equipment associated with solid fuel boiler contracts. Internationally, growth opportunities in circulating fluidized bed boilers are expected to continue in selective European and Asian markets.
The major components comprising the net loss are listed in the chart at the beginning of the discussion of Results of Operations. The charge for the change in accounting principle relating to goodwill relates to two US entities in the Energy Group in the aggregate amount of $101,800 and one US entity in the E&C Group in the amount of $48,700. The adjustments to minimum pension liability resulted in charges relating to plans in the United Kingdom in the amount of $166,400, in the US in the amount of $55,700 and in Canada in the amount of $3,900, and reflect the weak equity markets and lower interest rates during the past three years.
For fiscal 2002, 2001 and 2000, investments in land, buildings and equipment were $53,400, $34,000 and $45,800, respectively. The increase in 2002 was primarily related to the buyout of an operating lease financing agreement on a corporate office building in New Jersey of approximately $33,000, approximately $4,700 of routine capital expenditures at the Company’s build, own and operate plants and $15,700 of other capital expenditures worldwide. The decrease in 2001 was primarily due to lower investments in foreign build, own and operate plants which is in line with the previously announced repositioning plan for these types of plants. Capital expenditures will continue to be directed primarily toward strengthening and supporting the Company’s core businesses and are limited by terms within the Senior Credit Facility.
Net debt decreased by $124,500 to $690,500 during 2002 compared to a decrease of $109,000 to $815,000 during 2001. Net debt includes corporate and other debt, special purpose project debt, capital lease obligations, bank loans, subordinated Robbins Facility exit funding obligations, convertible subordinated notes and preferred trust securities net of cash and short term investments. The 2002 decrease was primarily due to the significant cash provided by operating activities of $160,000 during the year. In 2001, the Company issued $210,000 principal amount of convertible subordinated notes, the net proceeds of which were used to repay $76,300 under the 364-day revolving credit facility that expired on May 30, 2002 and to reduce advances outstanding under the then existing Revolving Credit Agreement. The 2001 decrease was accomplished primarily by the sale of a 50 percent interest in a waste-to-energy facility in Italy. Also, the Company entered into a sale/l easeback of an office building in Spain, which resulted in gross proceeds of approximately $21,000.
The accompanying consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to return to profitability, to continue to generate cash flows from operations, asset sales and collections of receivables to fund its obligations including those resulting from asbestos related liabilities, as well as the Company maintaining credit facilities and bonding capacity adequate to conduct its business. The Company has incurred significant losses in each of the years in the two-year period ended December 27, 2002 and has a shareholder deficit of $780,939 at December 27, 2002. The Company has substantial debt obligations and during 2002 it was unable to comply with certain debt covenants under the previous revolving credit agreement. Accordingly, the Company received waivers of
Back to Contents
covenant violations and ultimately negotiated new credit facilities, in August 2002. While management believes its operating plans, if met, are sufficient to assure compliance with the terms of its new debt agreements, as amended, there is no assurance that the Company will do so during 2003. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plans in regard to these matters are described below.
As of December 27, 2002, the Company had cash and cash equivalents on hand, short-term investments, and restricted cash of $429,000, an increase of $205,000 from 2001. Of this total, $343,000 was held by foreign subsidiaries, of which $69,000 was restricted. In August 2002, the Company finalized a Senior Credit Facility with its lender group. This facility, including a $71,000 term loan, a $69,000 revolving credit facility, and a $149,000 letter of credit facility, expires on April 30, 2005. This facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and 66% of the stock of the first-tier foreign subsidiaries. The facility has no scheduled repayments prior to maturity on April 30, 2005. The facility requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. The Company retains the first $77,000 of such amounts and also retains a 50% share of the ba lance. The financial covenants in the facility commence at the end of the first quarter 2003 and include a senior leverage ratio and a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) level as described in the agreement, as amended. With the sale of Foster Wheeler Environmental Corporation on March 7, 2003, cumulative sales proceeds received, as defined in the agreement, approximate $75,000.
Amendment No. 1 to the Credit Agreement, obtained on November 8, 2002, provides covenant relief of up to $180,000 of gross pre-tax charges recorded by the Company in the third quarter of 2002. The amendment further provides that up to an additional $63,000 in pre-tax charges related to specific contingencies may be excluded from the covenant calculation through December 31, 2003, if incurred. In the fourth quarter 2002, $11,000 of the contingency risks were favorably resolved, and additional project reserves were established for $19,000 leaving a contingency balance of $33,000.
Amendment No. 2 to the Credit Agreement, entered into on March 24, 2003, modifies (i) certain definitions of financial measures utilized in the calculation of the financial covenants and (ii) the Minimum EBITDA, and Senior Debt Ratio, as specified in section 6.01 of the Credit Agreement. In connection with this amendment of the Credit Agreement, the Company must make a prepayment of principal in the aggregate amount of $10,000. Refer to exhibit 10.35, filed as part of this Report on Form 10-K, for the complete amendment.
The Company finalized a sale/leaseback arrangement in the third quarter of 2002 for an office building at its corporate headquarters. This capital lease arrangement leases the facility to the Company for an initial non-cancelable period of 20 years. The proceeds from the sale/leaseback were sufficient to repay the balance outstanding under a previous operating financing lease arrangement of $33,000 for a second corporate office building. This repayment is included in 2002 capital expenditures. The long-term capital lease obligation of $43,700 at December 27, 2002 is included in capital lease obligations in the accompanying consolidated balance sheet.
During the third quarter of 2002, the Company also completed a receivables financing arrangement of up to $40,000. The funding available to the Company is dependent on the amount and characteristics of the domestic receivables. The amount available to the Company fluctuates daily, but the Company estimates that approximately $15,000 to $20,000 will be available during 2003. This financing arrangement expires in August 2005 and is subject to covenant compliance. The financial covenants commence at the end of the first quarter of 2003 and include a senior leverage ratio and a minimum EBITDA level. Noncompliance with the financial covenants allows the lender to terminate the arrangement and accelerate any amounts then outstanding. As of December 27, 2002, the Company had $0 borrowings outstanding under this facility.
The Company initiated a comprehensive plan to enhance cash generation and to improve profitability during 2002. Management’s comprehensive plan to address the Company’s domestic liquidity issues included generating approximately $150,000 from asset sales, collection of receivables and resolving disputed claims through the end of the first quarter 2003, and an additional $40,000 over the following six months. As of December 27, 2002, the Company generated approximately $60,000 through these efforts, and with the sale of the operating business of Foster Wheeler Environmental Corporation on March 7, 2003, an additional
28
Back to Contents
$80,000 has been generated. An additional $10,000 has also been received through more efficient working capital management. The $40,000 is still expected to be received from asset sales and claims recoveries over the course of the year 2003. Management forecasts that the cash on hand, together with cash from operations, asset sales, collection of receivables and claims recoveries will be sufficient to fund the Company’s working capital needs through the first quarter of 2004. Failure by the Company to achieve its forecasts could have a material adverse effect on the Company’s financial condition.
The Senior Credit Facility, the sale/leaseback arrangement, and the receivables financing arrangement have quarterly debt covenant requirements. Management’s forecast indicates that the Company will be in compliance with the debt covenants throughout 2003. The forecast indicates EBITDA in excess of the minimum debt covenant amounts during 2003. However, there can be no assurance that the actual results will match the forecasts or that the Company will not violate the covenants. If the Company violates a covenant under the Senior Credit Facility, the sale/leaseback arrangement or the receivables financing arrangement, repayment of amounts borrowed under such agreements could be accelerated. Acceleration of these facilities would result in a default under the following agreements: the Senior Notes, the Convertible Subordinated Notes, the Preferred Trust Securities, the Subordinated Robbins Facility exit funding obligations, the sale/leaseback arrangement, and certain of the special-purpose project debt, which would allow such debt to be accelerated. The total amount of the debt that could be accelerated, including the amount outstanding under the Senior Credit Facility is $935,600 as of December 27, 2002. It is unlikely that the Company would be able to repay amounts borrowed if the payment dates were accelerated. Failure by the Company to repay such amounts would have a material adverse effect on the Company’s financial condition and operations.
The debt covenants and the potential payment acceleration requirements raise substantial doubts about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Due to the Company’s significant leverage, management is reviewing various options to restructure its balance sheet. Although no definitive plans have been finalized at this point, such options may include, among other things, debt for equity exchanges, debt for debt exchanges, equity for equity exchanges, and additional asset sales. There can be no assurances, however, that the Company can successfully effect any of the foregoing.
The Company generated cash flow from operations of $160,000 during 2002. The sources of cash include the effects of positive timing flows on several major projects in the US and Europe, and the results of management’s comprehensive cash management activities. Management expects much of the positive timing flows for the major projects to reverse in 2003, and forecasts cash flow from 2003 operations to be negative. This will be offset, in part, by the sales proceeds from the Foster Wheeler Environmental Corporation sale and collections, if any, from project claims.
Restricted cash in 2002 amounted to $84,800 and is utilized primarily to support foreign bank guarantees and letters of credit ($68,800), and a domestic escrow deposit in connection with the Todak litigation ($16,000). Capital expenditures of $54,000 includes a $33,000 repayment of an operating lease financing of a corporate office building, $4,700 of capital expenditures at the Company’s build, own and operate plants, and $15,700 of other capital expenditures worldwide.
Proceeds from long-term debt of $70,000 relate to drawings in early 2002 under the prior revolving credit agreement. Proceeds from lease financing of $45,000 relate to the sale leaseback of a corporate office building whose proceeds were used to repay the operating lease financing of another office building. The excess funds are treated as a prepaid deposit under the sale leaseback.
Repayment of long-tem debt of $45,600 consists primarily of the repayments of $20,300 of tax exempt Corporate debt, plus $20,200 of debt associated with the special purpose projects.
In the second quarter 2002, an original receivable sales agreement was terminated. Per the terms of the agreement, the purchaser collected $50,000 in accounts receivable payments.
Over the past several years, the Company has been required by the terms of several government contracts to provide the initial funding required for projects. As part of the Company’s continuing process
29
Back to Contents
improvement, the Company reorganized its Project Risk Management Group in the second quarter of 2002 and appointed a corporate vice president as its head. The purpose of this group is to help the Company avoid projects with unmanageable risk and ensure awarded projects are executed without exposing the Company to additional financial risk. This group will carefully scrutinize all contract proposals for negative cash flow terms. The Company does not intend to take contracts with similar payment terms in the future.
The $360,000 of losses in prior years from the Robbins Facility had a significant negative impact on the Company’s cumulative liquidity and debt levels. The related interest cost is substantial. As discussed in Note 20, the Company reached a final agreement with the debtor project companies on March 5, 2002. The Robbins Facility will not have a negative impact on future cash flows other than from residual debt service.
Cumulative cash flow from operations in 2000 and 2001 was negative $105,000 largely because of costs associated with project claims and trade receivables in excess of 180 days. The Company’s liquidity action plan includes resolution of outstanding claims that, if successful, will have a positive impact on management’s forecast of future cash flows. Collection of receivables has been one of the primary focuses of the Company’s comprehensive plan to enhance cash generation and to improve profitability. The benefits from this intervention began to accrue in 2002 and the changes to policies and procedures are expected to improve the Company’s future operations.
The Company’s working capital varies from period to period depending on the mix, stage of completion and commercial terms and conditions of the Company’s contracts. Working capital needs increased in prior years as a result of the Company’s satisfying requests from its customers for more favorable payment terms under contracts. Such requests generally include reduced advance payments and less favorable payment schedules to the Company.
On January 13, 1999, FW Preferred Capital Trust I, a Delaware business trust issued $175,000 of Preferred Trust Securities. These Preferred Trust 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, beginning April 15, 1999. Such distributions may be deferred for periods up to five years during which time additional interest accrues at 9.0%. The Company elected to defer the distributions in 2002 and the Senior Credit Facility requires the Company to continue to defer dividends on the Preferred Trust Securities through the term of the Senior Credit Facility. The maturity date of the Preferred Trust Securities is January 15, 2029.
In May and June 2001, the Company issued convertible subordinated notes in an aggregate principal amount of $210,000. The notes are due in 2007 and bear interest at 6.5% per annum, payable semi-annually on June 1 and December 1 of each year. The notes may be converted into common shares at an initial conversion rate of 62.3131 common shares per $1,000 principal amount or $16.05 per common share subject to adjustment under certain circumstances. The net proceeds of approximately $202,900 were used to repay advances outstanding under the Revolving Credit Agreement. Debt issuance costs are amortized over the term of the notes and are a component of interest expense.
The Board of Directors of the Company discontinued the common stock dividend in July 2001.
30
Back to Contents
The Company has contractual obligations comprised of bank loans, corporate and other debt, special purpose project debt, subordinated Robbins Facility exit funding obligations, convertible subordinated notes and preferred trust securities. The Company is also obligated under non-cancelable operating lease obligations. The aggregate maturities as of December 27, 2002, of these contractual obligations are as follows:
| | | Total | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | Thereafter | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Bank Loans | | $ | 14,474 | | $ | 14,474 | | | | | | | | | | | | | | | | |
| Corporate and other debt | | | 346,707 | | | 5,005 | | $ | 1,401 | | $ | 340,134 | | $ | 116 | | $ | 51 | | | | |
| Special-purpose project debt | | | 205,840 | | | 24,227 | | | 23,196 | | | 25,164 | | | 27,072 | | | 15,322 | | $ | 90,859 | |
| Subordinated Robbins Facility exit funding obligations | | | 108,865 | | | 1,580 | | | 1,690 | | | 1,810 | | | 1,940 | | | 2,080 | | | 99,765 | |
| Convertible subordinated notes | | | 210,000 | | | | | | | | | | | | | | | 210,000 | | | | |
| Preferred Trust Securities | | | 175,000 | | | | | | | | | | | | | | | | | | 175,000 | |
| Preferred Trust Securities—deferred interest payments | | | 20,100 | | | | | | | | | 20,100 | | | | | | | | | | |
| Operating Lease Commitments | | | 263,000 | | | 27,000 | | | 26,000 | | | 21,000 | | | 16,000 | | | 15,000 | | | 158,000 | |
| Capital Lease Commitments | | | 166,741 | | | 6,152 | | | 6,152 | | | 6,152 | | | 6,679 | | | 6,679 | | | 134,927 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total Contractual Cash Obligations | | $ | 1,510,727 | | $ | 78,438 | | $ | 58,439 | | $ | 414,360 | | $ | 51,807 | | $ | 249,132 | | $ | 658,551 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
In certain instances in its normal course of business, the Company has provided security for contract performance consisting of standby letters of credit, bank guarantees and surety bonds. As of December 27, 2002, such commitments and their period of expiration are as follows.
| | | Total | | Less than 1 year | | 2-3 Years | | 4-5 Years | | Over 5 Years | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Bank issued letters of credit and guarantees | | $ | 167,791 | | $ | 140,568 | | $ | 27,223 | | $ | — | | $ | — | |
| Surety bonds | | | 550,960 | | | 524,510 | | | 25,322 | | | 1,096 | | | 32 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total Commitments | | $ | 718,751 | | $ | 665,078 | | $ | 52,545 | | $ | 1,096 | | $ | 32 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
The Company may experience difficulty in obtaining surety bonds and bank guarantees/letters of credit on an unsecured basis in the future due to the changing view toward risk of loss in the current market, and the Company’s credit-rating. This may impact the Company’s ability to secure new business.
See Note 14 to the accompanying financial statements for a discussion of guarantees.
A subsidiary of the Company entered into a long-term contract with a government agency that is to be completed in four phases. The first phase was for the design, permitting and licensing of a spent fuel facility. This phase was completed for a price of $66,700. In addition, the Company is in process of submitting requests for equitable adjustment related to this contract for an amount in excess of $15,000. Such claims are included in the accompanying financial statements at their net realizable amount of $9,000 expected to be realized under appropriate Federal acquisition regulations. The recently started second phase is billed on a cost plus fee basis and is expected to last for approximately 24 months. In this phase, the Company must respond to any questions regarding the initial design included in phase one. Phase three, which is expected to begin in first quarter of 2004, is for the construction, start-up and testing of the facility for a fixed price of $11 4,000, which is subject to escalation. This phase is expected to last two years and requires that a subsidiary of the Company fund the construction cost. In addition, a surety bond for the full contract price is required. The cost of the facility is expected to be recovered in the first nine months of operations under phase four, during which a subsidiary of the Company will operate the facility at fixed rates, subject to escalation, for approximately four years.
In 2001, the Company completed the sale of its interest in two hydrogen production plants in South America, a cogeneration facility in Pennsylvania and certain of its equity interests in Italy. These transactions resulted in proceeds of $54,100, reduction in debt of $30,000, and net after-tax charges of $27,900.
In 2000, a subsidiary of the Company sold 50 percent of its interest in Lomellina Energia S.r.l., a waste-to-energy facility located in northern Italy, which reduced the Company’s net debt by approximately $130,000. Also in 2000, a transaction was completed relating to the Petropower project in Chile which was
31
Back to Contents
essentially a monetization of the projected future cash flows of the project. The transaction resulted in an increase of approximately $42,500 of limited recourse debt and a similar decrease of corporate debt.
The elapsed time from the award of a contract to completion of performance may be up to four years. The dollar amount of backlog is not necessarily indicative of the future earnings of the Company 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 that is considered firm, cancellations or scope adjustments may occur. Due to factors outside the Company’s control, such as changes in project schedules or project cancellations, the Company cannot predict with certainty the portion of backlog to be performed in a given year. Backlog is adjusted to reflect project cancellations, deferrals, sale of subsidiaries and revised project scope and cost.
| | | Consolidated Data | |
| | |
| |
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Backlog | | $ | 5,446,000 | | $ | 6,004,400 | | $ | 6,142,300 | |
| New orders | | | 3,052,000 | | | 4,109,300 | | | 4,480,000 | |
The reduction in backlog is attributable to the E&C Group’s operations in the UK and United States. The balance reflects a decline in the Energy Group’s North American operations, partially offset by an increase in European operations. A total of 59% of 2002 new orders in US dollar terms were for projects awarded to the Company’s subsidiaries located outside of the United States as compared to 55% in fiscal 2001, and 63% in fiscal 2000. Approximately 62%, 55%, and 65% of new orders for 2002, 2001, and 2000 were for projects located outside of North America. Approximately 44% of 2002 new orders are fixed price contracts.
Key geographic regions contributing to new orders awarded in fiscal 2002 were Europe, the United States, Asia, and the Middle East. Additional information is included in the group discussions below.
Engineering and Construction Group (E&C) |
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Backlog | | $ | 4,018,000 | | $ | 4,475,400 | | $ | 4,334,600 | |
| New orders | | | 1,671,800 | | | 2,632,200 | | | 2,786,500 | |
The decline in backlog is attributed to operations in the United States and the UK. Two major engineering, procurement and construction projects were awarded at oil refineries in the United States and the UK during 2001, and significant portions of the contracts were executed in 2002. Both projects include large quantities of flow-through costs. No similar sized projects, in US dollar terms, were awarded in 2002.
The decline in new orders, in US dollar terms, relates to the two projects noted above, and reduced bookings at the domestic environmental subsidiary divested in March 2003. Overall the level of bookings in US dollar terms is less than the group’s recent history. Approximately 84% of year-end backlog and 77% of 2002 bookings were from reimbursable plus fee contracts. Approximately 51% of 2002 backlog, and 78% of new orders were for projects located outside North America.
World economic growth in 2002 continued to be sluggish and investment was weak in many of the market sectors served by the E&C Group. Oil refining margins were depressed which discouraged investment although the Company continued to win business as a result of spending on clean fuels production. The refinery market was most active in the United States and Europe, but contracts were also being awarded by refinery owners in the Middle East in the second half of the year.
2003 is expected to be a year of gradual recovery for the E&C industry after two years of lower activity, but will be heavily influenced by the political situation in the Middle East and the overall pattern of worldwide economic recovery. The benefits from the improved economic conditions as evidenced in growth in new orders are more likely to be realized in 2004/5 than in the current year. The majority of the future upstream oil and gas and refinery projects are expected to be located outside the United States.
32
Back to Contents
Backlog and future new orders will be reduced to reflect the divestiture of Foster Wheeler Environmental Corporation (“FWENC”) in March 2003. FWENC’s backlog at December 27, 2002 was approximately $1,861,200.
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Backlog | | $ | 1,436,300 | | $ | 1,548,400 | | $ | 1,927,400 | |
| New orders | | | 1,396,300 | | | 1,478,200 | | | 1,776,800 | |
The Energy Group’s backlog decreased $112,100 at the end of 2002, representing a 7% decrease from 2001, which in turn represented a 20% decrease from backlog at the end of fiscal 2000. The decrease in 2002 was due to the execution of several large Heat Recovery Steam Generators and Selective Catalytic Reduction contracts booked in 2001.
The decline in new orders for 2002 of $81,900 or 6% from 2001, is primarily the result of operations in North America, partially offset by increased bookings by operations in Finland where a major circulating fluidized bed boiler project in Ireland was awarded. Approximately 84% of 2002 year-end backlog, and 71% of new orders were from fixed price projects. Approximately 66% of 2002 backlog, and 40% of new orders, were for projects located outside North America.
The North American power market continues to suffer from slow economic growth, over capacity, and the financial difficulties of independent power producers. Growth opportunities in the North American power market are expected to shift toward maintenance and service contracts and away from the supply of new equipment associated with solid fuel boiler contracts. Internationally, growth opportunities in circulating fluidized bed boilers are expected to continue in select European and Asian markets.
The ultimate legal and financial liability of the Company in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used by the Company becomes known, the Company 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 that are subject to change as events evolve and as additional information becomes available during the administration and litigation processes.
In the ordinary course of business, the Company 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 Company by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Company’s liabilities, if any, and to its insurance coverage, management of the Company believes that the disposition of such suits will not result in charges materially in excess of amounts provided in the accounts.
The effect of inflation on the Company’s revenues and earnings is minimal. Although a majority of the Company’s revenues are realized under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to complete in these future periods. In addition, some contracts provide for price adjustments through escalation clauses.
Application of Critical Accounting Policies |
The Company’s financial statements are presented in accordance with generally accepted accounting principles. Management and the Audit Committee of the Board of Directors approve the critical accounting policies.
Highlighted below are the accounting policies that management considers significant to the understanding and operations of the Company’s business as well as key estimates that are used in implementing the policies.
33
Back to Contents
Revenues and profits in long term fixed price contracts are recorded under the percentage of completion method. Progress towards completion is measured using the cost to cost method, the efforts expended method or variations thereof. These methods are applied consistently to all contracts having similar characteristics in similar circumstances. Under the cost to cost method, revenues and profits are recognized based on the ratio that costs incurred bear to total estimated costs. Under the efforts expended method, revenue and profits are recognized based on the ratio that incurred labor hours bear to total estimated labor hours. Variations of these two methods are used on multiyear contracts that require significant engineering effort and multiple delivery of units. These methods are subject to physical verification of actual progress towards completion.
Revenues and profits on costs reimbursable contracts are recorded as the costs are incurred. The Company includes flow-through costs consisting of materials, equipment and subcontractor costs as revenue on cost-reimbursable contracts when the Company is responsible for the engineering specifications and procurement for such costs.
Contracts in progress are stated at cost increased for profits recorded on the completed effort or decreased for estimated losses, less billings to the customer and progress payments on uncompleted contracts. Negative balances are presented as “estimated costs to complete long term contracts”.
The percentage-of-completion method is the preferable method of revenue recognition as set forth in the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”.
The Company has thousands of projects in both reporting segments that are in various stages of completion. Such contracts require estimates to determine the appropriate final estimated cost (“FEC”), profits, revenue recognition, and the percentage complete. In determining the FEC, the Company uses significant estimates to forecast quantities to be expended (i.e. man-hours, materials and equipment), the costs for those quantities (including exchange rate fluctuations), and the schedule to execute the scope of work including allowances for weather, labor and civil unrest. In determining the revenues, the Company must estimate the percentage complete, the likelihood of the client paying for the work performed, the cash to be received net of any taxes ultimately due or withheld in the country where the work is performed. Projects are reviewed on an individual basis and the estimates used are tailored to the specific circumstances.
The recent financial results and the resultant intervention actions initiated by management evidence the fact that the estimates can be significantly different from the actual results. The project estimates are made on an individual project basis and are revised as additional information becomes available throughout the life cycle of contracts. If the FEC to complete long-term contracts indicates a loss, provision is made immediately for the total loss anticipated. Profits are accrued throughout the life of the project based on the percentage complete. The project life cycle can be up to four years in duration.
It is extremely difficult to calculate sensitivities on the above estimates given the thousands of individual contracts that normally exist at any point in time and because the estimates are project-specific rather than broad-based percentages.
Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that a contractor seeks to collect from clients or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of unanticipated additional costs. The Company records claims in accordance with paragraph 65 of the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”. This statement of position states that recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. Those two requirements are satisfied by management’s determination of the existence of all of the following con ditions: the contract or other evidence provides a legal basis for the claim; additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the
34
Back to Contents
contractor’s performance; costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and the evidence supporting the claim is objective and verifiable. If such requirements are met, revenue from a claim is recorded to the extent that contract costs relating to the claim have been incurred. The amounts recorded, if material, are disclosed in the notes to the financial statements. Costs attributable to claims are treated as costs of contract performance as incurred.
During 2002, the Company revised its estimates of claim revenues to reflect recent adverse recovery experience due to management’s desire to monetize claims, and the poor economic conditions impacting the markets served by the Company. As a result, pre-tax charges approximating $136,200 were recorded. The Company continues to actively pursue these claims and any recoveries will be recognized as income when collected. At December 27, 2002, the Company had approximately $9,000 in requests for equitable adjustment recorded in contracts in process. This amount relates primarily to a claim against a US Government agency for a project currently being executed. If this claim is unsuccessful, the costs will be charged to cost of operating revenues.
Company policy requires all new claims in excess of $500 to be formally reviewed and approved by the corporate chief financial officer prior to being recorded in the financial results.
The Company has recorded assets of $569,000 relating to probable insurance recoveries of which approximately $35,000 is recorded in accounts and notes receivables, and $534,000 is recorded as long term. The Company has funded approximately $59,000 as of December 27, 2002. The total liability recorded is comprised of an estimated liability relating to open (outstanding) claims of approximately $337,500 and an estimated liability relating to future unasserted claims of approximately $217,300. Of the total, $35,000 is recorded in accrued expenses and $519,800 is recorded in asbestos related liability on the consolidated balance sheet. The liability is an estimate of future asbestos-related defense costs and indemnity payments that are based upon assumed average claim resolution costs applied against currently pending and estimated future claims. The asset is an estimate of recoveries from insurers based upon assumptions relating to cost allocation and resoluti on of pending litigation with certain insurers, as well as recoveries under a funding arrangement with other insurers which covers claims brought between 1993 and June 12, 2001. The Company is currently in negotiations with its insurers regarding an arrangement for handling asbestos claims filed after June 12, 2001. The defense costs and indemnity payments are expected to be incurred over the next sixteen years.
Management of the Company has considered the asbestos litigation and the financial viability and legal obligations of its insurance carriers and believes that except for those insurers that have become or may become insolvent, for which a reserve has been provided, the insurers or their guarantors will continue to adequately fund claims and defense costs relating to asbestos litigation.
It should be noted that the estimates of the assets and liabilities related to asbestos claims and recovery are subject to a number of uncertainties that may result in significant changes in the current estimates. Among these are uncertainty as to the ultimate number of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies currently involved in litigation, the Company’s ability to recover from its insurers, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes. If the number of claims received in the future exceeds the Company’s estimate, it is likely that the costs of defense and indemnity will similarly exceed the Company’s estimates. These factors are beyond the Company’s control and could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows.
