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 MARCH 29, 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 March 29, 2002.
FOSTER WHEELER LTD.
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at March 29, 2002
(Restated) and December 28, 2001 (Restated)
Condensed Consolidated Statement of Earnings and
Comprehensive Income for the Three Months Ended
March 29, 2002 (Restated) and March 30, 2001 (Restated)
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 29, 2002 (Restated) and March 30,
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 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 March 29, 2002 as filed on May 13, 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 the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." See Note 15 for further discussion on this matter.
Each item of the March 29, 2002 Form 10-Q as filed on May 13, 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,
to conform to the comments of the Securities and Exchange Commission staff set
out in letters to the registrant dated July 10, 2002 and September 4, 2002, and
such other changes as are required by applicable law.
In addition, the financial statements have been amended to reflect the
cumulative effect of the change in accounting principle for goodwill in
accordance with the provisions of SFAS 142, "Goodwill and Other Intangibles". As
a result of the Company having completed its assessment of goodwill impairment
for two reporting units, this charge was originally recorded in the Form 10-Q
dated June 28, 2002. The March 29, 2002 Form 10-Q has been amended in accordance
with SFAS 142 to record this charge effective as of the beginning of the year
(December 29, 2001), as required.
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)
MARCH 29, 2002 DECEMBER 28, 2001
--------------- -----------------
(UNAUDITED)
-----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 423,178 $ 224,020
Short-term investments ..................................................... 268 271
Accounts and notes receivable .............................................. 885,206 946,344
Contracts in process and inventories ....................................... 445,024 504,128
Prepaid, deferred and refundable income taxes .............................. 51,761 52,084
Prepaid expenses ........................................................... 20,512 27,529
----------- -----------
Total current assets ................................................... 1,825,949 1,754,376
----------- -----------
Land, buildings and equipment .................................................... 716,868 728,012
Less accumulated depreciation .................................................... 328,441 328,814
----------- -----------
Net book value ......................................................... 388,427 399,198
----------- -----------
Notes and accounts receivable - long-term ........................................ 65,915 65,373
Investment and advances .......................................................... 77,640 84,514
Goodwill, net .................................................................... 126,301 200,152
Other intangible assets, net ..................................................... 73,282 74,391
Prepaid pension cost and related benefit assets .................................. 131,044 131,865
Asbestos-related insurance recovery receivable ................................... 424,700 437,834
Other assets ..................................................................... 175,374 173,279
Deferred income taxes ............................................................ 4,638 4,855
----------- -----------
TOTAL ASSETS ........................................................... $ 3,293,270 $ 3,325,837
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt ..................................... $ 12,759 $ 12,759
Bank loans ................................................................. 7,733 20,244
Corporate and other debt ................................................... 367,243 297,627
Special-purpose project debt ............................................... 72,782 75,442
Subordinated Robbins exit funding obligations .............................. 110,340 110,340
Convertible subordinated notes ............................................. 210,000 210,000
Mandatory redeemable preferred securities of subsidiary trust holding solely
junior subordinated deferrable interest debentures ..................... 175,000 175,000
Accounts payable and accrued expenses ...................................... 726,953 777,768
Estimated costs to complete long-term contracts ............................ 616,103 580,766
Advance payments by customers .............................................. 104,105 65,417
Income taxes ............................................................... 57,474 63,257
----------- -----------
Total current liabilities .............................................. 2,460,492 2,388,620
----------- -----------
Other debt less current installments ............................................. 11,269 --
Special-purpose project debt less current installments ........................... 137,855 137,855
Deferred income taxes ............................................................ 42,049 40,486
Postretirement and other employee benefits other than pensions ................... 169,515 168,149
Asbestos-related liability ....................................................... 445,536 445,370
Other long-term liabilities and minority interest ................................ 167,463 174,901
----------- -----------
TOTAL LIABILITIES ..................................................... 3,434,179 3,355,381
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock ..................................................................... 40,772 40,772
Paid-in capital .................................................................. 201,390 201,390
Retained earnings (deficit) ...................................................... (208,582) (109,872)
Accumulated other comprehensive loss ............................................. (174,489) (161,834)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ............................................ (140,909) (29,544)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ........................................................... $ 3,293,270 $ 3,325,837
=========== ===========
See notes to condensed consolidated financial statements.
-1-
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
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Revenues:
Operating revenues ......................................... $ 795,409 $ 682,643
Other income ............................................... 10,620 15,592
--------- ---------
Total revenues ............................................. 806,029 698,235
--------- ---------
Costs and expenses:
Cost of operating revenues ................................. 711,932 607,685
Selling, general and administrative expenses ............... 54,258 52,112
Other deductions/minority interest ......................... 55,153 24,709
Dividends on preferred security of subsidiary trust ........ 4,012 3,937
--------- ---------
Total costs and expenses ................................... 825,355 688,443
--------- ---------
(Loss)/earnings before income taxes ............................ (19,326) 9,792
Provision for income taxes ..................................... 5,884 2,152
--------- ---------
Net (loss)/earnings prior to cumulative effect of a
change in accounting principle ........................... (25,210) 7,640
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 ............................................ (98,710) 7,640
Other comprehensive loss:
Foreign currency translation adjustment .................... (9,277) (17,716)
Change in unrealized losses on derivative instruments,
net of tax ............................................. (3,378) (6,345)
Cumulative effect on prior year (to December 29, 2000)
of change in accounting principle for derivatives,
net of tax ............................................. -- 6,300
--------- ---------
Comprehensive loss ............................................. $(111,365) $ (10,121)
========= =========
-2-
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
(Loss)/earnings per share:
Basic:
Net (loss)/earnings prior to cumulative effect of
a change in accounting principle ......................... $ (0.62) $ 0.19
Cumulative effect on prior years (to December
28, 2001) of a change in accounting principle for goodwill
(1.79) --
---------- ----------
Net (loss)/earnings .......................................... $ (2.41) $ 0.19
========== ==========
Diluted:
Net (loss)/earnings prior to cumulative effect of
a change in accounting principle ........................ $ (0.62) $ 0.19
Cumulative effect on prior years (to December
28, 2001) of a change in accounting principle for goodwill
(1.79) --
---------- ----------
Net (loss)/earnings .......................................... $ (2.41) $ 0.19
========== ==========
Shares outstanding (in thousands):
Basic: weighted average number of shares
Outstanding .................................................. 40,920 40,835
Diluted: effect of share options ................................. -- 310
---------- ----------
Total diluted .................................................... 40,920 41,145
========== ==========
Cash dividends paid per common share ................................. $ -- $ .06
========== ==========
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)
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/earnings ........................................ $ (98,710) $ 7,640
Adjustments to reconcile net earnings to cash flows from
operating activities:
Cumulative effect of a change in accounting principle ...... 73,500 --
Depreciation and amortization .............................. 11,514 13,873
Deferred tax ............................................... 1,973 (862)
Equity loss/(earnings), net of dividends ................... 6,076 (2,782)
Other ...................................................... (246) (127)
Changes in assets and liabilities:
Receivables ................................................ 34,779 38,231
Contracts in process and inventories ....................... 67,873 (23,300)
Accounts payable and accrued expenses ...................... (13,940) (48,742)
Estimated costs to complete long-term contracts ............ 28,350 (51,757)
Advance payments by customers .............................. 39,257 3,247
Income taxes ............................................... (5,432) (1,804)
Other assets and liabilities ............................... 998 (1,686)
--------- ---------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES ........... 145,992 (68,069)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................................... (4,565) (9,009)
Proceeds from sale of properties ........................... 157 259
(Increase)/decrease in investments and advances ............ (368) 7,587
Increase in short-term investments ......................... -- (804)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ...................... (4,776) (1,967)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend to stockholders ................................... -- (2,443)
Partnership distributions .................................. (2,061) (1,367)
Repurchase of common stock ................................. -- (37)
Proceeds from exercise of stock options .................... -- 531
(Decrease)/increase in short-term debt ..................... (12,278) 5,160
Proceeds from long-term debt ............................... 81,321 50,012
Repayment of long-term debt ................................ (3,037) (4,300)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 63,945 47,556
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (6,003) (10,483)
--------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........... 199,158 (32,963)
Cash and cash equivalents at beginning of year ............. 224,020 191,893
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 423,178 $ 158,930
========= =========
Cash paid during period:
Interest (net of amount capitalized) ....................... $ 4,479 $ 10,945
Income taxes ............................................... $ 3,298 $ 2,556
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 March 29, 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 Statement
of Financial Accounting Standards ("SFAS") 112, "Employers'
