-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M2FNQyi+rcMWROkWwBnc6DxuL2FacezB6yijBds9aet/JYXNd0BGXLqnGpjY18TQ GW6Aome7mAvboPLyKpa3lg== 0000950123-97-002338.txt : 19970327 0000950123-97-002338.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950123-97-002338 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-00286 FILM NUMBER: 97561024 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-K 1 FOSTER WHEELER CORPORATION 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 27, 1996 [ ] 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 14, 1997, 40,624,646 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 $1,558,970,790 (based on the last price on that date of $38.375 per share). List hereunder the following documents if incorporated by reference, and the Part of the Form 10-K into which the document is incorporated: 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) Portions of the Registrant's Proxy Statement dated March 21, 1997 filed with the Commission are incorporated by reference in Part III of this report. (2) The Financial Section of the Annual Report to Stockholders (pages 25-47) for the fiscal year ended December 27, 1996, is incorporated by reference in Part I and Part II of this report. 2 FOSTER WHEELER CORPORATION 1996 Form 10-K Annual Report Table of Contents Page ---- Part I Item 1. Business 3 - 7 2. Properties 8 - 12 3. Legal Proceedings 12 4. Submission of Matters to a Vote of Security Holders 12 Executive Officers of the Registrant 13 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 14 6. Selected Financial Data 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 8. Financial Statements and Supplementary Data 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 Part III 10. Directors and Executive Officers of the Registrant 16 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management 16 13. Certain Relationships and Related Transactions 16 Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 17 - 26 This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth in this report. 2 3 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 terms "Foster Wheeler" or the "Corporation" as used herein includes Foster Wheeler Corporation and its subsidiaries. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: - - ---------------------------------------------- Incorporated by reference to Note 18 on page 47 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 27, 1996. NARRATIVE DESCRIPTION OF BUSINESS: - - ---------------------------------- The business of the Corporation and its subsidiaries falls within three business groups. The ENGINEERING AND CONSTRUCTION GROUP designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. The ENERGY EQUIPMENT GROUP designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NOx burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. The Energy Equipment Group also provides proprietary solutions and systems for many separation applications and manufacturers highly-engineered chemical separation equipment for the petroleum refining, petrochemical, chemical and gas processing industries. The POWER SYSTEMS GROUP utilizes Foster Wheeler strengths in design, engineering, manufacturing and construction to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities as well as facilities for the process and petrochemical industries. This Group generates revenues from construction and operating activities pursuant to long-term off-take and operating and maintenance agreements and from returns on its equity positions. A special-purpose subsidiary established for each new project 3 4 manages that project from the permitting stage through plant construction and operation. All of the special-purpose subsidiary project debt is limited-recourse. This Group refinances its equity interest in selected projects from time to time when such refinancing will result in risk mitigation, a lower effective financing cost or a potential increased return on investment. In 1993, Foster Wheeler Enviresponse, Inc. was consolidated as the Environmental Services division of Foster Wheeler USA Corporation which, in October 1994 expanded in the environmental field by purchasing Enserch Environmental Corporation ("Enserch"), a full-service provider of hazardous and mixed-waste investigation and remediation control services, wastewater treatment, waste management, risk analysis and environmental permitting. The acquisition resulted in the formation of Foster Wheeler Environmental Corporation. During 1994 Glitsch International, Inc. acquired the assets of Optimized Process Designs, Inc. ("OPD"), an engineering and construction contractor in Katy, Texas. OPD's principal expertise is in the area of natural gas and natural gas liquids conditioning, treating and processing. Effective September 30, 1995, the Corporation acquired the power generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $200,000,000 including acquisition costs. The preliminary purchase price allocation was adjusted by $80.0 million in the fourth quarter of 1996, based upon a final calculation of assets acquired and liabilities assumed. The quarterly earnings previously reported were not significantly impacted by this change. Also, during September 1995, the Corporation finalized (i) the purchase for approximately $2,500,000 of the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana, and (ii) the purchase for approximately $16,000,000 of the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas. 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 limited group of customers. No one customer accounted for 10 percent or more of Foster Wheeler's consolidated revenues in fiscal 1996, 1995 and 1994, 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 for overseas projects. Generally, lead time for delivery of materials does not 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 Group 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 Finland, Japan, the Netherlands, Italy, Spain, Portugal, Norway and England. 4 5 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. Foster Wheeler had a backlog of firm orders as of December 27, 1996 of $7,135,400,000 as compared to a backlog as of December 29, 1995 of $6,474,000,000. The elapsed time from the award of a contract to completion of performance may be up to four years. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. The backlog by major industry segments as of December 27, 1996 and December 29, 1995 is as follows:
1996 1995 ---- ---- Engineering and Construction $4,958,200,000 $4,566,600,000 Energy Equipment 1,763,400,000 1,651,600,000 Power Systems 384,900,000 227,000,000 Corporate and Financial Services 28,900,000 28,800,000 ---------------- ---------------- $7,135,400,000 $6,474,000,000 ================ ================
5 6 The Power Systems Group projects consist of the following:
PLANT LOCATION TYPE AND SIZE UNIT FUEL OPERATION -------------- ------------------ ---- --------- Martinez, California 99.9 MW Cogeneration Refinery Gas/NG 1987 Chapleau, Ontario, Canada 360 Ton/Day Wood Waste Wood Waste 1987 Gilberton, Pennsylvania 80 MW Cogeneration Waste Coal 1988 Mt. Poso, California 49.5 MW Cogeneration Coal 1989 Charleston, South Carolina 600 Ton/Day Waste-to-Energy Refuse 1989 Mt. Carmel, Pennsylvania 40 MW Cogeneration Waste Coal 1990 ACE, California 96 MW Cogeneration Coal 1991 Camden County, New Jersey 1050 Ton/Day Waste-to-Energy Refuse 1991 Hudson Falls, New York 400 Ton/Day Waste-to-Energy Refuse 1992 University of Minnesota Heating Plant Operation and Upgrade Coal/Gas/Oil 1992 InterPower, Pennsylvania 102 MW Power Waste Coal 1995 Concepcion, Chile 8 MM SCFD Hydrogen Plant -- 1996 Robbins, Illinois 1600 Ton/Day Waste-to-Energy* Refuse/RDF 1996 ====================================================================================================================== Lisbon, Portugal 2200 Ton/Day Waste-to-Energy Refuse Construction Lagoven, Venezuela 50 MM SCFD Hydrogen Plant -- Construction Concepcion, Chile 65 MW Cogeneration Plant Plus Coke Construction 12,000 Barrels/Day Coker and 7014 Barrels/Day Hydrotreater Comunanza, Italy 145 MW Cogeneration Natural Gas Construction Teverola, Italy 145 MW Cogeneration Natural Gas Construction University of Minnesota 15 MW Cogeneration Coal/Gas/Oil Construction Wilkes-Barre, Pennsylvania 40 MW Small Power Wood Waste Permitting ====================================================================================================================== * 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 of the Corporation estimates, based on industrial publications, that Foster Wheeler 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 On an international basis many companies compete in the Energy Equipment segment of Foster Wheeler's business. Management of the Corporation estimates, based on industrial surveys and trade association materials, that it is among the ten largest suppliers of utility and industrial-sized steam generating and auxiliary equipment in the world and among the three largest in the United States. 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 1996, approximately $16,900,000, and in 1995 and 1994, $11,100,000 and $9,800,000 respectively, was spent on Foster Wheeler sponsored research activities. During the same periods, approximately $29,600,000, $25,900,000 and $38,200,000, respectively, was spent on research activities that were paid for by customers of Foster Wheeler. Foster Wheeler and its domestic subsidiaries are subject to certain Federal, state and local environmental, occupational 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 or cash flows in maintaining compliance with such laws. Foster Wheeler had approximately 12,085 full-time employees on December 27, 1996. Following is a tabulation of the number of full-time employees of Foster Wheeler in each of its industry segments on the dates indicated:
December 27, December 29, December 30, 1996 1995 1994 ------------ ------------ ------------ Engineering and Construction 7,130 7,560 7,940 Energy Equipment 4,350 4,540 3,200 Power Systems 410 390 360 Corporate and Financial Services 195 160 185 --------- --------- --------- 12,085 12,650 11,685 ======== ======== ========
