Management updates its U.S. liquidity forecasts on a weekly basis. These forecasts include, among other analyses, cash flow forecasts, which include cash on hand, cash flows from operations, cash repatriated from non-U.S. subsidiaries, asset sales, collections of receivables and claims recoveries, and working capital needs. Commercial operations under a contract retained by the Company in the Foster Wheeler Environmental asset sale that were to commence in November 2003, have been delayed. This change in timing will delay receipt of a material amount of domestic cash until early 2004. Management initiated a plan to increase the U.S. cash flow in the fourth quarter 2003 and currently forecasts that sufficient cash will be available to fund the Company’s U.S. working capital needs through 2004. A component of this plan was the settlement of a lawsuit filed in the United States Federal District Court relating to a power project. The settlement provides that the Company will collect $12,500 in outstanding receivables from two third parties. In return, the Company released the third parties from all related claims and damages and, among other things, agreed to deliver certain project related information. The cash will be received in the fourth quarter of 2003 and the first quarter of 2004.
There can be no assurance that the cash amounts realized and/or timing of the cash flows will match the Company’s forecast.
As part of its debt restructuring plan, the Company and some of its subsidiaries filed a registration statement on Form S-4 under the Securities Act of 1933 with the Securities and Exchange Commission on July 15, 2003 relating to an offer to exchange preferred shares of a wholly-owned subsidiary of the Company in exchange for all of the existing Preferred Trust Securities issued by FW Preferred Capital Trust I. The S-4 is currently under review by the SEC.
The Company also expects to make an exchange offer to the holders of its Convertible Subordinated Notes and holders of the bonds supported by the Robbins Facility exit funding agreement of preferred shares of a newly formed subsidiary that would hold substantially all of the subsidiaries and assets of the Company’s engineering and construction business. The planned restructuring contemplates the sale of assets, including the potential sale of one or more of the Company’s European operations. The Company may not be able to complete the components of the restructuring plan on acceptable terms, or at all. It is possible that asset sales may result in amounts realized which differ materially from the balances recorded in the financial statements.
Failure by the Company to achieve its forecast and complete the components of the restructuring plan on acceptable terms would have a material adverse effect on the Company’s financial condition. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
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 $149,900 letter of credit facility, expires on April 30, 2005. The Senior Credit Facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and, in connection with amendment no. 3 discussed below, 100% of the stock of the first-tier foreign subsidiaries. The Senior Credit Facility has no scheduled repayments prior to maturity on April 30, 2005. The agreement 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. With the Company’s sale of the Foster Wheeler Environmental net assets on March 7, 2003, and an interest in a corporate office building on March 31, 2003, the $77,000 threshold was exceeded. Accordingly, a principal prepayment of $1,445 was made on the term loan in the second quarter of 2003.
The financial covenants in the agreement commenced at the end of the first quarter 2003 and include a senior leverage ratio and a minimum EBITDA described in the agreement, as amended. Compliance with these covenants is measured quarterly.
The EBITDA covenant compares the actual average rolling four quarter EBITDA, as adjusted in the Senior Credit Facility, to minimum EBITDA targets. The senior leverage covenant compares actual average rolling EBITDA, as adjusted in the Senior Credit Facility, to total senior debt. The resultant multiple of debt to EBITDA must be less than maximum amounts specified in the Senior Credit Facility.
Amendment No. 1 to the Senior Credit Facility, obtained on November 8, 2002, provided 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 provided 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. Through the third quarter of 2003, $31,000 of the contingency risks was favorably resolved, and additional project reserves were established for $31,200 leaving a contingency balance of $800.
Amendment No. 2 to the Senior Credit Facility, entered into on March 24, 2003, modified (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 Senior Credit Facility. In connection with this amendment of the Senior Credit Facility, the Company made a prepayment of principal on the term loan in the aggregate amount of $10,000.
Amendment No. 3 to the Senior Credit Facility, entered into on July 14, 2003, modified certain affirmative and negative covenants to permit the exchange offers described elsewhere in this report, other internal restructuring transactions as well as transfers, cancellations and setoffs of certain inter-company obligations. In connection with this amendment to the Senior Credit Facility, the Company agreed to pay a fee equal to 5% of the lenders’ credit exposure if the Company has not made a prepayment of principal under the Senior Credit Facility of $100,000 on or before March 31, 2004.
