UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-286-2
FOSTER WHEELER LTD.
----------------------------------
(Exact name of registrant as specified in its charter)
BERMUDA 22-3802649
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
PERRYVILLE CORPORATE PARK, CLINTON, NJ 08809-4000
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 730-4000
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date: 40,771,560 shares of the
Company's common shares ($1.00 par value) were outstanding as of June 29, 2001.
FOSTER WHEELER LTD.
INDEX
PART I Financial Information:
ITEM 1 - Financial Statements:
Condensed Consolidated Balance Sheet at June 29, 2001 and
December 29, 2000
Condensed Consolidated Statement of Earnings and
Comprehensive Income for the Three and Six Months Ended
June 29, 2001 and June 30, 2000
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 29, 2001 and June 30, 2000
Notes to Condensed Consolidated Financial Statements
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II Other Information:
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities and Use of Proceeds
ITEM 6 - Exhibits and Reports on Form 8-K
SIGNATURES
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
June 29, 2001 December 29,
(UNAUDITED) 2000
---------- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 135,549 $ 191,893
Short-term investments ................................................. 1,449 1,816
Accounts and notes receivable .......................................... 881,115 889,166
Contracts in process and inventories ................................... 497,104 464,329
Prepaid, deferred and refundable income taxes .......................... 52,934 50,316
Prepaid expenses ....................................................... 31,174 25,456
----------- -----------
Total current assets ............................................... 1,599,325 1,622,976
----------- -----------
Land, buildings and equipment ................................................ 845,688 865,349
Less accumulated depreciation ................................................ 376,114 370,315
----------- -----------
Net book value ..................................................... 469,574 495,034
----------- -----------
Notes and accounts receivable - long-term .................................... 72,174 76,238
Investment and advances ...................................................... 82,784 120,551
Intangible assets, net ....................................................... 279,496 288,135
Prepaid pension cost and benefits ............................................ 184,693 189,261
Other, including insurance recoveries ........................................ 606,696 588,474
Deferred income taxes ........................................................ 114,937 96,859
----------- -----------
TOTAL ASSETS ....................................................... $ 3,409,679 $ 3,477,528
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt ................................. $ 21,836 $ 19,876
Bank loans ............................................................. 21,268 103,479
Accounts payable and accrued expenses .................................. 603,229 708,515
Estimated costs to complete long-term contracts ........................ 500,240 521,277
Advance payments by customers .......................................... 62,256 62,602
Income taxes ........................................................... 51,079 38,854
----------- -----------
Total current liabilities .......................................... 1,259,908 1,454,603
Corporate and other debt less current installments ........................... 265,093 306,001
Special-purpose project debt less current installments ....................... 248,846 255,304
Deferred income taxes ........................................................ 15,321 15,334
Postretirement and other employee benefits other than pensions ............... 154,979 159,667
Other long-term liabilities and minority interest ............................ 628,809 637,190
Subordinated Robbins Facility exit funding obligations ....................... 110,340 110,340
Convertible subordinated notes ............................................... 210,000 --
Mandatorily redeemable preferred securities of subsidiary trust holding solely
junior subordinated deferrable interest
debentures ............................................................. 175,000 175,000
----------- -----------
TOTAL LIABILITIES ................................................. 3,068,296 3,113,439
----------- -----------
SHAREHOLDERS' EQUITY:
Common Shares................................................................. 40,772 40,748
Paid-in capital .............................................................. 201,390 200,963
Retained earnings ............................................................ 245,256 241,250
Accumulated other comprehensive loss ......................................... (146,035) (118,707)
----------- -----------
341,383 364,254
Less cost of treasury shares ................................................. -- 165
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ................................................... 341,383 364,089
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ....................................................... $ 3,409,679 $ 3,477,528
=========== ===========
See notes to condensed consolidated financial statements.
2
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Revenues:
Operating revenues ................ $ 826,882 $ 1,004,979 $ 1,509,525 $ 1,827,015
Other income ...................... 13,301 17,764 28,893 32,024
----------- ----------- ----------- -----------
Total revenues .................... 840,183 1,022,743 1,538,418 1,859,039
----------- ----------- ----------- -----------
Costs and expenses:
Cost of operating revenues ........ 742,461 923,123 1,350,146 1,664,681
Selling, general and adminis-
trative expenses .............. 59,644 54,940 111,041 109,041
Other deductions/minority interest 26,769 28,180 51,478 51,191
Dividend on preferred security
of subsidiary trust ........... 3,938 3,938 7,875 7,875
----------- ----------- ----------- -----------
Total costs and expenses .......... 832,812 1,010,181 1,520,540 1,832,788
----------- ----------- ----------- -----------
Earnings before income taxes .......... 7,371 12,562 17,878 26,251
Provisions for income taxes ........... 5,382 3,915 7,784 9,232
----------- ----------- ----------- -----------
Earnings before cumulative effect
of a change in accounting
principle for pension cost ........ 1,989 8,647 10,094 17,019
Cumulative effect on prior years
(To December 29, 2000) of a
change in accounting principle
for pension cost .................. -- -- (1,200) --
----------- ----------- ----------- -----------
Net earnings .......................... $ 1,989 $ 8,647 $ 8,894 $ 17,019
Other comprehensive loss:
Foreign currency translation
adjustment .................... (5,127) (2,248) (22,843) (14,363)
Change in unrealized losses on
derivative instruments ........ (4,440) -- (10,785) --
Cumulative effect on prior years
(To December 29, 2000) of a
change in accounting principle
for derivatives ............... -- -- 6,300 --
----------- ----------- ----------- -----------
Comprehensive (loss)/income ........... $ (7,578) $ 6,399 $ (18,434) $ 2,656
=========== =========== =========== ===========
3
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Earnings per share:
Basic and diluted:
Before cumulative effect of a
change in accounting principle for
pension cost ........................... $ 0.05 $ 0.21 $ 0.25 $ 0.42
Cumulative effect on prior years of a
change in accounting principle for
pension cost ...................... -- -- (0.03) --
---------- ---------- ---------- ----------
Earnings per share ..................... $ 0.05 $ 0.21 $ 0.22 $ 0.42
========== ========== ========== ==========
Cash dividends paid per share .......... $ 0.06 $ 0.06 $ 0.12 $ 0.12
========== ========== ========== ==========
Shares outstanding:
Basic: Weighted average number of
shares outstanding (In thousands) ..... 40,891 40,795 40,863 40,786
Diluted: Effect of share options .... 360 13 335 5
---------- ---------- ---------- ----------
Total Diluted ..................... 41,251 40,808 41,198 40,791
========== ========== ========== ==========
4
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
SIX MONTHS ENDED
-----------------
JUNE 29, 2001 JUNE 30, 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................ $ 8,894 $ 17,019
Adjustment to reconcile net earnings to cash flows from
operating activities:
Depreciation and amortization ............................... 27,823 29,659
Deferred tax ................................................ 505 2,443
Equity earnings, net of dividends ........................... (85) (3,534)
Other ....................................................... 6,187 (4,469)
Changes in assets and liabilities:
Receivables ................................................. (26,076) (13,597)
Contracts in process and inventories ........................ (36,402) (14,614)
Accounts payable and accrued expenses ....................... (82,072) (35,697)
Estimated costs to complete long-term contracts ............. (25,944) (64,832)
Advance payments by customers ............................... 3,044 15,047
Income taxes ................................................ (5,004) (17,890)
Other assets and liabilities ................................ (12,250) 18,868
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES ....................... (141,380) (71,597)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................................ (16,333) (29,688)
Proceeds from sale of properties ............................ 37,705 4,518
Decrease/(increase) in investments and advances ............. 9,178 (2,828)
Decrease in short-term investments .......................... 361 14,886
Partnership distributions ................................... (1,367) (2,599)
--------- ---------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES ............ 29,544 (15,711)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend to shareholders .................................... (4,888) (4,886)
Repurchase of common shares ................................. (37) (83)
Proceeds from exercise of stock option ...................... 627 --
Proceeds from convertible subordinated notes, net ........... 202,912 --
(Decrease)/increase in short-term debt ...................... (74,273) 67,058
Proceeds from long-term debt ................................ 78,271 8,474
Repayment of long-term debt ................................. (131,440) (22,266)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 71,172 48,297
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (15,680) (5,807)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS ....................... (56,344) (44,818)
Cash and cash equivalents at beginning of year .............. 191,893 170,268
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 135,549 $ 125,450
========= =========
Cash paid during period:
Interest (net of amount capitalized) ........................ $ 32,775 $ 31,603
--------- ---------
Income taxes ................................................ $ 10,230 $ 23,692
--------- ---------
See notes to condensed consolidated financial statements.
5
FOSTER WHEELER LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. The condensed consolidated balance sheet as of June 29, 2001, and the
related condensed consolidated statements of earnings and
comprehensive income and cash flows for the three and six month period
ended June 29, 2001 and June 30, 2000 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments only
consisted of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented in accordance with
the requirements of Form 10-Q and do not contain certain information
included in Foster Wheeler's Annual Report on Form 10-K for the fiscal
year ended December 29, 2000 filed with the Securities and Exchange
Commission on March 6, 2001, as amended by the Form 10-K/A ("2000 Form
10-K"), filed with the Securities and Exchange Commission on May 11,
2001. The Condensed Consolidated Balance Sheet as of December 29, 2000
has been derived from the audited Consolidated Balance Sheet included
in the 2000 Form 10-K. A summary of Foster Wheeler's significant
accounting policies is presented on pages 27, 28 and 29 in the 2000
Form 10-K. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the 2000 Form
10-K when reviewing interim financial results. There has been no
material change in the accounting policies followed by Foster Wheeler
Ltd. (hereinafter referred to as "Foster Wheeler" or the "Company")
during the six months of 2001, except for the adoption of Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as discussed in Note 8 and a
change in pension accounting which is discussed in Note 11.
2. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
period reported. Actual results could differ from those estimates.
Significant estimates are used when accounting for long-term contracts
including customer and vendor claims, depreciation, employee benefit
plans, taxes, and contingencies, among others. As of June 29, 2001 and
December 29, 2000, costs of approximately $175,000 were included in
assets, primarily in receivables and contracts in process,
representing amounts expected to be realized from claims to customers.
These claims have been recognized in accordance with the AICPA's
Statement of Position 81-1, "Accounting for Performance of
Construction - Type and Certain Production - Type Contracts". This
Statement requires that it be probable that the claim will result in
additional contract revenue and the amount can be reliably estimated.
Such claims are currently in various stages of negotiation,
arbitration and other legal proceedings. Accordingly, it is possible
that the amounts realized could differ materially from the balances
included in the financial statements. Management believes that these
matters will be resolved without a material effect on the Company's
financial position or results of operations.
3. The Company maintains a revolving credit agreement (the "Revolving
Credit Agreement") consisting of a $270,000 multi-year facility dated
December 1, 1999 that expires on February 12, 2003. In 2001, the
Company and the banks that are party to the Revolving Credit Agreement
consented to amend the agreement (the "Amendments") on two occasions.