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: - - ----------------------------------------------------------------------------- Incorporated by reference to Note 18 on page 47 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 27, 1996. 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) Union Township, Undeveloped 203.8 acres -- New Jersey General Office & Engineering 29.4 acres 294,000 General Office & Engineering 21.0 acres 292,000 2003 Storage and Reproduction Facilities 10.8 acres 30,400 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 100.4 acres -- (4) Bridgewater, New Jersey Under construction 17.5 acres 238,000 (4) 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 USA Corporation (EC) - - ------------------------------------ Houston, Texas General Offices -- 71,058 2003 Foster Wheeler Iberia, S.A. (EC) - - --------------------------------- Madrid, Spain Office & Engineering 4.2 acres 82,500 Foster Wheeler France (EC) - - --------------------------- Paris, France Office & Engineering -- 86,555 (1) Foster Wheeler (Thailand) Limited (EC) - - ---------------------------------------- Sriracha, Thailand Office & Engineering -- 26,400 1997
8 9
COMPANY AND (INDUSTRY SEGMENT*) BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Limited (England) (EC) - - ------------------------------------- Glasgow, Scotland Office & Engineering -- 27,610 1997 Reading, England Office & Engineering -- 288,472 1997/2016 Teeside, England Office & Engineering -- 18,100 1997/2014 Foster Wheeler Limited (Canada) (EE) - - ------------------------------------ Niagara-On-The-Lake, Ontario Office Building 34.5 acres 86,000 (1) Port Robinson, Ontario Undeveloped Land 17.0 acres -- Foster Wheeler Andina, S.A. (EC) - - -------------------------------- Bogota, Colombia Office & Engineering 2.25 acres 75,000 Foster Wheeler Energia, S.A. (EE) - - --------------------------------- 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 (via S. Caboto,1) Office & Engineering -- 161,400 2001 Milan, Italy (via S. Caboto,7) Office & Engineering -- 133,000 2002 Birlesik Insaat ve Muhendislik A.S. (BIMAS) (EC) - - ------------------------------------------------ Istanbul, Turkey Engineering & Office -- 20,000 2000 Ullrich Copper, Inc. (CF) - - ------------------------- Kenilworth, New Jersey Manufacturing -- 90,000 1998 Greenwood, South Carolina Warehouse -- 10,000 1998
9 10
COMPANY AND (INDUSTRY SEGMENT*) BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Eastern Private Limited (EC) - - ------------------------------------------- Singapore Office & Engineering -- 25,000 1999 Foster Wheeler Environmental Corporation (EC) - - --------------------------------------------- Atlanta, Georgia General Offices 31,238 1999 Bellevue, Washington General Offices 53,545 1999 Boston, Massachusetts General Offices 26,326 1999 Lakewood, Colorado General Offices 37,263 2000 Oak Ridge, Tennessee General Offices 14,494 1999 Sacramento, California General Offices 10,271 1997 Costa Mesa, California General Offices 14,754 2000 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 -- Plant Camden, New Jersey Waste-to-Energy 18 acres -- 2011 Plant Robbins, Illinois Waste-to-Energy Plant Facility Site 16.1 acres -- 2029 Laydown Site 14.6 acres -- 2029 Talcahuano, Chile Cogeneration Plant 21 acres -- 2028 Foster Wheeler Pyropower, Inc. (EE) - - ----------------------------------- San Diego, California General Offices 9.25 acres 86,000 San Diego, California General Offices 2.5 acres 38,000(1)
10 11
COMPANY AND (INDUSTRY SEGMENT*) BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES - - --------- --- --------- ----------- ------- Foster Wheeler Energia OY (EE) - - ------------------------------ Varkhaus, Finland Manufacturing & Offices 22 acres 366,527 Karhula, Finland Research Center 12.84 acres 15,100 2095 Office Laboratory 57,986 Kouvola, Finland Manufacturing & Offices 9.09 acres 79,903 Kaarina, Finland Office 24,762 1998 Helsinki, Finland Office 11,841 1999 Foster Wheeler Energia, FAKOP, Ltd. (EE) - - ---------------------------------------- Sosnowiec, Poland Manufacturing & Offices 15.57 acres 231,688 Glitsch International, Inc. (EE) - - -------------------------------- Dallas, Texas Manufacturing & Office 38.0 acres 505,644 Houston, Texas Warehouse & Office 2.83 acres 18,000 Uxbridge, Ontario, Manufacturing 12.0 acres 84,500 Canada Camrose, Alberta, Undeveloped Land 20.0 acres -- Canada Aprilia, Italy Manufacturing 20.5 acres 72,000 Parsippany, Manufacturing New Jersey & Office 8.3 acres 63,790 Kirkby Stephen, U.K. Manufacturing & Office 2.4 acres 42,000 Arles, France Manufacturing & Office 5.1 acres 70,736
11 12 __________________ *Designation of Industry Groups: EC - Engineering and Construction EE - Energy Equipment PS - Power Systems CF - Corporate & Financial Services ------------------------------------ (1) Portion or entire facility leased or subleased to responsible tenants. (2) Entire facility leased to a responsible tenant, with a portion being subleased back to Foster Wheeler subsidiaries. (3) 50% ownership interest. (4) 75% 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 13 on page 43 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 27, 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ NONE 12 13 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. 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 and O'Brien are as follows:
NAME AGE POSITION ---- --- -------- Richard J. Swift 52 Chairman, President and Chief Executive Officer David J. Roberts 52 Vice Chairman and Chief Financial Officer N. William Atwater 62 Executive Vice President - Engineering and Construction Group Henry E. Bartoli 50 Senior Vice President - Energy Equipment Group (Vice President and General Manager, 1987-1992, Burns and Roe Company.) Claudio Ferrari 60 Senior Vice President - Power Systems Group Lisa Fries Gardner 40 Vice President, Secretary and Chief Compliance Officer Robert D. Iseman 48 Vice President and Treasurer Thomas R. O'Brien 58 Senior Vice President and General Counsel (Partner in the law firm of Wolff & Samson, 1986-1993.) James E. Schessler 51 Vice President - Human Resources and Administration George S. White 60 Vice President and Controller
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. 13 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED - - -------------------------------------------------------------- STOCKHOLDER MATTERS ------------------- Incorporated by reference to Note 12 on page 43 in Foster Wheeler's Annual Report to Stockholders for the year ended December 27, 1996. The Corporation's common stock is traded on the New York Stock Exchange. The approximate number of stockholders of record as of December 27, 1996 was 6,991. ITEM 6. SELECTED FINANCIAL DATA - - -------------------------------- (In Thousands of Dollars, Except Per Share Data)
1996 1995* 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Revenues $4,040,611 $2,081,930 $2,271,123 $2,654,505 $2,529,464 Earnings before accounting change 82,240(1) 28,534(2) 65,410 52,704 45,504(3) Earnings per share before accounting change 2.03 .79 1.83 1.62 1.28(3) Total assets 3,510,334 2,975,809 2,140,334 1,806,201 1,763,264 Long-term borrowings (including current installments) 829,043 589,052 499,202 429,264 439,578 Cash dividends per common share .81 .77 .72 .645 .585
(1) Includes a provision of $15,600 ($.38 per share) for asbestos claims. (2) Includes a provision of $46,500 ($1.28 per share) for reorganization costs. (3) 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 $91,259 after tax and valuation allowance, or $2.57 per share. * During the fourth quarter of 1995, the Corporation acquired the power-generation business of A. Ahlstrom Corporation, "Pyropower". 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - - ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Incorporated by reference to pages 26 to 32 in Foster Wheeler's Annual Report to Stockholders for the year ended December 27, 1996. 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 27, 1996: A. Consolidated Balance Sheet, December 27, 1996 and December 29, 1995 (page 33) B. Consolidated Statement of Earnings for the years ended December 27, 1996; December 29, 1995; and December 30, 1994 (page 34) C. Consolidated Statement of Changes in Stockholders' Equity for the years ended December 27, 1996; December 29, 1995; and December 30, 1994 (page 35) D. Consolidated Statement of Cash Flows for the years ended December 27, 1996; December 29, 1995; and December 30, 1994 (page 36) E. Notes to Consolidated Financial Statements (pages 37-47) F. Report of Independent Accountants (page 34) Schedules Required by Regulation S-X - - ------------------------------------ NOTE: All schedules are omitted because they are either not applicable or not required or the information is shown elsewhere in the financial statements or in the notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - - --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- NONE 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------------------------------ Incorporated by reference to pages 1-4 of Foster Wheeler's Proxy Statement, dated March 21, 1997, for the Annual Meeting of Stockholders to be held April 28, 1997. Certain information regarding executive officers is included in Part I hereof 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 21, 1997, for the Annual Meeting of Stockholders to be held April 28, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - - ------------------------------------------------------------- MANAGEMENT ---------- Incorporated by reference to pages 2-5 of Foster Wheeler's Proxy Statement, dated March 21, 1997, for the Annual Meeting of Stockholders to be held April 28, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - -------------------------------------------------------- Not applicable. 16 17 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 15 All schedules and financial statements other than those indicated above 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. 