The Company’s subsidiaries have been effective in managing the asbestos litigation in part because (1) the Company’s subsidiaries have access to historical project documents and other business records going back more than 50 years, allowing them to defend themselves by determining if they were present at the location that is the cause of the alleged asbestos claim and, if so, the timing and extent of their presence, (2) the Company’s subsidiaries maintain good records on insurance policies and have identified policies issued since 1952, and (3) the Company’s subsidiaries have consistently and vigorously defended these claims which
35
Back to Contents
has resulted in dismissal of claims that are without merit or settlement of claims at amounts that are considered reasonable.
A San Francisco, California jury returned a verdict on March 26, 2002 finding Foster Wheeler liable for $10,600 in the case of Todak vs. Foster Wheeler Corporation. The case was brought against Foster Wheeler, the U.S. Navy and several other companies by a 59- year-old man suffering from mesothelioma that allegedly resulted from exposure to asbestos. The Company believes there was no credible evidence presented by the plaintiff that he was exposed to asbestos contained in a Foster Wheeler product. In addition, the verdict was clearly excessive and should be set aside or reduced on appeal. The Company has appealed this verdict. Management of the Company believes the financial obligation that may ultimately result from entry of a judgment in this case will be paid by insurance.
Details of the Company’s pension plans are included in note 7. The Company relies on professional actuary firms to calculate the pension liability, annual service cost, and cash contributions required. These calculations rely heavily on estimates about future events often extending decades into the future. Management is responsible for establishing the estimates used by the actuaries and major estimates include:
| | • | The expected percentage of annual salary increases |
| | | |
| | • | The annual inflation percentage |
| | | |
| | • | The discount rate used to present value the future obligations |
| | | |
| | • | The expected long-term rate of return on plan assets |
| | | |
| | • | The selection of the actuarial mortality tables |
Management utilizes its business judgment in establishing these estimates and seeks guidance from actuaries, accounting firms, trade publications, and information published by other publicly traded firms. The estimates can vary significantly from the actual results and management cannot provide any assurance that the estimates used to calculate the pension liabilities included herein will approximate actual results. The volatility between the assumptions and actual results can be significant. For example, the performance by the global equity markets in the past three years was significantly worse than estimated. Returns on the Company’s pension plan assets in the United States from 2000 through 2002 were less than the estimates by approximately $100,000. A reduction in the US interest rate serving as the basis for the discount rate assumptions during the same three years accounted for an approximate $40,000 increase in the Company’s calculated liabilit y.
Pension liability calculations are normally updated annually at the beginning of the year, but may be updated in interim periods if any major plan amendments or curtailments occur.
Long-Lived Asset Accounting |
The Company accounts for its long-lived assets, including those that it may consider monetizing, as assets to be held and used. Management periodically reviews subsidiaries for impairment as required under SFAS 144 using an undiscounted cash flow analysis. These reviews require estimating the costs to operate and maintain the facilities over an extended period that could approximate 25 years or more. Estimates are made regarding the costs to maintain and replace equipment throughout the facilities, period operating costs, the production quantities and revenues, and the ability by clients to financially meet their obligations. If a formal decision is made by management to sell an asset, a discounted cash flow methodology is utilized for such assessment.
Certain special-purpose subsidiaries in the Energy Group are reimbursed by customers for their costs, including amounts related to principal repayments of non-recourse project debt, for building and operating certain facilities over the lives of the non-cancelable service contracts. The Company records revenues relating to debt repayment obligations on these contracts on a straight-line basis over the lives of the service
36
Back to Contents
contracts, and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value.
Deferred income taxes are provided on a liability method whereby deferred tax assets/liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amounts.
In the fourth quarter of 2001, the Company established a valuation allowance of $194,600, as restated, primarily for domestic deferred tax assets under the provisions of SFAS No. 109. Such action was required due to the losses from domestic operations experienced in the three most recent fiscal years. For statutory purposes, the majority of the deferred tax assets for which a valuation allowance is provided do not begin to expire until 2020 and beyond, based on the current tax laws. Based on the establishment of the valuation allowance, the Company does not anticipate recognizing a provision for income taxes on domestic operations in the near future.
Performance Improvement Intervention |
In March 2002, the Company initiated a comprehensive plan to enhance cash generation and to improve profitability. The operating performance portion of the plan concentrates on the quality and quantity of backlog, the execution of projects in order to achieve or exceed the profit and cash targets and the optimization of all non-project related cash sources and uses. In connection with this plan, a group of outside consultants was hired for the purpose of carrying out a performance improvement intervention. The tactical portion of the performance improvement intervention concentrates on booking current projects, executing twenty-two “high leverage projects” and generating incremental cash from high leverage opportunities such as overhead reductions, procurement, and accounts receivable. The systemic portion of the performance improvement intervention concentrates on sales effectiveness, estimating, bidding, and project execution procedures.
Some of the details of the activities to date include the following:
In March 2002, the Company began implementing a plan to reduce the internal man-hours and cycle time required to purchase items as well as targeting cost reductions. An integral part of this plan is to enter into global and regional procurement agreements. Of the thirty such agreements targeted by the initiative, nine have been finalized to date representing significant savings opportunities.
A company-wide management operating system was implemented to identify and track actions relating to collection of all receivables. A new policy has been established requiring actions to be taken prior to receivables becoming due as well as the actions to be taken when collections are past due. One aspect of the new policy requires the reporting of significant past due amounts to senior management on a timely basis. In accordance with industry practices for accounting for long-term contracts, provisions for non-payments of customer balances are normally addressed within the overall profit calculation of the contracts and are not
37
Back to Contents
specifically covered by allowances for doubtful accounts. As a result the amount considered to be in the receivable qualifying account (allowance for doubtful accounts) does not represent the full allowance.
Trade accounts and notes receivable at December 27, 2002 and December 28, 2001 were $599,500 and $726,600, respectively. During 2002, operating revenues increased $203,900 when compared to 2001.
Management progressed in its evaluation of all domestic overhead. Staffing levels at the Corporate headquarters and in North American operations were reduced by 214 individuals since the overhead reduction program began in mid 2002. Annualized salaries, benefits, and other non-essential expenses were reduced by approximately $33,000. Technical and non-technical positions were eliminated including executive and middle management, engineering, manufacturing, administrative support staff, and overhead personnel. The staff reductions include early retirements, voluntary and involuntary terminations. The full benefits of the reductions are not fully realized due to the time phasing of the reductions and notice period and severance payments. The savings will ultimately appear in cost of operating revenues, and selling, general and administrative overheads.
Management will continue to adjust the Company’s resources to match its workload. Subsequent to year-end, additional reductions in force occurred at the Energy Group’s North American operations and reflect the power market conditions prevailing in the United States. Reviews also continue on ways to increase efficiencies and reduce costs at the US corporate center.
The Company continues to emphasize booking high quality contracts. In May 2002 the Company launched an initiative to improve the sales effectiveness of its North American Energy and E&C Groups. The sales effectiveness initiatives were aimed at building up the level of sales activities in each group by strengthening the selling skills of sales personnel. Sales training was completed and a management operating system was implemented in North America that provides management with a disciplined system to track sales opportunities and targets, and actions needed to convert those opportunities into bookings. The initial training activities have been completed and are updated as needed. Given the competitive nature of the business, it is difficult to quantify the results of the sales effectiveness initiatives.
The Company’s Project Risk Management Group, established in the second quarter of 2002, is responsible for reviewing proposals and contracts for work and projects that have been contracted for and are in execution to ensure that the Company is protected from taking unacceptable levels of financial risk. The Project Risk Management Group is assisted in this effort by Deloitte & Touche, the Company’s internal auditors. During the fourth quarter of 2002, 161 proposals were evaluated with 142 formally reviewed and 36 projects in execution were reviewed.
The Project Risk Management Group also developed, in conjunction with the financial group, a set of Corporate Policies to govern proposals and contracting, project execution including subcontracting, and procurement and contract accounting.
The Company launched a major initiative in the second quarter of 2002 that focused on the way the Company plans and executes projects in the field. The initiative’s objective was to build a best in class, Foster Wheeler project management system. This activity sought to take best practices and integrate them into a Company wide system. The original scope of the initiative was 22 of the Company’s projects worldwide.
The initial phase of the initiative identified the best practices for project execution and revealed that many of the existing corporate policies and internal best practices were in fact best in class, but were not consistently applied. As a result, the initiative was refocused on 12 key projects where behavior change was necessary to ensure compliance to corporate policies and best practices. Standardized management tools and
38
Back to Contents
procedures were developed that require rigor and discipline in the execution of projects on a daily basis. A primary result of these new tools and procedures was the identification of potential execution issues at the earliest possible date. The goal is to increase the ability of the Company to mitigate those execution issues and prevent profit erosion on projects.
Internal audits were developed based on corporate policies and best practices. These audits not only allow management to measure individual projects on a best in class basis, but complement the policies and procedures in providing project teams with the specific actions necessary to be best in class. The audits associated with change order management, a critical component in project execution, take place on a monthly basis to drive improvements and ensure compliance to the actions necessary to be best in class.
The initiative was completed in January 2003 and updated systems and procedures have been implemented on a consistent basis.
The Company initiated a detailed review of internal controls in the third and fourth quarters of 2002. The review included evaluation of the Company’s contracting policies and procedures relating to bidding and estimating practices. Among other things, these reviews included evaluation of the Company’s reserving practices for bad debts and uncollectible accounts receivables, warranty costs, change orders and claims. Management, with Audit Committee approval, is enhancing its policies and established more formalized and higher level approvals for setting and releasing project contingencies and reserves, establishing claims and change orders, and requires that all claims to be recorded in excess of $500 be reviewed and approved in advance by the corporate chief financial officer.
Management strengthened the Company’s financial controls and supplemented its financial expertise in 2002. This included expanding the scope of the audit function, both internally and externally.
The Company outsourced its internal audit function to Deloitte & Touche LLP in the fourth quarter of 2002. Outsourcing internal audit allows access to a world-class organization with skilled professionals and the latest information technology audit resources. Key objectives of the revised internal audit function include:
| | • | Focusing resources on improving operational and financial performance in areas of highest risk |
| | | |
| | • | Reviewing and strengthening existing internal controls |
| | | |
| | • | Mitigating the risk of internal control failures |
| | | |
| | • | Ensuring best practices are implemented across all business units |
The Company formed a disclosure committee in the first quarter of 2003. The purpose of the committee is to evaluate, review and modify as necessary the disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s periodic reports is recorded, processed, summarized and reported accurately in all material respects within the time periods required by the SEC’s rules and forms.
The Company maintains a code of ethics for all employees, including executive management. No exceptions or waivers were made to the code of ethics during 2002.
In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS 145 rescinds previous statements regarding the extinguishment of debt and amends SFAS 13, “Accounting for Leases” to eliminate an inconsistency between the required accounting for sale/leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale/ leaseback transactions. The provisions of SFAS 145 relating to the extinguishment of debt are to be applied to fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to the
39
Back to Contents
amendment of SFAS 13 are effective for transactions occurring after May 15, 2002. The Company is currently assessing the impact of the adoption of this new standard.
In June 2002, the FASB issued SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 requires liabilities associated with an exit or disposal activity be recognized at fair value when the liability is incurred. This contrasts with existing accounting requirements, under which liabilities for exit or disposal activities are recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, although early adoption is permitted. The Company implemented SFAS 146 in the fourth quarter of 2002. In connection with the Company’s exit from the Dansville, NY manufacturing facility, the Company recognized $5,300 as a charge to earnings in accordance with this standard.
In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure requirements of SFAS 123 to require prominent disclosures, in both interim and annual financial statements, about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The provisions of this standard relating to the fair value measurements do not affect the Company as it accounts for stock-based employee compensation under the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Is sued to Employees” as permitted under SFAS 123. The Company in its 2002 financial statements has implemented the disclosure requirements of this standard.
In November 2002, the FASB issued FASB Interpretation (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The interpretation does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. FIN 45 also incorporates, without change, the guidance in FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”, which is being superseded.
This interpretation does not apply to certain guarantee contracts, and the provisions related to recognizing a liability at inception for the fair value of the guarantor’s obligation, do not apply to the following:
| | | |
| | b. | Guarantees that are accounted for as derivatives |
| | | |
| | c. | Guarantees that represent contingent consideration in a business combination |
| | | |
| | d. | Guarantees for which the guarantor’s obligations would be reported as an equity item (rather than a liability) |
| | | |
| | e. | An original lessee’s guarantee of lease payments when that lessee remains secondarily liable in conjunction with being relieved from being the primary obligor (that is, the principal debtor) under a lease restructuring |
| | | |
| | f. | Guarantees issued between either parents and their subsidiaries or corporations under common control |
| | | |
| | g. | A parent’s guarantee of a subsidiary’s debt to a third party, and a subsidiary’s guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent. |
However, the guarantees described in (a)-(g) above are subject to the disclosure requirements.
40
Back to Contents
The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company in its 2002 financial statements has implemented the disclosure requirements of this interpretation.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other sections of this Report on Form 10-K and other reports and oral statements made by representatives of the Company from time to time may contain forward-looking statements that are based on management’s assumptions, expectations and projections about the Company and the various industries within which the Company operates. These include statements regarding the Company’s expectation regarding revenues (including as expressed by its backlog), its liquidity, the outcome of litigation and legal proceedings and recoveries from customers for claims. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Company cautions that a variety of factors, including but not limited to the factors described under Item 1. “Business—Risk Factors of the Business” and 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 power, oil & gas, pharmaceutical, chemical/petrochemical and environmental industries; |
| | | |
| | • | changes in the financial condition of our customers; |
| | | |
| | • | changes in regulatory environment; |
| | | |
| | • | changes in project design or schedules; |
| | | |
| | • | changes in estimates made by the Company of costs to complete projects; |
| | | |
| | • | changes in trade, monetary and fiscal policies worldwide; |
| | | |
| | • | war and/or terrorist attacks on facilities either owned or where equipment or services are or may be provided; |
| | | |
| | • | outcomes of pending and future litigation, including litigation regarding the Company’s liability for damages and insurance coverage for asbestos exposure; |
| | | |
| | • | protection and validity of patents and other intellectual property rights; |
| | | |
| | • | increasing competition by foreign and domestic companies; |
| | | |
| | • | compliance with debt covenants; |
| | | |
| | • | monetization of certain Power System facilities; and |
| | | |
| | • | recoverability of claims against customers. |
| | | |
| | • | changes in estimates used in its critical accounting policies. |
Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond the control of the Company. The reader should consider the areas of risk described above in connection with any forward-looking statements that may be made by the Company.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. The reader is advised, however, to consult any
41
Back to Contents
additional disclosures the Company makes in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed with the Securities and Exchange Commission.
Quantitative and Qualitative Disclosures About Market Risk (Thousands of Dollars) |
Management’s strategy for managing transaction risks associated with currency fluctuations is for each operating unit to enter into derivative transactions, such as foreign currency exchange contracts, to hedge its exposure on contracts into the operating unit’s functional currency. The Company utilizes all such financial instruments solely for hedging. Company policy prohibits the speculative use of such instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to such financial instruments. To minimize this risk, the Company enters into these financial instruments with financial institutions that are primarily rated A or better by Standard & Poor’s or A2 or better by Moody’s. Management believes that the geographical diversity of the Company’s operations mitigates the effects of the currency translation exposure. No significant unhedged assets or liabilities are maintained outside the f unctional currencies of the operating subsidiaries. Accordingly, translation exposure is not hedged.
Interest Rate Risk — The Company is exposed to changes in interest rates primarily as a result of its borrowings under its Revolving Credit Agreement, bank loans, and its variable rate special-purpose project debt. If market rates average 1% more in 2003 than in 2002, the Company’s interest expense would increase, and income before tax would decrease by approximately $1,800. This amount has been determined by considering the impact of the hypothetical interest rates on the Company’s variable-rate balances as of December 27, 2002. In the event of a significant change in interest rates, management would likely attempt to take action to further mitigate its exposure to the change. However, due to uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company’s financial structure.
Foreign Currency Risk — The Company has significant overseas operations. Generally, all significant activities of the overseas subsidiaries are recorded in their functional currency, which is generally the currency of the country of domicile of the subsidiary. This results in a mitigation of the potential impact of earnings fluctuations as a result of changes in foreign exchange rates. In addition, in order to further mitigate risks associated with foreign currency fluctuations for long-term contracts not negotiated in the subsidiary’s functional currency, the subsidiaries enter into foreign currency exchange contracts to hedge the exposed contract value back to their functional currency.
42
Back to Contents
At December 27, 2002, the Company’s primary foreign currency exposures and contracts are set forth below:
Currency Hedged (bought or sold forward) | | Functional
Currency | | Foreign Currency
Exposure (in equivalent
US dollars) | | Notional Amount of
Forward Buy
Contracts | | Notional Amount of
Forward Sell
Contracts | |
| | |
| |
|
| |
|
| |
|
| |
| Euro and legacy countries | | US dollar | | $ | 66,565 | | $ | 66,269 | | $ | 296 | |
| Swiss franc | | Euro | | | 69,135 | | | 13,890 | | | 55,245 | |
| Czech koruna | | Euro | | | 2,529 | | | 2,529 | | | — | |
| Japanese yen | | US dollar | | | 13,874 | | | 9,179 | | | 4,695 | |
| Norwegian krone | | Euro | | | 967 | | | — | | | 967 | |
| Polish zloty | | British pound | | | 1,171 | | | 1,171 | | | — | |
| | | Euro | | | 1,067 | | | 1,067 | | | — | |
| Swedish kroner | | Euro | | | 3,389 | | | — | | | 3,389 | |
| Singapore dollar | | Euro | | | 8,657 | | | 8,657 | | | — | |
| US dollar | | British pound | | | 2,273 | | | — | | | 2,273 | |
| | | Czech koruna | | | 480 | | | 480 | | | — | |
| | | Euro | | | 69,580 | | | 205 | | | 69,375 | |
| | | Swiss franc | | | 503 | | | 503 | | | — | |
| | | Polish zloty | | | 40,900 | | | — | | | 40,900 | |
| | | | |
| |
| |
| |
| | | Total | | $ | 281,090 | | $ | 103,950 | | $ | 177,140 | |
| | | | |
| |
| |
| |
The notional principal amount provides one measure of the transaction volume outstanding as of year end, and does not represent the amount of exposure to market loss. Amounts ultimately realized upon final settlement of these financial instruments, along with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life instruments. The contracts mature between 2003 and 2004. Increases in fair value of the forward sell contracts result in losses while fair value increases of the forward buy contracts result in gains. The contracts have been established by various international subsidiaries to sell a variety of currencies and either receive their respective functional currency or other currencies for which they have payment obligations to third parties. See Note 10 to the Financial Statements for further information regarding derivative financial instruments.
43
Back to Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to Financial Statements
44
Back to Contents
Report of Independent Accountants
To the Board of Directors and Shareholders of Foster Wheeler Ltd.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statement of earnings and comprehensive income, of shareholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Foster Wheeler Ltd. and its subsidiaries (the “Company”) at December 27, 2002 and December 28, 2001, and the results of their operations and their cash flows for each of the years in the three year period ended December 27, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to o btain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in the first paragraph of Note 2 and in Notes 25 and 26 to the financial statements, the accompanying financial statements have been restated to account for certain of the Company’s benefit plans in accordance with Statement of Financial Accounting Standard No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”.
As discussed in Note 2 to the financial statements, effective December 29, 2001, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets.”
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses in each of the years in the two-year period ended December 27, 2002 and has a shareholder deficit of $780,939,000 at December 27, 2002. The Company has substantial debt obligations and during 2002 it was unable to comply with certain debt covenants under the previous revolving credit agreement. Accordingly, the Company received waivers for covenant violations and ultimately negotiated new credit facilities, in August 2002. The Company was unable to comply with certain debt covenants under the new credit facility agreement and therefore obtained an amendment of such agreement. Realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to return to p rofitability, to generate cash flows from operations, assets sales and collections of receivables to fund its operations, including obligations resulting from asbestos claims, as well as the Company maintaining credit facilities and bonding capacity adequate to conduct its business. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
March 25, 2003
45
Back to Contents
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
Revenues: | | | | | | | | | | |
| Operating revenues | | $ | 3,519,177 | | $ | 3,315,314 | | $ | 3,891,361 | |
Other income (including interest:
2002—$12,251; 2001—$9,060; 2000-$15,737) | | | 55,360 | | | 77,160 | | | 77,994 | |
| | |
|
| |
|
| |
|
| |
| Total Revenues and Other Income | | | 3,574,537 | | | 3,392,474 | | | 3,969,355 | |
| | |
|
| |
|
| |
|
| |
Costs and Expenses: | | | | | | | | | | |
| Cost of operating revenues | | | 3,426,910 | | | 3,164,025 | | | 3,565,147 | |
| Selling, general and administrative expenses | | | 226,524 | | | 225,392 | | | 222,110 | |
| Other deductions | | | 193,156 | | | 126,495 | | | 42,821 | |
| Minority interest | | | 4,981 | | | 5,043 | | | 3,857 | |
| Interest expense | | | 66,418 | | | 68,734 | | | 67,504 | |
| Dividends on preferred security of subsidiary trust | | | 16,610 | | | 15,750 | | | 15,750 | |
| | |
|
| |
|
| |
|
| |
| Total Costs and Expenses | | | 3,934,599 | | | 3,605,439 | | | 3,917,189 | |
| | |
|
| |
|
| |
|
| |
| (Loss)/earnings before income taxes | | | (360,062 | ) | | (212,965 | ) | | 52,166 | |
| Provision for income taxes | | | 14,657 | | | 123,395 | | | 15,179 | |
| | |
|
| |
|
| |
|
| |
| Net (loss)/earnings prior to cumulative effect of a change in accounting principle | | | (374,719 | ) | | (336,360 | ) | | 36,987 | |
| Cumulative effect of a change in accounting principle for goodwill, net of $0 tax | | | (150,500 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| Net (loss)/earnings | | | (525,219 | ) | | (336,360 | ) | | 36,987 | |
| Other comprehensive (loss)/income | | | | | | | | | | |
| Cumulative effect of prior years (to December 29, 2000) of a change in accounting principle for derivative instruments designated as cash flow hedges | | | — | | | 6,300 | | | — | |
| Change in gain on derivative instruments designated as cash flow hedges | | | (3,834 | ) | | (2,466 | ) | | — | |
| Foreign currency translation adjustment | | | 22,241 | | | (10,191 | ) | | (19,988 | ) |
| Minimum pension liability adjustment net of tax benefits: 2002 — $73,400; 2001 — $0; 2000 — 12,000) | | | (226,011 | ) | | (36,770 | ) | | (21,500 | ) |
| | |
|
| |
|
| |
|
| |
| Comprehensive loss | | $ | (732,823 | ) | $ | (379,487 | ) | $ | (4,501 | ) |
| | |
|
| |
|
| |
|
| |
| (Loss)/earnings per share: | | | | | | | | | | |
| Basic and Diluted | | | | | | | | | | |
| Net (loss)/earnings prior to cumulative effect of a change in accounting principle | | $ | (9.15 | ) | $ | (8.23 | ) | $ | 0.91 | |
| Cumulative effect on prior years (to December 28, 2001) of a change in accounting principle for goodwill and claims | | | (3.67 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| Net (loss)/earnings | | $ | (12.82 | ) | $ | (8.23 | ) | $ | 0.91 | |
| | |
|
| |
|
| |
|
| |
| Shares outstanding: | | | | | | | | | | |
| Basic: | | | | | | | | | | |
| Weighted average number of shares outstanding | | | 40,957 | | | 40,876 | | | 40,798 | |
| Diluted: | | | | | | | | | | |
| Effect of share options | | | — | | | — | | | 7 | |
| Total diluted | | | 40,957 | | | 40,876 | | | 40,805 | |
| | |
|
| |
|
| |
|
| |
See notes to financial statements.
46
Back to Contents
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
| | | December 27, 2002 | | December 28, 2001 | |
| | |
|
| |
|
| |
| | | | | (Restated)
(See Note 2) | |
| | | | | | | | |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
| Cash and cash equivalents | | $ | 344,305 | | $ | 224,020 | |
| Short-term investments | | | 271 | | | 271 | |
| Accounts and notes receivable: | | | | | | | |
| Trade | | | 599,506 | | | 726,556 | |
| Other | | | 85,166 | | | 219,788 | |
| Contracts in process | | | 280,601 | | | 493,599 | |
| Inventories | | | 9,332 | | | 10,529 | |
| Prepaid, deferred and refundable income taxes | | | 41,155 | | | 52,084 | |
| Prepaid expenses | | | 36,071 | | | 27,529 | |
| | |
|
| |
|
| |
| Total current assets | | | 1,396,407 | | | 1,754,376 | |
| | |
|
| |
|
| |
| Land, buildings and equipment | | | 769,680 | | | 728,012 | |
| Less accumulated depreciation | | | 361,861 | | | 328,814 | |
| | |
|
| |
|
| |
| Net book value | | | 407,819 | | | 399,198 | |
| | |
|
| |
|
| |
| Restricted cash | | | 84,793 | | | — | |
| Notes and accounts receivable—long-term | | | 21,944 | | | 65,373 | |
| Investment and advances | | | 88,523 | | | 84,514 | |
| Goodwill, net | | | 50,214 | | | 200,152 | |
| Other intangible assets, net | | | 72,668 | | | 74,391 | |
| Prepaid pension cost and related benefit assets | | | 26,567 | | | 131,865 | |
| Asbestos-related insurance recovery receivable | | | 534,045 | | | 437,834 | |
| Other assets | | | 156,279 | | | 173,279 | |
| Deferred income taxes | | | 69,578 | | | 4,855 | |
| | |
|
| |
|
| |
| TOTAL ASSETS | | $ | 2,908,837 | | $ | 3,325,837 | |
| | |
|
| |
|
| |
LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT) | | | | | | | |
Current Liabilities: | | | | | | | |
| Current installments on long-term debt | | $ | 31,562 | | $ | 12,759 | |
| Bank loans | | | 14,474 | | | 20,244 | |
| Corporate and other debt | | | — | | | 297,627 | |
| Special-purpose project debt | | | — | | | 75,442 | |
| Subordinated Robbins exit funding obligations | | | — | | | 110,340 | |
| Convertible subordinated notes | | | — | | | 210,000 | |
| Mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures | | | — | | | 175,000 | |
| Accounts payable | | | 283,940 | | | 408,581 | |
| Accrued expenses | | | 351,149 | | | 369,187 | |
| Estimated costs to complete long-term contracts | | | 707,323 | | | 580,766 | |
| Advance payments by customers | | | 87,658 | | | 65,417 | |
| Income taxes | | | 64,517 | | | 63,257 | |
| | |
|
| |
|
| |
| Total current liabilities | | | 1,540,623 | | | 2,388,620 | |
| | |
|
| |
|
| |
| Corporate and other debt less current installments | | | 341,702 | | | — | |
| Special-purpose project debt less current installments | | | 181,613 | | | 137,855 | |
| Capital lease obligations | | | 58,237 | | | — | |
| Deferred income taxes | | | 8,333 | | | 40,486 | |
| Pension, postretirement and other employee benefits | | | 437,820 | | | 257,976 | |
| Asbestos-related liability | | | 519,790 | | | 445,370 | |
| Other long-term liabilities and minority interest | | | 109,373 | | | 103,974 | |
| Subordinated Robbins Facility exit funding obligations | | | 107,285 | | | — | |
| Convertible subordinated notes | | | 210,000 | | | — | |
| Mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures | | | 175,000 | | | — | |
| | |
|
| |
|
| |
| TOTAL LIABILITIES | | | 3,689,776 | | | 3,374,281 | |
| | |
|
| |
|
| |
Shareholders’ Deficit: | | | | | | | |
| Preferred Stock | | | — | | | — | |
| Authorized 1,500,000 shares, no par value – none outstanding | | | | | | | |
| Common Stock | | | | | | | |
$1.00 par value; authorized 160,000,000 shares; issued:
2002—40,771,560 and 2001—40,771,560 | | | 40,772 | | | 40,772 | |
| Paid-in capital | | | 201,718 | | | 201,390 | |
| Retained earnings (deficit) | | | (653,991 | ) | | (128,772 | ) |
| Accumulated other comprehensive loss | | | (369,438 | ) | | (161,834 | ) |
| | |
|
| |
|
| |
| TOTAL SHAREHOLDERS’ DEFICIT | | | (780,939 | ) | | (48,444 | ) |
| | |
|
| |
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | | $ | 2,908,837 | | $ | 3,325,837 | |
| | |
|
| |
|
| |
See notes to financial statements.