The First Amendment provided for the following: (i) provisions
associated with the planned change of domicile to Bermuda, (ii)
provisions associated with the potential monetization, as previously
announced, of certain build, own and operated assets, and (iii) the
modification of certain financial covenants. The second Amendment
allows Foster Wheeler LLC to make payments to Foster Wheeler Ltd. in
amounts sufficient to pay amounts due on the notes. The Revolving
Credit Agreement was restated as of May 25, 2001 to reflect these
amendments. The Revolving Credit Agreement requires, among other
things, that the Company maintain a maximum consolidated leverage
ratio and a minimum consolidated fixed charge coverage ratio. The
Company was in compliance with the covenants under the Revolving
Credit Agreement as amended as of June 29, 2001.
6
Loans under the Revolving Credit Agreement bear interest at a floating
rate and are used for general corporate purposes. At June 29, 2001,
$37,500 was borrowed under the Revolving Credit Agreement. This amount
appears on the Consolidated Balance Sheet under the caption "Corporate
and Other Debt". The Company pays various fees to the lenders under
these agreements.
The Company is also permitted to allocate a portion of its available
credit under the Revolving Credit Agreement for the issuance of
standby letters of credit. Such amounts are not recorded as funded
indebtedness, and at June 29, 2001, $113,004 of such standby letters
of credit were outstanding.
In May and June 2001, the Company issued convertible subordinated
notes having an aggregate principal amount of $210,000. The notes are
due in 2007 and bear interest at 6.50% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing
December 2001. The notes may be converted into common shares at an
initial conversion rate of 62.3131 common shares per $1,000 principal
amount, or $16.05 per common share, subject to adjustment under
certain circumstances. The notes are subordinated in right of payment
to all existing and future senior indebtedness of the Company. The net
proceeds of approximately $202,900 were used to repay $76,300 under
the 364-day revolving credit facility, which expired on May 30, 2001
and to reduce advances outstanding under the Revolving Credit
Agreement. Debt issuance costs are a component of interest expense
over the term of the notes.
On January 13, 1999, FW Preferred Capital Trust I, a Delaware Business
Trust which is a 100% owned finance subsidiary of the Company, issued
$175,000 in Preferred Trust Securities. The Preferred Trust Securities
are fully and unconditionally guaranteed by Foster Wheeler, LLC. These
Preferred Trust Securities are entitled to receive cumulative cash
distributions at an annual rate of 9.0%. Distributions are paid
quarterly in arrears on April 15, July 15, October 15 and January 15
of each year. Such distributions may be deferred for periods up to
five years. The maturity date is January 15, 2029. Foster Wheeler can
redeem these Preferred Trust Securities on or after January 15, 2004.
4. In connection with the Robbins Agreement referred to in PART II, ITEM 1
- LEGAL PROCEEDINGS, Foster Wheeler agreed to fund, on a subordinated
basis, the following:
(a) 1999C Bonds 7 1/4% interest, installments due
October 15, 2009 ($16,560) and
October 15, 2024 ($77,155) $ 93,715
(b) 1999D Bonds accrued at 7% due October 15, 2009 18,000
--------
Total $111,715
========
1999C BONDS. The 1999C Bonds are subject to mandatory sinking fund
reduction prior to maturity at a Redemption Price equal to 100% of the
principal amount thereof, plus accrued interest to the redemption date.
5. At June 29, 2001, a total of 4,224,301 shares of common share were
reserved for issuance under various share option plans; of this total,
560,180 were not under option.
7
6. Basic per share data has been computed based on the weighted average
number of shares of common shares outstanding. Diluted per share data
has been computed based on the basic plus the dilution of share
options. The shares relating to the convertible notes offering were
not included in the computation due to their antidilutive effect. In
1999, the Company adopted The Directors Deferred Compensation and
Share Award Plan (the "Plan"). Under the Plan, each non-management
director is credited annually with share units of the Company's common
shares. In addition, each non-management director may elect to defer
receipt of compensation for services rendered as a director, which
deferred amount is credited to his or her account in the form of share
units. The Company makes a supplemental contribution equal to 15% of
the deferred amount. For the six months ended June 29, 2001, 19,753
share units were credited in participants' accounts. As of June 29,
2001, 108,028 share units were credited in participants' accounts and
are included in the calculation of basic earnings per share.
7. Interest income and cost for the following periods are:
THREE MONTHS ENDED SIX MONTHS ENDED
----------------- ---------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2001 2000 2001 2000
-------- --------- --------- ---------
Interest Income $ 2,834 $ 3,025 $ 6,272 $ 5,775
======== ======== ========= ========
Interest Cost $ 19,557 $ 21,018 $ 40,452 $ 41,904
======== ======== ========= ========
Included in the interest cost is interest capitalized on
self-constructed assets, for the three and six months ended June 29,
2001 of $185 and $315, respectively, compared to the $1,508 and $2,983
for the same periods in 2000. Included in interest cost are dividends
on Preferred Trust Securities which for the three and six months ended
June 29, 2001 and June 30, 2000, amounted to $3,938 and $7,875,
respectively.
8. Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an amendment
of FASB Statement No. 133", and Statement of SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities", an
amendment of FASB Statement No. 133. These statements require that all
derivative instruments be reported on the balance sheet at fair value.
The Company operates on a worldwide basis. The Company's activities
expose it to risks related to the effect of changes in the
foreign-currency exchange rates. The Company maintains a
foreign-currency risk-management strategy that uses derivative
instruments to protect its interests from unanticipated fluctuations
in earnings and cash flows that may arise from volatility in currency
exchange rates. These items have been designated as cash flow hedges.
The Company does not engage in currency speculation. The Company's
forward exchange contracts do not subject the Company to significant
risk from exchange rate movement because gains and losses on such
contracts offset losses and gains, respectively, in the transactions
being hedged. The Company is exposed to credit loss in the event of
non-performance by the counter-parties. All of these counter-parties
are significant financial institutions that are primarily rated A or
better by Standard & Poor's or A2 or better by Moody's. The amount of
unrealized gains owed to the Company by counter-parties at June 29,
2001 is $13,938 and is included in Contracts in process and
inventories. The amount of unrealized losses owed by the Company to
the counter-parties at June 29, 2001 is $20,837 and is included in
Estimated costs to complete long-term contracts. A $4,485 net of tax
loss was recorded in Other comprehensive income as of June 29, 2001.
8
The Company formally documents its hedge relationships at inception,
including identification of the hedging instruments and the hedged
items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. The Company also formally assesses
both at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly effective
in offsetting changes in the fair value of the hedged items. Changes
in the fair value of these derivatives are recorded in other
comprehensive income until earnings are affected by the recognition of
the foreign exchange gains and losses associated with the hedged
forecasted transaction. Such amounts, if they occur, will be included
in operating revenues or cost of operating revenues. Any hedge amount
by which the changes in fair value of the derivative exceed the
recognition of the foreign exchange gains and losses associated with
the hedged forecasted transactions, is recorded in current period
earnings as other income or other deductions. There were no amounts
excluded from the assessment of hedge effectiveness and there was no
hedge ineffectiveness for the six months ended June 29, 2001. No
amounts were reclassified to earnings during the first six months in
connection with forecasted transactions that are no longer considered
probable of occurring.
The Company recorded a $6,300 net of tax cumulative-effect adjustment
in the comprehensive income relating to fair value of hedging
instruments as of December 30, 2000 (The first day of the new fiscal
year). As of June 29, 2001, $4,835 of deferred net losses on
derivative instruments accumulated in other comprehensive income are
expected to be reclassified as earnings during the next twelve months
based upon the realization of the forecasted cash flows of the
transactions. As of December 29, 2000, $5,045 of deferred net gains on
derivative instruments accumulated in other comprehensive income was
expected to be reclassified as earnings during the next twelve months
based upon the recognition of the foreign exchange gains and losses
associated with the hedged forecasted transactions. The maximum term
over which the Company is hedging exposure to the variability of cash
flows is thirty six months.
A reconciliation of current period changes, net of applicable income
taxes, in accumulated other comprehensive income relating to
derivatives qualifying as cash flow hedges are as follows:
Transition adjustment as of December 30, 2000 $ 6,300
Current period declines in fair value (8,830)
Reclassifications to earnings (1,955)
-------
Balance at June 29, 2001 $(4,485)
=======
9. In the third quarter 1998, a subsidiary of the Company entered into a
three-year agreement with a financial institution whereby the
subsidiary would sell an undivided interest in a designated pool of
qualified accounts receivable. The agreement contains certain
covenants and provides for various events of termination. At June 29,
2001 and December 29, 2000, $50,000 in receivables were sold under the
agreement and are therefore not reflected in the accounts receivable -
trade balance in the Condensed Consolidated Balance Sheet.
10. On April 23, 2001, the Company's shareholders approved the
reorganization that resulted in the shareholders owning shares of a
Bermuda company, Foster Wheeler Ltd. The reorganization became
effective May 25, 2001.
11. Effective December 30, 2000 (the first day of the new fiscal year),
the Company changed its method for calculating the market-related
value of plan assets used in determining the return-on-asset component
of annual pension expense. This change was made in consideration of a
significant shift in the plans investment portfolio which was made in
the later part of 1999. The change in the mix of investments from
primarily fixed income to primarily equity securities triggered a
reevaluation of the method by which the movement in fair value is
recognized. The new market related value method spreads gains and
losses in the fair value of securities over a three year period. This
method is widely used in practice and tempers somewhat the volatility
inherent in the new portfolio mix.
9
The change resulted in a cumulative effect adjustment of $1.8 million
($1.2 million net of tax, or $.03 per share) which has been reflected
as of the first day of fiscal 2001.
12. In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141, which requires all business
combinations to be accounted for under the purchase method of
accounting, is effective for business combinations initiated after
June 30, 2001. Under the new rules of SFAS No. 142, goodwill will no
longer be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue
to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Accordingly, the
Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The Company
has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
13. 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's subsidiaries by customers
alleging deficiencies in either equipment design or plant
construction. Based on its knowledge of the facts and circumstances
surrounding such claims and of its insurance coverage for such claims,
if any, management of the Company believes that the disposition of
such suits will not result in charges against assets or earnings
materially in excess of amounts previously provided for in the
accounts.
Subsidiaries of the Company, along with many other companies, are
codefendants in numerous lawsuits pending in the United States.
Plaintiffs claim damages for personal injury alleged to have arisen
from exposure to or use of asbestos in connection with work performed
by the Company's subsidiaries during the 1970s and prior. As of June
29, 2001, there were approximately 103,400 claims pending. During the
second quarter of 2001, approximately 11,100 new claims have been
filed and approximately 10,500 were either settled or dismissed
without payment. The amount spent on asbestos litigation defense and
case resolution, substantially all of which was reimbursed or will be
reimbursed from insurance coverage was $19.5 million in the second
quarter of 2001.
Subsidiaries of the Company continue to actively manage the claims and
to negotiate with certain insurance carriers concerning the limits of
coverage provided during different time periods. An agreement the
Company's subsidiaries have had with a number of insurers to allow for
efficient and thorough handling of claims was terminated by one of the
participant insurers with respect to claims filed after June 12, 2001.