3 The following Exhibits are required by Item 601 of Regulation S-K and by paragraph (c) of Item 14 of Form 10-K: 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated August 12, 1996 (filed as Exhibit 3.1 to Foster Wheeler Corporation's 1996 Quarterly Report on Form 10-Q for the quarter ended September 27, 1996 and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 17 18 1995 and incorporated herein by reference). 10.4 Short-term Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.2 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 12 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Shares Dividend Requirements (Page 26) 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 25-47) for the fiscal year ended December 27, 1996 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (pages 19-21) 23 Consent of independent accountants (page 23) 27 Financial data schedule (for the informational purposes of the Commission only). (b) Current Reports on Form 8-K: NONE 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. 33-59739 (filed June 1, 1995), 33-40878 (filed May 29, 1991) and 33-34694 (filed May 2, 1990): 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. 18 19 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 BELGIUM Otto York, N.V., Merksem BERMUDA FW Management Operations, Ltd., Hamilton Foster Wheeler Trading Co. Ltd., Hamilton Power Systems International, Ltd., Hamilton York Jersey Liability Ltd., Hamilton BRAZIL Foster Wheeler do Brasil Ltda., Rio De Janeiro CANADA Foster Wheeler Limited, St. Catharines Les Chaudieres Foster Wheeler Inc., Quebec Chapleau Co-generation Ltd., Chapleau Foster Wheeler Canadian Resources Limited, Alberta Foster Wheeler Fired Heaters, Ltd., Calgary Glitsch Canada, Ltd., Uxbridge, Ontario La Societe D'Energie Foster Wheeler Ltd., Quebec CHANNEL ISLANDS FW Channel Islands Limited, Jersey CHILE Foster Wheeler Chile, S.A., Santiago de Chile CHINA, PEOPLES REPUBLIC OF Foster Wheeler Power Machinery Company Limited, Guangdong Province CZECH REPUBLIC Glitsch A.S., Prikop ENGLAND Foster Wheeler Limited, Reading Foster Wheeler Energy Ltd., Reading Foster Wheeler (India) Ltd., Reading Foster Wheeler (Northern) Ltd., Reading Foster Wheeler (Pacific) Ltd., Reading Foster Wheeler Petroleum Development Ltd., Reading Foster Wheeler World Services, Ltd., Reading FW Management Operations (U.K.) Ltd., Reading Glitsch (U.K.) Ltd., Kirkby Stephen Cumbria Glitsch Field Services, Ltd., Dorking Foster Wheeler (Indonesia) Ltd., Reading Foster Wheeler Petroleum Development & Associates Ltd., Reading Foster Wheeler Petroleum Development (Norway) Ltd., Reading FINLAND Foster Wheeler Energia, OY, Helsinki Foster Wheeler Service OY, Kouvola FRANCE Foster Wheeler France, S.A., Paris Foster Wheeler Conception Etudes Entretien, Paris Foster Wheeler World Services, France, S.A., Paris Glitsch France, S.A., Arles Societe Fonciere-Bourdonnais Rivoli, S.A., Paris GERMANY Glitsch GmBH, Oberhausen Foster Wheeler Energie GmbH, Dusseldorff GREECE Foster Wheeler Hellas Engineering and Construction AE, Athens INDIA Glitsch Process India, Ltd., Bombay 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 FW Financial Services S.p.A., Milan Foster Wheeler Environmental Italia, Srl, Milan Pesaro Energia S.r.l., Pesaro World Services Italia S.p.A., Milan JAPAN Glitsch Japan Corporation, Kawasaki MALAYSIA Foster Wheeler (Malaysia) Sdn. Bhd., Kualau Lumper MEXICO Foster Wheeler Ingenieros y Constructores, S.A. de C.V. Quadalajara NETHERLANDS ANTILLES Foster Wheeler N.V., Curacao NETHERLANDS FW Europe, B.V., Amsterdam Foster Wheeler Europe, B.V., Amsterdam Foster Wheeler Power Systems, B.V., Amsterdam PHILLIPINES Foster Wheeler (Phillipines) Corporation, Mankati City SINGAPORE (REPUBLIC OF) Foster Wheeler Eastern Private, Ltd., Singapore Foster Wheeler Energy Pte. Ltd., Singapore SOUTH AFRICA Foster Wheeler South Africa (Pty.) Ltd., Midrand 19 20 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------ FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization SPAIN Foster Wheeler Iberia, S.A., Madrid Foster Wheeler Energia, S.A., Madrid Foster Wheeler Power Systems, S.A., Madrid SWEDEN Foster Wheeler Energi AB, Norrkoping UNITED STATES Camden County Energy Recovery Associates, New Jersey Camden County Energy Recovery Corporation, Delaware Equipment Consultants, Inc., Delaware Foster Wheeler Adirondack, Inc., Delaware Foster Wheeler Andes, Inc., Delaware Foster Wheeler Arabia Ltd., Delaware Foster Wheeler Asia Ltd., Delaware Foster Wheeler Avon, Inc., Delaware Foster Wheeler Bedminster, Inc., Delaware Foster Wheeler Bridgewater, Inc., Delaware Foster Wheeler Broome County, Inc., Delaware Foster Wheeler Charleston Resource Recovery, Inc., Delaware Foster Wheeler China, Inc., Delaware Foster Wheeler Constructors, Inc., Delaware Foster Wheeler Development Corporation, Delaware Foster Wheeler (Emirates) Corporation, Delaware Foster Wheeler Energy Corporation, Delaware Foster Wheeler Energy International, Inc., Delaware Foster Wheeler Energy Manufacturing, Inc., Delaware Foster Wheeler Energy Services, Inc., California Foster Wheeler Environmental Corporation, Texas Foster Wheeler Facilities Management, Inc., Delaware Foster Wheeler Hudson Falls, Inc., Delaware Foster Wheeler Hydroven, Inc., Delaware Foster Wheeler Hydrox, Inc., Delaware Foster Wheeler Illinois, Inc., Delaware Foster Wheeler Intercontinental Corporation, Delaware Foster Wheeler International Corporation, Delaware Foster Wheeler Korea, Ltd., Delaware Foster Wheeler Martinez, Inc., Delaware Foster Wheeler Middle East Services, Inc., Delaware Foster Wheeler Midwest, Inc., Delaware Foster Wheeler Mt. Carmel, Inc., Delaware Foster Wheeler Passaic, Inc., Delaware Foster Wheeler Penn Resources, Inc., Delaware Foster Wheeler Power Corporation, Delaware Foster Wheeler Power Systems, Inc., Delaware Foster Wheeler Pyropower, Inc., New York Foster Wheeler Real Estate Development Corporation, Delaware Foster Wheeler Robbins, Inc., Delaware Foster Wheeler Santiago, Inc., Delaware Foster Wheeler Timokhovo, Inc., Delaware Foster Wheeler Twin Cities, Inc., Delaware Foster Wheeler USA Corporation, Delaware Foster Wheeler Virgin Islands, Inc., Delaware Foster Wheeler Wood Resources, Inc., Delaware Foster Wheeler World Services Corp., Delaware Foster Wheeler Zack, Inc., Delaware FWPS Specialty Products, Inc., Delaware Glitsch Field Services, Inc., Texas Glitsch Inc., Delaware Glitsch International, Inc., Delaware Glitsch Process Systems, Inc., Delaware Glitsch Special Products, Inc., Texas Glitsch Technology Corporation, Delaware Naicor, Inc., Delaware Optimized Process Designs, Inc., Delaware Otto H. York Company, Delaware Precision Technical Services, Inc., Texas Process Consultants, Inc., Delaware POSCO Gilberton, Inc., California Pyropower Operating Services Company, Inc., California TPA, Inc., Delaware Ullrich Copper, Inc., Delaware THAILAND Foster Wheeler (Thailand) Limited, Sriracha TURKEY Foster Wheeler BIMAS Birlesik Insaat Ve Muhendislik, A. S., Istanbul U.S. VIRGIN ISLANDS Foster Wheeler F.S.C., Inc., St. Thomas VENEZUELA Foster Wheeler Caribe Corporation, C.A., Caracas 20 21 PRINCIPAL AFFILIATED COMPANIES (PERCENT DIRECTLY OR INDIRECTLY OWNED BY FOSTER WHEELER CORPORATION) BERMUDA The Hydrogen Company of Paraguana Ltd. (50%) COLOMBIA Foster Wheeler Andina, S.A., Bogota (60%) FINLAND OY Bioflow AB, Varkhaus (51%) ITALY Software Technology, S.p.A., Milan (90%) JAPAN Foster Wheeler Pyropower KK (85%) NIGERIA Foster Wheeler (Nigeria) Ltd., Lagos (60%) POLAND Foster Wheeler Energy Fakop, Ltd. (51%) UNITED STATES Cera Filter Systems, Inc., Delaware (50%) Integration Partners, Inc., California (65%) VENEZUELA OTEPI FW S.A., Caracas (50%) 21 22 A copy of the By-Laws of the Corporation, as amended through June 27, 1995, is available upon request to the Office of the Secretary, Foster Wheeler Corporation, Perryville Corporate Park, Clinton, New Jersey 08809-4000. 22 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Foster Wheeler Corporation on (1) Form S-3 (File No. 33-61809) and (2) Form S-8 (File No.'s 33-34694, 33-40878 and 33-59739) of our report dated February 13, 1997, on our audits of the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries as of December 27, 1996 and December 29, 1995, and for each of the three years in the period ended December 27, 1996, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. New York, New York March 18, 1997 23 24 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 18, 1997 By /s/ Lisa Fries Gardner --------------------- ---------------------- Lisa Fries Gardner Vice President, Secretary and Chief Compliance Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of March 18, 1997, by the following persons on behalf of the registrant, in the capacities indicated. Signature Title --------- ----- /s/ Richard J. Swift Director, Chairman, President and ------------------------ Chief Executive Officer Richard J. Swift (Principal Executive Officer) /s/ David J. Roberts Director, Vice Chairman and ------------------------ Chief Financial Officer David J. Roberts (Principal Financial Officer) /s/ George S. White Vice President and Controller ------------------------ (Principal Accounting Officer) George S. White Director ------------------------ Eugene D. Atkinson Director ------------------------ Louis E. Azzato /s/ David J. Farris Director ------------------------ David J. Farris /s/ E. James Ferland Director ------------------------ E. James Ferland 24 25 Signature Title --------- ----- /s/ Martha Clark Goss Director ------------------------ Martha Clark Goss /s/ John A. Hinds Director ------------------------ John A. Hinds /s/ Constance J. Horner Director ------------------------ Constance J. Horner /s/ Joseph J. Melone Director ------------------------ Joseph J. Melone /s/ Frank E. Perkins Director ------------------------ Frank E. Perkins /s/ Charles Y. C. Tse Director ------------------------ Charles Y. C. Tse /s/ Robert Van Buren Director ------------------------ Robert Van Buren 25 26