Accounting for Postemployment Benefits." The condensed consolidated
balance sheets as of March 29, 2002 and December 28, 2001 and the
condensed consolidated statements of earnings and comprehensive
income and the condensed consolidated statements of cash flows for
the three month periods ended March 29, 2002 and March 30, 2001 have
been revised to account for such benefit plan in accordance with SFAS
112. See Note 15.
In addition, the financial statements have been amended to reflect
the cumulative effect of the change in accounting principle for
goodwill in accordance with the provisions of SFAS 142, "Goodwill and
Other Intangibles". As a result of the Company having completed its
assessment of goodwill impairment for two reporting units, this
charge was originally recorded in the Form 10-Q dated June 28, 2002.
The March 29, 2002 Form 10-Q has been amended in accordance with SFAS
142 to record this charge effective as of the beginning of the year
(December 29, 2001), as required.
The condensed consolidated balance sheet as of March 29, 2002, as
restated, and the related condensed consolidated statements of
earnings and comprehensive income and cash flows for the three-month
periods ended March 29, 2002, as restated, and March 30, 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 is presented on
pages 41 through 44 in its 2001 Form 10-K. Users of financial
information produced for interim periods are encouraged to refer to
the footnotes contained in the 2001 Form 10-K when reviewing interim
financial results. There has been no material change in the
accounting policies followed by Foster Wheeler Ltd. (hereinafter
referred to as "Foster Wheeler" or the "Company") during the first
quarter of 2002 except for the adoption of Statement of Financial
Accounting Standards Nos. 142 and 144 as discussed below.
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". This statement 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
No. 142 also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. The statement requires that goodwill should
no longer be amortized and instead should be subject to an impairment
assessment. The Company will finalize its adoption of SFAS No. 142 in
2002. See Note 8 for further information.
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".
Foster Wheeler's results of operations or financial position have not
been affected by the adoption of this statement.
-5-
2. The accompanying condensed consolidated financial statements have
been 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 is dependent on the
Company maintaining credit facilities adequate to conduct its
business. The Company has in place a Revolving Credit Agreement with
a consortium of banks. The Company has received a series of waivers
from the required lenders under its Revolving Credit Agreement of
certain covenant violations thereunder. The waivers extend through
May 30, 2002, subject to the Company's ongoing satisfaction of
certain conditions. The Company is in negotiations with the lenders
under its Revolving Credit Agreement to replace the current Revolving
Credit Agreement with a new or amended credit facility.
If a new or amended credit facility is not completed, the lenders
under the Revolving Credit Agreement would have the ability to
accelerate the payment of amounts borrowed thereunder ($140,000 as of
March 29, 2002) and to require the Company to cash collateralize
standby letters of credit outstanding thereunder ($93,000 as of March
29, 2002). The lenders also have the ability to assess a penalty
interest under the terms of the agreement that would increase the
interest rate on the outstanding borrowings by approximately 2%.
It is unlikely that the Company would be able to repay amounts
borrowed or cash collateralize standby letters of credit issued under
the Revolving Credit Agreement if the banks were to exercise their
right to accelerate payment dates. Failure by the Company to repay
such amounts under the Revolving Credit Agreement would have a
material adverse effect on the Company's financial condition and
operations and result in defaults under the terms of the Company's
following indebtedness: the Senior Notes, the Convertible
Subordinated Notes, the Preferred Trust Securities, the subordinated
Robbins Facility exit funding obligations, and certain of the
special-purpose project debt which would allow such debt to be
accelerated. The total amount of the debt which could be accelerated,
including the amount outstanding under the Revolving Credit Agreement
was $926,000 as of March 29, 2002. It is unlikely that the Company
would be able to repay such indebtedness if such debt were
accelerated. These debts have been classified as current liabilities
in the accompanying condensed consolidated financial statements.
There can be no assurance that the Company will receive further
extensions of the waiver from the required lenders under the
Revolving Credit Agreement or that the Company will be able to enter
into a new or amended credit facility.
As of March 29, 2002, the Company also had in place a receivables
sale arrangement pursuant to which the Company has sold receivables
totaling $50,000. Such receivables are not reflected in the accounts
receivable - trade in the condensed consolidated balance sheet. The
bank that is party to this financing has elected to terminate the
agreement in accordance with its terms effective April 30, 2002. The
Company may elect to replace this facility if it can negotiate
satisfactory terms and conditions from one or more of the financial
institutions with which it is currently in discussions.
The Company is also a lessee under an operating lease financing
agreement relating to a corporate office building in the amount of
$33,000 with a consortium of banks. The lease financing facility
matured on February 28, 2002. The banks that are party to that
agreement have provided forbearance through May 30, 2002, while the
Company is negotiating with another financial institution to replace
this lease financing.
There can be no assurance that the Company will be able to negotiate
an extension of the lease financing forbearance or that the Company
will be able to enter into replacement facilities for either the
receivables sale arrangement or the lease financing.
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.
-6-
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.
While there is no assurance that funding will be available to execute
its plan to enhance cash generation and to improve profitability, the
Company is continuing to seek financing to support the plan and its
ongoing operations. 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.
3. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the period reported. Actual results could differ from those
estimates. Significant estimates are used when accounting for
long-term contracts including customer and vendor claims,
depreciation, employee benefit plans, taxes, and contingencies, among
others. As of March 29, 2002 and December 28, 2001, costs of
approximately $135,000 were included in assets, primarily in
receivables and contracts in process, representing amounts expected
to be realized from claims to customers. These claims have been
recognized in accordance with the AICPA's Statement of Position 81-1,
"Accounting for Performance of Construction - Type and Certain
Production - Type Contracts". This Statement requires that it be
probable that the claim will result in additional contract revenue
and the amount can be reliably estimated. Such claims are currently
in various stages of negotiation, arbitration and other legal
proceedings. Accordingly, it is possible that the amounts realized
could differ materially from the balances included in the financial
statements.
