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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-31305
FOSTER WHEELER LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
BERMUDA 22-3802649
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PERRYVILLE CORPORATE PARK, CLINTON, NJ 08809-4000
- -------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 730-4000
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 40,771,560 shares of the
Company's common stock ($1.00 par value) were outstanding as of June 28, 2002.
FOSTER WHEELER LTD.
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at June 28, 2002 and
December 28, 2001
Condensed Consolidated Statement of Earnings and
Comprehensive Income for the Three and Six Months Ended
June 28, 2002 and June 29, 2001
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 28, 2002 and June 29, 2001
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
Part II Other Information
Item 1 - Legal Proceedings
Item 4 - Submission of Matter to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
(Unaudited)
June 28, 2002 December 28, 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 344,024 $ 224,020
Short-term investments ..................................................... 285 271
Accounts and notes receivable .............................................. 831,147 946,344
Contracts in process and inventories ....................................... 421,153 504,128
Prepaid, deferred and refundable income taxes .............................. 59,097 52,084
Prepaid expenses ........................................................... 22,982 27,529
----------- -----------
Total current assets ................................................... 1,678,688 1,754,376
----------- -----------
Land, buildings and equipment .................................................... 728,912 728,012
Less accumulated depreciation .................................................... 341,768 328,814
----------- -----------
Net book value ......................................................... 387,144 399,198
----------- -----------
Restricted cash .................................................................. 40,594 --
Notes and accounts receivable - long-term ........................................ 51,477 65,373
Investment and advances .......................................................... 84,144 84,514
Goodwill, net .................................................................... 126,806 200,152
Other intangible assets, net ..................................................... 73,746 74,391
Prepaid pension cost and benefits ................................................ 127,481 122,407
Asbestos-related insurance recovery receivable ................................... 479,146 437,834
Other assets ..................................................................... 165,904 173,279
Deferred income taxes ............................................................ 5,266 4,855
----------- -----------
TOTAL ASSETS ........................................................... $ 3,220,396 $ 3,316,379
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt ..................................... $ 42,685 $ 12,759
Bank loans ................................................................. 20,821 20,244
Corporate and other debt ................................................... -- 297,627
Special-purpose project debt ............................................... -- 75,442
Subordinated Robbins exit funding obligations .............................. -- 110,340
Convertible subordinated notes ............................................. -- 210,000
Mandatory redeemable preferred securities of subsidiary trust holding solely
junior subordinated deferrable interest debentures ..................... -- 175,000
Accounts payable and accrued expenses ...................................... 694,434 777,768
Estimated costs to complete long-term contracts ............................ 654,986 580,766
Advance payments by customers .............................................. 83,211 65,417
Income taxes ............................................................... 61,934 63,257
----------- -----------
Total current liabilities .............................................. 1,558,071 2,388,620
----------- -----------
Corporate and other debt less current installment ................................ 346,992 --
Special-purpose project debt less current installments ........................... 200,605 137,855
Deferred income taxes ............................................................ 44,849 40,486
Postretirement and other employee benefits other than pensions ................... 123,720 121,600
Asbestos-related liability ....................................................... 444,291 445,370
Other long-term liabilities and minority interest ................................ 177,950 174,901
Subordinated Robbins exit funding obligations less current installment ........... 108,865 --
Convertible subordinated notes ................................................... 210,000 --
Mandatory redeemable preferred securities of subsidiary trust holding solely
junior subordinated deferrable interest debentures ......................... 175,000 --
----------- -----------
TOTAL LIABILITIES ..................................................... 3,390,343 3,308,832
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock ..................................................................... 40,772 40,772
Paid-in capital .................................................................. 201,390 201,390
Retained earnings (deficit) ...................................................... (255,847) (72,781)
Accumulated other comprehensive loss ............................................. (156,262) (161,834)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ............................................ (169,947) 7,547
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ........................................................... $ 3,220,396 $ 3,316,379
=========== ===========
See notes to condensed consolidated financial statements.
-2-
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND
COMPREHENSIVE INCOME (In Thousands of
Dollars, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Revenues:
Operating revenues ..................................... $ 944,334 $ 826,882 $ 1,739,743 $ 1,509,525
Other income ........................................... 14,567 13,301 25,187 28,893
----------- ----------- ----------- -----------
Total revenues ......................................... 958,901 840,183 1,764,930 1,538,418
----------- ----------- ----------- -----------
Costs and expenses:
Cost of operating revenues ............................. 895,547 742,461 1,607,479 1,350,146
Selling, general and administrative expenses ........... 57,086 59,644 110,724 111,041
Other deductions/minority interest ..................... 67,392 13,135 105,641 21,016
Interest expense ....................................... 15,053 15,434 31,957 32,262
Dividends on preferred security of subsidiary trust .... 4,104 3,938 8,116 7,875
----------- ----------- ----------- -----------
Total costs and expenses ............................... 1,039,182 834,612 1,863,917 1,522,340
----------- ----------- ----------- -----------
(Loss)/earnings before income taxes ........................ (80,281) 5,571 (98,987) 16,078
Provision for income taxes ................................. 4,695 4,782 10,579 7,184
----------- ----------- ----------- -----------
Net (loss)/earnings prior to cumulative effect of a change
in accounting principle ................................ (84,976) 789 (109,566) 8,894
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 ........................................ (84,976) 789 (183,066) 8,894
Other comprehensive loss:
Foreign currency translation adjustment ................ 18,683 (5,127) 9,406 (22,843)
Change in unrealized losses on derivative instruments,
net of tax ......................................... -- (3,185) (1,679) (8,830)
Reclassification of unrealized gain on derivative
instruments to earnings ............................ (456) (1,255) (2,155) (1,955)
Cumulative effect on prior year (to December 29, 2000)
of change in accounting principle for derivatives,
net of tax ......................................... -- -- -- 6,300
----------- ----------- ----------- -----------
Comprehensive loss ......................................... $ (66,749) $ (8,778) $ (177,494) $ (18,434)
=========== =========== =========== ===========
-3-
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
(Loss)/earnings per share:
Basic:
Net (loss)/earnings prior to cumulative effect of a
change in accounting principle ................ $ (2.08) $ 0.02 $ (2.68) $ 0.22
Cumulative effect on prior years (to December 28,
2001) of a change in accounting principle for
goodwill ..................................... -- -- (1.79) --
------------- ---------- ---------- ----------
Net (loss)/earnings ............................... $ (2.08) $ 0.02 $ (4.47) $ 0.22
============= ========== ========== ==========
Diluted:
Net (loss)/earnings prior to cumulative effect of a
change in accounting principle ............... $ (2.08) $ 0.02 $ (2.68) $ 0.22
Cumulative effect on prior years (to December 28,
2001) of a change in accounting principle for
goodwill ..................................... -- -- (1.79) --
------------- ---------- ---------- ----------
Net (loss)/earnings ............................... $ (2.08) $ 0.02 $ (4.47) $ 0.22
============= ========== ========== ==========
Shares outstanding (in thousands):
Basic: weighted average number of shares outstanding .. 40,945 40,891 40,932 40,863
Diluted: effect of share options ...................... -- 360 -- 335
------------- ---------- ---------- ----------
Total diluted ......................................... 40,945 41,251 40,932 41,198
============= ========== ========== ==========
Cash dividends paid per common share ...................... $ -- $ 0.06 $ -- $ 0.12
============ ========== ========== ==========
See notes to condensed consolidated financial statements.
-4-
FOSTER WHEELER LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
SIX MONTHS ENDED
----------------
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/earnings ........................................ $(183,066) $ 8,894
Adjustments to reconcile net earnings to cash flows from
operating activities:
Cumulative effect of a change in accounting principle .. 73,500 --
Depreciation and amortization .......................... 22,703 27,823
Deferred tax ........................................... 3,655 505
Provision for loss on sale of two waste-to-energy plants 50,800 --
Dividends on Preferred Trust securities ................ 8,116 --
Equity loss/(earnings), net of dividends ............... 2,999 (85)
Other .................................................. 1,611 6,187
Changes in assets and liabilities:
Receivables ............................................ 62,674 (26,076)
Contracts in process and inventories ................... 76,091 (36,402)
Accounts payable and accrued expenses .................. (110,730) (82,072)
Estimated costs to complete long-term contracts ........ 64,666 (25,944)
Advance payments by customers .......................... 13,706 3,044
Income taxes ........................................... (4,504) (5,004)
Other assets and liabilities ........................... 2,731 (12,250)
--------- ---------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES ........... 84,952 (141,380)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash .................................. (40,594) --
Capital expenditures ....................................... (10,940) (16,333)
Proceeds from sale of properties ........................... 1,170 37,705
(Increase)/decrease in investments and advances ............ (1,567) 9,178
Increase in short-term investments ......................... 4 361
Distributions to minority shareholder ...................... (2,061) (1,367)
--------- ---------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES ........... (53,988) 29,544
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend to stockholders ................................... -- (4,888)
Repurchase of common stock ................................. -- (37)
Proceeds from exercise of stock options .................... -- 627
Proceeds from convertible subordinated notes, net .......... -- 202,912
Increase/(decrease) in short-term debt ..................... 299 (74,273)
Proceeds from long-term debt ............................... 69,118 78,271
Repayment of long-term debt ................................ (5,044) (131,440)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 64,373 71,172
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 24,667 (15,680)
--------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........... 120,004 (56,344)
Cash and cash equivalents at beginning of year ............. 224,020 191,893
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 344,024 $ 135,549
========= =========
Cash paid during period:
Interest (net of amount capitalized) ....................... $ 16,125 $ 32,775
--------- ---------
Income taxes ............................................... $ 5,080 $ 10,230
--------- ---------
See notes to condensed consolidated financial statements.
FOSTER WHEELER LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. The condensed consolidated balance sheet as of June 28, 2002, and the
related condensed consolidated statements of earnings and
comprehensive income for the three and six month periods ended June
28, 2002 and June 29, 2001 and condensed consolidated statement of
cash flows for the six months ended June 28, 2002 and June 29, 2001
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 for the
fiscal year ended December 28, 2001 filed with the Securities and
Exchange Commission on April 12, 2002. The condensed consolidated
balance sheet as of December 28, 2001 has been derived from the
audited consolidated balance sheet included in the 2001 Form 10-K. A
summary of Foster Wheeler's significant accounting policies of Foster
Wheeler Ltd. (hereinafter referred to as "Foster Wheeler" or the
"Company") include the following:
PRINCIPLES OF CONSOLIDATION - The condensed consolidated financial
statements include the accounts of Foster Wheeler Ltd. and all
significant domestic and foreign subsidiary companies. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported.
Actual results could differ from those estimates. Changes in estimates
are reflected in the periods in which they become known. Significant
estimates relate to accounting for long-term contracts including
customer and vendor claims, depreciation, employee benefit plans,
taxes, asbestos litigation and expected recoveries and contingencies,
among others. As of June 28, 2002 and December 28, 2001, costs of
approximately $86,000 and $135,000, respectively, were included in
assets, primarily in receivables and contracts in process,
representing amounts expected to be realized from claims to customers.
As of both June 28, 2002 and December 28, 2001, receivables of
approximately $50,000 are being withheld by customers until the
related claims discussed above are resolved. During the second quarter
of 2002, the Company wrote down three claims against customers for a
total of $47,900. The Company wrote down one claim by $16,200 to
reflect a reassessment of recovery based on new facts during the
quarter and management's strategy to realize cash by attempting to
resolve claims. Management wrote down a second claim by $20,700.
Management's decision was based on increases in the client's
counterclaim and management's strategy to realize cash by attempting
to resolve claims. A third claim was written down in the amount of
$11,000 due to an unfavorable decision by an adjudicating body during
the quarter.
Claims are amounts in excess of the agreed contract price (or amounts
not included in the original contract price) that a contractor seeks
to collect from customers or others for delays, errors in
specifications and designs, contract terminations, change orders in
dispute or unapproved as to both scope and price or other causes of
unanticipated additional costs. The Company records claims in
accordance with paragraph 65 of the American Institute of Certified
Public Accountants Statement of Position 81-1, "Accounting for
Performance of Construction-
-5-
Type and Certain Production-Type Contracts". This statement of
position states that recognition of amounts as additional contract
revenue related to claims is appropriate only if it is probable that
the claims will result in additional contract revenue and if the
amount can be reliably estimated. Those two requirements are satisfied
by the existence of all of the following conditions: the contract or
other evidence provides a legal basis for the claim; additional costs
are caused by circumstances that were unforeseen at the contract date
and are not the result of deficiencies in the contractor's
performance; costs associated with the claim are identifiable or
otherwise determinable and are reasonable in view of the work
performed; and the evidence supporting the claim is objective and
verifiable. If such requirements are met, revenue from a claim is
recorded only to the extent that contract costs relating to the claim
have been incurred. Costs attributable to claims are treated as costs
of contract performance as incurred. Such claims are currently in
various stages of negotiation, arbitration and other legal
proceedings.
REVENUE RECOGNITION ON LONG-TERM CONTRACTS - The Engineering and
Construction ("E&C") Group records profits on long-term contracts on a
percentage-of-completion basis on the cost-to-cost method. Contracts
in process are valued at cost plus accrued profits less earned
revenues and progress payments on uncompleted contracts. Contracts of
the E&C Group are generally considered substantially complete when
engineering is completed and/or field construction is completed. The
Company includes pass-through revenue and costs on cost-plus
contracts, which are customer-reimbursable materials, equipment and
subcontractor costs when the Company determines that it is responsible
for the engineering specification, procurement and management of such
cost components on behalf of the customer.
The Energy Group primarily records profits on long-term contracts on a
percentage-of-completion basis determined on a variation of the
efforts-expended and the cost-to-cost methods, which include multiyear
contracts that require significant engineering efforts and multiple
delivery units. These methods are periodically subject to physical
verification of the actual progress towards completion. Contracts of
the Energy Group are generally considered substantially complete when
manufacturing and/or field erection is completed.
