| | | | |
| | NINE MONTHS ENDED |
|
|
| | September 24, 2004 | | September 26, 2003 |
| | | (restated - see Note 3) |
|
| |
|
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net cash provided by operating activities | $ | 27,541 | | $ | 62,071 | |
| |
|
| |
|
| |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
| Change in restricted cash | | (16,669 | ) | | 13,938 | |
| Capital expenditures | | (3,919 | ) | | (4,762 | ) |
| Proceeds from sale of Foster Wheeler Energia S.A. (see Note 3) | | 3,589 | | | — | |
| Proceeds from sale of properties | | 181 | | | 695 | |
| Decrease in investments and advances | | 516 | | | 1,893 | |
| Other | | — | | | (5 | ) |
| |
|
| |
|
| |
| Net cash (used) /provided by investing activities | | (16,302 | ) | | 11,759 | |
| |
|
| |
|
| |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
| Capitalization of intercompany notes | | (19,103 | ) | | (28,230 | ) |
| Change in notes with affiliates | | (5,183 | ) | | (7,764 | ) |
| Decrease in bank loans | | — | | | (13,739 | ) |
| Other | | (452 | ) | | (2 | ) |
| |
|
| |
|
| |
| Net cash used by financing activities | | (24,738 | ) | | (49,735 | ) |
| |
|
| |
|
| |
| Effect of exchange rate changes on cash and cash equivalents | | (1,304 | ) | | 4,884 | |
| |
|
| |
|
| |
| (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | | (14,803 | ) | | 28,979 | |
| Cash and cash equivalents at beginning of period | | 178,050 | | | 155,032 | |
| |
|
| |
|
| |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 163,247 | | $ | 184,011 | |
| |
|
| |
|
| |
See notes to condensed consolidated financial statements.
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
| 1. | Nature of Operations and Relationship to Foster Wheeler Ltd. and Subsidiaries |
Foster Wheeler International Holdings, Inc. and Subsidiaries (the “Company”) is a wholly owned subsidiary of Foster Wheeler LLC (“FWLLC”), which is an indirectly wholly owned subsidiary of Foster Wheeler Ltd. The principal operations of the Company are to design, engineer, and construct petroleum processing facilities (upstream and downstream), chemical, petrochemical, pharmaceutical and natural gas liquefaction (LNG) facilities, and related infrastructure, including power generation and distribution facilities, production terminals and pollution control equipment. The Company operates under one segment primarily outside of the United States with operations in the United Kingdom, Italy, France, Turkey, Spain, Singapore, Thailand, Malaysia, South Africa, and Canada.
The Company has transactions and relationships with Foster Wheeler Ltd. and its affiliates. The financial position, results of operations, and cash flows of the Company have been impacted by these transactions and relationships as discussed in Notes 2, 3, 4, 5, 6 and 11.
| 2. | Liquidity and Going Concern |
The accompanying condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is largely dependent on Foster Wheeler Ltd.’s ability to continue as a going concern. Foster Wheeler Ltd. and the Company may not, however, be able to continue as a going concern. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, Foster Wheeler Ltd.’s and the Company’s ability to operate profitably, 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 Foster Wheeler Ltd.’s ability to maintain credit facilities and bonding capacity adequate to conduct its business. Foster Wheeler Ltd. incurred significant operating losses during the nine months ended September 24, 2004 and in each of the years in the three-year period ended December 26, 2003, and has a shareholders’ deficit of $441,238 as of September 24, 2004.
On September 24, 2004, Foster Wheeler Ltd. completed an equity-for-debt exchange offer in which it issued common shares, preferred shares, warrants to purchase common shares, or in some cases to purchase preferred shares, and new notes in exchange for certain of its outstanding debt securities and trust securities. The exchange offer reduced Foster Wheeler Ltd.’s existing debt (excluding a reduction in deferred accrued interest of $31,105) by $436,933, improved the shareholders’ deficit by $448,162 and when combined with the proceeds from the issuance of the 2011 Senior Notes that were used to repay amounts that were outstanding under the Senior Credit Facility, eliminated substantially all material scheduled corporate debt maturities prior to 2011. A pretax charge of $174,941 relating primarily to the Convertible Notes that were exchanged, substantially all of which was non-cash, was recorded in conjunction with the completion of the exchange offer. After completing the exchange offer, Foster Wheeler Ltd. had outstanding debt obligations of approximately $577,000 as of September 24, 2004.
In August of 2002, Foster Wheeler Ltd. negotiated a Senior Credit Facility that was comprised of a $71,000 term loan, a $69,000 revolving credit facility and a $149,900 letter of credit facility having an April 30, 2005 maturity date. Over the course of 2002 and 2003, Foster Wheeler Ltd. obtained amendments to this facility to provide covenant relief and to allow for the equity-for-debt exchange offer. These amendments are described below. In connection with the equity-for-debt exchange offer, Foster Wheeler Ltd. repaid the term loan and all amounts outstanding under the revolving credit facility in full. In addition, the Senior Credit Facility was amended (Amendment No. 5) to reduce the availability under the letter of credit facility to $125,000 and to terminate the revolving credit facility, as described below.
