and March 26, 1999, respectively. Interest cost
for the three months ended March 31, 2000 and March 26, 1999, also
included $3,937 and $3,281, respectively, for dividends on Trust
Preferred Securities.
8. 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
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. The effective date of this Statement
has been deferred by the issuance of Statement of Financial
Accounting Standards 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 has been deferred
by SAB No. 101A until the second quarter of 2000. These statements
relate to the timing of revenue recognition. The Corporation is
currently reviewing these SABS but does not expect that they will
have an impact on its recording of revenue.
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 March
31, 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.
8
<PAGE>
10. Changes in equity for the three months ended March 31, 2000 were as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK STOCKHOLDERS'
------------ ------- -------- ------------- -------------- -------------
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT EQUITY
------ ------ ------- -------- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 40,747,668 $40,748 $201,043 $211,529 $(77,219) (16,781) $ (238) $375,863
Net earnings 8,372 8,372
Dividends paid - common (2,443) (2,443)
Purchase of treasury stock (13,200) (83) (83)
Foreign currency translation
adjustment (12,115) (12,115)
Shares issued under incentive
plan and other plans (80) 20,556 228 148
---------- ------- -------- -------- - -------- -------- ------- ----------
Balance March 31, 2000 40,747,668 $40,748 $200,963 $217,458 $(89,334) (9,425) $ ( 93) $369,742
========== ======= ======== ======== = ======== ======== ======== ==========
</TABLE>
9
<PAGE>
11. Major Business Groups
<TABLE>
<CAPTION>
FOR THREE MONTHS
- ----------------
ENGINEERING CORPORATE AND
AND ENERGY FINANCIAL
TOTAL CONSTRUCTION EQUIPMENT(3)(4) SERVICES (1)
----- ------------ -------------- ------------
ENDED
MARCH 31, 2000
<S> <C> <C> <C> <C>
Revenues $ 836,296 $615,964 $232,823 $(12,491)
Interest expense(2) 19,411 642 9,018 9,751
Earnings/(loss)
before income taxes 13,689 20,004 9,364 (15,679)
Income taxes/(benefit) 5,317 7,002 3,819 (5,504)
---------- -------- -------- --------
Net earnings/(loss) $ 8,372 $ 13,002 $ 5,545 $(10,175)
========== ======== ======== ========
ENDED
MARCH 26, 1999
Revenues $1,017,978 $804,035 $230,224 $(16,281)
Interest expense(2) 17,931 1,962 10,156 5,813
Earnings/(loss)
before income taxes 21,534 24,777 9,320 (12,563)
Income taxes/(benefit) 6,131 7,521 3,010 (4,400)
---------- -------- -------- --------
Net earnings/(loss) $ 15,403 $ 17,256 $ 6,310 $ (8,163)
========== ======== ======== ========
<FN>
(1) Includes intersegment eliminations.
(2) Includes dividend on Trust Preferred Securities.
(3) Includes losses recorded for the Robbins Facility in 1999 of $1,913
pre-tax ($1,244 after tax).
(4) Commencing in 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.
</FN>
</TABLE>
10
<PAGE>
12. Consolidating Financial Information
The following represents summarized consolidating financial
information as of March 31, 2000 and December 31, 1999, with respect
to the financial position, and for the three months ended March 31,
2000, and March 26, 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, because 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)
March 31, 2000
GUARANTOR NON-GUARANTOR
ASSETS FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets $ 368,598 $ 443,102 $1,570,033 $ (795,482) $1,586,251
Investment in subsidiaries 922,548 304,485 63,252 (1,290,285)
Land, buildings & equipment (net) 46,717 28,213 568,923 (6,425) 637,428
Notes and accounts receivable - long-term 68,829 8,342 358,744 (344,031) 91,884
Intangible assets (net) 87,832 209,085 296,917
Other non-current assets 544,182 22 175,980 56,287 776,471
-------------- ------------ ------------ ---------------- ------------
TOTAL ASSETS $ 1,950,874 $ 871,996 $2,946,017 $(2,379,936) $3,388,951
============== ============== ============ ================= ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities $ 470,819 $ 411,148 $1,364,968 $ (795,492) $1,451,443
Long-term debt 548,251 491,045 (347,693) 691,603
Other non-current liabilities 562,062 8,257 244,830 (113,986) 701,163
Preferred trust securities 175,000 175,000
-------------- -------------- ------------ ---------------- ------------
TOTAL LIABILITIES 1,581,132 419,405 2,275,843 (1,257,171) 3,019,209
TOTAL STOCKHOLDERS'
EQUITY 369,742 452,591 670,174 (1,122,765) 369,742
-------------- -------------- ------------ ---------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,950,874 $ 871,996 $2,946,017 $(2,379,936) $3,388,951
============== ============== ============ ================= ============
</TABLE>
11
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(In Thousands of Dollars)
December 31,1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
ASSETS FWC 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 liabiliies 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>
12
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
(In Thousands of Dollars)
Three Months Ended March 31, 2000
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,551 $ 260,415 $ 652,029 $ (80,699) $ 836,296
Cost of operating revenues 243,098 565,687 (67,227) 741,558
