UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2002
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 001-31305
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 stock, as of the latest practicable date: 40,771,560
shares of the Company's common stock ($1.00 par value) were outstanding
as of June 28, 2002.
FOSTER WHEELER LTD.
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at June 28, 2002
(Restated) and December 28, 2001 (Restated)
Condensed Consolidated Statement of Earnings and
Comprehensive Income for the Three and Six Months Ended June
28, 2002 (Restated) and June 29, 2001 (Restated)
Condensed Consolidated Statement of Cash Flows for the Six
Months Ended June 28, 2002 (Restated) and June 29, 2001
(Restated)
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Item 4 - Controls and Procedures
Part II Other Information
Item 1 - Legal Proceedings
Item 4 - Submission of Matter to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the
quarterly period ended June 28, 2002 as filed on August 16, 2002. The
Registrant's condensed consolidated financial statements are being revised to
account for the assets, liabilities and results of operations associated with
one of its postemployment benefit plans in accordance with Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." See Note 16 for further discussion on this matter.
Each item of the June 28, 2002 Form 10-Q as filed on August 16, 2002 that was
affected by the revision has been amended and restated. No attempt has been made
in this Form 10-Q/A to modify or update other disclosures as presented in the
original Form 10-Q except as required to reflect the effects of the revisions
and such other changes as are required by applicable law.
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
(Restated, See Note 1)
June 28, 2002 December 28, 2001
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 344,024 $ 224,020
Short-term investments................................................. 285 271
Accounts and notes receivable.......................................... 831,147 946,344
Contracts in process and inventories................................... 421,153 504,128
Prepaid, deferred and refundable income taxes.......................... 59,097 52,084
Prepaid expenses....................................................... 22,982 27,529
----------- -----------
Total current assets............................................... 1,678,688 1,754,376
----------- -----------
Land, buildings and equipment............................................... 728,912 728,012
Less accumulated depreciation............................................... 341,768 328,814
----------- -----------
Net book value..................................................... 387,144 399,198
----------- -----------
Restricted cash............................................................. 40,594 -
Notes and accounts receivable - long-term................................... 51,477 65,373
Investment and advances..................................................... 84,144 84,514
Goodwill, net............................................................... 126,806 200,152
Other intangible assets, net................................................ 73,746 74,391
Prepaid pension cost and related benefit assets............................. 134,228 131,865
Asbestos-related insurance recovery receivable.............................. 479,146 437,834
Other assets................................................................ 165,904 173,279
Deferred income taxes....................................................... 5,266 4,855
----------- -----------
TOTAL ASSETS....................................................... $ 3,227,143 $ 3,325,837
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt................................. $ 42,685 $ 12,759
Bank loans............................................................. 20,821 20,244
Corporate and other debt............................................... - 297,627
Special-purpose project debt........................................... - 75,442
Subordinated Robbins exit funding obligations.......................... - 110,340
Convertible subordinated notes......................................... - 210,000
Mandatory redeemable preferred securities of subsidiary trust holding
solely junior subordinated deferrable interest debentures........... - 175,000
Accounts payable and accrued expenses.................................. 694,434 777,768
Estimated costs to complete long-term contracts........................ 654,986 580,766
Advance payments by customers.......................................... 83,211 65,417
Income taxes........................................................... 61,934 63,257
----------- -----------
Total current liabilities.......................................... 1,558,071 2,388,620
----------- -----------
Corporate and other debt less current installment........................... 346,992 -
Special-purpose project debt less current installments...................... 200,605 137,855
Deferred income taxes....................................................... 44,849 40,486
Postretirement and other employee benefits other than pensions.............. 168,798 168,149
Asbestos-related liability.................................................. 444,291 445,370
Other long-term liabilities and minority interest........................... 177,950 174,901
Subordinated Robbins exit funding obligations less current installment...... 108,865 -
Convertible subordinated notes.............................................. 210,000 -
Mandatory redeemable preferred securities of subsidiary trust holding solely
junior subordinated deferrable interest debentures..................... 175,000 -
----------- -----------
TOTAL LIABILITIES.................................................. 3,435,421 3,355,381
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock................................................................ 40,772 40,772
Paid-in capital............................................................. 201,390 201,390
Retained earnings (deficit)................................................. (294,178) (109,872)
Accumulated other comprehensive loss........................................ (156,262) (161,834)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY......................................... (208,278) (29,544)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $ 3,227,143 $ 3,325,837
============ ===========
See notes to condensed consolidated financial statements.
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
(Restated, See Note 1)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Revenues:
Operating revenues .................................. $ 944,334 $ 826,882 $ 1,739,743 $ 1,509,525
Other income ........................................ 14,567 13,301 25,187 28,893
----------- --------- ----------- -----------
Total revenues ...................................... 958,901 840,183 1,764,930 1,538,418
----------- --------- ----------- -----------
Costs and expenses:
Cost of operating revenues .......................... 895,547 742,461 1,607,479 1,350,146
Selling, general and administrative expenses ........ 57,706 60,359 111,964 112,471
Other deductions/minority interest .................. 67,392 13,135 105,641 21,016
Interest expense .................................... 15,053 15,434 31,957 32,262
Dividends on preferred security of subsidiary trust . 4,104 3,938 8,116 7,875
----------- --------- ----------- -----------
Total costs and expenses ............................ 1,039,802 835,327 1,865,157 1,523,770
----------- --------- ----------- -----------
(Loss)/earnings before income taxes ..................... (80,901) 4,856 (100,227) 14,648
Provision for income taxes .............................. 4,695 4,532 10,579 6,684
----------- --------- ----------- -----------
Net (loss)/earnings prior to cumulative effect of a
change in accounting principle........................... (85,596) 324 (110,806) 7,964
Cumulative effect on prior years (to December 28, 2001)
of a change in accounting principle for goodwill, net of $0
tax ................................................. -- -- (73,500) --
----------- --------- ----------- -----------
Net (loss)/earnings ..................................... (85,596) 324 (184,306) 7,964
Other comprehensive loss:
Foreign currency translation adjustment ............. 18,683 (5,127) 9,406 (22,843)
Change in unrealized losses on derivative
instruments, net of tax.......................... -- (3,185) (1,679) (8,830)
Reclassification of unrealized gain on derivative
instruments to earnings .......................... (456) (1,255) (2,155) (1,955)
Cumulative effect on prior year (to December 29, 2000)
of change in accounting principle for derivatives,
net of tax ....................................... -- -- -- 6,300
----------- --------- ----------- -----------
Comprehensive loss ...................................... $ (67,369) $ (9,243) $ (178,734) $ (19,364)
=========== ========= =========== ===========
2
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
(Loss)/earnings per share:
Basic:
Net (loss)/earnings prior to cumulative effect of
a change in accounting principle ............. $ (2.09) $ 0.01 $ (2.71) $ 0.19
Cumulative effect on prior years (to December 28,
2001) of a change in accounting principle
for goodwill ............................... -- -- (1.79) --
-------- -------- -------- --------
Net (loss)/earnings ............................. $ (2.09) $ 0.01 $ (4.50) $ 0.19
======== ======== ======== ========
Diluted:
Net (loss)/earnings prior to cumulative effect of
a change in accounting principle ........... $ (2.09) $ 0.01 $ (2.71) $ 0.19
Cumulative effect on prior years (to December 28,
2001) of a change in accounting principle
for goodwill ............................... -- -- (1.79) --
-------- -------- -------- --------
Net (loss)/earnings ............................. $ (2.09) $ 0.01 $ (4.50) $ 0.19
======== ======== ======== ========
Shares outstanding (in thousands):
Basic: weighted average number of shares outstanding 40,945 40,891 40,932 40,863
Diluted: effect of share options .................... -- 360 -- 335
---------- ---------- ---------- ----------
Total diluted ....................................... 40,945 41,251 40,932 41,198
========== ========== ========== ==========
Cash dividends paid per common share .................... $ -- $ 0.06 $ -- $ 0.12
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
3
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
(Restated, See Note 1)
SIX MONTHS ENDED
----------------
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/earnings........................................... $ (184,306) $ 7,964
Adjustments to reconcile net earnings to cash flows from
operating activities:
Cumulative effect of a change in accounting principle..... 73,500 -
Depreciation and amortization............................. 22,703 27,823
Deferred tax.............................................. 3,655 505
Provision for loss on sale of two waste-to-energy plants.. 50,800 -
Dividends on Preferred Trust securities................... 8,116 -
Equity loss/(earnings), net of dividends.................. 2,999 (85)
Other..................................................... 1,611 6,187
Changes in assets and liabilities:
Receivables............................................... 62,674 (26,076)
Contracts in process and inventories...................... 76,091 (36,402)
Accounts payable and accrued expenses..................... (110,730) (82,072)
Estimated costs to complete long-term contracts........... 64,666 (25,944)
Advance payments by customers............................. 13,706 3,044
Income taxes.............................................. (4,504) (5,004)
Other assets and liabilities.............................. 3,971 (11,320)
-------------- -----------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES 84,952 (141,380)
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash..................................... (40,594) -
Capital expenditures.......................................... (10,940) (16,333)
Proceeds from sale of properties.............................. 1,170 37,705
(Increase)/decrease in investments and advances............... (1,567) 9,178
Increase in short-term investments............................ 4 361
--------------- ----------------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES (51,927) 30,911
--------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend to stockholders...................................... - (4,888)
Distributions to minority shareholder......................... (2,061) (1,367)
Repurchase of common stock.................................... - (37)
Proceeds from exercise of stock options....................... - 627
Proceeds from convertible subordinated notes, net............. - 202,912
Increase/(decrease) in short-term debt........................ 299 (74,273)
Proceeds from long-term debt.................................. 69,118 78,271
Repayment of long-term debt................................... (5,044) (131,440)
--------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,312 69,805
-------------- ----------
Effect of exchange rate changes on cash and cash equivalents.. 24,667 (15,680)
-------------- -----------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 120,004 (56,344)
Cash and cash equivalents at beginning of year................ 224,020 191,893
-------------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 344,024 $135,549
=============== ==========
Cash paid during period:
Interest (net of amount capitalized).......................... $ 16,125 $ 32,775
-------------- ---------
Income taxes.................................................. $ 5,080 $ 10,230
-------------- ---------
See notes to condensed consolidated financial statements.
4
FOSTER WHEELER LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. Subsequent to the filing of Foster Wheeler Ltd.'s Form 10-Q for the
quarterly period ended June 28, 2002, management determined that the
assets, liabilities and results of operations associated with one of
its benefit plans were not accounted for in accordance with SFAS 112,
"Employers' Accounting for Postemployment Benefits." The condensed
consolidated balance sheets as of June 28, 2002 and December 28, 2001
and the condensed consolidated statements of earnings and comprehensive
income for the three and six month periods ended June 28, 2002 and June
29, 2001 and the condensed consolidated statements of cash flows for
the six month periods ended June 28, 2002 and June 28, 2001 have been
revised to account for such benefit plan in accordance with SFAS 112.
See Note 16.
The condensed consolidated balance sheet as of June 28, 2002, as
restated, and the related condensed consolidated statements of earnings
and comprehensive income for the three and six month periods ended June
28, 2002, as restated, and June 29, 2001, as restated, and condensed
consolidated statement of cash flows for the six months ended June 28,
2002, as restated, and June 29, 2001, as restated, 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 Ltd.'s Annual Report on Form 10-K/A-2 for
the fiscal year ended December 28, 2001 filed with the Securities and
Exchange Commission on November 18, 2002 (hereinafter referred to as
the "2001 Form 10-K"). The condensed consolidated balance sheet as of
December 28, 2001, as restated, has been derived from the audited
consolidated balance sheet included in the 2001 Form 10-K. A summary of
Foster Wheeler's significant accounting policies of Foster Wheeler Ltd.
(hereinafter referred to as "Foster Wheeler" or the "Company") include
the following:
PRINCIPLES OF CONSOLIDATION - The condensed consolidated financial
statements include the accounts of Foster Wheeler Ltd. and all
significant domestic and foreign subsidiary companies. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual
results could differ from those estimates. Changes in estimates are
reflected in the periods in which they become known. Significant
estimates relate to accounting for long-term contracts including
customer and vendor claims, depreciation, employee benefit plans,
taxes, asbestos litigation and expected recoveries and contingencies,
among others. As of June 28, 2002 and December 28, 2001, costs of
approximately $86,000 and $135,000, respectively, were included in
assets, primarily in receivables and contracts in process, representing
amounts expected to be realized from claims to customers. As of both
June 28, 2002 and December 28, 2001, receivables of approximately
$50,000 are being withheld by customers until the related claims
discussed above are resolved. During the second quarter of 2002, the
Company wrote down three claims against customers for a total of
$47,900. The Company wrote down one claim by $16,200 to reflect a
reassessment of recovery based on new facts during the quarter and
management's strategy to realize cash by attempting to resolve claims.
Management wrote down a second claim by $20,700. Management's decision
5
was based on increases in the client's counterclaim and management's
strategy to realize cash by attempting to resolve claims. A third claim
was written down in the amount of $11,000 due to an unfavorable
decision by an adjudicating body during the quarter.
Claims are amounts in excess of the agreed contract price (or amounts
not included in the original contract price) that a contractor seeks to
collect from customers or others for delays, errors in specifications
and designs, contract terminations, change orders in dispute or
unapproved as to both scope and price or other causes of unanticipated
additional costs. The Company records claims in accordance with
paragraph 65 of the American Institute of Certified Public Accountants
Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts". This
statement of position states that recognition of amounts as additional
contract revenue related to claims is appropriate only if it is
probable that the claims will result in additional contract revenue and
if the amount can be reliably estimated. Those two requirements are
satisfied by the existence of all of the following conditions: the
contract or other evidence provides a legal basis for the claim;
additional costs are caused by circumstances that were unforeseen at
the contract date and are not the result of deficiencies in the
contractor's performance; costs associated with the claim are
identifiable or otherwise determinable and are reasonable in view of
the work performed; and the evidence supporting the claim is objective
and verifiable. If such requirements are met, revenue from a claim is
recorded only to the extent that contract costs relating to the claim
have been incurred. Costs attributable to claims are treated as costs
of contract performance as incurred. Such claims are currently in
various stages of negotiation, arbitration and other legal proceedings.
REVENUE RECOGNITION ON LONG-TERM CONTRACTS - The Engineering and
Construction ("E&C") Group records profits on long-term contracts on a
percentage-of-completion basis on the cost-to-cost method. Contracts in
process are valued at cost plus accrued profits less earned revenues
and progress payments on uncompleted contracts. Contracts of the E&C
Group are generally considered substantially complete when engineering
is completed and/or field construction is completed. The Company
includes pass-through revenue and costs on cost-plus contracts, which
are customer-reimbursable materials, equipment and subcontractor costs
when the Company determines that it is responsible for the engineering
specification, procurement and management of such cost components on
behalf of the customer.