Holders of the Company’s 6.75% Notes due November 15, 2005 have a security interest in the stock and debt of Foster Wheeler LLC’s subsidiaries and on facilities owned by Foster Wheeler LLC or its subsidiaries that exceed 1% of consolidated net tangible assets, in each case to the extent such stock, debt and facilities secure obligations under the Senior Credit Facility. As permitted by the Indenture, the Term Loan and the obligations under the letter of credit facility (collectively approximating $185,900 at September 26, 2003) have priority to the 6.75% Notes in these assets while the security interest of the 6.75% Notes ranks equally and ratably with $69,000 of revolving credit borrowings under the Senior Credit Facility.
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. The long-term capital lease obligation 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. This financing arrangement expires in August 2005 and is subject to covenant compliance. The Company is required to comply with senior leverage ratio and minimum EBITDA covenants. Noncompliance with the covenants allows the lender to terminate the arrangement and accelerate any amounts then outstanding. Although the Company had not received a notice of termination, the Company was informed by the lender that it believed Foster Wheeler Funding LLC, the wholly-owned special purpose subsidiary operating the facility, was out of compliance with certain maintenance covenants regarding the nature and amount of domestic receivables. On July 31, 2003, the receivables financing documents were amended to adjust, among other things, certain financial, maintenance and reporting covenants, and to create Foster Wheeler Funding II LLC, a wholly owned special purpose subsidiary, to operate the facility. As of September 26, 2003, the Company had no borrowings outstanding under this facility, but had availability of approximately $17,000. (Refer to Note 1 for additional information regarding this financing arrangement.)
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 the forecast period (i.e., through fiscal 2004). However, there can be no assurance that the actual financial results will match the forecasts or that the Company will
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not violate the covenants. If the Company violates a covenant under the Senior Credit Facility or the sale/leaseback 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 6.75% Notes, the Convertible Subordinated Notes, the Preferred Trust Securities, the Subordinated Robbins Facility exit funding obligations, and certain of the special-purpose project debt facilities, which would allow such debt to be accelerated as well. The total amount of the debt that could be accelerated, including the amount outstanding under the Senior Credit Facility, is $915,200 as of September 26, 2003. The Company would not be able to repay amounts borrowed if the payment dates were accelerated. Failure by the Company to repay such amounts would cause the Company to no longer be able to operate as a going concern. The debt covenants and the potential payment acceleration requirements raise substantial doubts about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On March 7, 2003, the Company sold certain assets of its wholly owned subsidiary, Foster Wheeler Environmental Corporation, for sales proceeds of approximately $72,000. The Company also retained approximately $8,000 of cash on hand at the time of the asset sale. The sales proceeds were subject to adjustment based on a net worth calculation to be finalized subsequent to the sale. During the quarter, the Company and the buyer agreed on a final net worth calculation that results in the Company returning $4,500 of the sales proceeds to the buyer over a six month time period. At quarter end $2,000 had been returned with $1,000 due in November 2003 and $1,500 due in February 2004. The net worth agreement had no impact on the pre-tax gain previously disclosed and noted below.
Foster Wheeler Environmental Corporation net assets sold approximated $57,000 and essentially consisted of government and commercial contracts. The Company recorded a pre-tax gain on the asset sale of $15,300.
As previously disclosed, the Company expected to receive $57,000 in 2003 under a U.S. Government contract retained by Foster Wheeler Environmental Corporation. The projected timing of these receipts has been revised and the Company now expects to receive approximately $50,000 of these funds during the period January 2004 through June 2004. The timing of collection of the $7,000 balance is the topic of discussions with the government, but may not be received until 2005. This project required the Company to fund the initial construction costs, while recovery of the capital costs and any operating profits occurs during the processing period. This project is expected to commence commercial operations in January 2004. Project reserves of approximately $22,300 were recorded for this project during the first nine months of 2003 including a charge of $2,300 during the third quarter. Failure to commence commercial operations as scheduled will delay recovery of the capital costs and will increase the project’s construction costs. This could have a material adverse impact on the Company’s financial condition, results of operations, and cash flow.
A project reserve of approximately $7,600 was established during the first quarter to reflect the diminished likelihood of full cost recovery on another contract retained by Foster Wheeler Environmental Corporation. This contract had been previously terminated for convenience by the ultimate client and remains the subject of litigation with the client.
