-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Euoyc9GJN03s6b4lCTaUL28uCQf2j2vaz4RZ1DqdsZ2sKH19SwoTKv/lExJJPNmb LOz7rYMNbI7H0ntfR05azA== 0000950123-94-000592.txt : 19940328 0000950123-94-000592.hdr.sgml : 19940328 ACCESSION NUMBER: 0000950123-94-000592 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: 1600 IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-00286 FILM NUMBER: 94517814 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-K 1 FORM 10K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .......... to .......... Commission file number 1-286-2 FOSTER WHEELER CORPORATION (Exact Name of Registrant as specified in its charter) NEW YORK 13-1855904 (State of incorporation) (I.R.S. Employer Identification No.) PERRYVILLE CORPORATE PARK, CLINTON, NEW JERSEY 08809-4000 (Address of Principal Executive Offices) (Zip Code)
(908) 730-4000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: FOSTER WHEELER CORPORATION NEW YORK STOCK EXCHANGE COMMON STOCK, $1.00 PAR VALUE (Name of Each Exchange on Which (Title of Class) Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE Title of Class 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. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 7, 1994, 35,753,324 shares of the Registrant's Common Stock, excluding stock held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by nonaffiliates of the Registrant on such date was approximately $1,591,022,918 (based on the last price on that date of $44.50 per share). 2 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference, and the Part of the Form 10-K into which the document is incorporated: (1) Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A of the Securities Exchange Act on or about March 18, 1994
Page Number of Definitive Proxy Form 10-K Item Number and Description Statement - ------------------------------------- ---------------- 10. Directors and Executive Officers 2 - 4 11. Executive Compensation 6 - 12 12. Security Ownership of Certain 2 - 4 Beneficial Owners and Management
Except as specifically incorporated herein by reference, the above mentioned Definitive Proxy Statement is not deemed filed as part of this report. (2) The Financial Section of the Annual Report to Stockholders (pages 17-35) for the fiscal year ended December 31, 1993, is incorporated by reference into Part I and Part II of this report. 3 FOSTER WHEELER CORPORATION 1993 Form 10-K Annual Report Table of Contents
Page ---- Part I Item 1. Business 4 - 7 2. Properties 8 - 11 3. Legal Proceedings 11 4. Submission of Matters to a Vote of Security Holders 11 4a. Executive Officers of the Registrant 11 - 12 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 13 6. Selected Financial Data 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 8. Financial Statements and Supplementary Data 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 Part III 10. Directors and Executive Officers of the Registrant 15 11. Executive Compensation 15 12. Security Ownership of Certain Beneficial Owners and Management 15 13. Certain Relationships and Related Transactions 15 Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15 - 26
3 4 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS: Foster Wheeler Corporation was incorporated under the laws of the State of New York in 1900. Executive offices of Foster Wheeler Corporation are at Perryville Corporate Park, Clinton, New Jersey, 08809-4000 (Telephone (908) 730-4000). Except as the context otherwise requires, the term "Foster Wheeler" as used herein includes Foster Wheeler Corporation and its subsidiaries. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: Incorporated by reference to Note 16 on page 35 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993. NARRATIVE DESCRIPTION OF BUSINESS: Commencing in 1993, the activities of the Corporation have been redefined to focus on three core business groups covering Engineering and Construction, Energy Equipment and Power Systems. Prior to 1993, the Industrial and Environmental Group was reported as a separate segment. Those companies previously reported within the Industrial and Environmental Group have been reclassified as follows: Glitsch International, Inc. is now considered part of the Energy Equipment Group; Thermacote Welco Company, which was sold in September 1993, Barsotti's Inc. and Ullrich Copper, Inc. are aggregated as part of Corporate and Financial Services. Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no impact on the previously reported consolidated earnings of the Corporation. The three business groups are: the Engineering and Construction Group that consists primarily of the design, engineering and construction of process plants and fired heaters for oil refineries, synthetic fuels, and chemical producers; the Energy Equipment Group that consists mainly of the design and fabrication of steam generators and condensers, and suppliers of mass-transfer equipment, tower packings and industrial wire mesh; and the Power Systems Group engaged in the owning, leasing to, or operation for third parties of solid waste-to-energy and cogeneration plants. Foster Wheeler markets its services and products through a staff of sales and marketing personnel and through a network of sales representatives. The businesses of its industry groups are not seasonal nor are they dependent on a single customer or a very few customers. No one customer accounts for 10 percent or more of Foster Wheeler's consolidated revenues, although in any given year one customer could contribute significantly to such revenues. The materials used in Foster Wheeler's manufacturing and construction operations are obtained from both domestic and foreign sources. Materials, which consist mainly of steel products and manufactured items, are heavily dependent on foreign sources, particularly on overseas projects. 4 5 Generally, lead time for delivery of materials does not presently constitute a problem. Foster Wheeler owns and licenses patents, trademarks and know-how which are used in each of its industry groups. Such licenses, patents and trademarks are of varying durations. No industry group of the Corporation is materially dependent upon any particular or related group of patents, trademarks or licenses. Foster Wheeler has licensed companies throughout the world to manufacture marine and stationary steam generators and related equipment and certain of its other products. Principal licensees are in Japan, the Netherlands, Italy, Spain, Portugal, Norway and England. For the most part, Foster Wheeler products are custom designed and manufactured and are not produced for inventory. As is the practice in the Engineering and Construction Group and Energy Equipment Group, customers often make a down payment at the time a contract is entered into, and continue to make progress payments until the contract is completed and the work has been accepted as meeting contract guarantees. The Engineering and Construction Group backlog at the end of 1993 was $2.7 billion. Refinery upgrading and reconfiguration projects continue to be the major sources of new orders for the Group with strong markets in the Pacific Rim and the Middle East. The Energy Equipment Group backlog at the end of 1993 was $890.5 million. Foster Wheeler had a backlog of firm orders as of December 31, 1993 of $3,884,100,000 as compared to a backlog as of December 25, 1992 of $3,806,800,000. The elapsed time from the award of a contract to completion of performance may be up to four years. The amount of backlog at December 31, 1993 should not necessarily be considered indicative of Foster Wheeler's total revenues for 1994, since contracts may under certain circumstances be accelerated or delayed and new orders booked in 1994 may be billed during that year. The backlog by major industry segments as of December 31, 1993 and December 25, 1992 is as follows:
1993 1992 ---- ---- Engineering and Construction $2,724,300,000 $2,827,200,000 Energy Equipment 890,500,000 831,400,000 Power Systems 210,500,000 68,600,000 Corporate and Financial Services 58,800,000 79,600,000 --------------- --------------- $3,884,100,000 $3,806,800,000 --------------- --------------- --------------- ---------------
5 6 The Power Systems projects consist of the following:
PLANT LOCATION TYPE AND SIZE UNIT STATUS -------------- ------------------ ------ Martinez, California 99.9 MW Cogeneration In Operation 1987 Mt. Carmel, Pennsylvania 40 MW Cogeneration - anthracite In Operation 1990 culm-fired plant which also provides hot water to a hydro- ponic greenhouse Charleston, South Carolina 600 Ton/Day Resource Recovery; In Operation 1989 designed output 10 MW (a sale/ leaseback of this project was entered into in 1989) Camden County, New Jersey 1050 Ton/Day Resource Recovery; In Operation 1991 designed output 21 MW Hudson Falls, New York 400 Ton/Day Resource Recovery; In Operation 1991 designed output 10 MW University of Minnesota Heating Plant operation and In Operation 1992 upgrade - ----------------------------------------------------------------------------------------------------------------------------- Montreal, Canada 2200 Ton/Day Waste-to-Energy* In Final Permitting Wilkes Barre, Pennsylvania 40 MW Small Power In Permitting - ----------------------------------------------------------------------------------------------------------------------------- Robbins, Illinois 1600 Ton/Day Waste-to-Energy* In Development Talcahuano, Chile 65 MW Cogeneration Plant Plus In Development 12,000 Barrels/Day Coker and 6,500 Barrels/Day Hydrotreater - -----------------------------------------------------------------------------------------------------------------------------
* Includes Recycling. For waste-to-energy (resource recovery) projects, generally, it takes approximately two to three years from award of a contract and the signing of a service agreement with a community to the beginning of construction. Many companies compete in the Engineering and Construction segment of Foster Wheeler's business. Management estimates, based on industrial publications, that it is among the ten largest of the many large and small companies engaged in the design and construction of petroleum refineries and chemical plants. In the manufacture of refinery and chemical plant equipment, neither Foster Wheeler nor any other single company contributes a large percentage of the total volume of such business. 6 7 In the Energy Equipment Group, Foster Wheeler competes in the United States with three major and a number of smaller manufacturers of coal, oil, and gas-fired steam generating equipment, and, based on a review of trade association materials, it is third largest in this area. Its two major competitors are Combustion Engineering, Inc., a wholly owned subsidiary of ABB Asea Brown Boveri, Ltd.; and Babcock and Wilcox Co., a wholly owned subsidiary of J. Ray McDermott & Co., Inc. It competes in the United States with seven or more manufacturers of condensers, feedwater heaters and heat transfer equipment, and is among the largest of these manufacturers. For the most part, contracts are awarded on the basis of price, delivery, performance and service. Foster Wheeler is continually engaged in research and development efforts both in performance and analytical services on current projects and in development of new products and processes. During 1993, approximately $8,350,000, and in 1992 and 1991, $6,900,000 and $7,500,000, respectively, was spent on Foster Wheeler sponsored research activities. During the same periods, approximately $40,850,000, $32,300,000, and $27,200,000, respectively, was spent on customer sponsored research. Foster Wheeler and its domestic subsidiaries are subject to certain Federal, state and local environmental, occupation health and product safety laws. Foster Wheeler believes all its operations are in compliance with such laws and does not anticipate any material capital expenditures or adverse effect on earnings in maintaining compliance with such laws. Foster Wheeler had approximately 9,350 full-time employees on December 31, 1993. Following is a tabulation of the number of full-time employees of Foster Wheeler in each of its industry segments for the past three years:
December 31, December 25, December 27, 1993 1992 1991 --------------- --------------- -------------- Engineering and Construction 5,630 5,975 5,460 Energy Equipment 3,110 3,030 2,950 Power Systems 270 275 200 Corporate and Financial Services 340 700 725 --------- --------- --------- 9,350 9,980 9,335 --------- --------- --------- --------- --------- ---------
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: Incorporated by reference to Note 16 on page 35 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993. 7 8 ITEM 2. PROPERTIES COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Corporation (CF) - -------------------------- New York City, New York Executive Offices -- 1,148 1998 Livingston, New Jersey General Office & Engineering 31.0 acres 288,000 (2) -- Lebanon, New Jersey General Offices -- 151,408 1996/1997 Clinton Township, General Office -- 22,543 1996 New Jersey Union Township, Undeveloped 225.2 acres -- -- New Jersey General Office & Engineering 29.4 294,000 -- Storage and Reproduction Facilities 8.0 34,000 -- Livingston, New Jersey Research Center 6.7 acres 51,355 -- Bedminster, New Jersey Office 10.72 acres 135,000 (1)(3) Bridgewater, New Jersey Undeveloped 118 acres -- (3) -- Foster Wheeler Energy Corporation (EE) - --------------------- Dansville, New York Manufacturing & Offices 82.4 acres 513,786 -- McGregor, Texas Storage Facilities 15.0 acres 24,000 -- Foster Wheeler Iberia, S.A. (EC) - ---------------------- Madrid, Spain Office & Engineering 4.2 acres 82,500 -- Foster Wheeler Limited (England) (EC) - ---------------------- Glasgow, Scotland Office & Engineering -- 27,610 1997 Reading, England Office & Engineering -- 301,367 1995/2016 Tereside, England Office & Engineering -- 24,000 1994/1996
8 9 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Limited (Canada) (EE) - ---------------------- Edmonton, Alberta Assembly -- 10,960 1994 Niagara-On-The-Lake, Ontario Office Building 34.5 acres 100,000 (1) -- Port Robinson, Ontario Undeveloped Land 15.0 acres -- -- St. Catharines, Ontario Manufacturing & Office 29.0 acres 233,500 -- Grimsby, Ontario Construction Tools Depot -- 19,546 1997 Foster Wheeler Energia, S.A. (EE) - ----------------------- (formerly Generadores de Vapor Foster Wheeler, S.A.) - --------------------------- Tarragona, Spain Manufacturing & Office 11.96 acres 77,794 -- Madrid, Spain Office Building 1.26 acres 27,500 -- Foster Wheeler Italiana, S.p.A. (EC) - ------------------------ Milan, Italy Office & Engineering -- 180,000 2001 Milan, Italy Office & Engineering -- 30,000 2004 Foster Wheeler USA Corporation (EC) - ------------------- Houston, Texas General Offices -- 53,131 2003 Barsotti's Inc. (CF) - -------------------- Santa Fe Springs Warehouse & Office -- 35,255 1994 California San Leandeo, Warehouse & Office -- 12,455 1994 California
9 10 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Power Systems, Inc. (PS) - ---------------------------------- Martinez, California Cogeneration Plant 6.4 acres -- -- Mt. Carmel, Cogeneration Plant 105 acres -- 2010 Pennsylvania Charleston, Waste-to-Energy 18 acres -- 2010 South Carolina Plant Hudson Falls, New York Waste-to-Energy 11.2 acres -- 2010 Plant Camden, New Jersey Waste-to-Energy 18 acres -- 2011 Plant Glitsch International, Inc. (EE) - -------------------------------- Dallas, Texas Manufacturing & Office 38.0 acres 505,644 -- Eldorado, Kansas Manufacturing & Office -- 16,000 1994 Houston, Texas Warehouse & Office 2.83 acres 18,000 -- Uxbridge, Ontario Manufacturing 12.0 acres 84,500 -- Camrose, Alberta, Undeveloped Land 20.0 acres -- -- Canada Aprilia, Italy Manufacturing 20.5 acres 72,000 -- Parsippany, New Jersey Manufacturing & Office 8.3 acres 63,790 -- Kirkby Stephen, U.K. Manufacturing & Office 2.4 acres 19,000 1994 Arles, France Manufacturing & Office 5.1 acres 70,736 -- Birlesik Insaat ve Muhendislik A.S. (BIMAS) (EC) - ------------------------------ Istanbul, Turkey Engineering & Office -- 15,000 1994
10 11 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler France (EC) - -------------------------- Paris, France Office & Engineering -- 86,555 (1) -- Ullrich Copper, Inc. (CF) - ------------------------- Kenilworth, New Jersey Manufacturing -- 90,000 1998 Greenwood, South Carolina Warehouse -- 10,000 1998
- --------------------------------- *Designation of Industry Groups: EC - Engineering and Construction EE - Energy Equipment PS - Power Systems CF - Corporate & Financial Services -------------------------------------
(1) Portion leased or subleased to a responsible tenant. (2) Entire facility leased to a responsible tenant, with a portion being subleased back to Foster Wheeler subsidiaries. (3) 50% ownership interest. With the exception of the New York Office of the Corporation, locations of less than 10,000 square feet are not listed. Except as noted above, the properties set forth are held in fee. All or part of listed locations may be leased or subleased to other affiliates. All properties are in good condition and adequate for their intended use. ITEM 3. LEGAL PROCEEDINGS Incorporated by reference to Note 12 on page 33 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 4(A) EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G (3) of Form 10-K information regarding executive officers is included in PART I. 11 12 The executive officers of Foster Wheeler, all of whom have held executive positions with Foster Wheeler or its subsidiaries for more than the past five years, except Messrs. Bartoli, O'Brien and Whittaker, are as follows:
NAME AGE POSITION ---- --- -------- Louis E. Azzato 63 Chairman of the Board of Directors and Chief Executive Officer Richard J. Swift 49 President and Chief Operating Officer Harold E. Kennedy 66 Vice Chairman N. William Atwater 59 Executive Vice President - Engineering and Construction Group David J. Roberts 49 Executive Vice President - Chief Financial Officer Murray Wolsky 62 Senior Vice President - Administration and Real Estate Michele Acerra 56 Vice President - Corporate Planning and Development Henry E. Bartoli 47 Vice President - Power Systems Group (Vice President and General Manager, 1987-1992, Burns and Roe Company.) Jack E. Deones 62 Vice President - Secretary Lisa Fries-Gardner 37 Vice President - Chief Compliance Officer Robert D. Iseman 45 Vice President and Treasurer Thomas R. O'Brien 55 Vice President and General Counsel (Partner in the law firm of Wolff and Samson, 1986-1993.) James E. Schessler 48 Vice President - Personnel & Industrial Relations George S. White 57 Vice President and Controller Robert A. Whittaker 46 Vice President - Energy Equipment Group (General Manager, Steam Turbine Business for General Electric Industries and Power Systems, 1989-1992. Various engineering, manufacturing, marketing and service positions for General Electric, 1969-1988.)