The Energy Group primarily records profits on long-term contracts on a
percentage-of-completion basis determined on a variation of the
efforts-expended and the cost-to-cost methods, which include multiyear
contracts that require significant engineering efforts and multiple
delivery units. These methods are periodically subject to physical
verification of the actual progress towards completion. Contracts of
the Energy Group are generally considered substantially complete when
manufacturing and/or field erection is completed.
The Company has numerous contracts that are in various stages of
completion. Such contracts require estimates to determine the
appropriate cost and revenue recognition. Current estimates may be
revised as additional information becomes available. If estimates of
costs to complete long-term contracts indicate a loss, provision is
made currently for the total loss anticipated. The elapsed time from
award of a contract to completion of performance may be up to four
years.
Certain special-purpose subsidiaries in the Energy Group are reimbursed
by customers for their costs, including amounts related to principal
repayments of non-recourse project debt, for building and operating
certain facilities over the lives of the non-cancelable service
contracts. The Company records revenues relating to debt repayment
obligations on these contracts on a straight-line basis over the lives
of the service contracts, and records depreciation of the facilities on
a straight-line basis over the estimated useful lives of the
facilities, after consideration of the estimated residual value.
6
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid short-term investments purchased with original maturities of
three months or less. Cash and cash equivalents of $226,656 are
maintained by foreign subsidiaries as of June 28, 2002. These
subsidiaries require a substantial portion of these funds to support
their liquidity and working capital needs.
RESTRICTED CASH - Restricted cash consists of approximately $24,000
which was required to collateralize standby letters of credit as of
June 28, 2002 and approximately $16,000 that the Company was required
to deposit into escrow in connection with the legal case TODAK VS.
FOSTER WHEELER CORPORATION discussed in Note 8.
SHORT-TERM INVESTMENTS - Short-term investments consist primarily of
bonds of foreign governments and are classified as available for sale
under FASB Statement No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Realized gains and losses from sales are
based on the specific identification method.
TRADE ACCOUNTS RECEIVABLE - In accordance with terms of long-term
contracts, certain percentages of billings are withheld by customers
until completion and acceptance of the contracts. Final payments of all
such withheld amounts might not be received within a one-year period.
In conformity with industry practice, however, the full amount of
accounts receivable, including such amounts withheld, has been included
in current assets.
ACCOUNTS AND NOTES RECEIVABLE OTHER - Non-trade accounts and notes
receivable consist primarily of foreign refundable value-added tax and
at year end 2001 amounts receivable due to the cancellation of the
company-owned life insurance plan.
LAND, BUILDINGS AND EQUIPMENT - Depreciation is computed on a
straight-line basis using composite estimated lives ranging from 10 to
50 years for buildings and from 3 to 35 years for equipment.
Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized. Upon retirement or other
disposition of fixed assets, the cost and related accumulated
depreciation are removed from the accounts and the resulting gains or
losses are reflected in earnings.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations". This
statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for
financial statements issued for fiscal years beginning after June 15,
2002. The Company is currently assessing the impact of the adoption of
this new statement.
Effective December 29, 2001, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement addresses the accounting for long-lived assets to be disposed
of by sale and resolves significant implementation issues relating to
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". The provisions of this
statement are effective for financial statements issued for the fiscal
years beginning after December 15, 2001 and interim periods within
those fiscal years. The Company's results of operations and financial
position were not affected by the adoption of this statement.
INVESTMENTS AND ADVANCES - The Company uses the equity method of
accounting for investment ownership of between 20% and 50% in
affiliates unless significant economic considerations indicate that the
cost method is appropriate. The equity method is also used for
7
investments in which ownership is greater than 50% when the Company
does not have a controlling financial interest. Investment ownership of
less than 20% in affiliates is carried at cost. Currently, all of the
Company's significant investments in affiliates are recorded using the
equity method.
INCOME TAXES - Deferred income taxes are provided on a liability method
whereby deferred tax assets/liabilities are established for the
difference between the financial reporting and income tax basis of
assets and liabilities, as well as operating loss and tax credit carry
forwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method
whereby they reduce income taxes currently payable and the provision
for income taxes in the period the assets giving rise to such credits
are placed in service. To the extent such credits are not currently
utilized on the Company's tax return, deferred tax assets, subject to
considerations about the need for a valuation allowance, are recognized
for the carry forward amounts.
Provision is made for Federal income taxes which may be payable on
foreign subsidiary earnings to the extent that the Company anticipates
they will be remitted.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at quarter-end and
year-end exchange rates and income and expenses and cash flows at
monthly weighted average rates. The Company enters into foreign
exchange contracts in its management of foreign currency exposures.
Changes in the fair value of derivative contracts that qualify as
designated cashflow hedges are deferred until the hedged forecasted
transaction affects earnings. Amounts receivable (gains) or payable
(losses) under foreign exchange hedges are recognized as deferred gains
or losses and are included in either contracts in process or estimated
costs to complete long-term contracts. The Company utilizes foreign
exchange contracts solely for hedging purposes, whether or not they
qualify for hedge accounting under SFAS 133. At June 28, 2002, the
Company did not meet the requirements for deferral under SFAS 133 and
recorded in the three months ended June 28, 2002 approximately $21,000
of gains on derivative instruments previously accounted for as cash
flow hedges.
INVENTORIES - Inventories, principally materials and supplies, are
stated at the lower of cost or market, determined primarily on the
average cost method.
INTANGIBLE ASSETS - Intangible assets consist principally of the excess
of cost over the fair value of net assets acquired (goodwill),
trademarks and patents.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which supersedes APB Opinion No. 17,
"Intangible Assets". SFAS 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in
financial statements upon their acquisition. SFAS 142 also addresses
how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. SFAS
142 stipulates that goodwill should no longer be amortized and instead
should be subject to impairment assessment.
The provisions of SFAS 142 are required to be applied effective
December 29, 2001. The Company is utilizing the two-step method
described in SFAS 142 for purposes of determining the amount of
goodwill impairment. See Note 7 for further information. Goodwill
amortization for 2001 was approximately $8,000.
8
EARNINGS PER SHARE - Basic per share data has been computed based on
the weighted average number of shares of common stock outstanding.
Diluted per share data has been computed based on the basic plus the
dilution of stock options. On April 26, 1999, the Company adopted a
Directors Deferred Compensation and Stock Award Plan (the "Plan").
Under the Plan, each non-employee director is credited annually with
share units of the Company's common stock. In addition, each
non-employee director may elect to defer receipt of compensation for
services rendered as a director, which deferred amount is credited to
his or her account in the form of share units. The Company makes a
supplemental contribution equal to 15% of the deferred amount. The
shares related to the convertible notes offering were not included in
the computation due to their antidilutive effect.
Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the December 28, 2001
Form 10-K when reviewing interim financial results. There has been no
material change in the accounting policies followed by Foster Wheeler
Ltd. during the second quarter of 2002 except for the adoption of
Statement of Financial Accounting Standards Nos. 142 and 144.
Certain prior period amounts have been reclassified to conform to
current financial statement presentation. In particular, the
Engineering, Procurement and Construction business for the Power
industry in the United States was reclassified from the Engineering and
Construction Group to the Energy Group. This allows for United States
domestic power projects to be controlled by one group and better aligns
the presentation with the current management reporting as well as the
customer base.
2. The accompanying condensed consolidated financial statements are
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. Realization of assets and the satisfaction of liabilities in
the normal course of business are dependent on the Company maintaining
credit facilities adequate to conduct its business. To date, the
Company has been able to obtain sufficient financing to support its
ongoing operations. The Company has also initiated a liquidity action
plan, which focuses on accelerating the collection of receivables,
claims recoveries and asset sales.
The Company has initiated a comprehensive plan to enhance cash
generation and to improve profitability. The operating performance
portion of the plan concentrates on the quality and quantity of
backlog, the execution of projects in order to achieve or exceed the
profit and cash targets and the optimization of all non-project related
cash sources and uses. In connection with this plan, a group of outside
consultants has been hired for the purpose of carrying out a
performance improvement intervention. The tactical portion of the
performance improvement intervention concentrates on booking current
projects, executing twenty-two "high leverage projects" and generating
incremental cash from high leverage opportunities such as overhead
reductions, procurement and accounts receivable. The systemic portion
of the performance improvement intervention concentrates on sales
effectiveness, estimating, bidding and project execution procedures.
Subsequent to June 28, 2002, the Company finalized a Senior Credit
Facility with a group of banks. This facility includes a $71,000 term
loan, a revolving credit agreement for $69,000 and a letter of credit
facility for $149,900 that expire on April 30, 2005. This facility is
secured by the assets of the domestic subsidiaries, the stock of the
domestic subsidiaries and 66% of the stock of the first-tier foreign
subsidiaries. The facility has no scheduled repayments prior to
maturity on April 30, 2005. The facility requires prepayments from
proceeds of assets sales and the issuance of debt or equity and from
9
excess cash flow. The Company retains the first $77,000 of such asset
sales or issuance of debt or equity in order to maintain liquidity and
the Company also retains a 50% share of the balance. The financial
covenants in the facility start at the end of the first quarter 2003.
These include a senior leverage ratio and a minimum earnings before
income taxes depreciation and amortization ("EBITDA") level.
The term loan and revolving loans will bear interest at the Company's
option of (a) LIBOR plus 3.50% or (b) the Base Rate plus 2.50%. The
"Base Rate" will mean the higher of (i) the Bank of America prime rate
and (ii) the Federal Funds rate plus .5%.
The Company has also finalized a sale/leaseback arrangement with a
third party for its corporate headquarters. This capital lease
arrangement leases the facility to the Company for an initial
non-cancelable period of 20 years.
Subsequent to June 28, 2002, the Company has also completed a
receivables sale arrangement for $40,000. This arrangement will be
accounted for as a financing and expires in August 2005.
As a result of finalizing the Senior Credit Facility, the
sale/leaseback arrangement and the receivables sale arrangement, the
Company has reclassified $834,000 of it debts as long term that had
been classified as current liabilities as of December 28, 2001.
In addition to the Company's debt restructuring initiatives, management
has initiated a comprehensive plan to address domestic liquidity
issues. Management's plan to address the Company's domestic liquidity
issues includes generating approximately $150,000 from asset sales,
collection of receivables and resolving disputed claims over the next
six months and an additional $40,000 over the following six months. To
the extent these initiatives are not successful, the Company will
explore other options including the repatriation of funds from foreign
operations and further cost reduction and cash conservation measures.
Management believes that these actions, together with cash on hand and
cash from operations will be sufficient to fund the Company's working
capital needs over the next year. Failure by the Company to achieve a
significant portion of these proceeds could have a material adverse
effect on the Company's financial condition. The above factors raise
substantial doubts about the Company's ability to continue as a going
concern. The condensed consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
3. 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 the Company. 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. In accordance with this provision, the Company elected to defer
the distributions due on January 15, April 15, and July 15, 2002. The
new Senior Credit Facility requires the Company to continue to defer
dividends on the Preferred Trust Securities. The maturity date is
January 15, 2029.
4. At June 28, 2002, a total of 7,445,968 shares of common stock were
reserved for issuance under various stock option plans; of this total,
2,570,180 were not under option.
5. Basic per share data has been computed based on the weighted average
number of shares of common stock outstanding. Diluted per share data
has been computed based on the basic plus the dilution of stock
options. In 1999, the Company adopted The Directors Deferred
Compensation and Stock Award Plan (the "Plan"). Under the Plan, each
non-management director is credited annually with share units of the
Company's common stock. In addition, each non-management director may
elect to defer receipt of compensation for services rendered as a
director, which deferred amount is credited to his or her account in
the form of share units. The Company makes a supplemental contribution
10
equal to 15% of the deferred amount. For the six months ended June 28,
2002, 72,965 share units were credited in participants' accounts.
During the same period, 29,309 shares were delivered to one director
upon his retirement. As of June 28, 2002, 173,021 share units were
credited in participants' accounts and are included in the calculation
of basic earnings per share. Options to purchase 4,848,788 shares of
common stock were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the
average market price of the common shares. Options to purchase 277,000
shares of common stock were not included in the computation of diluted
earnings per share for the three and six month periods ended June 28,
2002 due to their antidilutive effect. The 13,085,751 shares related to
the convertible subordinated notes were not included in the computation
for the three and six-month periods ended June 28, 2002 due to their
antidilutive effect.
6. Interest income and cost for the following periods are:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Interest Income $ 2,996 $ 2,834 $ 4,723 $ 6,272
========== ======== ========= ============
Interest Cost $ 19,463 $ 19,557 $ 40,617 $ 40,452
========== ======== ========= ============
Included in the interest cost is interest capitalized on
self-constructed assets, for the three and six months ended June 28,
2002 of $306 and $544, respectively, compared to the $185 and $315 for
the same periods in 2001. Interest costs also included dividends on
Preferred Trust Securities, which amounted to $4,104 and $8,116 for the
three, and six months ended June 28, 2002, respectively, compared to
$3,938 and $7,875 for the same period in 2001.
7. Effective December 29, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142") which supercedes APB Opinion No. 17, "Intangible
Assets". The statement requires that goodwill and intangible assets
with indefinite lives no longer be amortized, but instead be tested for
impairment at least annually. The Company tests for impairment at the
reporting unit level as defined in SFAS No. 142. This test is a
two-step process. Impairment losses have been measured as of December
29, 2001 and recognized as the cumulative effect of a change in
accounting principle in 2002. SFAS No. 142 also requires that
intangible assets with determinable useful lives be amortized over
their respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144.
As of June 28, 2002 and December 28, 2001, the Company had unamortized
goodwill of $126,806 and $200,152. The reduction in goodwill is due to
the $73,500 of impairment losses discussed below, offset by foreign
currency translation adjustments of $154. In accordance with SFAS No.
142, the Company is no longer amortizing goodwill. The Company
recognized $73,500 of impairment losses during the six-month period
ended June 28, 2002 related to the goodwill as a cumulative effect of a
change in accounting principle. Of this total, $24,800 was associated
with a waste-to-energy facility included in the operations of the
Energy Group. The fair value of the facility was estimated using the
expected present value of future cash flows. The remaining $48,700
relates to a reporting unit in the Engineering and Construction Group.