The Company has numerous contracts that are in various stages of
completion. Such contracts require estimates to determine the
appropriate cost and revenue recognition. Current estimates may be
revised as additional information becomes available. If estimates of
costs to complete long-term contracts indicate a loss, provision is
made currently for the total loss anticipated. The elapsed time from
award of a contract to completion of performance may be up to four
years.
Certain special-purpose subsidiaries in the Energy Group are
reimbursed by customers for their costs, including amounts related to
principal repayments of non-recourse project debt, for building and
operating certain facilities over the lives of the non-cancelable
service contracts. The Company records revenues relating to debt
repayment obligations on these contracts on a straight-line basis over
the lives of the service contracts, and records depreciation of the
facilities on a straight-line basis over the estimated useful lives of
the facilities, after consideration of the estimated residual value.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid short-term investments purchased with original maturities of
three months or less. Cash and cash equivalents of $226,656 are
maintained by foreign subsidiaries as of June 28, 2002. These
subsidiaries require a substantial portion of these funds to support
their liquidity and working capital needs.
RESTRICTED CASH - Restricted cash consists of approximately $24,000
which was required to collateralize standby letters of credit as
of June 28, 2002 and approximately $16,000 that the Company was
required to deposit into escrow in connection with the legal case
TODAK VS. FOSTER WHEELER CORPORATION discussed in Note 8.
-6-
SHORT-TERM INVESTMENTS - Short-term investments consist primarily of
bonds of foreign governments and are classified as available for sale
under FASB Statement No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Realized gains and losses from sales are
based on the specific identification method.
TRADE ACCOUNTS RECEIVABLE - In accordance with terms of long-term
contracts, certain percentages of billings are withheld by customers
until completion and acceptance of the contracts. Final payments of
all such withheld amounts might not be received within a one-year
period. In conformity with industry practice, however, the full amount
of accounts receivable, including such amounts withheld, has been
included in current assets.
ACCOUNTS AND NOTES RECEIVABLE OTHER - Non-trade accounts and notes
receivable consist primarily of foreign refundable value-added tax and
at year end 2001 amounts receivable due to the cancellation of the
company-owned life insurance plan.
LAND, BUILDINGS AND EQUIPMENT - Depreciation is computed on a
straight-line basis using composite estimated lives ranging from 10 to
50 years for buildings and from 3 to 35 years for equipment.
Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized. Upon retirement or other
disposition of fixed assets, the cost and related accumulated
depreciation are removed from the accounts and the resulting gains or
losses are reflected in earnings.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations". This
statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for
financial statements issued for fiscal years beginning after June 15,
2002. The Company is currently assessing the impact of the adoption of
this new statement.
Effective December 29, 2001, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement addresses the accounting for long-lived assets to be
disposed of by sale and resolves significant implementation issues
relating to SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The provisions of
this statement are effective for financial statements issued for the
fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company's results of operations and
financial position were not affected by the adoption of this
statement.
INVESTMENTS AND ADVANCES - The Company uses the equity method of
accounting for investment ownership of between 20% and 50% in
affiliates unless significant economic considerations indicate that
the cost method is appropriate. The equity method is also used for
investments in which ownership is greater than 50% when the Company
does not have a controlling financial interest. Investment ownership
of less than 20% in affiliates is carried at cost. Currently, all of
the Company's significant investments in affiliates are recorded using
the equity method.
INCOME TAXES - Deferred income taxes are provided on a liability
method whereby deferred tax assets/liabilities are established for the
difference between the financial reporting and income tax basis of
assets and liabilities, as well as operating loss and tax credit carry
forwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
-7-
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method
whereby they reduce income taxes currently payable and the provision
for income taxes in the period the assets giving rise to such credits
are placed in service. To the extent such credits are not currently
utilized on the Company's tax return, deferred tax assets, subject to
considerations about the need for a valuation allowance, are
recognized for the carry forward amounts.
Provision is made for Federal income taxes which may be payable on
foreign subsidiary earnings to the extent that the Company anticipates
they will be remitted.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at quarter-end and
year-end exchange rates and income and expenses and cash flows at
monthly weighted average rates. The Company enters into foreign
exchange contracts in its management of foreign currency exposures.
Changes in the fair value of derivative contracts that qualify as
designated cashflow hedges are deferred until the hedged forecasted
transaction affects earnings. Amounts receivable (gains) or payable
(losses) under foreign exchange hedges are recognized as deferred
gains or losses and are included in either contracts in process or
estimated costs to complete long-term contracts. The Company utilizes
foreign exchange contracts solely for hedging purposes, whether or not
they qualify for hedge accounting under SFAS 133. At June 28, 2002,
the Company did not meet the requirements for deferral under SFAS 133
and recorded in the three months ended June 28, 2002 approximately
$21,000 of gains on derivative instruments previously accounted for as
cash flow hedges.
INVENTORIES - Inventories, principally materials and supplies, are
stated at the lower of cost or market, determined primarily on the
average cost method.
INTANGIBLE ASSETS - Intangible assets consist principally of the
excess of cost over the fair value of net assets acquired (goodwill),
trademarks and patents.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which supersedes APB Opinion No. 17,
"Intangible Assets". SFAS 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in
financial statements upon their acquisition. SFAS 142 also addresses
how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. SFAS
142 stipulates that goodwill should no longer be amortized and instead
should be subject to impairment assessment.
The provisions of SFAS 142 are required to be applied effective
December 29, 2001. The Company is utilizing the two-step method
described in SFAS 142 for purposes of determining the amount of
goodwill impairment. See Note 7 for further information. Goodwill
amortization for 2001 was approximately $8,000.
EARNINGS PER SHARE - Basic per share data has been computed based on
the weighted average number of shares of common stock outstanding.
Diluted per share data has been computed based on the basic plus the
dilution of stock options. On April 26, 1999, the Company adopted a
Directors Deferred Compensation and Stock Award Plan (the "Plan").
Under the Plan, each non-employee director is credited annually with
share units of the Company's common stock. In addition, each
non-employee director may elect to defer receipt of compensation for
services rendered as a director, which deferred amount is credited to
his or her account in the form of share units.
-8-
The Company makes a supplemental contribution equal to 15% of the
deferred amount. The shares related to the convertible notes offering
were not included in the computation due to their antidilutive effect.
Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the December 28,
2001 Form 10-K when reviewing interim financial results. There has
been no material change in the accounting policies followed by Foster
Wheeler Ltd. during the second quarter of 2002 except for the adoption
of Statement of Financial Accounting Standards Nos. 142 and 144.
Certain prior period amounts have been reclassified to conform to
current financial statement presentation. In particular, the
Engineering, Procurement and Construction business for the Power
industry in the United States was reclassified from the Engineering
and Construction Group to the Energy Group. This allows for United
States domestic power projects to be controlled by one group and
better aligns the presentation with the current management reporting
as well as the customer base.
2. The accompanying condensed consolidated financial statements are
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. Realization of assets and the satisfaction of liabilities in
the normal course of business are dependent on the Company maintaining
credit facilities adequate to conduct its business. To date, the
Company has been able to obtain sufficient financing to support its
ongoing operations. The Company has also initiated a liquidity action
plan, which focuses on accelerating the collection of receivables,
claims recoveries and asset sales.
The Company has initiated a comprehensive plan to enhance cash
generation and to improve profitability. The operating performance
portion of the plan concentrates on the quality and quantity of
backlog, the execution of projects in order to achieve or exceed the
profit and cash targets and the optimization of all non-project
related cash sources and uses. In connection with this plan, a group
of outside consultants has been hired for the purpose of carrying out
a performance improvement intervention. The tactical portion of the
performance improvement intervention concentrates on booking current
projects, executing twenty-two "high leverage projects" and generating
incremental cash from high leverage opportunities such as overhead
reductions, procurement and accounts receivable. The systemic portion
of the performance improvement intervention concentrates on sales
effectiveness, estimating, bidding and project execution procedures.
Subsequent to June 28, 2002, the Company finalized a Senior Credit
Facility with a group of banks. This facility includes a $71,000 term
loan, a revolving credit agreement for $69,000 and a letter of credit
facility for $149,900 that expire on April 30, 2005. This facility is
secured by the assets of the domestic subsidiaries, the stock of the
domestic subsidiaries and 66% of the stock of the first-tier foreign
subsidiaries. The facility has no scheduled repayments prior to
maturity on April 30, 2005. The facility requires prepayments from
proceeds of assets sales and the issuance of debt or equity and from
excess cash flow. The Company retains the first $77,000 of such asset
sales or issuance of debt or equity in order to maintain liquidity and
the Company also retains a 50% share of the balance. The financial
covenants in the facility start at the end of the first quarter 2003.
These include a senior leverage ratio and a minimum earnings before
income taxes depreciation and amortization ("EBITDA") level.
The term loan and revolving loans will bear interest at the Company's
option of (a) LIBOR plus 3.50% or (b) the Base Rate plus 2.50%. The
"Base Rate" will mean the higher of (i) the Bank of America prime rate
and (ii) the Federal Funds rate plus .5%.
-9-
The Company has also finalized a sale/leaseback arrangement with a
third party for its corporate headquarters. This capital lease
arrangement leases the facility to the Company for an initial
non-cancelable period of 20 years.
Subsequent to June 28, 2002, the Company has also completed a
receivable sale arrangement for $40,000. This arrangement will be
accounted for as a financing.
As a result of finalizing the Senior Credit Facility, the
sale/leaseback arrangement and the receivable sale arrangement, the
Company has reclassified $904,000 of it debts as long term.
In addition to the Company's debt restructuring initiatives,
management has initiated a comprehensive plan to address domestic
liquidity issues. Management's plan to address the Company's domestic
liquidity issues includes generating approximately $150,000 from asset
sales, collection of receivables and resolving disputed claims over
the next six months and an additional $40,000 over the following six
months. To the extent these initiatives are not successful, the
Company will explore other options including the repatriation of funds
from foreign operations and further cost reduction and cash
conservation measures. Management believes that these actions,
together with cash on hand and cash from operations will be sufficient
to fund the Company's working capital needs over the next year.
Failure by the Company to achieve a significant portion of these
proceeds could have a material adverse effect on the Company's
financial condition. The above factors raise substantial doubts about
the Company's ability to continue as a going concern. The condensed
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. On January 13, 1999 FW Preferred Capital Trust I, a Delaware Business
Trust which is a 100% owned finance subsidiary of the Company, issued
$175,000 in Preferred Trust Securities. The Preferred Trust Securities
are fully and unconditionally guaranteed by the Company. These
Preferred Trust Securities are entitled to receive cumulative cash
distributions at an annual rate of 9.0%. Distributions are paid
quarterly in arrears on April 15, July 15, October 15 and January 15
of each year. Such distributions may be deferred for periods up to
five years. In accordance with this provision, the Company elected to
defer the distributions due on January 15, April 15, and July 15,
2002. The new Senior Credit Facility requires the Company to continue
to defer dividends on the Preferred Trust Securities. The maturity
date is January 15, 2029.
4. At June 28, 2002, a total of 7,445,968 shares of common stock were
reserved for issuance under various stock option plans; of this total,
2,570,180 were not under option.
5. Basic per share data has been computed based on the weighted average
number of shares of common stock outstanding. Diluted per share data
has been computed based on the basic plus the dilution of stock
options. In 1999, the Company adopted The Directors Deferred
Compensation and Stock Award Plan (the "Plan"). Under the Plan, each
non-management director is credited annually with share units of the
Company's common stock. In addition, each non-management director may
elect to defer receipt of compensation for services rendered as a
director, which deferred amount is credited to his or her account in
the form of share units. The Company makes a supplemental contribution
equal to 15% of the deferred amount. For the six months ended June 28,
2002, 72,965 share units were credited in participants' accounts.
During the same period, 29,309 shares were delivered to one director
upon his retirement. As of June 28, 2002, 173,021 share units were
credited in participants' accounts and are included in the calculation
of basic earnings per share. Options to purchase 4,848,788 shares of
common stock were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the
average market price of the common shares. Options to purchase 277,000
shares of common stock were not included in the computation of diluted
earnings per share for the three and six month periods ended June 28,
-10-
2002 due to their antidilutive effect. The 13,085,751 shares related
to the convertible subordinated notes were not included in the
computation for the three and six-month periods ended June 28, 2002
due to their antidilutive effect.
6. Interest income and cost for the following periods are:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Interest Income $ 2,996 $ 2,834 $ 4,723 $ 6,272
======= ======= ======== =============
Interest Cost $ 19,463 $ 19,557 $ 40,617 $ 40,452
========== ======== ========= =============
Included in the interest cost is interest capitalized on
self-constructed assets, for the three and six months ended June 28,
2002 of $306 and $544, respectively, compared to the $185 and $315 for
the same periods in 2001. Interest costs also included dividends on
Preferred Trust Securities, which amounted to $4,104 and $8,116 for
the three, and six months ended June 28, 2002, respectively, compared
to $3,938 and $7,875 for the same period in 2001.
7. Effective December 29, 2001, the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") which supercedes APB Opinion No. 17,
"Intangible Assets". The statement requires that goodwill and
intangible assets with indefinite lives no longer be amortized, but
instead be tested for impairment at least annually. The Company tests
for impairment at the reporting unit level as defined in SFAS No. 142.
This test is a two-step process. Impairment losses have been
measured as of December 29, 2001 and recognized as the cumulative
effect of a change in accounting principle in 2002. SFAS No. 142 also
requires that intangible assets with determinable useful lives be
amortized over their respective estimated useful lives and reviewed
for impairment in accordance with SFAS No. 144.