Selling, general and administrative,
Other deductions and minority
Interests 20,433 13,230 60,858 (13,472) 81,049
Equity in net earnings of subsidiaries 19,079 2,618 (21,697)
--------- ----------- ----------- ----------- -----------
Earnings/ (loss) before income taxes 3,197 6,705 25,484 (21,697) 13,689
(Benefit)/provision for income taxes (5,175) 1,693 8,799 5,317
--------- ----------- ----------- ----------- -----------
Net earnings/(loss) $ 8,372 $ 5,012 $ 16,685 $ (21,697) $ 8,372
========= =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
(In Thousands of Dollars)
Three Months Ended March 26, 1999
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,916 $ 252,480 $ 839,664 $(80,082) $ 1,017,978
Cost of operating revenues 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 (26,846)
--------- ----------- ----------- ----------- -----------
Earnings/(loss) before income taxes 11,036 6,316 31,028 (26,846) 21,534
(Benefit)/provision for income taxes (4,367) 1,139 9,359 6,131
--------- ----------- ----------- ----------- -----------
Net earnings/(loss) $ 15,403 $ 5,177 $ 21,669 $ (26,846) $ 15,403
========= =========== ========== ========== ==========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA
(In Thousands of Dollars)
Three Months Ended March 31, 2000
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED/(USED) BY
OPERATING ACTIVITIES $ (25,187) $ 30,396 $ 5,957 $ 7,475 $ 18,641
----------- -------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (2,349) (8,859) (11,208)
Proceeds from sale of properties 798 798
(Increase)/decrease in investment and
advances (820) (5,889) 12,025 5,316
Decrease in short-term investments 1,982 1,982
Other (2,599) (2,599)
----------- -------- ---------- ---------- -----------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES (820) (2,349) (14,567) 12,025 (5,711)
----------- -------- ---------- ---------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES
Dividends to Stockholders (2,443) (3,959) 3,959 (2,443)
Increase in short-term debt 22,569 22,569
Proceeds from long-term debt 3,321 3,321
Repayment of long-term debt (10,000) (4,067) (14,067)
Other 31,747 (28,491) 20,120 (23,459) (83)
----------- -------- ---------- ---------- -----------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES 19,304 (28,491) 37,984 (19,500) 9,297
----------- -------- ---------- ---------- -----------
Effect of exchange rate changes on Cash
and cash equivalents (4,780) (4,780)
(Decrease)/increase in cash and cash
equivalents (6,703) (444) 24,594 17,447
Cash and cash equivalents, beginning of
period 16,262 3,080 150,926 170,268
----------- -------- ---------- ---------- -----------
Cash and cash equivalents, end of Period $ 9,559 $ 2,636 $ 175,520 $ 0 $ 187,715
=========== ========= ========== ========== ===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA
(In Thousands of Dollars)
Three Months Ended March 26,1999
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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 PROVIDED/(USED) 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 PROVIDED/(USED) 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
=========== ============ ========= ============= ============
</TABLE>
15
<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.
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 101,389 $ 104,084
Other assets (primarily buildings
and equipment) 480,882 506,620
Current liabilities 33,911 48,562
Other liabilities (primarily long-
term debt) 390,082 410,199
Net assets 158,279 151,943
INCOME STATEMENT DATA FOR THREE MONTHS:
Total revenues $ 52,213
Income before income taxes 14,163
Net earnings 9,367
</TABLE>
As of March 31, 2000, the Corporation's share of the net earnings and
investment in the equity affiliates totaled $5,446 and $113,212,
respectively. Dividends of $900 were received during the first three
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. No amount has
been drawn under the letter of credit. The earnings results for the
three months of 1999 were $9,287 for these operations.
14. The Corporation's continuing business strategy is to maintain focus on
its core business segments in Engineering and Construction and Energy
Equipment. In order to remain competitive in these segments while
improving margins, the Corporation has been reducing costs through
staff reductions and closure of some smaller operating facilities.
These changes include 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 have been
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 of 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. 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, when complete, should result in substantial cost
savings. It is anticipated that the plan will be complete prior to the
end of the second quarter 2000. The cash remaining to be spent is
approximately $1,900.
16
<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 MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTH ENDED MARCH 26,
1999
CONSOLIDATED DATA
THREE MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
Backlog $6,290.6 $7,050.1
======== ========
New orders $1,191.9 $ 910.5
======== ========
Revenues $ 836.3 $1,018.0
======== ========
Net earnings $ 8.4 $ 15.4
======== ========
The table below reflects the Corporation's results excluding the impact of
losses related to the Robbins Facility.