As a result in the first quarter of 2001, lawsuits commenced between
the Company's subsidiaries and certain of the insurers to determine
the respective rights and responsibilities under the policies going
forward. The Company's subsidiaries are currently in negotiations with
the insurers, and the Company's subsidiaries believe that they will
enter into a similar replacement arrangement to govern the management
of, and allocation of payments on, asbestos related claims filed after
June 12, 2001. The Company anticipates that the existing insurance
policies are adequate whether or not the Company's subsidiaries can
agree on a new arrangement. Although the expiration of the previous
arrangement may delay the ability of the subsidiaries of the Company
to get reimbursed on a timely basis by the insurers for claims filed
after June 12, 2001, the Company's and its subsidiaries' policies will
continue to cover asbestos related claims brought against the Company
and its subsidiaries after June 12, 2001 and it is anticipated that
the subsidiaries of the Company can continue to manage the resolution
of such claims without a material adverse impact on the Company's
financial condition.
10
The Company's subsidiaries have recorded an asset relating to probable
insurance recoveries and a liability related to probable losses. The
Company's subsidiaries ability to continue to recover their costs or
any portion thereof relating to the defense and payment of these
claims is uncertain and dependent on a number of factors including the
financial solvency of the insurers, some of which are currently
insolvent, including one insurer that has provided policies for a
substantial amount of coverage. The Company cannot predict the amount
or timing of claims that would be submitted to such insolvent
insurers. The Company's management after consultation with counsel,
has considered the litigation with the insurers described above, and
the financial viability and legal obligations of the insurance
carriers and believes that except for those insurers that have become
or may become insolvent, the insurers or their guarantors should
continue to adequately fund claims and defense costs relating to
asbestos litigation.
The subsidiaries of the Company have been effective in managing the
asbestos litigation in part because (1) the Company has access to
historical project documents and other business records going back
more than 50 years, allowing the Company and its subsidiaries 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 the subsidiaries' presence; (2) the Company's
subsidiaries maintain detailed records on their insurance policies and
have identified policies issued since 1952, and (3) the Company's
subsidiaries have consistently and vigorously defended these claims
which have allowed the Company's subsidiaries to dismiss claims that
are without merit or to settle claims at amounts that are considered
reasonable.
On November 30, 1999, the United States District Court for the
Northern District of Texas handed down a final judgement in the case
of KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC., ET AL.
Glitsch, Inc. (now known as Tray, Inc.) is an indirect subsidiary of
the Company. This lawsuit, which claimed damages for patent
infringement and trade secret misappropriations, has been pending for
over 17 years. The judgement awarded compensatory damages of $20,900
plus pre-judgement interest in an amount yet to be calculated by the
Court and punitive damages equal to 50% of compensatory damages, or
approximately $10,500. While the Court has not finally determined the
amount of pre-judgement interest, it has preliminarily ruled that
pre-judgement interest on actual patent infringement damages will be
based on an annualized 90-day Treasury bill rate calculation. The
Court also ruled that post-judgement interest will be paid at a rate
of 5.471% on all actual damages from November 30, 1999 until paid. If
the Court adopts the plaintiff's pre-judgement interest calculations,
the award of pre-judgement interest could amount to approximately
$14,800 with respect to the patent infringement damages and
approximately $8,200 for the trade secret misappropriation. Tray, Inc.
has various motions for relief from the judgement which are presently
pending before the trial court. Tray, Inc. believes it has reasonable
grounds to appeal the judgement as it has been advised by counsel that
the Court's decision contains numerous legal and factual errors
subject to reversal on appeal. While Tray, Inc. believes it has
reasonable grounds to prevail on appeal, the ultimate outcome cannot
be determined.
11
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and
regulations. The immediate effect was to eliminate the guaranteed
supply of municipal solid waste to the Camden County waste-to-energy
project. As a result, tipping fees have been reduced to market rate in
order to provide a steady supply of fuel to the plant. Those
market-based revenues are not expected to be sufficient to service the
debt on outstanding bonds, which were issued to construct the plant
and to acquire a landfill for Camden County's use. The debt, although
reflected in the consolidated financial statements of the Company, has
been issued by the Pollution Control Financing Authority of Camden
County. This debt is collateralized by a pledge of certain revenues
and assets of the project but not the plant. A subsidiary of the
Company has an obligation to fund the debt to the extent the project
generates a positive cash flow. The subsidiary has filed suit against
the involved parties, including the State of New Jersey, seeking,
among other things, to void the applicable contracts and agreements
governing this project. Pending final outcome of the litigation and
results of legislative initiatives in New Jersey to resolve the issues
relating to the debt obligations associated with the project,
management believes that the plant will continue to operate at full
capacity while receiving market rates for waste disposal. However, at
the same time, management cannot determine the ultimate effect of
these events on the project.
In 1996, subsidiaries of the Company completed the construction of a
recycling and waste-to-energy project located in the Village of
Robbins, Illinois (the "Robbins Facility"). By virtue of the Robbins
Facility qualifying under the Illinois Retail Rate Law as a qualified
solid waste-to-energy facility, it was to receive electricity revenues
projected to be substantially higher than the utility's "avoided
cost". Under the Retail Rate Law, the utility was entitled to a tax
credit against a state tax on utility gross receipts and invested
capital. The State of Illinois (the "State") was to be reimbursed by
the Robbins Facility for the tax credit beginning after the 20th year
following the initial sale of electricity to the utility. The State
repealed the Retail Rate Law insofar as it applied to the Robbins
Facility. In October 1999, a subsidiary of the Company reached an
agreement (the "Robbins Agreement") with the holders of bonds issued
by the Village of Robbins to finance the construction of the Robbins
Facility (the "Bondholders"). As part of the Robbins Agreement, the
subsidiary agreed to continue to contest this repeal through
litigation. Pursuant to the Robbins Agreement, the subsidiary has also
agreed that any proceeds of such litigation will be allocated in the
following order of priority: (1) to redeem all of the outstanding
1999D Bonds, (2) to reimburse the subsidiary for any amounts paid by
it in respect of the 1999D Bonds (together with interest on the
foregoing amounts at a rate of 10.6% per annum) and (3) to reimburse
the subsidiary for any costs incurred by it in connection with
prosecuting the Retail Rate litigation (together with interest on the
foregoing amounts at a rate of 10.6% per annum). Then, to the extent
there are further proceeds, an amount equal to the amount distributed
pursuant to the preceding clause (2) shall fund payments in respect of
the Non-Recourse Robbins Bonds. Thereafter, 80% of any further
proceeds shall fund payments on the Non-Recourse Robbins Bonds until
an amount sufficient to repay such Bonds in full has been paid over,
with the remaining 20% being paid over to the subsidiary. After the
foregoing payments shall have been made, any remaining proceeds shall
be paid over to the subsidiary.
On December 1, 1999, three special purpose subsidiaries of the Company
commenced reorganization proceedings under Chapter 11 of the U.S.
Bankruptcy Code in order to effectuate the terms of the Robbins
Agreement. On January 21, 2000, these subsidiaries' plan of
reorganization was confirmed, and the plan was consummated on February
3, 2000.
On August 8, 2000, the subsidiaries of the Company initiated the final phase of
their exit from the Robbins Facility. As part of the Robbins Agreement, the
subsidiaries had agreed to operate the Robbins Facility for the benefit of the
bondholders for no more than 2 years or earlier if a buyer could be found for
the plant, subject to being reimbursed for all costs of operation. Such
reimbursement did not occur and, therefore, under the Robbins Agreement, the
subsidiaries on October 10, 2000, completed the final phase of their exit from
the project. The Company had been administering the project companies through a
Delaware business trust, which owns the project on behalf of the bondholders. As
a result of its exit from the project, the Company is no longer administering
the project companies. A subsidiary of the Company has reached an agreement in
principle with the debtor project companies and the requisite holders of the
bonds, which would favorably resolve issues related to the exit from the
project.
12
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws, the current owner
or operator of real property and the past owners or operators of real
property (if disposal took place during such past ownership or
operation) may be jointly and severally liable for the costs of
removal or remediation of toxic or hazardous substances on or under
their property, regardless of whether such materials were released in
violation of law or whether the owner or operator knew of, or was
responsible for, the presence of such substances. Moreover, under
CERCLA and similar state laws, persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be jointly and
severally liable for the costs of the removal or remediation of such
substances at a disposal or treatment site, whether or not such site
was owned or operated by such person ("off-site facility"). Liability
at such off-site facilities is typically allocated among all of the
viable responsible parties based on such factors as the relative
amount of waste contributed to a site, toxicity of such waste,
relationship of the waste contributed by a party to the remedy chosen
for the site, and other factors.
Subsidiaries of the Company currently own and operate industrial
facilities and have also transferred their interests in industrial
facilities that they formerly owned or operated. It is likely that as
a result of its current or former operations, such facilities have
been impacted by hazardous substances. The Company and its
subsidiaries are not aware of any conditions at their currently owned
facilities in the United States that they expect will cause the
Company to incur significant costs.
The Company and its subsidiaries are aware of potential environmental
liabilities at facilities that they acquired in 1995 in Europe, but
the subsidiaries have the benefit of an indemnity from the seller with
respect to any required remediation or other environmental violations
that they believe will address the costs of any such remediation or
other required environmental measures. The Company and its
subsidiaries also may receive claims, pursuant to indemnity
obligations from owners of recently sold facilities that may require
the Company and its subsidiaries to incur costs for investigation
and/or remediation. Based on the available information, the Company
and its subsidiaries do not believe that such costs will be material.
No assurance can be provided that the Company will not discover
environmental conditions at its currently owned or operated
properties, or that additional claims will not be made with respect to
formerly owned properties, requiring the Company and its subsidiaries
to incur material expenditures to investigate and/or remediate such
conditions.
Subsidiaries of the Company had been notified that they were
potentially responsible parties ("PRP") under CERCLA or similar state
laws at three off-site facilities, excluding sites as to which the
subsidiaries have resolved their liability. At each of these sites,
the subsidiaries' liability should be substantially less than the
total site remediation costs because the percentage of waste
attributable to the subsidiary compared to that attributable to all
other PRPs is low. The subsidiaries do not believe that their share of
cleanup obligations at any of the three off-site facilities as to
which they have received a notice of potential liability will
individually exceed $1 million.
Several of the Company's former subsidiaries associated with the
Robbins Facility received a Complaint for Injunction and Civil
Penalties from the State of Illinois, dated April 28, 1998 (amended in
July 1998) alleging primarily state air violations at the Robbins
Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS,
INC., filed in Circuit Court of Cook County, Illinois, County
Department, Chancery Division). The United States Environmental
Protection Agency commenced a related enforcement action at
approximately the same time. (EPA-5-98-IL-12 and EPA-5-98-IL-13).
Although the complaint seeks substantial civil penalties for numerous
violations of up to $50.0 for each violation, with an additional
penalty of $10.0 for each day of each violation, the maximum allowed
under the statute, and an injunction against continuing violations,
the relevant subsidiaries have reached a staff-level agreement in
principle with the state on a Consent Decree that will resolve all
violations. The subsidiaries liability, if any, is not expected to be
material.
13
Subsidiaries of the Company have brought various project claims
against customers for amounts in excess of the agreed contract price
or amounts not included in the original contract price. These involve
claims by the subsidiaries for additional costs arising from changes
in the initial scope of work or from customer caused delays. The costs
associated with these changes or customer caused delays include
additional direct costs, such as increased labor or material costs as
a result of the additional work, and also costs that are imposed by
virtue of the delays in the project.