EXHIBIT 12 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS ($000'S) Fiscal Year ------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Earnings: - - -------- Net Earnings/(Loss) $ 82,240 $ 28,534 $ 65,410 $ 57,704 $ (45,755) Taxes on Income 44,626 41,129 41,457 39,114 22,321 Cumulative Effect of Change in Accounting Principle 91,259 Total Fixed Charges 74,002 60,920 45,412 43,371 46,365 Capitalized Interest (6,362) (1,634) (467) (213) (1,739) Capitalized Interest Amortized 2,528 2,273 2,189 2,180 2,111 Equity Earnings of non- consolidated associated companies accounted for by the equity method, net of Dividends (1,474) (1,578) (623) (883) 771 --------- --------- --------- --------- --------- $ 195,560 $ 129,644 $ 153,378 $ 141,273 $ 115,333 Fixed Charges: - - ------------- Interest Expense $ 54,940 $ 49,011 $ 34,978 $ 33,558 $ 34,159 Capitalized Interest 6,362 1,634 467 213 1,739 Imputed Interest on non-capitalized lease payment 12,700 10,275 9,967 9,600 10,467 --------- --------- --------- --------- --------- $ 74,002 $ 60,920 $ 45,412 $ 43,371 $ 46,365 Ratio of Earnings to Fixed Charges 2.64 2.13 3.38 3.26 2.49
*There were no preferred shares outstanding during any of the periods indicated and therefore the consolidated ratio of earnings to fixed charges and combined fixed charges and preferred share dividend requirements would have been the same as the consolidated ratio of earnings to fixed charges and combined fixed charges for each period indicated. 26 27 EXHIBIT INDEX Exhibit No. Description ------- ----------- 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated August 12, 1996 (filed as Exhibit 3.1 to Foster Wheeler Corporation's 1996 Quarterly Report on Form 10-Q for the quarter ended September 27, 1996 and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 10.4 Short-term Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.2 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 12 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Share Dividend Requirements (Page 26) 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 25-47) for the fiscal year ended December 27, 1996 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (pages 19-21) 23 Consent of independent accountants (page 23) 27 Financial data schedule (for the informational purposes of the Commission only). 27 EX-13 2 SELECTED FINANCIAL DATA FROM ANNUAL REPORT 1 EXHIBIT 13
FOSTER WHEELER CORPORATION AND SUBSIDIARIES FINANCIAL SECTION COMPARATIVE FINANCIAL STATISTICS..................................... 25 MANAGEMENT'S DISCUSSION AND ANALYSIS................................. 26-32 CONSOLIDATED BALANCE SHEET........................................... 33 CONSOLIDATED STATEMENT OF EARNINGS................................... 34 REPORT OF INDEPENDENT ACCOUNTANTS.................................... 34 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY............ 35 CONSOLIDATED STATEMENT OF CASH FLOWS................................. 36 NOTES TO FINANCIAL STATEMENTS........................................ 37-47
COMPARATIVE FINANCIAL STATISTICS - - -------------------------------------------------------------------------------------------------------------------------------- (In Thousands, Except per Share Amounts) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Unfilled orders, end of period ................ $7,135,413 $6,473,990 $5,135,452 $3,884,114 $ 3,806,757 Revenues ...................................... 4,040,611 3,081,930 2,271,123 2,654,505 2,529,464 Provision for special charges ................. 24,000 50,120 -- -- -- Earnings before income taxes and accounting change ........................ 126,866(3) 69,663(2) 106,867 96,818 67,825 Provision for income taxes .................... 44,626 41,129 41,457 39,114 22,321 Earnings before accounting change ............. 82,240 28,534 65,410 57,704 45,504 Effect of accounting change ................... -- -- -- -- (91,259)(1) Net earnings/(loss) ........................... 82,240 28,534 65,410 57,704 (45,755) Earnings per share * Earnings before accounting change ........ $ 2.03 $ .79 $ 1.83 $ 1.62 $ 1.28 Effect of change in accounting principle . -- -- -- -- (2.57)(1) ---------- ---------- ---------- ---------- ----------- Net earnings/(loss) ...................... $ 2.03 $ .79 $ 1.83 $ 1.62 $ (1.29) ========== ========== ========== ========== =========== Weighted average number of shares of common stock outstanding ........................... 40,592 36,322 35,788 35,656 35,596 Current assets ................................ $1,762,448 $1,468,973 $1,112,709 $ 983,454 $ 924,886 Current liabilities ........................... 1,441,894 1,270,276 890,579 778,989 721,018 Working capital ............................... 320,554 198,697 222,130 204,465 203,868 Land, buildings and equipment (net) ........... 724,779 644,812 566,156 567,216 595,946 Total assets .................................. 3,510,334 2,975,809 2,140,334 1,806,201 1,763,264 Bank loans .................................... 52,278 86,869 77,350 59,725 54,929 Long-term borrowings (including current installments): Corporate and other debt ................. 441,399 289,958 190,819 118,961 123,141 Project debt ............................. 387,644 299,094 308,383 310,303 316,437 Net assets owned .............................. 688,958 625,867 456,494 400,176 387,297 Net assets owned per common share of stock .... $ 16.95 $ 15.46 $ 12.75 $ 11.21 $ 10.87 Rate of return on net assets .................. 13.1% 6.3% 16.3% 14.9% (9.1)% Cash dividends per share of common stock ...... $ .81 $ .77 $ .72 $ .645 $ .585
* 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. (2) Includes in 1995 a provision of $50,120 for reorganization costs. (3) Includes in 1996 a provision of $24,000 for asbestos claims. 25 2 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS
BUSINESS GROUPS (See Note 18 to Financial Statements.) (In Millions of Dollars) Corporate Engineering and and Energy Power Financial Total Construction Equipment Systems Services(1) ----- ------------ --------- ------- ------------ 1996 - - ---- Unfilled orders........................... 7,135.4 4,958.2 1,763.4 384.9 28.9 New orders booked......................... 5,570.3 3,568.4 1,787.7 209.3 4.9 Revenues.................................. 4,040.6 2,580.9 1,309.4 158.9 (8.6) Interest expense (2)...................... 54.9 3.1 15.5 23.3 13.0 Earnings before provision for special charges and income taxes.............. 150.9 92.0 79.2 27.3 (47.6) Earnings before income taxes.............. 126.9 92.0 79.2 27.3 (71.6)(4) Identifiable assets....................... 3,510.3 1,165.0 1,130.2 730.3 484.8 Capital expenditures...................... 158.5 36.7 18.1 96.8 6.9 Depreciation.............................. 54.3 19.2 19.0 12.4 3.7 1995 - - ---- Unfilled orders........................... 6,474.0 4,566.6 1,651.6 227.0 28.8 New orders booked......................... 4,071.4 2,927.7 1,000.5 138.4 4.8 Revenues.................................. 3,081.9 2,146.2 774.5 157.2 4.0 Interest expense (2)...................... 49.0 2.8 8.1 24.5 13.6 Earnings before provision for special charges and income taxes.............. 119.8 84.4 51.2 29.3 (45.1) Earnings before income taxes.............. 69.7 84.4 1.1(3) 29.3 (45.1) Identifiable assets....................... 2,975.8 1,022.3 923.6 583.1 446.8 Capital expenditures...................... 59.4 23.0 18.9 14.0 3.5 Depreciation.............................. 51.7 16.6 13.6 17.6 3.9 1994 - - ---- Unfilled orders........................... 5,135.5 3,798.2 1,037.9 257.9 41.5 New orders booked......................... 3,091.0 2,138.6 759.6 188.7 4.1 Revenues.................................. 2,271.1 1,569.4 537.5 149.1 15.1 Interest expense (2)...................... 35.0 0.8 2.8 24.0 7.4 Earnings before income taxes.............. 106.9 73.7 55.2 18.1 (40.1) Identifiable assets....................... 2,140.3 878.4 454.1 537.7 270.1 Capital expenditures...................... 38.5 14.5 10.1 9.1 4.8 Depreciation.............................. 43.7 14.1 8.6 17.4 3.6
26 3
GEOGRAPHIC AREAS (See Note 18 to Financial Statements.) (In Millions of Dollars) Corporate and United Financial Total States Europe Canada Services (1) ----- ------ ------ ------ ------------ 1996 - - ---- Unfilled orders.......................... 7,135.4 3,377.0 3,677.7 51.8 28.9 New orders booked........................ 5,570.3 2,468.2 2,998.2 99.0 4.9 Revenues................................. 4,040.6 1,671.9 2,301.7 75.6 (8.6) Interest expense (2)..................... 54.9 36.2 4.3 1.4 13.0 Earnings before provision for special charges and income taxes............. 150.9 60.4 128.8 9.3 (47.6) Earnings before income taxes............. 126.9 60.4 128.8 9.3 (71.6)(4) Identifiable assets...................... 3,510.3 1,730.0 1,247.7 47.8 484.8 1995 - - ---- Unfilled orders.......................... 6,474.0 3,098.3 3,318.3 28.6 28.8 New orders booked........................ 4,071.4 1,832.9 2,167.6 66.1 4.8 Revenues................................. 3,081.9 1,520.9 1,491.2 65.8 4.0 Interest expense (2)..................... 49.0 31.3 2.5 1.6 13.6 Earnings before provision for special charges and income taxes............. 119.8 72.6 92.9 (0.6) (45.1) Earnings before income taxes............. 69.7 47.9(3) 92.9 (26.0)(3) (45.1) Identifiable assets...................... 2,975.8 1,444.5 1,032.6 51.9 446.8 1994 - - ---- Unfilled orders.......................... 5,135.5 2,790.7 2,229.5 73.8 41.5 New orders booked........................ 3,091.0 1,101.0 1,870.3 115.6 4.1 Revenues................................. 2,271.1 1,114.1 1,053.4 88.5 15.1 Interest expense (2)..................... 35.0 25.4 1.3 0.9 7.4 Earnings before income taxes............. 106.9 60.1 83.0 3.9 (40.1) Identifiable assets...................... 2,140.3 1,082.3 718.8 69.1 270.1