47
Back to Contents
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIT)
(in thousands, except per share amounts)
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
Common Stock | | | | | | | | | | |
| Balance at beginning of year | | $ | 40,772 | | $ | 40,748 | | $ | 40,748 | |
| Sold under stock options: (shares: 2001-66) | | | — | | | 66 | | | — | |
| Bermuda reorganization | | | — | | | (42 | ) | | — | |
| | |
|
| |
|
| |
|
| |
| Balance at end of year | | | 40,772 | | | 40,772 | | | 40,748 | |
| | |
|
| |
|
| |
|
| |
Paid-in Capital | | | | | | | | | | |
| Balance at beginning of year | | | 201,390 | | | 200,963 | | | 201,043 | |
| Shares issued under incentive plan and other plans | | | 328 | | | — | | | — | |
| Stock option exercise price less par value | | | — | | | 561 | | | — | |
| Excess of cost of treasury stock or common stock issued under incentive and other plans over market value | | | — | | | 6 | | | (80 | ) |
| Bermuda reorganization | | | — | | | (140 | ) | | — | |
| | |
|
| |
|
| |
|
| |
| Balance at end of year | | | 201,718 | | | 201,390 | | | 200,963 | |
| | |
|
| |
|
| |
|
| |
Retained Earnings | | | | | | | | | | |
| Balance at beginning of year | | | (128,772 | ) | | 212,476 | | | 185,262 | |
| Net (loss)/earnings for the year | | | (525,219 | ) | | (336,360 | ) | | 36,987 | |
| Cash dividends paid: | | | | | | | | | | |
| Common (per share outstanding: 2001—$.12;2000—$.24) | | | — | | | (4,888 | ) | | (9,773 | ) |
| | |
|
| |
|
| |
|
| |
| Balance at end of year | | | (653,991 | ) | | (128,772 | ) | | 212,476 | |
| | |
|
| |
|
| |
|
| |
Accumulated Other Comprehensive Loss | | | | | | | | | | |
| Balance at beginning of year | | | (161,834 | ) | | (118,707 | ) | | (77,219 | ) |
| Cumulative effect on prior years (to December 29, 2000) of a change in accounting principle for derivative instruments designated as cash flow hedges | | | — | | | 6,300 | | | — | |
| Change in net gain on derivative instruments designated as cash flow hedges | | | (3,834 | ) | | (2,466 | ) | | — | |
| Change in accumulated translation adjustment during the year | | | 22,241 | | | (10,191 | ) | | (19,988 | ) |
| Minimum pension liability, (net of tax benefits: 2002—$73,400; 2001—$0; 2000—$12,000) | | | (226,011 | ) | | (36,770 | ) | | (21,500 | ) |
| | |
|
| |
|
| |
|
| |
| Balance at end of year | | | (369,438 | ) | | (161,834 | ) | | (118,707 | ) |
| | |
|
| |
|
| |
|
| |
Treasury Stock | | | | | | | | | | |
| Balance at beginning of year | | | — | | | 165 | | | 238 | |
| Common stock acquired for Treasury: (shares: 2001—3,000; 2000—28,391) | | | — | | | 37 | | | 154 | |
| Shares issued under incentive and other plans (shares: 2001—3,008; 2000—20,556) | | | — | | | (20 | ) | | (227 | ) |
| Bermuda reorganization | | | — | | | (182 | ) | | — | |
| | |
|
| |
|
| |
|
| |
| Balance at end of year | | | — | | | — | | | 165 | |
| | |
|
| |
|
| |
|
| |
Total Shareholders’ Equity/(Deficit) | | $ | (780,939 | ) | $ | (48,444 | ) | $ | 335,315 | |
| | |
|
| |
|
| |
|
| |
See notes to financial statements.
48
Back to Contents
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | |
| Net (loss)/ earnings | | $ | (525,219 | ) | $ | (336,360 | ) | $ | 36,987 | |
| Adjustments to reconcile net (loss) / earnings to cash flows from operating activities: | | | | | | | | | | |
| Cumulative effect of a change in accounting principle | | | 150,500 | | | — | | | — | |
| Provision for impairment loss | | | 18,700 | | | — | | | — | |
| Provision for restructuring | | | — | | | 41,570 | | | — | |
| Depreciation and amortization | | | 44,425 | | | 55,750 | | | 57,716 | |
| Deferred tax | | | (28,355 | ) | | 137,801 | | | (4,016 | ) |
| Provision for loss on sale of cogeneration plants | | | 54,500 | | | 40,300 | | | — | |
| Provisions for asbestos claims | | | 26,200 | | | — | | | — | |
| Claims write downs and related contract provisions | | | 136,200 | | | 37,000 | | | — | |
| Contract reserves and receivable provisions | | | 80,500 | | | 123,600 | | | — | |
| Deferred dividends on Preferred Trust Securities | | | 16,610 | | | 3,484 | | | — | |
| Gain on sale of land, building and equipment | | | (1,269 | ) | | (10,174 | ) | | (14,843 | ) |
| Equity earnings, net of dividends | | | (4,262 | ) | | (4,658 | ) | | (8,882 | ) |
| Other noncash items | | | (16,677 | ) | | (4,331 | ) | | (5,702 | ) |
| Changes in assets and liabilities: | | | | | | | | | | |
| Receivables | | | 192,801 | | | (96,607 | ) | | (7,665 | ) |
| Contracts in process and inventories | | | 53,361 | | | (88,044 | ) | | (64,938 | ) |
| Accounts payable and accrued expenses | | | (153,565 | ) | | 35,338 | | | 35,841 | |
| Estimated costs to complete long-term contracts | | | 62,870 | | | (25,026 | ) | | (54,500 | ) |
| Advance payments by customers | | | 18,206 | | | 5,399 | | | 19,082 | |
| Income taxes | | | 15,535 | | | (14,265 | ) | | (17,613 | ) |
| Other assets and liabilities | | | 19,304 | | | 10,542 | | | 11,789 | |
| | |
|
| |
|
| |
|
| |
| Net cash provided / (used) by operating activities | | | 160,365 | | | (88,681 | ) | | (16,744 | ) |
| | |
|
| |
|
| |
|
| |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | |
| Change in restricted cash | | | (84,793 | ) | | — | | | — | |
| Capital expenditures | | | (53,395 | ) | | (33,998 | ) | | (45,807 | ) |
| Proceeds from sale of properties | | | 6,282 | | | 59,672 | | | 56,703 | |
| Decrease in investments and advances | | | 9,107 | | | 16,008 | | | 12,122 | |
| Decrease in short-term investments | | | 93 | | | 1,530 | | | 15,230 | |
| | |
|
| |
|
| |
|
| |
| Net cash (used)/provided by investing activities | | | (122,706 | ) | | 43,212 | | | 38,248 | |
| | |
|
| |
|
| |
|
| |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | |
| Dividends to common Shareholders | | | — | | | (4,888 | ) | | (9,773 | ) |
| Partnership distribution | | | (2,061 | ) | | (1,367 | ) | | (2,599 | ) |
| Repurchase of common stock | | | — | | | (37 | ) | | (154 | ) |
| Proceeds from convertible subordinated notes | | | — | | | 202,912 | | | — | |
| Proceeds from the exercise of stock options | | | — | | | 627 | | | — | |
| (Decrease)/increase in short-term debt | | | (7,792 | ) | | (82,032 | ) | | 44,876 | |
| Proceeds from long-term debt | | | 70,546 | | | 185,042 | | | 43,168 | |
| Proceeds from lease financing obligation | | | 44,900 | | | — | | | — | |
| Repayment of long-term debt | | | (45,591 | ) | | (214,724 | ) | | (88,151 | ) |
| | |
|
| |
|
| |
|
| |
| Net cash provided / (used) by financing activities | | | 60,002 | | | 85,533 | | | (12,633 | ) |
| | |
|
| |
|
| |
|
| |
| Effect of exchange rate changes on cash and cash equivalents | | | 22,624 | | | (7,937 | ) | | 12,754 | |
| | |
|
| |
|
| |
|
| |
INCREASE IN CASH AND CASH EQUIVALENTS | | | 120,285 | | | 32,127 | | | 21,625 | |
| Cash and cash equivalents at beginning of year | | | 224,020 | | | 191,893 | | | 170,268 | |
| | |
|
| |
|
| |
|
| |
CASH AND CASH EQUIVALENTS AT END OF YEAR | | $ | 344,305 | | $ | 224,020 | | $ | 191,893 | |
| | |
|
| |
|
| |
|
| |
| Cash paid during the year for: | | | | | | | | | | |
| Interest (net of amount capitalized) | | $ | 60,973 | | $ | 74,201 | | $ | 76,439 | |
| Income taxes | | $ | 13,508 | | $ | 15,543 | | $ | 33,551 | |
See notes to financial statements.
49
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars, except per share amounts)
1. Going Concern
The accompanying consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to return to profitability, to continue to generate cash flows from operations, asset sales and collections of receivables to fund its obligations including those resulting from asbestos related liabilities, as well as the Company maintaining credit facilities and bonding capacity adequate to conduct its business. The Company has incurred significant losses in each of the years in the two-year period ended December 27, 2002 and has a shareholder deficit of $780,939 at December 27, 2002. The Company has substantial debt obligations and during 2002 it was unable to comply with certain debt covenants under the previous revolving credit agreement. Accordingly, the Company received waivers of covenant violations and ultimately negotiated new credit facilities, in August 2002. While management believes its operating plans, if met, are sufficient to assure compliance with the terms of its new debt agreements, as amended, there is no assurance that the Company will do so during 2003. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plans in regard to these matters are described below.
In August 2002, the Company finalized a Senior Credit Facility with its lender group. This facility, including a $71,000 term loan, a $69,000 revolving credit facility, and a $149,000 letter of credit facility, expires on April 30, 2005. This facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and 66% of the stock of the first-tier foreign subsidiaries. The facility has no scheduled repayments prior to maturity on April 30, 2005. The facility requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. The Company retains the first $77,000 of such amounts and also retains a 50% share of the balance. The financial covenants in the facility commence at the end of the first quarter 2003 and include a senior leverage ratio and a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) level as described in the agreement, as amended. With the sale of Foster Wheeler Environmental Corporation on March 7, 2003, cumulative sales proceeds received, as defined in the agreement, approximate $75,000.
Amendment No. 1 to the Credit Agreement, obtained on November 8, 2002, provides covenant relief of up to $180,000 of gross pre-tax charges recorded by the Company in the third quarter of 2002. The amendment further provides that up to an additional $63,000 in pretax charges related to specific contingencies may be excluded from the covenant calculation through December 31, 2003, if incurred. In the 4th quarter 2002, $11,000 of the contingency risks were favorably resolved, and additional project reserves were established for $19,000 leaving a contingency balance of $33,000.
Amendment No. 2 to the Credit Agreement, entered into on March 24, 2003, modifies (i) certain definitions of financial measures utilized in the calculation of the financial covenants and (ii) the Minimum EBITDA, and Senior Debt Ratio, as specified in section 6.01 of the Credit Agreement. In connection with this amendment of the Credit Agreement, the Company must make a prepayment of principal in the aggregate amount of $10,000. Refer to exhibit 10.35, filed as part of this Report on Form 10-K, for the complete amendment.
Due to the Company’s significant leverage, management is reviewing various options to restructure its balance sheet. Although no definitive plans have been finalized at this point, such options may include, among other things, debt for equity exchanges, debt for debt exchanges, equity for equity exchanges, and additional asset sales. There can be no assurances, however, that the Company can successfully effect any of the foregoing.
During the third quarter of 2002, the Company also completed a receivables financing arrangement of up to $40,000. The funding available to the Company is dependent on the amount and characteristics of the
50
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
1. Going Concern — (Continued)
domestic receivables. The amount available to the Company fluctuates daily, but the Company estimates that approximately $15,000 to $20,000 will be available during 2003. This financing arrangement expires in August 2005 and is subject to covenant compliance. The financial covenants commence at the end of the first quarter of 2003 and include a senior leverage ratio and a minimum EBITDA level. Noncompliance with the financial covenants allows the lender to terminate the arrangement and accelerate any amounts then outstanding. As of December 27, 2002, the Company had $0 borrowings outstanding under this facility. Refer to Note 4 for further information.
The Company initiated a comprehensive plan to enhance cash generation and to improve profitability during 2002. Management’s comprehensive plan to address the Company’s domestic liquidity issues included generating approximately $150,000 from asset sales, collection of receivables and resolving disputed claims through the end of the first quarter 2003, and an additional $40,000 over the following six months. As of December 27, 2002, the Company generated approximately $60,000 through these efforts, and with the sale of the operating business of Foster Wheeler Environmental Corporation on March 7, 2003, an additional $80,000 has been generated. An additional $10,000 has also been received through more efficient working capital management. The $40,000 is still expected to be received from asset sales and claims recoveries over the course of the year 2003. Management forecasts that the cash on hand, together with cash from operations, asset sale s, collection of receivables and claims recoveries will be sufficient to fund the Company’s working capital needs through the first quarter of 2004. Failure by the Company to achieve its forecast could have a material adverse effect on the Company’s financial condition.
2. Summary of Significant Accounting Policies
Restatement — Management determined that the assets, liabilities and results of operations associated with the Company’s postretirement medical benefit plan were not properly accounted for in accordance with SFAS 106, “Employer’s Accounting for Postretirement Benefits Other Than Pensions.” The Company’s consolidated balance sheet as of December 28, 2001 and the consolidated statements of earnings and comprehensive income for each of the two years in the period ended December 28, 2001 have been revised to account for such benefit plan in accordance with SFAS 106. The effect of the adjustment was not material to the current year’s financial statements, however, management elected to restate prior years. See Note 25.
Principles of Consolidation — The consolidated financial statements include the accounts of Foster Wheeler Ltd. and all significant domestic and foreign subsidiary companies. All significant intercompany transactions and balances have been eliminated.
The Company’s fiscal year is the 52- or 53-week annual accounting period ending the last Friday in December for domestic operations and December 31 for foreign operations. For domestic operations, the years 2002, 2001 and 2000 included 52 weeks.
Use of Estimates — 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 at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Changes in estimates are reflected in the periods in which they become known. Significant estimates are used when accounting for long-term contracts including customer and vendor claims, depreciation, employee benefit plans, taxes, asbestos litigation and expected recoveries and contingencies, among others. At December 27, 2002 and December 28, 2001 the Company has recorded commercial claims of $0 and $135,000, respectively. The decrease in recorded claims have resulted from the collection of $11,000 and a provision established for the balance of outstanding commercial cl aims. The Company revised its estimates of claim revenues to reflect recent adverse recovery experience, management’s desire to monetize claims, and the poor economic conditions impacting the markets served by the Company. At December 27, 2002, the Company had approximately $9,000 in requests
51
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
for equitable adjustments recorded in contracts in process. This amount relates primarily to a claim against a US Government agency for a project currently being executed. If this claim were to be unsuccessful, the costs would be charged to cost of operating revenues.
Revenue Recognition on Long-term Contracts — Revenues and profits in long term fixed price contracts are recorded under the percentage of completion method. Progress towards completion is measured using the cost to cost method, the efforts expended method or variations thereof. These methods are applied consistently to all contracts having similar characteristics in similar circumstances. Under the cost to cost method, revenues and profits are recognized based on the ratio that costs incurred bear to total estimated costs. Under the efforts expended method, revenue and profits are recognized based on the ratio that incurred labor hours bear to total estimated labor hours. Variations of these two methods are used on multiyear contracts that require significant engineering effort and multiple delivery of units. These methods are subject to physical verification of actual progress towards completion.
Revenues and profits on costs reimbursable contracts are recorded as the costs are incurred. The Company includes flow-through costs consisting of materials, equipment and subcontractor costs as revenue on cost-reimbursable contracts when the Company is responsible for the engineering specifications and procurement for such costs.
Contracts in progress are stated at cost increased for profits recorded on the completed effort or decreased for estimated losses, less billings to the customer and progress payments on uncompleted contracts. Negative balances are presented as “estimated costs to complete long term contracts”.
The Company has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. However, current estimates may be revised as additional information becomes available. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The elapsed time from award of a contract to completion of performance may be up to four years.
Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that a contractor seeks to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of unanticipated additional costs. The Company records claims in accordance with paragraph 65 of the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”. This statement of position states that recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. Those two requirements are satisfied by the existence of all of the following conditions: the contract or other ev idence provides a legal basis for the claim; additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the contractor’s performance; costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and the evidence supporting the claim is objective and verifiable. If such requirements are met, revenue from a claim is recorded only to the extent that contract costs relating to the claim have been incurred. Costs attributable to claims are treated as costs of contract performance as incurred. Such claims are currently in various stages of negotiation, arbitration and other legal proceedings.
Certain special-purpose subsidiaries in the Energy Group are reimbursed by customers for their costs, including amounts related to principal repayments of non-recourse project debt, for building and operating certain facilities over the lives of the non-cancelable service contracts. The Company records revenues relating to debt repayment obligations on these contracts on a straight-line basis over the lives of the service
52
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
contracts, and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value.
Cash and Cash Equivalents — Cash and cash equivalents include highly liquid short-term investments purchased with original maturities of three months or less. Cash and cash equivalents of approximately $274,000 are maintained by foreign subsidiaries as of December 27, 2002. These subsidiaries require a substantial portion of these funds to support their liquidity and working capital needs. Accordingly, these funds may not be readily available for repatriation.
Restricted Cash — Restricted cash consists of approximately $16,000 that the Company was required to deposit into escrow in connection with the Todak litigation discussed in Note 20 and approximately $69,000 that was required to collateralize letters of credit and bank guarantees. The $16,000 related to the litigation is domestic restricted cash while the $69,000 related to the letters of credit and bank guarantees is foreign restricted cash.
Short-term Investments — Short-term investments consist primarily of bonds of foreign governments and are classified as available for sale under FASB Statement No. 115 “Accounting for Certain Investments in Debt and Equity Securities”. Realized gains and losses from sales are based on the specific identification method. For the years ended 2002, 2001 and 2000, unrealized gains and losses were immaterial.
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Proceeds from sales of short term investments | | $ | — | | $ | 2,000 | | $ | 15,000 | |
| Gain/(loss) | | $ | — | | $ | — | | $ | 600 | |
Trade Accounts Receivable — In accordance with terms of long-term contracts, certain percentages of billings are withheld by customers until completion and acceptance of the contracts. Final payments of all such amounts withheld, which might not be received within a one-year period, are indicated in Note 4. In conformity with industry practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets.
Accounts and Notes Receivable Other — Non-trade accounts and notes receivable consist primarily of:
| | | 2002 | | 2001 | |
| | |
|
| |
|
| |
| Insurance claims receivables | | $ | 35,000 | | $ | 105,200 | |
| Foreign refundable value-added tax | | | 6,800 | | | 13,400 | |
| Cancellation of company-owned life insurance plan | | | — | | | 22,000 | |
Land, Buildings and Equipment — Depreciation is computed on a straight-line basis using composite estimated lives ranging from 10 to 50 years for buildings and from 3 to 35 years for equipment. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in earnings.
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of the adoption of this new statement.
Effective December 29, 2001, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement addresses the accounting for long-lived assets to be disposed of by sale and resolves significant implementation issues relating to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ”. The provisions of this
53
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
statement are effective for financial statements issued for the fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company’s results of operations and financial position were not affected by the initial adoption of this statement.
In 2002, the Company recorded losses of $35,500 in anticipation of a sale of its Hudson Falls waste-to-energy facility.
During the third quarter, management of the Energy Group approved a plan to convert the use of its domestic manufacturing facility to focus on the after-market service business and wind down the facility’s fabrication of new power generation equipment due to cost competitive considerations. The plan was subject to discussions with the local labor unions. In accordance with SFAS 144, the facility was tested for impairment using estimated future cash flows based on the revised use of the facility. The review indicated impairment in the facility’s carrying value of $13,400. The Company recorded the impairment loss in the third quarter and the impairment is reflected in the cost of operating revenues as depreciation in the accompanying consolidated statement of operations and comprehensive income/(loss). During the fourth quarter of 2002, the Company decided to take the necessary steps to mothball the facility. Additional charges of $5,300 were recorded in December 2002.
Investments and Advances — The Company uses the equity method of accounting for investment ownership of between 20% and 50% in affiliates unless significant economic considerations indicate that the cost method is appropriate. The equity method is also used for investments in which ownership is greater than 50% when the Company does not have a controlling financial interest. Investment ownership of less than 20% in affiliates is carried at cost. Currently, all of the Company’s significant investments in affiliates are recorded using the equity method.
Income Taxes — Deferred income taxes are provided on a liability method whereby deferred tax assets/liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amounts.
Provision is made for Federal income taxes which may be payable on foreign subsidiary earnings to the extent that the Company anticipates they will be remitted. Unremitted earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested (and for which no Federal income tax has been provided) aggregated $274,549 as of December 27, 2002. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated.
Foreign Currency — Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and income and expenses and cash flows at monthly weighted average rates.
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Foreign currency transaction gains | | $ | 2,900 | | $ | 3,400 | | $ | 6,100 | |
| Foreign currency transaction gains, net of tax | | | 1,900 | | | 2,200 | | | 4,000 | |
54
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
The Company enters into foreign exchange contracts in its management of foreign currency exposures related to commercial contracts. Changes in the fair value of derivative contracts that qualify as designated cash flow hedges are deferred until the hedged forecasted transaction affects earnings. Amounts receivable (gains) or payable (losses) under foreign exchange hedges are recognized as deferred gains or losses and are included in either contracts in process or estimated costs to complete long-term contracts. The Company utilizes foreign exchange contracts solely for hedging purposes, whether or not they qualify for hedge accounting under SFAS 133. At December 27, 2002, the Company did not meet the requirements for deferral under SFAS 133 and recorded in the year ended December 27, 2002 a gain on derivative instruments of approximately $3,500.
Inventories — Inventories, principally materials and supplies, are stated at the lower of cost or market, determined primarily on the average cost method.
Intangible Assets — Intangible assets consist principally of the excess of cost over the fair value of net assets acquired (goodwill), trademarks and patents. Patents and trademarks are being amortized on a straight-line basis over periods of 12 to 40 years. The Company periodically evaluates goodwill on a separate operating unit basis to assess recoverability, and impairments, if any, are recognized in earnings. In the event facts and circumstances indicate that the carrying amount of goodwill associated with an investment is impaired, the Company reduces the carrying amount to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation.
Effective December 29, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) which supersedes APB Opinion No. 17, “Intangible Assets”. The statement requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. The Company tests for impairment at the reporting unit level as defined in SFAS No. 142. This test is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the second step must be performed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of the reporting unit’s g oodwill with the carrying amount of that goodwill. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. Impairment losses have been measured as of December 29, 2001 and recognized as the cumulative effect of a change in accounting principle in 2002. SFAS No. 142 also requires that intangible assets with determinable useful lives be amortized over their respective estimated useful lives and reviewed annually for impairment in accordance with SFAS No. 144.
As of December 27, 2002 and December 28, 2001, the Company had unamortized goodwill of $50,214 and $200,152, respectively. Of the total goodwill at December 27, 2002, $50,187 related to the Energy Group while $27 related to the E&C Group. The reduction in goodwill is due to the $150,500 of impairment losses discussed below, offset by foreign currency translation adjustments of $562. In accordance with SFAS No. 142, the Company is no longer amortizing goodwill. The Company recognized $150,500 of impairment losses in 2002 related to the goodwill as a cumulative effect of a change in accounting principle. Of this total, $24,800 was associated with a waste-to-energy facility and $77,000 was associated with another reporting unit included in the operations of the Energy Group. The fair value of the facility and the operating unit were estimated using the expected present value of future cash flows. The remaining $48,700 relates to a reporting unit in the E&C Group. An impairment of the goodwill on this subsidiary was initially determined based upon indications of its market value from potential buyers. Based upon the market value, it was determined under step one that a potential impairment existed. The Company then completed step two and
55
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
determined that a full write down of the goodwill was required. All of the other reporting units were also subjected to the first step of the goodwill impairment test.
As of December 29, 2001, the Company had unamortized identifiable intangible assets of $74,391. The following table details amounts relating to those assets as of December 27, 2002.
| | | As of December 27, 2002 | | As of December 28, 2001 | |
| | |
| |
| |
| | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization | |
| | |
|
| |
|
| |
|
| |
|
| |
| Patents | | $ | 35,695 | | $ | (11,973 | ) | $ | 34,994 | | $ | (10,197 | ) |
| Trademarks | | | 60,378 | | | (11,432 | ) | | 59,266 | | | (9,672 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| Total | | $ | 96,073 | | $ | (23,405 | ) | $ | 94,260 | | $ | (19,869 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
Amortization expense related to patents and trademarks for 2002 was $3,535. Amortization expense is expected to approximate $3,500 each year in the next five years.
The following table presents the current and prior years reported amounts adjusted to eliminate the effect of goodwill amortization in accordance with SFAS No. 142.
| | | December 27, 2002 | | December 28, 2001 | | December 29, 2000 | |
| | |
|
| |
|
| |
|
| |
| | | | | (Restated) | | (Restated) | |
| Reported net (loss)/earnings | | $ | (525,219 | ) | $ | (336,360 | ) | $ | 36,987 | |
| Add back: goodwill amortization | | | | | | 5,369 | | | 5,711 | |
| | |
|
| |
|
| |
|
| |
| Adjusted net (loss)/earnings | | $ | (525,219 | ) | $ | (330,991 | ) | $ | 42,698 | |
| | |
|
| |
|
| |
|
| |
| Basic Earnings Per Share: | | | | | | | | | | |
| Reported Net Income | | $ | (12.82) | | $ | (8.23 | ) | $ | 0.91 | |
| Goodwill Amortization | | | — | | | 0.13 | | | 0.14 | |
| | |
|
| |
|
| |
|
| |
| Adjusted Net Income | | $ | (12.82 | ) | $ | (8.10 | ) | $ | 1.05 | |
| | |
|
| |
|
| |
|
| |
| Diluted Earnings per Share: | | | | | | | | | | |
| Reported Net Income | | $ | (12.82 | ) | $ | (8.23 | ) | $ | 0.91 | |
| Goodwill Amortization | | | — | | | 0.13 | | | 0.14 | |
| | |
|
| |
|
| |
|
| |
| Adjusted Net income | | $ | (12.82 | ) | $ | (8.10 | ) | $ | 1.05 | |
| | |
|
| |
|
| |
|
| |
Earnings per Share — Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. In 1999, the Company adopted The Directors Deferred Compensation and Stock Award Plan (the “Plan”). Under the Plan, each non-management director is credited annually with share units of the Company’s common stock. In addition, each non-management 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 Company makes a supplemental contribution equal to 15% of the deferred amount. For the year ended 2002, 145,886 share units were credited in participants’ accounts. During the same period, 29,309 shares were delivered to one director upon his retirement. As of December 27, 2002, 116,576 share units were included in the calculation of basic earnings per share. For the years end ed 2001 and 2000, 41,091 and 53,443 share units, respectively, were credited in participants’ accounts and are included in the calculation of basic earnings per share. Options to purchase 3,877,361 and 2,330,736 shares of common stock were not included in the computation of diluted earnings per share for the years ending December 27, 2002 and December 28, 2001, respectively, due to their antidilutive effect. The 13,085,751 shares related to the convertible subordinated notes were not included in the computation of diluted earnings per share for the years ended December 27, 2002 or December 28, 2001, as restated, due to their antidilutive effect.