The ultimate legal and financial liability in respect to all claims,
lawsuits and proceedings cannot be estimated with certainty. As
additional information concerning the estimates used 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, which are subject to change as events evolve and as
additional information becomes available during the administration and
litigation process.
14
14. Changes in equity for the six months ended June 29, 2001 were as
follows:
ACCUMULATED
OTHER TOTAL
COMMON SHARES PAID-IN RETAINED COMPREHENSIVE TREASURY SHARES SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT EQUITY
------ ------ ------- -------- ---- ------ ------ ------
Balance December 29, 2000 40,747,668 $ 40,748 $ 200,963 $ 241,250 $ (118,707) (24,616) $ (165) $ 364,089
Net earnings 8,894 8,894
Dividends paid - common (4,888) (4,888)
Purchase of treasury share (3,000) (37) (37)
Foreign currency translation
adjustment (22,843) (22,843)
Cumulative effect on prior
years (to December 29,
2000) of change in
accounting principle for
derivatives 6,300 6,300
Current period declines in
fair value (8,830) (8,830)
Reclassification to earnings (1,955) (1,955)
Share option exercise price
and par value 66,000 66 561 627
Shares issued under incentive
plan and other plans 6 3,008 20 26
Bermuda reorganization (42,108) (42) (140) - - 24,608 182 -
----------- ---------- ---------- --------- ----------- ------- ------ ----------
Balance June 29, 2001 40,771,560 $ 40,772 $ 201,390 $ 245,256 $ (146,035) 0 $ 0 $ 341,383
========== ========== ========= ========= =========== ======= ====== ==========
15
15. Major Business Groups
Six Months Ended
JUNE 29, 2001 JUNE 30, 2000
------------- -------------
ENGINEERING AND CONSTRUCTION
Revenues $ 1,009,291 $ 1,409,031
Gross earnings from operations 90,874 96,242
Interest expense 1,414 3,341
Earnings before income taxes 39,114 45,466
ENERGY EQUIPMENT
Revenues $ 552,035 $ 483,540
Gross earnings from operations 67,765 65,047
Interest expense 12,080 16,768
Earnings before income taxes 17,782 18,598
CORPORATE AND FINANCIAL SERVICES(1)
Revenues $ (22,908) $ (33,532)
Gross earnings from operations 740 1,045
Interest expense(2) 26,643 18,812
Loss before income taxes (39,018) (37,813)
TOTAL
Revenues $ 1,538,418 $ 1,859,039
Gross earnings from operations 159,379 162,334
Interest expense (2) 40,137 38,921
Earnings before income taxes 17,878 26,251
Provision for income taxes 7,784 9,232
----------- -----------
Earnings before cumulative effect of a change in accounting
principle for pension cost 10,094 17,019
Cumulative effect on prior years (to December 29, 2000) of
a change in accounting principle for pension cost (1,200) --
----------- -----------
Net earnings $ 8,894 $ 17,019
=========== ===========
<FN>
(1) Includes intersegment eliminations.
(2) Includes dividends on Preferred Trust Securities.
</FN>
16
16. Consolidating Financial Information
The following represents summarized consolidating financial
information as of June 29, 2001 and December 29, 2000, with respect to
the financial position, and for the six months ended June 29, 2001,
and June 30, 2000 for results of operations and cash flows of the
Company and its wholly-owned and majority-owned subsidiaries. As a
result of the reorganization described in Note 10, on May 25, 2001
Foster Wheeler LLC, as successor to Foster Wheeler Corporation, became
obligor for the Company's 6 3/4% notes due November 15, 2005 (the
"Notes"). Foster Wheeler USA Corporation, Foster Wheeler Energy
Corporation, Foster Wheeler Energy International, Inc., Foster Wheeler
International Holdings, Inc., Foster Wheeler Ltd., Foreign Holdings
Ltd., and Foster Wheeler Inc. issued guarantees in favor of the
holders of the Notes or otherwise assumed the obligations under the
indenture governing the Notes. Each of the guarantees is full and
unconditional and joint and several. In May 2001, the Company issued
6.5% Convertible Subordinated Notes (Convertible Notes) due in 2007,
more fully described in Note 3. The Convertible Notes are fully and
unconditionally guaranteed by Foster Wheeler LLC. The summarized
consolidating financial information is presented in lieu of separate
financial statements and other related disclosures of the wholly-owned
subsidiary guarantors, because management does not believe that such
separate financial statements and related disclosures would be
material to investors. None of the subsidiary guarantors are
restricted from making distributions to the Company.
The comparative statements for December 29, 2000, with respect to the
financial position, and the results of operations and cash flows for
the six months ended June 30, 2000 reflect the financial information
of the Company prior to the reorganization that occurred on May 25,
2001. It is management's belief that due to the nature of the
reorganization, a restatement of the prior financial statements would
not be meaningful.
CONDENSED CONSOLIDATING BALANCE SHEET
(In Thousands of Dollars)
June 29, 2001
FOSTER WHEELER FOSTER WHEELER GUARANTOR
ASSETS LTD. LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---- --- ------------ ------------ ------------
Current assets ........................... $ 48 $ 74,703 $ 1,596,728 $ (72,154) $ 1,599,325
Investment in subsidiaries ............... 343,884 515,327 -- (859,211) --
Land, buildings & equipment (net) ........ -- -- 469,574 -- 469,574
Notes and accounts receivable - long-term -- 405,000 72,174 (405,000) 72,174
Intangible assets (net) .................. -- -- 279,496 -- 279,496
Other non-current assets ................. -- 21,291 967,819 -- 989,110
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS ............................. $ 343,932 $ 1,016,321 $ 3,385,791 $(1,336,365) $ 3,409,679
=========== =========== =========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities ...................... $ 2,549 $ 6,347 $ 1,323,166 $ (72,154) $ 1,259,908
Long-term debt ........................... -- 237,500 276,439 -- 513,939
Other non-current liabilities ............ -- -- 1,204,109 (405,000) 799,109
Subordinated Robbins obligations ......... -- -- 110,340 -- 110,340
Convertible subordinated notes ........... -- 210,000 -- -- 210,000
Preferred trust securities ............... -- 175,000 -- -- 175,000
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES ........................ 2,549 628,847 2,914,054 (477,154) 3,068,296
TOTAL SHAREHOLDERS'
EQUITY ............................... 341,383 387,474 471,737 (859,211) 341,383
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .................. $ 343,932 $ 1,016,321 $ 3,385,791 $(1,336,365) $ 3,409,679
=========== =========== =========== =========== ===========
17
CONDENSED CONSOLIDATING BALANCE SHEET
(In Thousands of Dollars)
December 29, 2000
Guarantor Non-Guarantor
ASSETS FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --- ------------ ------------ ------------ ------------
Current assets .............................. $ 391,560 $ 497,486 $ 1,571,314 $ (837,384) $ 1,622,976
Investment in subsidiaries .................. 918,582 317,663 139,008 (1,375,253) --
Land, buildings & equipment (net) ........... 46,621 26,455 428,080 (6,122) 495,034
Notes and accounts receivable - long-term ... 48,203 5,245 330,867 (308,077) 76,238
Intangible assets (net) ..................... -- 85,977 202,158 -- 288,135
Other non-current assets .................... 754,246 5,735 193,070 42,094 995,145
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS ................................ $ 2,159,212 $ 938,561 $ 2,864,497 $(2,484,742) $ 3,477,528
=========== =========== =========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities ......................... $ 543,360 $ 470,835 $ 1,277,792 $ (837,384) $ 1,454,603
Long-term debt .............................. 309,190 -- 389,173 (137,058) 561,305
Other non-current liabilities ............... 657,233 9,081 263,435 (117,558) 812,191
Subordinated Robbins Obligations ............ 110,340 -- -- -- 110,340
Preferred trust securities .................. 175,000 -- 175,000 (175,000) 175,000
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES ........................... 1,795,123 479,916 2,105,400 (1,267,000) 3,113,439
TOTAL STOCKHOLDERS'
EQUITY .................................. 364,089 458,645 759,097 (1,217,742) 364,089
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ..................... $ 2,159,212 $ 938,561 $ 2,864,497 $(2,484,742) $ 3,477,528
=========== =========== =========== =========== ===========
18
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
(In Thousands of Dollars)
Six Months Ended June 29, 2001
Foster Wheeler Foster Wheeler Guarantor
LTD. LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------ ------------
Operating revenues .................... $ 1,509,525 -- $ 1,509,525
Other income .......................... -- 241,012 20,271 (232,390) 28,893
----------- ----------- ----------- ----------- -----------
Revenues .............................. -- 241,012 1,529,796 (232,390) 1,538,418
Cost of operating revenues ............ -- -- 1,350,146 -- 1,350,146
Selling, general and administrative,
expenses ............................ -- 7,895 103,146 -- 111,041
Other deductions and minority
interests ........................... 66 29,326 33,415 (3,454) 59,353
Equity in net earnings of subsidiaries 8,937 29,260 -- (38,197) --
----------- ----------- ----------- ----------- -----------
Earnings/ (loss) before income taxes .. 8,871 233,051 43,089 (267,133) 17,878
(Benefit)/provision for income taxes .. (23) (8,284) 16,091 -- 7,784
----------- ----------- ----------- ----------- -----------
Earnings before cumulative effect of a
change in accounting principle for
pension cost ........................ 8,894 241,335 26,998 (267,133) 10,094
Cumulative effect on prior years of a
change in accounting principle for
pension cost ........................ -- -- (1,200) -- (1,200)
----------- ----------- ----------- ----------- -----------
Net earnings .......................... 8,894 241,335 25,798 (267,133) 8,894
Other comprehensive loss:
Foreign currency translation
adjustment ....................... (22,843) -- (27,496) 27,496 (22,843)
Net loss on derivative instruments .. -- -- (4,485) -- (4,485)
----------- ----------- ----------- ----------- -----------
Comprehensive (loss)/earnings ......... $ (13,949) $ 241,335 $ (6,183) $ (239,637) $ (18,434)
=========== =========== =========== =========== ===========
19
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS DATA
(In Thousands of Dollars)
Six Months Ended June 30, 2000
FOSTER WHEELER GUARANTOR NON-GUARANTOR
CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
Operating revenues .................... $ -- $ 615,940 $ 1,373,099 $ (162,024) $ 1,827,015
Other income .......................... 10,553 1,157 47,370 (27,056) 32,024
----------- ----------- ----------- ----------- -----------
Revenues .............................. 10,553 617,097 1,420,469 (189,080) 1,859,039
Cost of operating revenues ............ -- 579,956 1,246,749 (162,024) 1,664,681
Selling, general and administrative,
expenses ............................ 9,513 24,032 75,496 -- 109,041
Other deductions and minority
interests ........................... 39,394 1,899 44,829 (27,056) 59,066
Equity in net earnings of subsidiaries 42,524 5,615 -- (48,139) --
----------- ----------- ----------- ----------- -----------
Earnings/ (loss) before income taxes .. 4,170 16,825 53,395 (48,139) 26,251
(Benefit)/provision for income taxes .. (12,849) 4,569 17,512 -- 9,232
----------- ----------- ----------- ----------- -----------
Net earnings .......................... 17,019 12,256 35,883 (48,139) 17,019
Other comprehensive loss:
Foreign currency translation
adjustment ....................... (14,363) (5,978) (11,296) 17,274 (14,363)
----------- ----------- ----------- ----------- -----------
Comprehensive earnings ................ $ 2,656 $ 6,278 $ 24,587 $ (30,865) $ 2,656
=========== =========== =========== =========== ===========
20
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA
(In Thousands of Dollars)
Six Months Ended June 29, 2001
FOSTER WHEELER FOSTER WHEELER GUARANTOR
LTD. LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash (used)/provided by
Operating Activities ............... $ 2,446 $(150,302) $ 6,476 $ -- $(141,380)
--------- --------- --------- ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................. -- (2,346) (13,987) -- (16,333)
Proceeds from sale of properties ...... -- -- 37,705 -- 37,705
Decrease in investment and advances ... -- -- 9,178 -- 9,178
Decrease in short-term investments .... -- -- 361 -- 361
Other ................................. -- -- (1,367) -- (1,367)
--------- --------- --------- ------------- ---------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES ............... -- (2,346) 31,890 -- 29,544
--------- --------- --------- ------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Shareholders ............. (2,446) (2,442) -- -- (4,888)
Decrease in short-term debt ........... -- -- (74,273) -- (74,273)
Proceeds from convertible bonds, net .. -- 202,912 -- -- 202,912
Proceeds from long-term debt .......... -- 78,250 21 -- 78,271
Repayment of long-term debt ........... -- (126,662) (4,778) -- (131,440)
Other ................................. -- 590 -- -- 590
--------- --------- --------- ------------- ---------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES ............... (2,446) 152,648 (79,030) -- 71,172
--------- --------- --------- ------------- ---------
Effect of exchange rate changes on
cash and cash equivalents .......... -- -- (15,680) -- (15,680)
Decrease in cash and cash equivalents . -- -- (56,344) -- (56,344)
Cash and cash equivalents, beginning of
year ............................... -- -- 191,893 -- 191,893
--------- --------- --------- ------------- ---------
Cash and cash equivalents, end of
period ............................. $ -- $ -- $ 135,549 $ -- $ 135,549
========= ========= ========= ============= =========
21
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW DATA
(In Thousands of Dollars)
Six Months Ended June 30, 2000
Foster Wheeler Guarantor Non-Guarantor
CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
NET CASH PROVIDED/(USED) BY
OPERATING ACTIVITIES.............. $ (28,632) $ 35,944 $ (24,172) $ (54,737) $ (71,597)
----------- -------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures.................. (4,800) (24,888) (29,688)
Proceeds from sale of properties. 4,518 4,518
(Increase)/decrease in investment and
advances............................. (20,705) 9,697 8,180 (2,828)
Decrease in short-term
investments........................ 52 14,834 14,886
Other 1,446 (4,045) (2,599)
----------- -------- ----------- ----------- -----------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES............... (20,653) (3,354) 116 8,180 (15,711)
---------- -------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES.........................