(1) Includes general corporate income and expense, and the Corporation's captive insurance operation. (2) Includes intercompany interest charged by Corporate to the business groups on outstanding borrowings. (3) Includes in 1995 a provision of $50.1 for reorganization costs. Geographic allocation: United States - $24.7; Canada - $25.4. (4) Includes in 1996 a provision of $24.0 for asbestos claims. Unaudited as to unfilled orders and new orders booked. 27 4 MANAGEMENT'S DISCUSSION AND ANALYSIS This Management's Discussion and Analysis of Financial Condition and other sections of this Annual Report contain forward-looking statements that are based on management's assumptions, expectations and projections about the various industries within which the Corporation operates. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Corporation cautions that a variety of factors, including but not limited to the following, could cause business conditions and results to differ materially from what is contained in forward-looking statements: changes in the rate of economic growth in the United States and other major international economies, changes in investment by the energy, power and environmental industries, changes in regulatory environment, changes in project schedules, changes in trade, monetary and fiscal policies worldwide, currency fluctuations, outcomes of pending and future litigation, protection and validity of patents and other intellectual property rights and increasing competition by foreign and domestic companies. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. THREE YEARS ENDED DECEMBER 27, 1996 GENERAL The Corporation's consolidated backlog at the end of fiscal 1996 was $7,135.4 million, an increase of $661.4 million or 10% over the amount reported for the end of fiscal 1995 of $6,474.0 million, which in turn represented an increase of 26% from a backlog at the end of fiscal 1994 of $5,135.5 million. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. Backlog has been adjusted to reflect project cancellations, deferrals, and revised project scopes and costs. The net reduction in backlog from project adjustments and cancellations for fiscal 1996 was $966.2 million, compared with $249.3 million in fiscal 1995 and $385.2 million in fiscal 1994. Furthermore, the Corporation's future award prospects include several large-scale international projects and, because the large size and uncertain timing of these projects can create variability in the Corporation's contract awards, future award trends are difficult to predict with certainty. New orders awarded for fiscal 1996 ($5,570.3 million) were 37% higher than new orders awarded in fiscal 1995 ($4,071.4 million), which were 32% higher than new orders awarded in fiscal 1994 ($3,091.0 million). A total of 56% of new orders in fiscal 1996 was for projects awarded to the Corporation's subsidiaries located outside of the United States as compared to 55% in fiscal 1995 and 64% in fiscal 1994. Key geographic regions outside of the United States contributing to new orders awarded in fiscal 1996 were Europe, China, Southeast Asia and the Middle East. Operating revenues increased in fiscal 1996 by 32% or $963.3 million compared to fiscal 1995, to $4,005.5 million from $3,042.2 million, which in turn represented a 36% or $807.8 million increase as compared to fiscal 1994 of $2,234.4 million. Gross earnings from operations, which are equal to operating revenues minus the cost of operating revenues ("gross earnings"), increased $94.6 million or 24% in fiscal 1996 as compared to fiscal 1995, to $494.5 million from $399.9 million, which was an increase of approximately 23% over gross earnings for fiscal 1994. (28 continued) 5 Selling, general and administrative expenses increased $46.5 million in fiscal 1996 as compared to fiscal 1995, to $296.9 million from $250.4 million, which in turn represented an increase from expenses reported in fiscal 1994 of $203.4 million. General and administrative expenses increased by $18.5 million in fiscal 1996 and selling expenses increased by $23.7 million, principally as a result of increased costs related to the acquisitions of Enserch Environmental Corporation ("Enserch") in September 1994 and the power-generation business of A. Ahlstrom Corporation ("Pyropower") effective September 30, 1995. Other income in fiscal 1996 as compared to fiscal 1995 decreased $4.7 million or 12% to $35.1 million from $39.8 million. Approximately $1.7 million was related to lower interest income. Other income in fiscal 1995 as compared to fiscal 1994 increased $3.1 million or 8% to $39.8 million from $36.7 million. Other deductions in fiscal 1996 increased $11.7 million primarily due to increases in interest expense of $5.9 million and amortization of intangibles of $6.3 million. In fiscal 1995, other deductions increased $19.1 million primarily due to increases in interest expense of $14.0 million and amortization of intangibles of $2.4 million. In the fourth quarter of 1996, the Corporation recorded a special pretax charge of $24 million with respect to estimated probable payments for asbestos litigation that may not be covered by insurance due to insurers that have become, or may in the future become insolvent. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries prior to and during the 1970s for which the insolvent insurers provided coverage. In conjunction with outside experts, the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that after recognition of the special charge, insurers will continue to adequately fund the balance of the claims and defense costs relating to current and future asbestos litigation. The Corporation anticipates funding the major portion of this charge over the next five to ten years. In connection with the acquisition of Pyropower, the Corporation recorded a pretax provision for reorganization costs in the fourth quarter of 1995 of $50.1 million. This provision 28 6 relates to the reorganization of the operations of the Energy Equipment Group that existed before the acquisition of Pyropower. This reorganization plan included a rationalization of manufacturing capacity and the reduction of approximately 630 salaried and hourly personnel. The provision for reorganization costs included $10.2 million for the write-off of excess buildings and equipment due to the rationalization of production capacity, $16.9 million for employee severance cost and related benefits, $19.3 million for asset write-downs (including stranded inventory) and provisions related to discontinuance of certain product lines (including incremental costs on certain completed contracts) and $3.7 million for other costs (including a write-off of accumulated translation adjustment for curtailed operations). A tax benefit (after valuation allowance increase) of $3.6 million was recognized, resulting in a net provision of $46.5 million. Approximately 50% of the above provision had a cash impact, which was substantially completed at the end of 1996 in accordance with the initial plan. The effective tax rate for fiscal 1996 was 35.2% compared to 59.0% in fiscal 1995 and 38.8% in fiscal 1994. The fiscal 1995 effective tax rate differed from the U.S. statutory rate primarily as a result of increasing the deferred tax asset valuation allowance by $14.5 million and an increase in state income taxes. The increase in the valuation allowance resulted from the 1995 provision for reorganization costs. This provision will result in additional deferred tax assets for financial reporting purposes, thereby making it less likely that a portion of the tax credit carryforwards will be utilized. Without the increase in the valuation allowance, the effective tax rate would have been 38.2%. Net earnings for 1996 were at a record level of $82.2 million or $2.03 per share, after recording a special after-tax charge for asbestos claims of $15.6 million ($.38 per share). Net earnings excluding the provision for asbestos claims were $97.8 million or $2.41 per share. Net earnings for 1995 were $28.5 million or $.79 per share, which included an after-tax provision for reorganization costs of $46.5 million ($1.28 per share). ENGINEERING AND CONSTRUCTION GROUP The E&C Group's backlog at the end of fiscal 1996 was $4,958.2 million, a 9% increase over backlog of $4,566.6 million at the end of fiscal 1995, which in turn represented a 20% increase from backlog of $3,798.2 million at the end of fiscal 1994. The increase in fiscal 1996 as compared to fiscal 1995 was due to awards of a polysilicon plant in the United States and an LNG plant in Oman. The increase in fiscal 1995 as compared with fiscal 1994 was attributable to major awards received by Foster Wheeler Environmental Corporation and the French subsidiary in 1995. These awards included the engineering, procurement and construction supervision contract for a waste-to-energy plant in Portugal, and two chemical projects in France. New orders awarded to the E&C Group increased 22% in fiscal 1996 as compared with fiscal 1995, from $2,927.7 million in fiscal 1995 to $3,568.4 million in fiscal 1996. New orders increased 37% in fiscal 1995 as compared to fiscal 1994 levels of $2,138.6 million. The increase in new orders in fiscal 1995 can be attributed to awards to the environmental company and increased awards in France. The 1996 increase was due primarily to the LNG and polysilicon plants. The E&C Group reported a 21% increase in operating revenues in fiscal 1996 as compared to fiscal 1995 from $2,120.2 million to $2,556.1 million, which in turn represented a 37% increase from fiscal 1994 operating revenues of $1,543.3 million. The increase in fiscal 1996 operating revenues as compared to fiscal 1995 was primarily the result of increased activities of the Italian and Spanish subsidiaries. The increase in fiscal 1995 operating revenues as compared to fiscal 1994 was the result of increased activities in the environmental subsidiary in the United States, acquired in late 1994, and the Italian and Spanish subsidiaries. The Corporation includes pass-through costs on cost-plus contracts which are customer-reimbursable materials, equipment and subcontractor costs when the Corporation determines that it is responsible for the engineering specification, procurement and management of such cost components on behalf of the customer. The percentage relationship between pass-through costs of contracts and revenues will fluctuate from year to year depending on a variety of factors including (29 continued) 7 the mix of business in the years compared. Historically, engineering services revenues have higher margins than either construction or maintenance services. The British, French and Italian subsidiaries had a