An impairment of the goodwill on this subsidiary was initially
determined based upon its market value. Based upon the market value of
this reporting unit, it was determined under step one that a potential
impairment existed. The Company then completed step two and determined
that a full write down of the goodwill was required. All of the other
reporting units were also subjected to the first step of the goodwill
impairment test. One further reporting unit in the Energy Group has
been determined to have potential goodwill impairment as a result of
the calculations performed under step one. A write-down has not been
taken on this reporting unit since the step two valuation has not yet
been finalized. The Company anticipates finalizing the step two
11
calculations in the third quarter of 2002 and will record any
impairment at that time. The amount of goodwill related to this
reporting unit amounts to approximately $77,000. Management estimates
it is reasonably likely that a substantial amount of this goodwill may
be impaired.
As of December 29, 2001, the Company had unamortized identifiable
intangible assets of $74,391. The following table details amounts
relating to those assets as of June 28, 2002.
As of June 28, As of December 28,
2002 2001
---------------------------- ------------------- ------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------------------- ------------------- ------------------ --------------------
Patents $ 35,421 $ (11,078) $ 34,994 $ (10,197)
Trademarks 59,944 (10,541) 59,266 (9,672)
------------ ------------- ------------- -------------
Total $ 95,365 $ (21,619) $ 94,260 $ (19,869)
------------- ------------- ------------- -------------
Amortization expense related to patents and trademarks for the
six-month period ended June 28, 2002 was $1,750. Amortization expense
is expected to approximate $3,500 each year in the next five years.
The following table presents the prior year reported amounts adjusted
to eliminate the effect of goodwill amortization in accordance with
SFAS No. 142.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Reported net (loss)/earnings $ (85,596) $ 324 $ (184,306) $ 7,964
Add back: goodwill amortization 1,342 2,685
------------ ----------- ------------ ---------
Adjusted net (loss)/earnings $ (85,596) $ 1,666 $ (184,306) $ 10,649
-------------- ----------- ------------- ---------
Basic Earnings Per Share:
Reported Net Income $ 0.01 $ 0.19
Goodwill Amortization $ 0.03 $ 0.06
------------ --------
Adjusted Net Income $ 0.04 $ 0.25
------------ --------
Diluted Earnings per Share:
Reported Net Income $ 0.01 $ 0.19
Goodwill Amortization $ 0.03 $ 0.06
------------ ---------
Adjusted Net income $ 0.04 $ 0.25
------------ ---------
8. In the ordinary course of business, the Company and its subsidiaries
enter into contracts providing for assessment of damages for
nonperformance or delays in completion. Suits and claims have been or
may be brought against the Company by customers alleging deficiencies
in either equipment design or plant construction. Based on its
knowledge of the facts and circumstances 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.
Some of the Company's subsidiaries, along with many other companies,
are codefendants in numerous lawsuits pending in the United States.
Plaintiffs claim damages for personal injury alleged to have arisen
from exposure to or use of asbestos in connection with work performed
by the Company's subsidiaries during the 1970s and prior. As of June
28, 2002, there were approximately 121,900 claims pending. During the
second quarter of 2002, approximately 13,000 new claims have been filed
and approximately 2,600 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 $17,052 in the second quarter
12
of 2002. As of June 29, 2001, there were approximately 103,400 claims
pending. During the second quarter of 2001, approximately 11,100 new
claims were 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 $19,500 in the
second quarter of 2001.
The Company's subsidiaries continue to actively manage claims and to
negotiate with certain insurance carriers concerning the limits of
coverage provided during different time periods. An agreement which one
of the Company's subsidiaries has 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, proceedings
commenced among 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 believes 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 its subsidiaries can agree on a
new arrangement. Although the expiration of the previous arrangement
may delay the ability of the Company's subsidiaries to get reimbursed
on a timely basis by the insurers for claims filed after June 12, 2001,
insurance policies will continue to cover asbestos related claims
brought against the Company's subsidiaries after June 12, 2001 and it
is anticipated that the Company's subsidiaries can continue to manage
the resolution of such claims without a material adverse impact on the
Company's financial condition.
As of June 28, 2002, the Company has recorded a liability related to
probable losses on asbestos-related insurance claims of approximately
$479,000, of which approximately $35,000 is considered short-term. The
Company has recorded an asset of $525,000 relating to probable
insurance recoveries of which the Company has funded approximately
$60,000 as of June 28, 2002. In addition to the $479,000 shown
separately in the balance sheet, approximately $46,000 is recorded in
accounts and notes receivables. The asset is an estimate of recoveries
from insurers based upon assumptions relating to cost allocation and
resolution of pending proceeding with certain insurers, as well as
recoveries under a funding arrangement with other insurers, which has
been in place since 1993. The total liability recorded is comprised of
an estimated liability relating to open (outstanding) claims of
approximately $279,000 and an estimated liability relating to future
unasserted claims of approximately $200,000. These estimates are based
upon the following information and/or assumptions: number of open
claims; forecasted number of future claims; estimated average cost per
claim by disease type; and the breakdown of known and future claims
into disease type. The total estimated liability includes both the
estimate of forecasted indemnity amounts and forecasted defense
expenses. The defense costs and indemnity payments are expected to be
incurred over the next eight years during which period new claims are
expected to decline from year to year. The Company believes that there
will be a substantial reduction in the number of new claims filed after
2008 although there are no assurances this will be correct.
Historically, the Company's defense costs have represented
approximately 23% of total costs. Through June 28, 2002, total
indemnity costs paid were approximately $282,000 and total defense
costs paid were approximately $87,000.
The Company's management after consultation with counsel, has
considered the proceedings 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 will continue to adequately
fund claims and defense costs relating to asbestos litigation. It
should be noted that the estimate of the assets and liabilities related
to asbestos claims and recovery is subject to a number of uncertainties
13
that may result in significant changes in the current estimates. Among
these are uncertainty as to the ultimate number of claims filed, the
amounts of claim costs, the impact of bankruptcies of other companies
with asbestos claims, uncertainties surrounding the litigation process
from jurisdiction to jurisdiction and from case to case, as well as
potential legislative changes.
The Company's subsidiaries have been effective in managing the asbestos
litigation in part because (1) the Company's subsidiaries have access
to historical project documents and other business records going back
more than 50 years, allowing them to defend themselves by determining
if they were present at the location that is the cause of the alleged
asbestos claim and, if so the timing and extent of their presence, (2)
the Company's subsidiaries maintain good records on insurance policies
and have identified policies issued since 1952, and (3) the Company's
subsidiaries have consistently and vigorously defended these claims
which has resulted in dismissal of claims that are without merit or
settlement of claims at amounts that are considered reasonable.
A subsidiary of the Company in the United Kingdom has also received a
limited number of claims alleging personal injury arising from exposure
to asbestos. None of these claims have resulted in material costs to
the Company.
A San Francisco, California jury returned a verdict on March 26, 2002
finding Foster Wheeler liable for $10,600 in the case of TODAK VS.
FOSTER WHEELER CORPORATION. The case was brought against Foster
Wheeler, the U.S. Navy and several other companies by a 59-year-old man
suffering from mesothelioma which allegedly resulted from exposure to
asbestos. The Company believes there was no credible evidence presented
by the plaintiff that he was exposed to asbestos contained in a Foster
Wheeler product. In addition, the Company believes that the verdict was
clearly excessive and should be set aside or reduced on appeal. The
Company intends to move to set aside this verdict. Management of the
Company believes the financial obligation that may ultimately result
from entry of a judgment in this case will be paid by insurance.
On April 3, 2002 the United States District Court for the Northern
District of Texas entered an amended final judgment in the matter of
KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC. ET AL. Glitsch,
Inc. (now known as Tray, Inc.) is an indirect subsidiary of the
Company. This lawsuit claimed damages for patent infringement and trade
secret misappropriations and has been pending for over 18 years. A
judgment was entered in this case on November 29, 1999 awarding
plaintiffs compensatory and punitive damages plus prejudgment interest
in an amount yet to be calculated. This amended final judgment in the
amount of $54,283 includes such interest for the period beginning in
1983 when the lawsuit was filed through entry of judgment.
Post-judgment interest will accrue at a rate of 5.471 percent per annum
from November 29, 1999. The management of Tray, Inc. believes that the
Court's decision contains numerous factual and legal errors subject to
reversal on appeal. Tray Inc. has filed a notice of appeal to the
United States Court of Appeals for the Fifth Circuit.
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and
regulations. The immediate effect was to eliminate the guaranteed
supply of municipal solid waste to the Camden County Waste-to-Energy
Project (the "Project") with its corresponding tipping fee revenue. As
a result, tipping fees have been reduced to market rate in order to
provide a steady supply of fuel to the plant. Those market-based
revenues have not been, and are not expected to be, sufficient to
service the debt on outstanding bonds which were issued to construct
the plant and to acquire a landfill for Camden County's use. These
outstanding bonds are public debt, not debt of either the Company or
its project subsidiary ("CCERA") and is not guaranteed by the Company.
Since 1999, the State of New Jersey has provided subsidies sufficient
to ensure the payment of each debt service payment as it became due. If
the State were to fail to do so and there was to be a default on a debt
service payment, the bondholders might proceed to attempt to exercise
their remedies. However, because the debt is not CCERA's, and is not
secured by CCERA's plant, the Company's management does not believe
that an attempt by the bondholders to exercise their remedies would
have a material adverse effect on CCERA or the Company.
14
CCERA has filed suit against the involved parties, including the State
of New Jersey, seeking among other things to void the applicable
contracts and agreements governing the Project. In January 2002, the
State of New Jersey enacted legislation that provides a mechanism for
state-supported refinancing of bond debt on solid waste facilities
located within the state. Pending outcome of the litigation and certain
refinancing initiatives, management believes that the plant will
continue to operate at full capacity while receiving market rates for
waste disposal. At this time, management cannot determine the ultimate
outcome of the foregoing and their effect on the Project.
In 1996, the Company completed the construction of a recycling and
waste-to-energy project located in the Village of Robbins, Illinois
(the "Robbins Facility"). By virtue of the Robbins Facility qualifying
under the Illinois Retail Rate Law as a qualified solid waste-to-energy
facility, it was to receive electricity revenues projected to be
substantially higher than the utility's "avoided cost". Under the
Retail Rate Law, the utility was entitled to a tax credit against a
state tax on utility gross receipts and invested capital. The State of
Illinois (the "State") was to be reimbursed by the Robbins Facility for
the tax credit beginning after the 20th year following the initial sale
of electricity to the utility. The State repealed the Retail Rate Law
insofar as it applied to the Robbins Facility. In October 1999, the
Company reached an agreement (the "Robbins Agreement") with the holders
of bonds issued by the Village of Robbins to finance the construction
of the Robbins Facility (the "Bondholders"). As part of the Robbins
Agreement, the Company agreed to continue to contest this repeal
through litigation. Pursuant to the Robbins Agreement, the Company has
also agreed that any proceeds of such litigation will be allocated in a
certain order of priority. Pursuant to an agreement reached with the
debtor project companies and the Bondholders and approved by the
bankruptcy court on March 5, 2002 (IN RE: ROBBINS RESOURCE RECOVERY
PARTNERS, L.P., N.D. Illinois, Case No. 00B 25018), the foregoing
allocation was modified so that any proceeds will now be allocated in
the following order of priority: (1) to any attorneys entitled to a
contingency fee, up to 15%; (2) up to the next $10,000, 50% to the
Company, 50% to redeem outstanding 1999D Bonds; (3) to redeem all of
the outstanding 1999D Bonds; (4) to reimburse the Company for any
amounts paid by it in respect of the 1999D Bonds; (5) to reimburse the
Company for any costs incurred by it in connection with prosecuting the
Retail Rate litigation; (6) to redeem all of the outstanding 1999C
Bonds; and (7) 10.6% interest on the foregoing items 4 and 5 to the
Company. Then, to the extent there are further proceeds, 80% of any
such proceeds shall be paid to the Indenture Trustee of Non-Recourse
Robbins Bonds until an amount sufficient to repay such Bonds in full
has been paid over, with the remaining 20% being paid over to the
Company. After the foregoing payments shall have been made, any
remaining proceeds shall be paid over to the Company.
On December 1, 1999, three special purpose subsidiaries of the Company
commenced reorganization proceedings under Chapter 11 of the U.S.
Bankruptcy Code in order to effectuate the terms of the Robbins
Agreement. On January 21, 2000, these subsidiaries' plan of
reorganization was confirmed, and the plan was consummated on February
3, 2000.
On August 8, 2000, the Company initiated the final phase of its exit
from the Robbins Facility. As part of the Robbins Agreement, the
Company agreed to operate the Robbins Facility subject to being
reimbursed for all costs of operation. Such reimbursement did not occur
and, therefore, pursuant to the Robbins Agreement, the Company on
October 10, 2000, completed the final phase of its exit from the
project. The Company had been administering the project companies
through a Delaware business trust, which owned the project on behalf of
the Bondholders. As a result of its exit from the project, the Company
15
is no longer administering the project companies, which project
companies again commenced reorganization proceedings under Chapter 11
of the U.S. Bankruptcy Code in August and October 2000. A subsidiary of
the Company reached an agreement with the debtor project companies and
the requisite holders of the bonds, which was approved by the
bankruptcy court on March 5, 2002 (IN RE: ROBBINS RESOURCE RECOVERY
PARTNERS, L.P., N.D. Illinois, Case No. 00B 25018). In June 2002, the
Plan of Reorganization incorporating the agreement, among other things,
was confirmed and became effective. The foregoing agreement is expected
to favorably resolve any issues related to the exit from the project.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws, the current owner
or operator of real property and the past owners or operators of real
property (if disposal took place during such past ownership or
operation) may be jointly and severally liable for the costs of removal
or remediation of toxic or hazardous substances on or under their
property, regardless of whether such materials were released in
violation of law or whether the owner or operator knew of, or was
responsible for, the presence of such substances. Moreover, under
CERCLA and similar state laws, persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be jointly and
severally liable for the costs of the removal or remediation of such
substances at a disposal or treatment site, whether or not such site
was owned or operated by such person ("off-site facility"). Liability
at such off-site facilities is typically allocated among all of the
viable responsible parties based on such factors as the relative amount
of waste contributed to a site, toxicity of such waste, relationship of
the waste contributed by a party to the remedy chosen for the site, and
other factors.
The Company currently owns and operates industrial facilities and has
also transferred its interests in industrial facilities that it
formerly owned or operated. It is likely that as a result of its
current or former operations, such facilities have been impacted by
hazardous substances. The Company is not aware of any conditions at its
currently owned facilities in the United States that it expects will
cause the Company to incur significant costs.