Dividends to Stockholders......... (4,886) (101,365) 101,365 (4,886)
Increase in short-term debt 59,000 8,058 67,058
Proceeds from long-term debt 8,474 8,474
Repayment of long-term debt (16,000) (6,266) (22,266)
Other (3,221) (34,387) 92,333 (54,808) (83)
------------ -------- ----------- ----------- -----------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES.............. 34,893 (34,387) 1,234 46,557 48,297
----------- -------- ----------- ----------- -----------
Effect of exchange rate changes on
cash and cash equivalents.... (5,807) (5,807)
(Decrease)/increase in cash and cash
equivalents..................... (14,392) (1,797) (28,629) (44,818)
Cash and cash equivalents, beginning
of year.......................... 16,262 3,080 150,926 170,268
----------- -------- ----------- ----------- -----------
Cash and cash equivalents, end of
period............................. $ 1,870 $ 1,283 $ 122,297 $ $ 125,450
=========== ======== =========== =========== ===========
22
17. The Company owns a non-controlling equity interest in three
cogeneration and one waste-to-energy projects; three of which are
located in Italy and one in Chile. Following is summarized financial
information for the Company's equity affiliates combined, as well as
the Company's interest in the affiliates.
JUNE 29, DECEMBER 29,
2001 2000
-------- ------------
BALANCE SHEET DATA:
Current assets ............................... $ 90,452 $146,277
Other assets (primarily buildings
and equipment) .......................... 514,175 603,665
Current liabilities .......................... 30,284 48,604
Other liabilities (primarily long-
term debt) .............................. 460,576 529,182
Net assets ................................... 113,767 172,156
INCOME STATEMENT DATA FOR SIX MONTHS:
JUNE 29, DECEMBER 29,
2001 2000
-------- ----------
Total revenues ............................... $105,985 $113,690
Income before income taxes ................... 18,205 29,118
Net earnings ................................. 13,054 19,564
As of June 29, 2001, the Company's share of the net earnings and
investment in the equity affiliates totaled $7,821 and $82,784,
respectively. Dividends of $8,093 were received during the first six
months of 2001. The Company has guaranteed certain performance
obligations of such projects. The Company's obligations under such
guarantees are approximately $2,000 per year for the four projects.
The Company has provided a $10,000 debt service reserve letter of
credit providing liquidity for debt service payments. No amount has
been drawn under the letter of credit.
In April 2001, the Company completed the sale of its interest in two
hydrogen production plants in South America. The net proceeds from
these transactions was approximately $40.0 million. An after tax loss
of $5.0 million, or approximately $.12 per share, was recorded in the
second quarter relating to these sales.
18. The difference between the statutory and effective tax rate is
predominately due to state and local taxes, certain tax credits, the
tax treatment relating to sale of two hydrogen production plants in
South America and the favorable settlement of a contested foreign tax
liability.
23
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
The following is Management's Discussion and Analysis of certain significant
factors that have affected the financial condition and results of operations of
the Company for the periods indicated below. This discussion and analysis should
be read in conjunction with the 2000 Form 10-K.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 29, 2001 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 2000
CONSOLIDATED DATA
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Backlog ................ $ 6,332.6 $ 6,366.1 $ 6,332.6 $ 6,366.1
========== ========== ========== ==========
New orders ............. $ 1,162.8 $ 1,239.0 $ 2,113.3 $ 2,430.9
========== ========== ========== ==========
Revenues ............... $ 840.2 $ 1,022.7 $ 1,538.4 $ 1,859.0
========== ========== ========== ==========
Net earnings ........... $ 2.0 $ 8.6 $ 8.9 $ 17.0
========== ========== ========== ==========
The Company's consolidated backlog at June 29, 2001 totaled $6.3 billion, a
decline of less than 1% from the second quarter of 2000, and an increase of 3%
from fiscal year end 2000. As of June 29, 2001, 44%, or $2.8 billion of unfilled
orders was from lump-sum work and 56%, or $3.5 billion, of unfilled orders was
from cost-reimbursable work.
The elapsed time for 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 which 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. This adjustment for the six
months ended June 29, 2001 was $193.0, compared with $106.8 for the six months
ended June 30, 2000. Furthermore, because of the large size and uncertain timing
of projects, future trends are difficult to predict.
New orders awarded for the three and six months ended June 29, 2001 were
$1,162.8 and $2,113.3 compared to $1,239.0 and $2,430.9 for the same period
ended June 30, 2000. This decrease in both the three and six months relate to
lower activity in the Engineering and Construction Group due to delays in the
receipt of certain expected orders as well as a change in the mix of business
with more of the contracts requiring engineering services only, resulting in a
comparatively lower level of pass-through costs. Approximately 40% of new orders
booked in the six months ended June 29, 2001 were for projects awarded to the
Company's subsidiaries located outside the United States. This compares to 65%
for the six month period ended June 30, 2000. Key countries and geographic areas
contributing to new orders awarded for the six months ended June 29, 2001 were
the United States, Europe and Asia.
24
Operating revenues decreased 18% in the three months ended June 29, 2001
compared to the three months ended June 30, 2000, to $826.9 from $1,005.0. The
most recent six-month period reflects a 17% decrease in operating revenues to
$1,509.5 from $1,827.0 during the first six months of 2000. This reduction is
due to lower activity in the Engineering and Construction Group caused by delays
in some expected orders as well as lower pass-through costs on contracts.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues decreased by approximately $2.9, or 2%, in the six months
ended June 29, 2001 as compared with the six months ended June 30, 2000 from
$162.3 to $159.4. However, the gross earnings percentage at June 29, 2001 was
10.6% versus 8.9% as of June 30, 2000. Gross earnings for the three months ended
June 29, 2001 increased by $2.5 or 3% as compared to the three months ended June
30, 2000. This increase relates to higher gross margins in the Energy Equipment
Group relating to higher gross revenues.
Selling, general and administrative expenses increased by $2.0 or 1.8% in the
six months ended June 29, 2001 as compared with the same period in 2000 from
$109.0 to $111.0. These expenses increased by $4.7, or 8.6% in the second
quarter ending June 29, 2001 compared to the same period in 2000. The increase
relates primarily to expenses accrued for the retirement of Richard J. Swift,
Chairman, President and Chief Executive Officer of the Company.
Other income in the six months ended June 29, 2001 as compared to June 30, 2000
decreased to $28.9 from $32.0. For the three month period ending June 29, 2001,
other income decreased by $4.5, or 25% compared to the same period in 2000. The
decrease was due primarily to a reduction in equity income of unconsolidated
subsidiaries.
Other deductions for the six months ended June 29, 2001 were $0.3 higher than
that reported in the six months ended June 30, 2000. The increase is due to the
loss on sale of the Company's interest in two hydrogen plants in South America
($5.0); higher interest expenses due to increased borrowings ($1.2) and the 2000
amount included a provision for a legal settlement ($6.0). Other deductions for
the three month period ending June 29, 2001 decreased by $1.4, or 5% compared to
the same period in 2000. The decrease primarily relates to the loss on sale of
two hydrogen plants offset by the provision for a legal settlement in 2000.
Net earnings before the cumulative effect of a change in accounting principle
for the six months ended June 29, 2001 were $10.1 or $.25 per share diluted
compared to a net earnings of $17.0 or $.42 per share diluted for the six months
ended June 30, 2000. The net earnings for the three months ended June 29, 2001
were $2.0, or $.05 per share diluted compared to $8.6, or $.21 per share diluted
for the three months ended June 30, 2000. The primary reasons for the decline
relates to the following special charges: 1) loss of $5.0 ($.12 per share) on
the sale of the Company's interest in two hydrogen plants in South America; and
2) expense of $1.6 ($.04 per share) relating to the retirement of the Company's
Chief Executive Officer.