mix of engineering and construction contracts in fiscal 1994 that required a lower value of material cost to be reimbursed by customers as compared to the mix of contracts in fiscal 1995 and fiscal 1996. The E&C Group's gross earnings increased $12.9 million in fiscal 1996 as compared with fiscal 1995 or 7%, to $207.7 million from $194.8 million, which in turn represented an increase of 31% from gross earnings of $148.9 million in fiscal 1994. An increase in fiscal 1996 of $2.4 million as compared to fiscal 1995 and a $29.1 million increase in fiscal 1995 as compared to fiscal 1994 was attributable to the Corporation's environmental service activities. The remaining increases in fiscal 1996 and fiscal 1995 were attributable to the successful completion of several major contracts by subsidiaries in the United Kingdom, Spain and Italy. ENERGY EQUIPMENT GROUP The Energy Equipment Group's backlog was $1,763.4 million at the end of fiscal 1996, representing a 7% increase over backlog of $1,651.6 million at the end of fiscal 1995, which in turn represented a 59% increase over backlog of $1,037.9 million at the end of fiscal 1994. The increase in backlog in fiscal 1996 as compared to fiscal 1995 was mainly attributable to the award of major contracts in China and the Middle East. The increase in backlog in fiscal 1995 as compared to fiscal 1994 was attributable to two primary factors. First, approximately $475 million of this increase was attributable to the acquisition of Pyropower. Second, contracts were awarded to the Spanish subsidiary amounting to $200 million for two 350-MW boiler islands in China and a 130-MW boiler for Chile. 29 8 MANAGEMENT'S DISCUSSION AND ANALYSIS New orders awarded to the Energy Equipment Group were $1,787.7 million, $1,000.5 million and $759.6 million in fiscal years 1996, 1995 and 1994, respectively. Of such new orders, $260.7 million, $331.8 million and $202.0 million were related to chemical-separation activities and $1,527.0 million, $668.7 million and $557.6 million were related to power generation for fiscal years 1996, 1995 and 1994, respectively. Operating revenues for the Energy Equipment Group increased 70% in fiscal 1996 as compared to fiscal 1995, to $1,294.9 million from $761.9 million, which in turn represented an increase of 44% from fiscal 1994 of $529.5 million. These changes in operating revenues for the periods stated resulted primarily from power-generation activities including the acquisition of Pyropower. The Energy Equipment Group's gross earnings increased by $76.4 million or 52%, to $222.1 million in fiscal 1996 from $145.7 million in fiscal 1995, which in turn represented a 17% increase from gross earnings in fiscal 1994 of $124.5 million. The increase in fiscal 1996 can be attributed to increased operating revenues as a result of the acquisition of Pyropower in the fourth quarter of 1995. The increase in fiscal 1995 was due to a higher level of operating revenues partially offset by lower gross earnings of the Spanish subsidiary due to completion of a major contract for the supply of two coal-fired steam generators in Mexico. POWER SYSTEMS GROUP The Power Systems Group's operating revenues decreased in fiscal 1996 as compared to fiscal 1995, to $149.6 million from $150.8 million, which in turn represented a 5% increase from fiscal 1994 operating revenues of $143.5 million. The Power Systems Group's gross earnings increased $5.2 million in fiscal 1996 as compared with fiscal 1995 to $62.8 million from $57.6 million, which in turn represented an increase of $9.7 million from gross earnings of $47.9 million in fiscal 1994. RESEARCH AND DEVELOPMENT The Corporation 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 fiscal years 1996, 1995 and 1994, approximately $16.9 million, $11.1 million and $9.8 million, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $29.6 million, $25.9 million and $38.2 million, respectively, were spent on customer-sponsored research activities that were paid for by customers of the Corporation. FINANCIAL CONDITION The Corporation's consolidated financial condition improved during the three-year period ended December 27, 1996. Stockholders' equity at the end of fiscal 1996 was $689.0 million as compared to $625.9 million at the end of fiscal 1995 and $456.5 million at the end of fiscal 1994. In November 1995, the Corporation issued 4,620,000 shares of common stock in a public offering which increased stockholders' equity by $158.3 million. For fiscal 1996, increases from net earnings of $82.2 million and the change in the accumulated translation adjustment of $8.3 million were partially offset by dividends to stockholders of $32.9 million. From the beginning of fiscal 1994 to the end of fiscal 1996, net assets have increased by $288.8 million. (30 continued) 9 For the fiscal years 1994, 1995 and 1996, long-term investments in land, buildings and equipment were $38.5 million, $59.4 million and $158.5 million, respectively. In fiscal 1994, the Corporation acquired Enserch and Optimized Process Designs, Inc. with net cash payments after cash acquired of $50.9 million. Effective September 30, 1995, the Corporation acquired Pyropower for approximately $200.0 million, including acquisition costs. The preliminary purchase price allocation was adjusted by $80.0 million in the fourth quarter of 1996, based upon a final valuation of assets acquired and liabilities assumed. The quarterly earnings previously reported were not significantly impacted by this change. Also in September 1995, the Corporation purchased for approximately $2.5 million the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana, and for approximately $16.0 million the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas. During the next few years, capital expenditures will continue to be directed primarily toward strengthening and supporting the Corporation's core businesses. Long-term debt, including current installments, and bank loans increased by $392.3 million, net of repayments of $208.5 million, during the three-year period. In 1996, the Corporation borrowed $171.5 million under the Revolving Credit Agreements, the proceeds of which were used to fund domestic working capital and other corporate requirements and make a scheduled $22.0 million debt repayment under the Corporation's 8.58% unsecured promissory private placement notes (the "Private Notes"). In November 1995, the Corporation sold $200 million of 6.75% Notes, due 2005, in the public market, the net proceeds of which were used to repay the revolving credit debt and fund operating requirements. 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. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, Management of the Corporation believes that the disposition of such suits will not result in charges materially in excess of amounts provided in the accounts. 30 10 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents amounted to $267.1 million at December 27, 1996, an increase of $100.0 million from the prior fiscal year-end, principally as a result of the increase in cash generated by international operations. Short-term investments increased $24.3 million to $137.2 million at the end of 1996. During fiscal 1996, the Corporation paid $32.9 million in stockholder dividends, repaid debt of $47.6 million including a scheduled $22.0 million repayment of the Private Notes and funded other operating requirements. The Corporation incurred incremental borrowings of $171.5 million under the Revolving Credit Agreements. During fiscal 1996, cash flow provided by operating activities totaled $111.0 million. This represented an increase of $216.3 million from 1995, primarily due to advance payments by customers and current status of contracts in process. The majority of the operating cash flow was generated by international operations as domestic working capital needs were significant. The Corporation's working capital varies from period to period depending on the mix, stage of completion and commercial terms and conditions of the Corporation's contracts. Working capital needs have increased as a result of the Corporation satisfying requests from its customers, primarily in the Energy Equipment Group, for more favorable payment terms under contracts. Such requests generally include reduced advance payments and more favorable payment schedules. During fiscal 1995, the Corporation paid $27.6 million in stockholder dividends, repaid debt of $130.3 million including $95.0 million of borrowings under the Corporation's Revolving Credit Agreements and a scheduled $22.0 million repayment on the Private Notes and paid approximately $200.0 million for the purchase of Pyropower. The Corporation incurred new borrowings of $227.2 million primarily through the issuance of $200.0 million aggregate principal amount of 6.75% Notes due November 15, 2005 and raised $158.3 million through the sale of 4,620,000 shares of the Corporation's Common Stock. The net proceeds of the debt and equity offerings were used to repay borrowings under the Corporation's Revolving Credit Agreement which were incurred to (i) fund a portion of the Pyropower acquisition, (ii) fund working capital needs, (iii) refinance bank debt previously incurred in the acquisition of Enserch and (iv) pay a scheduled principal installment on the Private Notes. The Corporation's contracts in process and inventories increased by $20.3 million during 1996 from $383.2 million at December 29, 1995 to $403.5 million at December 27, 1996. The increase in the contracts in process and inventories in fiscal 1996 can be attributed to an increase in the Energy Equipment Group of $43.2 million, offset by reductions in the E&C Group of $11.1 million and $17.4 million in the Power Systems Group. In addition, accounts and notes receivable increased by $140.1 million in fiscal 1996 to $885.8 million from $745.7 million. The E&C Group increased by approximately $82.7 million, primarily due to significant contracts under execution by the Spanish, French and U.K. subsidiaries. The balance of the increase can be attributed principally to the Energy Equipment Group primarily due to execution of significant