Foster Wheeler Ltd. is currently seeking a new multi-year revolving credit agreement and letter of credit facility. As of September 24, 2004, Foster Wheeler Ltd. had letters of credit outstanding under the Senior Credit Facility of $81,400. Letters of credit outstanding upon maturity of the Senior Credit Facility will either need to be replaced by a new facility or funded with cash. There can be no assurance that Foster Wheeler Ltd. will be able to obtain a new revolving credit and letter of credit facility on acceptable terms or at all.
The Senior Credit Facility covenants include a maximum senior leverage ratio and a minimum earnings before interest expense, taxes, depreciation and amortization (“EBITDA”). Compliance with these covenants is measured quarterly. The maximum senior leverage covenant compares actual average rolling four quarter EBITDA, as defined in the Senior Credit Facility, to actual total senior debt, as defined. The resultant multiple of debt to EBITDA must be less than maximum amounts specified in the Senior Credit Facility. The minimum EBITDA covenant requires the actual average rolling four quarter EBITDA, as defined in the Senior Credit Facility, to meet minimum EBITDA targets. Management’s current forecast indicates that Foster Wheeler Ltd. will be in compliance with the financial covenants contained in the Senior Credit Facility throughout the facility’s term.
5
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
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 requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. Foster Wheeler Ltd. retained the first $77,000 of such amounts and also retains a 50% share of the balance. The $77,000 threshold was exceeded during the second quarter of 2003. Accordingly, principal repayments of $12,300 and $1,800 were made on the term loan in the first nine months of 2004 and during the full year of 2003, respectively, as a result of asset sales during those periods.
Amendment No. 1 to the Senior Credit Facility, obtained on November 8, 2002, provided for the exclusion of up to $180,000 of gross pretax charges recorded by Foster Wheeler Ltd. in the third quarter of 2002 for covenant calculation purposes. 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. As of December 26, 2003, $31,000 of the contingency risks was favorably resolved, and additional project reserves were established for $32,000 leaving a contingency balance of $0.
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 Credit Agreement. In connection with this amendment of the Credit Agreement, Foster Wheeler Ltd. made a prepayment of principal in the aggregate amount of $10,000 in March 2003.
Amendment No. 3 to the Senior Credit Facility, entered into on July 14, 2003, modified certain affirmative and negative covenants to permit the equity-for-debt exchange offer, other internal restructuring transactions as well as transfers, cancellations and setoffs of certain intercompany obligations. The terms of the amendment called for Foster Wheeler Ltd. to pay a fee equal to 5% of the lenders’ credit exposure since it had not made a required prepayment of principal under the Senior Credit Facility of $100,000 on or before March 31, 2004. Foster Wheeler Ltd. paid the required fee of $13,600 on March 31, 2004. The annual interest rate on borrowings under the Senior Credit Facility increased each quarter until the term loan and revolving credit facility were repaid on September 24, 2004.
Amendment No. 4 to the Senior Credit Facility, entered into on October 30, 2003, modified certain definitions and representations to allow for the maintenance and administration of certain bank accounts of Foster Wheeler Ltd.
Amendment No. 5 to the Senior Credit Facility, entered into on May 14, 2004, amended and waived certain affirmative and negative covenants necessary to permit the equity-for-debt exchange offer as well as to allow for a reduction of $25,000 in Foster Wheeler Ltd.’s letter of credit facility. In consideration for the amendments and waivers obtained in this amendment, Foster Wheeler Ltd. paid on November 30, 2004, a fee equal to 1.25% of the lenders’ outstanding letter of credit exposure and is obligated to pay a further fee equal to 0.75% of the lenders’ outstanding letter of credit exposure for each additional month thereafter through the expiration date of the Senior Credit Facility of April 30, 2005. Such fees are due and payable only to the extent that any commitment remains outstanding under the Senior Credit Facility at the end of each month.
Foster Wheeler Ltd. finalized a sale/leaseback arrangement for an office building at its corporate headquarters in the third quarter of 2002. Under this arrangement, Foster Wheeler Ltd. leases the facility 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 lease arrangement of $33,000 for a second corporate office building. The long-term capital lease obligation of $44,600 as of September 24, 2004 is included in capital lease obligations in Foster Wheeler Ltd.’s condensed consolidated balance sheet. Foster Wheeler Ltd. entered into a binding agreement in the first quarter 2004 to sell the second corporate office building. The sale closed in the second quarter 2004 and generated net cash proceeds of $16,400. Of this amount, 50% was used to prepay amounts outstanding under the term loan portion of the Senior Credit Facility in the second quarter of 2004.