Each officer holds office for a term running until the Board of Directors meeting next following the Annual Meeting of Stockholders and until his/her successor is elected and qualified. There are no family relationships between the officers listed above. There are no arrangements or understandings between any of the listed officers and any other person, pursuant to which he/she was elected as an officer. 12 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference to Note 11 on page 33 in Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993. The Corporation's common stock is traded on the New York Stock Exchange. The approximate number of stockholders of record as of December 31, 1993 was 8,008. ITEM 6. SELECTED FINANCIAL DATA (In Thousands of Dollars, Except Per Share Data)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Revenues $2,654,505 $2,529,464 $2,031,620 $1,691,023 $1,292,747 Earnings before accounting change 57,704 45,504 (1) 43,268 38,277 31,637 Earnings per share before accounting change 1.62 1.28 (1) 1.22 1.08 .90 Total assets 1,806,201 1,763,264 1,638,874 1,445,494 1,185,246 Long-term borrowings (including current installments) 429,264 439,578 454,826 321,608 255,798 Cash dividends per common share .645 .585 .53 .485 .44
(1) As of the beginning of 1992, the Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The effect of the accounting change at the beginning of 1992 was a charge to earnings of $91.3 million after tax and valuation allowance which amounted to $2.57 per share. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages 18 to 22 in Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to the following sections of Foster Wheeler's Annual Report to Stockholders for the year ended December 31, 1993: A. Consolidated Balance Sheet, December 31, 1993 and December 25, 1992 (page 23) B. Consolidated Statement of Earnings for the years ended December 31, 1993; December 25, 1992; and December 27, 1991 (page 24) C. Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1993; December 25, 1992; and December 27, 1991 (page 25) D. Consolidated Statement of Cash Flows for the years ended December 31, 1993; December 25, 1992; and December 27, 1991 (page 26) E. Notes to Financial Statements (pages 27-35) F. Report of Independent Accountants (page 24) Schedules Required by Regulations S-X G. Schedule V, Land, Buildings and Equipment (page 23 of Form 10-K) H. Schedule VI, Accumulated Depreciation of Buildings and Equipment (page 24 of Form 10-K) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 14 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to pages 2-4 of Foster Wheeler's Proxy Statement, dated March 18, 1994, for the Annual Meeting of Stockholders to be held April 25, 1994. Certain information regarding executive officers is included in Part I in accordance with General Instruction G (3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 6-12 of Foster Wheeler's Proxy Statement, dated March 18, 1994, for the Annual Meeting of Stockholders to be held April 25, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2-4 of Foster Wheeler's Proxy Statement, dated March 18, 1994, for the Annual Meeting of Stockholders to be held April 25, 1994. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1 - Financial Statements The index to Financial Statements is incorporated in this paragraph by reference to Item 8, page 14 2 - Financial Statement Schedules Schedule V, Land, Buildings and Equipment, page 23 Schedule VI, Accumulated Depreciation of Buildings and Equipment, page 24 15 16 All other schedules and financial statements have been omitted because of the absence of conditions requiring them or because the required information is shown in the financial statements or the notes thereto. (b) Reports on Form 8-K: The following reports on Form 8-K have been filed during the period September 25 through December 31, 1993: None 3 - The following Exhibits are required by Item 601 of Regulation S-K and by paragraph (c) of Item 14 of Form 10-K: (2) Not applicable (3) By-Laws of Registrant as amended through February 22, 1994 and filed as part of this report. (4) Not applicable (9) Not applicable (10) Not applicable (11) Not applicable (12) Not applicable (13) Except for those portions thereof which are expressly incorporated by reference in this filing, the Financial Section of the Annual Report to Stockholders of Foster Wheeler Corporation (pages 17-35) for the fiscal year ended December 31, 1993 is furnished for the information of the Commission and is not deemed "filed" as part of this filing. (18) Not applicable (21) Subsidiaries of the registrant (pages 18 and 19) (22) Not applicable (23) See consent of Independent Accountants (page 21) (24) Not applicable (27) Not applicable (28) Not applicable 16 17 For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-91384 (filed May 29, 1984), 33-34694 (filed May 2, 1990) and 33-40878 (filed May 29, 1991): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 17 18 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization
AUSTRALIA Foster Wheeler Australia Pty. Ltd., Melbourne Foster Wheeler China, Inc., Delaware Foster Wheeler Constructors, Inc., Delaware Foster Wheeler Development Corporation, Delaware Foster Wheeler (Emirates) Corporation, Delaware BERMUDA Foster Wheeler Energy Corporation, Delaware FW Management Operations, Ltd., Hamilton Foster Wheeler Energy International, Inc., Delaware Foster Wheeler Trading Co. Ltd., Hamilton Foster Wheeler Facilities Management Delaware, Inc., Delaware Power Systems International, Ltd., Hamilton Foster Wheeler Hudson Falls, Inc., Delaware York Jersey Liability Ltd., Hamilton Foster Wheeler Intercontinental Corporation, Delaware Foster Wheeler International Corporation, Delaware CANADA Foster Wheeler Korea, Ltd., Delaware Foster Wheeler Limited, St. Catharines Foster Wheeler Martinez, Inc., Delaware Les Chaudieres Foster Wheeler Inc., Quebec Foster Wheeler Mt. Carmel, Inc., Delaware Chapleau Co-generation Ltd., Chapleau Foster Wheeler Passaic, Inc., Delaware Foster Wheeler Canadian Resources Limited, Alberta Foster Wheeler Penn Resources, Inc., Delaware Foster Wheeler Fired Heaters, Ltd., Calgary Foster Wheeler Power Corporation, Delaware Glitsch Canada, Ltd., Uxbridge Foster Wheeler Power Systems, Inc., Delaware La Societe D'Energie Foster Wheeler Ltd., Quebec Foster Wheeler Real Estate Development Corporation, Delaware Foster Wheeler Twin Cities, Inc., Delaware CHILE Foster Wheeler USA Corporation, Delaware Foster Wheeler Chile, S.A., Santiago de Chile Foster Wheeler Wood Resources, Inc., Delaware Foster Wheeler World Services Corporation, Delaware ENGLAND Glitsch Field Services, Inc., Texas Foster Wheeler Limited, Reading Glitsch Inc., Delaware Foster Wheeler Energy Ltd., Reading Glitsch International, Inc., Delaware Foster Wheeler (India) Ltd., Reading Glitsch Special Products, Inc., Texas Foster Wheeler (Northern) Ltd., Reading Glitsch Technology Corporation, Delaware Foster Wheeler (Pacific) Ltd., Reading Otto H. York Company, Delaware Foster Wheeler Petroleum Development Ltd., Reading Ullrich Copper, Inc., Delaware Foster Wheeler World Services, Ltd., Reading Yargo, Inc., Minnesota FW Management Operations Ltd., Reading Glitsch (U.K.) Ltd., Kirkby Stephen Cumbria THAILAND Glitsch Field Services, Ltd., Dorking Foster Wheeler (Thailand) Limited, Sriracha Foster Wheeler (Indonesia) Ltd., Reading Foster Wheeler Petroleum Development (Norway) Ltd., U.S. VIRGIN ISLAND Reading Foster Wheeler F.S.C., Inc., St. Thomas FRANCE Foster Wheeler France, S.A., Paris VENEZUELA Foster Wheeler Conception Etudes Entretien, Paris Foster Wheeler Carbibe Corporation, C.A., Caracas Foster Wheeler World Services, France, S.A., Paris Glitsch France, S.A., Arles Societe Fonciere-Bourdonnais Rivoli, S.A., Paris ITALY Foster Wheeler Italiana, S.p.A., Milan Steril, S.p.A., Milan Foster Wheeler World Services, S.p.A., Rome Glitsch Italiana, S.p.A., Campoverde Foster Wheeler Financial Services S.p.A., Milan NETHERLANDS ANTILLES Foster Wheeler N.V., Curacao NETHERLANDS Foster Wheeler Europe, B.V., Amsterdam Foster Wheeler Power Systems, B.V., Amsterdam SINGAPORE (REPUBLIC OF) Foster Wheeler Eastern Pte., Ltd., Singapore SPAIN Foster Wheeler Iberia, S.A., Madrid Foster Wheeler Energia, S.A., Madrid Foster Wheeler Trading Co., S.A., Madrid F.I. Controles, S.A., Madrid Foster Wheeler Power Systems, S.A., Madrid Conequip, S.A., Madrid UNITED STATES Camden County Energy Recovery Associates, New Jersey Camden County Energy Recovery Corporation, Delaware Century Plastics, Inc., Kansas Foster Wheeler Arabia Ltd., Delaware Foster Wheeler Bedminster, Inc., Delaware Foster Wheeler Bridgewater, Inc., Delaware Foster Wheeler Broome County, Inc., Delaware Foster Wheeler Charleston Resource Recovery, Inc., Delaware
18 19 PRINCIPAL AFFILIATED COMPANIES (PERCENT DIRECTLY OR INDIRECTLY OWNED BY FOSTER WHEELER CORPORATION) COLUMBIA Foster Wheeler Andina, S.A., Bogota (19%) ITALY F.FW Fiatavio Foster Wheeler Per L'Energia, S.p.A., Milan (40%) Software Technology, S.p.A., Milan (90%) NIGERIA Foster Wheeler (Nigeria) Ltd., Lagos (60%) TURKEY Birlesik Insaat ve Muhendislik, A.S., Istanbul (51%) 19 20 A copy of the By-Laws of the Corporation, as amended through February 22, 1994, is available upon request to the Office of the Secretary, Foster Wheeler Corporation, Perryville Corporate Park, Clinton, New Jersey 08809-4000. 20 21 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Foster Wheeler Corporation on Form S-8 (File No.'s 2- 91384, 33-34694 and 33-40878) of our report dated February 14, 1994, on our audits of the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries as of December 31, 1993 and December 25, 1992, and for each of the three years in the period ended December 31, 1993, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand New York, New York March 25, 1994 21 22 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES Our report on the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries has been incorporated by reference in this Form 10-K from page 24 of the 1993 Annual Report to Stockholders of Foster Wheeler Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand New York, New York February 14, 1994 22 23 FOSTER WHEELER CORPORATION AND SUBSIDIARIES SCHEDULE V LAND, BUILDINGS AND EQUIPMENT THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS OF DOLLARS)
Balance At Other Changes Balance at Beginning Additions Retirements Debits and/or End Classification of Year at Cost or Sale (Credits) (a) of Year - -------------- ------- ------- ------- ---------- ------- YEAR ENDED, DECEMBER 31, 1993: - ------------------------------ Land and improvements $ 15,576 $ 23 $ 75 $ (614) $ 14,910 Buildings and improvements 88,695 5,810 2,445 (2,196) 89,864 Prefabricated buildings 59 (3) 56 Yards and improvements 2,027 62 1 (51) 2,037 Machinery and equipment 572,883 14,168 5,743 (3,036) 578,272 Furniture and fixtures 59,660 3,283 3,233 (3,229) 56,481 Vehicles 10,520 2,389 1,932 (501) 10,476 Laboratory experiment equipment 7,775 26 25 (3) 7,773 Construction in progress 26,841 2,088 18 (4,232) 24,679(b) --------- -------- ------- --------- -------- $784,036 $ 27,849 $13,472 $ (13,865) $784,548 -------- ------- ------- --------- -------- -------- ------- ------- --------- -------- YEAR ENDED, DECEMBER 25, 1992: - ------------------------------ Land and improvements $ 16,193 $ 298 $ 333 $ (582) $ 15,576 Buildings and improvements 92,775 3,708 2,188 (5,600) 88,695 Prefabricated buildings 62 (3) 59 Yards and improvements 2,683 102 677 (81) 2,027 Machinery and equipment 502,527 103,065 27,330 (5,379) 572,883 Furniture and fixtures 63,135 9,451 2,492 (10,434) 59,660 Vehicles 11,952 3,307 2,969 (1,770) 10,520 Laboratory experiment equipment 7,475 346 39 (7) 7,775 Construction in progress 92,247 (64,282) 629 (495) 26,841(b) -------- -------- -------- --------- -------- $789,049 $ 55,995 $36,657 $(24,351) $784,036 -------- ------- ------- --------- -------- -------- ------- ------- --------- -------- YEAR ENDED, DECEMBER 27, 1991: - ------------------------------ Land and improvements $ 16,437 $ 156 $ 364 $ (36) $ 16,193 Buildings and improvements 80,261 15,291 2,525 (252) 92,775 Prefabricated buildings 62 62 Yards and improvements 2,450 180 (44) 9 2,683 Machinery and equipment 339,039 168,047 4,546 (13) 502,527 Furniture and fixtures 50,132 14,498 1,519 24 63,135 Vehicles 10,680 3,359 1,986 (101) 11,952 Laboratory experiment equipment 7,131 342 2 7,475 Construction in progress 174,626 (82,422) 39 82 92,247(b) -------- --------- -------- ------ -------- $680,818 $119,451 $10,935 $ (285) $789,049 -------- -------- ------- ------ -------- -------- -------- ------- ------ --------
(a) Exchange translation adjustment. (b) Primarily waste-to-energy and cogeneration facilities under construction by the Power Systems Group. 23 24 FOSTER WHEELER CORPORATION AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION OF BUILDINGS AND EQUIPMENT THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS OF DOLLARS)
Balance At Additions Other Changes Balance at Beginning Charged to Retirements Debits and/or End Classification of Year Costs & Expenses or Sale (Credits) (a) of Year - -------------- ------- ---------------- ------- ---------- ------- YEAR ENDED, DECEMBER 31, 1993: - ------------------------------ Land improvements $ 461 $ 68 $ 1 $ (117) $ 411 Buildings and improvements 25,533 4,965 1,565 (629) 28,304 Prefabricated buildings 55 (2) 53 Yards and improvements 1,202 104 (10) 1,296 Machinery and equipment 117,234 29,166 4,322 (1,608) 140,470 Furniture and fixtures 33,838 6,736 3,087 (1,290) 36,197 Vehicles 6,008 2,027 1,332 (514) 6,189 Laboratory experiment equipment 3,759 666 11 (2) 4,412 -------- ------- ------- --------- -------- $188,090 $43,732 $ 10,318 $ (4,172) $217,332 -------- ------- ------- --------- -------- -------- ------- ------- --------- -------- YEAR ENDED, DECEMBER 25, 1992: - ------------------------------ Land improvements $ 309 $ 181 $ (29) $ 461 Buildings and improvements 23,633 4,588 $ 1,261 (1,427) 25,533 Prefabricated buildings 57 (2) 55 Yards and improvements 1,441 124 327 (36) 1,202 Machinery and equipment 106,278 27,401 13,575 (2,870) 117,234 Furniture and fixtures 34,056 7,955 2,272 (5,901) 33,838 Vehicles 6,332 2,432 1,928 (828) 6,008 Laboratory experiment equipment 3,165 605 7 (4) 3,759 -------- ------- ------- --------- -------- $175,271 $43,286 $ 19,370 $(11,097) $188,090 -------- ------- ------- --------- -------- -------- ------- ------- --------- -------- YEAR ENDED, DECEMBER 27, 1991: - ------------------------------ Land improvements $ 251 $ 58 $ 309 Buildings and improvements 20,247 4,075 $ 772 $ 83 23,633 Prefabricated buildings 56 1 57 Yards and improvements 1,309 131 1 1,441 Machinery and equipment 88,541 21,013 3,348 72 106,278 Furniture and fixtures 29,312 6,481 1,352 (385) 34,056 Vehicles 5,303 2,421 1,375 (17) 6,332 Laboratory experiment equipment 2,627 538 3,165 -------- -------- -------- ------ -------- $147,646 $34,718 $ 6,847 $ (246) $175,271 -------- -------- -------- ------ -------- -------- -------- -------- ------ --------