56
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
Stock Option Plans — The Company has two fixed option plans which reserve shares of common stock for issuance to executives, key employees, and directors. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date for awards in 2002, 2001 and 2000 consistent with the provisions of SFAS No. 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
| | | 2002 | | 2001 | | 2000 | |
| | |
|
| |
|
| |
|
| |
| | | | | (Restated) | | (Restated) | |
| | | | | | | | | | | |
| Net (loss)/earnings — as reported | | $ | (525,219 | ) | $ | (336,360 | ) | $ | 36,987 | |
| | |
|
| |
|
| |
|
| |
| Net (loss)/earnings — pro forma | | $ | (527,832 | ) | $ | (340,419 | ) | $ | 35,515 | |
| | |
|
| |
|
| |
|
| |
| Earnings/(loss) per share as reported | | | | | | | | | | |
| Basic | | $ | (12.82 | ) | $ | (8.23 | ) | $ | .91 | |
| Diluted | | | * | | | * | | $ | .91 | |
| (Loss)/earnings per share — pro forma | | | | | | | | | | |
| Basic | | $ | (12.89 | ) | $ | (8.33 | ) | $ | .87 | |
| Diluted | | | * | | | * | | $ | .87 | |
| *Stock options not included in diluted earnings per share due to losses in 2002 and 2001. |
The assumption regarding the stock options issued to executives in 2002, 2001, and 2000 was that 100% of such options vested in the year of grant.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| | | | 2002 | | | 2001 | | | 2000 | |
| | |
|
| |
|
| |
|
| |
| Dividend yield | | | 0.00 | % | | 1.36 | % | | 3.18 | % |
| Expected volatility | | | 83.62 | % | | 79.20 | % | | 59.20 | % |
| Risk free interest rate | | | 2.90 | % | | 4.23 | % | | 6.46 | % |
| Expected life (years) | | | 5.0 | | | 5.0 | | | 5.0 | |
Under the 1995 Stock Option Plan approved by the shareholders in April 1995 and amended in April 1999 and May 2002, the total number of shares of common stock that may be granted is 5,300,000. In April 1990, the shareholders approved a Stock Option Plan for Directors of the Company. On April 29, 1997, the shareholders approved an amendment of the Directors’ Stock Option Plan, which authorizes the granting of options on 400,000 shares of common stock to non-employee directors of the Company, who will automatically receive an option to acquire 3,000 shares each year.
These plans provide that shares granted come from the Company’s authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100% of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant and no option will be exercisable after ten years from the date granted.
In connection with the reorganization of Foster Wheeler Corporation on May 25, 2001, obligations under the stock option plans were assumed by Foster Wheeler Inc., an indirect wholly-owned subsidiary of the Company.
The Company also granted 1,300,000 inducement options in 2001 to its chief executive officer in connection with an employment agreement and a further 1,000,000 options in 2002 based upon an
57
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
amendment to his employment agreement. The Company granted 300,000 inducement options to its chief financial officer and 255,000 inducement options to its president and chief executive officer of Foster Wheeler Power Group, Inc. in connection with their employment agreements in 2002. The price of the options granted pursuant to these agreements was fair market value on the date of the grant. One fifth of these options become exercisable each year after the date of the agreement; with all options available for exercise by the fifth anniversary of the agreement date. The options granted under these agreements expire 10 years from the date granted.
In 2002, the Company granted 250,000 options to one of its consultants. The price of the options granted was fair market value on the date of the grant. The options fully vest on March 31, 2003 and expire ten years from the date of grant. In accordance with SFAS 123, the Company recognized $328 of expense related to these options in 2002. As these options are not part of the Company’s employee stock option plans, they are not included in the information presented on the following page.
Information regarding these option plans for the years 2002, 2001, and 2000 is as follows (presented in actual number of shares):
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| | | Shares | | Weighted-
Average
Exercise
Price | | Shares | | Weighted-
Average
Exercise
Price | | Shares | | Weighted-
Average
Exercise
Price | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Options outstanding, beginning of year | | | 4,957,621 | | $ | 16.75 | | | 3,137,621 | | $ | 23.73 | | | 2,508,362 | | $ | 27.66 | |
| Options exercised | | | — | | | — | | | (66,000 | ) | | 9.51 | | | — | | | — | |
| Options granted | | | 3,627,361 | | | 1.64 | | | 1,936,250 | | | 5.30 | | | 671,486 | | | 8.76 | |
| Options cancelled or expired | | | (139,883 | ) | | 22.26 | | | (50,250 | ) | | 21.07 | | | (42,227 | ) | | 18.96 | |
| | |
| | | | |
| | | | |
| | | | |
| Options outstanding, end of year | | | 8,445,099 | | $ | 10.17 | | | 4,957,621 | | $ | 16.75 | | | 3,137,621 | | $ | 23.73 | |
| | |
| | | | |
| | | | |
| | | | |
| Option price range at end of year | | | $ 1.46 to | | | | | | $ 4.985 to | | | | | | $ 6.34375 | | | | |
| | | | $45.68750 | | | | | | $45.6875 | | | | | | to $45.6875 | | | | |
| Option price range for exercised shares | | | — | | | | | | $ 9.00 to | | | | | | — | | | | |
| | | | | | | | | | $ 15.0625 | | | | | | — | | | | |
| Options available for grant at end of year | | | 554,069 | | | | | | 566,180 | | | | | | 1,192,180 | | | | |
| | |
| | | | |
| | | | |
| | | | |
| Weighted-average fair value of options granted during the year | | $ | 1.11 | | | | | $ | 3.23 | | | | | $ | 3.38 | | | | |
| Options exercisable at end of year | | | 3,555,752 | | | | | | 2,620,547 | | | | | | 2,265,468 | | | | |
| Weighted-average of exercisable options at end of year | | $ | 20.35 | | | | | $ | 26.30 | | | | | $ | 28.63 | | | | |
The following table summarizes information about fixed-price stock options outstanding as of December 27, 2002:
| | | Options Outstanding | | Options Exercisable | |
| | |
| |
| |
Range of
Exercise Prices | | Number
Outstanding
at 12/27/02 | | Weighted-
Average
Remaining
Contractual Life | | Weighted-
Average
Exercise Price | | Number
Exercisable
at 12/27/02 | | Weighted-
Average
Exercise Price | |
| |
| |
| |
| |
| |
| |
| 27.4375 to 28.75 | | | 89,667 | | | 1 year | | | 28.49 | | | 89,667 | | | 28.49 | |
| 32.9375 to 40.0625 | | | 160,834 | | | 2 years | | | 36.04 | | | 160,834 | | | 36.04 | |
| 29.75 to 35.25 | | | 369,167 | | | 3 years | | | 30.20 | | | 369,167 | | | 30.20 | |
| 42.1875 to 45.6875 | | | 253,584 | | | 4 years | | | 42.62 | | | 253,584 | | | 42.62 | |
| 36.9375 to 37.25 | | | 373,500 | | | 5 years | | | 36.96 | | | 373,500 | | | 36.96 | |
| 27.50 to 27.625 | | | 408,000 | | | 6 years | | | 27.62 | | | 408,000 | | | 27.62 | |
| 13.50 to 15.0625 | | | 643,000 | | | 7 years | | | 14.17 | | | 643,000 | | | 14.17 | |
| 6.34375 to 10.00 | | | 607,486 | | | 8 years | | | 8.73 | | | 412,819 | | | 8.30 | |
| 4.985 to 11.60 | | | 1,912,500 | | | 9 years | | | 5.29 | | | 761,833 | | | 5.66 | |
| 1.46 to 1.87 | | | 3,627,361 | | | 10 years | | | 1.65 | | | 83,348 | | | 1.64 | |
| | |
| | | | | | | |
| | | | |
| 1.46 to 45.6875 | | | 8,445,099 | | | | | | | | | 3,555,752 | | | | |
| | |
| | | | | | | |
| | | | |
58
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
Reclassifications — Certain prior period amounts have been reclassified to conform to current financial statement presentation. In particular, the Engineering, Procurement and Construction business for the Power industry in the United States was reclassified from the E&C Group to the Energy Group. This allows for United States domestic power projects to be controlled by one group and better aligns the presentation with the current management reporting as well as the customer base.
Recent Accounting Developments — In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS 145 rescinds previous statements regarding the extinguishment of debt and amends SFAS 13, “Accounting for Leases” to eliminate an inconsistency between the required accounting for sale/leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale/leaseback transactions. The provisions of SFAS 145 related to the extinguishment of debt are to be applied to fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to the amendment of SFAS 13 are effective for transactions occurring after May 15, 2002. The Company is currently assessing the impact of the adoption of this new standard.
In June 2002, the FASB issued SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 requires liabilities associated with an exit or disposal activity be recognized at fair value when the liability is incurred. This contrasts with existing accounting requirements, under which liabilities for exit or disposal activities are recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, although early adoption is permitted. The Company implemented SFAS 146 in the fourth quarter of 2002. In connection with the Company’s exit from the Dansville, NY manufacturing facility, the Company recognized $5,300 as a charge to earnings in accordance with this standard.
In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure requirements of SFAS 123 to require prominent disclosures, in both interim and annual financial statements, about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The provisions of this standard relating to the fair value measurements do not affect the Company as it accounts for stock-based employee compensation under the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Is sued to Employees” as permitted under SFAS 123. The Company in its 2002 financial statements has implemented the disclosure requirements of this standard.
In November 2002, the FASB issued FASB Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The interpretation does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. FIN 45 also incorporates, without change, the guidance in FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”, which is being superseded.
This Interpretation does not apply to certain guarantee contracts and the provisions related to recognizing a liability at inception for the fair value of the guarantor’s obligation do not apply to the following:
59
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
2. Summary of Significant Accounting Policies — (Continued)
| | a. | Product warranties |
| | | |
| | b. | Guarantees that are accounted for as derivatives |
| | | |
| | c. | Guarantees that represent contingent consideration in a business combination |
| | | |
| | d. | Guarantees for which the guarantor’s obligations would be reported as an equity item (rather than a liability) |
| | | |
| | e. | An original lessee’s guarantee of lease payments when that lessee remains secondarily liable in conjunction with being relieved from being the primary obligor (that is, the principal debtor) under a lease restructuring |
| | | |
| | f. | Guarantees issued between either parents and their subsidiaries or corporations under common control |
| | | |
| | g. | A parent’s guarantee of a subsidiary’s debt to a third party, and a subsidiary’s guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent. |
However, the guarantees described in (a)-(g) above are subject to the disclosure requirements.
The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company in its 2002 financial statements has implemented the disclosure requirements of this interpretation.
3. Research and Development
For the years 2002, 2001, and 2000, approximately $10,300, $12,300 and $12,000, respectively, were spent on Company-sponsored research activities. During the same periods, approximately $18,100, $39,200 and $27,600, respectively, were spent on customer-sponsored research activities.
60
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
4. Accounts and Notes Receivable
The following tabulation shows the components of trade accounts and notes receivable:
| | | December 27, 2002 | | December 28, 2001 | |
| | |
| |
| |
| From long-term contracts: | | | | | | | |
| Amounts billed due within one year | | $ | 410,214 | | $ | 452,367 | |
| | |
|
| |
|
| |
| Retention: | | | | | | | |
| Billed: | | | | | | | |
| Estimated to be due in: | | | | | | | |
| 2002 | | | — | | | 65,631 | |
| 2003 | | | 58,042 | | | 18,059 | |
| 2004 | | | 25,481 | | | 22,246 | |
| 2005 | | | 4,978 | | | 2,485 | |
| | |
|
| |
|
| |
| Total billed | | | 88,501 | | | 108,421 | |
| | |
|
| |
|
| |
| | | | | | | | |
| Unbilled: | | | | | | | |
| Estimated to be due in: | | | | | | | |
| 2002 | | | — | | | 127,046 | |
| 2003 | | | 97,997 | | | 9,538 | |
| 2004 | | | 4 | | | — | |
| | |
|
| |
|
| |
| Total unbilled | | | 98,001 | | | 136,584 | |
| | |
|
| |
|
| |
| Total retentions | | | 186,502 | | | 245,005 | |
| | |
|
| |
|
| |
| Total receivables from long-term contracts | | | 596,716 | | | 697,372 | |
| Other trade accounts and notes receivable | | | 19,387 | | | 32,172 | |
| | |
|
| |
|
| |
| | | | 616,103 | | | 729,544 | |
| Less, allowance for doubtful accounts | | | 16,597 | | | 2,988 | |
| | |
|
| |
|
| |
| | | $ | 599,506 | | $ | 726,556 | |
| | |
|
| |
|
| |
Provisions for non-payments of customer balances are normally addressed within the overall profit calculation of the contracts and are not specifically covered by allowances for doubtful accounts. As a result, the amount considered to be in the receivable qualifying account (allowance for doubtful accounts) does not represent the full allowance.
In the third quarter of 1998, a subsidiary of the Company entered into a three-year agreement with a financial institution whereby the subsidiary would sell an undivided interest in a designated pool of qualified accounts receivable. Under the terms of the agreement, new receivables were added to the pool as collections reduce previously sold accounts receivable. The credit risk of uncollectible accounts receivable was transferred to the purchaser. The Company serviced, administered and collected the receivables on behalf of the purchaser. Fees payable to the purchaser under this agreement were equivalent to rates afforded high quality commercial paper issuers plus certain administrative expenses and were included in other deductions, in the Consolidated Statement of Earnings and Comprehensive Income. As of December 28, 2001 $50,000 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable—trade balance in the Consolidated Balance Sheet. The agreement was terminated and repaid in early 2002 and replaced with a new facility in August 2002, as described below.
In the third quarter of 2002, the Company entered into a receivables securitization facility that matures on August 15, 2005 and is secured by a portion of the Company’s domestic trade receivables. The facility operates through the use of a wholly owned, special purpose subsidiary, Foster Wheeler Funding LLC (“FW
61
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
4. Accounts and Notes Receivable — (Continued)
Funding”) as described below. FW Funding is included in the consolidated financial statements of the Company.
FW Funding entered a Purchase, Sale and Contribution Agreement (“PSCA”) on August 15, 2002 with six of the Company’s wholly owned domestic subsidiaries. Pursuant to the PSCA, FW Funding is obligated to purchase eligible trade receivables, as defined in the PSCA, from these companies and these companies are obligated to contribute as capital their ineligible trade accounts receivable as defined in the PSCA. On August 15, 2002, FW Funding also entered into a Loan and Security Agreement with Foothill Capital Corporation and Ableco Finance Corporation LLC. Under this agreement, FW Funding has the ability to borrow up to a maximum of $40,000 using eligible trade accounts receivable as security. FW Funding pays 10% interest on all outstanding borrowings. In addition, FW Funding pays a monthly unused line fee equal to 0.5% per annum of the maximum available amount less the average daily amount of borrowings during the preceding month. The facil ity is subject to covenant compliance. The financial covenants commence at the end of the first quarter of 2003 and include a senior leverage ratio and a minimum EBITDA level. Noncompliance with the financial covenants allows the lender to terminate the arrangement and accelerate any amounts then outstanding.
No amounts were outstanding under this facility as of December 27, 2002. FW Funding may increase or decrease, at its discretion, its use of the facility on a weekly basis subject to the availability of sufficient eligible trade accounts receivable and the facility’s maximum amount of $40,000. As of December 27, 2002, FW Funding held $211,700 of trade accounts receivable which are included in the consolidated balance sheet and had $21,900 of availability under the facility.
5. Contracts in Process and Inventories
Costs of contracts in process and inventories are shown below:
| | | 2002 | | 2001 | |
| | |
| |
| |
Inventories | | | | | | | |
| Materials and supplies | | $ | 9,102 | | $ | 10,190 | |
| Finished goods | | | 230 | | | 339 | |
| | |
|
| |
|
| |
| | | $ | 9,332 | | $ | 10,529 | |
| | |
|
| |
|
| |
The following tabulation shows the elements included in contract in process as related to long-term contracts:
| | | 2002 | | 2001 | |
| | |
| |
| |
Contracts in Process | | | | | | | |
| Costs plus accrued profits less earned revenues on contracts currently in process | | $ | 346,183 | | $ | 638,238 | |
| Less, progress payments | | | 65,582 | | | 144,639 | |
| | |
|
| |
|
| |
| | | $ | 280,601 | | $ | 493,599 | |
| | |
|
| |
|
| |
62
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
6. Land, Buildings and Equipment
Land, buildings and equipment are stated at cost and are set forth below:
| | | 2002 | | 2001 | |
| | |
| |
| |
| Land and land improvements | | $ | 23,806 | | $ | 21,261 | |
| Buildings | | | 151,462 | | | 104,869 | |
| Equipment | | | 590,295 | | | 598,047 | |
| Construction in progress | | | 4,117 | | | 3,835 | |
| | |
|
| |
|
| |
| | | $ | 769,680 | | $ | 728,012 | |
| | |
|
| |
|
| |
Depreciation expense for the years 2002, 2001, and 2000 was $54,492, $44,348, and $46,388, respectively.
7. Pensions and Other Postretirement Benefits
Pension Benefits — Domestic and certain foreign subsidiaries of the Company have several pension plans covering substantially all full-time employees. Under the plans, retirement benefits are primarily a function of both years of service and level of compensation; the domestic plans are noncontributory. Effective January 1, 1999, a cash balance program was established for the domestic plan. The pension benefit under the previous formulas remain the same for current employees if so elected, however, new employees are offered only the cash balance program. The cash balance plan resembles a savings account. Amounts are credited based on age and a percentage of earnings. At termination or retirement, the employee receives the balance in the account in a lump-sum. Under the cash balance program, future increases in employee earnings will not apply to prior service costs. It is the Company’s policy to fund the plans on a current basis to the exte nt deductible under existing Federal tax regulations. Such contributions, when made, are intended to provide not only for benefits attributed to service to date, but also those expected to be earned in the future. The Company also has a non-qualified, unfunded supplemental executive retirement plan which covers certain employees.
Through the year ended December 27, 2002, the Company recognized a cumulative minimum liability in its financial statements for both domestic and foreign underfunded plans in the amount of $370,649 resulting in a pre-tax charge to Other Comprehensive Income. The minimum pension liability will change from year to year as a result of revisions to actuarial assumptions, experience gains or losses and settlement rate changes.
Domestic subsidiaries of the Company have a 401(k) plan for salaried employees. The Company, for the years 2002, 2001, and 2000, contributed a 50% match of the first 6% of base pay of employee contributions, subject to the annual IRS limit which amounted to a cost of $5,507, $5,008, and $5,599, respectively.
Other Benefits — In addition to providing pension benefits, some of the Company’s domestic subsidiaries provide certain health care and life insurance benefits for retired employees. Employees may become eligible for these benefits if they qualify for and commence normal or early retirement pension benefits as defined in the pension plan while working for the Company. Benefits are provided through insurance companies. Additionally, some of the Company’s domestic subsidiaries also have a plan which provides coverage for an employee’s beneficiary upon the death of the employee.
63
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
7. Pensions and Other Postretirement Benefits — (Continued)
The following chart contains the disclosures for pension and other benefits for the years 2002, 2001 and 2000.
| | | Pension Benefits | | Other Benefits | |
| | |
| |
| |
| | | 2002 | | 2001 | | 2002 | | 2001 | |
| | |
| |
| |
| |
| |
| | | | | | | | | (Restated)
(See Note 2) | |
Projected Benefit Obligation (PBO) | | | | | | | | | | | | | |
| PBO at beginning of period | | $ | 641,100 | | $ | 601,819 | | $ | 118,959 | | $ | 94,449 | |
| Service cost | | | 29,044 | | | 27,248 | | | 2,785 | | | 996 | |
| Interest cost | | | 40,874 | | | 37,856 | | | 8,255 | | | 7,227 | |
| Plan participants contributions | | | 5,690 | | | 4,004 | | | — | | | — | |
| Plan amendments | | | 3,091 | | | 1,973 | | | (8,510 | ) | | (422 | ) |
| Actuarial loss/(gain) | | | 106,005 | | | 11,161 | | | 23,035 | | | 21,032 | |
| Benefits paid | | | (37,120 | ) | | (42,091 | ) | | (8,733 | ) | | (8,423 | ) |
| Special termination benefits/other | | | (8,514 | ) | | (140 | ) | | (2,399 | ) | | 4,100 | |
| Foreign currency exchange rate changes | | | 40,003 | | | (730 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
| PBO at end of period | | | 820,173 | | | 641,100 | | | 133,392 | | | 118,959 | |
| | |
|
| |
|
| |
|
| |
|
| |
Plan Assets | | | | | | | | | | | | | |
| Fair value of plan assets beginning of period | | | 521,195 | | | 575,990 | | | — | | | — | |
| Actual return on plan assets | | | (62,743 | ) | | (33,736 | ) | | — | | | — | |
| Employer contributions | | | 41,917 | | | 12,354 | | | 8,733 | | | 8,423 | |
| Plan participant contributions | | | 5,690 | | | 4,004 | | | — | | | — | |
| Benefits paid | | | (37,120 | ) | | (42,091 | ) | | (8,733 | ) | | (8,423 | ) |
| Other | | | (9,819 | ) | | 2,171 | | | — | | | — | |
| Foreign currency exchange rate changes | | | 28,184 | | | 2,503 | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
| Fair value of plan assets at end of period | | | 487,304 | | | 521,195 | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
Funded Status | | | | | | | | | | | | | |
| Funded status | | | (332,869 | ) | | (119,905 | ) | | (133,392 | ) | | (118,959 | ) |
| Unrecognized net actuarial loss/(gain) | | | 436,100 | | | 213,607 | | | (14,846 | ) | | 14,500 | |
| Unrecognized prior service cost | | | 12,507 | | | 12,219 | | | 31,308 | | | (18,029 | ) |
| Adjustment for the minimum liability | | | (370,649 | ) | | (70,270 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
| Prepaid (accrued) benefit cost | | $ | (254,911 | ) | $ | 35,651 | | $ | (116,930 | ) | $ | (122,488 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
64
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
7. Pensions and Other Postretirement Benefits — (Continued)
| | | Pension Benefits | | Other Benefits | |
| | |
| |
| |
| | | 2002 | | 2001 | | 2000 | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | (Restated) | | (Restated) | |
| | | | | | | | | | | (See Note 2) | | (See Note 2) | |
Net Periodic Benefit Cost | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 29,044 | | $ | 27,248 | | $ | 28,013 | | $ | 2,785 | | $ | 996 | | $ | 1,248 | |
| Interest cost | | | 40,874 | | | 37,856 | | | 37,642 | | | 8,255 | | | 7,227 | | | 5,905 | |
| Expected return on plan assets | | | (42,700 | ) | | (51,819 | ) | | (57,022 | ) | | — | | | — | | | — | |
| Amortization of transition asset | | | 63 | | | 56 | | | (9 | ) | | — | | | — | | | — | |
| Amortization of prior service cost | | | 1,810 | | | 1,692 | | | 2,215 | | | (2,853 | ) | | (2,206 | ) | | (2,165 | ) |
| Recognized actuarial loss/(gain)Other | | | 15,453 | | | 5,020 | | | (326 | ) | | (5,013 | ) | | 4,396 | | | (60 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| SFAS No.87 net periodic pension cost | | | 44,544 | | | 20,053 | | | 10,513 | | | 3,174 | | | 10,413 | | | 4,928 | |
| SFAS No.88 cost* | | | 1,908 | | | 1,900 | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total net periodic pension cost | | $ | 46,452 | | $ | 21,953 | | $ | 10,513 | | $ | 3,174 | | $ | 10,413 | | $ | 4,928 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Weighted Average Assumptions | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.1 | % | | 6.4 | % | | 6.7 | % | | 6.625 | % | | 7.75 | % | | 7.8 | % |
| Long term rate of return | | | 8.2 | % | | 9.3 | % | | 9.5 | % | | | | | | | | | |
| Salary scale | | | 4.1 | % | | 4.2 | % | | 4.2 | % | | | | | | | | | |
| * | Under the provision of SFAS No. 88 “Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” charges were recorded for a provision for the mothballing of a domestic manufacturing facility of $900, a provision for employee terminations as part of the workforce reduction of $100, and a provision for the retirement of the Company’s Vice President of Human Resources of approximately $900 in 2002; a provision for the retirement of the Company’s Chief Executive Officer resulted in a charge of $1,900 in 2001. |
Health care cost trend: | | | | |
| 2002 | | | 8.5 | % |
| Decline to 2009 | | | 5.0 | % |
Assumed health care cost trend rates have a significant effect on the amounts reported for the other benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
| | | 1-Percentage
Point Increase | | 1-Percentage
Point Decrease | |
| | |
| |
| |
| Effect on total of service and interest cost components | | $ | 709 | | $ | (627 | ) |
| Effect on accumulated postretirement benefit obligations | | | 10,834 | | | (9,599 | ) |
8. Bank Loans
The approximate weighted average interest rates on borrowings outstanding (primarily foreign) at the end of 2002 and 2001 were 4.38% and 4.28%, respectively.
Unused lines of credit for short-term bank borrowings aggregated $6,373 at year-end 2002, all of which were available outside the United States and Canada in various currencies at interest rates consistent with market conditions in the respective countries.
65
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
8. Bank Loans — (Continued)
Interest costs incurred (including dividends on preferred security) in 2002, 2001, and 2000 were $84,396, $85,202 and $83,405 of which $1,368, $718 and $151, respectively, were capitalized.
9. Corporate and Other Debt and Convertible Subordinated Notes
Corporate Debt — The Company, through its subsidiary Foster Wheeler LLC, has $200,000 Notes (the “Senior Notes”) in the public market, which bear interest at a fixed rate of 6.75% per annum, payable semiannually, and mature November 15, 2005. The Senior Notes were issued under an indenture between the Company and BNY Midwest Trust Company. The Notes are not redeemable prior to maturity and are not subject to any sinking fund requirements. The Senior Notes constitute senior unsecured indebtedness of the Company and rank on parity with the Company’s other senior unsecured indebtedness.
In August 2002, the Company finalized a Senior Credit Facility with its lender group. This facility, including a $71,000 term loan, a $69,000 revolving credit facility, and a $149,000 letter of credit facility, expires on April 30, 2005. This facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and 66% of the stock of the first-tier foreign subsidiaries. The facility has no scheduled repayments prior to maturity on April 30, 2005. The facility requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. The Company retains the first $77,000 of such amounts and also retains a 50% share of the balance. The financial covenants in the facility commence at the end of the first quarter 2003 and include a senior leverage ratio and a minimum EBITDA level as described in the agreement, as amended. With the sale of Foster Wheeler Environmental Corporation on Marc h 7, 2003, cumulative sales proceeds received, as defined in the agreement, approximate $75,000.
The term loan and revolving loans bear interest at the Company’s option of (a) LIBOR plus 3.50% or (b) the Base Rate plus 2.50%. The “Base Rate” means the higher of (i) the Bank of America prime rate and (ii) the Federal Funds rate plus 0.5%.
Amendment No. 1 to the Credit Agreement, obtained on November 8, 2002, provides covenant relief of up to $180,000 of gross pre-tax charges recorded by the Company in the third quarter of 2002. The amendment further provides that up to an additional $63,000 pre-tax charges related to specific contingencies may be excluded from the covenant calculation, if incurred, through December 31, 2003.
Amendment No. 2 to the Credit Agreement, entered into on March 24, 2003, modifies (i) certain definitions of financial measures utilized in the calculation of the financial covenants and (ii) the Minimum EBITDA, and Senior Debt Ratio, as specified in section 6.01 of the Credit Agreement. In connection with this amendment of the Credit Agreement, the Company must make a prepayment of principal in the aggregate amount of $10,000. Refer to exhibit 10.35, filed as part of this Report on Form 10-K, for the complete amendment.