6
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
The Senior Credit Facility and the sale/leaseback arrangement have quarterly debt covenant compliance requirements. Management’s forecast indicates that Foster Wheeler Ltd. will be in compliance with the debt covenants throughout 2005, provided Foster Wheeler Ltd. successfully obtains a new letter of credit facility. However, there can be no assurance that Foster Wheeler Ltd. will comply with the covenants. If Foster Wheeler Ltd. violates a covenant under the Senior Credit Facility or the sale/leaseback arrangement, repayment of amounts outstanding under such agreements could be accelerated. Acceleration of these facilities would result in a cross default under the following agreements: the 2011 Senior Notes, the 2005 Senior Notes, the Convertible Notes, the trust preferred securities, the Robbins Bonds, and certain of the special-purpose project debt facilities, which would allow such debt to be accelerated as well. The total amount of Foster Wheeler Ltd. debt that could be accelerated is $474,000 as of September 24, 2004. Foster Wheeler Ltd. would not be able to repay amounts borrowed if the payment dates were accelerated. The debt covenants and the potential payment acceleration requirements raise substantial doubts about Foster Wheeler Ltd.’s and the Company’s ability to continue as a going concern. The condensed consolidated financial statements of Foster Wheeler Ltd. and the Company do not include any adjustments that might result from the outcome of this uncertainty.
One of Foster Wheeler Ltd.’s foreign subsidiaries is a party to two Euro-denominated performance bond facilities with financial institutions that contain covenants. The covenants include (i) a limitation on the amount of dividends to 75% of the subsidiary’s annual earnings and (ii) a requirement that the payment of dividends and certain restricted payments be subject to the subsidiary having minimum equity ratios, calculated as equity divided by total assets each as defined in the facilities. In addition, the facilities require the subsidiary to maintain a minimum equity ratio. One of the performance bond facilities is dedicated to a specific project and, as of September 24, 2004, had performance bonds outstanding equivalent to approximately $40,000 (none of which has been drawn). Covenants under this facility are tested quarterly. The second facility is a general performance bond facility and, as of September 24, 2004, had performance bonds outstanding in favor of several clients equivalent to approximately $13,000 (none of which has been drawn).
As a result of operating losses at the foreign subsidiary during the second quarter of 2004, the equity of Foster Wheeler Ltd.’s subsidiary fell below the minimum equity ratios, breaching the covenants contained in the performance bond facilities. On August 6, 2004 and August 9, 2004, Foster Wheeler Ltd.’s foreign subsidiary obtained waivers from the financial institutions providing the performance bond facilities. The waiver for the project specific performance bond facility requires that the foreign subsidiary make no dividends or other restricted payments, including intercompany loans, debt service on existing intercompany loans, royalties, and management fees, for as long as the foreign subsidiary’s equity remains below the minimum amounts and the performance bonds are outstanding. The equity of Foster Wheeler Ltd.’s subsidiary remained below the minimum equity ratio as of September 24, 2004. The waiver for the general performance bond facility was initially effective through October 31, 2004 and has been subequently extended through January 31, 2005. As a condition to the waiver extension, Foster Wheeler Ltd. was required to provide standby letters of credit for eight guarantees currently outstanding under the performance bond facility totaling approximately $7,300 and to pay a nominal waiver fee. In the event that Foster Wheeler Ltd. is unable to obtain a further waiver or amendment, it will pursue a replacement for this bonding facility. In addition, the subsidiary has sufficient cash on hand to collateralize the obligations supported by the performance bonds in the event it is unable to obtain a waiver or an alternative bonding facility. Therefore, Foster Wheeler Ltd. believes this matter will not have an adverse impact on its forecasted liquidity. The foreign subsidiary’s inability to pay dividends and restricted payments because of its failure to remain in compliance with the minimum equity ratio covenants is reflected in Foster Wheeler Ltd.’s liquidity forecasts.
Foster Wheeler Ltd.’s U.S. operations, which include the corporate functions, are cash flow negative and are expected to continue to incur negative cash flow due to a number of factors including costs related to Foster Wheeler Ltd.’s indebtedness, obligations to fund U.S. pension plans, and other expenses related to corporate functions and other corporate overhead.
Management closely monitors liquidity and updates its U.S. liquidity forecasts weekly. These forecasts cover, among other analyses, existing cash balances, cash flows from operations, cash repatriations and loans from non-U.S. subsidiaries, asset sales, collections of receivables and claims recoveries, working capital needs and unused credit line availability. Foster Wheeler Ltd.’s cash flow forecasts continue to indicate that sufficient cash will be available to fund its U.S. and foreign working capital needs throughout 2005, provided Foster Wheeler Ltd. successfully replaces the letter of credit facility contained in the Senior Credit Facility. Ensuring adequate domestic liquidity remains a priority for Foster Wheeler Ltd.’s management, however, there can be no assurance that the cash amounts realized and/or timing of the cash flows will match Foster Wheeler Ltd.’s forecast.
As of September 24, 2004, Foster Wheeler Ltd. had cash and cash equivalents, short-term investments, and restricted cash totaling $371,900, compared to $430,200 as of December 26, 2003. Of the $371,900 total at September 24, 2004, approximately $311,900 was held by foreign subsidiaries. Foster Wheeler Ltd. is sometimes required to cash collateralize bonding or certain bank facilities and such amounts are included in restricted cash. The amount of restricted cash at September 24, 2004 was $64,300, of which $59,800 relates to the non-U.S. operations.