(a) Exchange translation adjustment. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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 CORPORATION (Registrant) Dated March 25, 1994 By /s/ Jack E. Deones -------------------- ------------------------------ Jack E. Deones Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of March 25, 1994, by the following persons on behalf of the registrant, in the capacities indicated. Signature Title --------- ----- /s/ Louis E. Azzato Director and Chairman --------------------------- Louis E. Azzato (Principal Executive Officer) /s/ Richard J. Swift Director and President --------------------------- Richard J. Swift (Principal Operating Officer) /s/ David J. Roberts Executive Vice President - Finance --------------------------- David J. Roberts (Principal Financial Officer) /s/ George S. White Vice President and Controller --------------------------- George S. White (Principal Accounting Officer) /s/ Harold E. Kennedy Director and Vice Chairman --------------------------- Harold E. Kennedy /s/ Leland E. Boren Director --------------------------- Leland E. Boren Director --------------------------- Martha J. Clark /s/ Kenneth A. DeGhetto Director --------------------------- Kenneth A. DeGhetto 25 26 Signature Title --------- ----- /s/ E. James Ferland Director --------------------------- E. James Ferland /s/ John A. Hinds Director --------------------------- John A. Hinds /s/ Joseph J. Melone Director --------------------------- Joseph J. Melone /s/ Frank E. Perkins Director --------------------------- Frank E. Perkins /s/ John Timko, Jr. Director --------------------------- John Timko, Jr. /s/ Charles Y. C. Tse Director --------------------------- Charles Y. C. Tse /s/ Robert Van Buren Director -------------------------- Robert Van Buren 26 27 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------- ----------- (2) Not applicable (3) By-Laws of Registrant as amended through February 22, 1994 and filed as part of this report. (4) Not applicable (9) Not applicable (10) Not applicable (11) Not applicable (12) Not applicable (13) Except for those portions thereof which are expressly incorporated by reference in this filing, the Financial Section of the Annual Report to Stockholders of Foster Wheeler Corporation (pages 17-35) for the fiscal year ended December 31, 1993 is furnished for the information of the Commission and is not deemed "filed" as part of this filing. (18) Not applicable (21) Subsidiaries of the registrant (pages 18 and 19) (22) Not applicable (23) See consent of Independent Accountants (page 21) (24) Not applicable (27) Not applicable (28) Not applicable EX-3 2 BY-LAWS OF THE REGISTRANT 1 EXHIBIT NO. 3 FOSTER WHEELER CORPORATION (A New York Corporation) BY-LAWS AS AMENDED TO FEBRUARY 22, 1994 2 FOSTER WHEELER CORPORATION BY-LAWS TABLE OF CONTENTS* ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1.1 Place of Meetings....................................... 1 SECTION 1.2 Annual Meetings......................................... 1 SECTION 1.3 Special Meetings........................................ 1 SECTION 1.4 Notice of Meetings...................................... 1 SECTION 1.5 Quorum.................................................. 1 SECTION 1.6 Organization of Meetings................................ 2 SECTION 1.7 Voting.................................................. 2 SECTION 1.8 List of Shareholders.................................... 2 SECTION 1.9 Inspectors of Election.................................. 2 SECTION 1.10 Nomination of Directors................................. 2 ARTICLE II BOARD OF DIRECTORS SECTION 2.1 Term and Qualification.................................. 3 SECTION 2.2 Vacancies............................................... 3 SECTION 2.3 Places of Directors' Meetings........................... 3 SECTION 2.4 Regular Meetings........................................ 3 SECTION 2.5 Special Meetings........................................ 4 SECTION 2.6 Notice of Special Meetings.............................. 4 SECTION 2.7 Organization of Meetings................................ 4 SECTION 2.8 Quorum.................................................. 4 SECTION 2.9 Action Without Meeting.................................. 4 SECTION 2.10 Telephonic Meetings..................................... 4 SECTION 2.11 Compensation............................................ 4 SECTION 2.12 Directors Emeritus...................................... 4 ARTICLE III COMMITTEES SECTION 3.1 Executive Committee..................................... 5 SECTION 3.2 Powers of Executive Committee........................... 5 SECTION 3.3 Quorum of Executive Committee; Procedure................ 5 SECTION 3.4 Other Committees........................................ 5 SECTION 3.5 Compensation and Expenses............................... 5
(i) 3 ARTICLE IV OFFICERS SECTION 4.1 General Provisions..................................... 5 SECTION 4.2 Election of Officers................................... 5 SECTION 4.3 Chairman of the Board.................................. 6 SECTION 4.4 Vice Chairman.......................................... 6 SECTION 4.5 President.............................................. 6 SECTION 4.6 Vice Presidents........................................ 6 SECTION 4.7 Secretary.............................................. 6 SECTION 4.8 Assistant Secretaries.................................. 6 SECTION 4.9 Controller............................................. 6 SECTION 4.10 Assistant Controllers.................................. 6 SECTION 4.11 Treasurer.............................................. 6 SECTION 4.12 Assistant Treasurers................................... 6 SECTION 4.13 General Counsel........................................ 7 SECTION 4.14 Salaries............................................... 7 SECTION 4.15 Retirement; Vacancies.................................. 7 ARTICLE V CAPITAL STOCK SECTION 5.1 Certificates........................................... 7 SECTION 5.2 Record................................................. 7 SECTION 5.3 Fixing of Record Date.................................. 7 SECTION 5.4 Transfers.............................................. 7 SECTION 5.5 Lost Stock Certificates................................ 7 ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.1 Fiscal Year............................................ 8 SECTION 6.2 Corporate Seal......................................... 8 SECTION 6.3 Resignations........................................... 8 SECTION 6.4 Checks, Drafts, Notes and Other Negotiable Instruments. 8 SECTION 6.5 Waiver of Notice....................................... 8 SECTION 6.6 Indemnification and Insurance.......................... 8 SECTION 6.7 Amendments............................................. 9
(ii) 4 BY-LAWS of FOSTER WHEELER CORPORATION ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1.1. Place of Meetings. All meetings of the shareholders of the Corporation shall be held at such place either within or without the State of New York as shall be fixed by the Board of Directors and specified in the notice or waiver of notice of meeting. SECTION 1.2. Annual Meeting. (a) The annual meeting of shareholders for the election of directors and for the transaction of such other business as properly may be brought before the meeting shall be held during the month of April in each year on such date and at such time as the Board of Directors shall specify by resolution. (b) At any annual meeting of shareholders of the Corporation, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who complies with the procedures set forth in this Section 1.2. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice must be received by the Secretary at the Corporation's principal executive offices not less than 120 calendar days in advance of the date of the Corporation's proxy statement released to shareholders in connection with the previous year's annual meeting of shareholders. To be in proper written form, a shareholder's notice to the Secretary shall set forth in writing as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1.2. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1.2, and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 1.3. Special Meetings. Special meetings of shareholders may be held whenever called in the manner and with the notice specified in the Certificate of Incorporation. The business transacted at all special meetings shall be limited to the purposes stated in the notice thereof. SECTION 1.4. Notice of Meetings. Written notice of every meeting of shareholders stating the purpose for which the meeting is called and the time and place thereof shall be mailed, postage prepaid, not less than ten nor more than 50 days prior to the date set for the meeting, to each shareholder entitled to vote at such meeting as of the record date established by the Board of Directors pursuant to Section 5.3. Such notice shall be directed to a shareholder at his address as it shall appear on the books of the Corporation unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. SECTION 1.5. Quorum. At any meeting of shareholders, except as otherwise expressly required by statute, by the Certificate of Incorporation, or by these By-Laws, the holders of record of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of any business. If, however, such quorum shall not be present at any meeting of the 1 5 shareholders, the shareholders present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 1.6. Organization of Meetings. At all meetings of shareholders, unless otherwise determined by the Board of Directors, the Chairman of the Board or, in his absence, the Vice Chairman, if one is elected, and if not the President shall preside and the Secretary or an Assistant Secretary shall act as Secretary. SECTION 1.7. Voting. At each meeting of shareholders each shareholder shall be entitled to one vote, in person or by proxy, for each share of stock registered in the name of such shareholder as of the record date fixed by the directors, unless otherwise provided in the Certificate of Incorporation. SECTION 1.8. List of Shareholders. A list of shareholders as of the record date, certified by the corporate officer responsible for its preparation or by the transfer agent of the Corporation, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. SECTION 1.9. Inspectors of Election. One or more inspectors of election may be appointed by the Board of Directors to act at any meeting of shareholders, or, if the Board fails to act, the chairman of the meeting may appoint an inspector or inspectors. An inspector of election may or may not be a shareholder, but shall not be a candidate for the office of director. The inspector(s) shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. Each inspector, before entering upon the discharge of his duties, shall be sworn faithfully to execute the duties of an inspector at such meeting with strict impartiality, and according to the best of such person's ability. SECTION 1.10. Nomination of Directors. (a) Only persons who are nominated in accordance with the procedures set forth in this Section 1.10 shall be eligible for election as directors, and no person shall be elected as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 1.10. No nominations for directors other than those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in accordance with the provisions of this Section 1.10. (b) The Committee on Nominees for Directors and Officers shall recommend to the Board of Directors nominees for election as Directors. The Board of Directors shall thereafter by resolution adopted at least 20 days before the annual meeting select Corporation nominees for election as Directors. Such resolution shall be reflected in the minutes of the Corporation as of the date of its adoption. (c) Nominations of individuals for election to the Board of Directors of the Corporation at an annual meeting of shareholders may be made by any shareholder of the Corporation entitled to vote for the election of directors at that meeting who complies with the notice procedures set forth in this Section 1.10. A shareholder's notice shall be received by the Secretary at the Corporation's principal executive offices not less than 120 calendar days in advance of the date of the Corporation's proxy statement released to shareholders in connection with the previous year's annual meeting of shareholders. Such shareholder's notice shall set forth (1) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation's stock which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director, if elected); and (2) as to the shareholder giving the notice (i) the name and address, as they appear on the 2 6 books of the Corporation, of such shareholder, (ii) the class and number of shares of the stock of the Corporation which are beneficially owned by such shareholder, and (iii) the period of time such shares have been owned. (d) At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation the information required to be set forth in a shareholder's notice of nomination which pertains to the nominee, together with the required written consents. (e) The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (f) Ballots bearing the names of all the persons nominated by the Board of Directors and by shareholders shall be provided for use at the annual meeting. If the Board of Directors shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon. ARTICLE II BOARD OF DIRECTORS SECTION 2.1. Term and Qualifications. The business, property and affairs of the Corporation shall be overseen and controlled by the Board of Directors. Each director shall be the owner of at least 100 shares of common stock of the Corporation at the time of his election and so long as he remains a director, provided shares of common stock of the Corporation are generally available for purchase. The directors shall be elected for the terms specified in the Certificate of Incorporation and shall hold office until their respective successors are duly elected and qualified. The number of directors may be increased or decreased from time to time by a majority of the entire Board of Directors within the limits specified in the Certificate of Incorporation but no decrease of the number of directors shall change the term of office of any director in office at the time thereof. If the number of directors is increased, the additional director or directors shall be elected and shall serve as specified in the Certificate of Incorporation. As used in these By-Laws, "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies in the Board of Directors. If the status of a director changes subsequent to July 27, 1993, the director shall submit his resignation from the Board of Directors to the Chairman of the Board who shall recommend to the Committee on Nominees for Directors and Officers either to accept such resignation or to request the director to reconsider and continue to serve on the Board. The Committee shall then make its recommendation to the Board. For purposes of this SECTION of the By-Laws, change of status shall mean retirement, change of employer or occupation, or material change in responsibilities. SECTION 2.2. Vacancies. If the office of any director becomes vacant for any reason, a successor shall be selected in the manner and for the term specified in the Certificate of Incorporation. SECTION 2.3. Places of Directors' Meetings. The Board of Directors may hold meetings at such place or places within or without the State of New York as the Board of Directors may from time to time determine or as specified or fixed in the respective notices or waivers of notice thereof. SECTION 2.4. Regular Meetings. Commencing in March, 1993, the regular meetings of the Board of Directors shall be held without notice on the last Tuesday of each month, except August and December, if not a legal holiday, or, if a legal holiday, then on the next succeeding day not a legal holiday, at ten thirty o'clock a.m., or on such other date or at such other time as may be determined by the Board of Directors, except that one meeting shall be held immediately following adjournment of each annual meeting of shareholders and such meeting shall be in lieu of the meeting to be held in the month of such annual meeting. Any business may be conducted at any regular meeting, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by Section 6.7 or other provisions of these By-Laws. 3 7 SECTION 2.5. Special Meetings. Special meetings of the Board of Directors shall be called by the Secretary when directed to call such meetings by the Chairman of the Board or, if the Chairman is incapacitated, by the written request of a majority of directors. SECTION 2.6. Notice of Special Meetings. Notice of the time, date, place and purpose of each special meeting of the Board of Directors shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be given to him at such place personally or by telegraph or telephone not later than the day before the day on which the meeting is to be held. Notice of any meeting need not be given to any director if waived by him in writing either before or after such meeting. At any meeting at which every member of the Board of Directors shall be present, though held without notice, any business may be transacted which might have been transacted if the meeting had been duly called. SECTION 2.7. Organization of Meetings. At all meetings of the Board of Directors, the Chairman of the Board or, in his absence, the Vice Chairman, if one is elected, and if not the President shall preside and the Secretary shall act as secretary. In the absence of such officers, a chairman or secretary of the meeting, or both, as the case may be, shall be elected from those present. SECTION 2.8. Quorum. At each meeting of the Board of Directors, the presence of at least a majority of the entire board shall constitute a quorum for the transaction of any business and any act of the directors present at a meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these By-Laws. SECTION 2.9. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent in writing to the adoption of a resolution authorizing the action and such resolution and written consents thereto by the members of the Board of Directors or committee are filed with the minutes of the proceedings of the Board of Directors or committee. SECTION 2.10. Telephonic Meetings. At the request of the Chairman any one or more members of the Board or any Committee thereof may participate in a special meeting, or for quorum purposes in any meeting, of such Board or Committee by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence at the meeting. SECTION 2.11. Compensation. The Chairman of the Board and each director shall be entitled to receive such compensation and expense allowances as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 2.12. Directors Emeritus. The Board of Directors may appoint any former director as a director emeritus for terms of one year to serve on an advisory committee to the Board of Directors consisting of all directors emeritus. Directors emeritus shall receive fees or other compensation fixed by the Board of Directors not to exceed fees and compensation paid to regular members of the Board of Directors. Directors emeritus shall be eligible to attend all meetings of the Board of Directors but shall not be eligible to vote or be counted in determining the presence of a quorum. 4 8 ARTICLE III COMMITTEES SECTION 3.1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the entire Board of Directors, may designate an Executive Committee to serve at the pleasure of the Board of Directors, consisting of not less than three nor more than seven members of the Board of Directors, including the Chairman of the Board and the President. Any vacancy occurring in the Executive Committee, from whatever cause, may be filled by a majority of the entire Board of Directors. Each member of the Executive Committee shall hold office, so long as he shall remain a director, until his successor is duly appointed and qualified, or a majority of the Board of Directors designates a new Executive Committee. The Executive Committee shall keep full and accurate minutes of all its proceedings and report the same, together with a statement of all business transacted by it, to the Board of Directors at the next regular meeting thereof. SECTION 3.2. Powers of Executive Committee. During the intervals between meetings of the Board of Directors, the Executive Committee shall have and may exercise all of the powers of the Board of Directors, except as restricted by law, in all cases in which specific directions have not been given by the Board of Directors. SECTION 3.3. Quorum of Executive Committee; Procedure. At all meetings of the Executive Committee, the presence of a majority of its members shall be necessary to constitute a quorum, and the concurrence or consent of a majority of the members present shall be necessary for action on any matter. The Executive Committee shall fix its own rules of procedure and meet at such times and places as the Chairman of the Board may direct. SECTION 3.4. Other Committees. The Board of Directors may from time to time, by resolution passed by a majority of the entire Board of Directors, designate one or more committees of the Board of Directors in addition to the Executive Committee and delegate to any of them such powers and duties, not inconsistent with statute or these By Laws, as the Board of Directors may determine. SECTION 3.5. Compensation and Expenses. Each member of the Executive Committee and other committees shall be entitled to receive such compensation and expense allowance for attendance at meetings of their respective committees as the Board of Directors from time to time may fix and determine. ARTICLE IV OFFICERS SECTION 4.1. General Provisions. The principal officers of the Corporation shall be a Chairman of the Board, a Vice Chairman, a President, one or more Vice Presidents (the number thereof and variations in title to be determined by the Board of Directors), a Secretary, a Treasurer, a Controller, and such other officers as the Board of Directors may designate. Any two offices except those of Chairman of the Board and Vice Chairman or President and Secretary may be held by the same person. SECTION 4.2. Election of Officers. The Board of Directors shall elect, at its first meeting after its election by the shareholders, a Chairman of the Board and a President from among its number and one or more Vice Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors may elect a Vice Chairman from among its number and such other officers including one or more Assistant Secretaries, Assistant Controllers and Assistant Treasurers, as it shall deem necessary, who shall have such authority and perform such duties as may be prescribed by the Board of Directors. Each officer so elected shall hold office until the first meeting of the Board of Directors following the next annual meeting of shareholders for the election of directors and until his successor is elected, except in the event of his death, resignation or removal or the earlier termination of his term of office. 5 9 SECTION 4.3. Chairman of the Board. Except as otherwise provided in these By Laws, the Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. He shall be the chief executive officer of the Corporation and shall perform all functions and duties incidental to that position, and shall have such additional powers and duties as may from time to time be assigned to him by the Board of Directors. SECTION 4.4. Vice Chairman. In the event of the absence or incapacity of the Chairman of the Board, the Vice Chairman shall preside at meetings of the shareholders and the Board of Directors, and shall have such other duties as the Chairman of the Board or the Board of Directors may assign from time to time. SECTION 4.5. President. The President shall be the chief operating officer of the Corporation and shall perform all functions and duties incidental to that position and such other duties as may from time to time be assigned to him by the Chairman of the Board or the Board of Directors. SECTION 4.6. Vice Presidents. Vice Presidents shall have such powers and perform such duties as may be assigned by the President or the Chairman of the Board. The Board of Directors in its discretion may assign to the titles of individual vice presidents terms such as "executive", "senior", "special", or others indicative of levels or areas of responsibility. SECTION 4.7. Secretary. The Secretary shall record or cause to be recorded in books provided for that purpose the minutes of the meetings of the shareholders, the Board of Directors, and all committees of which a secretary shall have been appointed. He shall be responsible for keeping the list of shareholders, and shall give or cause to be given notice of all meetings of shareholders, directors and committees. He shall have custody of the seal of the Corporation and shall perform such other duties as may from time to time be assigned by the Chairman of the Board or the President. He shall perform in general all duties incident to the office of Secretary. SECTION 4.8. Assistant Secretaries. The Board of Directors may from time to time appoint additional Assistant Secretaries. In the event of the absence or disability of the Secretary, his duties and powers shall be performed and exercised by an Assistant Secretary. SECTION 4.9. Controller. The Controller shall maintain adequate records of all assets, liabilities and transactions of the Corporation. He shall see that adequate audits thereof are regularly made, and shall be charged with the preparation and filing of tax returns and the supervision of all matters relating to taxes. He shall render financial and accounting reports as required by the Chairman of the Board, the President or the Board of Directors or as necessary to the proper conduct of business. SECTION 4.10. Assistant Controllers. The Board of Directors may from time to time appoint one or more Assistant Controllers, who shall perform the duties and exercise the powers of the Controller in his absence or disability. SECTION 4.11. Treasurer. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation and shall deposit all such funds to the credit of the Corporation in such depositories as may be designated from time to time by the Board of Directors. He shall disburse the funds of the Corporation as may from time to time be ordered by the Chairman of the Board or the President. He shall render to the Chairman of the Board, the President, Board of Directors and shareholders upon request an account of all his transactions as Treasurer. SECTION 4.12. Assistant Treasurers. The Board of Directors may from time to time appoint one or more Assistant Treasurers, who shall perform the duties and exercise the powers of the Treasurer in his absence or disability. 6 10 SECTION 4.13. General Counsel. The General Counsel shall be the chief legal officer of the Corporation and shall perform all functions and duties incidental to that position and such other duties as may from time to time be assigned to him by the Chairman of the Board or by the Board of Directors. SECTION 4.14. Salaries. The salaries of the officers of the Corporation elected by the Board of Directors, except for those officers who are designated as assistant officers, shall be fixed from time to time by the Board of Directors. SECTION 4.15. Retirement; Vacancies. Each officer shall retire on the first day of the month following attainment of age 65; however at the request of the Board of Directors, an officer may continue in that capacity after age 65 for a defined period. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors at any regular or special meeting thereof. ARTICLE V CAPITAL STOCK SECTION 5.1. Certificates. Certificates for shares of capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors. All such certificates shall be signed by the Chairman of the Board, President or a Vice President and by the Secretary or Treasurer or Assistant Secretary or Assistant Treasurer, and sealed with the seal of the Corporation. Such seal may be facsimile, engraved or printed. When any such certificate is signed by a transfer agent or transfer clerk and by a registrar, the signatures of any such officers upon such certificate may be facsimiles, engraved or printed. Any certificate bearing the signature or facsimile signature of any such officer may be issued by the Corporation, although he has ceased to be such officer at the date of such issuance. The Board of Directors may make such rules and regulations as it deems advisable to the issue, transfer and registration of such certificates, and may appoint a transfer agent or registrar or both, and require all such certificates to bear the signature of such transfer agent, or registrar, or both. SECTION 5.2. Record. A record shall be kept of the names of the person, firm or corporation owning the stock represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate and the date thereof, and, in the event of cancellation, the date of cancellation. The person in whose name the shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 5.3. Fixing of Record Date. The Board of Directors may fix a day not more than 50 days prior to the day of holding any meeting of shareholders as the time as of which shareholders entitled to notice of and to vote at such meeting shall be determined, and all persons who are holders of record at such time and no others shall be entitled to notice of and to vote at such meeting. The Board of Directors may also fix a day not exceeding 40 days preceding the date fixed for the payment of any dividend or for the delivery of evidences of rights, as the time as of which shareholders entitled to receive any such dividend or rights shall be determined. SECTION 5.4. Transfers. Stock certificates shall be transferable (so far as the Corporation is concerned) only on the books of the Corporation on surrender of the certificates properly endorsed and stamped, and accompanied by such waivers and certificates as may be legally required, whereupon the old certificates shall be canceled and new certificates issued to the transferees in lieu thereof. SECTION 5.5. Lost Stock Certificates. Any person claiming a certificate of stock to be lost or destroyed shall make affidavit or affirmation of the fact to the Corporation. Unless otherwise determined by the Board of Directors, the proper officers of the Corporation shall issue a new certificate representing the same number of shares only after the person claiming to be the owner, or his legal representative, shall have given the Corporation a bond of indemnity, in form and with surety or sureties and in an amount approved by the Corporation's counsel. 7 11 ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.1. Fiscal Year. The Corporation's fiscal year is the 52 or 53-week annual accounting period ending the last Friday in December for domestic operations, and December 31 for foreign operations. SECTION 6.2. Corporate Seal. The corporate seal of the Corporation shall be circular in form with the name of the Corporation in the circumference and "New York" in the center. SECTION 6.3. Resignations. Any director or officer of the Corporation may resign his office at any time upon presenting his written resignation to the Board of Directors, and unless some time be fixed for the taking effect of such resignation, the same shall become effective immediately. The acceptance of a resignation shall not be required to make it effective. SECTION 6.4. Checks, Drafts, Notes and Other Negotiable Instruments. All checks, drafts, notes and other negotiable instruments made by the Corporation shall be signed by such officer or officers or agents as the Chairman of the Board or the President from time to time may designate. SECTION 6.5. Waiver of Notice. Any shareholder, officer or director may waive any notice required to be given under these By-Laws. SECTION 6.6. Indemnification and Insurance. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, or appeal thereof, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the New York Business Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including, but not limited to, all attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in subsection (b) of this Section 6.6, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this subsection (a) shall be a contract right and shall include the right to be paid by the Corporation the expenses (including, without limitation, attorneys' fees) incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the New York Business Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 6.6 or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers, or on such other terms and conditions as the Board of Directors may deem necessary or desirable. 8 12 (b) Right of Claimant to Bring Suit. If a claim under subsection (a) of this Section 6.6 is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including, without limitation, attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the New York Business Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, or any part thereof, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the New York Business Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, or any part thereof, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 6.6 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of shareholders or disinterested directors or otherwise. (d) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, to the fullest extent allowed by law, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the New York Business Corporation Law. SECTION 6.7. Amendments. These By-Laws may be amended or repealed, or new By-Laws may be adopted at any time by the affirmative vote of the holders of a majority of the stock entitled to vote at any meeting of shareholders or by the affirmative vote of a majority of the entire Board of Directors at any meeting of the Board of Directors. No proposal to amend the By- Laws shall be acted upon at any meeting of the Board of Directors unless notice of such proposal, setting out the substance of the proposed amendment, has been given to each director at least five business days prior to the meeting at which such proposal is to be acted upon or unless all directors unanimously waive giving of such notice. ----------------------- SECRETARY'S CERTIFICATE I, the undersigned, Secretary of Foster Wheeler Corporation, do hereby certify that the foregoing is a true copy of the By-Laws of said Corporation as amended to the date hereof, and that said By-Laws are now in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said Corporation this day of 19 (CORPORATE SEAL) Secretary 9 EX-13 3 FINANCIAL SECTION OF ANNUAL REPORT 1 FOSTER WHEELER CORPORATION AND SUBSIDIARIES FINANCIAL SECTION EXHIBIT NO. 13 Comparative Financial Statistics 17 Management's Discussion and Analysis 18-22 Consolidated Balance Sheet 23 Consolidated Statement of Earnings 24 Report of Independent Accountants 24 Consolidated Statement of Changes in Stockholders' Equity 25 Consolidated Statement of Cash Flows 26 Notes to Financial Statements 27-35