The Company also may receive claims, pursuant to indemnity obligations
from owners of recently sold facilities that may require the Company 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 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 to incur
material expenditures to investigate and/or remediate such conditions.
The Company had been notified that it was a potentially responsible
party ("PRP") under CERCLA or similar state laws at three off-site
facilities, excluding sites as to which the Company has resolved its
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 Company does not believe
that its share of cleanup obligations at any of the off-site facilities
as to which it has received a notice of potential liability will
individually exceed $1 million.
The Company's project claims have increased as a result of the increase
in our lump-sum contracts between 1992 and 1999. Project claims brought
by 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.
16
In the ordinary course of business, the Company enters into contracts
providing for assessment of damages for nonperformance or delays in
completion. Suits and claims have been or may be brought against the
Company by customers alleging deficiencies in either equipment or plant
construction. Based on the Company's knowledge of the facts and
circumstances relating to the liabilities, if any, and to the insurance
coverage, 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.
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.
17
9. Changes in equity for the six months ended June 28, 2002, as restated, were
as follows:
ACCUMULATED
OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
------ ------ ------- -------- ---- ------
Balance December 28, 2001, Restated 40,771,560 $ 40,772 $ 201,390 $ (109,872) $ (161,834) $ (29,544)
Net loss (184,306) (184,306)
Foreign currency translation adjustment 9,406 9,406
Reclassification of unrealized gain of derivative
instruments to earnings (3,834) (3,834)
------------- ---------------------- ------------ ------------ ----------
Balance June 28, 2002 40,771,560 $ 40,772 $ 201,390 $ (294,178) $ (156,262) $ (208,278)
============= ========= =========== ============ =========== ===========
18
10. Major Business Groups
Three Months Ended Six Months Ended
June 28,2002 June 29, 2001 June 28, 2002 June 29,2001
------------ ------------- ------------- ------------
(Restated) (Restated and (Restated) (Restated and
Reclassified) Reclassified)
ENGINEERING & CONSTRUCTION (E&C) (6)
Revenues $ 560,167 $ 464,134 $ 981,302 $ 894,504
Gross earnings from operations 6,015 45,226 46,234 85,111
Interest expense (251) 907 (569) 940
(Loss)/earnings before income taxes and
cumulative effect of a change in
accounting principle for goodwill (1) (2) (13,237) 17,223 7,265 36,435
ENERGY (6)
Revenues $ 411,916 $ 385,005 $ 799,336 $ 666,822
Gross earnings from operations 43,955 38,696 87,265 73,528
Interest expense 4,357 6,263 11,738 12,554
(Loss)/earnings before income taxes and
cumulative effect of a change in
accounting principle for goodwill (1)(2)(3) (18,197) 11,120 (19,971) 20,461
CORPORATE AND FINANCIAL SERVICES (C&F) (5)
Revenues $ (13,182) $ (8,956) $ (15,708) $ (22,908)
Gross earnings from operations (1,182) 498 (1,235) 740
Interest expense (4) 15,051 12,202 28,904 26,643
Loss before income taxes and cumulative
effect of a change in accounting
principle for goodwill (49,467) (23,487) (87,521) (42,248)
TOTAL
Revenues $ 958,901 $ 840,183 $ 1,764,930 $ 1,538,418
Gross earnings from operations 48,788 84,420 132,264 159,379
Interest expense (4) 19,157 19,372 40,073 40,137
(Loss)/earnings before income taxes
and accounting change (80,901) 4,856 (100,227) 14,648
Provision (benefit) for income taxes 4,695 4,532 10,579 6,684
Net (loss)/earnings prior to
cumulative effect of a change in
accounting principle (85,596) 324 (110,806) 7,964
Cumulative effect on prior years of a
change in accounting principle for
goodwill (7) -- -- (73,500) --
--------- --------- ----------- -----------
Net (loss)/earnings $ (85,596) $ 324 $ (184,306) $ 7,964
========= ========= =========== ===========
<FN>
(1) Includes in the three and six months ended 2002, claim write-downs for E&C ($27,200) and for Energy ($20,700).
(2) Includes in the three and six months ended 2002, anticipated loss on sale of assets for Energy ($31,800 and $50,800).
(3) Includes in the three and six months ended 2001, $5,000 loss on sale of a hydrogen plant.
(4) Includes dividends on preferred security of subsidiary trust.
(5) Includes intersegment eliminations.
(6) Reflects the reclassification of the Engineering, Procurement and
Construction ("EPC") business in the United States from the E&C
business group to the Energy business group to conform to 2002
presentation. For the three and six months ended June 29, 2001,
revenues of $71,605 and $114,787, respectively, gross earnings from
operations of $4,526 and $5,763, respectively, interest expense of
$257 and $474, respectively and earnings before income taxes of $3,091
and $2,679, respectively were reclassified from the E&C group to the
Energy group.
(7) Includes a provision for goodwill impairment of $48,700 for E&C and $24,800 for Energy.
</FN>
19
Operating revenues by industry segment for the periods ending June 28,
2002 and June 29, 2001 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Power $ 431,571 $ 383,950 $ 812,303 $ 673,878
Oil and gas/refinery 247,081 187,715 405,168 365,232
Pharmaceutical 105,807 121,079 181,152 192,096
Chemical 37,935 59,031 76,571 106,050
Environmental 88,856 90,760 173,624 168,135
Power production 35,989 42,606 69,886 92,945
Eliminations and other (2,905) (58,259) 21,039 (88,811)
-------------- -------------- ------------- ---------------
Total Operating Revenues $ 944,334 $ 826,882 $ 1,739,743 $ 1,509,525
============= ============= ============= ==============
11. Condensed Consolidating Financial Information
The following represents summarized condensed consolidating financial
information as of June 28, 2002, as restated, and December 28, 2001,
as restated, with respect to the financial position, and for the six
months ended June 28, 2002, as restated, and June 29, 2001, as
restated, for results of operations and cash flows of the Company and
its 100% owned and majority-owned subsidiaries. As a result of the
reorganization on May 25, 2001 Foster Wheeler LLC, as successor to
Foster Wheeler Corporation, became obligor for the Company's 6.75%
notes due November 15, 2005 (the "Notes"). Foster Wheeler USA
Corporation, Foster Wheeler Energy Corporation, Foster Wheeler Power
Group, Inc. formerly known as 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 and
June 2001, the Company issued 6.5% Convertible Subordinated Notes
(Convertible Notes) due in 2007. The Convertible Notes are fully and
unconditionally guaranteed by Foster Wheeler LLC. The summarized
consolidating financial information is presented in lieu of separate
financial statements and other related disclosures of the wholly-owned
subsidiary guarantors because management does not believe that such
separate financial statements and related disclosures would be
material to investors. None of the subsidiary guarantors are
restricted from making distributions to the Company.
The comparative statements for December 28, 2001, as restated, and
June 29, 2001, as restated, with respect to the financial position,
results of operations and cash flows were revised to conform to the
current financial presentation.
20
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
June 28, 2002
(In Thousands of Dollars)
(Restated)
Non-Guarantor
Foster Wheeler Foster Wheeler Guarantor Subsidiaries
Assets Ltd. Llc Subsidiaries Eliminations Consolidated
----- -------------- ------------- ------------ ----------- ----------- ------------
Current assets .................................... $ -- $ 197,958 $ 822,512 $1,605,663 $ (947,445) $ 1,678,688
Investment in subsidiaries ........................ (205,689) (275,718) 1,259,206 591,537 (1,285,192) 84,144
Land, buildings & equipment (net) ................. -- -- 18,290 374,369 (5,515) 387,144
Notes and accounts receivable - long-term ......... -- 595,655 93,921 837,253 (1,475,352) 51,477
Intangible assets (net) ........................... -- -- 239,862 297,630 (336,940) 200,552
Other non-current assets .......................... -- 15,206 632,050 160,256 17,626 825,138
--------- --------- ---------- ---------- ----------- -----------
TOTAL ASSETS ...................................... $(205,689) $ 533,101 $3,065,841 $3,866,708 $(4,032,818) $ 3,227,143
========= ========= ========== ========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities ............................... $ 2,589 $ 16,379 $1,168,224 $1,331,790 $ (960,911) $ 1,558,071
Long-term debt .................................... -- 340,000 238,812 1,447,278 (1,478,493) 547,597
Other non-current liabilities ..................... -- -- 993,963 43,692 (201,767) 835,888
Subordinated Robbins Obligations .................. -- -- 108,865 -- -- 108,865
Convertible debt .................................. -- 210,000 -- -- -- 210,000
Preferred trust securities ........................ -- 175,000 -- -- -- 175,000
--------- --------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES ................................. 2,589 741,379 2,509,864 2,822,760 (2,641,171) 3,435,421
TOTAL SHAREHOLDERS' EQUITY ........................ (208,278) (208,278) 555,977 1,043,948 (1,391,647) (208,278)
--------- --------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........................... $(205,689) $ 533,101 $3,065,841 $3,866,708 $(4,032,818) $ 3,227,143
========= ========= ========== ========== =========== ===========
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 28, 2001
(In Thousands of Dollars)
(Revised and Restated)
ASSETS Non-Guarantor
------ Foster Wheeler Foster Wheeler Guarantor Subsidiaries
Ltd. Llc Subsidiaries Eliminations Consolidated
---- --- ------------ ---------- ------------ ------------
Current assets .................................... $ -- $ 121,298 $1,085,669 $1,644,843 $(1,097,434) $ 1,754,376
Investment in subsidiaries ........................ (26,989) (94,938) 1,327,480 566,982 (1,688,021) 84,514
Land, buildings & equipment (net) ................. -- -- 23,548 381,367 (5,717) 399,198
Notes and accounts receivable - long-term ......... -- 595,655 46,062 844,730 (1,421,074) 65,373
Intangible assets (net) ........................... -- -- 239,862 374,335 (339,654) 274,543
Other non-current assets .......................... -- 15,962 554,787 183,480 (6,396) 747,833
--------- --------- ---------- ---------- ----------- -----------
TOTAL ASSETS ...................................... $ (26,989) $ 637,977 $3,277,408 $3,995,737 $(4,558,296) $ 3,325,837
========= ========= ========== ========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities ............................... $ 2,555 $ 667,521 $1,334,268 $1,485,639 $(1,101,363) $ 2,388,620
Long-term debt .................................... -- -- 236,104 1,334,581 (1,432,830) 137,855
Other non-current liabilities ..................... -- -- 989,443 62,902 (223,439) 828,906
Subordinated Robbins Obligations .................. -- -- -- -- -- --
Convertible debt .................................. -- -- -- -- -- --
Preferred trust securities ........................ -- -- -- -- -- --
--------- --------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES ................................. 2,555 667,521 2,559,815 2,883,122 (2,757,632) 3,355,381
TOTAL SHAREHOLDERS' EQUITY ........................ (29,544) (29,544) 717,593 1,112,615 (1,800,664) (29,544)
--------- --------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........................... $ (26,989) $ 637,977 $3,277,408 $3,995,737 $(4,558,296) $ 3,325,837
========= ========= ========== ========== =========== ===========
21
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Six Months Ended June 28, 2002
(In Thousands of Dollars)
(Restated)
Non-guarantor
Foster Wheeler Foster Wheeler Guarantor Subsidiaries
Ltd. Llc Subsidiaries Eliminations Consolidated
-------------- -------------- --------- ------------ ------------ ------------
Operating revenues................. $ $ $ 432,081 $ 1,428,948 $ (121,286) $ 1,739,743
Other income....................... - 27,456 11,792 46,625 (60,686) 25,187
------------ ----------- ----------- ----------- ----------- ------------
Revenues....................... - 27,456 443,873 1,475,573 (181,972) 1,764,930
Cost of operating revenues......... - - 422,696 1,306,069 (121,286) 1,607,479
Selling, general and administrative
expenses....................... - - 50,943 61,021 - 111,964
Other deductions and minority
interest*....................... 54 28,700 50,081 127,565 (60,686) 145,714
Equity in net losses of
subsidiaries.................. (184,271) (186,352) (50,460) - 421,083 -
-------------- ------------ ---------- ------------ ---------- ------------
Loss before income
taxes......................... (184,325) (187,596) (130,307) (19,082) 421,083 (100,227)
(Benefit)/provision for income
taxes......................... (19) (435) 28,456 (17,423) - 10,579
-------------- ------------ ---------- ------------ ---------- ------------
Net loss prior to cumulative effect
of a change in accounting principle. (184,306) (187,161) (158,763) ( 1,659) 421,083 (110,806)
Cumulative effect on prior years of a
change in accounting principle
for goodwill, net of $0 tax.... (73,500) (73,500)
------------- ----------- ---------- ------------ ---------- -------------
Net loss**........................... (184,306) (187,161) (158,763) (75,159) 421,083 (184,306)
Other comprehensive (loss)/income:
Foreign currency translation
adjustment..................... 9,406 9,406 9,406 13,515 (32,327) 9,406
Net (loss)/gain on derivative
adjustment..................... (3,834) (3,834) (3,834) 284 7,384 (3,834)
-------------- ------------ ------------- ------------ ---------- -------------
instruments....................
Comprehensive loss $ (178,734) $ (181,589) $ (153,191) $ (61,360) $ 396,140 $ (178,734)
============== ============ ============= ============ ========== =============
<FN>
* Includes interest expense and dividends on preferred securities of $40,073.
** Includes the following pre-tax special charges 1) goodwill impairment of
$73,500; 2) write-down of $50,800 related to assets in process of being sold;
3) claim write-downs of $47,900; 4) others including refinancing efforts,
performance intervention activities and employee severance of $44,800; and 5)
offset by the gains on foreign exchange contracts of $20,700.