As of June 28, 2002 and December 28, 2001, the Company had unamortized
goodwill of $126,806 and $200,152 respectively. The reduction is due
to the $73,500 of impairment losses as discussed below, offset by
foreign currency translation adjustments of $154. In accordance with
SFAS No. 142, the Company is no longer amortizing goodwill. The
Company recognized $73,500 of impairment losses during the six-month
period ended June 28, 2002 related to the goodwill as a cumulative
effect of a change in accounting principle. Of this total, $24,800 was
associated with a waste-to-energy facility included in the operations
of the Energy Group. The fair value of the facility was estimated
using the expected present value of future cash flows. The remaining
$48,700 relates to a reporting unit in the Engineering and
Construction Group. An impairment of the goodwill on this subsidiary
was initially determined based upon its market value. Based upon the
market value of this reporting unit, it was determined under step one
that a potential impairment existed. The Company then completed step
two and determined that a full write down of the goodwill was
required. All of the other reporting units were also subjected to the
first step of the goodwill impairment test. One further reporting unit
in the Energy Group has been determined to have potential goodwill
impairment as a result of the calculations performed under step one. A
write-down has not been taken on this reporting unit since the step
two valuation has not yet been finalized. The Company anticipates
finalizing the step two calculations in the third quarter of 2002 and
will record any impairment at that time. The amount of goodwill
related to this reporting unit amounts to approximately $77,000.
Management estimates it is reasonably likely that a substantial amount
of this goodwill may be impaired.
As of December 29, 2001, the Company had unamortized identifiable
intangible assets of $74,391. The following table details amounts
relating to those assets as of June 28, 2002.
-11-
As of June 28, As of December 28,
2002 2001
---------------------------------- ---------------------- -----------------------------------
Gross Carrying Amount Accumulated Gross Carrying Accumulated
Amortization Amount Amortization
------------------------ ---------------------- --------------------- ------------------------
Patents $ 35,421 $ (11,078) $ 34,994 $ (10,197)
Trademarks 59,944 (10,541) 59,266 (9,672)
-------------- ---------------- ---------------- ---------------
Total $ 95,365 $ (21,619) $ 94,260 $ (19,869)
--------------- ---------------- ---------------- ---------------
Amortization expense related to patents and trademarks for the
six-month period ended June 28, 2002 was $1,750. Amortization expense
is expected to approximate $3,500 each year in the next five years.
The following table presents the prior year reported amounts adjusted
to eliminate the effect of goodwill amortization in accordance with
SFAS No. 142.
Three Months Ended Six Months Ended
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Reported net (loss)/earnings $ (84,976) $ 789 $ (183,066) $ 8,894
Add back: goodwill amortization 1,342 2,685
------------- ------------ -------------- ----------
Adjusted net (loss)/earnings $ ( 84,976) $ 2,131 $ (183,066) $ 11,579
--------------- ------------ --------------- ----------
Basic Earnings Per Share:
Reported Net Income $ 0.02 $ 0.22
Goodwill Amortization $ 0.03 $ 0.06
------------ ---------
Adjusted Net Income $ 0.05 $ 0.28
------------ ---------
Diluted Earnings per Share:
Reported Net Income $ 0.02 $ 0.22
Goodwill Amortization $ 0.03 $ 0.06
------------ ---------
Adjusted Net income $ 0.05 $ 0.28
------------ ---------
8. In the ordinary course of business, the Company and its subsidiaries
enter into contracts providing for assessment of damages for
nonperformance or delays in completion. Suits and claims have been or
may be brought against the Company by customers alleging deficiencies
in either equipment design or plant construction. Based on its
knowledge of the facts and circumstances surrounding such claims and
of its insurance coverage for such claims, if any, management of the
Company believes that the disposition of such suits will not result in
charges against assets or earnings materially in excess of amounts
previously provided for in the accounts.
Some of the Company's subsidiaries, along with many other companies,
are codefendants in numerous lawsuits pending in the United States.
Plaintiffs claim damages for personal injury alleged to have arisen
from exposure to or use of asbestos in connection with work performed
by the Company's subsidiaries during the 1970s and prior. As of June
28, 2002, there were approximately 121,900 claims pending. During the
second quarter of 2002, approximately 13,000 new claims have been
filed and approximately 2,600 were either settled or dismissed without
payment. The amount spent on asbestos litigation
-12-
defense and case resolution, substantially all of which was reimbursed
or will be reimbursed from insurance coverage, was $17,052 in the
second quarter of 2002. As of June 29, 2001, there were approximately
103,400 claims pending. During the second quarter of 2001,
approximately 11,100 new claims were filed and approximately 10,500
were either settled or dismissed without payment. The amount spent on
asbestos litigation defense and case resolution, substantially all of
which was reimbursed or will be reimbursed from insurance coverage,
was $19,500 in the second quarter of 2001.
The Company's subsidiaries continue to actively manage claims and to
negotiate with certain insurance carriers concerning the limits of
coverage provided during different time periods. An agreement which
one of the Company's subsidiaries has had with a number of insurers to
allow for efficient and thorough handling of claims was terminated by
one of the participant insurers with respect to claims filed after
June 12, 2001. As a result in the first quarter of 2001, proceedings
commenced among the Company's subsidiaries and certain of the insurers
to determine the respective rights and responsibilities under the
policies going forward. The Company's subsidiaries are currently in
negotiations with the insurers, and the Company believes that they
will enter into a similar replacement arrangement to govern the
management of, and allocation of payments on, asbestos related claims
filed after June 12, 2001. The Company anticipates that the existing
insurance policies are adequate whether or not its subsidiaries can
agree on a new arrangement. Although the expiration of the previous
arrangement may delay the ability of the Company's subsidiaries to get
reimbursed on a timely basis by the insurers for claims filed after
June 12, 2001, insurance policies will continue to cover asbestos
related claims brought against the Company's subsidiaries after June
12, 2001 and it is anticipated that the Company's subsidiaries can
continue to manage the resolution of such claims without a material
adverse impact on the Company's financial condition.
As of June 28, 2002, the Company has recorded a liability related to
probable losses on asbestos-related insurance claims of approximately
$479,000, of which approximately $35,000 is considered short-term. The
Company has recorded an asset of $525,000 relating to probable
insurance recoveries of which the Company has funded approximately
$60,000 as of June 28, 2002. In addition to the $479,000, shown
separately in the balance sheet, approximately $46,000 is recorded in
accounts and notes receivables. The asset is an estimate of recoveries
from insurers based upon assumptions relating to cost allocation and
resolution of pending 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 $279,000 and an estimated liability relating to future
unasserted claims of approximately $200,000. These estimates are based
upon the following information and/or assumptions: number of open
claims; forecasted number of future claims; estimated average cost per
claim by disease type; and the breakdown of known and future claims
into disease type. The total estimated liability includes both the
estimate of forecasted indemnity amounts and forecasted defense
expenses. The defense costs and indemnity payments are expected to be
incurred over the next eight years during which period new claims are
expected to decline from year to year. The Company has assumed no new
claims are filed after 2008. Historically, the Company's defense costs
have represented approximately 23% of total costs. Through June 28,
2002, total indemnity costs paid were approximately $282,000 and total
defense costs paid were approximately $87,000.
The Company's management after consultation with counsel, has
considered the proceedings with the insurers described above, and the
financial viability and legal obligations of the insurance carriers
and believe that except for those insurers that have become or may
become insolvent, the insurers or their guarantors will continue to
adequately fund claims and defense costs relating to asbestos
litigation. It should be noted that the estimate of the assets and
liabilities related to asbestos claims and recovery is subject to a
number of uncertainties that may result in significant changes in the
current estimates. Among these are uncertainty as to the ultimate
-13-
number of claims filed, the amounts of claim costs, the impact of
bankruptcies of other companies with asbestos claims, uncertainties
surrounding the litigation process from jurisdiction to jurisdiction
and from case to case, as well as potential legislative changes.
The Company's subsidiaries have been effective in managing the
asbestos litigation in part because (1) the Company's subsidiaries
have access to historical project documents and other business records
going back more than 50 years, allowing them to defend themselves by
determining if they were present at the location that is the cause of
the alleged asbestos claim and, if so the timing and extent of their
presence, (2) the Company's subsidiaries maintain good records on
insurance policies and have identified policies issued since 1952, and
(3) the Company's subsidiaries have consistently and vigorously
defended these claims which has resulted in dismissal of claims that
are without merit or settlement of claims at amounts that are
considered reasonable.
A subsidiary of the Company in the United Kingdom has also received a
limited number of claims alleging personal injury arising from
exposure to asbestos. None of these claims have resulted in material
costs to the Company.
A San Francisco, California jury returned a verdict on March 26, 2002
finding Foster Wheeler liable for $10,600 in the case of TODAK VS.
FOSTER WHEELER CORPORATION. The case was brought against Foster
Wheeler, the U.S. Navy and several other companies by a 59-year-old
man suffering from mesothelioma which allegedly resulted from exposure
to asbestos. The Company believes there was no credible evidence
presented by the plaintiff that he was exposed to asbestos contained
in a Foster Wheeler product. In addition, the Company believes that
the verdict was clearly excessive and should be set aside or reduced
on appeal. The Company intends to move to set aside this verdict.
Management of the Company believes the financial obligation that may
ultimately result from entry of a judgment in this case will be paid
by insurance.
On April 3, 2002 the United States District Court for the Northern
District of Texas entered an amended final judgment in the matter of
KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC. ET AL. Glitsch,
Inc. (now known as Tray, Inc.) is an indirect subsidiary of the
Company. This lawsuit claimed damages for patent infringement and
trade secret misappropriations and has been pending for over 18 years.
A judgment was entered in this case on November 29, 1999 awarding
plaintiffs compensatory and punitive damages plus prejudgment interest
in an amount yet to be calculated. This amended final judgment in the
amount of $54,283 includes such interest for the period beginning in
1983 when the lawsuit was filed through entry of judgment.
Post-judgment interest will accrue at a rate of 5.471 percent per
annum from November 29, 1999. The management of Tray, Inc. believes
that the Court's decision contains numerous factual and legal errors
subject to reversal on appeal. Tray Inc. has filed a notice of appeal
to the United States Court of Appeals for the Fifth Circuit.
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and
regulations. The immediate effect was to eliminate the guaranteed
supply of municipal solid waste to the Camden County Waste-to-Energy
Project (the "Project") with its corresponding tipping fee revenue. As
a result, tipping fees have been reduced to market rate in order to
provide a steady supply of fuel to the plant. Those market-based
revenues have not been, and are not expected to be, sufficient to
service the debt on outstanding bonds which were issued to construct
the plant and to acquire a landfill for Camden County's use. These
outstanding bonds are public debt, not debt of either the Company or
its project subsidiary ("CCERA") and is not guaranteed by the Company.
Since 1999, the State of New Jersey has provided subsidies sufficient
to ensure the payment of each debt service payment as it became due.
If the State were to fail to do so and there was to be a default on a
debt service payment, the bondholders might proceed to attempt to
exercise their remedies. However, because the debt is not CCERA's, and
is not secured by CCERA's plant, the Company's management does not
believe that an attempt by the bondholders to exercise their remedies
would have a material adverse effect on CCERA or the Company.
CCERA has filed suit against the involved parties, including the State
of New Jersey, seeking
-14-
among other things to void the applicable contracts and agreements
governing the Project. In January 2002, the State of New Jersey
enacted legislation that provides a mechanism for state-supported
refinancing of bond debt on solid waste facilities located within the
state. Pending outcome of the litigation and certain refinancing
initiatives, management believes that the plant will continue to
operate at full capacity while receiving market rates for waste
disposal. At this time, management cannot determine the ultimate
outcome of the foregoing and their effect on the Project.
In 1996, the Company completed the construction of a recycling and
waste-to-energy project located in the Village of Robbins, Illinois
(the "Robbins Facility"). By virtue of the Robbins Facility qualifying
under the Illinois Retail Rate Law as a qualified solid
waste-to-energy facility, it was to receive electricity revenues
projected to be substantially higher than the utility's "avoided
cost". Under the Retail Rate Law, the utility was entitled to a tax
credit against a state tax on utility gross receipts and invested
capital. The State of Illinois (the "State") was to be reimbursed by
the Robbins Facility for the tax credit beginning after the 20th year
following the initial sale of electricity to the utility. The State
repealed the Retail Rate Law insofar as it applied to the Robbins
Facility. In October 1999, the Company reached an agreement (the
"Robbins Agreement") with the holders of bonds issued by the Village
of Robbins to finance the construction of the Robbins Facility (the
"Bondholders"). As part of the Robbins Agreement, the Company agreed
to continue to contest this repeal through litigation. Pursuant to the
Robbins Agreement, the Company has also agreed that any proceeds of
such litigation will be allocated in a certain order of priority.
Pursuant to an agreement reached with the debtor project companies and
the Bondholders and approved by the bankruptcy court on March 5, 2002
(IN RE: ROBBINS RESOURCE RECOVERY PARTNERS, L.P., N.D. Illinois, Case
No. 00B 25018), the foregoing allocation was modified so that any
proceeds will now be allocated in the following order of priority: (1)
to any attorneys entitled to a contingency fee, up to 15%; (2) up to
the next $10,000, 50% to the Company, 50% to redeem outstanding 1999D
Bonds; (3) to redeem all of the outstanding 1999D Bonds; (4) to
reimburse the Company for any amounts paid by it in respect of the
1999D Bonds; (5) to reimburse the Company for any costs incurred by it
in connection with prosecuting the Retail Rate litigation; (6) to
redeem all of the outstanding 1999C Bonds; and (7) 10.6% interest on
the foregoing items 4 and 5 to the Company. Then, to the extent there
are further proceeds, 80% of any such proceeds shall be paid to the
Indenture Trustee of Non-Recourse Robbins Bonds until an amount
sufficient to repay such Bonds in full has been paid over, with the
remaining 20% being paid over to the Company. After the foregoing
payments shall have been made, any remaining proceeds shall be paid
over to the Company.