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
EARNINGS BEFORE INCOME TAXES
- ----------------------------
AS REPORTED $ 13.7 $ 21.5
-----------
Adjustment for Robbins --- 1.9
------ --------
As adjusted $ 13.7 $ 23.4
====== ========
NET EARNINGS AS REPORTED $ 8.4 $ 15.4
- ------------------------
Adjustment for Robbins --- 1.2
------ --------
As adjusted $ 8.4 $ 16.6
====== ========
The Corporation's consolidated backlog at March 31, 2000 totaled $6,290.6, which
represented a decrease of 11% from the amount reported as of March 26, 1999. 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 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 31, 2000 was $51.5,
compared with $96.1 for the three months ended March 26, 1999. 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.
17
<PAGE>
New orders awarded for the three months ended March 31, 2000 were $1,191.9
compared to $910.5 for the period ended March 26, 1999. Approximately 66% of new
orders booked in the three months ended March 31, 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 three
months ended March 31, 2000 were the United States, Europe and the Middle East.
Operating revenues decreased 18% in the three months March 31, 2000 compared to
the three months ended March 26, 1999 to $822.0 from $998.8.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, decreased by $5.0 in the three months ended March 31, 2000
as compared with the three months ended March 26, 1999 to $80.5 from $85.5.
Selling, general and administrative expenses decreased by 2% in the three months
ended March 31, 2000 as compared with the same period in 1999, from $55.2 to
$54.1.
Other income in the three months ended March 31, 2000 as compared with March 26,
1999 decreased to $14.3 from $19.2. Approximately, $1.5 of this decrease can be
attributed to equity earnings of unconsolidated affiliates.
Other deductions and dividends on the Trust Preferred Securities for the three
months ended March 31, 2000 were $0.9 lower than that reported in the three
months ended March 26, 1999.
Net earnings for the three months ended March 31, 2000 were $8.4 or $.21 per
share diluted compared to a net earning of $15.4 or $.38 diluted per share for
the three months ended March 26, 1999.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
Backlog $4,836.1 $5,631.1
========= ========
New orders $ 766.9 $ 745.6
========= =======
Operating revenues $ 608.2 $ 790.5
========= =======
Gross earnings from operations $ 46.4 $ 48.4
========= =======
The Engineering and Construction Group ("E&C Group"), had a backlog of $4,836.1
at March 31, 2000, which represented a decrease of $795 from March 26, 1999. New
orders booked for the three month period ended March 31, 2000 increased by 3%
compared with the period ended March 26, 1999. Operating revenues for the three
month period ended March 31, 2000 decreased 23% compared to the three month
period ended March 26, 1999. Gross earnings from operations decreased by 4% for
the three month period ended March 31, 2000, compared with the corresponding
period ended March 26, 1999. The gross earnings for the three month period were
lower primarily due to the decrease reported by the United Kingdom subsidiary
($9.3), which was partially offset by an increase in the U.S. subsidiaries.
<PAGE>
ENERGY EQUIPMENT GROUP
THREE MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
Backlog $1,581.2 $1,464.0
======== ========
New orders $ 425.5 $ 169.2
======== ========
Operating revenues $ 224.4 $ 220.6
======== ========
Gross earnings from operations $ 33.5 $ 36.6
======== ========
Commencing in 2000, the Power Systems Group was combined with the Energy
Equipment Group. The 1999 data has been reclassified to conform to the 2000
presentation.
The Energy Equipment Group had a backlog of $1,581.2 at March 31, 2000, which
represented an 8% increase from March 26, 1999, due primarily to higher orders
awarded in 2000. Approximately 18% of the Energy Equipment Group's backlog as of
March 31, 2000 represents orders from Asia. These orders, which are supported by
financing agreements guaranteed by United States and Finland, are for large
utility size boilers. New orders booked for the three month period ended March
31, 2000 increased by 151% from corresponding periods in 1999. Operating
revenues for the three month period ended March 31, 2000 increased by 2%. Gross
earnings from operations decreased by $3.1 for the three month period ended
March 31, 2000 compared with the period ended March 26, 1999.
FINANCIAL CONDITION
Stockholders' equity for the three months ended March 31, 2000 decreased by
$6.1, due primarily to changes in the foreign currency translation adjustment of
$12.1 and dividends paid of $2.4, offset by earnings of $8.4.
During the three months ended March 31, 2000, long-term investments in land,
buildings and equipment were $11.2 as compared with $32.7 for the comparable
period in 1999. Approximately $5.5 was invested in a waste-to-energy project in
Italy during the first three months of 2000.
Since December 31, 1999, long-term debt, including current installments and bank
loans, increased by $9.7.