4. 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 and April 15, 2002. The
maturity date is January 15, 2029. Foster Wheeler can redeem these
Preferred Trust Securities on or after January 15, 2004.
5. At March 29, 2002, a total of 5,461,968 shares of common stock were
reserved for issuance under various stock option plans; of this
total, 584,930 were not under option.
6. 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 equal to 15% of the deferred amount. For the
-7-
three months ended March 29, 2002, 31,950 share units were credited
in participants' accounts. As of March 29, 2002, 161,316 share units
were credited in participants' accounts and are included in the
calculation of basic earnings per share. Options to purchase 4,877
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. The
13,086 shares related to the convertible subordinated notes were not
included in the computation for the period ended March 29, 2002 due
to their antidilutive effect.
7. Interest income and cost for the following periods are:
THREE MONTHS ENDED
MARCH 29, 2002 MARCH 30, 2001
Interest Income $ 1,727 $ 3,438
======== =======
Interest Cost $ 21,154 $20,895
======== =======
Included in the interest cost is interest capitalized on
self-constructed assets, which was $238 and $130 for the quarters
ended March 29, 2002 and March 30, 2001, respectively. Interest costs
also included dividends on Preferred Trust Securities which amounted
to $4,012 and $3,937 for the three months ended March 29, 2002 and
March 30, 2001, respectively.
8. 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. Impairment losses
will be 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. 121.
As of March 29, 2002 and December 28, 2001, the Company had
unamortized goodwill of $126,301 and $200,152, respectively. The
reduction in goodwill is due to the $73,500 of impairment losses
discussed below, and foreign currency translation adjustments of
$351. In accordance with SFAS No. 142, the Company is no longer
amortizing goodwill. The Company recognized $73,500 of impairment
losses 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 reporting unit 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.
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 March 29, 2002.
As of March 29, As of December 28,
2002 2001
---------------------------------- ---------------------- -----------------------------------
Gross Carrying Amount Accumulated Gross Carrying Accumulated
Amortization Amount Amortization
------------------------ ---------------------- --------------------- ------------------------
Patents $ 34,771 $ (10,651) $ 35,010 $ (10,213)
Trademarks 59,218 (10,056) 59,218 (9,624)
------- ---------- ------- ---------
Total $ 93,989 $ (20,707) $ 94,228 $ (19,837)
-------- ---------- -------- ----------
-8-
Amortization expense related to patents and trademarks for the
three-month period ended March 29, 2002 was $870. Amortization
expense is expected to approximate $3,200 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
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Reported Net (loss)/earnings $(98,710) $ 7,640
Add back: goodwill amortization -- 1,342
-------- -------
Adjusted net (loss)/earnings $(98,710) $ 8,982
-------- -------
BASIC EARNINGS PER SHARE:
Reported Net Income $ (2.41) $ 0.19
Goodwill Amortization $ - $ 0.03
------- -------
Adjusted Net Income $ (2.41) $ 0.22
------- -------
DILUTED EARNINGS PER SHARE:
Reported Net Income $ (2.41) $ 0.19
Goodwill Amortization $ - $ 0.03
------- -------
Adjusted Net income $ (2.41) $ 0.22
------- -------
9. 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 March
29, 2002, there were approximately 111,500 claims pending. During the
first quarter of 2002, approximately 10,000 new claims have been
filed and approximately 9,200 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 $19,192 in the first quarter
of 2002. As of March 30, 2001, there were approximately 102,800
claims pending. During the first quarter of 2001, approximately
13,300 new claims were 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
$8,900 in the first quarter of 2001. The increase in the amount spent
on asbestos litigation defense and case resolution in the first
quarter of 2002 compared to the same period in 2001 is due to the
high level of claims settled in the fourth quarter of 2001.
The Company's subsidiaries continue to actively manage claims and to
negotiate with certain
-9-
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, lawsuits 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 March 29, 2002, the Company had recorded a liability related to
probable losses on asbestos-related insurance claims of approximately
$516,000, of which approximately $70,000 is considered short-term.
The Company had recorded an asset approximately of $558,000 relating
to probable insurance recoveries of which the Company has funded
approximately $60,000 as of March 29, 2002. In addition to the
$425,000 shown separately in the balance sheet, approximately
$133,000 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 proceedings
with certain insurers, as well as recoveries under a funding
arrangement with other insurers, which has been in place since 1993.
The total liability recorded is comprised of an estimated liability
relating to open (outstanding) claims of approximately $246,000 and
an estimated liability relating to future unasserted claims of
approximately $270,000. 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 March 29, 2002, total indemnity costs paid were
approximately $269,000 and total defense costs paid were
approximately $83,000.
The Company's management after consultation with counsel, has
considered the litigation with the insurers described above, and the
financial viability and legal obligations of the insurance carriers
and believe that except for those insurers that have become or may
become insolvent, the insurers or their guarantors should continue to
adequately fund claims and defense costs relating to asbestos
litigation. It should be noted that the estimate of the assets and
liabilities related to asbestos claims and recovery is subject to a
number of uncertainties that may result in significant changes in the
current estimates. Among these are uncertainty as to the ultimate
number of claims filed, the amounts of claim costs, the impact of
bankruptcies of other companies currently involved in litigation,
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
-10-
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 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. 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. As previously reported by the Company, a judgment was entered
in this case on November 29, 1999 awarding plaintiffs compensatory
and punitive damages plus prejudgment interest in an amount yet to be
calculated. This amended final judgment in the amount of $54,283
includes such interest for the period beginning in 1983 when the
lawsuit was filed through entry of judgment. Post-judgment interest
will accrue at a rate of 5.471 percent per annum from November 29,
1999. The management of Tray, Inc. believes that the Court's decision
contains numerous factual and legal errors subject to reversal on
appeal. Tray Inc. has filed a notice of appeal to the 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.
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.
-11-
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 owns the project on behalf
of the Bondholders. As a result of its exit from the project, the
Company is no longer administering the project companies. A
subsidiary of the Company 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).
This 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
-12-
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 is aware of potential environmental liabilities at
facilities that it acquired in 1995 in Europe, but the Company has
the benefit of an indemnity from the seller with respect to required
remediation or other environmental violations existing at the time of
acquisition that it believes will address the costs of any such
remediation or other required environmental measures. 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 three off-site
facilities as to which it has received a notice of potential
liability will individually exceed $1 million.
Several of the Company's former subsidiaries associated with the
Robbins Facility received a Complaint for Injunction and Civil
Penalties from the State of Illinois, dated April 28, 1998 (amended
in July 1998) alleging primarily state air violations at the Robbins
Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS,
INC., filed in Circuit Court of Cook County, Illinois, County
Department, Chancery Division). The United States Environmental
Protection Agency commenced a related enforcement action at
approximately the same time. (EPA-5-98-IL-12 and EPA-5-98-IL-13).