COMPARATIVE FINANCIAL STATISTICS (In Thousands, Except per Share Amounts) 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Unfilled orders, end of period $3,884,114 $3,806,757 $3,465,339 $2,763,517 $1,603,716 Revenues 2,654,505 2,529,464 2,031,620 1,691,023 1,292,747 Earnings before income taxes and accounting change 96,818 67,825 61,285 48,393 42,381 Provision for income taxes 39,114 22,321 18,017 10,116 10,744 Earnings before accounting change 57,704 45,504 43,268 38,277 31,637 Effect of accounting change - (91,259)(1) - - - Net earnings/(loss) 57,704 (45,755) 43,268 38,277 31,637 Earnings per share * Earnings before accounting change $1.62 $ 1.28 $ 1.22 $ 1.08 $ 0.90 Effect of change in accounting principle - (2.57)(1) - - - ------- ------- ------ ------- ------- Net earnings/(loss) $1.62 $ (1.29) $ 1.22 $ 1.08 $ 0.90 ----- ------ ----- ----- ------- ----- ------ ----- ----- ------- Weighted average number of shares of common stock outstanding 35,656 35,596 35,522 35,418 35,321 Current assets $ 983,454 $ 924,886 $ 842,747 $ 755,127 $ 676,046 Current liabilities 778,989 721,018 588,567 581,454 419,991 Working capital 204,465 203,868 254,180 173,673 256,055 Land, buildings and equipment (net) 567,216 595,946 613,778 533,172 401,187 Total assets 1,806,201 1,763,264 1,638,874 1,445,494 1,185,246 Bank loans 59,725 54,929 45,605 38,176 11,186 Long-term borrowings (including current installments) 429,264 439,578 454,826 321,608 255,798 Net assets owned 400,176 387,297 500,124 475,845 429,197 Net assets owned per common share of stock $ 11.21 $ 10.87 $ 14.06 $ 13.42 $ 12.14 Rate of return on net assets 14.9% (9.1%) 9.1% 8.9% 7.6% Cash dividends per share of common stock $ .645 $ .585 $ .53 $ .485 $ .44
* Computed on the weighted average number of shares of common stock outstanding. (1) Relates to effect of change in accounting principle for postretirement benefits other than pensions (see Note 5). 17 2 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (1)
BUSINESS GROUPS (SEE NOTE 16 TO FINANCIAL STATEMENTS.) - -------------------------------------------------------------------------------------------------------------------- (In Millions of Dollars) Engineering Corporate and and Energy Power Financial Total Construction Equipment Systems Services (2) ----- ------------ --------- ------- ------------ 1993 - ---- Unfilled orders 3,884.1 2,724.3 890.5 210.5 58.8 New orders booked 2,982.8 1,921.2 670.4 273.8 117.4 Revenues 2,654.5 1,833.5 569.8 159.5 91.7 Interest expense (3) 33.6 0.7 2.1 23.7 7.1 Earnings before income taxes 96.8 64.9 47.9 25.1 (41.1) Identifiable assets 1,806.2 649.6 411.3 514.1 231.2 Capital expenditures 27.8 12.1 11.1 1.8 2.8 Depreciation 43.7 14.2 8.0 17.3 4.2 1992 - ---- Unfilled orders 3,806.8 2,827.2 831.4 68.6 79.6 New orders booked 3,640.4 2,605.9 716.9 186.2 131.4 Revenues 2,529.5 1,726.2 558.5 128.0 116.8 Interest expense (3) 34.2 1.4 1.8 21.0 10.0 Earnings before income taxes and accounting change (4) 67.8 54.9 41.1 14.2 (42.4) Identifiable assets 1,763.3 652.7 377.8 487.4 245.4 Capital expenditures 56.0 17.3 13.5 18.3 6.9 Depreciation 43.3 14.2 7.6 17.2 4.3 1991 - ---- Unfilled orders 3,465.3 2,683.6 688.4 24.7 68.6 New orders booked 2,868.9 2,189.3 470.4 110.1 99.1 Revenues 2,031.6 1,303.9 511.7 94.0 122.0 Interest expense (3) 24.5 1.7 3.9 11.7 7.2 Earnings before income taxes 61.3 40.1 37.5 8.8 (25.1) Identifiable assets 1,638.9 589.7 349.8 495.2 204.2 Capital expenditures 119.5 27.1 10.7 75.9 5.8 Depreciation 34.7 12.3 7.4 10.7 4.3
18 3
GEOGRAPHIC AREAS (SEE NOTE 16 TO FINANCIAL STATEMENTS.) - ----------------------------------------------------------------------------------------------------------------------- (In Millions of Dollars) Corporate and United Financial Total States Europe Canada Services (2) ----- ------ ------ ------ --------- 1993 - ---- Unfilled orders 3,884.1 2,262.2 1,514.4 48.7 58.8 New orders booked 2,982.8 1,407.0 1,373.2 85.2 117.4 Revenues 2,654.5 948.1 1,539.0 75.7 91.7 Interest expense (3) 33.6 24.1 1.7 0.7 7.1 Earnings before income taxes 96.8 66.7 65.4 5.8 (41.1) Identifiable assets 1,806.2 857.4 658.8 58.8 231.2 1992 - ---- Unfilled orders 3,806.8 1,850.7 1,820.8 55.7 79.6 New orders booked 3,640.4 1,688.7 1,757.5 62.8 131.4 Revenues 2,529.5 691.9 1,617.0 103.8 116.8 Interest expense (3) 34.2 21.3 1.5 1.4 10.0 Earnings before income taxes and accounting change (4) 67.8 37.3 69.7 3.2 (42.4) Identifiable assets 1,763.3 775.0 686.5 56.4 245.4 1991 - ---- Unfilled orders 3,465.3 1,061.0 2,248.8 86.9 68.6 New orders booked 2,868.9 920.7 1,785.8 63.3 99.1 Revenues 2,031.6 657.8 1,153.2 98.6 122.0 Interest expense (3) 24.5 13.3 3.3 0.7 7.2 Earnings before income taxes 61.3 31.9 50.2 4.3 (25.1) Identifiable assets 1,638.9 725.8 654.5 54.4 204.2
(1) Commencing in 1993, the business of the Corporation has been redefined to focus on three core business groups. The 1992 and 1991 data have been reclassified to this current presentation (see also Note 1). (2) Includes general corporate income and expense, the Corporation's insurance operation, trading and real estate activities, asbestos abatement and miscellaneous manufacturing. (3) Includes intercompany interest charged by Corporate to the business groups on outstanding borrowings. (4) Effective as of the beginning of 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and recorded the full amount of its transition obligation. Unaudited as to unfilled orders and new orders booked. 19 4 MANAGEMENT'S DISCUSSION AND ANALYSIS YEARS 1991 - 1993 This following discussion should be read in conjunction with the consolidated financial statements and notes thereto. In 1993, the Corporation consolidated its activities into three basic business groups, Engineering and Construction, Energy Equipment and Power Systems, thereby eliminating the Industrial and Environmental Group. Glitsch International was transferred to the Energy Equipment Group, while Foster Wheeler Enviresponse became the Environmental Services division of Foster Wheeler USA within the Engineering and Construction Group. At the same time, Thermacote Welco, Barsotti's and Ullrich Copper were transferred to Corporate and Financial Services. Subsequently, Thermacote Welco was divested in the third quarter of 1993 and in the fourth quarter of 1993 a decision was made to withdraw from the asbestos-abatement business. The above realignment did not affect the previously reported consolidated financial results; however, the historical business groups have been restated to conform with the current presentation. As of the beginning of 1992, the Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The effect of the accounting change at the beginning of 1992 was a charge of $91.3 million after tax and valuation allowance, or $2.57 per share. All subsequent earnings discussions for 1992 are prior to the impact of this one-time charge. Foster Wheeler's operating subsidiaries located outside the United States constituted 52% in 1993, 66% in 1992 and 63% in 1991, of consolidated earnings before taxes excluding Corporate and Financial Services. Earnings before income taxes of the United States geographic area increased $29.4 million in 1993 compared to 1992 and $5.4 million in 1992 compared to 1991. In the United States, the increase in earnings during this period can be attributed to all segments of the business. Consolidated net earnings for 1993 amount to $57.7 million, an increase of $12.2 million or 27% over 1992, before the effect of an accounting change. At the end of 1993, Foster Wheeler's backlog of unfilled orders was $3.9 billion, slightly higher than at the end of 1992. Since the end of 1990, this represents an increase of $1.1 billion or 40%. The strategy of the Engineering and Construction Group in the coming years will be to continue to maintain leadership in the oil refining and pharmaceutical industries worldwide, exploit its strong position in emerging technologies, particularly with regard to gasification, and obtain a significant market position in the environmental, LNG, and upstream production areas. The Energy Equipment Group serves the power-generation and chemical-separations industries with high-quality and highly engineered and manufactured products. This combination of technology and cost competitiveness, with strong marketing initiatives in a growth market, positions the Group for continued success in the nineties. The largest market for this Group continues to be China, central and southeast Asia, the Indian subcontinent, and South and Central America. Foster Wheeler Power Systems has an established position in building, owning, and operating plants. Continued growth will come from capitalizing on the leadership positions held in both process and combustion technologies, combined with the project development and operational expertise of Foster Wheeler Power Systems to pursue "inside-the-fence" projects and independent power facilities in both the domestic and international markets. 1993 COMPARED TO 1992 As stated previously, the backlog of the Corporation was slightly higher than at the end of 1992. The Engineering and Construction Group accounted for approximately 70% of the total December 1993 backlog of the Corporation. The 1993 backlog of the Engineering and Construction Group was slightly lower than reported as of the end of 1992. The reduction reported by the United Kingdom subsidiary was partially offset by the increases in the United States and Italy. The Energy Equipment Group accounted for approximately 23% of the December 1993 backlog. The 7% increase reported by this Group was primarily due to orders taken by the United States subsidiary in China. Foster Wheeler was selected for negotiations for two 350 megawatt boilers for the Ezhou project in China at the end of 1993. New orders booked for 1993 decreased by 18% in comparison to 1992. This was primarily due to the significant amount of orders taken by the Engineering and Construction Group in 1992. New orders booked in the Engineering and Construction Group decreased in the United States by approximately $300 million and by approximately $400 million in the United Kingdom. However, the backlog as of December 1993 has remained consistent with the 1992 level. 20 5 Operating revenues increased by $88 million (3.5%) over 1992. The three operating groups all reported slight increases over the 1992 levels. The Engineering and Construction Group reported an increase of approximately $100 million primarily due to the operations of Foster Wheeler USA Corporation. This increase was partially offset by the lower revenues reported by Corporate and Financial Services. Gross earnings from operations were at approximately the same level as reported for 1992. The 5% increase reported by the Energy Equipment Group was offset by the reduction in gross profit reported by Corporate and Financial Services, related to the asbestos-abatement business. Selling, general and administrative expenses decreased slightly. All operating groups reported amounts consistent with prior year levels. In comparing 1993 to 1992, other income increased by $36.8 million. This increase was primarily due to the sale of Thermacote Welco in the third quarter of 1993 and the sale of a 49.5% limited partnership interest in the Camden waste-to-energy plant in the fourth quarter of 1993. In addition, interest income increased by $5.6 million. Other deductions increased by $12.5 million. This increase was due to the accelerated amortization of the cost in excess of net assets of a subsidiary acquired related to the asbestos- abatement business, and the establishment of a provision to cover potential exposure for nonrecovery of development costs related to waste-to-energy projects in the Power Systems Group. The effective tax rate increased from 32.9% in 1992 to 40.4% in 1993. The 1993 effective rate differed from the U. S. statutory rate primarily as a result of the accelerated amortization of cost in excess of net assets of a subsidiary acquired, and the recapture of investment tax credits related to the sale of the limited partnership interest. Earnings before accounting change increased by $12.2 million (27%). All operating groups reported increased earnings. The Engineering and Construction Group increased by over $7 million or 20%. This was primarily due to the return to profitability of Foster Wheeler Iberia, S.A. in Spain and the improved earnings recorded by Foster Wheeler USA Corporation. Both Foster Wheeler USA Corporation and Foster Wheeler Italiana, S.p.A. reported record earnings. The Energy Equipment Group also reported a 19% increase or $4.8 million from earnings reported in the United States. The Power Systems Group increased by approximately 5% from 1992 to 1993. 