On December 1, 1999, three special purpose subsidiaries of the Company
commenced reorganization proceedings under Chapter 11 of the U.S.
Bankruptcy Code in order to effectuate the terms of the Robbins
Agreement. On January 21, 2000, these subsidiaries' plan of
reorganization was confirmed, and the plan was consummated on February
3, 2000.
On August 8, 2000, the Company initiated the final phase of its exit
from the Robbins Facility. As part of the Robbins Agreement, the
Company agreed to operate the Robbins Facility subject to being
reimbursed for all costs of operation. Such reimbursement did not
occur and, therefore, pursuant to the Robbins Agreement, the Company
on October 10, 2000, completed the final phase of its exit from the
project. The Company had been administering the project companies
through a Delaware business trust, which owned the project on behalf
of the Bondholders. As a result of its exit from the project, the
Company is no longer administering the project companies, which
project companies again commenced reorganization proceedings under
Chapter 11 of the U.S. Bankruptcy Code in August and October 2000. A
subsidiary of the Company reached an agreement with the debtor project
companies and the requisite holders of the bonds, which was approved
by the bankruptcy court on March 5, 2002 (IN RE: ROBBINS RESOURCE
RECOVERY PARTNERS, L.P., N.D. Illinois, Case No. 00B 25018). In June
2002, the
-15-
Plan of Reorganization incorporating the agreement, among other
things, was confirmed and became effective. The foregoing agreement is
expected to favorably resolve any issues related to the exit from the
project.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws, the current owner
or operator of real property and the past owners or operators of real
property (if disposal took place during such past ownership or
operation) may be jointly and severally liable for the costs of
removal or remediation of toxic or hazardous substances on or under
their property, regardless of whether such materials were released in
violation of law or whether the owner or operator knew of, or was
responsible for, the presence of such substances. Moreover, under
CERCLA and similar state laws, persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be jointly and
severally liable for the costs of the removal or remediation of such
substances at a disposal or treatment site, whether or not such site
was owned or operated by such person ("off-site facility"). Liability
at such off-site facilities is typically allocated among all of the
viable responsible parties based on such factors as the relative
amount of waste contributed to a site, toxicity of such waste,
relationship of the waste contributed by a party to the remedy chosen
for the site, and other factors.
The Company currently owns and operates industrial facilities and has
also transferred its interests in industrial facilities that it
formerly owned or operated. It is likely that as a result of its
current or former operations, such facilities have been impacted by
hazardous substances. The Company is not aware of any conditions at
its currently owned facilities in the United States that it expects
will cause the Company to incur significant costs.
The Company also may receive claims, pursuant to indemnity obligations
from owners of recently sold facilities that may require the Company
to incur costs for investigation and/or remediation. Based on the
available information, the Company does not believe that such costs
will be material. No assurance can be provided that the Company will
not discover environmental conditions at its currently owned or
operated properties, or that additional claims will not be made with
respect to formerly owned properties, requiring the Company to incur
material expenditures to investigate and/or remediate such conditions.
The Company had been notified that it was a potentially responsible
party ("PRP") under CERCLA or similar state laws at three off-site
facilities, excluding sites as to which the Company has resolved its
liability. At each of these sites, the Company's liability should be
substantially less than the total site remediation costs because the
percentage of waste attributable to the Company compared to that
attributable to all other PRPs is low. The Company does not believe
that its share of cleanup obligations at any of the off-site
facilities as to which it has received a notice of potential liability
will individually exceed $1 million.
The Company's project claims have increased as a result of the
increase in our lump-sum contracts between 1992 and 1999. Project
claims brought by the Company against project owners for additional
costs over the contract price or amounts not included in the original
contract price, typically arising from changes in the initial scope of
work or from owner-caused delays. These claims are often subject to
lengthy arbitration or litigation proceedings. The costs associated
with these changes or owner-caused delays include additional direct
costs, such as increased labor and material costs associated with the
performance of the additional works, as well as indirect costs that
may arise due to delays in the completion of the project, such as
increased labor costs resulting from changes in labor markets. The
Company has used significant additional working capital in projects
with costs overruns pending the resolution of the relevant project
claims. The Company cannot assure that project claims will not
continue to increase.
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
-16-
brought against the Company by customers alleging deficiencies in
either equipment or plant construction. Based on the Company's
knowledge of the facts and circumstances relating to the liabilities,
if any, and to the insurance coverage, management believes that
the disposition of those suits will not result in charges against
assets or earning materially in excess of amounts previously provided
in the accounts.
The ultimate legal and financial liability in respect to all claims,
lawsuits and proceedings cannot be estimated with certainty. As
additional information concerning the estimates used become known, the
Company reassesses its position both with respect to gain
contingencies and accrued liabilities and other potential exposures.
Estimates that are particularly sensitive to future change relate to
legal matters, which are subject to change as events evolve and as
additional information becomes available during the administration and
litigation process.
-17-
9. Changes in equity for the six months ended June 28, 2002 were as
follows:
Accumulated
Other Total
Common Stock Paid-in Retained Comprehensive Shareholders'
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
------ ------ ------- -------- ---- ------
Balance December 28, 2001 40,771,560 $ 40,772 $ 201,390 $ (72,781) $ (161,834) $ 7,547
Net loss (183,066) (183,066)
Foreign currency translation adjustment 9,406 9,406
Reclassification of unrealized
gain of derivative instruments
to earnings (3,834) (3,834)
----------- ----------- ----------- ----------- ----------- -----------
Balance June 28, 2002 40,771,560 $ 40,772 $ 201,390 $ (255,847) $ (156,262) $ (169,947)
=========== =========== =========== =========== =========== ===========
-18-
10. Major Business Groups
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28,2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29,2001
------------ ------------- ------------- ------------
(Reclassified) (Reclassified)
ENGINEERING & CONSTRUCTION (E&C) (6)
Revenues $ 560,167 $ 464,134 $ 981,302 $ 894,504
Gross earnings from operations 6,015 45,226 46,234 85,111
Interest expense (251) 907 (569) 940
(Loss)/earnings before income taxes and
cumulative effect of a change in
accounting principle for goodwill (1) (2) (13,237) 17,223 7,265 36,435
ENERGY (6)
Revenues $ 411,916 $ 385,005 $ 799,336 $ 666,822
Gross earnings from operations 43,955 38,696 87,265 73,528
Interest expense 4,357 6,263 11,738 12,554
(Loss)/earnings before income taxes and
cumulative effect of a change in accounting (18,197) 11,120 (19,971) 20,461
principle for goodwill (1) (2) (3)
CORPORATE AND FINANCIAL SERVICES (C&F) (5)
Revenues $ (13,182) $ (8,956) $ (15,708) $ (22,908)
Gross earnings from operations (1,182) 498 (1,235) 740
Interest expense (4) 15,051 12,202 28,904 26,643
Loss before income taxes and cumulative
effect of a change in accounting
principle for goodwill (48,847) (22,772) (86,281) (40,818)
TOTAL
Revenues $ 958,901 $ 840,183 $ 1,764,930 $ 1,538,418
Gross earnings from operations 48,788 84,420 132,264 159,379
Interest expense (4) 19,157 19,372 40,073 40,137
(Loss)/earnings before income taxes
and accounting change (80,281) 5,571 (98,987) 16,078
Provision (benefit) for income taxes 4,695 4,782 10,579 7,184
Net (loss)/earnings prior to
cumulative effect of a change in
accounting principle (84,976) 789 (109,566) 8,894
Cumulative effect on prior years of a
change in accounting principle for
goodwill(7) -- -- (73,500) --
----------- ----------- ----------- -----------
Net (loss)/earnings $ (84,976) $ 789 $ (183,066) $ 8,894
=========== =========== =========== ===========
(1) Includes in the three and six months ended 2002, claim write-downs for E&C
($27,200) and for Energy ($20,700).
(2) Includes in the three and six months ended 2002, anticipated loss on sale
of assets for Energy ($31,800 and $50,800).
(3) Includes in the three and six months ended 2001, $5,000 loss on sale of a
hydrogen plant.
(4) Includes dividends on preferred security of subsidiary trust.
(5) Includes intersegment eliminations.
(6) Reflects the reclassification of the Engineering, Procurement and
Construction ("EPC") business in the United States from the E&C business
group to the Energy business group to conform to 2002 presentation. For the
three and six months ended June 29, 2001, revenues of $71,605 and $114,787,
respectively, gross earnings from operations of $4,526 and $5,763,
respectively, interest expense of $257 and $474, respectively and earnings
before income taxes of $3,091 and $2,679, respectively were reclassified
from the E&C group to the Energy group.
(7) Includes provision for goodwill impairment of $48,700 for E&C and $24,800
for Energy.
-19-
Operating revenues by industry segment for the period ending June 28,
2002 and June 28, 2001 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Power $ 45,847 $ 83,587 $ 53,805 $ 165,968
Oil and gas/refinery 247,081 187,715 405,168 365,232
Pharmaceutical 105,807 121,079 181,152 192,096
Chemical 37,935 59,031 76,571 106,050
Environmental 88,856 90,760 173,624 168,135
Power production 306,310 300,363 612,309 507,910
Other 112,498 (15,653) 237,114 4,134
-------------- ----------------- ---------------- ---------------
Total Operating Revenues $ 944,334 $ 826,882 $ 1,739,743 $ 1,509,525
============== ================ ================ ===============
11. Consolidating Financial Information
The following represents summarized condensed consolidating financial
information as of June 28, 2002 and December 28, 2001, with respect to
the financial position, and for the six months ended June 28, 2002 and
June 29, 2001, for results of operations and cash flows of the Company
and its 100% owned and majority-owned subsidiaries. As a result of the
reorganization on May 25, 2001 Foster Wheeler LLC, as successor to
Foster Wheeler Corporation, became obligor for the Company's 6.75%
notes due November 15, 2005 (the "Notes"). Foster Wheeler USA
Corporation, Foster Wheeler Energy Corporation, Foster Wheeler Power
Group, Inc. formerly known as Foster Wheeler Energy International,
Inc., Foster Wheeler International Holdings, Inc., Foster Wheeler
Ltd., Foreign Holdings Ltd., and Foster Wheeler Inc. issued guarantees
in favor of the holders of the Notes or otherwise assumed the
obligations under the indenture governing the Notes. Each of the
guarantees is full and unconditional and joint and several. In May and
June 2001, the Company issued 6.5% Convertible Subordinated Notes
(Convertible Notes) due in 2007. The Convertible Notes are fully and
unconditionally guaranteed by Foster Wheeler LLC. The summarized
consolidating financial information is presented in lieu of separate
financial statements and other related disclosures of the wholly-owned
subsidiary guarantors because management does not believe that such
separate financial statements and related disclosures would be
material to investors. None of the subsidiary guarantors are
restricted from making distributions to the Company.
The comparative statements for December 28, 2001 and June 29, 2001,
with respect to the financial position, results of operations and cash
flows were restated to conform to the current financial presentation.
-20-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
June 28, 2002
(In Thousands of Dollars)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
ASSETS LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---- --- ------------ ------------ ------------
Current assets............................... $ - $ 197,958 $ 822,512 $ 1,605,663 $ (947,445) $ 1,678,688
Investment in subsidiaries................... (167,358) (237,387) 1,259,206 591,537 (1,361,854) 84,144
Land, buildings & equipment (net)............ - - 18,290 374,369 (5,515) 387,144
Notes and accounts receivable - long-term - 595,655 93,921 837,253 (1,475,352) 51,477
Intangible assets (net)...................... - - 239,862 297,630 (336,940) 200,552
Other non-current assets..................... - 15,206 625,303 160,256 17,626 818,391
----------- ----------- -------------- ------------ ------------- ------------
TOTAL ASSETS................................. $ (167,358) $ 571,432 $ 3,059,094 $ 3,866,708 $ (4,109,480) $ 3,220,396
============ =========== ============== ============ ============== ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities.......................... $ 2,589 $ 16,379 $ 1,168,224 $ 1,331,790 $ (960,911) $ 1,558,071
Long-term debt............................... - 340,000 238,812 1,447,278 (1,478,493) 547,597
Other non-current liabilities................ - - 948,885 43,692 (201,767) 790,810
Subordinated Robbins Obligations............. - - 108,865 - - 108,865
Convertible debt............................. - 210,000 - - - 210,000
Preferred trust securities................... - 175,000 - - - 175,000
----------- ---------- -------------- ------------ ------------- ------------
TOTAL LIABILITIES............................ 2,589 741,379 2,464,786 2,822,760 (2,641,171) 3,390,343
TOTAL SHAREHOLDERS' EQUITY.................. (169,947) (169,947) 594,308 1,043,948 (1,468,309) (169,947)
------------- ------------ -------------- ------------ -------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...................... $ (167,358) $ 571,432 $ 3,059,094 $ 3,866,708 $ (4,109,480) $ 3,220,396
============ =========== ============== ============ ============= ============
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 28, 2001
(In Thousands of Dollars)
(Revised)
ASSETS
------
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
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................... 10,102 (57,847) 1,327,480 566,982 (1,762,203) 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..................... - 15,962 545,329 183,480 (6,396) 738,375
----------- ------------- ----------- ----------- --------------- -----------
TOTAL ASSETS................................. $ 10,102 675,068 3,267,950 $ 3,995,737 $ (4,632,478) $ 3,316,379
=========== ============= =========== =========== ============= ===========
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................ - - 942,894 62,902 (223,439) 782,357
Subordinated Robbins Obligations............. - - - - - -
Convertible debt............................. - - - - - -
Preferred trust securities................... - - - - - -
------------ ------------ ----------- ----------- ------------- -------
TOTAL LIABILITIES............................ 2,555 667,521 2,513,266 2,883,122 (2,757,632) 3,308,832
TOTAL SHAREHOLDERS' EQUITY.................. 7,547 7,547 754,684 1,112,615 (1,874,846) 7,547
------------ ------------ ----------- ----------- -------------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...................... $ 10,102 675,068 $ 3,267,950 $ 3,995,737 $ (4,632,478) 3,316,379
============ ============ =========== =========== ============= ===========
-21-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Six Months Ended June 28, 2002
(In Thousands of Dollars)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------ ------------ ------------
Operating revenues $ $ $ 432,081 $ 1,428,948 $ (121,286) $ 1,739,743
Other income -- 27,456 11,792 46,625 (60,686) 25,187
----------- ----------- ----------- ----------- ----------- -----------
Revenues -- 27,456 443,873 1,475,573 (181,972) 1,764,930
Cost of operating revenues -- -- 422,696 1,306,069 (121,286) 1,607,479
Selling, general and administrative
expenses -- -- 49,703 61,021 -- 110,724
Other deductions and minority
interest* 54 28,700 50,081 127,565 (60,686) 145,714
Equity in net losses of
subsidiaries (183,031) (185,112) (50,460) -- 418,603 --
----------- ----------- ----------- ----------- ----------- -----------
Loss before income
taxes (183,085) (186,356) (129,067) (19,082) 418,603 (98,987)
(Benefit)/provision for income
taxes (19) (435) 28,456 (17,423) -- 10,579
----------- ----------- ----------- ----------- ----------- -----------
Net loss prior to cumulative effect of
a change in accounting principle (183,066) (185,921) (157,523) (1,659) 418,603 (109,566)
Cumulative effect on prior years of a
change in accounting principle
for goodwill, net of $0 tax (73,500) (73,500)
----------- ----------- ----------- ----------- ----------- -----------
Net loss** (183,066) (185,921) (157,523) (75,159) 418,603 (183,066)
Other comprehensive (loss)/income:
Foreign currency translation
adjustment 9,406 -- -- 13,515 (13,515) 9,406
adjustment
Net (loss)/gain on
derivative instruments
(3,834) -- (4,118) 284 3,834 (3,834)
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive loss $ (177,494) $ (185,921) $ (161,641) $ (61,360) $ 408,922 $ (177,494)
=========== =========== =========== =========== =========== ===========
* Includes interest expense and dividends on preferred securities of $40,073.