Although the complaint seeks substantial civil penalties for numerous
violations of up to $50.0 for each violation, with an additional
penalty of $10.0 for each day of each violation, the maximum allowed
under the statute, and an injunction against continuing violations,
the relevant subsidiaries have reached an agreement with the state on
a Consent Decree that resolves all violations. The Company's
liability, if any, is not expected to be material.
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
-13-
significant additional working capital in projects with costs
overruns pending the resolution of the relevant project claims. The
Company cannot assure that project claims will not continue to
increase.
In the ordinary course of business, the Company 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, the management believes that the disposition of
those suits will not result in charges against assets or earnings
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.
-14-
10. Changes in equity for the three months ended March 29, 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 ................................. (98,710) (98,710)
Foreign currency translation adjustment .. (9,277) (9,277)
Current period declines in fair
value of derivative instruments
designated as cash flow hedges, net of tax
(1,679) (1,679)
Reclassification to earnings ............. (1,699) (1,699)
----------- ----------- ----------- ----------- ----------- -----------
Balance March 29, 2002, Restated ......... 40,771,560 $ 40,772 $ 201,390 $ (208,582) $ (174,489) $ (140,909)
=========== =========== =========== =========== =========== ===========
-15-
11. Major Business Groups
Three Months Ended
MARCH 29, 2002 MARCH 30, 2001(4)
-------------- -----------------
(Restated) (Restated & Reclassified)
ENGINEERING & CONSTRUCTION (E&C)
Revenues $ 421,135 $ 430,370
Gross earnings from operations 40,263 39,879
Interest expense (318) 33
Earnings before income taxes
and cumulative effect of a change in
accounting principle for goodwill 20,502 19,163
ENERGY EQUIPMENT (EE)
Revenues $ 387,420 $ 281,817
Gross earnings from operations 43,266 34,837
Interest expense 7,381 6,291
(Loss)/earnings before income taxes
and cumulative effect of a change in
accounting principle for goodwill(1) (1,774) 9,390
CORPORATE AND FINANCIAL SERVICES (C&F) (2)
Revenues $ (2,526) $ (13,952)
Gross earnings from operations (53) 243
Interest expense (3) 13,853 14,441
Loss before income taxes
and cumulative effect of a change in
accounting principle for goodwill (38,054) (18,761)
TOTAL
Revenues $ 806,029 $ 698,235
Gross earnings from operations 83,476 74,959
Interest expense (3) 20,916 20,765
(Loss)/earnings before income taxes and
accounting change (19,326) 9,792
Provision for income taxes 5,884 2,152
Net (loss)/earnings prior to cumulative effect of a
change in accounting principle (25,210) 7,640
Cumulative effect on prior years of a change in
accounting principle for goodwill (5) (73,500) --
--------- ---------
Net (loss)/earnings $ (98,710) $ 7,640
========= =========
<FN>
(1) Includes in the three months ended March 29, 2002, a provision for
anticipated loss on sale of a waste-to-energy facility in the EE Group
of $19,000 and an increase in the valuation allowance for deferred tax
assets in C&F of $11,600.
(2) Includes intersegment eliminations.
(3) Includes dividend on Preferred Trust Securities.
(4) The corporate management fees were discontinued in 2002. The pre-tax
amounts charged for 2001 were E&C $3,400 and EE $2,600. Reflects the
reclassification of the Engineering, Procurement and Construction Power
("EPC" Power) business in the United States from the E&C business group
to the EE business group to conform to 2002 presentation.
(5) Includes a provision for goodwill impairment of $48,700 for E&C and
$24,800 for EE.
</FN>
-16-
Operating revenues by industry segment for the three-month periods
ending March 29, 2002 and March 30, 2001 were as follows:
THREE MONTHS ENDED
MARCH 29, 2002 MARCH 30,2001
Power $ 380,372 $ 289,928
Oil and gas/refinery 158,087 177,517
Pharmaceutical 75,345 71,017
Chemical 38,636 47,019
Environmental 84,768 77,375
Power production 33,897 50,339
Eliminations and other 24,304 (30,552)
--------- -----------
Total Operating Revenues $ 795,409 $ 682,643
========= ===========
12. Consolidating Financial Information
The following represents summarized consolidating financial
information as of March 29, 2002, as restated, and December 28, 2001,
as restated, with respect to the financial position, and for the
three months ended March 29, 2002, as restated, and March 30, 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
-17-
would be material to investors. None of the subsidiary guarantors are
restricted from making distributions to the Company.
The comparative statements for March 30, 2001, as restated, with
respect to the results of operations and cash flows reflect the
financial information of the Company prior to the reorganization that
occurred on May 25, 2001. It is management's belief that due to the
nature of the reorganization, a restatement of the prior financial
statements would not be meaningful.
-18-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
March 29, 2002
(In Thousands of Dollars)
(Restated)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
ASSETS LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---- --- ------------ ------------ ------------ ------------
Current assets $ -- $ 206,211 $ 1,085,748 $ 1,634,839 $(1,100,849) $ 1,825,949
Investment in subsidiaries (138,336) (208,523) 1,228,108 580,757 (1,384,366) 77,640
Land, buildings & equipment (net) 19,149 374,894 (5,616) 388,427
Notes and accounts receivable - long-term -- 595,655 45,996 845,428 (1,421,164) 65,915
Intangible assets (net) -- 239,862 298,018 (338,297) 199,583
Other non-current assets -- 15,386 539,553 188,220 (7,403) 735,756
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ (138,336) $ 608,729 $ 3,158,416 $ 3,922,156 $(4,257,695) $ 3,293,270
=========== =========== =========== =========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities $ 2,573 $ 749,638 $ 1,322,327 $ 1,487,259 $(1,101,305) $ 2,460,492
Long-term debt -- 238,104 1,337,783 (1,426,763) 149,124
Other non-current liabilities -- -- 992,649 59,336 (227,422) 824,563
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 2,573 749,638 2,553,080 2,884,378 (2,755,490) 3,434,179
TOTAL SHAREHOLDERS' EQUITY (140,909) (140,909) 605,336 1,037,778 (1,502,205) (140,909)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ (138,336) $ 608,729 $ 3,158,416 $ 3,922,156 $(4,257,695) $ 3,293,270
=========== =========== =========== =========== =========== ===========
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 28, 2001
(In Thousands of Dollars)
(Revised and Restated)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
ASSETS LTD. LLC SUBSIDIARIES 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
----------- ----------- ----------- ----------- ----------- -----------
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
=========== =========== =========== =========== =========== ===========
-19-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------ ------------ ------------
Operating revenues $ -- $ -- $ 204,063 $ 636,024 $ (44,678) $ 795,409
Other income -- 16,553 16,319 8,424 (30,676) 10,620
--------- --------- --------- --------- --------- ---------
Revenues -- 16,553 220,382 644,448 (75,354) 806,029
Cost of operating revenues -- -- 189,307 567,303 (44,678) 711,932
Selling, general and adminis-
trative expenses -- -- 23,360 30,898 -- 54,258
Other deductions and minority
interest(*) 29 14,675 19,359 55,778 (30,676) 59,165
Equity in net losses of
subsidiaries (98,691) (100,930) (84,490) -- 284,111 --
--------- --------- --------- --------- --------- ---------
Loss before income
taxes (98,720) (99,052) (96,134) (9,531) 284,111 (19,326)
Provision/(benefit) for income
taxes (10) (342) 4,778 1,458 -- 5,884
--------- --------- --------- --------- --------- ---------
Net loss prior to cumulative effect of
a change in accounting
principle (98,710) (98,710) (100,912) (10,989) 284,111 (25,210)
Cumulative effect on prior years of a
change in accounting principle
for goodwill, net $0 tax -- -- -- (73,500) -- (73,500)
--------- --------- --------- --------- --------- ---------
Net loss (**) (98,710) (98,710) (100,912) (84,489) 284,111 (98,710)
Other comprehensive (loss)/income:
Foreign currency translation
adjustment (9,277) (9,277) (9,277) (10,417) 28,971 (9,277)
Net gain /(loss) on derivative
instruments (3,378) (3,378) (3,378) (3,358) 10,114 (3,378)
--------- --------- --------- --------- --------- ---------
Comprehensive loss $(111,365) $(111,365) $(113,567) $ (98,264) $ 323,196 $(111,365)
========= ========= ========= ========= ========= =========
<FN>
(*) Includes interest expense and dividends on preferred securities of $20,916.