The Company also retained 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. The first phase of this project was profitable, but the close out of this phase resulted in an increased cost estimate of $1,600. This charge was included in the second quarter 2003 financial statements and will result in a cash outlay in 2004. In addition, the Company is in the process of submitting requests for equitable adjustment related to this contract. At September 26, 2003 and December 27, 2002, the Company’s financial statements reflected anticipated collection of $7,000 and $9,000, respectively, in a request for equitable adjustment (“REA”). At quarter end, approximately $4,000 of the REA had been expended and the balance is forecast to be spent by March 2004. If the REA is unsuccessful, a charge will be recorded.
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The recently commenced second phase is billed on a cost plus fee basis and is expected to conclude in June 2004. In this phase, the Company must respond to any questions regarding the initial design included in phase one. Phase three, which is for the construction, start-up and testing of the facility for a fixed price of $114,000, subject to escalation, is scheduled to commence in 2004. This phase will begin with the purchase of long lead items followed in 2005 by the construction activities. Construction is expected to last two years and requires that a subsidiary of the Company fund the construction cost. Foster Wheeler USA Corporation, the parent company of Foster Wheeler Environmental Corporation, provided a performance guarantee on the project. 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. The Company intends to seek third party financing to fund the majority of the construction costs, but there can be no assurance that the Company will secure such financing on acceptable terms, or at all. There also can be no assurance that the Company will be able to obtain the required surety bond. If the Company cannot obtain third party financing or the required surety bond, the Company’s participation would be uncertain; this could have a material adverse effect on the Company’s financial condition, results of operations, and cash flow.
In early July 2003, a subsidiary of the Company received $23,000 in settlement of a receivable dispute and corresponding claim from a client. A pre-tax gain of $2,500 associated with the anticipated claim recovery was recorded in the second quarter 2003.
In July 2003, several subsidiaries of the Company and Liberty Mutual Insurance Company, one of its insurers, entered into a settlement and release agreement that resolves the coverage litigation between the Company and Liberty Mutual in both state courts in New York and New Jersey. The agreement provides for a buy-back of insurance policies and the settlement of all disputes between the Company and Liberty Mutual with respect to asbestos-related claims. The agreement requires Liberty Mutual to make payments over a 19-year period, subject to an annual cap, which declines over time, into a special account, established to pay the Company’s indemnity and defense costs for asbestos claims. These payments, however, would not be available to fund the Company’s required contributions to any national settlement trust that may be established by future federal legislation. The Company received in July an initial payment under the agreement of approximately $6,000, which was used to pay asbestos-related defense and indemnity costs.
In September 2003, the Company’s subsidiaries entered into a settlement and release agreement that resolves coverage litigation between them and certain London Market and North River Insurers. This agreement provides for cash payment of $5,925, which has been received by the Company, and additional amounts which have been deposited in a trust for use by the Company’s subsidiaries for defense and indemnity of asbestos claims. The pending litigation and negotiations with other insurers is continuing. Refer to Note 3 of the accompanying condensed consolidated financial statements for more information regarding the Company’s asbestos liabilities.
It is customary in the industries in which the Company operates to provide letters of credit, bank guarantees or performance bonds in favor of clients to secure obligations under contracts. The Company traditionally obtained letters of credit or bank guarantees from its banks, or performance bonds from a surety on an unsecured basis. Due to the Company’s financial condition and current credit ratings, as well as changes in the bank and surety markets, the Company is now required in certain circumstances to provide security to banks and the surety to obtain new letters of credit, bank guarantees and performance bonds. (Refer to Note 2, “Restricted Cash”) If the Company is unable to provide sufficient collateral to secure the letters of credit, bank guarantees and performance bonds, its ability to enter into new contracts could be materially limited. Providing collateral increases working capital needs and limits the ability to repatriate funds from operating subsidiaries.
On April 10, 2003, the Board of Directors approved changes to the Company’s domestic employee benefits program, including the pension, postretirement medical, and 401(k) plans. The changes were made following an independent review of the Company’s domestic employee benefits which assessed the Company’s benefit program against that of the marketplace and its competitors. The principal changes
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consist of the following: the pension plan was frozen as of May 31, 2003, which means participants will not be able to increase the amount earned under the terms of the plan; the number of employees eligible for the postretirement medical plan will be reduced; and the 401(k) plan will be enhanced to increase the level of employer matching contribution. The net effect of these changes is expected to positively impact the financial condition of the Company through reduced costs and reduced cash outflow. The Company anticipates a savings in expenses over what would have been paid if the plans were not amended of approximately $10,000 per year. The savings will not begin until 2004. The Company froze the Supplemental Employee Retirement Plan (“SERP”) and in April 2003 issued accreting letters of credit to certain employees. At September 26, 2003, letters of credit totaling $2,585 were outstanding under the SERP curtailment. The Company paid cash to the remaining SERP eligible employees in the third quarter. A pre-tax curtailment charge of approximately $3,000 was recorded in the second quarter 2003. Updated actuarial valuations were performed due to the foregoing changes and resulted in a charge to shareholders’ deficit of $13,511 in the second quarter of 2003.
