EXHIBIT 99.2
Third-Quarter 2003 Conference Call Script
November 10, 2003
Operator:
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Ladies and gentlemen, welcome to the Foster Wheeler Ltd. third-quarter earnings
conference call.
(Operator instructions to participants.)
I would now like to turn the call over to Richard Tauberman, who currently leads
the company's communications team. Please begin, sir.
Richard Tauberman:
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Thank you, operator.
Good morning everyone, and thank you for joining us today. Our news release
announcing our third-quarter 2003 results was issued early this morning. We hope
that you have had an opportunity to see it. The news release has also been
posted to our Web site at www.fwc.com. In addition, we plan to file our
third-quarter 2003 Form 10-Q today with the Securities and Exchange Commission.
Before turning to the discussion of our financial results, let me remind you
that any comments made today about future operating results or other future
events are forward-looking statements under the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. Actual results may differ
substantially from such forward-looking statements. A discussion of factors that
could cause actual results to vary is contained in Foster Wheeler's annual and
quarterly reports filed with the SEC.
1
As you are probably aware, Foster Wheeler has filed documents with the
Securities and Exchange Commission related to the company's proposed debt
exchanges and we continue to be in a "quiet period." On the advice of counsel,
we will not be opening up the call to questions. We intend to resume our regular
Q&A sessions at the appropriate time.
I'd like to introduce Ray Milchovich, Chairman, President and CEO of the company
and Ken Hiltz, CFO, who will provide commentary on the quarter.
Ray Milchovich:
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Thank you, Richard, good morning every one and thank you for joining us.
First off I want to say that I appreciate your understanding that due to our
continuing quiet period and the advice of counsel, our conference call again
this quarter will not have the normal question and answer session. We have
attempted in our prepared remarks to answer some of the questions that you might
have asked.
As you are probably aware, this past Friday we announced that, effective
November 14, 2003, the New York Stock Exchange will suspend trading in our
common stock and the 9% FW Preferred Capital Trust I shares. We fully expect
that both securities will be immediately eligible for quotation and trading on
the Over-the-Counter Bulletin Board, effective with the opening of business on
November 14, 2003.
It is important to understand that the Exchange's decision is the result of our
anticipated inability to meet the Exchange's minimum book value of stockholders'
equity requirement and that we do not expect it to have a material impact on our
business activities. Our forecast indicates that our liquidity is adequate
through the end of 2004 and we intend to improve our position by taking a number
of actions that include the successful completion of a major asset monetization.
We do not expect this decision by the Exchange to affect our ability to achieve
our financial and operating goals.
2
While we are disappointed by the decision of the Exchange, we continue to make
significant progress with our overall financial and operational restructuring
which we expect to complete in early 2004.
During the first two quarters of this year, I reported to you that our results
were providing evidence of sustained progress toward our operational goals. In
the third quarter our operational performance continued to improve. This is a
further indication that our program of establishing more disciplined,
predictable and better performing project operations along with continued
cost-cutting initiatives are yielding the results we had envisioned and that we
will need for success in the future.
Our E&C revenues increased significantly in the third quarter of 2003 versus the
previous year's quarter, driven by improved performance in both the UK and
Continental Europe. Our North American power business posted third-quarter
earnings on plan and above last year's performance.
o Foster Wheeler South Africa Limited, a subsidiary of Foster
Wheeler Limited of the UK, was awarded a major contract for
engineering, procurement and construction management by Sasol
Synfuels Limited for a new waste recycling facility at Sasol's
Secunda operations in South Africa. The waste recycling facility
will be the first of its kind in Africa and is the culmination of
several years of close collaboration between Foster Wheeler and
Sasol.
o Last quarter we reported that we were working for ExxonMobil on
three projects for which we were awaiting full release. These
projects are covered by the five-year long-term agreement between
Foster Wheeler in Europe and ExxonMobil for project work
upgrading facilities throughout Europe. During the third quarter,
we were awarded two of these final releases. In addition, we
continue to work on a major ExxonMobil project in the UK as well
as an additional project in Continental Europe for which we
expect full release in the fourth quarter.
3
o Expansion of our LNG business line has continued and this remains
a strong market. In the third quarter, Foster Wheeler Iberia's E
& C group was awarded three new projects for LNG terminal
expansions by Enagas, the leading Spanish natural gas supplier.