(**) Includes a provision for anticipated loss on sale of a waste-to-energy
facility of $19,000 and an increase in the valuation allowance for deferred
tax assets of $37,300. Also included are pre-tax special charges for goodwill
impairment of $73,500.
</FN>
-20-
FOSTER WHEELER CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 30, 2001
(In Thousands of Dollars)
(Restated)
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ --------------------------------------
Operating revenues $ -- $ 163,480 $ 581,954 $ (62,791) $ 682,643
Other income 4,075 2,840 21,788 (13,111) 15,592
--------- --------- --------- --------- ---------
Total revenues 4,075 166,320 603,742 (75,902) 698,235
Cost of operating revenues -- 153,761 516,715 (62,791) 607,685
Selling, general and administrative
expenses 3,336 13,268 35,508 -- 52,112
Other deductions and minority
interests(*) 10,969 1,471 29,317 (13,111) 28,646
Equity in net earnings/(loss) of
subsidiaries 14,600 (5,964) (8,636)
--------- --------- --------- --------- ---------
Earnings/(loss) before income taxes 4,370 (8,144) 22,202 (8,636) 9,792
(Benefit)/provision for income taxes (3,270) (803) 6,225 -- 2,152
--------- --------- --------- --------- ---------
Net earnings/(loss) 7,640 (7,341) 15,977 (8,636) 7,640
Other comprehensive loss:
Foreign currency translation
Adjustment (17,716) (5,202) (15,679) 20,881 (17,716)
Changes in unrealized gains/(loss) on
derivative instruments, net of tax (6,345) 3,399 (9,744) 6,345 (6,345)
Cumulative effect on prior years (to
December 29, 2000) of change in
accounting principle for derivatives,
net of tax 6,300 3,535 2,765 (6,300) 6,300
--------- --------- --------- --------- ---------
Comprehensive loss $ (10,121) $ (5,609) $ (6,681) $ 12,290 $ (10,121)
========= ========= ========= ========= =========
<FN>
(*) Includes interest expense and dividends on preferred securities of $20,765.
</FN>
-21-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 29, 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 $ (29) $ 2,838 $ (22,443) $ 174,865 $ (9,239) $ 145,992
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (99) (4,466) (4,565)
Proceeds from sale of properties 157 157
Decrease/(increase) in investment and
advances 14,880 (25,170) 9,922 (368)
--------- --------- --------- --------- --------- ---------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES 14,781 (29,479) 9,922 (4,776)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Shareholders (13,562) 13,562
(Decrease)/increase in short-term debt 114,047 (126,325) (12,278)
Proceeds from long-term debt 70,000 11,321 81,321
Repayment of long-term debt (3,037) (3,037)
Other 29 (72,838) (2,004) 87,430 (14,678) (2,061)
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES 29 (2,838) 112,043 (44,173) (1,116) 63,945
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on
Cash and cash equivalents (6,436) 433 (6,003)
INCREASE IN CASH AND CASH EQUIVALENTS 104,381 94,777 199,158
Cash and cash equivalents,
beginning of period 25,693 198,327 224,020
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ -- $ -- $ 130,074 $ 293,104 $ -- $ 423,178
========= ========= ========= ========= ========= =========
-22-
FOSTER WHEELER CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 30, 2001
(In Thousands of Dollars)
(Restated)
GUARANTOR NON-GUARANTOR
FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------------ --------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
NET CASH (USED)/PROVIDED BY
OPERATING ACTIVITIES $ (1,659) $ (64,083) $ (8,960) $ 6,633 $ (68,069)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (484) (8,525) (9,009)
Proceeds from sale of properties 259 259
Decrease/(increase) in investment and
advances 1,671 10,209 (4,293) 7,587
Increase in short-term investments (804) (804)
--------- --------- --------- --------- ---------
NET CASH PROVIDED/(USED) BY
INVESTING ACTIVITIES 1,671 (484) 1,139 (4,293) (1,967)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends to Stockholders (2,443) (2,443)
Increase in short-term debt 5,160 5,160
Proceeds from long-term debt 50,000 12 50,012
Repayment of long-term debt (4,300) (4,300)
Other (67,994) 63,340 6,121 (2,340) (873)
--------- --------- --------- --------- ---------
NET CASH (USED)/PROVIDED BY
FINANCING ACTIVITIES (20,437) 63,340 6,993 (2,340) 47,556
--------- --------- --------- --------- ---------
Effect of exchange rate changes on
cash and cash equivalents (10,483) (10,483)
DECREASE IN CASH AND CASH EQUIVALENTS (20,425) (1,227) (11,311) (32,963)
Cash and cash equivalents, beginning of
period 30,976 2,187 158,730 191,893
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 10,551 $ 960 $ 147,419 $ -- $ 158,930
========= ========= ========= ========= =========
-23-
13. 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.