The Company maintains several defined benefit pension plans in its North American, United Kingdom, and Canadian operations. Funding requirements for these plans are dependent, in part, on the performance of global equity markets and the discount rates used to calculate the present value of the liability. The poor performance of the global equity markets during recent years and low interest rates are expected to significantly increase the funding requirements for these plans in 2004 and 2005. The non-U.S. plans are funded from the local operating cash flows while funding for the U.S. plans is included within the U.S. working capital requirements previously noted. The U.S. pension plans have been frozen and the United Kingdom’s plan is now closed to new entrants. The liability interest rate used to calculate the U.S. funding requirement is established by the U.S. Government. The U.S. Congress previously passed legislation that temporarily increased the liability interest rate and thereby reduced the present value liability and corresponding funding requirements. This increased liability interest rate expires at the end of 2003 and if the current rate is not extended, the funding requirement for the U.S. plans will approximate $37,000 in 2004 and $34,000 in 2005, versus $13,800 in 2003. If the current liability rate is extended, the 2004 funding requirement will be reduced by approximately $12,000. The funding amounts incorporate the savings achieved through the modification of the Company’s domestic pension plans discussed above, but are subject to change as the performance of the plans’ investments and the liability interest rates fluctuate, and as the Company’s workforce demographics change. The next update will occur no later than the first quarter 2004.
On March 18, 2003, Foster Wheeler received a formal notice from the New York Stock Exchange (“NYSE”) indicating that the Company was below the continued listing criteria of a total market capitalization of not less than $50,000 over a 30-day trading period and shareholders’ equity of not less than $50,000. Following discussions with the Company in May 2003, the NYSE permitted the Company’s securities to continue to be listed subject to the Company’s return to compliance with the continued listing standard within 18 months of receipt of the notice and further subject to quarterly review by the NYSE. At this time, Foster Wheeler’s ticker symbol was designated with the suffix “bc” indicating that it was below compliance with the NYSE listing standards. Following its most recent review, the NYSE determined to de-list the Company as of November 14, 2003 based on the Company’s inability to meet the NYSE’s minimum shareholders’ equity requirement of positive $50,000. The Company’s common stock continues to trade on the Pink Sheets and it expects that its common stock and 9% FW Preferred Capital Trust I securities will be immediately eligible for quotation and trading on the Over-the-Counter Bulletin Board (“OTCBB”), effective with the opening of business on November 14, 2003. The Company will announce the new ticker symbols when assigned.
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Under Bermuda law, the consent of the Bermuda Monetary Authority (“BMA”) is required prior to the transfer by non-residents of Bermuda of a Bermuda company’s shares. Since becoming a Bermuda company, Foster Wheeler has relied on an exemption from this rule provided to NYSE-listed companies. Due to the Company being de-listed, this exemption is no longer available. To address this issue, the Company obtained the consent of the BMA to transfers between non-residents for so long as the Company’s shares continue to be quoted in the Pink Sheets or on the OTCBB. The Company believes that this consent will continue to be available.
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.
Revenue Recognition
Revenues and profits in long-term fixed price contracts are recorded under the percentage of completion method. Progress towards completion is measured using physical completion of individual tasks for all contracts with a value in excess of $5,000. Progress toward completion for fixed priced contracts with a value under $5,000 is measured using the cost-to-cost method.
Revenues and profits on cost-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, and 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.
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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 Recognition
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 conditions: 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 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 are recognized as income when collection is assured. In early July 2003, a subsidiary of the Company received $23,000 in settlement of a receivable dispute and corresponding claim from a client. A pre-tax gain of $2,500 associated with the anticipated claim recovery was recorded in the second quarter of 2003. The cash proceeds were recorded in the third quarter of 2003. At September 26, 2003 and December 27, 2002, the Company anticipates collection of approximately $7,000 and $9,000, respectively, in requests for equitable adjustments. These amounts relate primarily to a claim against a U.S. 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.
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.