7
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
Foster Wheeler Ltd.’s restricted cash at September 24, 2004 consists of approximately $4,100 held primarily by special purpose entities and restricted for debt service payments, approximately $57,800 that was required to collateralize letters of credit and bank guarantees, and approximately $2,400 of client escrow funds. Domestic restricted cash totals approximately $4,500, which relates to funds held primarily by special purpose entities and restricted for debt service payments and client escrow funds. Foreign restricted cash totals approximately $59,800 and is comprised of cash collateralized letters of credit and bank guarantees and client escrow funds.
Foster Wheeler Ltd. requires cash distributions from its non-U.S. subsidiaries in the normal course of its operations to meet its U.S. operations’ minimum working capital needs and to service its debt. Foster Wheeler Ltd.’s current 2004 forecast assumes total cash repatriation from its non-U.S. subsidiaries of approximately $79,000 from royalties, management fees, intercompany loans, debt service on intercompany loans, and dividends. In the first nine months of 2004 and the full year of 2003, Foster Wheeler Ltd. repatriated approximately $65,000 and $100,000, respectively, from its non-U.S. subsidiaries.
There can be no assurance that the forecasted foreign cash repatriation will occur, as there are significant contractual and statutory restrictions on Foster Wheeler Ltd.’s ability to repatriate funds from its non-U.S. subsidiaries. These subsidiaries need to keep certain amounts available for working capital purposes, to pay known liabilities, and for other general corporate purposes. Such amounts exceed, and are not directly comparable to, the foreign component of restricted cash previously noted. In addition, certain of Foster Wheeler Ltd.’s non-U.S. subsidiaries are parties to loan and other agreements with covenants, and are subject to statutory requirements in their jurisdictions of organization that restrict the amount of funds that such subsidiaries may distribute. Distributions in excess of these specified amounts would violate the terms of the agreements or applicable law, which could result in civil and criminal penalties. The repatriation of funds may also subject those funds to taxation. As a result of these factors, Foster Wheeler Ltd. may not be able to repatriate and utilize funds held by its non-U.S. subsidiaries in sufficient amounts to fund its U.S. working capital requirements, to repay debt, or to satisfy other obligations of its U.S. operations, which could limit Foster Wheeler Ltd.’s and the Company’s ability to continue as a going concern.
Commercial operations under a domestic contract retained by Foster Wheeler Ltd. in connection with the sales of assets of the Foster Wheeler Environmental Corporation (“Environmental”) commenced in January 2004. The plant processes low-level nuclear waste for the U.S. Department of Energy (“DOE”). Foster Wheeler Ltd. funded the plant’s construction costs and operates the facility. The majority of Foster Wheeler Ltd.’s invested capital was recovered during the early stages of processing the first stream of waste materials. This project successfully processed all quantities of the first waste stream of materials ahead of schedule and is currently finalizing the processing line for the second waste stream. As of September 24, 2004, the project generated year-to-date net cash flow of approximately $52,800. An additional $17,800 of capital recovery is dependent on the initial processing of the second waste stream of materials. This capital recovery is expected in 2005.
On February 26, 2004, the California Public Utilities Commission approved certain changes to Pacific Gas and Electric Company’s rates. As relevant to Foster Wheeler Ltd.’s subsidiary’s Martinez Project, the E-20T rate has been decreased by approximately 15% retroactive to January 1, 2004, having a negative effect on the subsidiary’s 2004 cash flow and earnings. This rate change has been reflected in Foster Wheeler Ltd.’s liquidity forecast.
In connection with the equity-for-debt exchange offer, the holders of Foster Wheeler Ltd.’s Senior Notes due November 15, 2005 agreed to amend the indenture governing these notes to effectively eliminate the security interest previously held by the notes. Holders of Foster Wheeler Ltd.’s new 2011 Senior Notes have a security interest in the stock, debt and assets of certain of Foster Wheeler Ltd.’s subsidiaries including the stock and debt of the Company. The Senior Credit Facility is also secured by the stock, debt and assets of certain subsidiaries and has priority over the 2011 Senior Notes in such security.
The 2011 Senior Notes contain incurrence covenants that must be met should Foster Wheeler Ltd. choose to undertake certain actions including incurring debt, making payments and investments, granting liens, making asset sales and entering into specific intercompany transactions, among others. Management monitors these covenants to ensure it is aware of the actions Foster Wheeler Ltd. is permitted to take pursuant to the 2011 Senior Notes Indenture.
In the third quarter of 2002, Foster Wheeler Ltd. also entered into a receivables financing arrangement of up to $40,000. Foster Wheeler Ltd., in agreement with the lenders, reduced the maximum borrowing capacity to $30,000 effective May 28, 2004 thereby reducing unused commitment fees incurred. No amounts were drawn during 2004 or 2003, and Foster Wheeler Ltd. voluntarily terminated the receivable financing arrangement on September 30, 2004. A termination fee of $400 was accrued in the third quarter of 2004 and paid to the lending group on September 30, 2004.