MARCH 29, 2002 DECEMBER 28, 2001
-------------- --------------------
ITALIAN CHILEAN ITALIAN CHILEAN
PROJECTS PROJECT PROJECTS PROJECT
-------- -------- --------- --------
BALANCE SHEET DATA:
Current assets $ 90,220 $ 8,100 $ 75,942 $ 23,301
Other assets (primarily buildings
and equipment) 303,142 224,259 311,584 227,019
Current liabilities 18,259 11,113 12,487 14,747
Other liabilities (primarily long-
term debt) 325,416 153,689 329,030 158,124
Net assets 49,687 67,557 46,009 77,449
INCOME STATEMENT DATA FOR THREE MONTHS:
MARCH 29, 2002 MARCH 29, 2001
-------------- --------------
ITALIAN CHILEAN ITALIAN CHILEAN VENEZUELA
PROJECTS PROJECT PROJECTS PROJECT PROJECT
-------- -------- --------- -------- ---------
Total revenues $ 41,895 $ 9,721 $ 40,810 $ 10,808 $ 4,428
Income before income taxes 8,134 2,311 5,521 2,779 2,684
Net earnings 4,781 1,918 3,124 2,104 2,582
As of March 29, 2002, the Company's share of the net earnings and
investment in the equity affiliates totaled $3,540 and $77,833,
respectively. Dividends of $9,616 were received during the first
three 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.
The income statement data for the three months ended March 30, 2001
includes the results of two hydrogen production plants located in
Venezuela. The Company's interest in these plants was sold in April
2001.
14. 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.
15. Subsequent to the filing of the Company's first 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 March 29, 2002 and the
related condensed consolidated statements of earnings and
comprehensive income and the condensed consolidated statement of cash
flows for the three month periods ended March 29, 2002 and March 30,
2001 have been revised to account for the assets, liabilities and
results of operations associated with this benefit plan in
-24-
accordance with the provisions of SFAS 112. 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.
The March 29, 2002 financial statements have also been amended to
reflect the cumulative effect of the change in accounting principle
for goodwill of $73,500, or $1.79 loss per share basic and diluted,
recorded by the Company in connection with its adoption of SFAS 142.
As a result of the Company having completed its assessment of
goodwill impairment for two reporting units, this charge was
originally recorded in the Form 10-Q dated June 28, 2002. The March
29, 2002 Form 10-Q has been amended in accordance with SFAS 142 to
record this charge effective as of the beginning of the year
(December 29, 2001), as required.
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:
March 29, 2002 March 29, 2002 December 28, 2001 December 28, 2001
Balance Sheet As Reported Restated As Reported Restated
--------------------------------- -------------- --------------- ------------------ -----------------
Intangible assets, net $ 273,083 $ 199,583 $ 274,543 $ 274,543
Prepaid pension cost and
related benefit assets $ 121,653 $ 131,044 $ 122,407 $ 131,865
Postretirement and other
employee benefits other than
pensions $ 122,413 $ 169,515 $ 121,600 $ 168,149
Retained earnings (deficit) $ (97,371) $ (208,582) $ (72,781) $ (109,872)
Total shareholder's equity
(deficit) $ (29,698) $ (140,909) $ 7,547 $ (29,544)
Statement
of Three Months Ended Three Months Ended Three Months Ended Three Months Ended
Earnings and Comprehensive March 29, 2002 March 29, 2002 March 30, 2001 March 30, 2001
Income As Reported Restated As Reported Restated
--------------------------------- --------------------- --------------------- ----------------------- -------------------
Selling, general and
administrative expenses $ 53,638 $ 54,258 $ 51,397 $ 52,112
(Loss)/earnings before income
taxes $ (18,706) $ (19,326) $ 10,507 $ 9,792
Provision for income taxes $ 5,884 $ 5,884 $ 2,402 $ 2,152
Net (loss)/earnings $ (24,590) $ (98,710) $ 8,105 $ 7,640
Earnings per Share, Basic and
Diluted $ (0.60) $ (2.41) $ 0.20 $ 0.19
16. In the third quarter of 2002, the Company finalized a Senior Credit
Facility with its bank group. 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 its April 30, 2005 maturity. The facility
requires prepayments from proceeds of asset sales and the issuance
of debt or equity and from 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 interest, taxes, depreciation, and
amortization ("EBITDA") level.
The Company also finalized a sale/leaseback arrangement with a third
party for its corporate headquarters in August 2002. This capital
lease arrangement leases the facility to the Company for an initial
non-cancelable period of 20 years.
In addition, the Company completed a receivables sale arrangement
for $40,000 during the third quarter of 2002. This arrangement is
accounted for as a financing and expires in August 2005. The
facility is subject to covenant compliance. The financial covenants
commence at the end of the first quarter of 2003 and include a
senior leverage ratio and a minimum EBITDA level.
As a result of finalizing the Senior Credit facility, the
sale/leaseback arrangement and the receivables sale arrangement, the
Company reclassified its debts as discussed in Note 2 to long-term
obligations subsequent to March 29, 2002.
-25-
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 ("SFAS") 112,
"Employers' Accounting for Postemployment Benefits". In addition, the
financial statements have been amended to reflect the cumulative
effect of the change in accounting principle for goodwill in
accordance with the provisions of SFAS 142, "Goodwill and Other
Intangibles". As a result of the Company having completed its
assessment of goodwill impairment for two reporting units, this
charge was originally recorded in the Form 10-Q dated June 28, 2002.
The March 29, 2002 Form 10-Q has been amended in accordance with SFAS
142 to record this charge effective as of the beginning of the year
(December 29, 2001), as required.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 2002 COMPARED TO THE THREE MONTHS ENDED MARCH 30,
2001
CONSOLIDATED DATA
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
(Restated) (Restated)
Revenues $ 806,029 $ 698,235
============= ============
Net (loss)/earnings $ (98,710) $ 7,640
============== =============
Operating revenues increased 17% in the three months ended March 29, 2002
compared to the three months ended March 30, 2001 to $795,409 from $682,643.
This increase was primarily due to higher activity in the Energy Equipment
Group. Late in 2000 and early in 2001, the Energy Equipment Group had received
significant new awards that resulted in higher revenues in the current period.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, increased by $8,519 in the three months ended March 29, 2002
as compared with the three months ended March 30, 2001 to $83,477 from $74,958.
This increase in gross earnings was primarily due to the higher operating
revenues in the Energy Equipment Group, primarily in the United States. The
Energy Equipment Group normally experiences higher levels of gross earnings than
the Engineering and Construction Group due to its higher levels of lump sum
versus cost-reimbursable contracts.
Selling, general and administrative expenses increased by 4% in the three months
ended March 29, 2002 as compared with the same period in 2001, from $52,112 to
$54,258. 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 first quarter
of 2002.
Other income in the three months ended March 29, 2002 decreased to $10,620 from
$15,592 for the period ended March 30, 2001. This decrease is primarily related
to interest income ($1,711) equity gain ($1,278) and foreign transaction gains
($745).
Other deductions and minority interest for the three months ended March 29, 2002
were $30,444 higher than that reported in the three months ended March 30, 2001.
The increase primarily relates to a provision for anticipated loss on sale of a
waste-to-energy facility in the Energy Equipment group of $19,000 as well as
increased consulting and bank fees.
The tax provision for the three months ended March 29, 2002 was $5,884 on losses
before tax of $92,826, which includes the $73,500 cumulative effect of a change
in accounting principle for goodwill.
-26-
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.