</FN>
22
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended June 28, 2002
(In Thousands of Dollars)
(Restated)
Non-Guarantor
Foster Wheeler Foster Wheeler Guarantor Subsidiaries
Ltd. LLC Subsidiaries ------------ Eliminations Consolidated
---- - --- ------------ ------------ ------------
Operating revenues................. $ - $ - $ 228,018 $ 792,924 $ (76,608) $ 944,334
Other income....................... - 10,903 (4,527) 38,201 (30,010) 14,567
------------ ----------- ------------ ----------- ----------- ------------
Revenues....................... - 10,903 223,491 831,125 (106,618) 958,901
Cost of operating revenues......... - - 233,389 738,766 (76,608) 895,547
Selling, general and administrative
expenses....................... - - 27,583 30,123 - 57,706
Other deductions and minority
interest*....................... 25 14,025 30,722 71,787 (30,010) 86,549
Equity in net losses of
subsidiaries.................. (85,580) (85,422) (39,470) - 210,472 -
-------------- ------------ ----------- ----------- ---------- -----------
Loss before income
taxes......................... (85,605) (88,544) (107,673) (9,551) 210,472 (80,901)
(Benefit)/provision for income
taxes......................... (9) (93) 23,678 (18,881) - 4,695
-------------- ------------ ---------- ------------ ---------- ------------
Net loss prior to cumulative effect
of a change in accounting principle (85,596) (88,451) (131,351) 9,330 210,472 (85,596)
Cumulative effect on prior years of a
change in accounting principle
for goodwill, net of $0 tax.... - - - - - -
------------- ----------- ---------- ----------- ---------- --------
Net loss**........................... (85,596) (88,451) (131,351) 9,330 210,472 (85,596)
Other comprehensive (loss)/income:
Foreign currency translation
adjustment....................... 18,683 18,683 18,683 23,932 (61,298) 18,683
adjustment...................
Net (loss)/gain on derivative
instruments.................... (456) (456) (456) 3,642 (2,730) (456)
-------------- ----------- ------------- ----------- ----------- --------------
Comprehensive (loss)/earnings $ (67,369) $ (70,224) $ (113,124) $ 36,904 $ 146,444 $ (67,369)
============== ============ ============= =========== ========== =============
<FN>
* Includes interest expense and dividends on preferred securities of $19,157.
** Includes the following pre-tax special charges 1) write-downs of $31,800
related to assets in process of being sold; 2) claim write-downs of $47,900;
3) others including refinancing efforts, performance intervention activities
and employee severance of $29,050; and 4) offset by the gains on foreign
exchange contracts of $20,700.
</FN>
23
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Six Months Ended June 29, 2001
(In Thousands of Dollars)
(Revised and Restated)
Non-Guarantor
Foster Wheeler Foster Wheeler Guarantor Subsidiaries
Ltd. LLC Subsidiaries ------------ Eliminations Consolidated
-------------- -------------- ------------ ------------ -------------
Operating revenues................. $ - $ - $ 380,579 $ 1,259,634 $ (130,688) $ 1,509,525
Other income....................... - 241,012 8,585 57,946 (278,650) 28,893
-------- ----------- ----------- ----------- ----------- ------------
Revenues....................... - 241,012 389,164 1,317,580 (409,338) 1,538,418
Cost of operating revenues......... - - 365,856 1,114,978 (130,688) 1,350,146
Selling, general and
administrative expenses........ - 7,895 30,176 74,400 - 112,471
Other deductions and minority
interest*....................... 66 29,326 8,291 73,314 (49,844) 61,153
Equity in net gain/(loss) of
subsidiaries.................. 8,007 28,330 (268,560) - 232,223 -
--------- ----------- ----------- ----------- ---------- --------
Earnings/(loss) before income
taxes......................... 7,941 232,121 (283,719) 54,888 3,417 14,648
(Benefit)/provision for income
taxes......................... (23) (8,284) (79,652) 94,643 - 6,684
---------- ------------ ----------- ----------- ---------- ------------
Net earnings/(loss)**............... 7,964 240,405 (204,067) (39,755) 3,417 7,964
Other comprehensive (loss)/income:
Foreign currency translation
adjustment..................... (22,843) (22,843) (22,843) (27,496) 73,182 (22,843)
Net (loss)/earnings on derivative
instruments....................
(4,485) (4,485) (4,485) (10,194) 19,164 (4,485)
---------- ------------------------------------------- ---------- --------------
Comprehensive loss $ (19,364) $ 213,077 $ (231,395) $ (77,445) $ 95,763 $ (19,364)
========== =========== ============= ============ ========== =============
<FN>
* Includes interest expense and dividends on preferred securities of $40,137.
** Includes $5,000 pre-tax loss on sale of a hydrogen plant.
</FN>
24
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Six Months Ended June 28, 2002
(In Thousands of Dollars)
(Restated)
Foster Foster
Wheeler Wheeler Guarantor Non-guarantor
Ltd. Llc Subsidiaries Subsidiaries Eliminations Consolidated
---- --- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH (USED)/PROVIDED BY
OPERATING ACTIVITIES $ (54) $ 11,080 $ (30,463) $ 125,052 $ (20,663) $ 84,952
-------- ----------- ----------- -------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash - - (39,687) (907) - (40,594)
Capital expenditures - - (356) (10,584) - (10,940)
Proceeds from sale of properties - - - 1,170 - 1,170
(Increase)/decrease in investment and
advances - - 15,598 (26,236) 9,071 (1,567)
Decrease in short-term investments - - - 4 - 4
Other - - - 653 (2,714) (2,061)
------- ----------- ---------- -------------- ----------- ------------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES - - (24,445) (35,900) 6,357 (53,988)
------- ----------- ----------- --------------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Common Shareholders - - - (13,562) 13,562 -
Increase/(decrease) in short-term debt - - - 299 - 299
Proceeds from long-term debt - 70,000 - (882) - 69,118
Repayment of long-term debt - - - (5,044) - (5,044)
Other 54 (81,080) 151,589 (73,330) 2,767 -
--------- ------------ ---------- ---------------- ---------- --------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES 54 (11,080) 151,589 (92,519) 16,329 64,373
--------- ------------ ---------- --------------- ---------- -----------
Effect of exchange rate changes on
cash and cash equivalents - - - 26,690 (2,023) 24,667
--------- ----------- ---------- -------------- ----------- -----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS - - 96,681 23,323 - 120,004
Cash and cash equivalents,
beginning of period - - 25,693 198,327 - 224,020
--------- ----------- ---------- -------------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ - $ - $ 122,374 $ 221,650 $ - $ 344,024
========= =========== ========== =============== ========== ===========
25
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Six Months Ended June 29, 2001
(In Thousands of Dollars)
(Restated)
Foster Foster
Wheeler Wheeler Guarantor Non-guarantor
Ltd. Llc Subsidiaries Subsidiaries Eliminations Consolidated
---- --- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH (USED)/PROVIDED BY
OPERATING ACTIVITIES $ 2,446 $ (150,302) $ 40,338 $ 137,343 $ (171,205) $ (141,380)
-------- ------------ ---------- -------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - (2,346) (703) (13,284) - (16,333)
Proceeds from sale of properties - - - 37,705 - 37,705
(Increase)/decrease in investment and -
advances - - 2 9,176 9,178
Decrease in short-term investments - - - 361 - 361
Other - - - (1,367) - (1,367)
-------- ------------ ---------- --------------- ---------- ------------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES - (2,346) (701) 32,591 - 29,544
-------- ------------ ----------- -------------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Common Shareholders (2,446) (2,442) (70,000) (162,055) 232,055 (4,888)
Increase/(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 (361,250) 361,271 - 78,271
Repayment of long-term debt - (126,662) - (4,778) - (131,440)
Other - 590 360,096 (295,877) (64,219) 590
-------- ----------- ---------- --------------- ----------- -----------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES (2,446) 152,648 (71,154) (175,712) 167,836 71,172
---------- ----------- ----------- --------------- ---------- -----------
Effect of exchange rate changes on
cash and cash equivalents - - - (19,049) 3,369 (15,680)
--------- ----------- ---------- --------------- ---------- ------------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS - - (31,517) (24,827) - (56,344)
Cash and cash equivalents,
beginning of year - - 33,162 158,731 - 191,893
--------- ----------- ---------- -------------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ - $ - $ 1,645 $ 133,904 $ - $ 135,549
========= =========== ========== ============== ========== ===========
26
12. The Company owns a non-controlling equity interest in three
cogeneration projects and one waste-to-energy project, three of which
are located in Italy and one in Chile. Two of the projects in Italy are
each 42% owned while the third is 49% owned by the Company. The project
in Chile is 85% owned by the Company. The Company does not have a
controlling financial interest in the Chilean project. Following is
summarized financial information for the Company's equity affiliates
combined, as well as the Company's interest in the affiliates.
JUNE 28, 2002 DECEMBER 28, 2001
------------- -----------------
ITALIAN CHILEAN ITALIAN CHILEAN
BALANCE SHEET DATA: PROJECTS PROJECT PROJECTS PROJECT
- ------------------- -------- ------- -------- -------
Current assets $ 82,956 $ 16,232 $ 75,942 $ 23,301
Other assets (primarily buildings
and equipment) 336,679 221,137 311,584 227,019
Current liabilities 18,415 14,204 12,487 14,747
Other liabilities (primarily long-
term debt) 341,846 153,689 329,030 158,124
Net assets 59,374 69,476 46,009 77,449
INCOME STATEMENT DATA FOR SIX MONTHS:
JUNE 28, 2002 JUNE 29,2001
------------- ------------
ITALIAN CHILEAN ITALIAN CHILEAN VENEZUELA
PROJECTS PROJECT PROJECTS PROJECTS PROJECT
-------- ------- -------- -------- -------
Total revenues $ 78,921 $ 19,296 $ 81,051 $ 20,506 $ 4,428
Income before income taxes 14,743 4,775 11,083 4,438 2,684
Net earnings 8,821 3,963 6,043 4,429 2,582
As of June 28, 2002, the Company's share of the net earnings and
investment in the equity affiliates totaled $6,660 and $84,144
respectively. Dividends of $9,659 were received during the first six
months of 2002. The Company has guaranteed certain performance
obligations of such projects. The Company's average contingent
obligations under such guarantees are approximately $2,700 per year for
the four projects. The Company has provided a $10,000 debt service
reserve letter of credit providing liquidity should the performance of
the project be insufficient to cover the 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 were approximately $40.0 million. An after tax loss of $5.0
million, or approximately $.12 per share, was recorded in the second
quarter of 2001 relating to these sales.
13. The difference between the statutory and effective tax rate in 2002 is
predominately due to a domestic pretax loss for which no income tax
benefit was claimed. The difference between the statutory and effective
tax rate in 2001 is predominantly due to state and local taxes, certain
tax credits and the favorable settlement of a contested foreign tax
liability.
14. During the six months ended June 28, 2002, the Company recorded a
provision for losses on the potential sale of two waste-to-energy
facilities of $50,800.
15. In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 145, "Rescission of
FASB Statements No. 4,44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections" and No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities".
27
SFAS No. 145 rescinds previous statements regarding the extinguishment
of debt and amends SFAS No. 13, "Accounting for Leases" to eliminate an
inconsistency between the required accounting for sale/leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale/leaseback
transactions. The provisions of SFAS No. 145 related to the
extinguishment of debt are to be applied to fiscal years beginning after
May 15, 2002. The provisions of SFAS No. 145 related to the amendment of
SFAS No. 13 are effective for transactions occurring after May 15, 2002.
The Company is currently assessing the impact of the adoption of this
new standard.
SFAS No. 146 requires liabilities associated with an exit or disposal
activity be recognized at fair value when the liability is incurred.
This contrasts with existing accounting requirements, under which
liabilities for exit or disposal activities are recognized at the date
of an entity's commitment to an exit plan. The provisions of SFAS No.
146 are effective for exit or disposal activities initiated after
December 31, 2002. The Company is currently assessing the impact of the
adoption of this new standard.
16. Subsequent to the filing of the Company's second quarter 2002 Form 10-Q,
management determined that the assets, liabilities and results of
operations associated with one of the Company's benefit plans were not
accounted for in accordance with SFAS 112, "Employers' Accounting for
Postemployment Benefits." The Company's condensed consolidated balance
sheets as of December 28, 2001 and June 28, 2002 and the related
condensed consolidated statements of earnings and comprehensive income
for the three and six month periods ended June 28, 2002 and June 29,
2001 and the condensed consolidated statement of cash flows for the six
month periods ended June 28, 2002 and June 29, 2001 have been revised to
account for the assets, liabilities and results of operations associated
with this benefit plan in accordance with SFAS 112, "Employers'
Accounting for Postemployment Benefits". The Company's Survivor Income
Plan is designed to provide coverage for an employee's beneficiary upon
the death of the employee. The prepaid pension cost was increased to
reflect the updated cash surrender value of underlying insurance
policies, and the post retirement and other employee benefits other than
pensions was increased to reflect the updated obligation, calculated on
a going concern basis. The cumulative effect on shareholders' equity as
of December 28, 2001 was a decrease of $37,091. A summary of the effects
of the restatement on the Company's condensed consolidated balance sheet
and condensed consolidated statement of earnings and comprehensive
income is as follows:
Three Three
Statement Months Months Six Months Six Months
June 28, June 28, of Ended June Ended June Ended June Ended June
2002 2002 Earnings and 28, 2002 28, 2002 28, 2002 28, 2002
Balance Sheet As Reported Restated Comprehensive Income As Reported Restated As Reported Restated
- -------------------------- ------------ ------------- ------------------------- ------------ ------------ ------------ -----------
Selling, general and
Prepaid pension cost $ 127,481 $ 134,228 administrative expenses $ 57,086 $57,706 $ 110,724 $111,964
Post retirement and
other employee benefits (Loss) before income
other than pensions $ 123,720 $168,798 taxes $(80,281) $(80,901) $ (98,987) $(100,227)
Retained earnings
(deficit) $(255,847) $(294,178) Net (loss) $(84,976) $(85,596) $ (183,066) $(184,306)
Total shareholder's (Loss) per Share, Basic
equity (deficit) $(169,947) $ (208,278) and Diluted $ (2.08) $ (2.09) $ (4.47) $(4.50)
December 28, December 28,
2001 2001
Balance Sheet As Reported Restated
- ------------------------------------- ---------------- -----------------
Prepaid pension cost $ 122,407 $ 131,865
Post retirement and other employee
benefits other than pensions $ 121,600 $ 168,149
Retained earnings (deficit) $ (72,781) $ (109,872)
Total shareholder's equity (deficit) $ 7,547 $ (29,544)
28
Statement Three Months Three Months Six Months
of Ended June 29, Ended June 29, Six Months Ended Ended June 29,
Earnings and Comprehensive 2001 2001 June 29, 2001 2001
Income As Reported Restated As Reported Restated
-------------------------------- ------------------ ----------------- ------------------ -----------------
Selling, general and $ 59,644 $ 60,359 $ 111,041 $112,471
administrative expenses
Earnings before income taxes $ 5,571 $ 4,856 $ 16,078 $ 14,648
Provision for income taxes $ 4,782 $ 4,532 $ 7,184 $ 6,684
Net earnings $ 789 $ 324 $ 8,894 $ 7,964
Earnings per Share, Basic and
Diluted $ 0.02 $ .01 $ 0.22 $ 0.19
29
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS 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 2001 Form 10-K. The Company's financial
statements have been revised to account for the assets, liabilities and results
of operations associated with one of its postemployment benefit plans in
accordance with Statement of Financial Accounting Standards 112, "Employers'
Accounting for Postemployment Benefits".