Asbestos
The Company has recorded assets of $532,000 relating to probable insurance recoveries of which approximately $35,000 is recorded in accounts and notes receivables, and $497,000 is recorded as long term. The Company is awaiting insurance recovery of approximately $64,600 as of September 26, 2003. The total liability recorded is comprised of an estimated liability relating to open (outstanding) claims of approximately $338,200 and an estimated liability relating to future unasserted claims of approximately $157,500. Of the total, $35,000 is recorded in accrued expenses and $460,700 is recorded in asbestos related liability on the condensed 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 probable recoveries from insurers based upon assumptions relating to cost allocation and resolution 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 certain of its insurers regarding an arrangement for handling asbestos claims. The defense costs and indemnity payments are expected to be incurred over the next 15 years.
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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.
In July 2003, several subsidiaries of the Company and Liberty Mutual Insurance Company, one of its insurers, entered into a settlement and release agreement that resolves the coverage litigation between the Company and Liberty Mutual in both state courts in New York and New Jersey. In September 2003, the Company’s subsidiaries entered into a settlement and release agreement that resolves coverage litigation between them and certain London Market and North River Insurers. Refer to “Liquidity and Capital Resources” for further information.
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 uncertainties 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 has resulted in dismissal of claims that are without merit or settlement of claims at amounts that are considered reasonable.
Pension
Calculations to determine pension liability, annual service cost, and cash contributions rely heavily on estimates about future events often extending decades into the future. Management is responsible for establishing the estimates used 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. 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 liability.
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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. Refer to the discussion contained in the Liquidity and Capital Resources Section of this Item 2 regarding changes to the domestic pension and postretirement program and the corresponding charges recorded in the second quarter of 2003.
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 long-lived assets 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. The Company recorded an impairment loss of $15,100 in the third quarter of 2003 in anticipation of a sale of a domestic corporate office building.
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 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.
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.
In the fourth quarter of 2001, the Company established a valuation allowance of $194,600 primarily for domestic deferred tax assets under the provisions of SFAS 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.
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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, 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:
Procurement
The Company has concluded the implementation of the procurement initiative which focused on reducing internal man-hours and cycle times as well as engaging in strategic agreements with key suppliers. Claims recovery, purchase order creation, and financial data reporting are three examples of processes that have been improved as a result of the initiative.
Accounts Receivable
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. Provisions for non-payments of customer balances are normally addressed within the overall profit calculation. Trade accounts and notes receivable at September 26, 2003 and December 27, 2002 were $449,100 and $543,100, respectively.
Cost Reductions
Management continues its evaluation of operating and overhead costs. Staffing at the corporate headquarters and in the North American operations was reduced by 730 individuals since the cost reduction program began in mid-2002. Annualized salaries, benefits, and other non-essential expenses were reduced on a run rate basis by approximately $81,400. Included in these amounts are technical and non-technical positions, including executive and middle management levels, engineering, manufacturing, administrative support staff, overhead personnel, and office expenses. 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 and continues to explore ways to increase efficiencies and reduce costs at the US corporate center and operating companies. A review of compensation and benefits has also been completed in the UK.
Sales
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
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of the business, the relative weak markets, and the Company’s financial condition, it is difficult to evaluate the impact of the sales effectiveness initiatives.
Risk Management
The Company’s Project Risk Management Group (“PRMG”), established in the second quarter of 2002, is responsible for reviewing proposals and contracts for work that was contracted for and are in execution to ensure that the Company is protected from taking unacceptable levels of financial risk. During the second quarter 2003, an outside consulting firm was engaged to supplement the internal resources in the PRMG. The PRMG continues to be assisted in its efforts by Deloitte & Touche LLP, the Company’s internal auditors. During the first nine months of 2003, 162 proposals were evaluated with 65 formally reviewed. An additional 119 projects in execution were reviewed.
The Project Risk Management Group also issued, 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.
High-leverage Projects
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 initiative completed in January 2003 determined that best in class practices existed but were not consistently applied. Updated systems and procedures have been implemented and are being applied to all new projects. The updated systems and procedures are being added to the residual Foster Wheeler Environmental projects.
Internal Control Review
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 approval of the Audit Committee of the Board of Directors, enhanced 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 and management expertise in 2002 and the first nine months of 2003. 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; and |
| | • | Ensuring best practices are implemented across all business units. |
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The Company formed a disclosure review 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.