The net loss for the three months ended March 29, 2002 was $98,710 or $2.41 per
share diluted compared to net earnings of $7,640 or $.19 diluted per share for
the three months ended March 30, 2001. The decrease relates to the loss before
taxes primarily due to the $73,500 cumulative effect of the change in accounting
principle for goodwill, the provision for anticipated loss on sale of a
waste-to-energy facility of $19,000 as well as increased consulting and bank
fees.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Operating revenues $ 413,042 $ 422,707
============ ============
Gross earnings from operations $ 40,219 $ 39,879
============ ============
Operating revenues for the three-month period ended March 29, 2002 decreased 2%
compared to the three-month period ended March 30, 2001. Gross earnings from
operations increased by 1% for the three-month period ended March 29, 2002,
compared with the corresponding period ended March 30, 2001. The decrease in
operating revenues can be associated with lower activity in the United States,
France and Spain.
ENERGY EQUIPMENT GROUP
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Operating revenues $ 383,516 $ 273,366
=========== =========
Gross earnings from operations $ 43,310 $ 34,838
=========== =========
Operating revenues for the three-month period ended March 29, 2002 increased by
40%. Gross earnings from operations increased by 24% for the three-month period
ended March 29, 2002 compared with the period ended March 30, 2001 primarily due
to higher operating revenues. The reduction in the gross margin from 12.7% at
March 30, 2001 to 11.2% at March 29, 2002 is primarily due to the contract
write-downs of $88,400 recorded in the fourth quarter of 2001.
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. Based on a preliminary sales agreement
entered into with a third party, the Company recognized a provision for
anticipated loss for the potential sale of a waste-to-energy facility of $19,000
($12,400 after tax).
FINANCIAL CONDITION
Shareholders' equity for the three months ended March 29, 2002 decreased by
$111,365, due primarily to the loss for the period of $98,710, changes in the
foreign currency translation adjustment of $9,277 and unrealized loss on
derivative instruments of $3,378.
Cash flows from operations were $145,992 for the three months ended March 29,
2002 compared to a use of cash from operations of $68,069 for the three months
ended March 30, 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).
-27-
During the three months ended March 29, 2002, long-term investments in land,
buildings and equipment were $4,565 as compared with $9,009 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 $133,441 since December 28,
2001. The improvement in net debt primarily resulted from increased cash flows
from operations, including the cancellation of a company-owned life insurance
plan ($22,000) and the collection of two significant receivables ($87,000).
While the increased emphasis on cash is yielding favorable results, the
significant improvement for the quarter largely reflects timing.
Corporate and other debts, including the Revolving Credit Agreement, are as
follows:
March 29, December 28,
2002 2001
---- ----
Revolving Credit Agreements (average
interest rate 7.65%)........................... $ 140,000 $ 70,000
6.75% Notes due November 15, 2005.............. 200,000 200,000
Other.......................................... 38,512 27,627
-------------- --------------
$ 378,512 $ 297,627
Less, Current portion................................ 367,243 297,627
-------------- --------------
$ 11,269 $ -
============== ==============
In the third quarter 1998, a subsidiary of the Company entered into a three year
agreement with a financial institution whereby the subsidiary would sell an
undivided interest in a designated pool of qualified accounts receivable. At
March 29, 2002 and 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 has elected to terminate the agreement on April 30, 2002 in
accordance with its terms. The Company may elect to replace this facility if it
can negotiate satisfactory terms and conditions from one or more of the
financial institutions with which it is currently in discussions.
LIQUIDITY AND CAPITAL RESOURCES
As of March 29, 2002, the Company had cash and cash equivalents on hand and
short-term investments of $423,446. Management of the Company does not believe
that this amount will be adequate to meet the Company's working capital and
liquidity needs in the absence of a new or amended credit facility to replace
the existing Revolving Credit Agreement. While the waivers remain in effect, the
Company cannot make any additional borrowings under the Revolving Credit
Agreement or issue any letters of credit that are not cash collateralized.
Although the Company is in negotiations with its lenders for a new or amended
credit facility, there can be no assurances that the Company will be successful
in entering into a new or amended credit facility.
If the Company fails to enter into a new or amended credit facility during the
pendency of the waiver, which expires May 30, 2002, the lenders under the
Revolving Credit Agreement could accelerate the repayment of amounts borrowed
under such agreement ($140,000 as of March 29, 2002) and require the Company to
cash collateralize standby letters of credit outstanding thereunder ($93,000 as
of March 29, 2002). The lenders also have the ability to assess a penalty
interest under the terms of the agreement that would increase the interest rate
on the outstanding borrowings by approximately 2%. Acceleration of the Revolving
Credit Agreement would result in a default under the following agreements: the
Senior
-28-
Notes, the Convertible Subordinated Notes, the Preferred Trust Securities, the
Subordinated Robbins Facility exit funding obligations and certain of the
special-purpose project debt, which would allow such debt to be accelerated. The
total amount of the debt which could be accelerated, including the amount
outstanding under the Revolving Credit Agreement was $926,000 as of March 29,
2002. It is unlikely that the Company would be able to repay amounts borrowed if
the payment dates were accelerated. Failure by the Company to repay such amounts
would have a material adverse effect on the Company's financial condition and
operations.
The Company also had in place a receivables sale arrangement pursuant to which
the Company has sold receivables totaling $50,000. The bank that is party to
this financing has elected to terminate the agreement on April 30, 2002 in
accordance with its terms. The Company is also a lessee under an operating lease
financing agreement relating to a corporate office building in the amount of
$33,000 with a consortium of banks. The lease financing facility matured on
February 28, 2002. The banks that are party to that agreement have provided
forbearance through May 30, 2002 while the Company is negotiating with another
financial institution to replace this lease financing.
There can be no assurance that the Company will be able to negotiate a
replacement of the lease financing forbearance or that the Company will be able
to enter into replacement facilities for either the receivables sale arrangement
or the lease financing. Failure by the Company to make the payments required
upon expiration of the receivable sale arrangement or lease financing
forbearance would have a material adverse effect on the Company's financial
condition and operations.
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.
While there is no assurance that funding will be available to execute its plan
to enhance cash generation and to improve profitability, the Company is
continuing to seek financing to support the plan and its ongoing operations. 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's liquidity has been negatively impacted by a number of claims
relating to projects that have been affected by substantial scope of work
changes and other adverse factors. The net exposure associated with these
claims, which have accumulated over a period of time, approximates $135,000 at
March 29, 2002 and December 28, 2001. While the future collections of these
claims will increase cash inflows, the timing of collection of such claims is
subject to uncertainty of recoverability as described in Note 3 to the condensed
consolidated financial statements.
The Company is reviewing various methods to monetize certain assets in order to
concentrate on reducing both corporate and project debt and improving cash flow.
The Company has guaranteed certain performance obligations of its equity
interests as discussed in Note 13 to the condensed consolidated financial
statements. 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 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
-29-
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.
OVERHEAD REDUCTIONS
Management has evaluated, and continues to evaluate, all domestic corporate
overhead. Most of these reductions have only been put into effect recently, so
the impact has not yet been seen in the reported earnings.
HIGH-LEVERAGE PROJECTS
In terms of the Company's project operating system worldwide, one of the major
initiatives launched in early 2002 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.