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 March 31, 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.
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.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $187.7 at March 31, 2000, an increase of $17.4
from fiscal year end 1999. Short-term investments decreased by $2.0 to $15.1.
During the first quarter of fiscal 2000, the Corporation paid $2.4 in dividends
to stockholders. Cash provided by operating activities amounted to $18.6.
Management of the Corporation believes that cash and cash equivalents of $187.7
and short-term investments of $15.1 at March 31, 2000, combined with cash flows
from operating activities, amounts available under its Revolving Credit
Agreements and access to third-party financings in the capital markets will be
adequate to meet its working capital and liquidity needs for the foreseeable
future. 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 has been issued as of March 31, 2000.
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 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 31, 2000, there were
approximately 83,800 claims pending. In the first quarter of 2000, approximately
13,400 new claims have been filed and approximately 3,200 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 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 pledging 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 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.
20
<PAGE>
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.
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 affect on the
Corporation's results of operations and financial condition. No such affect has
been experienced thus far, and none is expected. However, it is possible that
interruptions might occur later in the year 2000, so the Corporation remains
vigilant and continues to enforce its Business Continuation Plan. 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 changes are warranted.
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".
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 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.
21
<PAGE>
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 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.
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 a
waste-to-energy plant located in the Village of Robbins, Illinois (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
22
<PAGE>
principle with the state on a Consent Decree that will resolve all violations.
The resulting penalty is not expected to be material.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECRUITY HOLDERS
(a) DATE OF MEETING
---------------
The Annual Meeting of Stockholders of Foster
Wheeler Corporation was held on April 28, 2000,
at the Hunterdon Hills Playhouse, 88 Route 173
West, Hampton, New Jersey.
(b) ELECTION OF DIRECTORS
---------------------
DIRECTORS ELECTED FOR WITHHELD
----------------- --- --------
Martha Clark Goss 35,254,794 812,284
John E. Stuart 35,253,518 813,560
Other Directors continuing in office:
Eugene D. Atkinson E. James Ferland
Louis E. Azzato Constance J. Horner
John P. Clancey Joseph J. Melone
David J. Farris Richard J. Swift
(c) ADDITIONAL MATTERS VOTED UPON
-----------------------------
Ratification of the appointment of
PricewaterhouseCoopers LLP as Independent
Accountants of the Corporation for 2000.
For 35,757,166
Against 200,487
Abstain 109,425
Broker non-votes -0-
23
<PAGE>
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
<PAGE>
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 5, 2000 /S/ RICHARD J. SWIFT
--------------- ---------------------
Richard J. Swift
(Chairman, President and
Chief Executive Officer)
Date: MAY 5, 2000 /S/ GILLES A. RENAUD
--------------- ---------------------
Gilles A. Renaud
(Senior Vice President and
Chief Financial Officer)
25
EXHIBIT 12-1
FOSTER WHEELER CORPORATION
STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF
EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES
($000'S)
UNAUDITED
3 MONTHS
2000
----
EARNINGS:
- ---------
Net earnings $8,372
Taxes on income 5,317
Total fixed charges 25,681
Capitalized interest (1,475)
Capitalized interest amortized 546
Equity earnings of non-consolidated associated companies accounted for
by the equity method, net of dividends (4,546)
--------
$ 33,895
========
FIXED CHARGES:
- --------------
Interest expense (includes dividend on preferred security of $3,937) $ 19,411
Capitalized interest 1,475
Imputed Interest on non-capitalized lease payment 4,795
--------
$ 25,681
========
Ratio of Earnings to Fixed Charges 1.32
========
Note: There were no preferred shares outstanding during the period indicated
and, therefore, the consolidated ratio of earnings to fixed charges and combined
fixed charges and preferred share dividend requirements would have been the same
as the consolidated ratio of earnings to fixed charges and combined fixed
charges for the period indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary of financial
information extracted from the condensed
consolidated balance sheet and statement of earnings
for the three months ended March 31, 2000 and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 187,715
<SECURITIES> 15,071
<RECEIVABLES> 853,897
<ALLOWANCES> 0
<INVENTORY> 441,646
<CURRENT-ASSETS> 1,586,251
<PP&E> 998,220
<DEPRECIATION> 360,792
<TOTAL-ASSETS> 3,388,951
<CURRENT-LIABILITIES> 1,451,443
<BONDS> 691,603
175,000
0
<COMMON> 40,748
<OTHER-SE> 328,994
<TOTAL-LIABILITY-AND-EQUITY> 369,742
<SALES> 822,036
<TOTAL-REVENUES> 836,296
<CGS> 795,659
<TOTAL-COSTS> 795,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,411
<INCOME-PRETAX> 13,689
<INCOME-TAX> 5,317
<INCOME-CONTINUING> 8,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,372
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