1992 COMPARED TO 1991 Operating revenues increased $503 million. The Engineering and Construction Group increased $419 million, of which the preponderance was in England and Italy. The Energy Equipment Group increased $51 million due primarily to activities of Foster Wheeler Energy Corporation and Foster Wheeler Energia, S.A. The Power Systems Group increased $31 million due to the first full year's operation of the Camden County, New Jersey, waste-to-energy plant, and the commencement of operations of the Hudson Falls, New York, waste-to-energy plant early in 1992. Gross earnings from operations increased $33.4 million or 13%. The Engineering and Construction Group increased $18 million of which 45% was attributed to Foster Wheeler USA Corporation. The Energy Equipment Group increased $8 million or 9% due to improved contract performance and increased activities of Foster Wheeler Energy Corporation and Foster Wheeler Energia, S.A. The Power Systems Group increased $14 million or 49% due to the full year's operation of the Camden County plant and the start-up of the Hudson Falls and Twin Cities plants. Selling, general and administrative expenses increased 3%, of which the major portion of the increase was proposal activities of the Engineering and Construction Group. Other income decreased by $5 million as a result of higher gains on foreign currency transactions and equity earnings in 1991 offset somewhat by the $2 million gain on sale of the Foster Wheeler Kauai plant in 1992. Other deductions increased $15 million due to higher interest expense with $9 million attributed to the Power Systems' plants mentioned above. The increase in the provision for income taxes of $4.3 million was attributed to increased profits and reduction of investment tax credits recognized during construction of Power Systems' projects. Earnings before accounting change increased $2.2 million or 5%. FINANCIAL CONDITION The Corporation's consolidated financial condition improved during the three-year period 1991 to 1993. Since the beginning of 1991, net assets increased by $87 million excluding the accumulated translation adjustment of $72 21 6 MANAGEMENT'S DISCUSSION AND ANALYSIS million and the accounting charge of $91.3 million related to the adoption of SFAS No. 106 in 1992. Working capital at December 31, 1993, was $204.5 million. During 1991, 1992 and 1993, substantial long-term investments of $119 million, $56 million and $28 million, respectively, were made in land, buildings and equipment. In 1991, waste-to-energy facilities in Camden County, New Jersey, and Hudson Falls, New York, were completed. In 1993, a 49.5% limited partnership interest in the Camden facility was sold to an institutional investor. Long-term debt, including current installments, and bank loans increased by $129 million, net of repayments of $73 million, during the three-year period. This included proceeds from build, own and operate project debt of approximately $67 million (see Note 7). Bank loans increased $9 million in 1992 and $5 million in 1993. In 1991, the Corporation issued by private placement unsecured notes for $110 million. During the next few years, capital expenditures will continue to be directed primarily toward strengthening and supporting the Corporation's core businesses. In the ordinary course of business the Corporation 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 Corporation by customers alleging deficiencies in either equipment design or plant construction. The Corporation and its subsidiaries also routinely become involved in litigation relating to patents and other intellectual property. There are several actions of that nature presently pending. If the presently pending suits described above were sustained in substantially the amounts asserted, they would have a material adverse effect on the Corporation's financial condition and results of operations. However, based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts provided in the accounts. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments at the end of 1993 amounted to $377.4 million, reflecting an increase of $106.7 million compared with December 25, 1992. Cash generated from earnings of $84.9 million along with reduced funding of working capital resulted in a source of cash from operating activities of approximately $146.7 million. The sale of a subsidiary and of a partnership interest in a waste-to-energy project resulted in additional proceeds of approximately $50.3 million. Cash was used to pay dividends of $23.0 million and long-term debt of $12.4 million. The detailed Statement of Cash Flows is presented on page 26. The Corporation's own-and-operate projects are financed primarily with a combination of project debt and equity investments by the Corporation. These equity investments amounted to approximately $6 million in 1992 and $20 million in 1991. Such investments are expected to continue at increased levels over the next several years. The Corporation will continue to enter into financing transactions where the transfer of tax benefits and refinancing of its equity investment in those projects produces a lower effective financing cost and a potential increased return on investment. Existing cash balances, short-term investments and unused credit facilities with banks remain adequate to support expected operating levels and anticipated future investing and financing activities. OTHER ACCOUNTING MATTERS In November 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." Adoption by the Corporation is required by the beginning of the 1994 fiscal year. The implementation of this Statement will not have a material impact on the results of operations. In May 1993, the Financial Accounting Standards Board issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This Statement addresses accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The Statement requires classification of investments into several categories which determines the accounting for unrealized gains and losses. Adoption of this Statement by the Corporation is required no later than its 1994 fiscal year. The adoption of Statement No. 115 will not have a material impact on the Corporation's results of operations or financial condition. 22 7 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands of Dollars)
December 31, December 25, 1993 1992 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 249,514 $ 146,485 Short-term investments, at cost (which approximates market value) 127,876 124,184 Accounts and notes receivable: Trade 396,828 421,627 Other 45,671 75,844 Contracts in process 87,076 78,195 Inventories 24,500 34,275 Prepaid and refundable income taxes 39,000 28,808 Prepaid expenses 12,989 15,468 ------------ ------------ Total current assets 983,454 924,886 ------------ ------------ Land, buildings and equipment 784,548 784,036 Less accumulated depreciation 217,332 188,090 ------------ ------------ Net book value 567,216 595,946 ------------ ------------ Notes and accounts receivable - long-term 40,560 29,749 Investments and advances 34,758 31,960 Cost in excess of net assets of subsidiaries acquired 4,098 12,371 Deferred charges and prepaid pension cost 160,967 141,226 Deferred income taxes 15,148 27,126 ------------ ------------ TOTAL ASSETS $ 1,806,201 $ 1,763,264 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt $ 32,523 $ 12,178 Bank loans 59,725 54,929 Accounts payable 161,484 216,789 Accrued expenses 131,254 116,956 Estimated cost to complete long-term contracts 287,508 210,028 Advance payments by customers 76,462 76,255 Income taxes 30,033 33,883 -------------- ------------ Total current liabilities 778,989 721,018 Long-term debt, less current installments 396,741 427,400 Minority interest in subsidiary companies 8,235 6,556 Deferred income taxes 18,691 19,853 Other long-term liabilities, deferred credits and postretirement benefits other than pensions 203,369 201,140 -------------- ------------ TOTAL LIABILITIES 1,406,025 1,375,967 -------------- ------------ STOCKHOLDERS' EQUITY: Preferred stock Authorized 1,500,000 shares; no par value - none outstanding Common stock $1.00 par value; authorized 80,000,000 shares; issued: 1993-35,706,982; 1992-35,656,196 35,707 35,656 Paid-in capital 35,076 34,085 Retained earnings 381,205 346,487 Accumulated translation adjustment (51,261) (28,380) ------------ ------------ 400,727 387,848 Less cost of treasury stock (20,129 shares) 551 551 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 400,176 387,297 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,806,201 $ 1,763,264 ------------ ------------ ------------ ------------
See notes to financial statements. 23 8 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (In Thousands of Dollars, Except per Share Amounts)
1993 1992 1991 ---- ---- ---- Revenues: Operating revenues $2,583,000 $2,494,789 $1,991,979 Other income (including interest: 1993-$26,627; 1992-$21,017; 1991-$21,039) 71,505 34,675 39,641 ---------- ---------- ---------- Total Revenues 2,654,505 2,529,464 2,031,620 ---------- ---------- ---------- Costs and Expenses: Cost of operating revenues 2,290,395 2,202,196 1,732,819 Selling, general and administrative expenses 204,049 208,676 201,920 Other deductions (including interest: 1993-$33,558; 1992-$34,159; 1991-$24,540) 60,722 48,255 33,096 Minority interest 2,521 2,512 2,500 ---------- ---------- ---------- Total Costs and Expenses 2,557,687 2,461,639 1,970,335 ---------- ---------- ---------- Earnings before income taxes and accounting change 96,818 67,825 61,285 Provision for income taxes 39,114 22,321 18,017 ---------- ---------- ---------- Earnings before accounting change 57,704 45,504 43,268 Effect of change in accounting principle for postretirement benefits other than pensions (net of income tax benefit of $47,947 and a valuation allowance of $5,500) -- (91,259) -- ---------- ---------- ---------- Net earnings/(loss) $ 57,704 $ (45,755) $ 43,268 ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share: Earnings before the effect of accounting change $ 1.62 $ 1.28 $ 1.22 Effect of change in accounting principle -- (2.57) -- ---------- ---------- ---------- Net earnings/(loss) $ 1.62 $ (1.29) $ 1.22 ---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements. 24 (continued) 9 Report of Independent Accountants To the Stockholders of Foster Wheeler Corporation: We have audited the accompanying consolidated balance sheet of Foster Wheeler Corporation and Subsidiaries as of December 31, 1993 and December 25, 1992, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Foster Wheeler Corporation and Subsidiaries as of December 31, 1993 and December 25, 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 5 to the consolidated financial statements, the Corporation changed its method of accounting for postretirement benefit costs other than pensions in 1992. Coopers & Lybrand New York, New York February 14, 1994 24 10 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars, Except per Share Amounts)
1993 1992 1991 ---- ---- ---- COMMON STOCK Balance at beginning of year $ 35,656 $ 35,588 $ 35,495 Sold under stock options: (shares: 1993-50,786; 1992-68,092; 1991-92,734) 51 68 93 -------- -------- -------- Balance at end of year 35,707 35,656 35,588 -------- -------- -------- PAID-IN CAPITAL Balance at beginning of year 34,085 33,139 31,928 Excess of market value over value of stock issued under stock option plans 791 773 790 Excess of market value over cost of treasury stock issued under incentive plans - - 26 Tax benefits related to incentive plans and stock options 200 173 395 -------- -------- -------- Balance at end of year 35,076 34,085 33,139 -------- -------- -------- RETAINED EARNINGS Balance at beginning of year 346,487 413,056 388,603 Net earnings/(loss) for the year 57,704 (45,755) 43,268 Cash dividends paid: Common (per share outstanding: 1993-$.645; 1992-$.585; 1991-$.53) (22,986) (20,814) (18,815) -------- -------- -------- Balance at end of year 381,205 346,487 413,056 -------- -------- -------- ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year (28,380) 18,732 20,771 Change in cumulative translation adjustment during the year (22,881) (47,112) (2,039) -------- -------- -------- Balance at end of year (51,261) (28,380) 18,732 -------- -------- -------- TREASURY STOCK Balance at beginning of year 551 391 952 Sold under stock options: (shares: 1992-14,500; 1991-42,859) - (341) (902) Common stock acquired for treasury: (shares: 1992-16,407; 1991-12,831) - 501 388 Issued under incentive plans: (shares: 1991-2,382) - - (47) -------- -------- -------- Balance at end of year 551 551 391 -------- -------- -------- TOTAL STOCKHOLDERS' EQUITY $400,176 $387,297 $500,124 -------- -------- -------- -------- -------- --------
See notes to financial statements. 25 11 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars)
1993 1992 1991 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings/(loss) $ 57,704 $ (45,755) $ 43,268 Adjustments to reconcile net earnings/(loss) to cash flows from operating activities: Depreciation and amortization 51,456 44,200 35,368 Noncurrent deferred tax 11,632 (2,093) (688) Gain on sale of investments - (999) (615) Gain on sale of subsidiary and partnership interest (36,175) - - (Gain)/loss on sale of land, buildings and equipment (165) (2,587) 1,280 Equity (earnings)/losses, net of dividends (883) 771 (1,301) Effect of change in accounting principle - 91,259 - Other noncash items 1,356 (4,810) (6,570) Changes in assets and liabilities: Receivables 27,987 (109,188) (87,710) Contracts in process and inventories (11,376) (7,668) 26,167 Accounts payable and accrued expenses (22,632) 79,314 (13,775) Estimated cost to complete long-term contracts 90,196 67,898 41,784 Advance payments by customers 10,847 48,781 (5,504) Income taxes (14,623) (1,269) 20,237 Other assets and liabilities (18,599) (16,190) (13,391) --------- --------- --------- Net cash provided by operating activities 146,725 141,664 38,550 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (27,849) (55,995) (119,451) Proceeds from sale of properties 1,476 4,043 4,658 Proceeds from sale of subsidiary and partnership interest 50,288 - - Proceeds from sale of Power Systems assets - 15,000 - Proceeds from sale of long-term investments - 7,224 726 (Increase)/decrease in investments and advances (2,421) 65 (2,716) Increase in short-term investments (17,541) (52,621) (11,222) Partnership distribution (3,235) (3,199) (3,014) --------- --------- --------- Net cash provided/(used) by investing activities 718 (85,483) (131,019) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders (22,986) (20,814) (18,815) Repurchase of common stock - (501) (388) Proceeds from the exercise of stock options 842 1,182 1,785 Increase in short-term debt 9,246 3,305 5,696 Proceeds from long-term debt 265 8,464 172,330 Repayment of long-term debt (12,439) (21,722) (39,090) --------- --------- --------- Net cash (used)/provided by financing activities (25,072) (30,086) 121,518 --------- --------- --------- Effect of exchange rate changes on cash and cash (19,342) (19,995) 1,239 equivalents --------- --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 103,029 6,100 30,288 Cash and cash equivalents at beginning of year 146,485 140,385 110,097 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $249,514 $146,485 $140,385 --------- --------- --------- --------- --------- --------- Cash paid during the year for: Interest (net of amount capitalized) $32,167 $33,629 $21,233 Income taxes $27,949 $14,474 $11,753