** Includes the following pre-tax special charges 1) goodwill impairment of
$73,500; 2) write-down of $50,800 related to assets in process of being sold;
3) claim write-downs of $47,900; 4) others including refinancing efforts,
performance intervention activities and employee severance of $44,800; and 5)
offset by the gains on foreign exchange contracts of $20,700.
-22-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended June 28, 2002
(In Thousands of Dollars)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------------------- ------------
Operating revenues $ -- $ -- $ 228,018 $ 792,924 $ (76,608) $ 944,334
Other income -- 10,903 (4,527) 38,201 (30,010) 14,567
--------- --------- --------- --------- --------- ---------
Revenues -- 10,903 223,491 831,125 (106,618) 958,901
Cost of operating revenues -- -- 233,389 738,766 (76,608) 895,547
Selling, general and administrative
expenses -- -- 26,963 30,123 -- 57,086
Other deductions and minority
interest* 25 14,025 30,722 71,787 (30,010) 86,549
Equity in net losses of
subsidiaries (84,960) (84,802) (39,470) -- 209,232 --
--------- --------- --------- --------- --------- ---------
Loss before income
taxes (84,985) (87,924) (107,053) (9,551) 209,232 (80,281)
(Benefit)/provision for income
taxes (9) (93) 23,678 (18,881) -- 4,695
--------- --------- --------- --------- --------- ---------
Net loss prior to cumulative effect of
a change in accounting principle (84,976) (87,831) (130,731) 9,330 209,232 (84,976)
Cumulative effect on prior years of a
change in accounting principle
for goodwill, net of $0 tax -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss** (84,976) (87,831) (130,731) 9,330 209,232 (84,976)
Other comprehensive (loss)/income:
Foreign currency translation
adjustment 18,683 -- -- 23,932 (23,932) 18,683
Net (loss)/gain on derivative
instruments (456) -- (4,098) 3,642 456 (456)
--------- --------- --------- --------- --------- ---------
Comprehensive (loss)/earnings $ (66,749) $ (87,831) $(134,829) $ 36,904 $ 185,756 $ (66,749)
========= ========= ========= ========= ========= =========
* Includes interest expense and dividends on preferred securities of $19,157.
** Includes the following pre-tax special charges 1) write-downs of $55,800
related to assets in process of being sold; 2) claim write-downs of $47,900;
3) others including refinancing efforts, performance intervention activities
and employee severance of $29,050; and 4) offset by the gains on foreign
exchange contracts of $20,700.
-23-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Six Months Ended June 29, 2001
(In Thousands of Dollars)
(Revised)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---- --- ------------ ------------ ------------ ------------
Operating revenues $ -- $ -- $ 380,579 $ 1,259,634 $ (130,688) $ 1,509,525
Other income -- 241,012 8,585 57,946 (278,650) 28,893
----------- ----------- ----------- ----------- ----------- -----------
Revenues -- 241,012 389,164 1,317,580 (409,338) 1,538,418
Cost of operating revenues -- -- 365,856 1,114,978 (130,688) 1,350,146
Selling, general and
administrative expenses -- 7,895 28,746 74,400 -- 111,041
Other deductions and minority
interest* 66 29,326 8,291 73,314 (49,844) 61,153
Equity in net losses of
subsidiaries 8,937 29,260 (268,560) -- 230,363 --
----------- ----------- ----------- ----------- ----------- -----------
Earnings/(loss) before income
taxes 8,871 233,051 (282,289) 54,888 1,557 16,078
(Benefit)/provision for income
taxes (23) (8,284) (79,152) 94,643 -- 7,184
----------- ----------- ----------- ----------- ----------- -----------
Net earnings/(loss)** 8,894 241,335 (203,137) (39,755) 1,557 8,894
Other comprehensive (loss)/income:
Foreign currency translation
adjustment (22,843) -- -- (27,496) 27,496 (22,843)
adjustment
Net (loss)/earnings on derivative
instruments
(4,485) -- 5,709 (10,194) 4,485 (4,485)
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive loss $ (18,434) $ 241,335 $ (197,428) $ (77,445) $ 33,538 $ (18,434)
=========== =========== =========== =========== =========== ===========
* Includes interest expense and dividends on preferred securities of $40,137. **
Includes $5,000 pre-tax loss on sale of a hydrogen plant.
-24-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Six Months Ended June 28, 2002
(In Thousands of Dollars)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH (USED)/PROVIDED BY
OPERATING ACTIVITIES $ (54) $ 11,080 $ (30,463) $ 125,052 $ (20,663) $ 84,952
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash -- -- (39,687) (907) -- (40,594)
(907)
Capital expenditures -- -- (356) (10,584) -- (10,940)
Proceeds from sale of properties -- -- -- 1,170 -- 1,170
(Increase)/decrease in investment and
advances -- -- 15,598 (26,236) 9,071 (1,567)
Decrease in short-term investments -- -- -- 4 -- 4
Other -- -- -- 653 (2,714) (2,061)
--------- --------- --------- --------- --------- ---------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES -- -- (24,445) (35,900) 6,357 (53,988)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Common Shareholders -- -- -- (13,562) 13,562 --
Increase/(decrease) in short-term debt -- -- -- 299 -- 299
Proceeds from long-term debt -- 70,000 -- (882) -- 69,118
Repayment of long-term debt -- -- -- (5,044) -- (5,044)
Other 54 (81,080) 151,589 (73,330) 2,767 --
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES 54 (11,080) 151,589 (92,519) 16,329 64,373
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on
cash and cash equivalents -- -- -- 26,690 (2,023) 24,667
--------- --------- --------- --------- --------- ---------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS -- -- 96,681 23,323 -- 120,004
Cash and cash equivalents, beginning of
period -- -- 25,693 198,327 -- 224,020
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ -- $ -- $ 122,374 $ 221,650 $ -- $ 344,024
========= ========= ========= ========= ========= =========
-25-
FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Six Months Ended June 29, 2001
(In Thousands of Dollars)
FOSTER FOSTER
WHEELER WHEELER GUARANTOR NON-GUARANTOR
LTD. LLC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
NET CASH (USED)/PROVIDED BY
OPERATING ACTIVITIES $ 2,446 $(150,302) $ 40,338 $ 137,343 $(171,205) $(141,380)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -- (2,346) (703) (13,284) -- (16,333)
Proceeds from sale of properties -- -- -- 37,705 -- 37,705
(Increase)/decrease in investment and --
advances -- -- 2 9,176 9,178
Decrease in short-term investments -- -- -- 361 -- 361
Other -- -- -- (1,367) -- (1,367)
--------- --------- --------- --------- --------- ---------
NET CASH (USED)/PROVIDED BY
INVESTING ACTIVITIES -- (2,346) (701) 32,591 -- 29,544
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to Common Shareholders (2,446) (2,442) (70,000) (162,055) 232,055 (4,888)
Increase/(decrease) in short-term debt -- -- -- (74,273) -- (74,273)
Proceeds from Convertible Bonds, net -- 202,912 -- -- -- 202,912
Proceeds from long-term debt -- 78,250 (361,250) 361,271 -- 78,271
Repayment of long-term debt -- (126,662) -- (4,778) -- (131,440)
Other -- 590 360,096 (295,877) (64,219) 590
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED/(USED) BY
FINANCING ACTIVITIES (2,446) 152,648 (71,154) (175,712) 167,836 71,172
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on
cash and cash equivalents -- -- -- (19,049) 3,369 (15,680)
--------- --------- --------- --------- --------- ---------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS -- -- (31,517) (24,827) -- (56,344)
Cash and cash equivalents, beginning of
year -- -- 33,162 158,731 -- 191,893
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ -- $ -- $ 1,645 $ 133,904 $ -- $ 135,549
========= ========= ========= ========= ========= =========
-26-
12. The Company owns a non-controlling equity interest in three
cogeneration projects and one waste-to-energy project, three of which
are located in Italy and one in Chile. Two of the projects in Italy
are each 42% owned while the third is 49% owned by the Company. The
project in Chile is 85% owned by the Company. The Company does not
have a controlling financial interest in the Chilean project.
Following is summarized financial information for the Company's
equity affiliates combined, as well as the Company's interest in the
affiliates.
JUNE 28, 2002 DECEMBER 28, 2001
------------------------- --------------------
ITALIAN PROJECTS CHILEAN PROJECT ITALIAN PROJECTS CHILEAN PROJECT
---------------- --------------- ---------------- ---------------
BALANCE SHEET DATA:
Current assets $ 82,956 $ 16,232 $ 75,942 $ 23,301
Other assets (primarily buildings
and equipment) 336,679 221,137 311,584 227,019
Current liabilities 18,415 14,204 12,487 14,747
Other liabilities (primarily long-
term debt) 341,846 153,689 329,030 158,124
Net assets 59,374 69,476 46,009 77,449
INCOME STATEMENT DATA FOR SIX MONTHS:
JUNE 28, 2002 JUNE 29,2001
--------------------------------- ---------------------------
ITALIAN PROJECTS CHILEAN PROJECT ITALIAN PROJECTS CHILEAN PROJECTS VENEZUELA PROJECT
---------------- --------------- ---------------- ---------------- -----------------
Total revenues $ 78,921 $ 19,296 $ 81,051 $ 20,506 $ 4,428
Income before income taxes 14,743 4,775 11,083 4,438 2,684
Net earnings 8,821 3,963 6,043 4,429 2,582
As of June 28, 2002, the Company's share of the net earnings and
investment in the equity affiliates totaled $6,660 and $84,144
respectively. Dividends of $9,659 were received during the first six
months of 2002. The Company has guaranteed certain performance
obligations of such projects. The Company's average contingent
obligations under such guarantees are approximately $2,700 per year for
the four projects. The Company has provided a $10,000 debt service
reserve letter of credit providing liquidity should the performance of
the project be insufficient to cover the debt service payments. No
amount has been drawn under the letter of credit.
In April 2001, the Company completed the sale of its interest in two
hydrogen production plants in South America. The net proceeds from
these transactions were approximately $40.0 million. An after tax loss
of $5.0 million, or approximately $.12 per share, was recorded in the
second quarter of 2001 relating to these sales.
13. The difference between the statutory and effective tax rate in 2002
is predominately due to a domestic pretax loss for which no income
tax benefit was claimed. The difference between the statutory and
effective tax rate in 2001 is predominantly due to state and local
taxes, certain tax credits and the favorable settlement of a
contested foreign tax liability.
14. During the six months ended June 28, 2002, the Company recorded a
provision for losses on the potential sale of two waste-to-energy
facilities of $50,800.
15. In June 2002, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" and No. 146 "Accounting
for Costs Associated with Exit or Disposal Activities".
-27-
SFAS No. 145 rescinds previous statements regarding the extinguishment
of debt and amends SFAS No. 13, "Accounting for Leases" to eliminate an
inconsistency between the required accounting for sale/leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale/leaseback transactions. The provisions of SFAS No. 145 related to
the extinguishment of debt are to be applied to fiscal years beginning
after May 15, 2002. The provisions of SFAS No. 145 related to the
amendment of SFAS No. 13 are effective for transactions occurring after
May 15, 2002. The Company is currently assessing the impact of the
adoption of this new standard.
SFAS No. 146 requires liabilities associated with an exit or disposal
activity be recognized at fair value when the liability is incurred.