8
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
On January 26, 2004, subsidiaries in the U.K. entered into a two-year revolving credit facility with Saberasu Japan Investments II B.V. in the Netherlands. The facility provides for up to $45,000 of additional revolving loans available to provide working capital, which may be required by these subsidiaries as they seek to grow the business by pursuing a larger volume of lump-sum engineering, procurement and construction contracts. The facility is secured by substantially all of the assets of these subsidiaries and is subject to covenant compliance. Such covenants include a minimum EBITDA level and a loan to EBITDA ratio. As of September 24, 2004, the facility remained undrawn.
Since January 15, 2002, Foster Wheeler Ltd. has exercised its right to defer payments on the junior subordinated debentures underlying the 9.00% Preferred Capital Trust I securities and, as a result, to defer payments on those securities. The aggregate liquidation amount of the trust preferred securities at September 24, 2004 was $71,250, after completing the equity-for-debt exchange. The Senior Credit Facility, as amended, requires Foster Wheeler Ltd. to defer the payment of the dividends on the trust preferred securities and no dividends were paid during 2003 or the first three quarters of 2004. As of September 24, 2004, the amount of dividends deferred plus accrued interest approximates $21,400. Foster Wheeler Ltd. intends to continue to defer payment of the dividends on the trust preferred securities until January 15, 2007 — the full term allowed by the underlying agreement. Once the deferred dividend obligation has been satisfied, Foster Wheeler Ltd. has the right to defer subsequent dividend payments for an additional 20 consecutive quarters.
On November 14, 2003, the New York Stock Exchange (“NYSE”) de-listed Foster Wheeler Ltd.’s common stock as well as its related security, 9.00% FW Preferred Capital Trust I, based on Foster Wheeler Ltd.’s inability to meet its listing criteria. Foster Wheeler Ltd.’s common and preferred shares and the 9.00% FW Preferred Capital Trust I securities are quoted on the Over-the-Counter Bulletin Board (“OTCBB”).
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 Ltd. has relied on an exemption from this rule provided to NYSE-listed companies. Due to its de-listing, this exemption was no longer available. To address this issue, Foster Wheeler Ltd. obtained the consent of the BMA for transfers between nonresidents for so long as Foster Wheeler Ltd.’s shares continue to be quoted in the Pink Sheets or on the OTCBB. Foster Wheeler Ltd. believes that this consent will continue to be available.
| 3. | Sale of Investment in Foster Wheeler Energia S.A. |
In October 2003, pursuant to a Stock Purchase Agreement dated October 10, 2003 (“SPA”), the Company sold its investment in Foster Wheeler Energia S.A., a wholly owned subsidiary of Foster Wheeler Europe Limited, for proceeds of approximately $30,675. The subsidiary was sold to a wholly owned affiliate of Foster Wheeler Ltd. The sales price approximated the carrying value. The Company has reflected this transaction as a reorganization of companies under common control. Accordingly, the accompanying financial statements have been revised to eliminate the activity of Foster Wheeler Energia S.A. from the consolidated statements of financial position, results of operations and cash flows for all periods presented. In May 2004, pursuant to the SPA, an additional payment of $3,589 was made to the Company. The payment could not be estimated at the time of purchase, and was therefore not accrued. The payment received by the Company was recorded as a increase in retained earnings in 2004.
The following summarizes the change in the Company’s net earnings from amounts previously reported:
| | Nine Months Ended | |
| | September 26, 2003 | |
| |
|
|
|
|
| |
| | as previously | | | |
| | reported | | restated | |
| |
|
| |
|
| |
| Revenues and other income | $ | 1,457,903 | | $ | 1,385,990 | |
| Costs and expenses | | 1,440,818 | | | 1,367,126 | |
| |
|
| |
|
| |
| Earnings before income taxes | | 17,085 | | | 18,864 | |
| Provision for income taxes | | 3,608 | | | 4,479 | |
| |
|
| |
|
| |
| Net earnings | $ | 13,477 | | $ | 14,385 | |
| |
|
| |
|
| |
9
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
| | |
| 4. | Summary of Significant Accounting Policies |
The condensed consolidated balance sheet as of September 24, 2004 and the related condensed consolidated statements of operations and comprehensive income and of cash flows for the nine months ended September 24, 2004 and September 26, 2003, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items except for specific items discussed herein. Interim results are not necessarily indicative of results for a full year.
The condensed consolidated balance sheet as of December 26, 2003 has been derived from the 2003 audited consolidated financial statements. A summary of the Company’s significant accounting policies is presented below. There has been no material change in the accounting policies followed by the Company during 2004.
Principles of Consolidation —The condensed consolidated financial statements have been prepared based on accounting principles generally accepted in the United States of America and include the accounts of Foster Wheeler International Holdings, Inc. and all significant domestic and foreign subsidiary companies. All significant intercompany transactions and balances have been eliminated.
Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, and contingencies, among others.
Revenue Recognition on Long-term Contracts— Revenues and profits on 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 of $5,000 or greater. Progress towards completion of 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 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. In accordance with the accounting and disclosure requirements of the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”) and Accounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes,” the Company reviews its contracts monthly. As a result of this reevaluation process, in the first nine months of 2004 about 40 individual projects had final estimated profit revisions exceeding $500. These revisions resulted from events such as earning project incentive bonuses or the incurrence or forecasted incurrence of contractual liquidated damages for performance or schedule issues, executing services and purchasing third party materials and equipment at costs differing from previously estimated, and testing of completed facilities which in turn eliminates or incurs completion and warranty-related costs. The net aggregate dollar value of the accrued contract profit resulting from these estimate changes during the first nine months of 2004 amounted to a net increase of $45,600. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the totalloss 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 SOP 81-1. 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 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 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. As of September 24, 2004 and December 26, 2003, the Company had recorded commercial claims receivable of approximately $500 and $0, respectively.
10
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
Cash and Cash Equivalents —Cash and cash equivalents include liquid short-term investments purchased with original maturities of three months or less. The Company requires 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 of approximately $37,800 at September 24, 2004 consists of approximately $36,000 that was required to collateralize letters of credit and bank guarantees, and approximately $1,800 of client escrow funds.
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 might not be received within a one-year period. However, in conformity with industry practice the full amount of accounts receivable, including such amounts withheld, has been included in current assets.
Trade accounts receivable are continually evaluated in accordance with corporate policy. Provisions are established on a project specific basis when there is an issue associated with the client’s ability to make payments or there are circumstances where the client is not making payment due to contractual issues. Customer payment history, within the various markets served and general economic trends are also considered when evaluating the necessity of a provision.
Accounts and Notes Receivable Other —Non-trade accounts and notes receivable consist primarily of receivables from affiliated companies of $14,262 at September 24, 2004 and $18,658 at December 26, 2003, foreign refundable value-added tax and accrued interest receivable.
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.
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 due to lack of controlling financial interest. Investment ownership of less than 20% in affiliates is carried at cost.
Income Taxes —Income tax expense in the Company’s statements of operations has been calculated on a separate company basis for its subsidiaries that file tax returns in their foreign jurisdictions. 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.
Foreign Currency —Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at month-end exchange rates and income and expenses and cash flows at monthly weighted-average rates.
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 Statement of Financial Accounting Standard (“ SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities.” At September 24, 2004 and September 26, 2003, the Company did not meet the requirements for deferral of gains or losses on derivative instruments under SFAS No. 133 and recorded a net after-tax loss of approximately $0 for the nine months ended September 24, 2004 and recorded a net after-tax gain of approximately $652 for the nine months ended September 26, 2003.
11
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
Contracts in Process and Estimated Costs to Complete Long-term Contracts— In accordance with terms of long-term contracts, amounts recorded in contracts in process and estimated costs to complete long-term contracts may not be realized or paid, respectively, within a one-year period. In conformity with industry practice, however, the full amount of contracts in process and estimated costs to complete long-term contracts have been included in current assets and current liabilities, respectively.
Inventories— Inventories, principally materials and supplies, are stated at the lower of cost or market, determined primarily on the average-cost method.
Stock Option Plans—Foster Wheeler Ltd. has fixed option plans which reserve common shares for issuance to executives, key employees, and directors. Employees of the Company participate in these plans. Foster Wheeler Ltd. and the Company have adopted the disclosure-only provision of the SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock Based Compensation — Transition and Disclosure.” Foster Wheeler Ltd. and the Company continue to account for stock options granted to employees and directors using intrinsic value method under APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
| | Nine Months Ended | |
| |
| |
| | September 24, 2004 | | September 26, 2003 | |
| |
| |
| |
| Net earnings — as reported | $ | 49,119 | | $ | 14,385 | |
| Deduct: Total stock-based employee compensation | | | | | | |
| expense determined under fair value based method | | | | | | |
| for awards net of taxes of $0 | | — | | | — | |
| |
|
| |
|
| |
| Net earnings — pro forma | $ | 49,119 | | $ | 14,385 | |
| |
|
| |
|
| |
Recent Accounting Developments — In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) 46, “Consolidation of Variable Interest Entities.” This interpretation requires consolidation by business enterprises of variable interest entities which have one or both of the following characteristics:
| | • | The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interest that will absorb some or all of the expected losses of the entity; and |
| | | |
| | • | The equity investors lack one or more of the following essential characteristics of a controlling financial interest: a) the direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights; b) the obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities; and c) the right to receive expected residual returns of the entity if they occur, which is the compensation for the risk of absorbing the expected loss. |
FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. On October 9, 2003, the effective date of FIN 46 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003 was deferred until the end of the first interim or annual period ending after March 15, 2004.