As of December 27, 2002, $140,000 was borrowed under the Senior Credit Facility. This amount appears on the Consolidated Balance Sheet under the caption “Corporate and Other Debt.” As of December 27, 2002, $113,670 of standby letters of credit were outstanding.
66
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
9. Corporate and Other Debt and Convertible Subordinated Notes — (Continued)
Corporate and other debt consisted of the following:
| | | 2002 | | 2001 | |
| | |
| |
| |
| Senior Credit Facility (average interest rate 5.15%) | | $ | 140,000 | | $ | 70,000 | |
| 6.75% Notes due November 15, 2005 | | | 200,000 | | | 200,000 | |
| Other | | | 6,707 | | | 27,627 | |
| | |
|
| |
|
| |
| | | | 346,707 | | | 297,627 | |
| Less: Current portion | | | 5,005 | | | 297,627 | |
| | |
|
| |
|
| |
| | | $ | 341,702 | | $ | 0 | |
| | |
|
| |
|
| |
| Principal payments are payable in annual installments of: | | | | | | | |
| 2004 | | $ | 1,401 | | | | |
| 2005 | | | 340,134 | | | | |
| 2006 | | | 116 | | | | |
| 2007 | | | 51 | | | | |
| | |
| | | | |
| Balance due in installments through 2007 | | $ | 341,702 | | | | |
| | |
| | | | |
Convertible Subordinated Notes — In May and June 2001, the Company issued convertible subordinated notes having an aggregate principal amount of $210,000. The notes are due in 2007 and bear interest at 6.50% per annum, payable semi-annually on June 1 and December 1 of each year, commencing December 2001. The notes may be converted into common shares at an initial conversion rate of 62.131 common shares per $1,000 principal amount, or $16.05 per common share, subject to adjustment under certain circumstances. The notes are subordinated in right of payment to all existing and future senior indebtedness of the Company. The net proceeds of approximately $202,900 were used to repay $76,300 under the 364-day revolving credit facility that expired on May 30, 2001 and to reduce advances outstanding under a revolving credit agreement. Amortization of debt issuance costs is included as a component of interest expense over the term of the notes.
10. Derivative Financial Instruments
The Company operates on a worldwide basis. The Company’s activities expose it to risks related to the effect of changes in the foreign-currency exchange rates. The Company maintains a foreign-currency risk-management strategy that uses derivative instruments to protect it from unanticipated fluctuations in cash flows that may arise from volatility in currency exchange rates. The Company utilizes foreign exchange contracts solely for hedging purposes, whether or not they qualify for hedge accounting under SFAS 133. At December 27, 2002, the Company did not meet the requirements for deferral under SFAS 133 and recorded in the year ended December 27, 2002 a $5,300 net gain on derivative instruments which is recorded as a reduction in cost of operating revenues on the consolidated statement of earnings and comprehensive income. The Company is exposed to credit loss in the event of non-performance by the counterparties. All of these counterparties are significant financial institutions that are primarily rated A or better by Standard & Poor’s or A2 or better by Moody’s. As of December 27, 2002, approximately $177,140 was owed to the Company by counterparties and $103,950 is owed by the Company to counterparties. A $3,834 net of tax gain was recorded in other comprehensive income as of December 28, 2001. This amount was reclassified to earnings in 2002 as the Company no longer qualified for deferral under SFAS 133.
The maximum term over which the Company is hedging exposure to the variability of cash flows is twenty-four months.
67
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
10. Derivative Financial Instruments — (Continued)
A reconciliation of current period changes, net of applicable income taxes, in accumulated other comprehensive income relating to derivatives qualifying as cash flow hedges are as follows:
| Balance as of December 28, 2001 | | $ | 3,834 | |
| Reclassification to earnings | | | (3,834 | ) |
| | |
|
| |
| Balance at December 27, 2002 | | $ | 0 | |
| | |
|
| |
11. Subordinated Robbins Facility Exit Funding Obligations
Foster Wheeler’s subordinated obligations entered into in connection with the restructuring of debt incurred to finance construction of a waste-to-energy facility in the Village of Robbins, Illinois (the “Exit Funding Agreement”) are limited to funding:
| 1999C Bonds 7 1/4% interest, due October 15, 2009 ($13,710) and October 15, 2024 ($77,155) | | $ | 90,865 | |
| 1999D Bonds accrued at 7% due October 15, 2009 | | | 18,000 | |
| | |
|
| |
| Total | | $ | 108,865 | |
| | |
|
| |
1999C Bonds. The 1999C Bonds are subject to mandatory sinking fund reduction prior to maturity at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date by application by the Trustee of funds on deposit to the credit of the 1999C Sinking Fund Installment Subaccount on October 15 in the years and in the principal amounts as follows:
| 1999C BONDS DUE 2009 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Year | | Amount | | Year | | Amount | |
| | |
| |
| |
| |
| 2003 | | $ | 1,580 | | | 2006 | | $ | 1,940 | |
| 2004 | | | 1,690 | | | 2007 | | | 2,080 | |
| 2005 | | | 1,810 | | | 2008 | | | 2,225 | |
| | | | | | | 2009 | | | 2,385 | |
| | | | | | | | |
| |
| | | | | | | | | $ | 13,710 | |
| | | | | | | | |
| |
| 1999C BONDS DUE 2024 | |
| | | | | | | | | | | |
Year | | | | | | | | Amount | |
| | | | | | | | |
| |
| 2023 | | | | | | | | $ | 37,230 | |
| 2024 | | | | | | | | | 39,925 | |
| | | | | | | | |
| |
| | | | | | | | | | 77,155 | |
| | | | | | | | |
| |
| | | | | | | | | $ | 90,865 | |
| | | | | | | | |
| |
| See Note 20 for further information. |
12. Mandatorily Redeemable Preferred Securities
On January 13, 1999, FW Preferred Capital Trust I, a Delaware business trust which is a 100% owned finance subsidiary of the Company, issued $175,000 in Preferred Trust Securities. The Preferred Trust Securities are fully and unconditionally guaranteed by Foster Wheeler LLC. These Preferred Trust 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 during which time additional interest accrues at 9.0%. In accordance with this provision, the Company has deferred all quarterly distributions beginning with the distribution due on
68
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
12. Mandatorily Redeemable Preferred Securities — (Continued)
January 15, 2002. Such deferred interest totals $20,100. The maturity date is January 15, 2029. Foster Wheeler can redeem these Preferred Trust Securities on or after January 15, 2004.
13. Special-purpose Project Debt
Special-purpose project debt represents debt incurred to finance the construction of cogeneration facilities or waste-to-energy projects. The notes and/or bonds are collateralized by certain assets of each project. The Company’s obligations with respect to this debt are limited to guaranteeing the operating performance of the projects.
| | | 2002 | | 2001 | |
| | | | | | | | |
| Note payable, interest varies based on one of several money market rates (2002-year-end rate 2.705%), due semiannually through July 30, 2006 | | $ | 27,907 | (1) | $ | 33,367 | |
| Senior Secured Notes, interest 11.443%, due annually April 15, 2003 through 2015 | | | 40,077 | (2) | | 42,075 | |
| Solid Waste Disposal and Resource Recovery System Revenue Bonds, interest 7.125% to 7.5%, due annually December 1, 2003 through 2010 | | | 88,920 | (3) | | 97,978 | |
| Resource Recovery Revenue Bonds, interest 7.9% to 10%, due annually December 15, 2003 through 2012 | | | 48,936 | (4) | | 52,636 | |
| | |
|
| |
|
| |
| | | | 205,840 | | | 226,056 | |
| Less: Current portion | | | 24,227 | | | 20,216 | |
| | |
|
| |
|
| |
| | | $ | 181,613 | | $ | 205,840 | |
| | |
|
| |
|
| |
| (1) | The note payable for $27,907 represents a loan under a bank credit facility to a limited partnership whose general partner is a special-purpose subsidiary. |
| (2) | The Senior Secured Notes of $40,077 were issued in a total amount of $42,500. The notes are collateralized by certain revenues and assets of a special-purpose subsidiary which is the indirect owner of the project. |
| (3) | The Solid Waste Disposal and Resource Recovery System Revenue Bonds totaling $88,920 were issued in a total amount of $133,500. The bonds are collateralized by a pledge of certain revenues and assets of the project, but not the plant (see Note 20). |
| (4) | The Resource Recovery Revenue Bonds of $48,936 were issued in a total amount of $86,780. The bonds are collateralized by a pledge of certain revenues and assets of the project. |
Principal payments are payable in annual installments as follows:
| 2004 | | $ | 23,195 | |
| 2005 | | | 25,165 | |
| 2006 | | | 27,072 | |
| 2007 | | | 15,323 | |
| Balance due in installments through 2015 | | | 90,858 | |
| | |
|
| |
| | | $ | 181,613 | |
| | |
|
| |
69
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
14. Guarantees
The Company has provided indemnifications to third parties relating to businesses and/or assets the Company previously owned. Such indemnifications relate primarily to potential environmental and tax exposures for activities conducted by the Company prior to the sale.
| | | Maximum Potential
Payment | | Carrying Amount of
Liability | |
| | |
|
| |
|
| |
| Environmental indemnifications | | | No limit | | $ | 5,400 | |
| Tax indemnifications | | | No limit | | $ | 0 | |
The Company provides for make good/warranty reserves on certain of its long-term contracts. Generally, these reserves are accrued over the life of the contract so that a sufficient balance is maintained to cover the exposures at the conclusion of the contract.
| Balance as of December 28, 2001 | | $ | 52,700 | |
| Accruals | | | 45,600 | |
| Settlements | | | (8,600 | ) |
| Adjustments to provisions | | | (7,800 | ) |
| | |
|
| |
| Balance as of December 27, 2002 | | $ | 81,900 | |
| | |
|
| |
15. Equity Interests
The Company owns a non-controlling equity interest in three energy projects and one waste-to-energy project; three of which are located in Italy and one in Chile. Two of the projects in Italy are each 42% owned while the third is 49% owned by the Company. The project in Chile is 85% owned by the Company. However, the Company does not have a controlling financial interest in the Chilean project. Following is summarized financial information for the Company’s equity affiliates combined, as well as the Company’s interest in the affiliates.
| | | December 27, 2002 | | December 28, 2001 | |
| | |
| |
| |
| | | Italian
Projects | | Chilean
Project | | Italian
Projects | | Chilean
Projects | |
| | |
| |
| |
| |
| |
Balance Sheet Data: | | | | | | | | | | | | | |
| Current assets | | $ | 80,966 | | $ | 22,352 | | $ | 75,942 | | $ | 23,301 | |
| Other assets (primarily buildings and equipment) | | | 344,993 | | | 218,990 | | | 311,584 | | | 227,019 | |
| Current liabilities | | | 20,665 | | | 14,748 | | | 12,487 | | | 14,747 | |
| Other liabilities (primarily long-term debt) | | | 344,148 | | | 152,949 | | | 329,030 | | | 158,124 | |
| Net assets | | | 61,146 | | | 73,645 | | | 46,009 | | | 77,449 | |
| | | December 27, 2002 | | December 28, 2001 | |
| | |
| |
| |
| | | Italian Projects | | Chilean Project | | Italian Projects | | Chilean Projects | | Venezuela Project | |
| | |
| |
| |
| |
| |
| |
Income Statement Data for twelve months: | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 171,565 | | $ | 38,425 | | $ | 159,845 | | $ | 40,546 | | $ | 4,428 | |
| Income before income taxes | | | 31,358 | | | 10,087 | | | 21,618 | | | 10,467 | | | 2,684 | |
| Net earnings | | | 17,648 | | | 8,372 | | | 11,955 | | | 8,689 | | | 2,582 | |
As of December 27, 2002, the Company’s share of the net earnings and investment in the equity affiliates totaled $14,006 and $88,523, respectively. Dividends of $9,744 were received during the year 2002. The Company has guaranteed certain performance obligations of such projects. The Company’s average contingent obligations under such guarantees are approximately $2,800 per year for the four projects. The Company has provided a $10,000 debt service reserve letter of credit providing liquidity should the
70
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
15. Equity Interests — (Continued)
performance of the project be insufficient to cover the debt service payments. No amounts have been drawn under the letter of credit.
In April 2001, the Company completed the sale of its interests in two hydrogen production plants in South America. The net proceeds from these transactions were approximately $40,000. An after-tax loss of $5,000 was recorded in the second quarter relating to these sales.
16. Income Taxes
The components of (loss)/earnings before income taxes for the years 2002, 2001 and 2000 were taxed under the following jurisdictions:
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
| | | | | | | | | | | |
| Domestic | | $ | (506,639 | ) | $ | (244,809 | ) | $ | (37,334 | ) |
| Foreign | | | (3,923 | ) | | 31,844 | | | 89,500 | |
| | |
|
| |
|
| |
|
| |
| Total | | $ | (510,562 | ) | $ | (212,965 | ) | $ | 52,166 | |
| | |
|
| |
|
| |
|
| |
The provision/(benefit) for income taxes on those earnings was as follows:
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
| Current tax (benefit)/expense: | | | | | | | | | | |
| Domestic | | $ | 5,931 | | $ | 5,486 | | $ | 2,116 | |
| Foreign | | | 10,978 | | | 22,545 | | | 15,094 | |
| | |
|
| |
|
| |
|
| |
| Total current | | | 16,909 | | | 28,031 | | | 17,210 | |
| | |
|
| |
|
| |
|
| |
| Deferred tax (benefit)/expense: | | | | | | | | | | |
| Domestic | | | — | | | 102,147 | | | (14,079 | ) |
| Foreign | | | (2,252 | ) | | (6,783 | ) | | 12,048 | |
| | |
|
| |
|
| |
|
| |
| Total deferred | | | (2,252 | ) | | 95,364 | | | (2,031 | ) |
| | |
|
| |
|
| |
|
| |
| Total provision/(benefit) for income taxes | | $ | 14,657 | | $ | 123,395 | | $ | 15,179 | |
| | |
|
| |
|
| |
|
| |
71
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
16. Income Taxes — (Continued)
Deferred tax liabilities (assets) consist of the following:
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| | | | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
| | | | | | | | | | | |
| Difference between book and tax depreciation | | $ | 35,002 | | $ | 34,369 | | $ | 72,195 | |
| Pension assets | | | (61,279 | ) | | 7,584 | | | 22,881 | |
| Capital lease transactions | | | 7,376 | | | 8,612 | | | 9,733 | |
| Revenue recognition | | | (7,210 | ) | | 5,999 | | | 16,736 | |
| Other | | | — | | | 192 | | | 740 | |
| | |
|
| |
|
| |
|
| |
| Gross deferred tax liabilities (assets) | | | (26,111 | ) | | 56,756 | | | 122,285 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| Current taxability of estimated costs to complete long-term contracts | | | (14,278 | ) | | (4,297 | ) | | (5,750 | ) |
| Income currently taxable deferred for financial reporting | | | (4,175 | ) | | (5,307 | ) | | (5,491 | ) |
| Expenses not currently deductible for tax purposes | | | (129,917 | ) | | (122,983 | ) | | (132,898 | ) |
| Investment tax credit carry forwards | | | (30,893 | ) | | (30,893 | ) | | (30,251 | ) |
| Postretirement benefits other than pensions | | | (67,113 | ) | | (47,242 | ) | | (56,250 | ) |
| Asbestos claims | | | (6,200 | ) | | (7,000 | ) | | (7,963 | ) |
| Minimum tax credits | | | (10,883 | ) | | (11,073 | ) | | (10,263 | ) |
| Foreign tax credits | | | (9,579 | ) | | (6,485 | ) | | (13,763 | ) |
| Net operating loss carryforwards | | | (178,067 | ) | | (15,332 | ) | | (68,260 | ) |
| Effect of write-downs and restructuring reserves | | | (40,873 | ) | | (63,680 | ) | | — | |
| Other | | | (15,621 | ) | | (19,871 | ) | | (5,432 | ) |
| Valuation allowance | | | 444,427 | | | 268,851 | | | 71,816 | |
| | |
|
| |
|
| |
|
| |
| Net deferred tax assets | | | (63,172 | ) | | (65,312 | ) | | (264,505 | ) |
| | |
|
| |
|
| |
|
| |
| | | $ | (89,283 | ) | $ | (8,556 | ) | $ | (142,220 | ) |
| | |
|
| |
|
| |
|
| |
The domestic investment tax credit carryforwards, if not used, will expire in the years 2003 through 2008. Foreign tax credit carryforwards are recognized based on their potential utilization and, if not used, will expire in the years 2004 through 2007. As reflected above, the Company has recorded various deferred tax assets. Realization is dependent on generating sufficient taxable income prior to the expiration of the various credits. Management believes that it is more likely than not that the remaining net deferred tax assets (after consideration of the valuation allowance) will be realized through future earnings and/or tax planning strategies. The amount of the deferred tax assets considered realizable, however, could change in the near future if estimates of future taxable income during the carryforward period are changed. The valuation allowance increased by $175,600 and $197,000 in 2002 and 2001, respectively. Such increase is required under FASB 109, “Accounting for Income Taxes”, when there is an evidence of losses from domestic operations in the three most recent fiscal years. For statutory purposes, the majority of deferred tax assets for which a valuation allowance is provided in the current year do not begin expiring until 2020 and beyond, based on the current tax laws.
72
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
16. Income Taxes — (Continued)
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| Tax provision/(benefit) at U.S.statutory rate | | | (35.0 | )% | | (35.0 | )% | | 35.0 | % |
| State income taxes, net of Federal income tax benefit | | | 0.4 | | | 1.9 | | | 6.7 | |
| Increase in valuation allowance | | | 34.4 | | | 86.2 | | | — | |
| Difference in estimated income taxes on foreign income and losses, net of previously provided amounts | | | 2.0 | | | 2.2 | | | (7.5 | ) |
| Other | | | 1.1 | | | 2.6 | | | (5.1 | ) |
| | |
|
| |
|
| |
|
| |
| | | | 2.9 | % | | 57.9 | % | | 29.1 | % |
| | |
|
| |
|
| |
|
| |
17. Operating Leases
The Company entered into a sale/leaseback of its waste-to-energy plant in Charleston, South Carolina, in 1989. The terms of the agreement consisted of a long-term operating lease of 25 years. The Company recorded a deferred gain of $13,800 related to this transaction which is being amortized to income over the term of the lease. As of December 28, 2001, the unamortized gain was $6,500, net of the current portion of $500 each year. The lease expense recognized for 2002 was $6,300 and for 2001 and 2000 was $7,500 per year. The Charleston facility was sold in October of 2002.
The Company and certain of its subsidiaries are obligated under other operating lease agreements primarily for office space. Rental expense for these leases totaled $32,000 in 2002, $29,800 in 2001, and $30,200 in 2000. Future minimum rental commitments on non- cancelable leases are as follows:
Fiscal year: | | | | |
| 2003 | | $ | 26,937 | |
| 2004 | | | 25,805 | |
| 2005 | | | 21,208 | |
| 2006 | | | 16,443 | |
| 2007 | | | 15,159 | |
| Thereafter | | | 157,574 | |
| | |
|
| |
| | | $ | 263,126 | |
| | |
|
| |
18. Capital Leases
During 2002, the Company entered into sales-leaseback transactions for office buildings in both Finland and the United States. The transactions qualified as capitalized leases. Assets under capital leases are summarized as follows:
| | | 2002 | |
| | |
| |
| Buildings and improvements | | $ | 35,755 | |
| Less accumulated amortization | | | 342 | |
| | |
|
| |
| Net assets under capital lease | | $ | 35,413 | |
| | |
|
| |
73
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
18. Capital Leases — (Continued)
The following are the minimum lease payments to be made in each of the years indicated for the capital leases in effect as of December 27, 2002:
Fiscal year: | | | | |
| 2003 | | $ | 6,152 | |
| 2004 | | | 6,152 | |
| 2005 | | | 6,152 | |
| 2006 | | | 6,679 | |
| 2007 | | | 6,679 | |
| Thereafter | | | 134,927 | |
| Less: Interest | | | (107,754 | ) |
| | |
|
| |
| Net minimum lease payments under capital leases | | $ | 58,987 | |
| | |
|
| |
19. Quarterly Financial Data (Unaudited)
| | | Three Months Ended | |
| | |
| |
2002 | | March 29 | | June 28 | | Sept. 27 | | Dec. 27 | |
| | |
| |
| |
| |
| |
| | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | | | | |
| | | | | | | | | | | | | | |
| Operating revenues | | $ | 795,409 | | $ | 944,334 | | $ | 799,069 | | $ | 980,365 | |
| Gross earnings/(loss) from operations | | | 83,477 | | | 48,787 | | | (58,858 | ) | | 18,861 | |
| Net (loss) prior to cumulative effect of a change in accounting principle | | | (25,610 | ) | | (85,996 | ) | | (151,010 | ) | | (112,103 | ) |
| Cumulative effect of a change in accounting principle for goodwill, net of $0 tax | | | (150,500 | ) | | | | | | | | | |
| Net (loss) | | | (176,110 | ) | | (85,996 | ) | | (151,010 | ) | | (112,103 | ) |
| | | | | | | | | | | | | | |
| Earnings/(loss) per share: | | | | | | | | | | | | | |
| Basic | | $ | (4.30 | ) | $ | (2.10 | ) | $ | (3.69 | ) | $ | (2.73 | ) |
| Diluted | | $ | (4.30 | ) | $ | (2.10 | ) | $ | (3.69 | ) | $ | (2.73 | ) |
| | | | | | | | | | | | | | |
| Shares outstanding: | | | | | | | | | | | | | |
| Basic: | | | | | | | | | | | | | |
| Weighted average number of shares outstanding | | | 40,920 | | | 40,945 | | | 40,963 | | | 40,999 | |
| Diluted: | | | | | | | | | | | | | |
| Effect of stock options | | | * | | | * | | | * | | | * | |
| | |
|
| |
|
| |
|
| |
|
| |
| Total diluted | | | 40,920 | | | 40,945 | | | 40,963 | | | 40,999 | |
| | |
|
| |
|
| |
|
| |
|
| |
74
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
19. Quarterly Financial Data (Unaudited) — (Continued)
| | | Three Months Ended | |
| | |
| |
2001 | | March 30 | | June 29 | | Sept. 28 | | Dec. 28 | |
| | |
| |
| |
| |
| |
| | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | | (Restated)
(See Note 2) | |
| | | | | | | | | | | | | | |
| Operating revenues | | $ | 682,643 | | $ | 826,882 | | $ | 808,798 | | $ | 996,991 | |
| Gross earnings from operations | | | 74,958 | | | 84,421 | | | 68,390 | | | (76,480 | ) |
| Net earnings | | | 6,974 | | | (342 | ) | | 111 | | | (343,103 | ) |
| | | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | | |
| Basic | | $ | 0.17 | | $ | (0.01 | ) | $ | 0.00 | | $ | (8.39 | ) |
| Diluted | | $ | 0.17 | | $ | (0.01 | ) | $ | 0.00 | | $ | (8.39 | ) |
| | | | | | | | | | | | | | |
| Shares outstanding: | | | | | | | | | | | | | |
| Basic: | | | | | | | | | | | | | |
| Weighted average number of shares outstanding | | | 40,835 | | | 40,891 | | | 40,884 | | | 40,896 | |
| Diluted: | | | | | | | | | | | | | |
| Effect of stock options | | | 310 | | | 360 | | | 87 | | | * | |
| | |
|
| |
|
| |
|
| |
|
| |
| Total diluted | | | 41,145 | | | 41,251 | | | 40,971 | | | 40,896 | |
| | |
|
| |
|
| |
|
| |
|
| |
| * | The effect of the stock options and convertible notes were not included in the calculation of diluted earnings per share as these options were antidilutive due to the quarterly loss. |
20. Litigation and Uncertainties
In the ordinary course of business, the Company 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 Company by customers alleging deficiencies in either equipment or plant construction and seeking resulting alleged damages. Based on its knowledge of the facts and circumstances relating to the Company’s liabilities, if any, and to its insurance coverage, management of the Company believes that the disposition of such suits will not result in material charges against assets or earnings materially in excess of amounts previously provided in the accounts.
Some of the Company’s U.S. subsidiaries, along with many other companies, are codefendants in numerous asbestos-related lawsuits and out-of-court informal claims 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 allegedly performed by the Company’s subsidiaries during the 1970s and prior. A summary of claim activity for the three years ended December 27, 2002 is as follows:
| | | Number of Claims | |
| | |
| |
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| Balance, beginning of year | | | 110,700 | | | 92,100 | | | 73,600 | |
| New claims | | | 45,200 | | | 54,700 | | | 41,300 | |
| Claims resolved | | | (16,100 | ) | | (36,100 | ) | | (22,800 | ) |
| | |
|
| |
|
| |
|
| |
| Balance, end of year | | | 139,800 | | | 110,700 | | | 92,100 | |
| | |
|
| |
|
| |
|
| |
The amount spent on asbestos litigation defense and case resolution, substantially all of which was reimbursed or will be reimbursed from insurance coverage, was $57,200 in 2002, $66,900 in 2001, and $56,200 in 2000.
The Company has recorded assets of $569,000 relating to probable insurance recoveries of which approximately $35,000 is recorded in accounts and notes receivables, and $534,000 is recorded as long term.
75
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
20. Litigation and Uncertainties — (Continued)
The Company has funded approximately $59,000 as of December 27, 2002. The asset is an estimate of recoveries from insurers based upon assumptions relating to cost allocation and resolution of pending proceedings with certain insurers, as well as recoveries under a funding arrangement with other insurers, which has been in place since 1993. The total liability recorded is comprised of an estimated liability relating to open (outstanding) claims of approximately $337,500 and an estimated liability relating to future unasserted claims of approximately $217,300. Of the total, $35,000 is recorded in accrued expenses and $519,800 is recorded in asbestos related liability on the consolidated balance sheet. These estimates are based upon the following information and/or assumptions: number of open claims; forecasted number of future claims; estimated average cost per claim by disease type; and the breakdown of known and future claims into disease type. The tota l estimated liability includes both the estimate of forecasted indemnity amounts and forecasted defense expenses. Total estimated defense costs and indemnity payments are expected to be incurred over the next sixteen years during which period new claims are expected to decline from year to year. Recently received claims also suggest that the percentage of claims to be closed without payment of indemnity costs should increase as claims are resolved during the next few years. The Company believes that it is likely that there will be new claims filed after 2018 but in light of uncertainties inherent in long term forecasts, the Company does not believe that it can reasonably estimate defense and/or indemnity costs which might be incurred after 2018. Nonetheless, the Company plans to update its forecasts periodically to take into consideration its future experience and other considerations such as legislation to continuously update its estimate of future costs and expected insurance recoveries. Historically, defense costs have represented approximately 24% of total costs. Through December 27, 2002, total indemnity costs paid, prior to insurance recoveries, were approximately $294,600 and total defense costs paid were approximately $95,100. The Company’s management after consultation with counsel, has considered the ongoing proceedings with insurers and the financial viability and legal obligations of its insurers, and believe that except for those insurers that have become or may become insolvent, the insurers or their guarantors will continue to adequately fund claims and defense costs relating to asbestos litigation. It should be noted that the estimate of the assets and liabilities related to asbestos claims and recovery is subject to a number of uncertainties that may result in significant changes in the current estimates. Among these are uncertainty as to the ultimate number of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies with asbestos claims, uncer tainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes. Increases in the number of claims filed or costs to resolve those claims will cause the Company to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on the business, financial condition, results of operations, and cash flows.
A subsidiary of the Company in the United Kingdom has also received a limited number of claims alleging personal injury arising from exposure to asbestos. None of these claims have resulted in material costs to the Company.