One project includes design engineering, procurement and
construction supervision. The other two projects are for basic
design work. These projects enhance Foster Wheeler Iberia's
leading position for LNG regasification terminals in the large
Spanish market and add to our extensive experience. We continue
to receive expressions of interest and explore opportunities in
the U.S., Europe, Middle East and Asia through our UK, Spanish
and North American affiliates.
o While the North American power market remains depressed, we were
pleased to receive an award in the fourth quarter for a major
pulverized-coal-fired boiler, which we will formally announce in
the coming months. Additionally, we continue to see a steady
level of bookings and opportunities in the maintenance, service
and environmental retrofit sectors of the power business. Our
operational and cost initiatives in the North American power
business continue to generate improvements in our financial
performance, and we remain on track to report our first
profitable year in the last four in our North American power
business unit.
o During September and October, we reached settlements with two
North American clients on outstanding commercial claims, which
will result in cash proceeds to Foster Wheeler of $27.5 million.
With the slow and modest improvement in the global economy, we are seeing some
increased levels of activity in a number of our markets. A more upbeat outlook
is creating opportunities for Foster Wheeler in Europe, the Middle East and
Australasia and movement on projects that had been delayed due to economic and
political uncertainties.
4
The third-quarter results provide further confirmation that we are on track with
our performance improvement initiatives and we are seeing the benefits of a
strategy that emphasizes providing value to our clients along with a fair profit
opportunity for the company. We continue to make progress with our balance sheet
restructuring, which is the next critical step in allowing Foster Wheeler to
fully realize the upside potential of our worldwide businesses.
Now I'd like to turn the call over to Ken to review the quarter.
Ken Hiltz:
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Thank you, Ray. Good morning.
New orders booked during the quarter were $582 million, compared to $1.02
billion in the third quarter of last year, excluding $24 million related to the
environmental business that was sold in the first quarter of 2003. Last year's
new orders included a $342 million award to our Finnish subsidiary for the
engineering, procurement and construction of two power plants in Ireland for the
state-owned Electricity Supply Board.
In our E&C group, new orders booked during the quarter were $443 million,
essentially flat with orders of $446 million recorded last year, after excluding
the environmental orders. Two clean fuels contracts totaling $150 million and
LNG orders totaling $112 million led the business booked in the quarter.
In our Energy Group, new orders during the third quarter were $135 million. New
business for the quarter included two circulating fluidized-bed boilers - one in
Europe and one in Asia for a total of $34 million. Last year's orders of $580
million included a $342 million order for two power plants in Ireland. We are
awaiting notice to proceed on a project utilizing the next generation of our
proprietary CFB technology and the potential scope of the full project could
approximate $150 million.
5
Our backlog was $3 billion at the end of the quarter, compared to $4 billion at
the end of the third quarter of 2002, after excluding $1.8 billion of
environmental backlog. E&C group backlog was $2.0 billion, down from $2.5
billion at the end of last year's third quarter, after excluding the $1.8
billion environmental backlog. Energy Group backlog was $1.0 billion, compared
to $1.6 billion at the end of last year's third quarter. Although contract
levels have not been as high as we have seen in recent years, reflecting
challenging market conditions and resulting in a declining backlog, we are still
gaining quality business. In addition, our cost reduction efforts and more
disciplined project execution have resulted in better financial performance on
our current contracts.
For the third quarter of 2003, we reported consolidated revenues of $896
million, an increase of 20% over $748 million last year, after excluding the
environmental revenues. Growth in the European operations more than offset
declines in the U.S. operations.
Revenues for the quarter in the E&C Group were $576 million, an increase of 45%
compared to $396 million last year, after excluding the environmental revenues.
Both the UK and Continental Europe recorded significant increases. EBITDA was
$19 million this quarter, compared to a negative EBITDA of $27 million for the
same period last year.
Revenues in the third quarter for the Energy Group were $321 million, compared
to $356 million in 2002 as improvements in Europe offset the U.S. power
operation's decline. EBITDA for the group in the third quarter was $32 million,
compared to a negative EBITDA of $29 million last year.
We recorded a net loss for the quarter of $27 million, which included net
pre-tax charges of $26 million, compared to a net loss in last year's quarter of
$151 million, which included net pre-tax charges of $147 million. This quarter's
pre-tax charges included:
6
o An impairment loss of $15 million on the anticipated sale of a
domestic corporate office building, and
o $14 million of planned pre-tax expenses for professional services
and severance benefits related to the company's ongoing
restructuring. These costs will continue in the future, although
the exact amounts are uncertain. Our goal is to complete the
restructuring by early 2004.