contracts by the Spanish subsidiary. Management of the Corporation expects its customers' requests for more favorable payment terms under Energy Equipment Group contracts to continue as a result of the competitive market in which the Corporation operates. The Corporation's pricing of contracts recognizes additional costs associated with the use of working capital. The Corporation intends to satisfy the increased working capital needs through internal cash generation, borrowings under its Revolving Credit Agreements and third-party financing in the capital markets. Under the Corporation's existing shelf registration statement, there is approximately $135 million available. On September 20, 1995, the Corporation established two Revolving Credit Agreements with a syndicate of banks led by National Westminster Bank PLC and Mellon Bank, N.A. One Agreement is a short-term Revolving Credit Agreement of $200 million with a maturity of 364 days and the second is a $300 million revolving credit facility with a maturity of four years (collectively, the "Revolving Credit Agreements"). On November 15, 1995, the short-term revolving credit facility was permanently reduced to $100 million. Borrowings under these facilities were incurred to (i) fund a portion of the Pyropower acquisition, (ii) refinance bank debt previously incurred to fund working capital and the acquisition of Enserch and (iii) make a $22 million scheduled principal payment on the Private Notes. The Corporation will be required to pay scheduled principal installments of $22.0 million on the Private Notes on September 30, 1997 and 1998. The Corporation expects to make such payments from internally generated cash, borrowings under its Revolving Credit Agreements and/or third-party financing in the capital markets. (31 continued) 11 The Corporation has lease payments due under two long-term operating leases of $98.5 million in fiscal 1997, $33.7 million in fiscal 1998 and $33.6 million in fiscal 1999 and other rental payments under leases for office space. The 1997 payments include an advance lease payment for a 1,600-ton-per-day recycling and waste-to-energy plant located in Robbins, Illinois, which went into commercial operation in January 1997. The Corporation expects to make these lease payments from cash available from operations and borrowings under the Revolving Credit Agreements. Leasing arrangements for equipment, which are short-term in nature, are not expected to impact the Corporation's liquidity or capital resources. Management of the Corporation believes that cash and cash equivalents on hand of $267.1 million and short-term investments of $137.2 million at December 27, 1996, combined with cash flow from operating activities, available credit under its Revolving Credit Agreements and access to third-party financings in the capital markets will be adequate to meet its working capital and liquidity needs for the foreseeable future. 31 12 MANAGEMENT'S DISCUSSION AND ANALYSIS In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership ("the Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State has repealed the Retail Rate Law insofar as it applies to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be a significant adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions applied over the operating life of the facility, Management of the Corporation believes that should the litigation not be successful, the financial impact on the operating results of the project will not result in a material adverse effect on the financial position of the Corporation. Management's strategy for managing risks associated with interest rate fluctuations is to enter into financial instrument transactions, such as interest rate swaps and forward rate agreements, to reduce such risks. Management's strategy for managing transaction risks associated with currency fluctuations is for each operating unit to enter into forward foreign exchange agreements to hedge its exposure on contracts into the operating unit's functional currency. The Corporation utilizes all such financial instruments solely for hedging. Corporate policy prohibits the speculative use of such instruments. The Corporation is exposed to credit loss in the event of nonperformance by the counterparties to such financial instruments. To minimize this risk, the Corporation enters into these financial instruments with financial institutions that are primarily rated A or better by Standard & Poor's or A2 or better by Moody's. Management believes that the geographical diversity of the Corporation's operations mitigates the effects of the currency translation exposure. No significant unhedged assets or liabilities are maintained outside the functional currency of the operating subsidiaries. Accordingly, translation exposure is not hedged. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. At December 27, 1996, there were approximately 92,600 claims pending. Approximately 35,500 new claims were filed in fiscal 1996 and settlement costs not covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of potential costs relating to these exposures. During the three-year period ended December 27, 1996, the Corporation tried, settled or summarily disposed of approximately 60,000 (1996-20,600) asbestos-related claims. Approximately $72 million, substantially all of which was reimbursed or will be reimbursed, were spent on asbestos litigation defense and case resolution during the three-year period (1994-$24 million; 1995-$21 million; 1996-$27 million). The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation. INFLATION The effect of inflation on the Corporation's revenues and earnings is minimal. Although a majority of the Corporation's revenues are made under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to complete in these future periods. In addition, some contracts provide for price adjustments through escalation clauses. (32 continued) 13 OTHER ACCOUNTING MATTERS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Standard provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This Standard is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The adoption of this Standard is not expected to impact the Corporation's consolidated results of operations, financial position or cash flows. 32 14 FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (In Thousands of Dollars, Except per Share - - --------------------------------------------------------------------- Amounts) - - -------- December 27, December 29, 1996 1995 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................ $ 267,149 $ 167,131 Short-term investments ............................... 137,180 112,853 Accounts and notes receivable: Trade ............................................. 769,494 630,751 Other ............................................. 116,291 114,988 Contracts in process ................................. 363,716 340,526 Inventories .......................................... 39,799 42,716 Prepaid and refundable income taxes .................. 38,627 39,346 Prepaid expenses ..................................... 30,192 20,662 ----------- ----------- Total current assets .............................. 1,762,448 1,468,973 ----------- ----------- Land, buildings and equipment ........................... 1,054,786 944,596 Less accumulated depreciation ........................... 330,007 299,784 ----------- ----------- Net book value .................................... 724,779 644,812 ----------- ----------- Notes and accounts receivable - long-term ............... 74,296 63,632 Investments and advances ................................ 73,725 56,767 Intangible assets, net .................................. 331,463 260,070 Prepaid pension cost and benefits ....................... 180,473 156,683 Other, including insurance recoveries ................... 359,362 321,686 Deferred income taxes ................................... 3,788 3,186 ----------- ----------- TOTAL ASSETS ...................................... $ 3,510,334 $ 2,975,809 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ............... $ 32,764 $ 34,648 Bank loans ........................................... 52,278 86,869 Accounts payable ..................................... 359,503 372,949 Accrued expenses ..................................... 275,527 196,633 Estimated costs to complete long-term contracts ......................................... 562,984 475,899 Advance payments by customers ........................ 116,903 74,821 Income taxes ......................................... 41,935 28,457 ----------- ----------- Total current liabilities ......................... 1,441,894 1,270,276 Long-term debt, less current installments ............... 796,279 554,404 Minority interest in subsidiary companies ............... 13,106 13,438 Deferred income taxes ................................... 30,095 21,841 Postretirement and other employee benefits other than pensions .................................. 180,210 178,130 Other long-term liabilities and deferred credits .............................................. 359,792 311,853 ----------- ----------- TOTAL LIABILITIES ................................. 2,821,376 2,349,942 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock Authorized 1,500,000 shares; no par value - none outstanding Common Stock $1.00 par value; authorized 160,000,000 shares; issued: 1996-40,651,241; 1995-40,498,481 ...................................... 40,651 40,498 Paid-in capital ......................................... 197,970 192,721 Retained earnings ....................................... 471,177 421,804 Accumulated translation adjustment ...................... (20,545) (28,861) ----------- ----------- 689,253 626,162 Less cost of treasury stock (10,804 shares) .............................................. 295 295 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ........................ 688,958 625,867 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 3,510,334 $ 2,975,809 =========== ===========