Management also amended the composition of the boards of directors of the major operating companies to include three corporate executives. One of the corporate executives is also chairman of the disclosure committee. The change in corporate governance will enhance the disclosure controls as critical operating information and strategic actions authorized will involve the chairman of the disclosure committee. Internal controls will also be enhanced with the corporate governance changes.
Management has begun the formal documentation of the Company’s worldwide internal controls as part of new requirements under the Sarbanes-Oxley legislation. This process will continue throughout 2003 and 2004.
Backlog and New Orders
| CONSOLIDATED DATA |
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| Backlog | $ | 2,998,691 | | $ | 5,842,477 | | $ | (2,843,786 | ) | (48.7 | )% | $ | 2,998,691 | | $ | 5,842,477 | | $ | (2,843,786 | ) | (48.7 | )% |
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| New orders | $ | 582,396 | | $ | 1,043,542 | | $ | (461,146 | ) | (44.2 | )% | $ | 1,705,819 | | $ | 2,484,761 | | $ | (778,942 | ) | (31.3 | )% |
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Backlog at September 26, 2003 was favorably impacted by exchange rate variances of approximately $195,200 primarily related to the strength of the Euro. The change in backlog from September 27, 2002 to September 26, 2003 includes an adjustment for the reduction of approximately $1,800,000 related to Foster Wheeler Environmental Corporation contracts ultimately sold in March 2003. The balance of the change reflects declines in the E&C Group and Energy Group of approximately $447,000 and $604,000, respectively. Refer to the further discussions below regarding the changes in the E&C and Energy Group’s backlog.
As of September 26, 2003, 43% of the consolidated backlog was from lump-sum work (55% of which was for the Energy Group), and 57% was from reimbursable work. As of September 27, 2002, 43% of the consolidated backlog was from lump-sum work (58% of which was for the Energy Group) and 57% was from reimbursable work. The increase in lump-sum work as a percentage of the total reflects the sale of substantially all Foster Wheeler Environmental Corporation reimbursable contracts in March 2003. Two lump-sum projects valued at approximately $167,000 have been retained as part of the sale.
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, 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.
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Engineering and Construction Group
| | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | |
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| Backlog | $ | 2,030,418 | | $ | 4,277,347 | | $ | (2,246,929 | ) | (52.5 | )% | $ | 2,030,418 | | $ | 4,277,347 | | $ | (2,246,929 | ) | (52.5 | )% |
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| New orders | $ | 443,385 | | $ | 469,852 | | $ | (26,467 | ) | (5.6 | )% | $ | 1,166,542 | | $ | 1,365,759 | | $ | (199,217 | ) | (14.6 | )% |
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The decline in backlog includes a reduction of approximately $1,800,000 related to the sale of Foster Wheeler Environmental Corporation contracts. Foster Wheeler Environmental Corporation new orders in the three and nine months ended September 27, 2002 were $24,000 and $272,000, respectively.
The remaining decrease in backlog was primarily due to reductions in new orders within the USA and UK operating units. Reductions in the USA and UK operating units reflect the continued sluggish domestic U.S. and global market conditions, and a highly competitive pricing environment.
Strong growth continues in liquefied natural gas (“LNG”) plants and receiving terminals. The Company and a Japanese partner were awarded a contract for a new LNG train in Oman and the Company is separately executing new LNG terminals and expansions in India and Spain.
The war in Iraq and its reconstruction to date has had no significant impact on the Group’s operations.
Energy Group
| | | | | | Three Months Ended | | | | | | | | Nine Months Ended | | | |
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| Backlog | $ | 972,938 | | $ | 1,576,458 | | $ | (603,520 | ) | (38.3 | )% | $ | 972,938 | | $ | 1,576,458 | | $ | (603,520 | ) | (38.3 | )% |
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| New orders | $ | 135,190 | | $ | 579,515 | | $ | (444,325 | ) | (76.7 | )% | $ | 532,706 | | $ | 1,131,483 | | $ | (598,777 | ) | (52.9 | )% |
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The Energy Group’s backlog decreased primarily due to several large contracts in the North American and European units that were booked during 2001 and 2002 and executed in 2003. Additionally, the continued sluggish domestic U.S. and global market conditions have resulted in lower booking levels. In addition, the Energy Group’s 2002 backlog and new orders included a major engineering, construction and procurement power project that was booked and largely executed during this year.