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 28, 2002 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 29, 2001
CONSOLIDATED DATA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
(Restated) (Restated) (Restated) (Restated)
Revenues $ 958,901 $ 840,183 $ 1,764,930 $ 1,538,418
============ ============= ============= ============
(Loss)/earnings before tax and
cumulative effect of a change
in accounting principle $ (80,901) $ 4,856 $ (100,227) $ 14,648
============ ============= ============= =============
Net (loss)/earnings $ (85,596) $ 324 $ (184,306) $ 7,964
============ ============= ============= ============
In the first and second quarter of 2002 the Company recognized pretax net
charges of $108,250 and $88,050, respectively. These costs and charges are
broken out in order to allow for a better comparison to last year's results.
Shown below is a table that details the various components of the charges.
THREE MONTHS ENDED SIX MONTHS ENDED
DESCRIPTION MARCH 29, 2002 JUNE 28, 2002 JUNE 28, 2002
----------- -------------- ------------- -------------
1) Change In Accounting For Goodwill $ 73,500 - $ 73,500
2) Losses Recognized In Anticipation
of Sales 19,000 $ 31,800 50,800
3) Claims Write-Downs - 47,900 47,900
4) Gains on Foreign Exchange Contracts - (20,700) (20,700)
5) Other 15,750 29,050 44,800
------------ ------------ -------------
Total $ 108,250 $ 88,050 $ 196,300
============ ============ =============
<FN>
1) Relates to the Camden facility that is part of the Energy Group for
$24,800 and $48,700 for a reporting unit in the Engineering and
Construction Group.
2) The first quarter's amount was included in other deductions in the
Energy Group, and was for the Charleston Facility. The second quarter
amount was included in other deductions in the Energy Group for
$31,800, which relates to the Hudson Falls Facility. These losses were
recognized in anticipation of potential sales of operations.
3) These charges were reflected in cost of operating revenues in the
second quarter. The E&C Group recorded $27,200 and the Energy Group
recorded $20,700. Based on the current expectation for settlement and
the results of recent arbitration results, three of the Company's
affirmative claims were reduced.
4) These were recorded as reductions of cost of operating revenues
primarily in the Energy Group.
5) This represents costs of severance, performance intervention activities
and refinancing efforts. The first quarter is comprised of $5,700 for
the Energy Group and $10,050 for Corporate and Financial Group ("C&F").
The second quarter is comprised of $7,500 in the Energy Group and
$21,550 for C&F. The Energy Group amount was all recorded in other
deductions. The C&F details were $3,900 in selling, general and
administrative expenses and $27,700 in other deductions.
</FN>
30
In addition the Company's valuation allowance for deferred tax assets was
increased by $31,300 and $68,600 for the three and six-month period ended June
2002, respectively.
Operating revenues increased 14% in the three months ended June 28, 2002
compared to three months ended June 29, 2001, to $944,334 from $826,882. The
most recent six-month period reflects a 15% increase in the operating revenues
to $1,739,743 from $1,509,525 during the first six months of 2001. The E&C Group
accounted for approximately 75% of the increase for the quarter and 40% of the
increase for the six-month period. The Energy Group accounted for approximately
25% of the increase for the quarter and 60% of the increase for the six months.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, decreased by $27,115 or 17%, from $159,379 to $132,264 in
the six months ended June 28, 2002 as compared with the six months ended June
29, 2001. Gross earnings for the three months ended June 28, 2002 decreased by
$35,634 or 42% compared to three months ended June 29, 2001. The decreases in
gross earnings were primarily due to claim write-downs discussed above of
$47,900 offset by the gain on foreign exchange contracts of $20,700 in the
second quarter of 2002. In addition in the second quarter of 2002, the Italian
E&C operations had a lower level of gross earnings, which accounted for the
difference.
Selling, general and administrative expenses were approximately the same in the
six months ended June 28, 2002 as compared to the same period in 2001. The
expenses in the second quarter ended June 28, 2002 decreased by $2,653 or 4%
compared to the same period in 2001. The three months and six months ended June
28, 2002 include $2,900 of severance and $1,000 of legal cost. Domestic selling,
general and administrative costs are the focus of the current intervention
process as discussed in Note 2 to the condensed consolidated financial
statements. Due to the timing of the changes made in this area, the total impact
of the reductions was not realized in the six months ended June 28, 2002.
Other income in the six months ended June 28, 2002 decreased to $25,187 from
$28,893 for the six months ended June 29, 2001. For the three month period ended
June 28, 2002, other income increased by $1,266 or 10% compared to the same
period in 2001. The decreases for the six-month period were primarily related to
reduced interest income ($1,550), lower equity gain ($800) and lower foreign
transaction gains ($1,142).
Other deductions and minority interest for the six months ended June 28, 2002
were $ 84,625 higher than that reported in the six months ended June 29, 2001.
The increase in the six months ended June 28, 2002 was due to refinancing
efforts, performance intervention activities and employee severance ($44,800)
and provision for anticipated loss on sale of assets ($50,800). Other deductions
for the three months ended June 28, 2002 increased by $54,257 compared to the
same period in 2001. The increase was primarily due to refinancing efforts,
performance intervention activities and employee severance ($29,050) and
provision for anticipated loss on sale of assets ($31,800).
The tax provision for the six months ended June 28, 2002 was $10,579 on losses
before tax of $173,727, which includes the $73,500 cumulative effect of the
change in accounting principle for goodwill. The negative effective tax rate
results from domestic pretax losses for which no income tax benefit was claimed
due to the establishment of a valuation allowance.
31
The net loss in the six months ended June 28, 2002 was $184,306 or $4.50 per
share diluted compared to the net earnings of $7,964 or $0.19 per share diluted
for the six months ended June 29, 2001. The primary reasons for the six months
decline relates to the following pre-tax special charges 1) goodwill impairment
of $73,500; 2) write-down of $50,800 related to assets in process of being sold;
3) claim write-downs of $47,900; and 4) refinancing efforts, performance
intervention activities and employee severance of $44,800. These were partially
offset by the gains on foreign exchange contracts of $20,700. The net loss for
the three months ended June 28, 2002 was $ 85,596 or $2.09 per share diluted
compared to net earnings of $324 or $0.01 per share diluted for the three months
ended June 29, 2001. The primary reasons for the three months decline relates to
the following pre-tax special charges: 1) write-down of $31,800 related to
assets in process of being sold; 2) claim write-downs of $47,900; and 3) others
including refinancing efforts, performance intervention activities and employee
severance of $29,050. These were partially offset by the gains on foreign
exchange contracts of $20,700. These results compare to first-half 2001 net
earnings of $12,964 or $.31 per share diluted, excluding a $5,000 loss on sale
of a hydrogen plant. Including this charge, net earnings for the first six
months of 2001 were $7,964 or $.19 per share diluted.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Operating revenues $ 550,831 $ 458,001 $ 963,873 $ 880,708
=============== =============== ============== ==============
Gross earnings from operations $ 6,015 $ 45,226 $ 46,234 $ 85,111
=============== =============== ============== ==============
Operating revenues for the three-month and six-month periods ended June 28,
2002 increased 20% and 9%, respectively compared to the three-month and
six-month periods ended June 29, 2001. These increases were primarily the result
of increased activity by the Italian operations. Gross earnings from operations
decreased by 46% for the six-month period ended June 28, 2002, compared with the
corresponding period ended June 29, 2001. In the second quarter 2002,
Engineering and Construction Group recognized claims write-down of $27,200.
ENERGY GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Operating revenues $ 406,677 $ 376,521 $ 790,193 $ 649,887
============== ============= ============== ============
Gross earnings from operations $ 43,955 $ 38,696 $ 87,265 $ 73,528
============== ============= ============== =============
Operating revenues for the six-month period ended June 28, 2002 increased by
22%. The Finnish operations and the operations in the United States were
responsible for the increase in the six-month period. Late in 2000 and early in
2001, the Energy Group had received significant new awards that resulted in
higher revenues in the current period. The increases in the United States were
primarily in the EPC power segment of the business. Gross earnings from
operations increased by 19% for the six-month period ended June 28, 2002
compared with the period ended June 29, 2001 primarily due to higher operating
revenues. Approximately $5,000 is related to Finnish operations while $11,000 is
related to the EPC power segment, consistent with the increase in revenues. For
the three months ended June 28, 2002, the operating revenues increased by 8% and
gross earnings increased by 14% compared to the same period ended June 29, 2001.
The Finnish operations were primarily responsible for the increase in the
quarter's activity. In the second quarter 2002, Energy Group recognized claims
write-downs of approximately $20,700 offset by the gain on foreign exchange
contract of approximately $21,000.
As previously disclosed, the Company has reviewed various methods of monetizing
selected Power Systems 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. If the Company was able to monetize these
assets, it is possible that the amounts realized could differ materially from
the balances in the financial statements in other deductions. Based on
preliminary sales agreements entered into with third parties, the Company
recognized provisions for anticipated loss for the potential sale of two
waste-to-energy facilities of $19,000 in the first quarter 2002 and $31,800 in
the second quarter of 2002, for a total year to date charge of $50,800.
32
FINANCIAL CONDITION
Shareholders' equity for the six months ended June 28, 2002 decreased by
$178,734, due primarily to the loss for the period of $184,306, changes in the
foreign currency translation adjustment of $9,406 and reclassification of
unrealized gain on derivative instruments to earnings of $3,834.
Cash flows from operations were $84,952 for the six months ended June 28, 2002
compared to a use of cash from operations of $141,380 for the six months ended
June 29, 2001. The increase in cash provided from operations is primarily due to
the collection of two significant receivables ($87,000) and cash received from
the cancellation of a company-owned life insurance plan ($22,000).
During the six months ended June 28, 2002, long-term investments in land,
buildings and equipment were $10,940 as compared with $16,333 for the comparable
period in 2001, which reflects lower investments in foreign build, own and
operate facilities which is in line with the previously announced repositioning
plan for these types of plants.
Corporate and other debt, special purpose project debt and bank loans net of
cash and short term investments have decreased by $54,317 since December 28,
2001. The improvement in net debt primarily resulted from increased cash flows
from operations, the cancellation of a company-owned life insurance plan
($22,000) and the collection of two significant receivables ($87,000), offset by
the repayment in the second quarter of 2002 of the $50,000 receivables sale
arrangement.
Corporate and other debts, including the Revolving Credit Agreement, are as
follows:
JUNE 28, 2002
Corporate and other debt consisted of the following:
Revolving Credit Agreements (average interest rate 3.72%)....$ 140,000
6.75% Notes due November 15, 2005............................ 200,000
Other........................................................ 27,408
-------------
$ 367,408
Less, Current Portion........................................... 20,416
-------------
$ 346,992
In the third quarter 1998, a subsidiary of the Company entered into a six-year
agreement with a financial institution whereby the subsidiary would sell an
undivided interest in a designated pool of qualified accounts receivable. At
December 28, 2001, $50,000 in receivables were sold under the agreement and are
therefore not reflected in the accounts receivable-trade balance in the
Condensed Consolidated Balance Sheet. The bank that is party to this financing
terminated the agreement on April 30, 2002 in accordance with its terms. The
Company has replaced this facility subsequent to June 28, 2002 as discussed
below.
33
LIQUIDITY AND CAPITAL RESOURCES
As of June 28, 2002, the Company had cash and cash equivalents on hand,
restricted cash and short-term investments worldwide of $384,903. Subsequent to
June 28, 2002, the Company finalized a Senior Credit Facility with a group of
banks. This facility includes a $71,000 term loan, a revolving credit facility
for $69,000 and a letter of credit facility for $149,900 that expires on April
30, 2005. This facility is secured by the assets of the domestic subsidiaries,
the stock of the domestic subsidiaries as well as 66% of the stock of the
first-tier foreign subsidiaries. The facility has no scheduled repayments prior
to maturity on April 30, 2005. The facility requires prepayments from proceeds
of assets sales and the issuance of debt or equity and from excess cash flow.
The Company retains the first $77,000 of such amounts in order to maintain
liquidity and the Company also maintains a 50% share of the balance. The
financial covenants in the facility start at the end of the first quarter 2003.
These include a senior leverage ratio and a minimum EBITDA level as described in
the agreement.
The Company has also finalized a sale/leaseback arrangement with an investor for
its corporate headquarters. This capital lease arrangement leases the facility
to the Company for an initial non-cancelable period of 20 years. The amount of
the sale/leaseback is sufficient to repay the balance outstanding under the old
financing lease arrangement of $33,000 that was subject to the forbearance as of
June 28, 2002.
Subsequent to June 28, 2002, the Company also completed a receivables sale
arrangement for $40,000. This will be accounted for as a financing.
As a result of finalizing the Senior Credit Facility, the sale/leaseback
arrangement and the receivables sale arrangement, the Company has reclassified
the Term Loan and Revolving Credit to long-term. In addition, the other debt
that was subject to potential cross acceleration provisions has also been
classified to long-term.
Management's plan to address the Company's domestic liquidity issues includes
generating approximately $150,000 from asset sales, collection of receivables
and resolving disputed claims over the next six months and an additional $40,000
over the following six months. To the extent these initiatives are not
successful, the Company will explore other options including the repatriation of
funds from foreign operations and further cost reduction and cash conservation
measures. Management believes that these actions, together with cash on hand and
cash from operations will be sufficient to fund the Company's working capital
needs over the next year. Failure by the Company to achieve a significant
portion of these proceeds could have a material adverse effect on the Company's
financial condition. The above factors raise substantial doubts about the
Company's ability to continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
A subsidiary of the Company has entered into a long-term contract with a
government agency. This contract is to be completed in four phases.
The first phase was for the design, permitting and licensing of a spent fuel
facility. This phase was for a fixed price of $67,000. The customer is currently
contesting $6,000 of the amount due under this phase. In addition, the Company
has submitted change requests in excess of $14,000. Based on the review of
outside counsel, management believes that a sufficient amount will be received
to avoid any write-downs.
34
The recently started second phase is billed on a cost plus fee basis and is
expected to last for approximately 24 months. In this phase, the Company must
respond to any questions regarding the initial design included in phase one.
Phase three is for the construction, start-up and testing of the facility for a
fixed price of $114,000, which is subject to escalation. This phase is expected
to last two years and requires that a subsidiary of the Company fund the
construction cost. In addition, a surety bond for the full contract price is
required. The cost of the facility is recovered in the first nine months of
operations under phase four.