This contrasts with existing accounting requirements, under which
liabilities for exit or disposal activities are recognized at the date
of an entity's commitment to an exit plan. The provisions of SFAS No.
146 are effective for exit or disposal activities initiated after
December 31, 2002. The Company is currently assessing the impact of the
adoption of this new standard.
16. The following table presents the effects of the goodwill impairment
recorded by the Company on previously reported financial data as of
and for the three months ended March 29, 2002.
Basic Diluted
Earnings Earnings Retained
Net Loss per Share per Share Earnings
-------- --------- --------- --------
March 29, 2002, as reported $(24,590) $ (.60) $ (.60) $(97,371)
Cumulative effect of a change
in accounting principle
for goodwill (73,500) (1.79) (1.79) (73,500)
-------- -------- ------- --------
March 29, 2002, as adjusted $(98,090) $ (2.39) $ (2.39) $(170,871)
======== ======== ======= =========
-28-
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.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 28, 2002 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 29, 2001
CONSOLIDATED DATA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Revenues $ 958,901 $ 840,183 $ 1,764,930 $ 1,538,418
=========== =========== =========== ===========
(Loss)/earnings before tax and
cumulative effect of a change
in accounting principle $ (80,281) $ 5,571 $ (98,987) $ 16,078
=========== =========== =========== ===========
Net (loss)/earnings $ (84,976) $ 789 $ (183,066) $ 8,894
=========== =========== =========== ===========
In the first and second quarter of 2002 the Company recognized pretax net
charges of $108,250 and $88,050, respectively. These costs and charges are
broken out in order to allow for a better comparison to last year's results.
Shown below is a table that details the various components of the charges.
SIX MONTHS
THREE MONTHS ENDED ENDED
------------------ -----
MARCH JUNE 28, JUNE 28,
DESCRIPTION 2002 2002 2002
----------- ---------- --------- ----------
1) Change In Accounting For Goodwill $ 73,500 -- $ 73,500
2) Losses Recognized In Anticipation
of Sales 19,000 $ 31,800 50,800
3) Claims Write-Downs -- 47,900 47,900
4) Gains on Foreign Exchange Contracts -- (20,700) (20,700)
5) Other 15,750 29,050 44,800
--------- --------- ---------
Total $ 108,250 $ 88,050 $ 196,300
--------- --------- ---------
1) Relates to the Camden facility that is part of the Energy Group for
$24,800 and $48,700 for a reporting unit in the Engineering and
Construction Group.
2) The first quarter's amount was included in other deductions in the
Energy Group, and was for the Charleston Facility. The second quarter
amount was included in other deductions in the Energy Group for
$31,800, which relates to the Hudson Falls Facility. These losses
were recognized in anticipation of potential sales of operations.
-29-
3) These charges were reflected in cost of operating revenues in the
second quarter. The E&C Group recorded $27,200 and the Energy Group
recorded $20,700. Based on the current expectation for settlement and
the results of recent arbitration results, three of the Company's
affirmative claims were reduced.
4) These were recorded as reductions of cost of operating revenues
primarily in the Energy Group.
5) This represents costs of severance, performance intervention
activities and refinancing efforts. The first quarter is comprised of
$5,700 for the Energy Group and $10,050 for Corporate and Financial
Group ("C&F"). The second quarter is comprised of $7,500 in the
Energy Group and $21,550 for C&F. The Energy Group amount was all
recorded in other deductions. The C&F details were $3,900 in selling,
general and administrative expenses and $27,700 in other deductions.
In addition the Company's valuation allowance for deferred tax assets was
increased by $43,000 and $60,000 for the three and six-month period ended June
2002, respectively.
Operating revenues increased 14% in the three months ended June 28, 2002
compared to three months ended June 29, 2001, to $944,334 from $826,882. The
most recent six-month period reflects a 15% increase in the operating revenues
to $1,739,743 from $1,509,525 during the first six months of 2001. The E&C Group
accounted for approximately 75% of the increase for the quarter and 40% of the
increase for the six-month period. The Energy Group accounted for approximately
25% of the increase for the quarter and 60% of the increase for the six months.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, decreased by $27,115 or 17%, from $159,379 to $132,264 in
the six months ended June 28, 2002 as compared with the six months ended June
29, 2001. Gross earnings for the three months ended June 28, 2002 decreased by
$35,634 or 42% compared to three months ended June 29, 2001. The decreases in
gross earnings were primarily due to claim write-downs discussed above of
$47,900 offset by the gain on foreign exchange contracts of $20,700 in the
second quarter of 2002. In addition in the second quarter of 2002, the Italian
E&C operations had a lower level of gross earnings, which accounted for the
difference.
Selling, general and administrative expenses were approximately the same in the
six months ended June 28, 2002 as compared to the same period in 2001. The
expenses in the second quarter ended June 28, 2002 decreased by $2,558 or 4%
compared to the same period in 2001. The three months and six months ended June
28, 2002 include $2,900 of severance and $1,000 of legal cost. Domestic selling,
general and administrative costs are the focus of the current intervention
process as discussed in Note 2 to the condensed consolidated financial
statements. Due to the timing of the changes made in this area, the total impact
of the reductions was not realized in the six months ended June 28, 2002.
Other income in the six months ended June 28, 2002 decreased to $25,187 from
$28,893 for the six months ended June 29, 2001. For the three month period ended
June 28, 2002, other income increased by $1,266 or 10% compared to the same
period in 2001. The decreases for the six-month period were primarily related to
reduced interest income ($1,550), lower equity gain ($800) and lower foreign
transaction gains ($1,142).
Other deductions and minority interest for the six months ended June 28, 2002
were $ 84,625 higher than that reported in the six months ended June 29, 2001.
The increase in the six months ended June 28, 2002 was due to refinancing
efforts, performance intervention activities and employee severance ($44,800)
and provision for anticipated loss on sale of assets ($50,800). Other deductions
for the three months ended June 28, 2002 increased by $54,257 compared to the
same period in 2001. The increase was primarily due to refinancing efforts,
performance intervention activities and employee severance ($29,050) and
provision for anticipated loss on sale of assets ($31,800).
-30-
The tax provision for the six months ended June 28, 2002 was $10,579 on losses
before tax of $172,487, which includes the $73,500 cumulative effect of the
change in accounting principle for goodwill. The negative effective tax rate
results from domestic pretax losses for which no income tax benefit was claimed
due to the establishment of a valuation allowance.
The net loss in the six months ended June 28, 2002 was $183,066 or $4.47 per
share diluted compared to the net earnings of $8,894 or $0.22 per share diluted
for the six months ended June 29, 2001. The primary reasons for the six months
decline relates to the following pre-tax special charges 1) goodwill impairment
of $73,500; 2) write-down of $50,800 related to assets in process of being sold;
3) claim write-downs of $47,900; and 4) refinancing efforts, performance
intervention activities and employee severance of $44,800. These were partially
offset by the gains on foreign exchange contracts of $20,700. The net loss for
the three months ended June 28, 2002 was $ 84,976 or $2.08 per share diluted
compared to net earnings of $789 or $0.02 per share diluted for the three months
ended June 29, 2001. The primary reasons for the three months decline relates to
the following pre-tax special charges: 1) write-down of $31,800 related to
assets in process of being sold; 2) claim write-downs of $47,900; and 3) others
including refinancing efforts, performance intervention activities and employee
severance of $29,050. These were partially offset by the gains on foreign
exchange contracts of $20,700. These results compare to first-half 2001 net
earnings of $13,900 or $.34 per share diluted, excluding a $5,000 loss on sale
of a hydrogen plant. Including this charge, net earnings for the first six
months of 2001 were $8,894 or $.22 per share diluted.
-31-
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Operating revenues $ 550,831 $ 458,001 $ 963,873 $ 880,708
================ ================ =============== ===============
Gross earnings from operations $ 6,015 $ 45,226 $ 46,234 $ 85,111
================ ================ =============== ===============
Operating revenues for the three and six-month periods ended June 28, 2002
increased 20% and 9% respectively compared to the three-month and six-month
periods ended June 29, 2001. These increases were primarily the result of
increased activity by the Italian operations. Gross earnings from operations
decreased by 46% for the six-month period ended June 28, 2002, compared with the
corresponding period ended June 29, 2001. In the second quarter 2002,
Engineering and Construction Group recognized claims write-down of $27,200.
ENERGY GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Operating revenues $ 406,677 $ 376,521 $ 790,193 $ 649,887
=============== ================ =============== ============
Gross earnings from operations $ 43,955 $ 38,696 $ 87,265 $ 73,528
=============== ================ =============== =============
Operating revenues for the six month period ended June 28, 2002 increased by
22%. The Finnish operations and the operations in the United States were
responsible for the increase in the six-month period. Late in 2000 and early in
2001, the Energy Group had received significant new awards that resulted in
higher revenues in the current period. The increases in the United States were
primarily in the EPC power segment of the business. Gross earnings from
operations increased by 19% for the six-month period ended June 28, 2002
compared with the period ended June 29, 2001 primarily due to higher operating
revenues. Approximately $5,000 is related to Finnish operations while $11,000 is
related to the EPC power segment, consistent with the increase in revenues. For
the three months ended June 28, 2002, the operating revenues increased by 8% and
gross earnings increased by 14% compared to the same period ended June 29, 2001.
The Finnish operations were primarily responsible for the increase in the
quarter's activity. In the second quarter 2002, Energy Group recognized claims
write-downs of approximately $20,700 offset by the gain on foreign exchange
contract of approximately $21,000.
As previously disclosed, the Company has reviewed various methods of monetizing
selected Power Systems facilities. Based on current economic conditions,
Management concluded that it would continue to operate the facilities in the
normal course of business. Management has reviewed these facilities for
impairment on an undiscounted cash flow basis and determined that no adjustment
to the carrying amounts is required. If the Company was able to monetize these
assets, it is possible that the amounts realized could differ materially from
the balances in the financial statements in other deductions. Based on
preliminary sales agreements entered into with third parties, the Company
recognized provisions for anticipated loss for the potential sale of two
waste-to-energy facilities of $19,000 in the first quarter 2002 and $31,800 in
the second quarter of 2002, for a total year to date charge of $50,800.
FINANCIAL CONDITION
Shareholders' equity for the six months ended June 28, 2002 decreased by
$177,494, due primarily to the loss for the period of $183,066, changes in the
foreign currency translation adjustment of $9,406 and reclassification of
unrealized gain on derivative instruments to earnings of $3,834.
-32-
Cash flows from operations were $84,952 for the six months ended June 28, 2002
compared to a use of cash from operations of $141,380 for the six months ended
June 29, 2001. The increase in cash provided from operations is primarily due to
the collection of two significant receivables ($87,000) and cash received from
the cancellation of a company-owned life insurance plan ($22,000).
During the six months ended June 28, 2002, long-term investments in land,
buildings and equipment were $10,940 as compared with $16,333 for the comparable
period in 2001, which reflects lower investments in foreign build, own and
operate facilities which is in line with the previously announced repositioning
plan for these types of plants.
Corporate and other debt, special purpose project debt and bank loans net of
cash and short term investments have decreased by $54,317 since December 28,
2001. The improvement in net debt primarily resulted from increased cash flows
from operations, the cancellation of a company-owned life insurance plan
($22,000) and the collection of two significant receivables ($87,000), offset by
the repayment in the second quarter of 2002 of the $50,000 receivables sale
arrangement.
Corporate and other debts, including the Revolving Credit Agreement, are as
follows:
June 28,
2002
----
Corporate and other debt consisted of the following:
Revolving Credit Agreements (average interest rate 3.72%).........$ 140,000
6.75% Notes due November 15, 2005................................. 200,000
Other............................................................. 27,408
----------
$ 367,408
Less, Current Portion................................................ 20,416
----------
$ 346,992
==========
In the third quarter 1998, a subsidiary of the Company entered into a six-year
agreement with a financial institution whereby the subsidiary would sell an
undivided interest in a designated pool of qualified accounts receivable. At
December 28, 2001, $50,000 in receivables were sold under the agreement and are
therefore not reflected in the accounts receivable-trade balance in the
Condensed Consolidated Balance Sheet. The bank that is party to this financing
terminated the agreement on April 30, 2002 in accordance with its terms. The
Company has replaced this facility subsequent to June 28, 2002 as discussed
below.
LIQUIDITY AND CAPITAL RESOURCES
As of June 28, 2002, the Company had cash and cash equivalents on hand,
restricted cash and short-term investments worldwide of $384,903. Subsequent to
June 28, 2002, the Company finalized a Senior Credit Facility with a group of
banks. This facility includes a $71,000 term loan, a revolving credit facility
for $69,000 and a letter of credit facility for $149,900 that expires on April
30, 2005. This facility is secured by the assets of the domestic subsidiaries,
the stock of the domestic subsidiaries as well as 66% of the stock of the
first-tier foreign subsidiaries. The facility has no scheduled repayments prior
to maturity on April 30, 2005. The facility requires prepayments from proceeds
of assets sales and the issuance of debt or equity and from excess cash flow.
The Company retains the first $77,000 of such amounts in order to maintain
liquidity and the Company also maintains a 50% share of the balance. The
financial covenants in the facility start at the end of the first quarter 2003.
These include a senior leverage ratio and a minimum EBITDA level as described in
the agreement.
The Company has also finalized a sale/leaseback arrangement with an investor for
its corporate headquarters. This capital lease arrangement leases the facility
to the Company for an initial non-cancelable period of 20 years. The amount of
the sale/leaseback is sufficient to repay the balance outstanding under the old
financing lease arrangement of $33,000 that was subject to the forbearance as of
June 28, 2002.
-33-
Subsequent to June 28, 2002, the Company also completed a receivables sale
arrangement for $40,000. This will be accounted for as a financing and expires
in August 2005.