The North American power unit booked a new order in June 2003 of approximately $58,000; however, year-to-date new orders declined versus the prior year. 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, slow economic growth is causing projects to be delayed in the latter part of 2003 and early 2004. Opportunities in circulating fluidized bed boilers are expected to continue in selective European and Asian markets, while industrial boiler sales continue in selective Middle Eastern markets.
The Company was awarded the front-end work for a project in Europe that utilizes the next generation of circulating fluidized bed (“CFB”) technology. The full notice to proceed is expected in the fourth quarter of 2003 or first quarter of 2004.
The war in Iraq and its reconstruction to date has had no significant impact on the Group’s operations.
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Audit Related and Non-Audit Services
On October 27, 2003, the Audit Committee of the Board of Directors of the Company approved audit related and non-audit services to be provided by PricewaterhouseCoopers LLP for $2,525. Approximately $525 was for audit-related services, and $2,000 was for tax related services.
Other Matters
In April 2003, Joseph T. Doyle, Foster Wheeler’s Chief Financial Officer since July 2002, left the Company. Kenneth A. Hiltz, a principal with AlixPartners, LLC, succeeded him. Refer to Exhibit 10.6 filed as part of the March 28, 2003 Form 10-Q for the consulting agreement between AlixPartners, LLC and the Company.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(In 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 forward foreign exchange agreements, to hedge its exposure on contracts into the operating unit’s functional currency. The Company utilizes all such financial instruments solely for hedging. Corporate policy prohibits the speculative use of such instruments. The Company is exposed to credit loss in the event of nonperformance by the counter parties 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. The geographical diversity of the Company’s operations mitigates to some extent the effects of the currency translation exposure. However, the Company maintains substantial operations in Europe and is subject to translation risk for the Euro and the Pound Sterling. No significant unhedged assets or liabilities are maintained outside the functional currency 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 Senior Credit Facility and its variable rate project debt. If market rates average 1% more in 2003 than in 2002, the Company’s interest expense for the next twelve months would increase, and income before tax would decrease by approximately $1,500. This amount has been determined by considering the impact of the hypothetical interest rates on the Company’s variable-rate balances as of September 26, 2003. In the event of a significant change in interest rates, management would seek to take action to further mitigate its exposure to the change. However, it is unlikely that a hedging facility would be available due to the Company’s financial situation.
Foreign Currency Risk — The Company has significant overseas operations. Generally, all significant activities of the overseas affiliates are recorded in their functional currency, which is generally the currency of the country of domicile of the affiliate. 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, the affiliates of the Company enter into foreign currency exchange contracts to hedge the exposed contract value back to their functional currency. As of September 26, 2003, the Company had approximately $128,800 of foreign exchange contracts outstanding. These 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 currency or other currencies for which they have payment obligations to third parties. The Company does not enter into foreign currency contracts for speculative purposes.
Inflation
The effect of inflation on the Company’s revenues and earnings is minimal. Although a majority of the Company’s revenues are made 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.
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ITEM 4 CONTROLS AND PROCEDURES
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 Certifications filed as exhibits 31.1 and 31.2 to this form 10-Q.
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 control procedures are designed to comply with the regulations established by the Securities and Exchange Commission.
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 September 26, 2003 (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 and disclosure controls or in other factors that could significantly affect such internal and disclosure controls subsequent to the date of their evaluation.
Code of Ethics
The Company maintains a Code of Ethics for all employees, including executive management. No exceptions were granted to any employee during 2003.
Safe Harbor Statement
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other sections of this Report on Form 10-Q 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 and the costs of current and future asbestos claims and the amount and timing of related insurance recoveries. 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; |
| | • | contract cancellations; |
| | • | changes in estimates made by the Company of costs to complete projects; |
| | • | changes in trade, monetary and fiscal policies worldwide; |
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| | • | currency fluctuations; |
| | • | 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; |
| | • | changes in financial markets; |
| | • | implementation of our restructuring plan; |
| | • | compliance with debt covenants; |
| | • | monetization of certain Power System facilities; |
| | • | recoverability of claims against customers and others; |
| | • | changes in estimates used in its critical accounting policies; and |
| | • | the outcome of cash-generating initiatives. |
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 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.