During phase four a subsidiary of the Company will operate the facility at fixed
rates, subject to escalation, for approximately four years.
In March 2002, the Company initiated a comprehensive plan to enhance cash
generation and to improve profitability. The operating performance portion of
the plan concentrates on the quality and quantity of backlog, the execution of
projects in order to achieve or exceed the profit and cash targets and the
optimization of all non-project related cash sources and uses. In connection
with this plan, a group of outside consultants has been hired for the purpose of
carrying out a performance improvement intervention. The tactical portion of the
performance improvement intervention concentrates on booking current projects,
executing twenty-two "high leverage projects" and generating incremental cash
from high leverage opportunities such as overhead reductions, procurement and
accounts receivable. The systemic portion of the performance improvement
intervention concentrates on sales effectiveness, estimating, bidding and
project execution procedures.
Some of the details of the activities to date include the following:
PROCUREMENT
Starting in March 2002, the Company began implementing a plan to reduce the
internal man-hours and cycle time required to purchase items. As part of this
initiative, the Company is targeting entering into global and regional
purchasing alliances by December 2002.
ACCOUNTS RECEIVABLE
A company wide system was implemented to identify all past due receivables and
new policies have been established requiring the reporting of significant past
due amounts to senior management on a timely basis. By June 28, 2002 the Company
had collected $34,000 of past due receivables.
OVERHEAD REDUCTIONS
Management has evaluated, and continues to evaluate, all domestic corporate
overhead. As of June 28, 2002, 125 people representing $10,800 in annualized
salaries and benefits have been downsized. Management has also reduced
non-essential overhead by $3,700. Most of these reductions have only been put
into effect recently, so the impact has not yet been seen in the reported
earnings.
35
SALES
The Company is concentrating on increasing backlog with high quality bookings.
In May 2002 the Company launched an initiative to improve the sales
effectiveness of our North American energy and engineering and construction
groups. The sales effectiveness initiatives are aimed at building up the level
of sales activities in each group, by strengthening the selling skills of sales
personnel. This program also provides our management personnel with a
disciplined system to track sales opportunities and targets and identify actions
needed to convert those opportunities into bookings.
RISK MANAGEMENT
The Company reorganized its project risk management group in the second quarter
of 2002 and appointed a corporate vice president as its head. The purpose of
this group is to help the Company avoid projects with unmanageable risk and
ensure awarded projects are executed without exposing the Company to additional
financial risk. The project risk management group will (i) review potential
projects, proposals and contracts, (ii) monitor during the execution phase
projects deemed to present significant risks, (iii) recommend projects for
review by the executive committee, and (iv) review risk assessment and
contracting procedures of the Company's business procedures of the Company's
business units.
HIGH-LEVERAGE PROJECTS
In terms of the Company's project operating system worldwide, one of the major
initiatives launched approximately 20 weeks ago was focused on the way the
Company plans and executes projects in the field. This initiative is actually
centered on building a best-in-class - Foster Wheeler project management system.
This activity takes the best practices that management can find and integrates
them into its system across the company. Management is currently in the process
of expanding this initiative and doubling its size from the initial pilot that
was launched some weeks ago.
INTERNAL CONTROL REVIEW
Since the Chief Financial Officer and Chief Executive Officer are new to the
Company, they will initiate a detailed review of internal controls over the next
several months. Such reviews will include evaluation of the Company's
contracting policies and procedures relating to bidding and estimating
practices. Among other things, these reviews will include evaluation of the
Company's reserving practices for bad debts and uncollectible accounts
receivable, warranty costs, change orders and claims. Management will continue
its initiatives begun in early 2002, particularly those related to management of
delinquent accounts receivables.
CASH FLOWS FROM OPERATIONS
Over the past three and a half years, the Company has had negative cash flows
from operations. Several items have had a significant impact on the cash flow
from operations of the Company over the past several years.
The receivable sale arrangement was terminated in April 2002, which had a
$50,000 negative impact on cash flows during the second quarter of 2002.
Subsequent to June 28, 2002 the Company has finalized a $40,000 replacement for
this arrangement. This will be accounted for as a financing.
Claims net of settlements have had a negative impact of $98,200 over the past
three and a half years. The Company has a liquidity action plan that includes
resolution of outstanding claims, which is expected to have a significant
positive impact on future cash flows.
36
Over the past several years, the Company has been required by the terms of
several government contracts to provide the initial funding required which has
negatively impacted cash flows by approximately $57,000. As noted previously,
the Company reorganized its project risk management group in the second quarter
of 2002 and appointed a corporate vice president as its head. The purpose of
this group is to help the Company avoid projects with unmanageable risk and
ensure awarded projects are executed without exposing the Company to additional
financial risk. This group will carefully scrutinize all contracts for negative
cash flow terms. The Company does not intend to take contracts with similar
payment terms in the future.
The negative cash flows related to the Robbins Facility amount to $52,500 since
1998. Since its inception, this project has resulted in losses to the Company in
excess of $360,000. The impact on the Company's outstanding debt and the related
interest cost is substantial. As discussed in Note 8, the Company reached an
agreement with the debtor project companies on March 5, 2002. In June 2002, the
Plan of Reorganization incorporating this agreement was confirmed and became
effective. As a result, the Robbins Facility will not have a negative impact on
future operating cash flows except for the interest on the outstanding debt.
Finally, trade receivables over 180 days have increased approximately $57,000 in
the past three years. This problem area has been one of the primary focuses of
the Company's ongoing intervention.
BACKLOG AND NEW ORDERS BOOKED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 5,713,223 $ 6,332,562 $ 5,713,223 $ 6,332,562
============= ============== ============== ===========
New orders $ 648,389 $ 1,162,802 $ 1,441,219 $ 2,113,253
============== =============== ============== ===========
The Company's consolidated backlog at June 28, 2002 totaled $5,713,223, a
decline of 10% from the second quarter 2001 and 5% from fiscal year end 2001. As
of June 28, 2002, 35% of the consolidated backlog was from lump-sum work, 57% of
which was for the Energy Group, and 65% was from reimbursable work.
The elapsed time from the award of a contract to completion of performance may
be up to four years. The dollar amount of backlog is not necessarily indicative
of the future earnings of the Company related to the performance of such work.
The backlog of unfilled orders includes amounts based on signed contracts as
well as agreed letters of intent which management has determined are likely to
be performed. Although backlog represents only business 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 28, 2002 was $211,044, compared with $193,000 for the six
months ended June 29, 2001. 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 28, 2002 were
$648,389 and $1,441,219, respectively, compared to $1,162,802 and $2,113,253 for
the same periods ended June 29, 2001, a reduction of approximately 44% and 32%,
respectively. Approximately 46% of new orders booked in the six months ended
June 28, 2002 were for projects awarded to the Company's subsidiaries located
outside the United States, compared to 40% of new orders booked in the six
months ended June 29, 2001. Key countries and geographic areas contributing to
new orders awarded for the six months ended June 28, 2002 were the United States
and Europe. The reduction in new orders was primarily due to lower activity in
the Energy Group in the second quarter.
37
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 4,360,236 $ 4,184,606 $ 4,360,236 $ 4,184,606
============= ============== ============== ==============
New orders $ 512,596 $ 579,088 $ 895,906 $ 1,089,541
============== ============== ============== ==============
The Engineering and Construction Group ("E&C Group") had a backlog of $4,360,236
at June 28, 2002, which was an increase of $175,630 or 4% from the first six
months of 2001 and a decline of $115,131 or 3% from December 28, 2001, primarily
due to the lower level of new orders.
New orders booked for the six-month period ended June 28, 2002 decreased by 18%
compared with the period ended June 29, 2001. For the three-month period ending
June 28, 2002 new orders decreased by 11% from the same period in 2001. This
decrease reflects lower new orders in the United States and Continental Europe.
Both of these operating units received significant awards in the first six
months of 2001 that were not repeated in 2002.
ENERGY GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 1,364,728 $ 2,249,747 $ 1,364,728 $ 2,249,747
============= ============== ============== ==============
New orders $ 137,995 $ 581,902 $ 551,968 $ 1,027,301
============== =============== ============== ==============
The Energy Group had a backlog of $1,364,728 at June 28, 2002, which represented
a 39% decrease from June 29, 2001 and 12% decrease from year end. Approximately
76% of the unfilled orders were from lump sum work with the remaining 24%
representing cost-reimbursable work. Late in 2000 and early in 2001, this group
had received significant new awards that resulted in higher revenues in the
current period. These revenues resulted in a reduction in the backlog compared
to the end of June 2002.
New orders booked for the three months and six months ended June 28, 2002
decreased by 76% and 46%, respectively, as compared to the same period in 2001.
The decline was primarily due to the downturn in the United States and Europe
power market.
NON-AUDIT SERVICES
On August 15, 2002 the Audit Committee approved non-audit services to be
provided by PricewaterhouseCoopers LLP for $2,500. Approximately $1,500 was for
tax related services and the balance was for statutory and special project
audits.
38
OTHER MATTERS
The ultimate legal and financial liability of the Company in respect to all
claims, lawsuits and proceedings cannot be estimated with certainty. As
additional information concerning the estimates used by the Company becomes
known, the Company reassesses its position both with respect to gain
contingencies and accrued liabilities and other potential exposures. Estimates
that are particularly sensitive to future change relate to legal matters, which
are subject to change as events evolve and as additional information becomes
available during the administration and litigation processes.
In the ordinary course of business, the Company and its subsidiaries enter into
contracts providing for assessment of damages for nonperformance or delays in
completion. Suits and claims have been or may be brought against the Company by
customers alleging deficiencies in either equipment design or plant
construction. Based on its knowledge of the facts and circumstances relating to
the Company's liabilities, if any, and to its insurance coverage, management of
the Company believes that the disposition of such suits will not result in
charges materially in excess of amounts provided in the accounts.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(IN THOUSANDS OF DOLLARS)
Management's strategy for managing transaction risks associated with currency
fluctuations is for each operating unit to enter into derivative transactions,
such as forward foreign exchange agreements, to hedge its exposure on contracts
into the operating unit's functional currency. The Company utilizes all such
financial instruments solely for hedging. Corporate policy prohibits the
speculative use of such instruments. The Company is exposed to credit loss in
the event of nonperformance by the counter parties to such financial
instruments. To minimize this risk, the Company enters into these financial
instruments with financial institutions that are primarily rated A or better by
Standard & Poor's or A2 or better by Moody's. 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 and
its variable rate project debt. If market rates average 1% more in 2002 than in
2001, the Company's interest expense for the next twelve months would increase,
and income before tax would decrease by approximately $1,879. This amount has
been determined by considering the impact of the hypothetical interest rates on
the Company's variable-rate balances as of June 28, 2002. In the event of a
significant change in interest rates, management would likely take action to
further mitigate its exposure to the change. However, due to uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the Company's financial structure.
Foreign Currency Risk - The Company has significant overseas operations.
Generally, all significant activities of the overseas affiliates are recorded in
their functional currency, which is generally the currency of the country of
domicile of the affiliate. This results in a mitigation of the potential impact
of earnings fluctuations as a result of changes in foreign exchange rates. In
addition, in order to further mitigate risks associated with foreign currency
fluctuations, the affiliates of the Company enter into foreign currency exchange
contracts to hedge the exposed contract value back to their functional currency.
As of June 28, 2002, the Company had approximately $312,111 of foreign exchange
contracts outstanding. These contracts mature between 2002 and 2004. The
contracts have been established by various international subsidiaries to sell a
variety of currencies and either receive their respective functional currency or
other currencies for which they have payment obligations to third parties. The
Company does not enter into foreign currency contracts for speculative purposes.
INFLATION
The effect of inflation on the Company's revenues and earnings is minimal.
Although a majority of the Company's revenues are made under long-term
contracts, the selling prices of such contracts, established for deliveries in
the future, generally reflect estimated costs to complete in these future
periods. In addition, some contracts provide for price adjustments through
escalation clauses.
39
ITEM 4 CONTROLS AND PROCEDURES
Immediately following the signature page of this report is the Certification
that is required under Section 302 of the Sarbanes-Oxley Act of 2002. This
section of the report contains information concerning the controls evaluation
referred to in the Section 302 Certifications and the information contained
herein should be read in conjunction with the Certification.
Internal controls are designed with the objective of ensuring that assets are
safeguarded, transactions are authorized, and financial reports are prepared on
a timely basis in accordance with generally accepted accounting principles in
the United States. The disclosure procedures are designed to comply with the
regulations established by the Securities and Exchange Commission and the New
York Stock Exchange.
Internal controls, no matter how designed, have limitations. It is the Company's
intent that the internal controls be conceived to provide adequate, but not
absolute, assurance that the objectives of the controls are met on a consistent
basis. Management plans to continue its review of internal controls and
disclosure procedures on an ongoing basis.
The Company's principal executive officer and principal financial officer, after
supervising and participating in an evaluation of the effectiveness of the
Company's internal and disclosure controls and procedures as of September 27,
2002 (the "Evaluation Date"), have concluded that as of the Evaluation Date, the
Company's internal and disclosure controls and procedures were effective.
There were no significant changes in the Company's internal and disclosure
controls or in other factors that could significantly affect such internal and
disclosure controls subsequent to the date of their evaluation.
SAFE HARBOR STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, other sections of this Report on Form 10-Q and other reports and
oral statements made by representatives of the Company from time to time may
contain forward-looking statements that are based on management's assumptions,
expectations and projections about the Company and the various industries within
which the Company operates. These include statements regarding the Company's
expectation regarding revenues (including as expressed by its backlog), its
liquidity and the ability to generate significant cash from the monetization of
assets on the new term, the outcome of litigation and legal proceedings and
recoveries from customers for claims. Such forward-looking statements by their
nature involve a degree of risk and uncertainty. The Company cautions that a
variety of factors, including but not limited to the following, could cause
business conditions and results to differ materially from what is contained in
forward looking statements:
o changes in the rate of economic growth in the United States and other
major international economies;
o changes in investment by the power, oil & gas, pharmaceutical,
chemical/petrochemical and environmental industries;
o changes in regulatory environment;
o changes in project schedules;
o changes in estimates made by the Company of costs to complete projects;
o changes in trade, monetary and fiscal policies worldwide;
o currency fluctuations;
o inability to achieve its plan to enhance cash generation;
o terrorist attacks on facilities either owned or where equipment or
services are or may be provided;
o outcomes of pending and future litigation, including litigation
regarding the Company's liability for damages and insurance coverage for
asbestos exposure;
o protection and validity of patents and other intellectual property
rights;
o increasing competition by foreign and domestic companies;
o monetization of certain business and other assets; and
o recoverability of claims against customers
40
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 additional disclosures the
Company makes in proxy statements, quarterly reports on Form 10-Q, annual
reports on Form 10-K, particularly the Risk Factors of the Business discussed on
pages 4 through 11 of the Form 10-K, and current reports on Form 8-K filed with
the Securities and Exchange Commission.