As a result of finalizing the Senior Credit Facility, the sale/leaseback
arrangement and the receivables sale arrangement, the Company has reclassified
the Term Loan and Revolving Credit to long-term. In addition, the other debt
that was subject to potential cross acceleration provisions has also been
classified to long-term.
Management's plan to address the Company's domestic liquidity issues includes
generating approximately $150,000 from asset sales, collection of receivables
and resolving disputed claims over the next six months and an additional $40,000
over the following six months. To the extent these initiatives are not
successful, the Company will explore other options including the repatriation of
funds from foreign operations and further cost reduction and cash conservation
measures. Management believes that these actions, together with cash on hand and
cash from operations will be sufficient to fund the Company's working capital
needs over the next year. Failure by the Company to achieve a significant
portion of these proceeds could have a material adverse effect on the Company's
financial condition. The above factors raise substantial doubts about the
Company's ability to continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that might result from this
uncertainty.
A subsidiary of the Company has entered into a long-term contract with a
government agency. This contract is to be completed in four phases.
The first phase was for the design, permitting and licensing of a spent fuel
facility. This phase was for a fixed price of $67,000. The customer is currently
contesting $6,000 of the amount due under this phase. In addition, the Company
has submitted change requests in excess of $14,000. Based on the review of
outside counsel, management believes that a sufficient amount will be received
to avoid any write-downs.
The recently started second phase is billed on a cost plus fee basis and is
expected to last for approximately 24 months. In this phase, the Company must
respond to any questions regarding the initial design included in phase one.
Phase three is for the construction, start-up and testing of the facility for a
fixed price of $114,000, which is subject to escalation. This phase is expected
to last two years and requires that a subsidiary of the Company fund the
construction cost. In addition, a surety bond for the full contract price is
required. The cost of the facility is recovered in the first nine months of
operations under phase four.
During, phase four a subsidiary of the Company will operate the facility at
fixed rates, subject to escalation, for approximately four years.
In March 2002, the Company initiated a comprehensive plan to enhance cash
generation and to improve profitability. The operating performance portion of
the plan concentrates on the quality and quantity of backlog, the execution of
projects in order to achieve or exceed the profit and cash targets and the
optimization of all non-project related cash sources and uses. In connection
with this plan, a group of outside consultants has been hired for the purpose of
carrying out a performance improvement intervention. The tactical portion of the
performance improvement intervention concentrates on booking current projects,
executing twenty-two "high leverage projects" and generating incremental cash
from high leverage opportunities such as overhead reductions, procurement and
accounts receivable. The systemic portion of the performance improvement
intervention concentrates on sales effectiveness, estimating, bidding and
project execution procedures.
Some of the details of the activities to date include the following:
-34-
PROCUREMENT
Starting in March 2002, the Company began implementing a plan to reduce the
internal man-hours and cycle time required to purchase items. As part of this
initiative, the Company is targeting entering into global and regional
purchasing alliances by December 2002.
ACCOUNTS RECEIVABLE
A company wide system was implemented to identify all past due receivables and
new policies have been established requiring the reporting of significant past
due amounts to senior management on a timely basis. By June 28, 2002 the Company
had collected $34,000 of past due receivables.
OVERHEAD REDUCTIONS
Management has evaluated, and continues to evaluate, all domestic corporate
overhead. As of June 28, 2002, 125 people representing $10,800 in annualized
salaries and benefits have been downsized. Management has also reduced
non-essential overhead by $3,700. Most of these reductions have only been put
into effect recently, so the impact has not yet been seen in the reported
earnings.
SALES
The Company is concentrating on increasing backlog with high quality bookings.
In May 2002 the Company launched an initiative to improve the sales
effectiveness of our North American energy and engineering and construction
groups. The sales effectiveness initiatives are aimed at building up the level
of sales activities in each group, by strengthening the selling skills of sales
personnel. This program also provides our management personnel with a
disciplined system to track sales opportunities and targets and identify actions
needed to convert those opportunities into bookings.
RISK MANAGEMENT
The Company reorganized its project risk management group second quarter of 2002
and appointed a corporate vice president as its head. The purpose of this group
is to help the Company avoid projects with unmanageable risk and ensure awarded
projects are executed without exposing the Company to additional financial risk.
The project risk management group will (i) review potential projects, proposals
and contracts, (ii) monitor during the execution phase projects deemed to
present significant risks, (iii) recommend projects for review by the executive
committee, and (iv) review risk assessment and contracting procedures of the
Company's business procedures of the Company's business units.
HIGH-LEVERAGE PROJECTS
In terms of the Company's project operating system worldwide, one of the major
initiatives launched approximately 20 weeks ago was focused on the way the
Company plans and executes projects in the field. This initiative is actually
centered on building a best-in-class - Foster Wheeler project management system.
This activity takes the best practices that management can find and integrates
them into its system across the company. Management is currently in the process
of expanding this initiative and doubling its size from the initial pilot that
was launched some weeks ago.
-35-
INTERNAL CONTROL REVIEW Since the Chief Financial Officer and Chief Executive
Officer are new to the Company, they will initiate a detailed review of internal
controls over the next several months. Such reviews will include evaluation of
the Company's contracting policies and procedures relating to bidding and
estimating practices. Among other things, these reviews will include evaluation
of the Company's reserving practices for bad debts and uncollectible accounts
receivable, warranty costs, change orders and claims. Management will continue
its initiatives begun in early 2002, particularly those related to management of
deliquent accounts receivables.
CASH FLOWS FROM OPERATIONS
Over the past three and a half years, the Company has had negative cash flows
from operations. Several items have had a significant impact on the cash flow
from operations of the Company over the past several years. The receivable sale
arrangement was terminated in April 2002, which had a $50,000 negative impact on
cash flows during the second quarter of 2002. Subsequent to June 28, 2002 the
Company has finalized a $40,000 replacement for this arrangement. This will be
accounted for as a financing.
Claims net of settlements have had a negative impact of $98,200 over the past
three and a half years. The Company has a liquidity action plan that includes
resolution of outstanding claims, which is expected to have a significant
positive impact on future cash flows.
Over the past several years, the Company has been required by the terms of
several government contracts to provide the initial funding required which has
negatively impacted cash flows by approximately $57,000. As noted previously,
the Company reorganized its project risk management group in the second quarter
of 2002 and appointed a corporate vice president as its head. The purpose of
this group is to help the Company avoid projects with unmanageable risk and
ensure awarded projects are executed without exposing the Company to additional
financial risk. This group will carefully scrutinize all contracts for negative
cash flow terms. The Company does not intend to take contracts with similar
payment terms in the future.
The negative cash flows related to the Robbins Facility amount to $52,500 since
1998. Since its inception, this project has resulted in losses to the Company in
excess of $360,000. The impact on the Company's outstanding debt and the related
interest cost is substantial. As discussed in Note 8, the Company reached an
agreement with the debtor project companies on March 5, 2002. In June 2002, the
Plan of Reorganization incorporating this agreement was confirmed and became
effective. As a result the Robbins Facility will not have a negative impact on
future operating cash flows except for the interest on the outstanding debt.
Finally, trade receivables over 180 days have increased approximately $57,000 in
the past three years. This problem area has been one of the primary focuses of
the Company's ongoing intervention.
BACKLOG AND NEW ORDERS BOOKED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 5,713,223 $ 6,332,562 $ 5,713,223 $ 6,332,562
=============== =============== ============== ===============
New orders $ 648,389 $ 1,162,802 $ 1,441,219 $ 2,113,253
=============== =============== ============== ===============
The Company's consolidated backlog at June 28, 2002 totaled $5,713,223, a
decline of 10% from the second quarter 2001 and 5% from fiscal year end 2001. As
of June 28, 2002, 35% of the consolidated backlog was from lump-sum work, 57% of
which was for the Energy Group, and 65% was from reimbursable work.
The elapsed time from the award of a contract to completion of performance may
be up to four years. The dollar amount of backlog is not necessarily indicative
of the future earnings of the Company related to the performance of such work.
The backlog of unfilled orders includes amounts based on signed contracts as
well as agreed letters of intent which management has determined are likely to
be performed. Although backlog represents only business which is considered
firm, cancellations or scope adjustments
-36-
may occur. Due to factors outside the Company's control, such as changes in
project schedules, the Company cannot predict with certainty the portion of
backlog to be performed in a given year. Backlog is adjusted to reflect project
cancellations, deferrals, sale of subsidiaries and revised project scope and
cost. This adjustment for the six months ended June 28, 2002 was $211,044,
compared with $193,000 for the six months ended June 29, 2001. Furthermore,
because of the large size and uncertain timing of projects, future trends are
difficult to predict.
New orders awarded for the three and six months ended June 28, 2002 were
$648,389 and $1,441,219, respectively, compared to $1,162,802 and $2,113,253 for
the same periods ended June 29, 2001, a reduction of approximately 44% and 32%,
respectively. Approximately 46% of new orders booked in the six months ended
June 28, 2002 were for projects awarded to the Company's subsidiaries located
outside the United States, compared to 40% of new orders booked in the six
months ended June 29, 2001. Key countries and geographic areas contributing to
new orders awarded for the six months ended June 28, 2002 were the United States
and Europe. The reduction in new orders was primarily due to lower activity in
the Energy Group in the second quarter.
ENGINEERING AND CONSTRUCTION GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 4,360,236 $ 4,184,606 $ 4,360,236 $ 4,184,606
============= ============ ============== ===============
New orders $ 512,596 $ 579,088 $ 895,906 $ 1,089,541
============= ============ ============== ===============
The Engineering and Construction Group ("E&C Group") had a backlog of $4,360,236
at June 28, 2002, which was an increase of $175,630 or 4% from the first six
months of 2001 and a decline of $115,131 or 3% from December 28, 2001, primarily
due to the lower level of new orders.
New orders booked for the six-month period ended June 28, 2002 decreased by 18%
compared with the period ended June 29, 2001. For the three-month period ending
June 28, 2002 new orders decreased by 11% from the same period in 2001. This
decrease reflects lower new orders in the United States and Continental Europe.
Both of these operating units received significant awards in the first six
months of 2001 that were not repeated in 2002.
ENERGY GROUP
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 28, 2002 JUNE 29, 2001
------------- ------------- ------------- -------------
Backlog $ 1,364,728 $ 2,249,747 $ 1,364,728 $ 2,249,747
============ ============= ============= =============
New orders $ 137,995 $ 581,902 $ 551,968 $ 1,027,301
============ ============= ============= =============
The Energy Group had a backlog of $1,364,728 at June 28, 2002, which represented
a 39% decrease from June 29, 2001 and 12% decrease from year end. Approximately
76% of the unfilled orders were from lump sum work with the remaining 24%
representing cost-reimbursable work. Late in 2000 and early in 2001, this group
had received significant new awards that resulted in higher revenues in the
current period. These revenues resulted in a reduction in the backlog compared
to the end of June 2002.
New orders booked for the three months and six months ended June 28, 2002
decreased by 76% and 46%, respectively, as compared to the same period in 2001.
The decline was primarily due to the downturn in the United States and Europe
power market.
-37-
NON-AUDIT SERVICES
On August 15, 2002 the Audit Committee approved non-audit services to be
provided by PricewaterhouseCoopers LLP for $2,500. Approximately $1,500 was for
tax related services and the balance was for statutory and special project
audits.
OTHER MATTERS
The ultimate legal and financial liability of the Company in respect to all
claims, lawsuits and proceedings cannot be estimated with certainty. As
additional information concerning the estimates used by the Company becomes
known, the Company reassesses its position both with respect to gain
contingencies and accrued liabilities and other potential exposures. Estimates
that are particularly sensitive to future change relate to legal matters, which
are subject to change as events evolve and as additional information becomes
available during the administration and litigation processes.
In the ordinary course of business, the Company and its subsidiaries enter into
contracts providing for assessment of damages for nonperformance or delays in
completion. Suits and claims have been or may be brought against the Company by
customers alleging deficiencies in either equipment design or plant
construction. Based on its knowledge of the facts and circumstances relating to
the Company's liabilities, if any, and to its insurance coverage, management of
the Company believes that the disposition of such suits will not result in
charges materially in excess of amounts provided in the accounts.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(IN THOUSANDS OF DOLLARS)
Management's strategy for managing transaction risks associated with currency
fluctuations is for each operating unit to enter into derivative transactions,
such as forward foreign exchange agreements, to hedge its exposure on contracts
into the operating unit's functional currency. The Company utilizes all such
financial instruments solely for hedging. Corporate policy prohibits the
speculative use of such instruments. The Company is exposed to credit loss in
the event of nonperformance by the counter parties to such financial
instruments. To minimize this risk, the Company enters into these financial
instruments with financial institutions that are primarily rated A or better by
Standard & Poor's or A2 or better by Moody's. Management believes that the
geographical diversity of the Company's operations mitigates the effects of the
currency translation exposure. No significant unhedged assets or liabilities are
maintained outside the functional currency of the operating subsidiaries.
Accordingly, translation exposure is not hedged.
Interest Rate Risk - The Company is exposed to changes in interest rates
primarily as a result of its borrowings under its Revolving Credit Agreement and
its variable rate project debt. If market rates average 1% more in 2002 than in
2001, the Company's interest expense for the next twelve months would increase,
and income before tax would decrease by approximately $1,879. This amount has
been determined by considering the impact of the hypothetical interest rates on
the Company's variable-rate balances as of June 28, 2002. In the event of a
significant change in interest rates, management would likely take action to
further mitigate its exposure to the change. However, due to uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the Company's financial structure.
Foreign Currency Risk - The Company has significant overseas operations.