A San Francisco, California jury returned a verdict on March 26, 2002 finding Foster Wheeler Corporation liable for $10,600 in the case of Todak vs. Foster Wheeler Corporation. The case was brought against Foster Wheeler Corporation, the U.S. Navy, and several other companies by a 59-year-old man suffering from mesothelioma which allegedly resulted from exposure to asbestos. The Company believes there was no credible evidence presented by the plaintiff that he was exposed to asbestos contained in a Foster Wheeler Corporation product. In addition, the Company believes that the verdict was clearly excessive and should be set aside or reduced on appeal. Foster Wheeler Corporation has appealed this judgment. Management of the Company believes the financial obligation that may ultimately result from entry of a final judgment in this case will be paid by insurance.
On April 3, 2002 the United States District Court for the Northern District of Texas entered an amended final judgment in the matter of Koch Engineering Company. et al vs. Glitsch, Inc. et al. Glitsch, Inc. (now
76
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
20. Litigation and Uncertainties — (Continued)
known as Tray, Inc.) is an indirect subsidiary of the Company. This lawsuit claimed damages for patent infringement and trade secret misappropriations and has been pending for over 18 years. As previously reported by the Company, a judgment was entered in this case on November 29, 1999 awarding plaintiffs compensatory and punitive damages plus prejudgment interest in an amount yet to be calculated. This amended final judgment in the amount of $54,283 includes such interest for the period beginning in 1983 when the lawsuit was filed through entry of judgment. Post-judgment interest will accrue at a rate of 5.471 percent per annum from November 29, 1999. The management of Tray, Inc. believes that the Court’s decision contains numerous factual and legal errors subject to reversal on appeal. Tray, Inc. has filed a notice of appeal to the court of appeals.
In 1997, the United States Supreme Court effectively invalidated New Jersey’s long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy Project (the “Project”) with its corresponding tipping fee revenue. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the Project. Those market-based revenues have not been, and are not expected to be, sufficient to service the debt on outstanding bonds which were issued to construct the Project and to acquire a landfill for Camden County’s use.
The Company’s project subsidiary, Camden Country Energy Recovery Associates, LP (“CCERA”), has filed suit against the involved parties, including the State of New Jersey, seeking among other things to void the applicable contracts and agreements governing the Project. (Camden County Energy Recovery Assoc. v. N.J. Department of Environmental Protection, et al., Superior Court of New Jersey, Mercer County, L-268-98). Since 1999, the State of New Jersey has provided subsidies sufficient to ensure the payment of each of the Project’s debt service payments as it became due. In January 2002, the State of New Jersey enacted legislation providing a mechanism for state-supported refinancing of bond debt on solid waste facilities located within the state. The legislation expired on December 31, 2002, without any refinancing having been accomplished. Press reports indicate that it is unlikely that any state-supported refinancing will occur i n the near future, but those same reports include statements by state officials that the State will continue to ensure that debt service payments are made when due. Given the foregoing, management is seeking to identify other potential mechanisms for refinancing the Project’s bond debt. Any refinancing would likely involve restructuring CCERA’s contracts related to the Project, including its service agreement.
The bonds outstanding on the Camden Project are public debt, not debt of either the Company or CCERA, and the bonds are not guaranteed by the Company. If the State were to fail to subsidize the debt service, and there were to be a default on a debt service payment, the bondholders might proceed to attempt to exercise their remedies.
At this time, management cannot determine the ultimate outcome of the foregoing and the potential effects on CCERA and the Project. However, management believes that pending the conclusion of the foregoing litigation, the Project will continue to operate at full capacity receiving market rates for waste disposal and generating sufficient revenues to pay CCERA its service fee. Because the debt outstanding on the Camden Project is not CCERA’s, and is not secured by CCERA’s plant, the Company’s management does not believe that an attempt by the bondholders to exercise their remedies would have a material adverse effect on CCERA or the Company.
In 1996, the Company 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
77
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
20. Litigation and Uncertainties — (Continued)
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 1996, the Company’s project subsidiaries filed a legal action against state officials and the utility, asserting a number of claims, including a claim that the repeal should not be construed to retroactively apply to the Robbins Facility. (Now pending as Village of Robbins and Robbins Resource Recovery Partners, L.P. v. Wright, et. al., Circuit Court of Cook County, Illinois, Chancery Division, No. 00 CH 3754) (previously 96 CH 12873).
In November 2002, the Circuit Court issued a Memorandum Order, and related judgments, holding that the repeal of the Retail Rate Law could not be retroactively applied to the Robbins Facility. The defendants have appealed, and the trial court’s rulings have been stayed.
In October 1999, the Company 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 Company agreed to continue to contest this repeal through litigation. Pursuant to the Robbins Agreement, the Company has also agreed that any proceeds of such litigation will be allocated in a certain order of priority. Pursuant to an agreement reached with the debtor project companies and the Bondholders and approved by the bankruptcy court on March 5, 2002 (In re: Robbins Resource Recovery Partners, L.P., N.D. Illinois, Case No. 00B 25018), the foregoing allocation was modified so that any proceeds will now be allocated in the following order of priority: (1) to any attorneys entitled to a contingency fee, up to 15%; (2) up to the next $10,000, 50% to the Company, 50% to redeem outs tanding 1999D Bonds; (3) to redeem all of the outstanding 1999D Bonds; (4) to reimburse the Company for any amounts paid by it in respect of the 1999D Bonds; (5) to reimburse the Company for any costs incurred by it in connection with prosecuting the Retail Rate litigation; (6) to redeem all of the outstanding 1999C Bonds; and (7) 10.6% interest on the foregoing items 4 and 5 to the Company. Then, to the extent there are further proceeds, 80% of any such proceeds shall be paid to the Indenture Trustee of 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 Company. After the foregoing payments shall have been made, any remaining proceeds shall be paid over to the Company.
On December 1, 1999, three special purpose subsidiaries of the Company commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in order to effectuate the terms of the Robbins Agreement. On January 21, 2000, these subsidiaries’ plan of reorganization was confirmed, and the plan was consummated on February 3, 2000.
On August 8, 2000, the Company initiated the final phase of its exit from the Robbins Facility. As part of the Robbins Agreement, the Company agreed to operate the Robbins Facility subject to being reimbursed for all costs of operation. Such reimbursement did not occur and, therefore, pursuant to the Robbins Agreement, the Company on October 10, 2000, completed the final phase of its exit from the project. The Company had been administering the project companies through a Delaware business trust, which owned the project on behalf of the Bondholders. As a result of its exit from the project, the Company is no longer administering the project companies, which project companies again commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in August and October 2000. A subsidiary of the Company reached an agreement with the debtor project companies and the requisite holders of the bonds, which was approved by the bankruptcy court on March 5, 2002 (In re: Robbins Resource Recovery Partners, L.P., N.D. Illinois, Case No. 00B 25018). In June 2002, the Plan of Reorganization incorporating the agreement, among other things, was confirmed and became effective. The foregoing agreement is expected to favorably resolve any issues related to the exit from the project.
The ultimate legal and financial liability of the Company in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used by the Company becomes known, the Company reassesses its position both with respect to gain contingencies
78
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
20. Litigation and Uncertainties — (Continued)
and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters as these are subject to change as events evolve and as additional information becomes available during the administration and litigation process. Increases in the number of claims filed or costs to resolve those claims will cause the Company to increase further the estimates of the costs associated with such claims and could have a material adverse effect on the business, financial condition, results of operations, and cash flows.
21. Preferred Share Purchase Rights
On September 22, 1987, the Company’s Board of Directors (the “Board”) declared a dividend distribution of one Preferred Share Purchase Right (“Right”) on each share of the Company’s common stock outstanding as of October 2, 1987 and adopted the Rights Agreement, dated as of September 22, 1987 (the “Rights Agreement”). On September 30, 1997, the Board amended and restated the Rights Agreement. Each Right allows the shareholder to purchase one one-hundredth of a share of a new series of preferred stock of the Company at an exercise price of $175. Rights are exercisable only if a person or group acquires 20% or more of the Company’s common stock or announces a tender offer the consummation of which would result in ownership by a person or group of 20% or more of the Company’s common stock. In connection with the reorganization on May 25, 2001, Foster Wheeler Corporation Rights were exchanged for Rights of Foster Wheeler Ltd. A new rights agreement governs the Rights, although the terms are the same. The Rights, which do not have the right to vote or receive dividends, expire on May 20, 2011, and may be redeemed, prior to becoming exercisable, by the Board at $.02 per Right or by shareholder action with an acquisition proposal.
If any person or group acquires 20% or more of the Company’s outstanding common stock, the “flip-in” provision of the Rights will be triggered and the Rights will entitle a holder (other than such person or any member of such group) to acquire a number of additional shares of the Company’s common stock having a market value of twice the exercise price of each Right.
In the event the Company is involved in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring Company’s common stock having a market value at that time of twice the Right’s exercise price. The Board of Directors may amend the Rights Agreement to prevent approved transactions from triggering the Rights.
22. Financial Instruments and Risk Management
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate values:
Cash and Short-term Investments — All investments are considered available for sale and the carrying amount approximates fair value because of the short-term maturity of these instruments.
Long-term Debt — The fair value of the Company’s long-term debt (including current installments) is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying amount for 2001 includes those debt issuances that were classified to current liabilities due to the covenant violations under the Company’s Revolving Credit Agreement and the potential for acceleration of debt under certain debt agreements. See Note 1 for further information.
Foreign Currency Contracts — The fair values of these financial instruments (used for hedging purposes) are estimated by obtaining quotes from brokers. The Company is exposed to market risks from fluctuations in foreign exchange rates. Financial instruments are utilized by the Company to reduce this risk. The Company does not hold or issue financial instruments for trading purposes. The Company is exposed to credit loss in the event of nonperformance by the counterparties. All of these financial instruments are with
79
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
22. Financial Instruments and Risk Management — (Continued)
significant financial institutions that are primarily rated A or better by Standard & Poor’s or A2 or better by Moody’s (see Notes 2 and 10).
Carrying Amounts and Fair Values — The estimated fair values of the Company’s financial instruments are as follows:
| | | 2002 | | 2001 | |
| | |
| |
| |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
| | |
| |
| |
| |
| |
Nonderivatives: | | | | | | | | | | | | | |
| Cash and short-term investments | | $ | 344,576 | | $ | 344,576 | | $ | 224,291 | | | $224,291 | |
| Restricted Cash | | | 84,793 | | | 84,793 | | | — | | | — | |
| Long-term debt | | | (823,114 | ) | | (532,598 | ) | | (735,158 | ) | | (592,517 | ) |
| | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | |
| Foreign currency contracts | | | 5,300 | | | 5,300 | | | 5,900 | | | 5,900 | |
In the ordinary course of business, the Company is contingently liable for performance under standby letters of credit, bank guarantees and surety bonds totaling $718,751 and $1,025,612 as of December 27, 2002 and December 28, 2001, respectively. These balances include the standby letters of credit issued under the Revolving Credit Agreement discussed in Note 9. In the Company’s past experience, no material claims have been made against these financial instruments. Management of the Company does not expect any material losses to result from these off-balance-sheet instruments and, therefore, is of the opinion that the fair value of these instruments is zero.
As of December 27, 2002, the Company had $281,090 of foreign currency contracts outstanding. These foreign currency contracts mature between 2003 and 2004. The contracts have been established by various international subsidiaries to sell a variety of currencies and either receive their respective functional currencies or other currencies for which they have payment obligations to third parties.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash equivalents and trade receivables. The Company places its cash equivalents with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across different business and geographic areas. As of December 27, 2002 and December 28, 2001, the Company had no significant concentrations of credit risk. The Company had issued a third-party financial guarantee totaling $2,750 at year-end 2002 and 2001 with respect to a partnership interest in a commercial real estate project.
23. Business Segments — Data
The business of the Company and its subsidiaries falls within two business groups. THE ENGINEERING AND CONSTRUCTION GROUP designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power generation and distribution facilities, production terminals, pollution control equipment, water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. THE ENERGY GROUP designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized-bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat- recovery equipment and low-NOX burners. Site services related to
80
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
23. Business Segments — Data — (Continued)
these products encompass plant erection, maintenance engineering, plant upgrading and life extension and plant repowering. The Energy Group also provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. In addition, the Energy Group also builds, owns and operates cogeneration, independent power production and resource recovery facilities, as well as facilities for the process and petrochemical industries.
Since fiscal 2000, the Power Systems Group has been combined with the Energy Group, where the rest of the Company’s power expertise resides. The prior years amounts have been adjusted to reflect this change. This unit has a small project development team but will no longer develop waste-to-energy facilities in the United States.
The Company conducts its business on a global basis. The E&C Group accounted for the largest portion of the Company’s operating revenues and operating income over the last ten years. In 2002, the E&C Group accounted for approximately 57% of the operating revenues. The geographic dispersion of these operating revenues was as follows: 25% North America, 20% Asia, 31% Europe, 13% Middle East, 5% South America and 6% other. The Energy Group accounted for 43% of the operating revenues of the Company. The geographic dispersion of these operating revenues was as follows: 62% North America, 31% Europe, 4% Asia, 2% Middle East, and 1% South America.
Earnings of segments represent revenues less expenses attributable to that group or geographic area where the operating units are located. Revenues between business segments are immaterial and are eliminated in Corporate and Financial Services.
Export revenues account for 5.3% of operating revenues. No single customer represented 10% or more of operating revenues for 2002, 2001, or 2000.
Identifiable assets by group are those assets that are directly related to and support the operations of each group. Corporate assets are principally cash, investments and real estate.
81
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
23. Business Segments — Data — (Continued)
Summary financial information concerning the Company’s reportable segments is shown in the following table:
| | | Total | | Engineering
and
Construction Group | | Energy
Equipment Group | | Corporate
and
Financial
Services(1) | |
| | |
| |
| |
| |
| |
2002 | | | | | | | | | | | | | |
| Revenues | | $ | 3,574,537 | | $ | 2,027,531 | | $ | 1,576,774 | | $ | (29,768 | ) |
Interest income(2) | | | 12,251 | | | 10,667 | | | 6,026 | | | (4,442 | ) |
Interest expense(2) | | | 83,028 | | | (415 | ) | | 21,621 | | | 61,822 | (3) |
| Loss before income taxes and cumulative effect of a change in accounting principle for goodwill | | | (360,062 | ) | | (56,513 | )(4)(6) | | (90,391 | )(4)(5)(6) | | (213,158 | )(4)(5)(6) |
| Income taxes/(benefits) | | | 14,657 | | | (11,485 | ) | | (62,859 | ) | | 89,001 | |
| Net loss before cumulative effect of a change in accounting principle for goodwill | | | (374,719 | ) | | (45,028 | ) | | (27,532 | ) | | (302,159 | ) |
| Cumulative effect on prior years of a change in accounting principle for goodwill (net of $0 tax) | | | (150,500 | ) | | (48,700 | ) | | (101,800 | ) | | — | |
| Net loss | | | (525,219 | ) | | (93,728 | ) | | (129,332 | ) | | (302,159 | ) |
| Identifiable assets | | | 2,908,837 | | | 1,103,211 | | | 1,494,961 | | | 310,665 | |
| Capital expenditures | | | 53,395 | | | 9,907 | | | 9,317 | | | 34,171 | |
| Depreciation and amortization | | | 57,825 | | | 15,490 | (7) | | 37,622 | (7) | | 4,713 | |
| | | | | | | | | | | | | | |
2001 (A) | | | | | | | | | | | | | |
| Revenues | | $ | 3,392,474 | | $ | 1,944,018 | | $ | 1,468,844 | | $ | (20,388 | ) |
Interest income(2) | | | 9,060 | | | 6,551 | | | 4,108 | | | (1,599 | ) |
Interest expense(2) | | | 84,484 | | | (179 | ) | | 26,493 | | | 58,170 | (3) |
| (Loss)/earnings before income taxes | | | (212,965 | ) | | 15,119 | (8) | | (88,186 | )(8)(9) | | (139,898 | )(8)(9) |
| Income taxes/(benefits) | | | 123,395 | | | 10,982 | | | (27,430 | ) | | 139,843 | (10) |
| Net (loss)/earnings | | | (336,360 | ) | | 4,137 | | | (60,756 | ) | | (279,741 | ) |
| Identifiable assets | | | 3,325,837 | | | 1,289,207 | | | 1,758,399 | | | 278,231 | |
| Capital expenditures | | | 33,998 | | | 11,494 | | | 15,463 | | | 7,041 | |
| Depreciation and amortization | | | 55,750 | | | 17,721 | | | 34,470 | | | 3,559 | |
| | | | | | | | | | | | | | |
2000 (A) | | | | | | | | | | | | | |
| Revenues | | $ | 3,969,355 | | $ | 2,800,222 | | $ | 1,273,510 | | $ | (104,377 | ) |
Interest income(2) | | | 15,737 | | | 16,658 | | | 9,712 | | | (10,633 | ) |
Interest expense(2) | | | 83,254 | | | 6,297 | | | 35,452 | | | 41,505 | (3) |
| Earnings/(loss) before income taxes | | | 52,166 | | | 86,113 | | | 46,875 | | | (80,822 | ) |
| Income taxes/(benefits) | | | 15,179 | | | 26,927 | | | 18,808 | | | (30,556 | ) |
| Net earnings/(loss) | | | 36,987 | | | 59,186 | | | 28,067 | | | (50,266 | ) |
| Identifiable assets | | | 3,507,581 | | | 1,224,826 | | | 1,772,362 | | | 510,393 | |
| Capital expenditures | | | 45,807 | | | 32,152 | | | 12,195 | | | 1,460 | |
| Depreciation and amortization | | | 57,716 | | | 20,386 | | | 35,099 | | | 2,231 | |
| (1) | Includes general corporate income and expense, the Company’s captive insurance operation and eliminations. |
| (2) | Includes intercompany interest charged by Corporate and Financial Services to the business groups on outstanding borrowings. |
| (3) | Includes dividends on Preferred Security of $16,610 in 2002, $15,750 in 2000 and 2001. |
82
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
23. Business Segments — Data — (Continued)
| (4) | Includes in 2002, revaluation of contract estimates and provisions for uncollectible receivables of $216,700 ($210,800 after tax): Engineering and Construction Group (EC) $121,650, Energy Group (Energy) $86,450 and Corporate and Financial Services (CF) $8,600; and a provision for mothballing a domestic manufacturing facility of $18,700 for Energy. |
| (5) | Includes in 2002, anticipated loss on sale of assets of $54,500 in Energy and provisions for asbestos claim of $26,200 in CF. |
| (6) | Includes in 2002, $79,300 ($79,000 net of tax) performance intervention activities, debt restructuring efforts, accrual for legal settlements, severance costs and increased pension, postretirement cost: $6,500 in EC, $12,700 in Energy, and $60,100 in CF. |
| (7) | Excluded cumulative effect in 2002, goodwill change in accounting principle of $48,700 in EC and $101,800 in Energy. |
| (8) | Includes in 2001, contract write-downs of $160,600 ($104,400 after-tax): Engineering and Construction Group $51,700, Energy Group $103,900 and Corporate and Financial Services $5,000. |
| (9) | Includes in 2001, loss on sale of cogeneration plants in Energy Group of $40,300 ($27,900 after-tax), increased pension and postretirement benefit cost in Corporate and Financial Services of $9,100 ($6,000 after-tax), provision for domestic plant impairment of $6,100 ($4,000 after tax), severance of $4,700 ($3,100 after tax), cancellation of company owned life insurance of $20,000 ($13,000 after tax) and legal settlements and other provisions of $13,500 ($8,800 after tax). |
| (10) | Includes in 2001, a valuation allowance for deferred tax assets of $194,600 on Corporate and Financial Services. |
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
Equity earnings in unconsolidated subsidiaries were as follows: | | | | | | | | | | |
| Engineering and Construction Group | | $ | 7,334 | | $ | 4,432 | | $ | 6,719 | |
| Energy Group | | | 6,672 | | | 8,404 | | | 13,268 | |
| | |
|
| |
|
| |
|
| |
| Total | | $ | 14,006 | | $ | 12,836 | | $ | 19,987 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
Geographic Concentration | | | | | | | | | | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | |
| United States | | $ | 1,544,827 | | $ | 1,673,457 | | $ | 1,897,038 | |
| Europe | | | 1,923,211 | | | 1,669,409 | | | 2,099,539 | |
| Canada | | | 136,267 | | | 126,851 | | | 77,155 | |
| Corporate and Financial Services, including eliminations | | | (29,768 | ) | | (77,243 | ) | | (104,377 | ) |
| | |
|
| |
|
| |
|
| |
| Total | | $ | 3,574,537 | | $ | 3,392,474 | | $ | 3,969,355 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
Long-lived assets: | | | | | | | | | | |
| United States | | $ | 345,934 | | $ | 534,345 | | $ | 628,940 | |
| Europe | | | 195,359 | | | 174,058 | | | 228,762 | |
| Canada | | | 1,537 | | | 1,958 | | | 1,511 | |
| Corporate and Financial Services, including eliminations | | | 76,394 | | | 47,894 | | | 44,507 | |
| | |
|
| |
|
| |
|
| |
| Total | | $ | 619,224 | | $ | 758,255 | | $ | 903,720 | |
| | |
|
| |
|
| |
|
| |
Revenues and long-lived assets are based on the country in which the contracting subsidiary is located.
83
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
23. Business Segments — Data — (Continued)
Operating revenues by industry segment for the three years ending December 2002 were as follows:
| | | 2002 | | 2001 | | 2000 | |
| | |
| |
| |
| |
| Power | | $ | 1,647,135 | | $ | 1,399,450 | | $ | 1,402,411 | |
| Oil and gas/refinery | | | 922,267 | | | 807,367 | | | 1,455,983 | |
| Pharmaceutical | | | 404,825 | | | 485,786 | | | 300,235 | |
| Chemical | | | 156,606 | | | 177,777 | | | 338,898 | |
| Environmental | | | 353,981 | | | 337,248 | | | 358,571 | |
| Power production | | | 130,843 | | | 150,990 | | | 144,600 | |
| Eliminations and other | | | (96,480 | ) | | (43,304 | ) | | (109,337 | ) |
| | |
|
| |
|
| |
|
| |
| Total Operating Revenues | | $ | 3,519,177 | | $ | 3,315,314 | | $ | 3,891,361 | |
| | |
|
| |
|
| |
|
| |
24. Consolidating Financial Information
The following represents summarized condensed consolidating financial information as of December 27, 2002 and December 28, 2001 with respect to the financial position, and for the three years ended December 27, 2002 for results of operations and for cash flows of the Company and its 100% owned and majority-owned subsidiaries. As a result of the reorganization on May 25, 2001, Foster Wheeler LLC, as successor to Foster Wheeler Corporation, became obligor for the Company’s 6.75% notes due November 15, 2005 (the “Notes”). In connection with the Company’s finalizing the Senior Credit Facility, the following companies issued guarantees in favor of the holders of the Notes or otherwise assumed the obligations under the indenture governing the Notes: Equipment Consultants, Inc., Foreign Holdings Ltd., Foster Wheeler Asia Limited, Foster Wheeler Capital & Finance Corporation, Foster Wheeler Constructors, Inc., Foster Whee ler Development Corporation, Foster Wheeler Energy Corporation, Foster Wheeler Energy Manufacturing, Inc., Foster Wheeler Energy Services, Inc., Foster Wheeler Enviresponse, Inc., Foster Wheeler Environmental Corporation, Foster Wheeler Facilities Management, Inc., Foster Wheeler Inc., Foster Wheeler International Corporation, Foster Wheeler International Holdings, Inc., Foster Wheeler Ltd., Foster Wheeler Power Group, Inc., Foster Wheeler Power Systems, Inc., Foster Wheeler Pyropower, Inc., Foster Wheeler Real Estate Development Corporation, Foster Wheeler Realty Services, Inc., Foster Wheeler USA Corporation, Foster Wheeler Virgin Islands, Inc., Foster Wheeler Zack, Inc., FW Mortshal, Inc., FW Technologies Holdings LLC, HFM International, Inc., Process Consultants, Inc., Pyropower Operating Services Company, Inc., and Perryville III Trust. Each of the guarantees is full and unconditional and joint and several. In May and June 2001, the Company issued 6.5% Convertible Subordinated Notes (“Convertib le Notes”) due in 2007. The Convertible Notes are fully and unconditionally guaranteed by Foster Wheeler LLC. 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 Company.
The comparative statements for December 28, 2001, as restated, and December 29, 2000, as restated with respect to the financial position, results of operations, and cash flows, were revised to conform to the current financial presentation of guarantors. The guarantor subsidiaries include the results of Foreign Holdings Ltd., the parent of Foster Wheeler, LLC. Foster Wheeler LLC owns, directly or indirectly, the other guarantor subsidiaries, and non-guarantor subsidiaries.