41
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to Note 8 to the Condensed Consolidated Financial Statements presented in
Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of legal
proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Date of Annual
Meeting.
The Annual meeting of Shareholders of the Company was held on May 22, 2002,
at the offices of the Company located at Perryville Corporate Park,
Clinton, New Jersey.
(b) Election of Directors - Voting Results
Voted to
Nominee For Withhold Authority
Victor A. Hebert 32,934,468 2,867,602
Joseph J. Melone 32,857,958 2,944,112
Raymond J. Milchovich 32,905,503 2,896,567
James E. Schessler 32,833,532 2,968,538
Other Directors continuing in office:
Eugene D. Atkinson Martha Clark Goss
John P. Clancey Constance J. Horner
David J. Farris John E. Stuart
E. James Ferland
(c) Additional Matters Voted Upon.
Proposal to amend Bye-law 10(4) to change the retirement
age for directors.
Broker
For Against Abstain Non-votes
33,551,521 2,041,326 209,223 0
Proposal to amend the 1995 Stock Option Plan.
Broker
For Against Abstain Non-votes
29,376,786 6,135,931 289,353 0
Ratification of the appointment of PricewaterhouseCoopers
LLP as independent accounts for the Company for 2002.
Broker
For Against Abstain Non-votes
35,327,679 336,658 137,733 0
42
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT NO. EXHIBITS
3.2 Bye-Laws of Foster Wheeler Ltd. amended May 22, 2002. (Filed as Exhibit
3.2 to Foster Wheeler's Form 10-Q for the quarter ended June 28, 2002
and incorporated herein by reference.)
4.1 Second Supplemental Indenture (relating to the Indenture dated as of
November 15, 1995) dated August 16, 2002, by and between Foster Wheeler
LLC, the Guarantors thereto, and BNY Midwest Trust Company. (Filed as
Exhibit 4.1 to Foster Wheeler's Form 10-Q for the quarter ended June 28,
2002 and incorporated herein by reference.)
4.2 Guaranty dated August 16, 2002 by the Guarantors party thereto in favor
of the holders of Foster Wheeler LLC's 6.75% notes due November 15, 2005
and BNY Midwest Trust Company. (Filed as Exhibit 4.2 to Foster Wheeler's
Form 10-Q for the quarter ended June 28, 2002 and incorporated herein by
reference.)
10.1 Separation Agreement of Henry E. Bartoli dated April 17, 2002. (Filed as
Exhibit 10.1 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
10.2 Separation Agreement of Gilles A. Renaud dated May 23, 2002. (Filed as
Exhibit 10.2 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
10.3 Employment Agreement of Joseph T. Doyle dated as of July 15, 2002.
(Filed as Exhibit 10.3 to Foster Wheeler's Form 10-Q for the quarter
ended June 28, 2002 and incorporated herein by reference.)
10.4 Amendment No. 3 dated as of May 30, 2002 to Amendment No. 1 and Waiver
dated as of January 28, 2002 relating to the Second Amended and Restated
Revolving Credit Agreement dated as of May 25, 2001 among Foster Wheeler
LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc.
(formerly known as Foster Wheeler Energy International, Inc.), Foster
Wheeler Energy Corporation, the Guarantors signatory thereto, the
Lenders signatory thereto, Bank of America, N.A., as Administrative
Agent, Wachovia Bank, National Association (formerly known as First
Union National Bank), as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent, arranged by Banc of America Securities LLC, as Lead
Arranger and Book Manager, and ABN AMRO Bank N.V., Wachovia Securities,
Inc. (formerly known as First Union Capital Markets), Greenwich Natwest
Structured Finance Inc. and Toronto Dominion Bank, as Arrangers. (Filed
as Exhibit 10.4 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
10.5 Amendment No. 4 dated as of June 30, 2002 to Amendment No. 1 and Waiver
dated as of January 28, 2002 relating to the Second Amended and Restated
Revolving Credit Agreement dated as of May 25, 2001 among Foster Wheeler
LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc.
(formerly known as Foster Wheeler Energy International, Inc.), Foster
Wheeler Energy Corporation, the Guarantors signatory thereto, the
Lenders signatory thereto, Bank of America, N.A., as Administrative
Agent, Wachovia Bank, National Association (formerly known as First
Union National Bank), as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent, arranged by Banc of America Securities LLC, as Lead
Arranger and Book Manager, and ABN AMRO Bank N.V., Wachovia Securities,
Inc. (formerly known as First Union Capital Markets), Greenwich Natwest
Structured Finance Inc. and Toronto Dominion Bank, as Arrangers. (Filed
as Exhibit 10.5 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
43
10.6 Settlement Agreement dated as of January 31, 2002, by and among Robbins
Resource Recovery Partners, L.P., RRRP Robbins, Inc., RRRP Illinois, LLC
and the undersigned holders of 1999 Bonds issued pursuant to the
Indenture representing the number of holders of 1999 Bonds as reflected
in the signature lines below, Foster Wheeler LLC, its Affiliates, and
their Related Persons and Sun Trust Bank (formerly known as, and as
successor to Sun Trust Bank, Central Florida, National Association) in
its capacity as trustee under the Indenture and as Litigation Proceeds
Trustee. (Filed as Exhibit 10.6 to Foster Wheeler's Form 10-Q for the
quarter ended June 28, 2002 and incorporated herein by reference.)
10.7 Supplement to the Settlement Agreement dated January 31, 2002, by and
among Robbins Resource Recovery Partners, L.P., RRRP Robbins, Inc., RRRP
Illinois, LLC and the undersigned holders of 1999 Bonds issued pursuant
to the Indenture representing the number of holders of 1999 Bonds as
reflected in the signature lines below, Foster Wheeler LLC, and its
Affiliates, and their Related Persons Sun Trust Bank (formerly known as,
and as successor to Sun Trust Bank, Central Florida, National
Association) in its capacity as trustee under the Indenture and as
Litigation Proceeds Trustee is made this 31st day of January, 2002.
(Filed as Exhibit 10.7 to Foster Wheeler's Form 10-Q for the quarter
ended June 28, 2002 and incorporated herein by reference.)
10.8 Settlement Agreement dated as of May 8, 2002, by and among Foster
Wheeler LLC, the Village of Robbins, and Sun Trust Bank (formerly known
as, and as successor to Sun Trust Bank, Central Florida, National
Association) in its capacity as trustee under the Second Amended and
Restated Mortgage, Security Agreement and Indenture of Trust dated as of
October 15, 1999 and as "Litigation Proceeds Trustee" under that certain
Litigation Proceeds Trust Agreement dated as of October 15, 1999 and
Robbins Resource Recovery Partners L.P., RRRP Robbins, Inc. and RRRP
Illinois, LLC. (Filed as Exhibit 10.8 to Foster Wheeler's Form 10-Q for
the quarter ended June 28, 2002 and incorporated herein by reference.)
10.9 Amendment No. 5 dated as of July 31, 2002 to Amendment No. 1 and Waiver
dated as of January 28, 2002 relating to the Second Amended and Restated
Revolving Credit Agreement dated as of May 25, 2001 among Foster Wheeler
LLC, Foster Wheeler USA Corporation, Foster Wheeler Power Group, Inc.
(formerly known as Foster Wheeler Energy International, Inc.), Foster
Wheeler Energy Corporation, the Guarantors signatory thereto, the
Lenders signatory thereto, Bank of America, N.A., as Administrative
Agent, Wachovia Bank, National Association (formerly known as First
Union National Bank), as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent, arranged by Banc of America Securities LLC, as Lead
Arranger and Book Manager, and ABN AMRO Bank N.V., Wachovia Securities,
Inc. (formerly known as First Union Capital Markets), Greenwich Natwest
Structured Finance Inc. and Toronto Dominion Bank, as Arrangers. (Filed
as Exhibit 10.9 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
44
EXHIBIT NO. EXHIBITS
10.10 Forbearance Extension Agreement dated as of July 31, 2002 by and among
(i) Perryville III Trust, (the "Landlord"), (ii) BNY Midwest Trust
Company, as successor trustee to Harris Trust and Savings Bank, (iii)
Foster Wheeler Realty Services, Inc., (iv) Foster Wheeler LLC, (v)
Lombard US Equipment Finance Corporation, (vi) National Westminster Bank
Plc (the "Agent") and (vii) the banks listed on Schedule I to that
certain Construction Loan Agreement dated as of December 16, 1994, among
the Landlord, as Borrower, the lenders party thereto and their permitted
successors and assigns and the Agent. (Filed as Exhibit 10.10 to Foster
Wheeler's Form 10-Q for the quarter ended June 28, 2002 and incorporated
herein by reference.)
10.11 The Foster Wheeler Annual Incentive Plan for 2002 and Subsequent Years.
(Filed as Exhibit 10.11 to Foster Wheeler's Form 10-Q for the quarter
ended June 28, 2002 and incorporated herein by reference.)
10.12 Third Amended and Restated Term Loan and Revolving Credit agreement
dated August 16, 2002, among Foster Wheeler LLC, Foster Wheeler USA
Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler Energy
Corporation, the Guarantors thereto and Bank of America, N.A. (Filed as
Exhibit 10.12 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
10.13 Security Agreement dated August 16, 2002, made by Foster Wheeler LLC and
the Grantors thereto and the Bank of America, N.A. (Filed as Exhibit
10.13 to Foster Wheeler's Form 10-Q for the quarter ended June 28, 2002
and incorporated herein by reference.)
10.14 Guaranty and Suretyship Agreement dated August 16, 2002 made by Foster
Wheeler LLC, Foster Wheeler Ltd., Foster Wheeler Inc., Foster Wheeler
International Holdings, Inc. and Energy (NJ) QRS 15-10, Inc. (Filed as
Exhibit 10.14 to Foster Wheeler's Form 10-Q for the quarter ended June
28, 2002 and incorporated herein by reference.)
10.15 Lease Agreement dated August 16, 2002, by and among Energy (NJ) QRS
15-10, Inc. and Foster Wheeler Realty Services, Inc. (Filed as Exhibit
10.15 to Foster Wheeler's Form 10-Q for the quarter ended June 28, 2002
and incorporated herein by reference.)
10.16 Loan and Security Agreement dated August 15, 2002 by and among Foster
Wheeler Funding LLC, the Lenders that are signatories thereto and
Foothill Capital Corporation. (Filed as Exhibit 10.16 to Foster
Wheeler's Form 10-Q for the quarter ended June 28, 2002 and incorporated
herein by reference.)
10.17 Performance Guaranty dated August 15, 2002, by Foster Wheeler in favor
of Foothill Capital Corporation. (Filed as Exhibit 10.17 to Foster
Wheeler's Form 10-Q for the quarter ended June 28, 2002 and incorporated
herein by reference.)
10.18 Servicing Agreement dated as of August 15, 2002, among Foster Wheeler
Funding LLC, Foothill Capital Corporation, and Foster Wheeler Capital &
Finance Corporation. (Filed as Exhibit 10.18 to Foster Wheeler's Form
10-Q for the quarter ended June 28, 2002 and incorporated herein by
reference.)
10.19 Purchase, Sale and Contribution Agreement dated August 15, 2002 among
Foster Wheeler Capital & Finance Corporation, Foster Wheeler
Constructors, Inc., Foster Wheeler Energy Corporation, Foster Wheeler
USA Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler Zack,
Inc., Foster Wheeler Energy Services, Inc. and Foster Wheeler Funding
LLC. (Filed as Exhibit 10.19 to Foster Wheeler's Form 10-Q for the
quarter ended June 28, 2002 and incorporated herein by reference.)
45
12.1 Statement of Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges. (Filed as Exhibit 12.1 to Foster
Wheeler's Form 10-Q for the quarter ended June 28, 2002 incorporated
herein by reference.)
99.1 Certification of Raymond J. Milchovich.
99.2 Certification of Joseph T. Doyle.
REPORTS ON FORM 8-K
REPORT DATE DESCRIPTION
April 2, 2002 Foster Wheeler announced a San Francisco, California jury
returned a verdict finding Foster Wheeler liable in the case of
TODAK VS. FOSTER WHEELER CORPORATION ET AL.
April 3, 2002 Foster Wheeler announced that it will exercise its right
to defer the April 15, 2002 interest payment of the FW Preferred
Capital Trust I-9% Preferred Securities.
April 3, 2002 Foster Wheeler announced that the United States District
Court for the Northern District of Texas entered an amended final
judgment in the matter of KOCH ENGINEERING COMPANY, INC. ET AL
VS. GLITSCH, INC. ET AL.
April 12, 2002 Foster Wheeler filed a description of its authorized
common shares.
April 15, 2002 Foster Wheeler announced that it filed its Form 10-K with the
Securities and Exchange Commission and that it will take an
additional loss for the fourth quarter.
July 1, 2002 Foster Wheeler announced that it received further extensions for
its financing facilities and deferred payment on its trust
preferred securities.
July 15, 2002 Foster Wheeler announced that the Company elected a new senior
vice president and chief financial officer.
July 23, 2002 Foster Wheeler announced that at one of its subsidiaries has
preliminarily agreed to sell its interests in its Hudson Falls,
New York waste-to-energy plant.
July 31, 2002 Foster Wheeler announced that in response to a question
raised during the company's earnings conference call, it was
disclosed that under the terms of its proposed new senior secured
credit facility, the Company will be required to continue to
defer the dividend on its FW Preferred Capital Trust I - 9%
Preferred Securities.
August 16, 2002Foster Wheeler announced that it had successfully entered
into a new credit facility, entered into a $40 million
receivables sale agreement, and replaced its previous lease
financing facility associated with its Clinton, New Jersey,
headquarters complex.
Foster Wheeler announced that it had revised its
earnings for three and six months ended June 28, 2002
for the impact of goodwill accounting.
46
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: November 19, 2002 /S/ RAYMOND J. MILCHOVICH
------------------- -------------------------------
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
Date: November 19, 2002 /S/ JOSEPH T. DOYLE
------------------- ---------------------------------
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
47
CERTIFICATIONS
I, Raymond J. Milchovich, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Foster
Wheeler Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/S/ RAYMOND J. MILCHOVICH
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
48
I, Joseph T. Doyle, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Foster
Wheeler Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/S/ JOSEPH T. DOYLE
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
49