The Company adopted the provisions of this interpretation in the first quarter of 2004. The adoption did not result in the consolidation of any previously unconsolidated variable interest entities.
In December 2003, the FASB issued SFAS No. 132R “Employers’ Disclosure about Pensions and Other Postretirement Benefits.” SFAS No. 132R requires the following disclosures: (1) the dates on which plan assets and obligations are measured, (2) segregation of the market values of plan assets into broad asset categories, (3) a narrative description of the investment policy of plan assets, (4) a narrative description for the basis for the development of the expected long-termrate of return of plan assets, (5) expected cash contributions to be made to the plans over the next fiscal year and (6) expected benefit payments for each of the next ten fiscal years. These changes are effective for fiscal years ending after December 15, 2003, with the exception of (1) expected benefit payments and (2) foreign plans which are delayed until fiscal years ending after June 15, 2004. SFAS No. 132R requires disclosure of two items in interim reports. These quarterly requirements are the disclosure of net benefit cost and contributions made during the fiscal year. The Company adopted the disclosure requirements of this standard, including the foreign plans.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges… .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005, though earlier application is permitted. The Company is currently assessing the applicability and impact of the adoption of this new Statement, if any.
12
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
| 5. | Changes in Shareholder’s Deficit |
Changes in Shareholder’s deficit for the nine months ended September 24, 2004 were as follows:
| | | | | | | | | | | | | | | | | | | |
| Capitalization | | | | Accumulated | | | | |
| of | | | | Other | | | Total | |
| Common | Intercompany | Paid-in | Retained | | | Comprehensive | | | Shareholder’s | |
| Stock | Notes | Capital | Earnings | | | Loss | | | Deficit | |
| |
| |
| |
| |
| |
| |
| |
| Balance at December 26, 2003 | $ | 1 | | $ | (65,151 | ) | $ | 4,703 | | $ | 94,407 | | $ | (188,537 | ) | $ | (154,577 | ) |
| Capitalization of intercompany | | | | | | | | | | | | | | | | | | |
| notes | | | | | (19,103 | ) | | | | | | | | | | | (19,103 | ) |
| Net earnings | | | | | | | | | | | 49,119 | | | | | | 49,119 | |
| Adjustment for Foster Wheeler | | | | | | | | | | | | | | | | | | |
| Energia S.A. (see Note 3) | | | | | | | | | | | 3,589 | | | | | | 3,589 | |
| Foreign currency translation | | | | | | | | | | | | | | | | | | |
| adjustment | | | | | | | | | | | | | | 1,901 | | | 1,901 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Balance at September 24, 2004 | $ | 1 | | $ | (84,254 | ) | $ | 4,703 | | $ | 147,115 | | $ | (186,636 | ) | $ | (119,071 | ) |
| |
|
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|
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|
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|
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|
| |
| | |
| 6. | Investments, Advances and Equity Interests |
The Company owns non-controlling equity interests in two energy projects and one waste-to-energy project; all are located in Italy. Two of the projects are each 42% owned while the third is 49% owned by the Company. Following is summarized financial information for the Company’s equity affiliates combined.
| | September 24, | | December 26, | |
| 2004 | 2003 |
|
| |
| | | | | | | |
| Balance Sheet Data: | | | | | | |
| Current assets | $ | 112,339 | | $ | 94,525 | |
| Other assets (primarily buildings and equipment) | | 381,091 | | | 409,267 | |
| Current liabilities | | 42,341 | | | 31,445 | |
| Other liabilities (primarily long-term debt) | | 349,987 | | | 385,047 | |
| |
|
| |
|
| |
| Net assets | $ | 101,102 | | $ | 87,300 | |
| |
|
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|
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13
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
| | Nine Months Ended |
|
| September 24, | | September 26, |
| 2004 | 2003 |
| |
| |
|
| Income Statement Data: | | | | | | |
| Total revenues | $ | | 176,463 | | $ | 148,382 |
| Gross earnings | | | 45,876 | | | 37,827 |
| Income before taxes | | | 32,575 | | | 18,416 |
| Net earnings | | | 19,586 | | | 12,394 |
For the nine months ended and as of September 24, 2004, the Company’s share of the net earnings and investment in the equity affiliates totaled $8,400 and $43,600, respectively. The Company has guaranteed certain performance obligations of such projects. The Company’s average contingent obligations under such guarantees for two of the projects are approximately $900 in total. The contingent obligation for the third project is capped at approximately $9,100 over the 12-year life of the project’s financing; to date, no amounts have been paid under this guarantee.
Additionally, at September 24, 2004 the Company holds investments in unconsolidated affiliates of approximately $56,000 carried at cost since the Company does not hold a controlling financial interest. The Company has made advances of approximately $28,700 to its third-party equity investees.