84
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2002
(in thousands of dollars)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Assets | | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | — | | $ | 195,886 | | $ | 432,832 | | $ | 1,390,432 | | $ | (622,743 | ) | $ | 1,396,407 | |
| Investment in subsidiaries | | | (778,213 | ) | | (845,388 | ) | | 530,566 | | | 86,614 | | | 1,094,944 | | | 88,523 | |
| Land, buildings & equipment (net) | | | — | | | — | | | 103,489 | | | 304,330 | | | — | | | 407,819 | |
| Notes and accounts receivable—long-term | | | — | | | 595,656 | | | 289,106 | | | 483,167 | | | (1,345,985 | ) | | 21,944 | |
| Intangible assets (net) | | | — | | | — | | | 81,565 | | | 447,967 | | | (406,650 | ) | | 122,882 | |
| Other non-current assets | | | — | | | 20,749 | | | 641,375 | | | 209,140 | | | (2 | ) | | 871,262 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL ASSETS | | $ | (778,213 | ) | $ | (33,097 | ) | $ | 2,078,933 | | $ | 2,921,650 | | $ | (1,280,436 | ) | $ | 2,908,837 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Liabilities & Shareholders’ Equity/(Deficit) | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 2,726 | | | $ 22,842 | | $ | 1,152,335 | | $ | 985,462 | | $ | (622,742 | ) | $ | 1,540,623 | |
| Long-term debt | | | — | | | 340,000 | | | 518,395 | | | 1,069,142 | | | (1,345,985 | ) | | 581,552 | |
| Other non-current liabilities | | | — | | | — | | | 1,081,857 | | | 244,150 | | | (250,691 | ) | | 1,075,316 | |
| Subordinated Robbins obligations | | | — | | | — | | | 107,285 | | | — | | | — | | | 107,285 | |
| Convertible debt | | | — | | | 210,000 | | | — | | | — | | | — | | | 210,000 | |
| Preferred trust securities | | | — | | | 175,000 | | | — | | | — | | | — | | | 175,000 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL LIABILITIES | | | 2,726 | | | 747,842 | | | 2,859,872 | | | 2,298,754 | | | (2,219,418 | ) | | 3,689,776 | |
| TOTAL SHAREHOLDERS’ EQUITY/(DEFICIT) | | | (780,939 | ) | | (780,939 | ) | | (780,939 | ) | | 622,896 | | | 938,982 | | | (780,939 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT) | | $ | (778,213 | ) | $ | (33,097 | ) | $ | 2,078,933 | | $ | 2,921,650 | | $ | (1,280,436 | ) | $ | 2,908,837 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
85
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 28, 2001
(in thousands of dollars)
(Restated, See Note 2)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Assets | | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | — | | $ | 121,298 | | $ | 1,046,908 | | $ | 1,136,494 | | $ | (550,324 | ) | $ | 1,754,376 | |
| Investment in subsidiaries | | | (45,889 | ) | | (113,838 | ) | | 496,250 | | | 82,367 | | | (334,376 | ) | | 84,514 | |
| Land, buildings & equipment (net) | | | — | | | — | | | 100,891 | | | 298,307 | | | — | | | 399,198 | |
| Notes and accounts receivable—long-term | | | — | | | 595,656 | | | 294,252 | | | 511,601 | | | (1,336,136 | ) | | 65,373 | |
| Intangible assets (net) | | | — | | | — | | | 204,485 | | | 476,708 | | | (406,650 | ) | | 274,543 | |
| Other non-current assets | | | — | | | 15,962 | | | 534,349 | | | 197,522 | | | — | | | 747,833 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL ASSETS | | $ | (45,889 | ) | $ | 619,078 | | $ | 2,677,135 | | $ | 2,702,999 | | $ | (2,627,486 | ) | $ | 3,325,837 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Liabilities & Shareholders’ Equity/(Deficit) | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 2,555 | | | $ 667,522 | | $ | 1,320,602 | | $ | 948,265 | | $ | (550,324 | ) | $ | 2,388,620 | |
| Long-term debt | | | — | | | — | | | 459,869 | | | 1,014,122 | | | (1,336,136 | ) | | 137,855 | |
| Other non-current liabilities | | | — | | | — | | | 945,108 | | | 153,313 | | | (250,615 | ) | | 847,806 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL LIABILITIES | | | 2,555 | | | 667,522 | | | 2,725,579 | | | 2,115,700 | | | (2,137,075 | ) | | 3,374,281 | |
| TOTAL SHAREHOLDERS’ EQUITY/(DEFICIT) | | | (48,444 | ) | | (48,444 | ) | | (48,444 | ) | | 587,299 | | | (490,411 | ) | | (48,444 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT) | | $ | (45,889 | ) | $ | 619,078 | | $ | 2,677,135 | | $ | 2,702,999 | | $ | (2,627,486 | ) | $ | 3,325,837 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
86
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 27, 2002
(in thousands of dollars)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Operating revenues | | $ | — | | $ | — | | $ | 1,392,043 | | $ | 2,228,851 | | $ | (101,717 | ) | $ | 3,519,177 | |
| Other income | | | — | | | 53,745 | | | 53,149 | | | 83,333 | | | (134,867 | ) | | 55,360 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Revenues | | | — | | | 53,745 | | | 1,445,192 | | | 2,312,184 | | | (236,584 | ) | | 3,574,537 | |
| | | | | | | | | | | | | | | | | | | | |
| Cost of operating revenues | | | — | | | — | | | 1,440,544 | | | 2,089,827 | | | (103,461 | ) | | 3,426,910 | |
| | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | — | | | — | | | 127,353 | | | 99,171 | | | — | | | 226,524 | |
| | | | | | | | | | | | | | | | | | | | |
| Other deductions and minority interest(*) | | | 172 | | | 56,990 | | | 154,266 | | | 184,507 | | | (114,770 | ) | | 281,165 | |
| Equity in net losses of subsidiaries | | | (525,047 | ) | | (520,694 | ) | | (96,553 | ) | | — | | | 1,142,294 | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Loss before income taxes | | | (525,219 | ) | | (523,939 | ) | | (373,524 | ) | | (61,321 | ) | | 1,123,941 | | | (360,062 | ) |
| Provision/(benefit) for income taxes | | | — | | | (2,322 | ) | | 10,854 | | | 6,125 | | | — | | | 14,657 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net loss prior to cumulative effect of a change in accounting principle | | | (525,219 | ) | | (521,617 | ) | | (384,378 | ) | | (67,446 | ) | | 1,123,941 | | | (374,719 | ) |
| Cumulative effect on prior years of a change in accounting principle for goodwill, net of $0 tax | | | — | | | — | | | (125,700 | ) | | (24,800 | ) | | — | | | (150,500 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net loss | | | (525,219 | ) | | (521,617 | ) | | (510,078 | ) | | (92,246 | ) | | 1,123,941 | | | (525,219 | ) |
| Other comprehensive (loss)/income: Foreign currency translation adjustment | | | 22,241 | | | 22,241 | | | 22,241 | | | 22,241 | | | (66,723 | ) | | 22,241 | |
| Net (loss)/gain on derivative instruments | | | (3,834 | ) | | (3,834 | ) | | (3,834 | ) | | 284 | | | 7,384 | | | (3,834 | ) |
| Minimum pension liability adjustment net of tax liability | | | (226,011 | ) | | (226,011 | ) | | (226,011 | ) | | (170,303 | ) | | 622,325 | | | (226,011 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Comprehensive loss | | $ | (732,823 | ) | $ | (729,221 | ) | $ | (717,682 | ) | $ | (240,024 | ) | $ | 1,686,927 | | $ | (732,823 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| (*) | Includes interest expense and dividends on preferred securities of $83,028. |
87
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 28, 2001
(in thousands of dollars)
(Restated, See Note 2)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Operating revenues | | | — | | | — | | $ | 1,500,494 | | $ | 2,002,576 | | $ | (187,756 | ) | $ | 3,315,314 | |
| Other income | | | — | | $ | 276,203 | | | 66,141 | | | 107,691 | | | (372,875 | ) | | 77,160 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Revenues | | | — | | | 276,203 | | | 1,566,635 | | | 2,110,267 | | | (560,631 | ) | | 3,392,474 | |
| | | | | | | | | | | | | | | | | | | | |
| Cost of operating revenues | | | — | | | — | | | 1,506,801 | | | 1,823,980 | | | (166,756 | ) | | 3,164,025 | |
| | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | — | | | 7,895 | | | 116,638 | | | 100,859 | | | — | | | 225,392 | |
| | | | | | | | | | | | | | | | | | | | |
| Other deductions and minority interest(*) | | $ | 148 | | | 55,505 | | | 126,175 | | | 159,620 | | | (125,426 | ) | | 216,022 | |
| Equity in net losses of subsidiaries | | | (336,264 | ) | | (327,909 | ) | | (255,275 | ) | | — | | | 919,448 | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Loss before income taxes | | | (336,412 | ) | | (115,106 | ) | | (438,254 | ) | | 25,808 | | | 650,999 | | | (212,965 | ) |
| Provision/(benefit) for income taxes | | | (52 | ) | | (7,791 | ) | | 126,993 | | | 4,245 | | | — | | | 123,395 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net loss | | | (336,360 | ) | | (107,315 | ) | | (565,247 | ) | | 21,563 | | | 650,999 | | | (336,360 | ) |
| Other comprehensive (loss)/income: Foreign currency translation adjustment | | | (10,191 | ) | | (10,191 | ) | | (10,191 | ) | | (12,683 | ) | | 33,065 | | | (10,191 | ) |
| Net gain /(loss) on derivative instruments | | | 3,834 | | | 3,834 | | | 3,834 | | | 284 | | | (7,952 | ) | | 3,834 | |
| Minimum pension liability adjustment, net of tax benefit of $0 | | | (36,770 | ) | | (36,770 | ) | | (36,770 | ) | | — | | | 73,540 | | | (36,770 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Comprehensive loss | | $ | (379,487 | ) | $ | (150,442 | ) | | $(608,374) | | $ | 9,164 | | $ | 749,652 | | $ | (379,487 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| (*) | Includes interest expense and dividends on preferred securities of $84,484. |
88
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 29, 2000
(in thousands of dollars)
(Restated, See Note 2)
| | | FWC | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| Operating revenues | | $ | — | | $ | 1,731,197 | | $ | 2,301,901 | | $ | (141,737 | ) | $ | 3,891,361 | |
| Other income | | | 107,063 | | | 51,932 | | | 74,191 | | | (155,192 | ) | | 77,994 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Revenues | | | 107,063 | | | 1,783,129 | | | 2,376,092 | | | (296,929 | ) | | 3,969,355 | |
| | | | | | | | | | | | | | | | | |
| Cost of operating revenues | | | — | | | 1,636,152 | | | 2,099,732 | | | (170,737 | ) | | 3,565,147 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 17,642 | | | 101,892 | | | 102,576 | | | — | | | 222,110 | |
| Other deductions and minority Interest(*) | | | 61,622 | | | 30,585 | | | 64,453 | | | (26,728 | ) | | 129,932 | |
| Equity in net earnings of subsidiaries | | | (3,888 | ) | | 9,727 | | | — | | | (5,839 | ) | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| Earnings/(loss) before income taxes | | | 23,911 | | | 24,227 | | | 109,331 | | | (105,303 | ) | | 52,166 | |
| (Benefit)/provision for income taxes | | | (13,076 | ) | | (3,597 | ) | | 31,852 | | | — | | | 15,179 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net earnings | | | 36,987 | | | 27,824 | | | 77,479 | | | (105,303 | ) | | 36,987 | |
| Other comprehensive loss: | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | (19,988 | ) | | (19,988 | ) | | (19,988 | ) | | 39,976 | | | (19,988 | ) |
| Minimum pension liability adjustment net of $12,000 tax benefit | | | (21,500 | ) | | — | | | — | | | — | | | (21,500 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Comprehensive earnings/(loss) | | $ | (4,501 | ) | $ | 7,836 | | $ | 57,491 | | $ | (65,327 | ) | $ | (4,501 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| (*) | Includes interest expense and dividends on preferred securities of $83,254. |
89
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
For the Year Ended December 27, 2002
(in thousands of dollars)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | | | | |
Net cash (used)/provided by Operating Activities | | $ | (172 | ) | $ | (18,499 | ) | $ | 182,519 | | $ | (3,187 | ) | $ | (296 | ) | $ | 160,365 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | |
| Change in restricted cash | | | — | | | — | | | (16,056 | ) | | (68,737 | ) | | — | | | (84,793 | ) |
| Capital expenditures | | | — | | | — | | | (40,932 | ) | | (12,463 | ) | | — | | | (53,395 | ) |
| Proceeds from sale of properties | | | — | | | — | | | 1,783 | | | 4,499 | | | — | | | 6,282 | |
| (Increase)/decrease in investment and advances | | | — | | | (350 | ) | | (21,049 | ) | | 8,883 | | | 21,623 | | | 9,107 | |
| Decrease in short-term investments | | | — | | | — | | | — | | | 93 | | | — | | | 93 | |
| Other | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided/(used) by Investing Activities | | | — | | | (350 | ) | | (76,254 | ) | | (67,725 | ) | | 21,623 | | | (122,706 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | |
| Dividends to Common Shareholders | | | — | | | 3,390 | | | 14,970 | | | (18,360 | ) | | — | | | — | |
| Other | | | — | | | — | | | — | | | — | | | — | | | — | |
| Increase/(decrease) in short-term debt | | | — | | | — | | | — | | | (7,792 | ) | | — | | | (7,792 | ) |
| Proceeds from long-term debt | | | — | | | 70,000 | | | 44,900 | | | 546 | | | — | | | 115,446 | |
| Repayment of long-term debt | | | — | | | — | | | (24,440 | ) | | (21,151 | ) | | — | | | (45,591 | ) |
| Other | | | 172 | | | (54,541 | ) | | (163,185 | ) | | 236,820 | | | (21,327 | ) | | (2,061 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided/(used) by Financing Activities | | | 172 | | | 18,849 | | | (127,755 | ) | | 190,063 | | | (21,327 | ) | | 60,002 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | — | | | 143 | | | 22,481 | | | — | | | 22,624 | |
| Increase/(decrease) in cash and cash equivalents | | | — | | | — | | | (21,347 | ) | | 141,632 | | | — | | | 120,285 | |
| Cash and cash equivalents, beginning of year | | | — | | | — | | | 40,961 | | | 183,059 | | | — | | | 224,020 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cash and cash equivalents, end of year | | $ | — | | $ | — | | $ | 19,614 | | $ | 324,691 | | $ | — | | $ | 344,305 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
90
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
For the Year Ended December 28, 2001
(in thousands of dollars)
(Restated, See Note 2)
| | | Foster Wheeler
Ltd. | | Foster Wheeler
LLC | | Guarantor
Subsidiaries | | Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | | | | |
Net cash (used)/provided by Operating Activities | | $ | 2,446 | | $ | (183,713 | ) | $ | 669,093 | | $ | (321,864 | ) | $ | (254,643 | ) | $ | (88,681 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | | — | | | (2,346 | ) | | (17,074 | ) | | (14,578 | ) | | — | | | (33,998 | ) |
| Proceeds from sale of properties | | | — | | | — | | | 190 | | | 59,482 | | | — | | | 59,672 | |
| Decrease/(increase) in investment and advances | | | — | | | — | | | 77,838 | | | (61,830 | ) | | — | | | 16,008 | |
| Decrease in short-term investments | | | — | | | — | | | — | | | 1,530 | | | — | | | 1,530 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash (used)/provided by Investing Activities | | | — | | | (2,346 | ) | | 60,954 | | | (15,396 | ) | | — | | | 43,212 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | |
| Dividends to Common Shareholders | | | (2,446 | ) | | (2,442 | ) | | (228,936 | ) | | (25,707 | ) | | 254,643 | | | (4,888 | ) |
| Increase/(decrease) in short-term debt | | | — | | | — | | | (76,250 | ) | | (5,782 | ) | | — | | | (82,032 | ) |
| Proceeds from convertible subordinated notes, net | | | — | | | 202,912 | | | — | | | | | | — | | | 202,912 | |
| Proceeds from long-term debt | | | | | | 178,061 | | | (285,000 | ) | | 291,981 | | | — | | | 185,042 | |
| Repayment of long-term debt | | | — | | | (193,062 | ) | | (1,601 | ) | | (20,061 | ) | | — | | | (214,724 | ) |
| Other | | | — | | | 590 | | | (136,574 | ) | | 135,207 | | | — | | | (777 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided/(used) by Financing Activities | | | (2,446 | ) | | 186,059 | | | (728,361 | ) | | 375,638 | | | 254,643 | | | 85,533 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | — | | | (347 | ) | | (7,590 | ) | | — | | | (7,937 | ) |
| Increase/(decrease) in cash and cash equivalents | | | — | | | — | | | 1,339 | | | 30,788 | | | — | | | 32,127 | |
| Cash and cash equivalents, beginning of year | | | — | | | — | | | 39,623 | | | 152,270 | | | — | | | 191,893 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cash and cash equivalents, end of year | | $ | — | | $ | — | | $ | 40,962 | | $ | 183,058 | | $ | — | | $ | 224,020 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
91
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
24. Consolidating Financial Information — (Continued)
FOSTER WHEELER CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
For the Year Ended December 29, 2000
(in thousands of dollars)
(Restated, See Note 2)
| | | FWC | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | |
Net cash provided/(used) by Operating Activities | | $ | (71,278 | ) | $ | 106,591 | | $ | (89,859 | ) | $ | 37,802 | | $ | (16,744 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | |
| Capital expenditures | | | — | | | (13,488 | ) | | (32,319 | ) | | — | | | (45,807 | ) |
| Proceeds from sale of properties | | | — | | | 120 | | | 56,583 | | | — | | | 56,703 | |
| (Increase)/decrease in investment and advances | | | (27,705 | ) | | (46,203 | ) | | 4,444 | | | 81,586 | | | 12,122 | |
| Decrease in short-term investments | | | — | | | — | | | 15,230 | | | — | | | 15,230 | |
| Other | | | — | | | 2,891 | | | (2,891 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash (used)/provided by Investing Activities | | | (27,705 | ) | | (56,680 | ) | | 41,047 | | | 81,586 | | | 38,248 | |
| | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | |
| Dividends to Common Shareholders | | | (9,773 | ) | | — | | | — | | | — | | | (9,773 | ) |
| Increase/(decrease) in short-term debt | | | 76,250 | | | (2,520 | ) | | (28,854 | ) | | — | | | 44,876 | |
| Proceeds from long-term debt | | | — | | | — | | | 43,168 | | | — | | | 43,168 | |
| Repayment of long-term debt | | | (65,000 | ) | | (73 | ) | | (23,078 | ) | | — | | | (88,151 | ) |
| Other | | | 112,220 | | | (47,673 | ) | | 52,088 | | | (119,388 | ) | | (2,753 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided/(used) by Financing Activities | | | 113,697 | | | (50,266 | ) | | 43,324 | | | (119,388 | ) | | (12,633 | ) |
| | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | (206 | ) | | 12,960 | | | — | | | 12,754 | |
| Increase/(decrease) in cash and cash equivalents | | | 14,714 | | | (561 | ) | | 7,472 | | | — | | | 21,625 | |
| Cash and cash equivalents, beginning of year | | | 16,262 | | | 9,208 | | | 144,798 | | | — | | | 170,268 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cash and cash equivalents, end of year | | $ | 30,976 | | $ | 8,647 | | $ | 152,270 | | $ | — | | $ | 191,893 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
92
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
25. Restatement
Management determined that the assets, liabilities and results of operations associated with one of the Company’s postretirement medical plans were not accounted for in accordance with SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The Company’s consolidated balance sheet as of December 28, 2001 and the related consolidated statements of earnings and comprehensive income, shareholder’s equity and cash flows for each of the two years in the period ended December 28, 2001 have been revised to account for the assets, liabilities and results of operations associated with this benefit plan in accordance with SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The postretirement and other employee benefits other than pensions liability was increased to reflect the updated obligation, calculated on a going concern basis. The cumulative effect on shareholders’ equity as of December 29, 2000 was a decrease of $9,620. A summary of the effects of the restatement on the Company’s consolidated balance sheet, consolidated statement of earnings and comprehensive income is shown below. Refer to Note 26 for the effects of the restatement on the Company’s quarterly data.
Balance Sheet
| | 12/28/01
As Reported | | 12/28/01
Restated | | Statement
of
Earnings and
Comprehensive Income | | 12/28/01
Year
As Reported | | 12/28/01
Year
Restated | |
| | |
| |
| |
| |
| |
| |
Pension, post retirement and other
employee benefits* | | $ | 239,076 | | $ | 257,976 | | | Other deductions | | $ | 122,395 | | $ | 126,495 | |
| | | | | | | | | | | | | | | | | |
| Retained earnings (deficit) | | $ | (109,872 | ) | $ | (128,772 | ) | | (Loss)/earnings before income
taxes | | $ | (208,865 | ) | $ | (212,965 | ) |
| | | | | | | | | | | | | | | | | |
| Total shareholder’s equity/(deficit) | | $ | (29,544 | ) | $ | (48,444 | ) | | Provision (benefit) for income
taxes | | $ | 118,215 | | $ | 123,395 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net (loss)/earnings | | $ | (327,080 | ) | $ | (336,360 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Loss)/Earnings per Share, Basic
and Diluted | | $ | (8.00 | ) | $ | (8.23 | ) |
| * | The pension, postretirement and other employee benefits liability as reported reflects an increase of $70,927 related to a reclassification of pension liabilities from other long-term liabilities. |
Balance Sheet | | 12/29/00
As Reported | | 12/29/00
Restated | | Statement
of
Earnings and
Comprehensive Income | | 12/29/00
Year
As Reported | | 12/29/00
Year
Restated | |
| | |
| |
| |
| |
| |
| |
| Beginning retained earnings (deficit) | | $ | 194,167 | | $ | 185,262 | | | Other deductions | | $ | 41,721 | | $ | 42,821 | |
| | | | | | | | | | | | | | | | | |
| Ending retained earnings (deficit) | | $ | 222,096 | | $ | 212,476 | | | (Loss)/earnings before income taxes | | $ | 53,266 | | $ | 52,166 | |
| | | | | | | | | | | | | | | | | |
| Total shareholder’s equity/(deficit) | | $ | 344,935 | | $ | 335,315 | | | Provision (benefit) for income taxes | | $ | 15,564 | | $ | 15,179 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net (loss)/earnings | | $ | 37,702 | | $ | 36,987 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Loss)/Earnings per Share, Basic
and Diluted | | $ | 0.92 | | $ | 0.91 | |
93
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
26. Restatement of Quarterly Data (Unaudited)
A summary of the effects of the restatement on the Company’s quarterly financial data for the seven quarterly periods ended September 27, 2002 follows. The restatement for the quarter ended March 29, 2002 also includes the effect of the cumulative effect of the change in accounting for goodwill. This change increased the previously reported net loss for March 29, 2002 by $77,000.
Balance Sheet | | 3/29/02
As Reported | | 3/29/02
Restated | | Statement
of
Earnings and
Comprehensive Income | | 3/29/02
As Reported | | 3/29/02
Restated | |
| | |
| |
| |
| |
| |
| |
| Goodwill, net | | $ | 126,301 | | $ | 49,301 | | | Other deductions | | $ | 55,153 | | $ | 55,553 | |
| | | | | | | | | | | | | | | | | |
Post retirement and other
employee benefits other than
pensions | | $ | 169,515 | | $ | 188,815 | | | (Loss)/earnings before income
taxes | | $ | (19,326 | ) | $ | (19,726 | ) |
| | | | | | | | | | | | | | | | | |
| Retained earnings (deficit) | | $ | (208,582 | ) | $ | (304,882 | ) | | Net (loss) prior to cumulative
effect of a change in accounting
principle | | $ | (25,210 | ) | $ | (25,610 | ) |
| | | | | | | | | | | | | | | | | |
| Total shareholder’s equity/(deficit) | | $ | (140,909 | ) | $ | (237,209 | ) | | Cumulative effect of a change in
accounting principle for
goodwill, net of $0 tax | | $ | (73,500 | ) | $ | (150,500 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net (loss) | | $ | (98,710 | ) | $ | (176,110 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Loss) per Share, Basic and
Diluted | | $ | (2.41 | ) | $ | (4.30 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet | | 6/28/02
As Reported | | 6/28/02
Restated | | Statement
of
Earnings and
Comprehensive Income | | 6/28/02
Quarter
As Reported | | 6/28/02
Quarter
Restated | | 6/28/02
Year to Date
As Reported | | 6/28/02
Year to Date
As Restated | |
| | |
| |
| |
| |
| |
| |
| |
| |
| Goodwill, net | | $ | 126,806 | | $ | 49,806 | | | Other deductions | | $ | 67,392 | | $ | 67,792 | | $ | 105,641 | | $ | 106,441 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Post retirement and
other employee
benefits other than
pensions | | $ | 168,798 | | $ | 188,498 | | | (Loss)/earnings before income
taxes | | $ | (80,901 | ) | $ | (81,301 | ) | $ | (100,227 | ) | $ | (101,027 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Retained earnings
(deficit) | | $ | (294,178 | ) | $ | (390,878 | ) | | Net (loss) prior to cumulative effect of a change in accounting principle | | $ | (85,596 | ) | $ | (85,996 | ) | $ | (110,806 | ) | $ | (111,606 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Total shareholder’s
equity/(deficit) | | $ | (208,278 | ) | $ | (304,978 | ) | | Cumulative effect of a change in accounting principle for goodwill, net of $0 tax | | $ | — | | $ | — | | $ | (73,500 | ) | $ | (150,500 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net (loss) | | $ | (85,596 | ) | $ | (85,996 | ) | $ | (184,306 | ) | $ | (262,106 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Loss) per Share, Basic and
Diluted | | $ | (2.09 | ) | $ | (2.10 | ) | $ | (4.50 | ) | $ | (6.40 | ) |
94
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
26. Restatement of Quarterly Data (Unaudited) — (Continued)
Balance Sheet | | 9/27/02
As Reported | | 9/27/02
Restated | | Statement
of
Earnings and
Comprehensive Income | | 9/27/02
Quarter
As Reported | | 9/27/02
Quarter
Restated | | 9/27/02
Year to
Date
As Reported | | 9/27/02
Year to
Date
As Restated | |
| | |
| |
| |
| |
| |
| |
| |
| |
| Goodwill, net | | $ | 127,089 | | $ | 50,089 | | | Other deductions | | $ | 23,623 | | $ | 24,023 | | $ | 129,264 | | $ | 130,464 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Post retirement and
other employee
benefits other than
pensions | | $ | 168,635 | | $ | 188,735 | | | (Loss)/earnings before income taxes | | $ | (142,310 | ) | $ | (142,710 | ) | $ | (242,537 | ) | $ | (243,737 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Retained earnings
(deficit) | | $ | (444,788 | ) | $ | (541,888 | ) | | Net (loss) prior to cumulative
effect of a change in
accounting principle | | $ | (150,610 | ) | $ | (151,010 | ) | $ | (261,416 | ) | $ | (262,616 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Total shareholder’s
equity/(deficit) | | $ | (356,837 | ) | $ | (453,937 | ) | | Cumulative effect of a change
in accounting principle for
goodwill, net of $0 tax | | $ | — | | $ | — | | $ | (73,500 | ) | $ | (150,500 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net (loss)/earnings | | $ | (150,610 | ) | $ | (151,010 | ) | $ | (334,916 | ) | $ | (413,116 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Loss)/Earnings per Share,
Basic and Diluted | | $ | (3.68 | ) | $ | (3.69 | ) | $ | (8.18 | ) | $ | (10.09 | ) |
| | | | | | | | |
Statement of Earnings and Comprehensive Income | | 3/30/01
As Reported | | 3/30/01
Restated | |
| | |
| |
| |
| Other deductions | | $ | 24,709 | | $ | 25,734 | |
| | | | | | | | |
| (Loss)/earnings before income taxes | | $ | 9,792 | | $ | 8,767 | |
| | | | | | | | |
| Provision (benefit) for income taxes | | $ | 2,152 | | $ | 1,793 | |
| | | | | | | | |
| Net (loss)/earnings | | $ | 7,640 | | $ | 6,974 | |
| | | | | | | | |
| (Loss)/Earnings per Share, Basic and Diluted | | $ | 0.19 | | $ | 0.17 | |
| | | | | | | | | | | | | | |
Statement of Earnings and Comprehensive Income | | 6/29/01
Quarter
As Reported | | 6/29/01
Quarter
Restated | | 6/29/01
Year to
Date
As Reported | | 6/29/01
Year to
Date
As Restated | |
| | |
| |
| |
| |
| |
| Other deductions | | $ | 13,135 | | $ | 14,160 | | $ | 21,016 | | $ | 23,066 | |
| | | | | | | | | | | | | | |
| (Loss)/earnings before income taxes | | $ | 4,856 | | $ | 3,831 | | $ | 14,648 | | $ | 12,598 | |
| | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | $ | 4,532 | | $ | 4,173 | | $ | 6,684 | | $ | 5,966 | |
| | | | | | | | | | | | | | |
| Net (loss)/earnings | | $ | 324 | | $ | (342 | ) | $ | 7,964 | | $ | 6,632 | |
| | | | | | | | | | | | | | |
| (Loss)/Earnings per Share, Basic and Diluted | | $ | 0.01 | | $ | (0.01 | ) | $ | 0.19 | | $ | 0.16 | |
95
Back to Contents
FOSTER WHEELER LTD.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
26. Restatement of Quarterly Data (Unaudited) — (Continued)
Statement of Earnings and Comprehensive Income | | 9/28/01
Quarter
As Reported | | 9/28/01
Quarter
Restated | | 9/28/01
Year to Date
As Reported | | 9/28/01
Year to
Date
As Restated | |
| | |
| |
| |
| |
| |
| Other deductions | | $ | 10,202 | | $ | 11,227 | | $ | 31,218 | | $ | 34,293 | |
| | | | | | | | | | | | | | |
| (Loss)/earnings before income taxes | | $ | (341 | ) | $ | (1,366 | ) | $ | 14,307 | | $ | 11,232 | |
| | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | $ | (1,118 | ) | $ | (1,477 | ) | $ | 5,565 | | $ | 4,489 | |
| | | | | | | | | | | | | | |
| Net (loss)/earnings | | $ | 777 | | $ | 111 | | $ | 8,742 | | $ | 6,743 | |
| | | | | | | | | | | | | | |
| (Loss)/Earnings per Share, Basic and Diluted | | $ | 0.02 | | $ | 0.00 | | $ | 0.21 | | $ | 0.16 | |
| | | | | | | | | | | | | | |
Statement of Earnings and Comprehensive Income | | 12/28/01
Quarter
As Reported | | 12/28/01
Quarter
Restated | | 12/28/01
Year to
Date
As Reported | | 12/28/01
Year to
Date
As Restated | |
| | |
| |
| |
| |
| |
| Other deductions | | $ | 91,177 | | $ | 92,202 | | $ | 122,395 | | $ | 126,495 | |
| | | | | | | | | | | | | | |
| (Loss)/earnings before income taxes | | $ | (223,172 | ) | $ | (224,197 | ) | $ | (208,865 | ) | $ | (212,965 | ) |
| | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | $ | 112,650 | | $ | 118,906 | | $ | 118,215 | | $ | 123,395 | |
| | | | | | | | | | | | | | |
| Net (loss)/earnings | | $ | (335,822 | ) | $ | (343,103 | ) | $ | (327,080 | ) | $ | (336,360 | ) |
| | | | | | | | | | | | | | |
| (Loss)/Earnings per Share, Basic and Diluted | | $ | (8.22 | ) | $ | (8.39 | ) | $ | (8.00 | ) | $ | (8.23 | ) |
27. Subsequent Events (Unaudited)
On March 7, 2003, the Company sold the assets of one of its wholly owned domestic E&C subsidiaries. The Company received net cash proceeds of approximately $80,000 consisting of $72,000 of sales proceeds and the balance from cash retained within the business. The Company also expects to receive an additional $57,000 before year-end 2003 under the subsidiary’s contract with a federal agency, which was not included in the sale. These cash proceeds will be available for general corporate purposes.