Net earnings for the six months ended June 29, 2001 were $8.9 or $.22 per share
which reflects a charge of $1.2 or $.03 per share for the cumulative effect of a
change in accounting principle relating to the method for calculating the market
related value of plan assets used in determining the return-on-assets component
of annual pension expense.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Backlog $ 4,410.4 $4,836.4 $ 4,410.4 $4,836.4
========= ======== ========= ========
New orders $ 635.1 $ 892.3 $ 1,212.1 $1,659.2
========= ========= ========= ========
Operating revenues $ 529.6 $ 783.2 $ 995.5 $1,391.4
========= ========= ========= ========
Gross earnings from operations $ 49.8 $ 49.8 $ 90.9 $ 96.2
========= ========= ========= ========
25
The Engineering and Construction Group ("E&C Group"), had a backlog of $4,410.4
at June 29, 2001, a decline of 9% from the first half of 2000 and a decline of
3% from December 29, 2000. Of this amount, 84% or $3,724.1, was from cost
reimbursable work and the remaining 16% or $686.3 was from lump-sum work.
New orders booked for the six-month period ending June 29, 2001 decreased by 27%
compared with the six-month period ended June 30, 2000. New orders for the three
months ended June 29, 2001 decreased by 29% compared to the same period for
2000.
The reasons that new orders and backlog decreased from the previous year and the
first quarter of 2001 are 1) a change in the mix of contracts which require more
engineering service costs and less flow-through cost, which has the effect of
lowering the contract price; 2) delays in receiving certain expected orders and
3) being more selective in bidding work.
Operating revenues for the six-month period ended June 29, 2001 decreased 28%
compared to the six-month period ended June 30, 2000. Gross earnings from
operations decreased by 5.5% for the six month period ended June 29, 2001
compared with the corresponding period ended June 30, 2000. However, the gross
earnings from operations margin increased from 6.9% to 9.1%. For the three month
period ended June 29, 2001 the operating revenues decreased by 32.3% while the
gross earnings remained the same compared to the same period for 2000. The
primary reason for the decrease in revenues and corresponding gross earnings
from operations is lower new orders as described above. The increase in gross
margin percentage is primarily because of selectivity in work being bid and the
reduction in flow-through cost.
ENERGY EQUIPMENT GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
-------------- -------------- -------------- -------------
Backlog $ 2,023.9 $ 1,642.6 $ 2,023.9 $ 1,642.6
============== ============== ============== ==========
New orders $ 525.8 $ 351.5 $ 904.7 $ 777.0
============== ============== ============== ==========
Operating revenues $ 304.8 $ 244.7 $ 535.1 $ 469.1
============== ============== ============== ==========
Gross earnings from operations $ 34.2 $ 31.5 $ 67.8 $ 65.0
============== ============== ============== ==========
The Energy Equipment Group had a backlog of $2,023.9 at June 29, 2001, which
represented a 23% increase from June 30, 2000 and a 17% increase from year end.
Approximately 90% of the unfilled orders were from lump sum work with the
remaining 10% representing cost-reimbursable work. Approximately 15% of the
Energy Equipment Group's backlog as of June 29, 2001 represents orders from
Asia. These orders, which are supported by financing agreements, guaranteed by
the United States and Finland, are for large utility size boilers. New orders
booked for the six-month period ended June 29, 2001 increased by 16% from
corresponding period in 2000. For the three month period ending June 29, 2001
new orders increased by 50% from the same period in 2000. This increase in new
orders and the corresponding increase in backlog was primarily due to orders for
heat recovery steam generators and selective catalytic reduction units for power
generating plants as well as a major order for Circulating Fluidized Bed boilers
in Estonia.
Operating revenues for the six months ended June 29, 2001 increased by 14% from
the same period for 2000. Gross earnings from operations increased 4% for the
six-month period ending June 29, 2001 versus the same period ending June 30,
2000. The operating revenues for the three months ended June 29, 2001 increased
by 25% from the corresponding period in 2000. These increases are the result of
increased bookings in previous quarters.
26
As previously disclosed, the Company has reviewed various methods of monetizing
selected Power System facilities. Based on current economic conditions,
management concluded that it would continue to operate the facilities in the
normal course of business. Management has reviewed these facilities for
impairment on an undiscounted cash flow basis and determined that no adjustment
to the carrying amounts is required. However, if conditions were to change,
monetization might again become a viable option. It is possible that the amounts
realized could differ materially from the balances in the financial statements.
FINANCIAL CONDITION
Shareholders' equity for the six months ended June 29, 2001 decreased by $22.7
due primarily to changes in the foreign currency translation adjustment of
$22.8, dividends paid of $4.9, and changes in unrealized losses on derivative
instruments of $4.5 offset by net earnings of $8.9.
During the six months ended June 29, 2001, long-term investments in land,
buildings and equipment were $16.3 as compared with $29.7 for the comparable
period in 2000.
Corporate and other debt, special purpose project debt, convertible subordinated
notes and bank loans net of cash and short-term investments increased by $139.1
since December 29, 2000, as a result of a slow payment by certain customers,
unfavorable terms on certain contracts, increased utilization of working capital
and favorable settlement of a third party contract which required payment of
funds.
The corporate and other debts, including the revolving credit agreements, are as
follows:
JUNE 29, DECEMBER 29,
--------- -----------
2001 2000
---- ----
Corporate and other debt consisted of the following:
Revolving Credit Agreement (average interest
Rate 7.65%) ................................. $ 37.5 $ 85.0
6.75% Notes due November 15, 2005 ............... 200.0 200.0
6.5% Convertible subordinated notes due 2007 .... 210.0 0
Other ........................................... 27.9 $ 21.2
-------- --------
Less, Current portion ............................... .3 .2
-------- --------
$ 475.1 $ 306.0
======== --------
Principal payments are payable in annual installments of:
2002 ................................................ $ 20.6
2003 ................................................ 85.2
2004 ................................................ .1
2005 ................................................ 200.0
2006 ................................................ .1
------
$306.0
In the third quarter of 1998, a subsidiary of the Company entered into a
three year agreement with a financial institution whereby the subsidiary
would sell an undivided interest in a designated pool of qualified accounts
receivable. The agreement contains certain covenants and provides for various
events of termination. At June 29, 2001 and December 29, 2000, $50.0 in
receivables were sold under the agreement and are therefore not reflected in
the accounts receivable - trade in the Consolidated Balance Sheet.
27
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $135.5 at June 29, 2001, a decrease of
$56.3 from fiscal year end 2000. Short-term investments decreased by $0.4 to
$1.4. During the first half of fiscal 2001, the Company paid $4.9 in
dividends to shareholders. Cash used by operating activities for working
capital needs amounted to $141.4 of which $131.2 was utilized by the
Engineering and Construction Group, $18.4 was utilized by the Corporate and
Financial Services Group and $8.3 was provided by the Energy Equipment Group.
The Company's working capital varies from period to period depending on the
mix, stage of completion and commercial terms and conditions of the Company's
contracts. Working capital needs have increased during the past several years
because of the need to give customers more favorable payment terms under
contracts to compete successfully for certain projects. Those requests
generally include lower advance payments and less favorable payment
schedules. In the future, the working capital needs will increase as unfilled
orders continue to grow. It is expected that these less favorable payment
terms, together with customer delays in payment and the growth in business,
will continue to put pressure on the short-term borrowing needs of the
Company.
Management of the Company believes that cash and cash equivalents of $135.5
and short-term investments of $1.4 at June 29, 2001, when combined with
amounts available under its Revolving Credit Agreement and access to
third-party financing in the capital markets will be adequate to meet its
working capital and liquidity needs for the foreseeable future. During the
second quarter of 1998, the Company filed a Registration Statement on Form
S-3 relating to $300.0 of debt, equity, and other securities, $175.0 of which
has been issued as of June 29, 2001.
In May and June 2001, the Company issued convertible subordinated notes
having an aggregate principal amount of $210,000. The notes are due in 2007
and bear interest at 6.5% per annum, payable semi-annually on June 1 and
December 1 of each year. The notes may be converted into common shares at an
initial conversion rate of 62.3131 common shares per $1,000 principal amount
or $16.05 per common share, subject to adjustment under certain
circumstances.
The Company's liquidity has been negatively impacted by a number of claims
relating to projects that have been affected by substantial scope of work
changes and other adverse factors. The net exposure associated with these
claims, which have accumulated over a period of time, approximate $175.0 at
June 29, 2001. While the future collections of these claims will increase
cash inflows, the timing of collection of such claims is subject to
uncertainty of recoverability as described in Note 2 to the financial
statements.
In April 2001, the Company completed the sale of its interest in two hydrogen
production plants in South America. The net proceeds from these transactions
was approximately $40.0. An after tax loss of $5.0, or approximately $.12 per
share, was recorded in the second quarter relating to these sales.
On July 31, 2001, the Company announced that the board of directors decided
to discontinue payment of the dividend on common share.
The Company is reviewing various methods to monetize certain assets in order
to concentrate on reducing both corporate and project debt and improving cash
flows.
28
CORPORATE REORGANIZATION
On November 28, 2000, the Company's board of directors approved a
reorganization that effectively resulted in the Company becoming a Bermuda
Company. On April 23, 2001, the Company's shareholders approved the
reorganization. The Company believes that a significant portion of its
business is, and will be, generated from non-U.S. markets. This
reorganization provides financial and other business advantages that are not
available under the previous corporate structure. By aligning the structure
with the business operations, it should promote operational efficiencies,
including improvements in global cash management. The reorganization should
provide a more favorable corporate and regulatory structure for expansion of
current and future business opportunities. The reorganization may also
facilitate access to financing sources outside of the United States and
broaden the investor base by making the share more attractive to non-U.S.
investors. In addition, the reorganization should provide greater flexibility
over the long-term in seeking to improve the worldwide effective tax rate.
The reorganization became effective on May 25, 2001.
Pursuant to the plan of reorganization, Foster Wheeler Company shareholders
received the equivalent number of shares in the newly formed company, Foster
Wheeler Ltd., organized in Bermuda. The shares will be listed on the New York
Share Exchange under "FWC", the same symbol under which the Company's common
shares are currently listed.
OTHER MATTERS
On April 2, 2001, the Company announced the retirement by the end of the year
of Richard J. Swift, its Chairman, President and Chief Executive Officer. As
a result of this retirement, the Company incurred an after tax charge of
approximately $1.6, or $.04 per share, which was recorded in the second
quarter.
The ultimate legal and financial liability in respect to all claims, lawsuits
and proceedings cannot be estimated with certainty, including the liability
with respect to asbestos litigation and project-related claims. Significant
increases in the number of claims, the costs to resolve those claims or
uncertainties in the ability of subsidiaries of the Company to continue to
recover from the insurance carriers any part of our expenses relating to the
defense of such claims, could have a material adverse effect on the business,
results of operations and financial condition. In addition, if the amounts
recovered are less than the assets reflected on the balance sheet with
respect to project claims against project owners for amounts in excess of, or
not included in, the contract price or with respect to claims against the
Company by customers alleging deficiencies in either equipment or
construction, there will be a negative impact on the earnings and financial
condition.
As additional information concerning the estimates becomes known, the Company
reassess its position both with respect to contingencies and accrued
liabilities and other potential exposures. Estimates that are particularly
sensitive to future change relate to legal matters, which are subject to
change as events evolve and as additional information becomes available
during the administration and litigation process.