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PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to Note 3 to the Condensed Consolidated Financial Statements presented in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of legal proceedings, which is incorporated by reference in this Part II.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. | Exhibits |
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| 10.1 | Second Amendment to Asset Purchase Agreement, dated as of April 28, 2003, by and among Tetra Tech, Inc., Tetra Tech FW, Inc., Foster Wheeler, Ltd., a Bermuda corporation, Foster Wheeler, LLC, Foster Wheeler USA Corporation, Foster Wheeler Environmental Corporation and Hartman Consulting Corporation. |
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| 10.2 | Amendment No. 3, dated as of July 31, 2003, to the Loan and Security Agreement, dated as of August 15, 2002, as amended by Amendment No. 1 to Loan and Security Agreement, dated as of January 22, 2003, and Amendment No. 2 to Loan and Security Agreement, dated as of February 24, 2003, by and among, on the one hand, the lenders party thereto, Wells Fargo Foothill, Inc., as the arranger and administrative agent for the Lenders and, on the other hand, Foster Wheeler Funding II LLC, as successor by assignment to Foster Wheeler Funding LLC. |
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| 10.3 | Asset Purchase Agreement between Wheelabrator Hudson Falls L.L.C. and Adirondack Resource Recovery Associates, L.P. dated as of August 25, 2003. |
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| 10.4 | Amendment No. 1 dated as of August 26, 2003 to the Security Agreement dated as of August 16,2002 (as amended, amended and restated, supplemented or otherwise modified from time to time) made by the Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler Energy Corporation, Foster Wheeler Ltd., Foster Wheeler Holdings Ltd., Foster Wheeler Inc., Foster Wheeler International Holdings, Inc. Equipment Consultants, Inc., Foster Wheeler Asia Limited, Foster Wheeler Capital & Finance Corporation, Foster Wheeler Constructors, Inc. Foster Wheeler Development 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 International Corporation, Foster Wheeler Power Systems, Inc., Foster Wheeler Pyropower, Inc., Foster Wheeler Real Estate Development Corp., Foster Wheeler Realty Services, Inc., Foster Wheeler Virgin Islands, Inc., Foster Wheeler Zack, Inc., FW Mortshal, Inc. FW Technologies Holding, LLC, HFM International, Inc., Process Consultants, Inc., Pyropower Operating Services Company, Inc. “Grantors” from time to time party thereto in favor of the Bank of America, N.A., as Collateral Agent (together with any successor collateral agent appointed pursuant to Article VIII of the Credit Agreement) for the Secured Parties. |
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| 10.5 | Amendment No. 1, dated as of July 31, to the Purchase, Sale and Contribution Agreement, dated as of August 15, 2002 (as amended, restated, supplemented or otherwise modified from time to time), by and among the parties identified on the signature pages as the Originators, Foster Wheeler Funding II LLC, as successor by assignment to Foster Wheeler Funding LLC, and Foster Wheeler Inc., as successor to the Original Servicer. |
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| 10.6 | Amendment No. 4 dated as of October 30, 2003 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 (as defined therein), the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Lead Arranger and Book Manager. IF EXECUTED] |
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| 12.1 | Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges |
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| 31.1 | Section 302 Certification Raymond J. Milchovich. |
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| 31.2 | Section 302 Certification of Kenneth A. Hiltz. |
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| 32.1 | Section 906 Certification of Raymond J. Milchovich. |
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| 32.2 | Section 906 Certification of Kenneth A. Hiltz. |
Reports on Form 8-K
| Report Date | Description |
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| July 8, 2003 | The Company issued a press release commenting on the S&P downgrade. (Items 7 and 9). |
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| July 10, 2003 | The Company issued a press release announcing that the New York Stock Exchange accepted its business plan for continued listing on the exchange. (Items 7 and 9). |
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| July 15, 2003 | The Company updated its financial statements to include guarantor information in accordance with the proposed terms of Foster Wheeler Holdings Ltd.’s proposed share exchange offer. (Item 5). |
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| July 15, 2003 | The Company updated its risk factors. (Item 5). |
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| August 7, 2003 | The Company filed its Second Quarter 2003 earnings results. (Items 9 and 12). |
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| November 7, 2003 | The Company announced that it received notification from the New York Stock Exchange that trading in the Company’s common stock and 9.00% FW Preferred Capital Trust I securities will be suspended effective at market open on November 14, 2003. (Item 5 and 7). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | FOSTER WHEELER LTD. |
| | (Registrant) |
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| Date: November 10, 2003 | /s/ Raymond J. Milchovich |
| | Raymond J. Milchovich
Chairman, President and
Chief Executive Officer |
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| Date: November 10, 2003 | /s/ Kenneth A. Hiltz |
| | Kenneth A. Hiltz |
| | Chief Financial Officer |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)