The proceeds are subject to adjustment based on a final net worth calculation to be finalized by the middle of the second quarter 2003.
96
Back to Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
| |
97
Back to Contents
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Incorporated by reference to Foster Wheeler’s 2003 Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2003. Certain information regarding executive officers is included in PART I hereof in accordance with General Instruction G (3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION |
Incorporated by reference to Foster Wheeler’s 2003 Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
Incorporated by reference to Foster Wheeler’s 2003 Proxy Statement for the Annual Meeting of Shareholders to be held April 29, 2003.
Equity Compensation Plan Information |
The following table sets forth, as of December 27, 2002, the number of securities outstanding under each of the Company’s stock option plans, the weighted-average exercise price of such options, and the number of options available for grant under such plans.
| | | Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights ($) | | Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (excluding securities
reflected in column (a)) | |
Plan Category | | (a) | | (b) | | (c) | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| Equity Compensation Plans | | | | | | | | | | |
| Approved by Security Holders | | | | | | | | | | |
| 1995 Stock Option Plan | | | 4,786,431 | | $ | 11.18 | | | 445,069 | |
| 1984 Stock Option Plan | | | 559,668 | | $ | 31.14 | | | 0 | |
| Directors Stock Option Plan | | | 244,000 | | $ | 24.02 | | | 109,000 | |
| Equity Compensation Plans | | | | | | | | | | |
| Not Approved by Security Holders | | | | | | | | | | |
| Raymond J. Milchovich (1) | | | 2,300,000 | | $ | 3.53 | | | 0 | |
| Joseph T. Doyle(2) | | | 300,000 | | $ | 1.87 | | | 0 | |
| Bernard H. Cherry(3) | | | 255,000 | | $ | 1.49 | | | 0 | |
| M.J. Rosenthal & Associates,Inc.(4) | | | 250,000 | | $ | 1.88 | | | 0 | |
| | |
|
| |
|
| |
|
| |
| Total | | | 8,695,099 | | $ | 9.93 | | | 554,069 | |
| | |
|
| |
|
| |
|
| |
| (1) | Under the terms of his employment agreement, Mr. Milchovich received an option to purchase 1,300,000 common shares of the Company. These were granted at an exercise price of $4.985 and vest 20% each year over the term of the agreement. Pursuant to an amendment to the agreement dated September 13, 2002, additional options that would have been granted to Mr. Milchovich on the first and second anniversaries of his employment were accelerated and granted September 24, 2002. The amended grant was for an option to purchase a number of shares such that the Black Scholes value of the option on the grant date equaled $5 million; provided that the number of shares was not less than 700,000 or more than 1,000,000. Based on the calculation, Mr. Milchovich received an option to purchase 1,000,000 common shares of the Company at an exercise price of $1.64. A portion of the option representing one-forty-eighth (1/48) of the number of shares represented by such option vested on the date of grant and on the first day of each successive month thereafter. The option exercise price is equal to the median of the high and low price of the Company’s common stock on the grant date. |
98
Back to Contents
| (2) | Under the terms of his employment agreement, Mr. Doyle received an option to purchase 300,000 common shares of the Company. On the first and second anniversaries of the agreement, the Company will grant Mr. Doyle an option to purchase an additional 62,500 common shares of the Company. The exercise price will be equal to the mean of the high and low price of the stock on the date of grant. One-fifth of the options become exercisable after one year, two-fifths become exercisable after two years, three-fifths after three years, four-fifths after four years and all of the options are exercisable after five years. |
| (3) | Under the terms of his employment agreement, Mr. Cherry received an option to purchase 255,000 common shares of the Company on November 4, 2002. These options will vest one fifth on each anniversary date of grant. In addition, upon the first anniversary of the effective date, he will be granted an option to purchase 100,000 shares of common shares. One-fifth of these options become exercisable after one year, two-fifths become exercisable after two years, three-fifths after three years, four-fifths after four years and all of the options are exercisable after five years. The exercise price is equal to the mean of the high and low price of the stock on the New York Stock Exchange on the date of grant. |
| (4) | Under the terms of the consulting agreement with M.J. Rosenthal & Associates, Inc. on May 7, 2002, the Company granted a nonqualified stock option to purchase 250,000 shares of the Company’s common shares at a price of $1.88 with a term of ten years from the date of grant. The exercise price is equal to the mean of the high and low price of the stock on the New York Stock Exchange on the date of grant. The option is exercisable on March 31, 2003. The option, to the extent not then exercised, shall terminate upon any breach of certain covenants contained in the consulting agreement. |
| |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Incorporated by reference to Foster Wheeler’s 2003 Proxy statement for the Annual Meeting of shareholders to be held April 29, 2003.
ITEM 14. CONTROLS AND PROCEDURES |
Immediately following the signature page of this Report is the Certification that is required under Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Report contains information concerning the controls evaluation referred to in the Section 302 Certifications and the information contained herein should be read in conjunction with the Certification.
Internal controls are designed with the objective of ensuring that assets are safeguarded, transactions are authorized, and financial reports are prepared on a timely basis in accordance with generally accepted accounting principles in the United States. The disclosure controls and procedures are designed to comply with the regulations established by the Securities and Exchange Commission and the New York Stock Exchange.
Internal controls, no matter how designed, have limitations. It is the Company’s intent that the internal controls be conceived to provide adequate, but not absolute, assurance that the objectives of the controls are met on a consistent basis. Management plans to continue its review of internal controls and disclosure procedures on an ongoing basis.
The Company’s principal executive officer and principal financial officer, after supervising and participating in an evaluation of the effectiveness of the Company’s internal and disclosure controls and procedures as of a date within 90 days of the filing of this Report (the “Evaluation Date”), have concluded that as of the Evaluation Date, the Company’s internal and disclosure controls and procedures were effective.
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect such internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
99
Back to Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K |
| | | |
| | (a) | Documents filed as part of this Report: |
| | | | | | | | |
| | | (1) | Financial Statements
Financial Statements - See Item 8 of this Report. | | | | |
| | | | | | | | | |
| | | (2) | Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts | | | | |
| | | | |
| | | | All schedules and financial statements other than those indicated above have been omitted because of the absence of conditions requiring them or because the required information is shown in the financial statements or the notes thereto. |
Exhibit No. | | Exhibits |
| | | |
| 2.0 | | Agreement and Plan of Merger, dated as of May 25, 2001, among Foster Wheeler Corporation, Foster Wheeler LLC and Foster Wheeler Ltd. (Filed as Exhibit 2.0 to Foster Wheeler Ltd.’s on Form 10-Q for the quarter ended June 29, 2001 and incorporated herein by reference.) |
| 3.1 | | Memorandum of Association of Foster Wheeler Ltd. (Filed as Annex II to Foster Wheeler Ltd.’s Form S-4/A (File No. 333-52468) filed on March 9, 2001 and incorporated herein by reference.) |
| 3.2 | | Bye-Laws of Foster Wheeler Ltd. amended May 22, 2002. (Filed as Exhibit 3.2 to Foster Wheeler Ltd.’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 4.0 | | Foster Wheeler Ltd. hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Ltd. and its consolidated subsidiaries to the Commission upon request. |
| 4.1 | | Rights Agreement, dated as of May 21, 2001, between Foster Wheeler Ltd. and Mellon Investor Services LLC. (Filed as Annex I to Foster Wheeler Ltd.’s Form 8-K (File No. 333-52468) dated May 25, 2001 and incorporated herein by reference.) |
| 4.2 | | Amended and Restated First Supplemental Indenture, dated August 10, 2001, to the Indenture, dated as of November 15, 1995, among Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc. (formerly known as Foster Wheeler Energy International, Inc.), Foster Wheeler Energy Corporation, Foster Wheeler Inc., Foster Wheeler International Holdings, Inc., and BNY Midwest Trust Company. (Filed as Exhibit 4.2 to Foster Wheeler Ltd.’s on Form 10-Q for the quarter ended June 29, 2001 and incorporated herein by reference.) |
| 4.3 | | Second Supplemental Indenture (relating to the Indenture dated as of November 15, 1995) dated August 16, 2002, by and between Foster Wheeler LLC, the Guarantors thereto, and BNY Midwest Trust Company. (Filed as Exhibit 4.1 to Foster Wheeler Ltd.’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 4.4 | | Registration Rights Agreement, dated as of May 31, 2001, among Foster Wheeler Ltd., Foster Wheeler LLC and Lehman Brothers Inc., Banc of America Securities LLC and First Union Securities, Inc. (Filed as Exhibit 4.6 to Foster Wheeler Ltd.’s Form S-3 (Registration No. 333-64090) filed on June 28, 2001, and incorporated herein by reference.) |
| 4.5 | | Form of specimen share certificate for Foster Wheeler Ltd.’s common shares. (Filed as Annex II to Foster Wheeler Ltd.’s on Form 8-K (File No. 333-52468) filed on May 25, 2001 and incorporated herein by reference.) |
| 4.6 | | First Supplemental Indenture dated February 20, 2002, between Foster Wheeler Ltd. and B.N.Y. Midwest Trust Company regarding the 6.50% Convertible Subordinated Notes due 2007. (Filed as Exhibit 4.6 to Foster Wheeler Ltd.’s Form 10-K for the fiscal year ended December 28, 2001, and incorporated herein by reference.) |
100
Back to Contents
Exhibit No. | | Exhibits |
| | | |
| 4.7 | | Guaranty dated August 16, 2002 by the Guarantors party thereto in favor of the holders of Foster Wheeler LLC’s 6.75% notes due November 15, 2005 and BNY Midwest Trust Company. (Filed as Exhibit 4.2 to Foster Wheeler Ltd.’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 4.8 | | Indenture, dated as of May 31, 2001, among Foster Wheeler Ltds., Foster Wheeler LLC and BNY Midwest Trust Company (Filed as Exhibit 4.4 to Foster Wheeler Ltd.’s Form S-3 (Registration No. 333-64090) filed on June 28, 2001, and incorporated herein by reference.) |
| 10.1 | | Retirement and Consulting Agreement of Richard J. Swift dated as of April 2, 2001. (Filed as Exhibit 10.1 to Foster Wheeler Corporation’s current report on Form 8-K (File No. 001-00286) dated April 5, 2001, and incorporated herein by reference.) |
| 10.2 | | Form of Change of Control Agreement dated May 25, 2001, and entered into by the Company with executive officers. (Filed as Exhibit 10.5 to Foster Wheeler Ltd.’s on Form 10-Q for the Quarter ended June 29, 2001, and incorporated herein by reference.) |
| 10.3 | | Foster Wheeler Inc. Directors’ Stock Option Plan. (Filed as Exhibit 99.1 to Foster Wheeler Ltd.’s post effective amendment to Form S-8 (Registration No. 333-25945) dated June 27, 2001, and incorporated herein by reference.) |
| 10.4 | | 1995 Stock Option Plan of Foster Wheeler Inc. (as Amended and Restated as of September 24, 2002). (Filed as Exhibit 10.1 to Foster Wheeler Ltd.’s Form 10-Q for the Quarter ended September 27, 2002, and incorporated herein by reference.) |
| 10.5 | | 1984 Stock Option Plan of Foster Wheeler Inc. (Filed as Exhibit 99.1 to Foster Wheeler Ltd.’s post effective amendment to Form S-8 (File No. 333-52468) dated June 27, 2001, and incorporated herein by reference.) |
| 10.6 | | Master Guarantee Agreement, dated as of May 25, 2001, by and among Foster Wheeler LLC, Foster Wheeler International Holdings, Inc. and Foster Wheeler Ltd. (Filed as Exhibit 10.9 to Foster Wheeler Ltd.’s on Form 10-Q for the Quarter ended June 29, 2001, and incorporated herein by reference.) |
| 10.7 | | Employment Agreement between Foster Wheeler Ltd. and Raymond J. Milchovich dated as of October 22, 2001. (Filed as Exhibit 10.1 to Foster Wheeler Ltd.’s Form 10-Q for the Quarter ended September 28, 2001, and incorporated herein by reference.) |
| 10.8 | | Stock Option Agreement of Raymond J. Milchovich dated as of October 22, 2001. (Filed as Exhibit 10.13 to Foster Wheeler Ltd.’s Form 10-K for the fiscal year ended December 28, 2001, and incorporated herein by reference.) |
| 10.9 | | First Amendment to the Employment Agreement between Foster Wheeler Ltd. and Raymond J. Milchovich dated September 13, 2002. (Filed as Exhibit 10.1 to Foster Wheeler Ltd.’s Form 8-K filed on September 25, 2002 and incorporated herein by reference.) |
| 10.10 | | Stock Option Agreement of Raymond J. Milchovich dated September 24, 2002. (Filed as Exhibit 10.2 to Foster Wheeler Ltd.’s Form 8-K filed on September 25, 2002 and incorporated herein by reference.) |
| 10.11 | | Amendment to the Employment Agreement between Foster Wheeler Ltd. and Raymond J. Milchovich dated January 23, 2003. |
| 10.12 | | Employment Agreement of Joseph T. Doyle dated as of July 15, 2002. (Filed as Exhibit 10.3 to Foster Wheeler’s Form 10-Q for the Quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.13 | | Change of Control Employment Agreement between Foster Wheeler Inc. and Joseph T. Doyle dated July 15, 2002. (Filed as Exhibit 10.7 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.14 | | Stock Option Agreement for Joseph T. Doyle dated as of July 15, 2002. (Filed as Exhibit 10.3 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
101
Back to Contents
Exhibit No. | | Exhibits |
| | | |
| 10.15 | | Employment Agreement between Foster Wheeler Ltd. and Bernard H. Cherry dated as of September 23, 2002. (Filed as Exhibit 10.4 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.16 | | Change of Control Employment Agreement between Foster Wheeler Inc. and Bernard H. Cherry dated as of November 4, 2002. (Filed as Exhibit 10.5 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.17 | | Employment Agreement between Foster Wheeler Ltd. and Thomas R. O’Brien dated as of September 10, 2002. (Filed as Exhibit 10.6 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.18 | | Separation Agreement of Henry E. Bartoli dated April 17, 2002. (Filed as Exhibit 10.1 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.19 | | Separation Agreement of Gilles A. Renaud dated May 23, 2002. (Filed as Exhibit 10.2 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.20 | | Separation Agreement for James E. Schessler dated August 23, 2002. (Filed as Exhibit 10.2 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.21 | | Settlement Agreement dated as of January 31, 2002, by and among Robbins Resource Recovery Partners, L.P., RRRP Robbins, Inc., RRRP Illinois, LLC and the undersigned holders of 1999 Bonds issued pursuant to the Indenture representing the number of holders of 1999 Bonds as reflected in the signature lines below, Foster Wheeler LLC, its Affiliates, and their Related Persons and Sun Trust Bank (formerly known as, and as successor to Sun Trust Bank, Central Florida, National Association) in its capacity as trustee under the Indenture and as Litigation Proceeds Trustee. (Filed as Exhibit 10.6 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.22 | | Supplement to the Settlement Agreement dated January 31, 2002, by and among Robbins Resource Recovery Partners, L.P., RRRP Robbins, Inc., RRRP Illinois, LLC and the undersigned holders of 1999 Bonds issued pursuant to the Indenture representing the number of holders of 1999 Bonds as reflected in the signature lines below, Foster Wheeler LLC, and its Affiliates, and their Related Persons Sun Trust Bank (formerly known as, and as successor to Sun Trust Bank, Central Florida, National Association) in its capacity as trustee under the Indenture and as Litigation Proceeds Trustee is made this 31st day of January, 2002. (Filed as Exhibit 10.7 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.23 | | Settlement Agreement dated as of May 8, 2002, by and among Foster Wheeler LLC, the Village of Robbins, and Sun Trust Bank (formerly known as, and as successor to Sun Trust Bank, Central Florida, National Association) in its capacity as trustee under the Second Amended and Restated Mortgage, Security Agreement and Indenture of Trust dated as of October 15, 1999 and as “Litigation Proceeds Trustee” under that certain Litigation Proceeds Trust Agreement dated as of October 15, 1999 and Robbins Resource Recovery Partners L.P., RRRP Robbins, Inc. and RRRP Illinois, LLC. (Filed as Exhibit 10.8 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.24 | | The Foster Wheeler Annual Incentive Plan for 2002 and Subsequent Years. (Filed as Exhibit 10.11 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.25 | | Third Amended and Restated Term Loan and Revolving Credit agreement dated August 16, 2002, among Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler Energy Corporation, the Guarantors thereto and Bank of America, N.A. (Filed as Exhibit 10.12 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
102
Back to Contents
Exhibit No. | | Exhibits |
| | | |
| 10.26 | | Amendment No. 1 dated as of November 8, 2002 to the Third Amended and Restated Term Loan and Revolving Credit Agreement dated as of August 2, 2002 among Foster Wheeler LLC, the Borrowing Subsidiaries, the Guarantors, the Lenders and the Bank of America, N.A. as Administrative Agent and Collateral Agent and Banc of America Securities LLC, as Lead Arranger and Book Manager. (Filed as Exhibit 10.8 to Foster Wheeler’s Form 10-Q for the quarter ended September 27, 2002 and incorporated herein by reference.) |
| 10.27 | | Security Agreement dated August 16, 2002, made by Foster Wheeler LLC and the Grantors thereto and the Bank of America, N.A. (Filed as Exhibit 10.13 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.28 | | Guaranty and Suretyship Agreement dated August 16, 2002 made by Foster Wheeler LLC, Foster Wheeler Ltd., Foster Wheeler Inc., Foster Wheeler International Holdings, Inc. and Energy (NJ) QRS 15-10, Inc. (Filed as Exhibit 10.14 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.29 | | Lease Agreement dated August 16, 2002, by and among Energy (NJ) QRS 15-10, Inc. and Foster Wheeler Realty Services, Inc. (Filed as Exhibit 10.15 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.30 | | Amendment to the Lease Agreement dated August 16, 2002 between Energy (NJ) QRS 15-10, Inc. and Foster Wheeler Realty Services, Inc. |
| 10.31 | | Loan and Security Agreement dated August 15, 2002 by and among Foster Wheeler Funding LLC, the Lenders that are signatories thereto and Foothill Capital Corporation. (Filed as Exhibit 10.16 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.32 | | Performance Guaranty dated August 15, 2002, by Foster Wheeler in favor of Foothill Capital Corporation. (Filed as Exhibit 10.17 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.33 | | Servicing Agreement dated as of August 15, 2002, among Foster Wheeler Funding LLC, Foothill Capital Corporation, and Foster Wheeler Capital & Finance Corporation. (Filed as Exhibit 10.18 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.34 | | Purchase, Sale and Contribution Agreement dated August 15, 2002 among Foster Wheeler Capital & Finance Corporation, Foster Wheeler Constructors, Inc., Foster Wheeler Energy Corporation, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler Zack, Inc., Foster Wheeler Energy Services, Inc. and Foster Wheeler Funding LLC. (Filed as Exhibit 10.19 to Foster Wheeler’s Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by reference.) |
| 10.35 | | Amendment No. 2 dated March 24, 2003 to the Third Amended and Restated Term Loan and Revolving Credit Agreement dated as of August 2, 2002, as amended by Amendment No. 1 dated as of November 8, 2002, among Foster Wheeler LLC, the Borrowing Subsidiaries, the Guarantors, the Lenders and the Bank of America, N.A. as Administrative Agent and Collateral Agent and Banc of America Securities LLC, as Lead Arranger and Book Manager. |
| 12.1 | | Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Shares Dividend Requirements. |
| 21.0 | | Subsidiaries of the Registrant. |
| 23.0 | | Consent of Independent Accountants. |
| 99.1 | | Certification of Raymond J. Milchovich. |
| 99.2 | | Certification of Joseph T. Doyle. |
103
Back to Contents
| | | |
Report Date | | Description |
| | | |
| December 4, 2002 | | Foster Wheeler announced its intention to close the Dansville, New York manufacturing facility (Items 5 and 7). |
| March 10, 2003 | | Foster Wheeler announced the sale of the operating business of its wholly owned subsidiary, Foster Wheeler Environmental Corporation, to Tetra Tech, Inc. on March 7, 2003 (Items 5, 7 and 9). |
For the purposes of complying with the amendments to the rules governing Form S-8, under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the Registrant’s Statements on Form S-8: Registration No. 333-101524 (filed November 27, 2002); Registration No. 333-88912 (filed May 23, 2002); Registration Number 333-25945 (filed June 27, 2001) and Registration No. 002-91384 (filed June 27, 2001).
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the quest ion whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
104
Back to Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 LTD.(Registrant) | |
| | | | | |
| Date: March 25, 2003 | | | BY: /s/ LISA FRIES GARDNER | |
| | | |
| |
| | | | Lisa Fries Gardner
Vice President and Secretary | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed, as of March 25, 2003, by the following persons on behalf of the Registrant, in the capacities indicated.
Signature | | Title |
| | | |
/s/ RAYMOND J. MILCHOVICH
Raymond J. Milchovich
(Principal Executive Officer) | | Director, Chairman of the Board, President, and Chief Executive Officer |
| | | |
/s/ JOSEPH T. DOYLEJoseph T. Doyle (Principal Financial Officer and Principal Accounting Officer) | | Senior Vice President and Chief Financial Officer |
| | | |
/s/ BRIAN K. FERRAIOLIBrian K. Ferraioli | | Vice President and Controller |
| | | |
/s/ EUGENE D. ATKINSONEugene D. Atkinson | | Director |
| | | |
/s/ JOHN P. CLANCEYJohn P. Clancey | | Director |
| | | |
/s/ DAVID J. FARRISDavid J. Farris | | Director |
105
Back to Contents
Signature | | Title |
| | | |
/s/ MARTHA CLARK GOSS
Martha Clark Goss | | Director |
| | | |
/s/ VICTOR A. HEBERTVictor A. Hebert | | Director |
| | | |
/s/ CONSTANCE J. HORNERConstance J. Horner | | Director |
| | | |
/s/ JOSEPH J. MELONEJoseph J. Melone | | Director |
| | | |
/s/ JOHN E. STUARTJohn E. Stuart | | Director |
| | | |
/s/ JAMES D. WOODS
James D. Woods | | Director |
106
Back to Contents
CERTIFICATIONS
I, Raymond J. Milchovich, certify that:
1. I have reviewed this annual report on Form 10-K of Foster Wheeler Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
/s/ RAYMOND J. MILCHOVICH
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
107
Back to Contents
CERTIFICATIONS
I, Joseph T. Doyle, certify that:
1. I have reviewed this annual report on Form 10-K of Foster Wheeler Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
JOSEPH T. DOYLE
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
108
Back to Contents
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Foster Wheeler Ltd.:
Our audits of the consolidated financial statements referred to in our report dated March 25, 2003 appearing in this Annual Report on Form 10-K (which report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern) also included an audit of the financial statement schedules listed in Item 15 (a) (2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 25, 2003
Back to Contents
FOSTER WHEELER LTD.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
| | | 2002 | |
Description | | Balance at
Beginning of
Year | | Additions Charged
to Costs and
Expenses | | Additions Charged
to Other
Accounts(2) | | Deductions | | Balance at the
End of the Year | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Reserve for Insurance Claims Receivable | | $ | 18,836 | | $ | 26,200 | | | | | $ | 7,159 | | $ | 37,877 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Allowance for Doubtful Accounts(1) | | $ | 2,988 | | $ | 10,364 | | | | | $ | (3,135 | ) | $ | 16,487 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | | | 2001 |
| | | | | | | | | | | | | | | | | |
Description | | | Balance at
Beginning of
Year | | | Additions Charged
to Costs and
Expenses | | | Additions Charged
to Other
Accounts(2) | | | Deductions | | | Balance at the
End of the Year | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Reserve for Insurance Claims Receivable | | $ | 7,192 | | | | | $ | 11,300 | | $ | (344 | ) | $ | 18,836 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Allowance for Doubtful Accounts(1) | | $ | 3,379 | | $ | 1,190 | | | | | $ | 1,581 | | $ | 2,988 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | | | 2000 |
| | | | | | | | | | | | | | | | | |
Description | | | Balance at
Beginning of
Year | | | Additions Charged
to Costs and
Expenses | | | Additions Charged
to Other
Accounts(2) | | | Deductions | | | Balance at the
End of the Year | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Reserve for Insurance Claims Receivable | | $ | 9,943 | | | | | | | | $ | 2,751 | | $ | 7,192 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Allowance for Doubtful Accounts(1) | | $ | 1,413 | | $ | 3,315 | | | | | $ | 1,349 | | $ | 3,379 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| 1. | Provisions for non-payments of customer balances are normally addressed within the overall profit calculation of the contracts and are not specifically covered by allowances for doubtful accounts. As a result the amount considered to be in the receivable qualifying account (allowance for doubtful accounts) does not represent the full allowance. |
| 2. | Primarily due to additional recoveries from insurers. |
Back to Contents
FOSTER WHEELER LTD.
SHAREHOLDER INFORMATION
Stock Listing
New York Stock Exchange
Ticker Symbol: FWC
Telephone Inquiries
Call Mellon Investor Services LLC at
1-800-851-9677 between 8:00 a.m. and
7:00 p.m. Eastern Time, Monday
through Friday for help with account inquiries
and requests for assistance, including
stock transfers.
For the hearing and speech impaired,
please call 1-201-329-8354.
Foreign shareholders should call 201-329-8660.
Transfer Agent and Registrar Dividend
Disbursing Agent
For general inquiries, changes of address
and transfer instructions:
Foster Wheeler Ltd.
c/o Mellon Investor Services LLC
P. O. Box 3315
South Hackensack, NJ 07606
Requests for transactions involving
stock certificates to:
Foster Wheeler Ltd.
c/o Mellon Investor Services LLC
Securities Transfer Services
P. O. Box 3312
South Hackensack, NJ 07606-1912 | | Shareholder Services on the Internet
You can view shareholder information and
perform certain transactions by visiting
www.melloninvestor.com.
Company Information on the Internet
Information about Foster Wheeler Ltd.
is available on the Internet. Visit our
home Web Site: http//www.fwc.com.
Requests for Financial Information
Foster Wheeler’s Form 10-K, quarterly
reports and other financial documents
are also available on our home page on
the World Wide Web at http//www.fwc.com.
To request paper copies of reports filed
with the Securities and Exchange Commission,
write to:
Office of the Secretary
Foster Wheeler Ltd.
Perryville Corporate Park
Clinton, NJ 08809-4000
Annual Shareholders Meeting
April 29, 2003 – 9:30 a.m.
Foster Wheeler Ltd.
Perryville Corporate Park
Clinton, NJ 08809-4000 |