See notes to financial statements. 26 12 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Foster Wheeler Corporation and all significant domestic and foreign subsidiary companies. Commencing in 1993, the business of the Corporation falls within three business groups: an Engineering and Construction Group, an Energy Equipment Group and a Power Systems Group. Prior to 1993, the Industrial and Environmental Group was reported as a separate segment. Those companies previously reported within the Industrial and Environmental Group have been reclassified as follows: Glitsch International, Inc. is now considered part of the Energy Equipment Group; Thermacote Welco Company (which was sold in September 1993), Barsotti's Inc. and Ullrich Copper, Inc. are aggregated as part of Corporate and Financial Services. Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no impact on the previously reported earnings of the Corporation. The Corporation's fiscal year is the 52- or 53-week annual accounting period ending the last Friday in December for domestic operations and December 31 for foreign operations. For domestic operations, the year 1993 included 53 weeks while the years 1992 and 1991 included 52 weeks. REVENUE RECOGNITION ON LONG-TERM CONTRACTS - The Corporation reports profits on long-term contracts on a percentage-of-completion basis determined on the ratio of earned billings to total contract price, after considering accumulated costs and estimated costs to complete each contract. Contracts in process are valued at cost plus accrued profits less earned billings and progress payments on uncompleted contracts. If estimates of cost 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. Contracts of the Engineering and Construction Group are generally considered substantially complete when engineering is completed and/or field construction is completed, while for the Energy Equipment Group it is when manufacturing and/or field construction is completed. Certain special-purpose subsidiaries in the Power Systems Group are reimbursed for their costs, including repayment of project debt, for building and owning certain facilities over the life of the service contracts. The Corporation records revenues relating to debt repayment on these contracts on a straight-line basis over the life of the service contracts and records depreciation of the facilities on a straight-line basis over the estimated useful life of the facility, 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. 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 amounts withheld which might not be received within a one-year period are indicated in Note 2. In conformity with trade practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets. LAND, BUILDINGS AND EQUIPMENT - 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. Depreciation is computed on a straight-line basis for financial reporting purposes using composite estimated lives ranging from 10 to 50 years for buildings and from 3 to 30 years for equipment. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. INCOME TAXES - Deferred income taxes are provided for temporary differences between financial and taxable income. For Federal income tax purposes, accelerated methods of depreciation are used. Investment tax credits are accounted for under the "flow-through" method, which recognizes the benefit in the year qualified progress expenditures are incurred. Qualified property for tax purposes is reduced by the investment tax credit claimed resulting in recognition of deferred taxes. Provision is made for Federal income taxes which may be payable on foreign subsidiary earnings to the extent that the Corporation anticipates they will be remitted. Unremitted earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested (and for which no Federal income tax has been provided) aggregated $207,000 at December 31, 1993. It is not practical to estimate the additional tax, if any, if these amounts were repatriated. 27 13 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and income and expenses at monthly weighted average rates. Foreign currency transaction gains for 1993, 1992 and 1991 were approximately $4,200, $3,200 and $6,635, respectively ($2,700, $2,000 and $4,000 net of taxes). The Corporation enters into foreign exchange contracts in its management of foreign currency exposures. Realized and unrealized gains and losses on contracts that qualify as designated hedges are deferred. Those that do not qualify as hedges for accounting purposes are marked to market and recognized currently. INVENTORIES - Inventories, principally materials and supplies, are stated at lower of cost or market primarily on the average cost method. EARNINGS PER SHARE - Per share data has been computed on the weighted average number of shares of common stock outstanding of 35,655,886; 35,595,728 and 35,522,074 for 1993, 1992 and 1991, respectively. Outstanding stock options have been disregarded because their effect on earnings per share would not be significant and would have been antidilutive in 1992. 2. ACCOUNTS AND NOTES RECEIVABLE The following tabulation shows the components of trade accounts and notes receivable:
1993 1992 ---- ---- From long-term contracts: Amounts billed due in one year $229,145 $239,585 -------- -------- Retentions: Billed: Estimated to be due in: 1993 -- 16,051 1994 15,772 1,009 -------- -------- Total billed 15,772 17,060 -------- -------- Unbilled: Estimated to be due in: 1993 -- 56,689 1994 67,741 10,902 1995 5,108 5,974 1996 106 110 1997 555 -- 1998 84 -- -------- -------- Total unbilled 73,594 73,675 -------- -------- Total retentions 89,366 90,735 -------- -------- Total receivables from long-term contracts 318,511 330,320 Other trade and notes receivable 83,628 95,084 --------- -------- 402,139 425,404 Less, Allowance for doubtful accounts 5,311 3,777 --------- -------- $396,828 $421,627 --------- -------- --------- --------
3. CONTRACTS IN PROCESS AND INVENTORIES Costs of contracts in process and inventories considered in the determination of cost of operating revenues are shown below:
1993 1992 1991 ---- ---- ---- Contracts in process $ 87,076 $ 78,195 $ 86,753 -------- -------- -------- -------- -------- -------- Inventories: Materials and supplies $ 18,700 $ 22,250 $ 24,664 Work in process 1,810 1,397 671 Finished goods 3,990 10,628 10,751 -------- -------- -------- $ 24,500 $ 34,275 $ 36,086 --------- -------- -------- --------- -------- --------
28 (continued) 14 The following tabulation shows the elements included in contracts in process as related to long-term contracts:
1993 1992 1991 ---- ---- ---- Costs plus accrued profits less earned billings on contracts currently in process $229,604 $209,800 $183,870 Less, Progress payments 142,528 131,605 97,117 -------- -------- -------- $ 87,076 $ 78,195 $ 86,753 -------- -------- -------- -------- -------- --------
4. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are stated at cost and are set forth below:
1993 1992 ---- ---- Land and land improvements $ 14,910 $ 15,576 Buildings 91,957 90,781 Equipment 653,002 650,838 Construction in progress 24,679 26,841 -------- --------- $784,548 $784,036 -------- -------- -------- --------
Depreciation expense for the years 1993, 1992 and 1991 was $43,732, $43,286 and $34,718, respectively. 5. PENSIONS AND OTHER POSTRETIREMENT BENEFITS RETIREMENT BENEFITS - The Corporation and its domestic and foreign subsidiaries have several pension plans covering substantially all full-time employees. Pension credits for the years 1993, 1992 and 1991 were $1,158, $5,712 and $6,470, respectively. Under the plans, retirement benefits are primarily a function of both years of service and level of compensation; the plans are noncontributory with no provision for employee contributions. Effective with retirements after April 1, 1993, the Corporation changed the benefit for domestic employees to 1.2% of the average 28 15 of the highest five consecutive years of salary in the last ten years of employment. Previous benefits were 1.1% of the average of the highest seven consecutive years of salary in the last ten years of employment. It is the Corporation's policy to fund the plans on a current basis to the extent deductible under existing Federal tax regulations. Such contributions, when made, are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the plans' funded status as of the end of December 1993 and 1992:
1993 1992 ---- ---- Actuarial present value of accumulated benefit obligations: Vested $ 289,415 $ 231,039 Nonvested 12,740 5,814 --------- ---------- Total $ 302,155 $ 236,853 --------- ---------- --------- ---------- Plan assets at fair value, primarily listed stocks and bonds $ 388,090 $ 340,455 Projected benefit obligations (329,188) (266,018) ----------- ----------- Excess of plan assets over projected benefit obligations 58,902 74,437 Unrecognized net loss due to past experience different from assumptions made 33,800 27,022 Unrecognized prior service cost 20,670 15,323 Unrecognized net assets being amortized over 12 years (27,811) (33,789) ---------- -------- Prepaid pension cost $ 85,561 $ 82,993 --------- -------- --------- -------- Net pension credits included the following components: 1993 1992 1991 ---- ---- ---- Service cost $ 11,024 $ 9,275 $ 7,235 Interest cost on projected benefit obligation 24,117 23,126 20,160 Actual return on plan assets (33,370) (33,768) (29,234) Net amortization and deferrals (2,929) (4,345) (4,631) --------- -------- --------- Net pension credits $ 1,158 $ 5,712 $ 6,470 --------- -------- --------- --------- -------- ---------
In determining the actuarial present value of the projected benefit obligations, discount rates ranging from 6.875% to 7.5% (1992 - 7.5% to 10%), and rates of increase for future compensation levels ranging from 4.5% to 6.5% (1992 - 5% to 6.5%) were utilized. The expected long-term rate of return on assets was 10%. The Corporation has a 401(k) plan for salaried employees. The Corporation for the years 1993, 1992 and 1991 contributed a 50% match of the employee's contribution which amounted to a cost of $3,300, $2,700 and $2,200, respectively. In addition to providing pension benefits, the Corporation and some of its domestic subsidiaries provide certain health care and life insurance benefits for retired employees. Employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation. Benefits are provided through insurance companies. Effective the beginning of 1992, the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" were adopted. The Statement requires the Corporation to use accrual accounting rather than pay-as-you-go (cash basis) for postretirement benefits other than pensions for current and retired employees and their families. In the first quarter of 1992, the Corporation recorded the full amount of its transition obligation which represented the accumulated postretirement benefit obligation as of the beginning of 1992. The after tax and valuation allowance charge to 1992 earnings was $91,259, or $2.57 per share. This amount was reflected as the effect of a change in accounting principle in the consolidated statement of earnings. In 1991, the Corporation recognized the cost of providing postretirement benefits by expensing the benefits as incurred (cash basis). The amounts included in expense for 1993, 1992 and 1991 were $7,464, $12,242 and $3,900, respectively. The following sets forth the plans' funded status reconciled with amounts reported in the Corporation's consolidated balance sheet at the end of December 1993 and 1992: 29 (continued) 16
Accumulated postretirement benefit obligation: 1993 1992 ---- ---- Retirees $ 77,347 $ 74,373 Fully-eligible active plan participants 10,750 27,257 Other active plan participants 35,677 49,564 --------- --------- Accumulated postretirement benefit 123,774 151,194 Unrecognized net loss (7,129) - Unrecognized prior service cost 35,309 - --------- --------- Accrued postretirement benefit liability $ 151,954 $ 151,194 --------- --------- --------- ---------
Net periodic postretirement benefit cost for 1993 and 1992 included the following components:
1993 1992 ---- ---- Service cost $ 1,809 $ 3,257 Interest cost 7,233 8,985 Amortization of prior service cost (1,578) - -------- -------- Net periodic postretirement benefit cost $ 7,464 $ 12,242 -------- -------- -------- --------
In 1993, the Corporation announced certain changes to its health care plan that establish a premium based on length of service and a cap for future medical costs of active employees. A 10% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1994, 29 17 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) gradually decreasing to 6% by the year 2020. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993, by $8,000 and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1993 by $1,000. Primarily, a discount rate of 7.5% (1992 - 8.5%) was used to determine the accumulated postretirement benefit obligation. 6. BANK BORROWINGS The maximum amounts of aggregate month-end short-term bank borrowings during 1993, 1992 and 1991 were $93,644, $104,748 and $136,998, respectively. The approximate average aggregate month-end balances for such borrowings during 1993, 1992 and 1991 were $65,682, $59,716 and $84,228, respectively. The approximate weighted average interest rates for such aggregate borrowings during 1993, 1992 and 1991 were 5%, 6% and 7%, respectively. Unused lines of credit for short-term bank borrowings aggregated $207,391 and $168,746 at year-end 1993 and 1992, respectively, of which approximately 91% for 1993 and 95% for 1992 were available in the United States and Canada at interest rates not exceeding the prime commercial lending rate and the remainder was available overseas at rates up to 2% over the base rate. Pursuant to agreements with its lending banks, the Corporation pays fees for maintaining its existing lines of credit. Interest cost incurred in 1993, 1992 and 1991 was $33,771, $35,898 and $32,364 of which $213, $1,739 and $7,824, respectively, was capitalized. 7. LONG-TERM DEBT Long-term debt consisted of the following:
1993 1992 ---- ---- Corporate Debt -------------- 8.58% unsecured promissory notes due in installments of $22,000 on October 1 in each of the years 1994 to 1998 $110,000 $110,000 Special Purpose Project Debt ---------------------------- The Corporation's obligations with respect to this debt are limited to guaranteeing the operating performance of the projects. Collateralized note payable, interest varies based on one of several money market rates (1993 year-end rate 4%), due semiannually through July 30, 2006 62,113 64,400 Floating/Fixed Rate Resource Recovery Revenue Bonds, interest varies based on tax-exempt money market rates (1993 year-end rate 3.25%), due semiannually August 1, 1997 through February 1, 2010 45,448 45,448 Collateralized note payable, interest varies based on one of several money market rates (1993 year-end rate 4.75%), due semiannually through February 1, 1996 11,110 14,465 Solid Waste Disposal and Resource Recovery System Revenue Bonds, interest 7.125% to 7.5%, due annually December 1, 1999 through December 1, 2010 120,150 120,150
30 (continued) 18
1993 1992 ---- ---- Resource Recovery Revenue Bonds, interest 7.9% to 10%, due annually December 15, 1994 through 2012 71,482 71,974 Other ----- Unsecured bank loans, interest 9.2% 4,952 5,430 Other 4,009 7,711 -------- -------- 429,264 439,578 Less, Current portion 32,523 12,178 -------- -------- $396,741 $427,400 -------- -------- -------- -------- Principal payments are payable in annual installments of: 1995.......... $ 33,761 1996.......... 37,176 1997.......... 34,156 1998.......... 35,086 1999.......... 21,843 Balance due in installments through 2012............ 234,719 -------- $396,741 -------- --------
CORPORATE DEBT The Corporation entered into interest rate swap agreements under which it pays to the counterparties interest at a variable rate based on the London Interbank Offered Rate (LIBOR) on the current notional principal of $110,000 and the counterparties pay the Corporation interest at 7.165% (average) on the notional principal. The notional principal of the swap amortizes through September 30, 1998. In addition, the Corporation has 30 19 entered into forward rate agreements for amounts up to $110,000 for six-month periods corresponding to the interest periods on the $110,000 notes. Pursuant to the forward rate agreements during 1993, the Corporation paid to the counterparties fixed rates of interest ranging from 3.3% to 4.4% and the counterparties paid to the Corporation interest at variable rates based on LIBOR for such periods. The Corporation is exposed to credit loss in the event of nonperformance by the counterparties to either agreement. However, the Corporation does not anticipate nonperformance by the counterparties. All of these contracts are with significant financial institutions that are rated AA-(S&P) or better. The Corporation has entered into a four-year revolving credit agreement (the "Revolving Credit Agreement") with a group of banks whereby the banks agree to advance loans from time to time in amounts up to $180,000. The loans are for general corporate purposes. The Revolving Credit Agreement is renewed each year subject to the approval of the Corporation and the banks. The Corporation pays to the banks a facility fee on the total facility and a commitment fee on the unused portion of the facility. At December 31, 1993, no loans were outstanding under the Revolving Credit Agreement. The Note Agreement pursuant to which 8.58% notes were issued and the Revolving Credit Agreement require the maintenance of certain levels of consolidated Tangible Net Worth, as defined, the most restrictive of which is $400,000 plus 25% of earnings from 1991 through 1993. At December 31, 1993, the consolidated Tangible Net Worth was $543,000. The Note Agreement and the Revolving Credit Agreement also require the maintenance of certain capitalization ratios. Both agreements require that the ratio of Indebtedness to Tangible Net Worth, as those terms are defined in the agreements, not exceed .65 to 1. At December 31, 1993, this ratio was .28 to 1. SPECIAL PURPOSE SUBSIDIARY PROJECT DEBT Special Purpose Subsidiary Project Debt represents debt incurred to finance the construction of cogeneration facilities or waste-to-energy projects. The notes and/or bonds are collateralized pro rata by the assets of each project. COGENERATION PROJECTS The note payable for $62,113 represents a loan under a bank credit facility to a limited partnership whose general partner is a Special Purpose Project Subsidiary. The limited partnership entered into an interest rate swap agreement which fixed the interest rate on $62,000 of the original principal amount of the debt. Under this agreement, the limited partnership pays to the counterparties interest at 8.85% on the current notional principal and the counterparties pay to the limited partnership interest at a variable rate based on LIBOR on the notional principal. The notional principal of the swap amortizes through July 30, 1999. The limited partnership is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreement. However, the Corporation does not anticipate nonperformance by the counterparties. The Floating/Fixed Rate Resource Recovery Revenue Bonds in the amount of $45,448 were issued in a total amount of $45,450 and the collateralized note in the amount of $11,110 represents a loan under a bank credit facility. The bonds are collateralized by an irrevocable standby letter of credit issued by a commercial bank. WASTE-TO-ENERGY PROJECTS The Solid Waste Disposal and Resource Recovery System Revenue Bonds totalling $120,150 were issued in a total amount of $133,500. The bonds are collateralized by an irrevocable standby letter of credit issued by a commercial bank. The Resource Recovery Revenue Bonds of $71,482 were issued in a total amount of $86,780. Proceeds of the bond issue were drawn as construction of the project progressed. 8. RESEARCH AND DEVELOPMENT Research and development expenses for the years 1993, 1992 and 1991 for corporate and customer sponsored activities were $49,200, $39,200 and $34,700, respectively. 31 20 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 9. INCOME TAXES The components of earnings before income taxes and accounting change for the years 1993, 1992 and 1991 were taxed under the following jurisdictions:
1993 1992 1991 ---- ---- ---- Domestic $ 25,602 $ (5,082) $ 6,755 Foreign 71,216 72,907 54,530 -------- -------- -------- Total $ 96,818 $ 67,825 $ 61,285 -------- -------- -------- -------- -------- -------- The provision for income taxes on those earnings was as follows: Current tax expense: Domestic $ 10,735 $ 1,493 $ 1,312 Foreign 27,047 29,737 14,409 -------- -------- --------- Total current 37,782 31,230 15,721 -------- -------- --------- Deferred tax (benefit)/expense: Domestic (9,886) 7,074 11,041 Foreign (4,966) (2,537) 2,525 --------- --------- --------- Total deferred (14,852) 4,537 13,566 ---------- -------- --------- Investment tax credit recapture/(benefit) 2,009 (2,146) (3,565) Utilization/(benefit) of operating loss carryforwards 14,175 (11,300) (7,705) ---------- -------- --------- 16,184 (13,446) (11,270) --------- -------- --------- Total provision for income taxes $ 39,114 $ 22,321 $ 18,017 ---------- --------- --------- ---------- --------- --------- Deferred tax liabilities (assets) are comprised of the following: 1993 1992 ---- ---- Difference between book and tax depreciation $ 63,925 $ 59,081 Pension asset 28,845 28,917 Capital lease transactions 12,975 12,841 Revenue recognition 15,452 8,039 Other 6,226 6,984 -------- -------- Gross deferred tax liabilities 127,423 115,862 -------- -------- Current taxability of estimated cost to complete long-term contracts (17,988) (13,053) Income currently taxable deferred for financial reporting (14,795) (7,713) Expenses not currently deductible for tax purposes (23,175) (10,097) Loss carryforwards (2,964) (18,114) Investment tax credit carryforwards (29,484) (32,336) Postretirement benefits other than pensions (54,783) (57,031) Other (18,070) (12,710) Valuation allowance 5,500 5,500 ---------- --------- Net deferred tax assets (155,759) (145,554) ---------- --------- $ (28,336) $(29,692) ---------- --------- ---------- ---------
32 (continued) 21 The domestic net operating losses and the investment tax credit carryforwards will expire in the years 2000 to 2007. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to pretax income, as a result of the following differences:
1993 1992 1991 ---- ---- ---- Tax at U.S. statutory rate 35.0% 34.0% 34.0% State income taxes, net of Federal income tax benefit 1.3 - 1.2 Nondeductible goodwill write-off 2.5 - - Investment tax credit recapture/(benefit) 2.1 (2.1) (3.8) Other ( .5) 1.0 (2.0) ----- ----- ----- 40 .4% 32.9% 29.4% ------ ------ ------ ------ ------ ------
10. LEASES The Corporation entered into a sale/leaseback of the 600 ton-per-day waste-to-energy plant in Charleston, South Carolina, in 1989. The terms of the agreement are to leaseback the plant under a long-term operating lease for 25 years. The lease payments for the years 1991 through 1993 totalled $9,300 annually. The minimum lease payments under the noncancelable operating long-term lease are as follows: 1994 $ 9,300 1995 9,300 1996 9,300 1997 9,300 1998 9,300 Thereafter 146,900 ------- Total $193,400 -------- --------
The Corporation and certain of its subsidiaries are obligated under operating lease agreements primarily for office space. Rental expense for these leases amounted to $19,500 in 1993, $22,100 in 1992 and $18,500 in 1991. Future minimum rental commitments on noncancelable leases were as follows: 1994 - $17,500; 1995 - $15,700; 1996 - $14,500; 1997 - $10,300; 1998-$9,100 and an aggregate of $38,000 thereafter. 32 22 11. QUARTERLY FINANCIAL DATA (Unaudited)
Three Months Ended -------------------------------------------------------------- 1993 March 26 June 25 Sept. 24 Dec. 31 ---- -------- ------- -------- ------- Operating revenues $586,531 $646,503 $616,426 $733,540 Gross earnings from operations 68,673 74,658 71,264 78,010 Net earnings 12,730 14,555 12,154 18,265 Earnings per share .36 .41 .34 .51 Cash dividends per share .15 .165 .165 .165 Stock prices: High 31.875 31.125 35.875 35.625 Low 27.25 25.875 29.00 30.50 1992 March 27 June 26 Sept. 25 Dec. 25 ---- -------- ------- -------- ------- Operating revenues $487,204 $581,286 $658,257 $768,042 Gross earnings from operations 66,942 70,657 71,004 83,990 Earnings before accounting change 10,290 12,264 9,558 13,392 Effect of change in accounting principle (a) (91,259) - - - Net (loss)/earnings (80,969) 12,264 9,558 13,392 Earnings per share: Earnings before the effect of accounting change .29 .34 .27 .38 Effect of change in accounting principle (a) (2.57) - - - Net (loss)/earnings (2.28) .34 .27 .38 Cash dividends per share .135 .15 .15 .15 Stock prices: High 30.875 27.75 31.375 32.75 Low 26.125 24.125 23.00 26.50
(a) Effective as of the beginning of 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and recorded the full amount of its transition obligation. 12. LITIGATION In the ordinary course of business the Corporation 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 Corporation by customers alleging deficiencies in either equipment design or plant construction. The Corporation and its subsidiaries also routinely become involved in litigation relating to patents and other intellectual property. There are several actions of that nature presently pending. If the presently pending suits described above were sustained in substantially the amounts asserted, they would have a material adverse effect on the Corporation's financial condition and results of operations. However, based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts provided in the accounts. 33 (continued) 23 The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States and Canada, in which plaintiffs claim damages for personal injury or property damage alleged to arise from exposure to or use of asbestos. At December 25, 1992 and December 31, 1993, the suits pending numbered approximately 33,500 and 43,300, respectively. It is anticipated that a substantial number of similar suits will be filed in the future. Since the inception of asbestos-related litigation against the Corporation and its subsidiaries, approximately 28,000 lawsuits have been terminated without any payment or with only nominal payments by the insurers for the Corporation and its subsidiaries. Based on its knowledge of relevant facts and circumstances, on its determination of the availability and extent of insurance coverage, and on the advice of the Corporation's special counsel, the management of the Corporation is of the opinion that the ultimate disposition of pending and future asbestos-related lawsuits will not result in material charges against assets or earnings. The asbestos litigation herein described does not relate to any activities currently being carried on by the Corporation and its subsidiaries. 13. STOCK OPTION PLANS The Corporation has two stock option plans which reserve shares of common stock for issuance to executives, key employees and directors. Under the plan approved by the stockholders in April 1984, as amended in 1991, the total number of shares of common stock that may be granted is 1,700,000. 33 24 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) In April 1990, the stockholders approved a Stock Option Plan for Directors of the Corporation. This plan authorizes the granting of options on 150,000 shares of common stock to directors who are not employees of the Corporation, who shall automatically receive an option to acquire 2,000 shares each year. These plans provide that shares granted should come from the Corporation's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans shall not be less than 100 percent of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant and no option shall be exercisable after ten years from the date granted. Under the Executive Compensation Plan, the long-term incentive segment provides for stock options to be issued. Participants may exercise approximately one-third of the stock option shares after the end of each year of the cycle. At December 31, 1993, 213,666 shares were not exercisable. Information regarding these option plans for 1993, 1992 and 1991 is as follows:
1993 1992 1991 ---- ---- ---- Options outstanding, beginning of year 417,596 394,705 445,164 Options exercised (50,786) (82,592) (135,593) Options granted 127,000 119,500 108,500 Options expired - (14,017) (23,366) ---------- --------- --------- Options outstanding, end of year 493,810 417,596 394,705 ---------- -------- --------- ---------- -------- --------- Option price range at end of year $12.25 to $12.25 to $12.25 to $28.75 $28.6875 $28.6875 Option price range for exercised shares $12.25 to $12.25 to $12.25 to $22.0625 $21.3125 $22.125 Options available for grant at end of year 717,912 844,912 950,395 -------- -------- -------- -------- -------- --------
14. PREFERRED SHARE PURCHASE RIGHTS On September 22, 1987, the Corporation's Board of Directors declared a dividend distribution of one Preferred Share Purchase Right on each share of the Corporation's common stock outstanding as of October 2, 1987. Each Right allows the shareholder to purchase a one one-hundredth of a share of a new series of preferred stock of the Corporation at an exercise price of $75. Rights are exercisable only if a person or group acquires 20% or more of the Corporation's common stock or announces a tender offer the consummation of which would result in ownership by a person or group of 20% or more of the Corporation's common stock. The Rights, which do not have the right to vote or receive dividends, expire on October 2, 1997, and may be redeemed, prior to becoming exercisable, by the Board of Directors at $.02 per Right or by shareholder action with an acquisition proposal. If any person or group acquires 20% or more of the Corporation's outstanding common stock, the "flip-in" provision of the Rights will be triggered and the Rights will entitle a holder (other than such person or any member of such group) to acquire a number of additional shares of the Corporation's common stock having a market value of twice the exercise price of each Right. In the event the Corporation is involved in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's common stock having a market value at that time of twice the Right's exercise price. 15. FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND SHORT-TERM INVESTMENTS The carrying amount approximates fair value because of the short maturity of those instruments. 34 (continued) 25 LONG-TERM INVESTMENTS The fair values of some investments are estimated based on quoted market prices for those or similar investments. For other investments for which there are no quoted market prices, a reasonable estimate of fair market value could not be made without incurring excessive costs. Additional information pertinent to the value of an unquoted investment is provided below. LONG-TERM DEBT The fair value of the Corporation's long-term debt (including current installments) is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. FOREIGN CURRENCY CONTRACTS The fair value of foreign currency contracts (used for hedging purposes) is estimated by obtaining quotes from brokers. 34 26 CARRYING AMOUNTS AND FAIR VALUES The estimated fair values of the Corporation's financial instruments are as follows:
1993 1992 -------------- -------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- --------- -------- Cash and short-term investments $377,390 $377,390 $270,669 $270,669 Long-term investments for which it is: Practicable to estimate fair value 700 1,800 800 950 Not practicable 4,500 - 4,500 - Long-term debt (429,264) (445,000) (439,578) (448,500) Foreign currency contracts (10,300) (10,300) (8,800) (8,800)
It is not practicable to estimate the fair value of an investment representing the preferred stock of a public company because this stock is not traded; that investment is carried at its original cost of $4,500 in the consolidated balance sheet. At the end of September 1993 (latest available financial statement of this public company), the total assets reported were $63,656 and the stockholders' equity was $20,345. Revenues were $87,346, and net income was $8,502 for nine months. As of December 31, 1993, the Corporation had $102,000 of forward exchange contracts outstanding, approximately 60% of which were in European currencies and 40% were in Canadian currency. These forward exchange contracts mature between 1994 and 1996. Primarily, these contracts require the Corporation's foreign subsidiaries to sell United States dollars and to purchase local currencies. Financial instruments which potentially subject the Corporation to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Corporation places its cash equivalents with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Corporation's customer base, and their dispersion across different businesses and geographic areas. As of December 31, 1993 and December 25, 1992, the Corporation had no significant concentration of credit risk. 16. BUSINESS SEGMENTS - DATA As of December 31, 1993, the business of the Corporation and its subsidiaries falls within three business groups: an Engineering and Construction Group that consists primarily of the design, engineering and construction of process plants and fired heaters for oil refineries, synthetic fuels, and chemical producers; an Energy Equipment Group that consists mainly of the design and fabrication of steam generators and condensers, suppliers of mass-transfer equipment, tower packings and industrial wire mesh; and a Power Systems Group engaged in the owning/leasing to or operation for third parties of solid waste-to-energy and cogeneration plants. Earnings of segments represent revenues less expenses attributable to that group or geographic area where the operating unit is located. Revenues between business segments are considered immaterial and are netted against the revenues of the respective segment. Export revenues and intercompany revenues are not significant. No single customer represents 10% or more of total revenues. Identifiable assets by group are those assets that are directly related to and support the operations of each group. Corporate assets are principally cash, investments and real estate. Financial information with respect to business segments and geographic data for the years 1993, 1992 and 1991 is on pages 18 and 19 (unaudited as to unfilled orders and new orders booked). 35 -----END PRIVACY-ENHANCED MESSAGE-----