The difference between the statutory and effective tax rates for the nine months ended September 24, 2004 is primarily due to nontaxable income, nondeductible losses, changes in valuation allowance, differences in foreign tax rates, and Federal and State Alternative Minimum Tax. The difference between the statutory and effective tax rates for the nine months ended September 26, 2003 is primarily due to valuation reserves for nondeductible losses and differences in foreign tax rates. The effective tax rate for the nine month period ended September 24, 2004 and September 26, 2003 is 35.1 % and 23.7%, respectively. The variance is due to the impact of nontaxable income as well as the changes in the impact of the foreign tax rate differential on the mix of income and losses from various foreign jurisdictions in which its subsidiaries operate, and Federal and State Alternative Minimum Tax from the first nine months of 2003 to the first nine months of 2004
Components of net periodic pension cost for the nine months ended September 24, 2004 and September 26, 2003 are as follows:
| | Pension Benefits | |
|
| September 24, | | September 26, |
| 2004 | 2003 |
| |
| |
| |
| Service cost | $ | 13,453 | | $ | 9,453 | |
| Interest cost | | 23,547 | | | 20,284 | |
| Expected return on plan assets | | (24,148 | ) | | (17,787 | ) |
| Amortization of transition assets | | 56 | | | 52 | |
| Amortization of prior service cost | | 1,262 | | | 1,122 | |
| Recognized actuarial loss — other | | 13,480 | | | 15,003 | |
| |
|
| |
|
| |
| Total SFAS No. 87 net periodic pension cost | $ | 27,650 | | $ | 28,127 | |
| |
|
| |
|
| |
The Company expects to contribute $26,700 to its pension plans in the year 2004. As of September 24, 2004, $14,500 of that contribution has been made.
14
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
The Company provides for make good/warranty reserves on certain of its long-term contracts. Generally, thesereserves 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.
| | Nine Months Ended | |
| |
|
| | September 24, 2004 | | September 26, 2003 |
| |
| |
| |
| Balance beginning of period | $ | 45,600 | | $ | 25,600 | |
| Accruals | | 9,700 | | | 19,800 | |
| Settlements | | (9,700 | ) | | (1,800 | ) |
| Adjustments to provisions | | (11,700 | ) | | (1,100 | ) |
| |
|
| |
|
| |
| Balance end of period | $ | 33,900 | | $ | 42,500 | |
| |
|
| |
|
| |
| 10. | 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. Additionally, the Company evaluates its non-contract exposures and records accruals as necessary. 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.
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 estimates used by the Company become 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 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.
| 11. | Related Party Transactions |
The Company enters into long-term contracts as a subcontractor and/or performs subcontract work for certain Foster Wheeler affiliates. Included in the condensed consolidated statement of operations and comprehensive income for the nine months ended September 24, 2004 and September 26, 2003 related to these contracts and intercompany borrowings are the following:
| | Nine Months Ended | |
|
September 24,
2004 | | September 26,
2003 |
| |
| |
| |
| | | | | | | |
| Operating revenues | $ | 3,386 | | $ | 6,767 | |
| Cost of operating revenues | | 18,102 | | | 8,861 | |
| Interest income | | 3,467 | | | 3,290 | |
| Interest expense | | 3,152 | | | 2,472 | |
Costs incurred by Foster Wheeler Ltd. and certain of its affiliates on behalf of the Company are charged to the Company through a management fee. These fees represent management’s estimation of a reasonable allocation of the Company’s share of such costs. These costs, plus royalty fees, are included in costs and expenses and totaled $16,362 and $17,297 for the nine months ended September 24, 2004 and September 26, 2003, respectively.
15
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
Included in the condensed consolidated balance sheet at September 24, 2004 and December 26, 2003 related to long-term contract activity and intercompany borrowings with Foster Wheeler affiliates are the following:
| | September 24, | | | December 26, | |
| 2004 | 2003 |
| |
|
| |
| Accounts and notes receivable — other | $ | 14,262 | | $ | 18,658 | |
| Intercompany notes receivable | | 26,549 | | | 26,447 | |
| Accounts payable | | 24,964 | | | 49,439 | |
| Intercompany notes payable | | 136,624 | | | 139,174 | |
Intercompany notes payable includes $103,400 which bears interest at London Inter Bank Offer Rate (“LIBOR”) plus ..375% and $25,883 which bears interest at an annual rate of 2.0%. Also reflected in the condensed consolidated balance sheet, due to the uncertainty of collection based on the going concern issues addressed in Note 2, the Company reduced intercompany notes receivable and charged shareholder’s deficit for its notes receivable from U.S. affiliates. The change is reflected in Changes in Shareholder’s Deficit in Note 5 and the condensed consolidated statement of cash flows. The impact on shareholder’s deficit was a reduction of $84,254 and $65,151 at September 24, 2004 and December 26, 2003, respectively.
Additionally, at September 24, 2004 and December 26, 2003 the Company held investments in unconsolidated affiliates of approximately $56,000 and $51,500, respectively, at cost.
| 12. | Sale of Development Rights |
In the first nine months of 2004, the Company sold the development rights to certain power projects in Europe, and recorded an aggregate gain on the sales of $19,200 in other income on the condensed consolidated statement of operations and comprehensive income.
16