In terms of domestic liquidity, we did see an improvement and are more
comfortable with our projected liquidity position through year-end 2004 compared
to previous forecasts. Total cash and short-term investments increased to $470
million from $419 million at the end of last quarter. Of the $470 million of
cash and short-term investments at the end of the third quarter, $407 million
was held by our non-U.S. subsidiaries. However, challenges remain due to the
timing of cash flows on certain domestic projects combined with planned, but
significant levels of restructuring-related spending. We are addressing this
issue by taking a number of actions that include the successful completion of a
major asset monetization.
As Ray mentioned, in September and October we successfully negotiated
settlements of two major project disputes. We expect to receive $27.5 million in
cash proceeds during the fourth quarter and first quarter of next year.
Additionally, in October we completed the sale of the Hudson Falls
waste-to-energy facility. Subsequent to the close of the quarter, we received $6
million in proceeds and removed approximately $49 million of non-recourse debt
from our balance sheet.
As previously announced, the company filed a Form S-4 with the Securities and
Exchange Commission, which outlined the terms of the company's exchange offer
for certain of its securities as well as its overall restructuring strategy. The
company intends that this strategy will enable it to significantly reduce its
debt levels and improve its overall financial condition. The S-4 is currently
under review by the SEC.
7
With regard to asbestos, during the quarter we received 6,000 new claims and
resolved 3,200. At quarter-end, we had approximately 148,200 claims pending,
after excluding 24,500 that were previously reported. During the quarter, we
decided to remove certain claims from the report on claims pending. The 24,500
previously reported claims pending are claims which have been placed on
inactive, stayed, deferred or similar court dockets which have been established
for claimants who have alleged minimal or no impairment. Based on our view that
these claims will not result in defense or indemnity expenses in the foreseeable
future, we believe it is prudent to report them separately from the open claims
in our portfolio. Asbestos indemnity and defense costs were approximately $20.5
million in the third quarter, substantially all of which is covered by
insurance.
As previously reported, our coverage-in-place arrangement for the funding of our
asbestos program, which covered substantially all asbestos-related costs, was
terminated in June 2001. Since then the number of pending claims has increased
because of the delay we have experienced in accessing insurance proceeds. In the
second quarter, we took an important step in resolving this issue by entering
into a settlement agreement with Liberty Mutual Insurance Company. This
agreement will provide a significant portion of the funding for asbestos-related
costs over a 19-year period. In July, we received an initial payment of $6
million. In September 2003, we entered into a settlement agreement with certain
London Market and North River Insurers. During the quarter, we received an
initial cash payment of $5.9 million. We are continuing to negotiate similar
settlements with other insurance companies in our portfolio. As proceeds of
insurance policies become available, we expect the number of claims resolutions
to return to historical levels. Litigation with insurers that have not settled
with us is continuing.
Now I'd like to turn the call back over to Ray for concluding remarks.
8
Ray Milchovich:
Thank you, Ken. Let me just quickly summarize the key messages for the quarter.
o We fully expect the transfer of trading in our shares to the
Over-the-Counter Bulletin Board to commence on November 14, 2003.
We do not expect this change to have a material impact on our
business activities or on our ability to achieve our financial
and operating goals.
o Our forecast indicates that we have adequate liquidity through
year-end 2004 and we are taking actions to improve our position.
o We are confident in our restructuring program. We are beginning
to realize the benefits of our operational restructuring efforts
and continue to focus on the completion of our balance sheet
restructuring during early 2004.
o Although our backlog has declined, reflecting challenging market
conditions, we are winning quality business with strategic and
tactical importance and are seeing a steady level of
opportunities.
o Our cost reduction efforts and more disciplined project execution
have resulted in better financial performance on our current
contracts.
We have made substantial progress and continue to move ahead with what I believe
is the right strategy to unlock the considerable upside potential of our global
businesses and to return Foster Wheeler to profitable growth.
9
Richard Tauberman:
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Thank you for your attention. We appreciate your participation today. As we
mentioned at the beginning of the call, we will not be conducting our normal Q&A
session and we appreciate your understanding. We look forward to speaking with
you over the coming months. Thank you, and good-bye.