29
ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(MILLIONS 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. Management
believes that the geographical diversity of the Company's operations
mitigates the effects of the currency translation exposure. No significant
unhedged assets or liabilities are maintained outside the 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 Revolving Credit
Agreement`s and its variable rate project debt. If market rates average 1%
more in 2001 than in 2000, the Company's interest expenses for the next
twelve months would increase, and income before tax would decrease by
approximately $1.7. This amount has been determined by considering the impact
of the hypothetical interest rates on the Company's variable-rate balances as
of June 29, 2001. In the event of a significant change in interest rates,
management may take action to further mitigate its exposure to change.
However, due to uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
Foreign Currency Risk - The Company has significant overseas operations.
Generally, all significant activities of the overseas affiliates are recorded
in their functional currency, which is generally the currency of the country
domicile of the affiliate. This results in a mitigation of the potential
impact on earnings in the functional currency 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 contracts to hedge the exposed contract value
back to their functional currency. As of June 29, 2001, the Company had
approximately $394.3 of foreign exchange contracts outstanding. These
contracts mature between 2001 and 2004. Approximately 17.4% of these
contracts require a domestic subsidiary to sell Japanese yen and receive U.S.
dollars. The remaining 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.
SAFE HARBOR STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Form 10-Q contain forward-looking
statements that are based on management's assumptions, expectations and
projections about the various industries within which the Company operates.
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 following, could cause business conditions and results to
differ materially from what is contained in forward-looking statements:
30
-- 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 regulatory environment,
-- changes in project schedules,
-- changes in trade, monetary and fiscal policies worldwide,
-- currency fluctuations,
-- 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 and
-- increasing competition by foreign and domestic companies.
Other factors and assumptions not identified above were also involved
in the derivation 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 addition 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 to the Securities and Exchange Commission.
31
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The ultimate legal and financial liability in respect to all claims, lawsuits
and proceedings cannot be estimated certainty. As additional information
concerning the estimates becomes known, the Company's position is reassessed
both with respect to gain contingencies and accrued liabilities and other
potential exposures. Estimates that are particularly sensitive to future change
related to legal matters, which are subject to change as events evolve and as
additional information becomes available during the administration and
litigation process.
Subsidiaries of the Company, along with many other companies, are codefendants
in numerous lawsuits pending in the United States. Plaintiffs claim damages for
personal injury alleged to have arisen from exposure to or use of asbestos in
connection with work performed by the Company's subsidiaries during the 1970s
and prior. As of June 29, 2001, there were approximately 103,400 claims pending.
During the second quarter of 2001, approximately 11,100 new claims have been
filed and approximately 10,500 were either settled or dismissed without payment.
The amount spent on asbestos litigation defense and case resolution,
substantially all of which was reimbursed or will be reimbursed from insurance
coverage was $19.5 million in the second quarter of 2001.
Subsidiaries of the Company continue to actively manage the claims and to
negotiate with certain insurance carriers concerning the limits of coverage
provided during different time periods. An agreement the Company's subsidiaries
have had with a number of insurers to allow for efficient and thorough handling
of claims was terminated by one of the participant insurers with respect to
claims filed after June 12, 2001. As a result in the first quarter of 2001,
lawsuits commenced between the Company's subsidiaries and certain of the
insurers to determine the respective rights and responsibilities under the
policies going forward. The Company's subsidiaries are currently in negotiations
with the insurers, and the Company's subsidiaries believe that they will enter
into a similar replacement arrangement to govern the management of, and
allocation of payments on, asbestos related claims filed after June 12, 2001.
The Company anticipates that the existing insurance policies are adequate
whether or not the Company's subsidiaries can agree on a new arrangement.
Although the expiration of the previous arrangement may delay the ability of the
subsidiaries of the Company to get reimbursed on a timely basis by the insurers
for claims filed after June 12, 2001, the Company and its subsidiaries policies
will continue to cover asbestos related claims brought against the Company and
its subsidiaries after June 12, 2001 and it is anticipated that the
subsidiaries of the Company can continue to manage the resolution of such claims
without a material adverse impact on the Company's financial condition.
The Company's subsidiaries have recorded an asset relating to probable insurance
recoveries and a liability related to probable losses. The Company's
subsidiaries ability to continue to recover their costs or any portion thereof
relating to the defense and payment of these claims is uncertain and dependent
on a number of factors including the financial solvency of the insurers, some of
which are currently insolvent, including one insurer that has provided policies
for a substantial amount of coverage. The Company cannot predict the amount or
timing of claims that would be submitted to such insolvent insurers. The
Company's management after consultation with counsel, has considered the
litigation with the insurers described above, and the financial viability and
legal obligations of the insurance carriers and believe that except for those
insurers that have become or may become insolvent, the insurers or their
guarantors should continue to adequately fund claims and defense costs relating
to asbestos litigation.
32
The subsidiaries of the Company have been effective in managing the asbestos
litigation in part because (1) the Company has access to historical project
documents and other business records going back more than 50 years, allowing the
Company and its subsidiaries 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 the subsidiaries' presence; (2) the Company's
subsidiaries maintain detailed records on their insurance policies and have
identified policies issued since 1952, and (3) the Company's subsidiaries have
consistently and vigorously defended these claims which has allowed the
Company's subsidiaries to dismiss claims that are without merit or to settle
claims at amounts that are considered reasonable.
On November 30, 1999, the United States District Court for the Northern District
of Texas handed down a final judgment in the case of KOCH ENGINEERING COMPANY,
INC. ET AL VS. GLITSCH, INC., ET AL. Glitsch, Inc. (now known as Tray, Inc.) is
an indirect subsidiary of the Company. This lawsuit, which claimed damages for
patent infringement and trade secret misappropriations, has been pending for
over 17 years. The judgement awarded compensatory damages of $20.9 million plus
pre-judgement interest in an amount yet to be calculated by the Court and
punitive damages equal to 50% of compensatory damages, or approximately $10.5
million. While the Court has not finally determined the amount of pre-judgement
interest, it has preliminarily ruled that pre-judgement interest on actual
patent infringement damages will be based on an annualized 90-day Treasury bill
rate calculation. The Court also ruled that post-judgement interest will be paid
at a rate of 5.471% on all actual damages from November 30, 1999 until paid. If
the Court adopts the plaintiff's pre-judgement interest calculations, the award
of pre-judgement interest could amount to approximately $14.8 million with
respect to the patent infringement damages and approximately $8.2 million for
the trade secret misappropriation. Tray, Inc. has various motions for relief
from the judgement which are presently pending before the trial court. Tray,
Inc. believes it has reasonable grounds to appeal the judgement as it has been
advised by counsel that the Court's decision contains numerous legal and factual
errors subject to reversal on appeal. While Tray, Inc. believes it has
reasonable grounds to prevail on appeal, the ultimate outcome cannot be
determined.
In 1997, based on a 1994 United States Supreme Court decision, a federal circuit
court effectively invalidated New Jersey's long-standing municipal solid waste
flow rules and regulations. The immediate effect was to eliminate the guaranteed
supply of municipal solid waste to the Camden County Waste-to-Energy Project
with its corresponding tipping fee revenue. As a result, tipping fees have been
reduced to market rate in order to provide a steady supply of fuel to the plant.
Those market-based revenues are not expected to be sufficient to service the
debt on outstanding bonds, which were issued to construct the plant and to
acquire a landfill for Camden County's use. The debt, although reflected in the
consolidated financial statements of the Company, has been issued by the
Pollution Control Financing Authority of Camden County. This debt is
collateralized by a pledge of certain revenues and assets of the project but not
the plant. A subsidiary of the company has an obligation to fund the debt to the
extent the project generates a positive cash flow. The subsidiary has filed suit
against the involved parties, including the State of New Jersey, seeking, among
other things, to void the applicable contracts and agreements governing this
project. Pending final outcome of the litigation and results of legislative
initiatives in New Jersey to resolve this crisis, management believes that the
plant will continue to operate at full capacity while receiving market rates for
waste disposal. At the same time, management cannot determine the ultimate
effect of these events on the project.
33
In 1996, the subsidiaries of the Company completed the construction of a
recycling and waste-to-energy project located in the Village of Robbins,
Illinois (the "Robbins Facility"). By virtue of the Robbins Facility qualifying
under the Illinois Retail Rate Law as a qualified solid waste-to-energy
facility, it was to receive electricity revenues projected to be substantially
higher than the utility's "avoided cost". Under the Retail Rate Law, the utility
was entitled to a tax credit against a state tax on utility gross receipts and
invested capital. The State of Illinois (the "State") was to be reimbursed by
the Robbins Facility for the tax credit beginning after the 20th year following
the initial sale of electricity to the utility. The State repealed the Retail
Rate Law insofar as it applied to the Robbins Facility. In October 1999,
subsidiaries of the Company reached an agreement (the "Robbins Agreement") with
the holders of bonds issued by the Village of Robbins to finance the
construction of the Robbins Facility (the "Bondholders"). As part of the Robbins
Agreement, the subsidiaries agreed to continue to contest this repeal through
litigation. Pursuant to the Robbins Agreement, the subsidiaries have also agreed
that any proceeds of such litigation will be allocated in the following order of
priority: (1) to redeem all of the outstanding 1999D Bonds, (2) to reimburse the
subsidiaries for any amounts paid by it in respect of the 1999D Bonds (together
with interest on the foregoing amounts at a rate of 10.6% per annum) and (3) to
reimburse the subsidiaries for any costs incurred by it in connection with
prosecuting the Retail Rate litigation (together with interest on the foregoing
amounts at a rate of 10.6% per annum). Then, to the extent there are further
proceeds, an amount equal to the amount distributed pursuant to the preceding
clause (2) shall fund payments in respect of the Non-Recourse Robbins Bonds.
Thereafter, 80% of any further proceeds shall fund payments on the Non-Recourse
Robbins Bonds until an amount sufficient to repay such Bonds in full has been
paid over, with the remaining 20% being paid over to the subsidiaries. After the
foregoing payments shall have been made, any remaining proceeds shall be paid
over to the subsidiaries.
On December 1, 1999, three special purpose subsidiaries of the Company commenced
reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in order
to effectuate the terms of the Robbins Agreement. On January 21, 2000, these
subsidiaries' plan of reorganization was confirmed, and the plan was consummated
on February 3, 2000.
On August 8, 2000, the subsidiaries of the Company initiated the final phase of
its exit from the Robbins Facility. As part of the Robbins Agreement, the
subsidiaries of the Company had agreed to operate the Robbins Facility for the
benefit of the bondholders for no more than 2 years or earlier if a buyer could
be found for the plant, subject to being reimbursed for all costs of operation.
Such reimbursement did not occur and, therefore, under the Robbins Agreement,
the subsidiaries of the Company on October 10, 2000, completed the final phase
of their exit from the project. The Company had been administering the project
companies through a Delaware business trust, which owns the project on behalf of
the bondholders. As a result of its exit from the project, the Company is no
longer administering the project companies. A subsidiary of the Company has
reached an agreement in principle with the debtor project Companies and the
requisite holders of the bonds which would favorably resolve issues related to
the exit from the project.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and similar state laws, the current owner or operator
of real property and the past owners or operators of real property (if disposal
took place during such past ownership or operation) may be jointly and severally
liable for the costs of removal or remediation of toxic or hazardous substances
on or under their property, regardless of whether such materials were released
in violation of law or whether the owner or operator knew of, or was responsible
for, the presence of such substances. Moreover, under CERCLA and similar state
laws, persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be jointly and severally liable for the costs of the removal
or remediation of such substances at a disposal or treatment site, whether or
not such site was owned or operated by such person ("off-site facility").