Generally, all significant activities of the overseas affiliates are recorded in
their functional currency, which is generally the currency of the country of
domicile of the affiliate. This results in a mitigation of the potential impact
of earnings fluctuations as a result of changes in foreign exchange rates. In
addition, in order to further mitigate risks associated with foreign currency
fluctuations, the affiliates of the Company enter into foreign currency exchange
contracts to hedge the exposed contract value back to their functional
-38-
currency. As of June 28, 2002, the Company had approximately $312,111 of foreign
exchange contracts outstanding. These contracts mature between 2002 and 2004.
The contracts have been established by various international subsidiaries to
sell a variety of currencies and either receive their respective functional
currency or other currencies for which they have payment obligations to third
parties. The Company does not enter into foreign currency contracts for
speculative purposes.
INFLATION
The effect of inflation on the Company's revenues and earnings is minimal.
Although a majority of the Company's revenues are made under long-term
contracts, the selling prices of such contracts, established for deliveries in
the future, generally reflect estimated costs to complete in these future
periods. In addition, some contracts provide for price adjustments through
escalation clauses.
-39-
SAFE HARBOR STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, other sections of this Report on Form 10-Q and other reports and
oral statements made by representatives of the Company from time to time may
contain forward-looking statements that are based on management's assumptions,
expectations and projections about the Company and the various industries within
which the Company operates. These include statements regarding the Company's
expectation regarding revenues (including as expressed by its backlog), its
liquidity and the ability to generate significant cash from the monetization of
assets on the new term, the outcome of litigation and legal proceedings and
recoveries from customers for claims. Such forward-looking statements by their
nature involve a degree of risk and uncertainty. The Company cautions that a
variety of factors, including but not limited to the following, could cause
business conditions and results to differ materially from what is contained in
forward looking statements:
o changes in the rate of economic growth in the United States and other
major international economies;
o changes in investment by the power, oil & gas, pharmaceutical,
chemical/petrochemical and environmental industries;
o changes in regulatory environment;
o changes in project schedules;
o changes in estimates made by the Company of costs to complete
projects;
o changes in trade, monetary and fiscal policies worldwide;
o currency fluctuations;
o inability to achieve its plan to enhance cash generation;
o terrorist attacks on facilities either owned or where equipment or
services are or may be provided;
o outcomes of pending and future litigation, including litigation
regarding the Company's liability for damages and insurance coverage
for asbestos exposure;
o protection and validity of patents and other intellectual property
rights;
o increasing competition by foreign and domestic companies;
o monetization of certain business and other assets; and
o recoverability of claims against customers.
Other factors and assumptions not identified above were also involved
in the derivation of these forward-looking statements and the failure of such
other assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. Most of these factors are
difficult to predict accurately and are generally beyond the control of the
Company. The reader should consider the areas of risk described above in
connection with any forward-looking statements that may be made by the Company.
The Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
The reader is advised, however, to consult any additional disclosures the
Company makes in proxy statements, quarterly reports on Form 10-Q, annual
reports on Form 10-K, particularly the Risk Factors of the Business discussed on
pages 4 through 11 of the Form 10-K, and current reports on Form 8-K filed with
the Securities and Exchange Commission.
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PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to Note 8 to the Condensed Consolidated Financial Statements presented in
Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of legal
proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date of Annual Meeting.
The Annual meeting of Shareholders of the Company was held on May 22,
2002, at the offices of the Company located at Perryville Corporate Park,
Clinton, New Jersey.
(b) Election of Directors - Voting Results
Voted to
Nominee For Withhold Authority
Victor A. Hebert 32,934,468 2,867,602
Joseph J. Melone 32,857,958 2,944,112
Raymond J. Milchovich 32,905,503 2,896,567
James E. Schessler 32,833,532 2,968,538
Other Directors continuing in office:
Eugene D. Atkinson Martha Clark Goss
John P. Clancey Constance J. Horner
David J. Farris John E. Stuart
E. James Ferland
(c) Additional Matters Voted Upon.
Proposal to amend Bye-law 10(4) to change the retirement age for
directors.
Broker
For Against Abstain Non-votes
33,551,521 2,041,326 209,223 0
Proposal to amend the 1995 Stock Option Plan.
Broker
For Against Abstain Non-votes
29,376,786 6,135,931 289,353 0
Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accounts for the Company for 2002.
Broker
For Against Abstain Non-votes
35,327,679 336,658 137,733 0
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT NO. EXHIBITS
3.2 Bye-Laws of Foster Wheeler Ltd. amended May 22, 2002.
4.1 Second Supplemental Indenture (relating to the Indenture dated as of
November 15, 1995) dated August 16, 2002, by and between Foster
Wheeler LLC, the Guarantors thereto, and BNY Midwest Trust Company.
4.2 Guaranty dated August 16, 2002 by the Guarantors party thereto in
favor of the holders of Foster Wheeler LLC's 6.75% notes due November
15, 2005 and BNY Midwest Trust Company.
10.1 Separation Agreement of Henry E. Bartoli dated April 17, 2002.
10.2 Separation Agreement of Gilles A. Renaud dated May 23, 2002.
10.3 Employment Agreement of Joseph T. Doyle dated as of July 15, 2002.
10.4 Amendment No. 3 dated as of May 30, 2002 to Amendment No. 1 and Waiver
dated as of January 28, 2002 relating to the Second Amended and
Restated Revolving Credit Agreement dated as of May 25, 2001 among
Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler
Power Group, Inc. (formerly known as Foster Wheeler Energy
International, Inc.), Foster Wheeler Energy Corporation, the
Guarantors signatory thereto, the Lenders signatory thereto, Bank of
America, N.A., as Administrative Agent, Wachovia Bank, National
Association (formerly known as First Union National Bank), as
Syndication Agent, and ABN AMRO Bank N.V., as Documentation Agent,
arranged by Banc of America Securities LLC, as Lead Arranger and Book
Manager, and ABN AMRO Bank N.V., Wachovia Securities, Inc. (formerly
known as First Union Capital Markets), Greenwich Natwest Structured
Finance Inc. and Toronto Dominion Bank, as Arrangers.
10.5 Amendment No. 4 dated as of June 30, 2002 to Amendment No. 1 and
Waiver dated as of January 28, 2002 relating to the Second Amended and
Restated Revolving Credit Agreement dated as of May 25, 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.
10.6 Settlement Agreement dated as of January 31, 2002, by and among
Robbins Resource Recovery Partners, L.P., RRRP Robbins, Inc., RRRP
Illinois, LLC and the undersigned holders of 1999 Bonds issued
pursuant to the Indenture representing the number of holders of 1999
Bonds as reflected in the signature lines below, Foster Wheeler LLC,
its Affiliates, and their Related Persons and Sun Trust Bank (formerly
known as, and as successor to Sun Trust Bank, Central Florida,
National Association) in its capacity as trustee under the Indenture
and as Litigation Proceeds Trustee.
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EXHIBIT NO. EXHIBITS
10.7 Supplement to the Settlement Agreement dated January 31, 2002, by and
among Robbins Resource Recovery Partners, L.P., RRRP Robbins, Inc.,
RRRP Illinois, LLC and the undersigned holders of 1999 Bonds issued
pursuant to the Indenture representing the number of holders of 1999
Bonds as reflected in the signature lines below, Foster Wheeler LLC,
and its Affiliates, and their Related Persons Sun Trust Bank (formerly
known as, and as successor to Sun Trust Bank, Central Florida,
National Association) in its capacity as trustee under the Indenture
and as Litigation Proceeds Trustee is made this 31st day of January,
2002.
10.8 Settlement Agreement dated as of May 8, 2002, by and among Foster
Wheeler LLC, the Village of Robbins, and Sun Trust Bank (formerly
known as, and as successor to Sun Trust Bank, Central Florida,
National Association) in its capacity as trustee under the Second
Amended and Restated Mortgage, Security Agreement and Indenture of
Trust dated as of October 15, 1999 and as "Litigation Proceeds
Trustee" under that certain Litigation Proceeds Trust Agreement dated
as of October 15, 1999 and Robbins Resource Recovery Partners L.P.,
RRRP Robbins, Inc. and RRRP Illinois, LLC.
10.9 Amendment No. 5 dated as of July 31, 2002 to Amendment No. 1 and
Waiver dated as of January 28, 2002 relating to the Second Amended and
Restated Revolving Credit Agreement dated as of May 25, 2001 among
Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler
Power Group, Inc. (formerly known as Foster Wheeler Energy
International, Inc.), Foster Wheeler Energy Corporation, the
Guarantors signatory thereto, the Lenders signatory thereto, Bank of
America, N.A., as Administrative Agent, Wachovia Bank, National
Association (formerly known as First Union National Bank), as
Syndication Agent, and ABN AMRO Bank N.V., as Documentation Agent,
arranged by Banc of America Securities LLC, as Lead Arranger and Book
Manager, and ABN AMRO Bank N.V., Wachovia Securities, Inc. (formerly
known as First Union Capital Markets), Greenwich Natwest Structured
Finance Inc. and Toronto Dominion Bank, as Arrangers.
10.10 Forbearance Extension Agreement dated as of July 31, 2002 by and among
(i) Perryville III Trust, (the "Landlord"), (ii) BNY Midwest Trust
Company, as successor trustee to Harris Trust and Savings Bank, (iii)
Foster Wheeler Realty Services, Inc., (iv) Foster Wheeler LLC, (v)
Lombard US Equipment Finance Corporation, (vi) National Westminster
Bank Plc (the "Agent") and (vii) the banks listed on Schedule I to
that certain Construction Loan Agreement dated as of December 16,
1994, among the Landlord, as Borrower, the lenders party thereto and
their permitted successors and assigns and the Agent.
10.11 The Foster Wheeler Annual Incentive Plan for 2002 and Subsequent
Years.
10.12 Third Amended and Restated Term Loan and Revolving Credit agreement
dated August 16, 2002, among Foster Wheeler LLC, Foster Wheeler USA
Corporation, Foster Wheeler Power Group, Inc. Foster Wheeler Energy
Corporation, the Guarantors thereto and Bank of America, N.A.
10.13 Security Agreement dated August 16, 2002, made by Foster Wheeler LLC
and the Grantors thereto and the Bank of America, N.A.
10.14 Guaranty and Suretyship Agreement dated August 16, 2002 made by Foster
Wheeler LLC, Foster Wheeler Ltd., Foster Wheeler Inc., Foster Wheeler
International Holdings, Inc. and Energy (NJ) QRS 15-10, Inc.
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EXHIBIT NO. EXHIBITS
10.15 Lease Agreement dated August 16, 2002, by and among Energy (NJ) QRS
15-10, Inc. and Foster Wheeler Realty Services, Inc.
10.16 Loan and Security Agreement dated August 15, 2002 by and among Foster
Wheeler Funding LLC, the Lenders that are signatories thereto and
Foothill Capital Corporation.
10.17 Performance Guaranty dated August 15, 2002, by Foster Wheeler in favor
of Foothill Capital Corporation.
10.18 Servicing Agreement dated as of August 15, 2002, among Foster Wheeler
Funding LLC, Foothill Capital Corporation, and Foster Wheeler Capital
& Finance Corporation.
10.19 Purchase, Sale and Contribution Agreement dated August 15, 2002 among
Foster Wheeler Capital & Finance Corporation, Foster Wheeler
Constructors, Inc., Foster Wheeler Energy Corporation, Foster Wheeler
USA Corporation, Foster Wheeler Power Group, Inc., Foster Wheeler
Zack, Inc. Foster Wheeler Energy Services, Inc. and Foster Wheeler
Funding LLC.
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.
REPORTS ON FORM 8-K
REPORT DATE DESCRIPTION
April 2, 2002 Foster Wheeler announced a San Francisco, California jury
returned a verdict finding Foster Wheeler liable in the case of
TODAK VS. FOSTER WHEELER CORPORATION ET AL.
April 3, 2002 Foster Wheeler announced that it will exercise its right to defer
the April 15, 2002 interest payment of the FW Preferred Capital
Trust I 9% Preferred Securities.
April 3, 2002 Foster Wheeler announced that the United States District Court
for the Northern District of Texas entered an amended final
judgment in the matter of KOCH ENGINEERING COMPANY, INC. ET AL
VS. GLITSCH, INC. ET AL.
April 12, 2002 Foster Wheeler filed a description of its authorized common
shares.
April 15, 2002 Foster Wheeler announced that it filed its Form 10-K with the
Securities and Exchange Commission and that it will take an
additional loss for the fourth quarter.
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REPORT DATE DESCRIPTION
July 1, 2002 Foster Wheeler announced that it received further extensions
for its financing facilities and deferred payment on its trust
preferred securities.
July 15, 2002 Foster Wheeler announced that the Company elected a new senior
vice president and chief financial officer.
July 23, 2002 Foster Wheeler announced that at one of its subsidiaries has
preliminarily agreed to sell its interests in its Hudson Falls,
New York waste-to-energy plant.
July 31, 2002 Foster Wheeler announced that in response to a question raised
during the company's earnings conference call, it was disclosed
that under the terms of its proposed new senior secured credit
facility, the Company will be required to continue to defer the
dividend on its FW Preferred Capital Trust I - 9% Preferred
Securities.
August 16, 2002 Foster Wheeler announced that it had successfully entered into
a new credit facility, entered into a $40 million receivables
sale agreement, and replaced its previous lease financing
facility associated with its Clinton, New Jersey, headquarters
complex.
Foster Wheeler announced that it had revised its earnings for
three and six months ended June 28, 2002 for the impact of
goodwill accounting.
-45-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOSTER WHEELER LTD.
-------------------
(Registrant)
Date: AUGUST 16, 2002 /S/ RAYMOND J. MILCHOVICH
------------------- -----------------------------------
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
Date: AUGUST 16, 2002 /S/ JOSEPH T. DOYLE
------------------- -----------------------------------
Joseph T. Doyle
Senior Vice President and
Chief Financial Officer
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