CASH FLOWS FROM OPERATIONS
Over the past three 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.
Claims net of settlements have had a negative impact of $98,100 over the past
three 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.
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. 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 9 to the condensed
consolidated financial statements, the
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Company reached an agreement with the debtor project companies on March 5, 2002.
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
CONSOLIDATED DATA
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Backlog $ 5,966,617 $ 6,250,518
============ ===========
New orders $ 792,830 $ 950,451
============ ============
The Company's consolidated backlog at March 29, 2002 totaled $5,966,617, which
represented a 4.5% decrease from the amounts as of March 30, 2001. As of March
29, 2002, 34% of the consolidated backlog was from lump-sum work (64% of which
was for the Energy Equipment Group), and 66% 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 three
months ended March 29, 2002 was $5,586, compared with $15,877 for the three
months ended March 30, 2001. Furthermore, because of the large size and
uncertain timing of projects, future trends are difficult to predict.
New orders awarded for the three months ended March 29, 2002 were $792,830
compared to $950,451 for the period ended March 30, 2001, a reduction of
approximately 17%. Approximately 34% of new orders booked in the three months
ended March 29, 2002 were for projects awarded to the Company's subsidiaries
located outside the United States. Key countries and geographic areas
contributing to new orders awarded for the three months ended March 29, 2002
were the United States and Europe. The reduction in new orders was primarily due
to lower activity in the Engineering and Construction Group.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Backlog $4,346,226 $ 4,304,737
=========== ===========
New orders $ 383,310 $ 510,453
============ ============
The Engineering and Construction Group ("E&C Group") had a backlog of $4,346,226
at March 29, 2002, which represented an increase of $41,489, or 1%, from March
30, 2001. New orders booked for
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the three-month period ended March 29, 2002 decreased by 25% compared with the
period ended March 30, 2001. This decrease reflects lower new orders in the
United Kingdom and Continental Europe. Both of these operating units received
significant awards in the first quarter of 2001 that were not repeated in 2002.
ENERGY EQUIPMENT GROUP
THREE MONTHS ENDED
------------------
MARCH 29, 2002 MARCH 30, 2001
-------------- --------------
Backlog $ 1,642,909 $2,057,313
=========== ==========
New orders $ 413,973 $ 445,399
=========== =========
The Energy Equipment Group had a backlog of $1,651,752 at March 29, 2002, which
represented a 20% decrease from March 30, 2001. 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 March 2001.
New orders booked for the three-month period ended March 29, 2002 decreased by
7% from corresponding period in 2001, primarily due to lower new orders in the
United States during the first quarter of 2002.
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.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(IN THOUSANDS OF DOLLARS)
Management's strategy for managing transaction risks associated with currency
fluctuations is for each operating unit to enter into derivative transactions,
such as forward foreign exchange agreements, to hedge its exposure on contracts
into the operating unit's functional currency. The Company utilizes all such
financial instruments solely for hedging. Corporate policy prohibits the
speculative use of such instruments. The Company is exposed to credit loss in
the event of nonperformance by the counter parties to such financial
instruments. To minimize this risk, the Company enters into these financial
instruments with financial institutions that are primarily rated A or better by
Standard & Poor's or A2 or better by Moody's. 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 $2,262. This amount has
been determined by considering the impact of the hypothetical interest rates on
the Company's variable-rate balances as of March 29, 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 March 29, 2002, the Company had approximately $279,833 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.
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
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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 outcome of negotiations with financing sources, 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 negotiation of a long-term extension of the existing credit
facilities;
o monetization of certain Power System facilities; and
o recoverability of claims against customers.
Other factors and assumptions not identified above were also involved in the
derivation of these
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forward-looking statements and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. Most of these factors are difficult to predict
accurately and are generally beyond the control of the Company. The reader
should consider the areas of risk described above in connection with any
forward-looking statements that may be made by the Company.
The Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
The reader is advised, however, to consult any additional disclosures the
Company makes in proxy statements, quarterly reports on Form 10-Q, annual
reports on Form 10-K and current reports on Form 8-K filed with the Securities
and Exchange Commission.
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PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to Note 9 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 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT NO. EXHIBITS
10.1 Amendment No. 2 dated as of April 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 10.1 to Foster Wheeler Ltd.'s
Form 10-Q for the Quarter ended March 29, 2002 and
incorporated herein by reference.)
10.2 Forbearance Extension Agreement dated as of April 30, 2002,
by and among (i) Perryville III Trust, (ii) BNY Midwest
Trust Company, (iii) Foster Wheeler Realty Services, Inc.,
(iv) Foster Wheeler LLC, (v) Lombard US Equipment Finance
Corporation, (vi) National Westminster Bank Plc 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 10.2 to Foster Wheeler Ltd.'s Form 10-Q for the
Quarter ended March 29, 2002 and incorporated herein by
reference.)
12.1 Statement of Computation of Consolidated Ratio of Earnings
to Fixed Charges and Combined Fixed Charges.
99.1 Certification of Raymond J. Milchovich.
99.2 Certification of Joseph T. Doyle.
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REPORTS ON FORM 8-K
REPORT DATE DESCRIPTION
January 10, 2002 Foster Wheeler Ltd. announced that it sold its
power-generation plant in Mt. Carmel, Pennsylvania, and
would take a charge of approximately $22 million in the
fourth quarter as a result of the transaction. In addition,
the Company is considering the possibility of taking
certain restructuring and contract charges which have not
been quantified.
January 14, 2002 Foster Wheeler Ltd. announced that it will exercise its
right to defer the January 15, 2002 payment of the FW
Preferred Capital Trust I 9% Preferred Securities.
January 29, 2002 Foster Wheeler Ltd. announced its 2001 year-end results
and its comprehensive performance improvement plan.
March 8, 2002 Foster Wheeler Ltd. announced that it obtained an
extension of its $50 million receivables sale arrangement
through April 12, 2002 and has been taking steps to find a
replacement for this facility. In addition, the Company
received a forbearance of the exercise of any remedies from
February 28, 2002 through April 15, 2002 from the required
lenders under its $33 million lease financing facility,
which facility matured on February 28, 2002.
April 2, 2002 Foster Wheeler Ltd. 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 Ltd. 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 Ltd. announced that the United States
District Court for the Northern District of Texas has
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 Ltd. filed a description of its authorized
common shares.
April 15, 2002 Foster Wheeler Ltd. announced that it filed its Form
10-K for the fiscal year ended December 28, 2001 with the
Securities and Exchange Commission and that it will take an
additional loss for the fourth quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOSTER WHEELER LTD.
-------------------
(Registrant)
Date: NOVEMBER 22, 2002 /S/ RAYMOND J. MILCHOVICH
----------------- -------------------------
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
Date: NOVEMBER 22, 2002 /S/ JOSEPH T. DOYLE
- ----------------------- -------------------
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
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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 22, 2002
/S/ RAYMOND J. MILCHOVICH
-------------------------
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
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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 22, 2002
/S/ JOSEPH T. DOYLE
-------------------
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
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