Liability at such off-site facilities is typically allocated among all of the
viable responsible parties based on such factors as the relative amount of waste
contributed to a site, toxicity of such waste, relationship of the waste
contributed by a party to the remedy chosen for the site, and other factors.
Subsidiaries of the Company currently own and operate industrial facilities and
have also transferred their interests in industrial facilities that they
formerly owned or operated. It is likely that as a result of its current or
former operations, such facilities have been impacted by hazardous substances.
The Company and its subsidiaries are not aware of any conditions at their
currently owned facilities in the United States that they expect will cause the
Company to incur significant costs.
34
The Company and its subsidiaries are aware of potential environmental
liabilities at facilities that they acquired in 1995 in Europe, but the
subsidiaries have the benefit of an indemnity from the seller with respect to
any required remediation or other environmental violations that it believes will
address the costs of any such remediation or other required environmental
measures. The Company and its subsidiaries also may receive claims, pursuant to
indemnity obligations from owners of recently sold facilities that may require
the Company and its subsidiaries to incur costs for investigation and/or
remediation. Based on the available information, the Company does not believe
that such costs will be material. No assurance can be provided that the Company
and its subsidiaries will not discover environmental conditions at its currently
owned or operated properties, or that additional claims will not be made with
respect to formerly owned properties, requiring the Company and its subsidiaries
to incur material expenditures to investigate and/or remediate such conditions.
Subsidiaries of the Company have been notified that they were a potentially
responsible parties ("PRP") under CERCLA or similar state laws at three off-site
facilities, excluding sites as to which the subsidiaries have resolved their
liability. At each of these sites, the Company's liability should be
substantially less than the total site remediation costs because the percentage
of waste attributable to the Company compared to that attributable to all other
PRPs is low. The subsidiaries do not believe that its share of cleanup
obligations at any of the three off-site facilities as to which it has received
a notice of potential liability will individually exceed $1 million.
Several of the Company's former subsidiaries associated with the Robbins
Facility received a Complaint for Injunction and Civil Penalties from the State
of Illinois, dated April 28, 1998 (amended in July 1998) alleging primarily
state air violations at the Robbins Facility (PEOPLE OF THE STATE OF ILLINOIS V.
FOSTER WHEELER ROBBINS, INC., filed in Circuit Court of Cook County, Illinois,
County Department, Chancery Division). The United States Environmental
Protection Agency commenced a related enforcement action at approximately the
same time. (EPA-5-98-IL-12 and EPA-5-98-IL-13). Although the complaint seeks
substantial civil penalties for numerous violations of up to $50,000 for each
violation, with an additional penalty of $10,000 for each day of each violation,
the maximum allowed under the statute, and an injunction against continuing
violations, the relevant subsidiaries have reached a staff-level agreement in
principle with the state on a Consent Decree that will resolve all violations.
The subsidiaries' liability, if any, is not expected to be material.
Subsidiaries of the Company project claims have increased as a result of the
increase in lump-sum contracts between 1992 and 1999. Project claims are brought
by subsidiaries of the Company against project owners for additional costs over
the contract price or amounts not included in the original contract price,
typically arising from changes in the initial scope of work or from owner-caused
delays. These claims are often subject to lengthy arbitration or litigation
proceedings. The costs associated with these changes or owner-caused delays
include additional direct costs, such as increased labor and material costs
associated with the performance of the additional works, as well as indirect
costs that may arise due to delays in the completion of the project, such as
increased labor costs resulting from changes in labor markets. The Company has
used significant additional working capital in projects with costs overruns
pending the resolution of the relevant project claims. The Company cannot assure
that project claims will not continue to increase.
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
subsidiaries of the Company by customers alleging deficiencies in either
equipment or plant construction. Based on the Company's knowledge of the facts
and circumstances relating to the liabilities, if any, and to the insurance
coverage, the management believes that the disposition of those suits will not
result in charges against assets or earning materially in excess of amounts
previously provided in the accounts.
35
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In May and June 2001, the Company issued convertible subordinated notes having
an aggregate principle amount of $210,000. The notes are due in 2007 and bear
interest at 6.50% per annum, payable semi-annually on June 1 and December 1 of
each year, commencing December 2001. The notes may be converted into common
shares at an initial conversion rate of 62.3131 common shares per $1,000
principal amount, or $16.05 per common share, subject to adjustment under
certain circumstances. The notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company. The net proceeds of
approximately $202,900 were used to repay advances outstanding under the
Revolving Credit Agreement. Debt issuance costs are a component of interest
expense over the term of the notes.
36
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
EXHIBIT
NO. EXHIBITS
- --- --------
2. Agreement and Plan of Merger, dated as of May 25, 2001, among
Foster Wheeler Corporation, Foster Wheeler LLC and Foster Wheeler
Ltd.
3.1 Memorandum of Association of Foster Wheeler Ltd. (filed as Annex
II to Foster Wheeler Ltd.'s Form S-4/A (Registration No.
333-52468) filed on March 9, 2001 and incorporated herein by
reference).
3.2 Bye-Laws of Foster Wheeler Ltd. (filed as Annex III to Foster
Wheeler Ltd.'s Form S-4/A (Registration No. 333-52468) filed on
March 9, 2001 and incorporated herein by reference).
4.0 Foster Wheeler Ltd. hereby agrees to furnish copies of
instruments defining the rights of holders of long-term debt of
Foster Wheeler Ltd. and its consolidated subsidiaries to the
Commission upon its requests.
4.1 Rights Agreement, dated as of May 21, 2001 between Foster Wheeler
Ltd. and Mellon Investor Services LLC (filed as Annex I to Foster
Wheeler Ltd.'s current report on Form 8-K (File No. 333-52468)
dated May 25, 2001 and incorporated herein by reference).
4.2 Amended and Restated First Supplemental Indenture, dated August
10, 2001, to the Indenture, dated as of November 5, 1995, among
Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster
Wheeler Energy International, Inc., Foster Wheeler Energy
Corporation, Foster Wheeler Inc., Foster Wheeler International
Holdings, Inc., and BNY Midwest Trust Company.
4.3 Indenture, dated as of May 31, 2001, among Foster Wheeler Ltd.,
Foster Wheeler LLC and BNY Midwest Trust Company (filed as
Exhibit 4.4 to Foster Wheeler Ltd.'s Form S-3 (Registration No.
333-64090) filed on June 28, 2001 and incorporated herein by
reference).
4.4 Registration Rights Agreement, dated as of May 31, 2001, among
Foster Wheeler Ltd., Foster Wheeler LLC and Leman Brothers Inc.,
Banc of America Securities LLC and First Union Securities, Inc.
(filed as Exhibit 4.6 to Foster Wheeler Ltd.'s Form S-3
(Registration No. 333-64090) filed on June 28, 2001 and
incorporated herein by reference).
4.5 Form of specimen share certificate for Foster Wheeler Ltd.'s
common shares (filed as Annex II to Foster Wheeler Ltd.'s current
report on Form 8-K (File No. 333-52468) filed on May 25, 2001 and
incorporated herein by reference).
10.1 Second Amended and Restated Revolving Credit Agreement, dated as
of May 25, 2001 among Foster Wheeler LLC, the Borrowing
Subsidiaries signatory thereto, the Guarantors signatory thereto,
the Lenders signatories thereto, Bank of America, N.A., as
Administrative Agent, First Union National Bank, as Syndication
Agent, ABN AMRO Bank N.V., as Documentation Agent, Banc of
America Securities LLC, as Lead Arranger and Book Manager and
First Union Capital Markets, ABN AMRO Bank N.V., Greenwich
NatWest Structured Finance Inc. and Toronto Dominion Bank, as
Arrangers.
37
10.2 Subordination Agreement, dated as of May 25, 2001 by and among
Foster Wheeler LLC, Foster Wheeler Ltd. and Bank of America, N.A.
10.3 Pledge Agreement, dated as of May 25, 2001 by each of the
undersigned pledgors in favor of Bank of America National Trust
and Savings Association.
10.4 Retirement and Consulting Agreement of Richard J. Swift dated as
of April 2, 2001 (filed as Exhibit 10.1 to Foster Wheeler
Corporation's current report on Form 8-K (File No. 001-00286)
dated April 5, 2001 and incorporated herein by reference).
10.5 Form of Change of Control Agreement dated May 25, 2001, and
entered into by the Company with the following executive
officers: H. E. Bartoli, J. C. Blythe, L. F. Gardner, R. D.
Iseman, T. R. O'Brien, G. A. Renaud and J. E. Schessler.
10.6 Foster Wheeler Inc. Directors' Stock Option Plan (filed as
Exhibit 99.1 to Foster Wheeler Ltd.'s post effective amendment to
Form S-8 (Registration No. 333-25945) dated June 27, 2001 and
incorporated herein by reference).
10.7 1995 Stock Option Plan of Foster Wheeler Inc. (filed as Exhibit
99.1 to Foster Wheeler Ltd.'s post effective amendment to Form
S-8 (Registration No. 003-59739) dated June 27, 2001 and
incorporated herein by reference).
10.8 1984 Stock Option Plan of Foster Wheeler Inc. (filed as Exhibit
99.1 to Foster Wheeler Ltd.'s post effective amendment to Form
S-8 (Registration No. 002-91384) dated June 27, 2001 and
incorporated herein by reference).
10.9 Master Guarantee Agreement, dated as of May 25, 2001 by and among
Foster Wheeler LLC, Foster Wheeler International Holdings, Inc.
and Foster Wheeler Ltd.
10.10 Transitional Executive Severance Agreement dated May 29, 2001
entered into with the following officers: H.E. Bartoli, J.C.
Blythe, L.F. Gardner, R.D. Iseman, T.R. O'Brien, G.A. Renaud and
J.E. Schessler.
18.1 Letter from Foster Wheeler Ltd. regarding change in accounting
principle or pension costs.
B) REPORTS ON FORM 8-K
April 2, 2001 The Company reached an agreement relating to the
retirement and compensation of Richard J. Swift, its chairman,
president and chief executive officer.
May 17, 2001 The Company proposed to make an offering of $150 million of its
convertible subordinated notes due 2007.
May 23, 2001 The Company announced that effective at the close of business on
May 25, 2001, pursuant to the Agreement and Plan of Merger dated
May 25, 2001, among Foster Wheeler Corporation, Foster Wheeler
Ltd., and Foster Wheeler LLC, Foster Wheeler Corporation will be
effectively redomiciled as a Bermuda company. Each outstanding
share of Foster Wheeler Corporation common stock became one
common share of Foster Wheeler Ltd.
May 29, 2001 The company announced that it had completed the process of moving
its legal domicile to Bermuda from the State of New York at the
close of business on May 25, 2001.
38
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)
Date: AUGUST 13, 2001 /S/ RICHARD J. SWIFT
------------------ -----------------------------------------
Richard J. Swift
(Chairman, President and
Chief Executive Officer)
Date: AUGUST 13, 2001 /S/ GILLES A. RENAUD
------------------ ---------------------------------------
Gilles A. Renaud
(Senior Vice President and
Chief Financial Officer)
39