See notes to financial statements. 33 15 FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (In Thousands of Dollars, Except per Share - - ----------------------------------------------------------------------------- Amounts) - - -------- 1996 1995 1994 ---------- ---------- ---------- REVENUES: Operating revenues ......................... $4,005,503 $3,042,177 $2,234,441 Other income (including interest: 1996-$21,714; 1995-$23,404; 1994-$25,014) 35,108 39,753 36,682 ---------- ---------- ---------- Total Revenues .......................... 4,040,611 3,081,930 2,271,123 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of operating revenues ................. 3,510,970 2,642,290 1,909,893 Selling, general and administrative expenses 296,921 250,369 203,445 Other deductions (including interest: 1996-$54,940; 1995-$49,011; 1994-$34,978) 76,678 64,998 45,906 Provision for special charges .............. 24,000 50,120 -- Minority interest .......................... 5,176 4,490 5,012 ---------- ---------- ---------- Total Costs and Expenses ................ 3,913,745 3,012,267 2,164,256 ---------- ---------- ---------- Earnings before income taxes .................. 126,866 69,663 106,867 Provision for income taxes .................... 44,626 41,129 41,457 ---------- ---------- ---------- Net earnings .................................. $ 82,240 $ 28,534 $ 65,410 ========== ========== ========== Earnings per share ............................ $ 2.03 $ .79 $ 1.83 ========== ========== ==========
See notes to financial statements. (34 continued) 16 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 27, 1996 and December 29, 1995, 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 27, 1996. 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 27, 1996 and December 29, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 27, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York February 13, 1997 34 17
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of - - -------------------------------------------------------------------------- Dollars, Except per Share Amounts) - - ---------------------------------- 1996 1995 1994 --------- --------- --------- COMMON STOCK Balance at beginning of year ...................................... $ 40,498 $ 35,833 $ 35,707 Sold under stock options: (shares: 1996-128,199; 1995-45,817; 1994-125,682) ................................................... 128 45 126 Restricted stock issued under incentive plans (shares: 1996-24,561) 25 -- -- Issued in public offerings (shares: 1995-4,620,000) ............... -- 4,620 -- --------- --------- --------- Balance at end of year .......................................... 40,651 40,498 35,833 --------- --------- --------- PAID-IN CAPITAL Balance at beginning of year ...................................... 192,721 38,266 35,076 Stock option exercise price less par value ........................ 3,417 573 2,214 Excess of market value over cost of treasury stock or common stock issued under incentive plans .................................... 1,068 46 -- Tax benefits related to stock options ............................. 764 192 976 Excess of proceeds received on issuance of common stock in public offerings less par value and costs .............................. -- 153,644 -- --------- --------- --------- Balance at end of year .......................................... 197,970 192,721 38,266 --------- --------- --------- RETAINED EARNINGS Balance at beginning of year ...................................... 421,804 420,861 381,205 Net earnings for the year ......................................... 82,240 28,534 65,410 Cash dividends paid: Common (per share outstanding: 1996-$.81; 1995-$.77; 1994-$.72) . (32,867) (27,591) (25,754) --------- --------- --------- Balance at end of year .......................................... 471,177 421,804 420,861 --------- --------- --------- ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year ...................................... (28,861) (37,915) (51,261) Change in accumulated translation adjustment during the year ...... 8,316 9,054 13,346 --------- --------- --------- Balance at end of year .......................................... (20,545) (28,861) (37,915) --------- --------- --------- TREASURY STOCK Balance at beginning of year ...................................... 295 551 551 Issued under incentive plans (shares: 1995-9,325) ................. -- (256) -- --------- --------- --------- Balance at end of year .......................................... 295 295 551 --------- --------- --------- TOTAL STOCKHOLDERS' EQUITY ........................................ $ 688,958 $ 625,867 $ 456,494 ========= ========= =========
See notes to financial statements. 35 18 FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - - ------------------------------------- (In Thousands of Dollars) 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ..................................... $ 82,240 $ 28,534 $ 65,410 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization ................... 63,605 54,625 44,288 Noncurrent deferred tax ......................... 5,338 5,049 9,609 Gain on sale of land, buildings and equipment ... (400) (1,283) (915) Equity earnings, net of dividends ............... (1,474) (1,578) (623) Provision for special charges ................... 24,000 50,120 -- Other noncash items ............................. (5,133) (4,891) (1,517) Changes in assets and liabilities, net of effects of acquisitions: Receivables ..................................... (148,023) (143,023) (24,942) Contracts in process and inventories ............ (19,983) (131,759) (51,863) Accounts payable and accrued expenses ........... 64,219 29,566 (8,286) Estimated costs to complete long-term contracts . 17,376 50,096 (23,089) Advance payments by customers ................... 39,300 (34,237) 22,316 Income taxes .................................... 13,520 3,801 (8,198) Other assets and liabilities .................... (23,629) (10,327) (36,487) --------- --------- --------- Net cash provided/(used) by operating activities ................................... 110,956 (105,307) (14,297) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ............................. (158,526) (59,432) (38,501) Proceeds from sale of properties ................. 16,278 2,918 4,671 Payments for acquisitions of businesses, net of cash acquired ................................... (14,798) (133,451) (50,946) Increase in investments and advances ............. (10,926) (13,596) (5,002) (Increase)/decrease in short-term investments .... (19,713) 7,026 14,621 Partnership distribution ......................... (4,859) (4,883) (3,000) --------- --------- --------- Net cash used by investing activities ........... (192,544) (201,418) (78,157) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders ........................ (32,867) (27,591) (25,754) Proceeds from public offering of common stock, net ............................................. -- 158,264 -- Proceeds from the exercise of stock options ...... 3,545 618 2,340 (Decrease)/increase in short-term debt ........... (35,258) 7,243 14,583 Proceeds from long-term debt ..................... 287,937 219,978 100,848 Repayment of long-term debt ...................... (47,646) (130,329) (30,540) --------- --------- --------- Net cash provided by financing activities ....... 175,711 228,183 61,477 --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents .................................... 5,895 9,872 17,264 --------- --------- --------- INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ..... 100,018 (68,670) (13,713) Cash and cash equivalents at beginning of year ....... 167,131 235,801 249,514 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ............. $ 267,149 $ 167,131 $ 235,801 ========= ========= ========= Cash paid during the year for: Interest (net of amount capitalized) ............ $ 45,985 $ 45,434 $ 36,191 Income taxes .................................... $ 20,271 $ 18,162 $ 26,115
See notes to financial statements. 36 19 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. 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 years 1994, 1995 and 1996 included 52 weeks. Certain amounts in the 1995 consolidated balance sheet have been reclassified to conform with the 1996 presentations. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for long-term contracts, depreciation, employee benefit plans, taxes, and contingencies (see Note 13), among others. 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 revenues 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 revenues and progress payments on uncompleted contracts. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The elapsed time from award of a contract to completion of performance may be up to four years. 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. The Corporation includes pass-through costs on cost-plus contracts which are customer- reimbursable materials, equipment and subcontractor costs when the Corporation determines that it is responsible for the engineering specification, procurement and management of such cost components on behalf of the customer. The Corporation has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. The Corporation has a substantial history of making reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. However, current estimates may be revised as additional information becomes available. 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 lives of the service contracts. The Corporation records revenues relating to debt repayment on these contracts on a straight-line basis over the lives of the service contracts, and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly liquid short-term investments purchased with original maturities of three months or less. 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 3. In conformity with trade practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets. (37 continued) 20 LAND, BUILDINGS AND EQUIPMENT - Depreciation is computed on a straight-line basis using composite estimated lives ranging from 10 to 50 years for buildings and from 3 to 35 years for equipment. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in earnings. INVESTMENTS AND ADVANCES - The Corporation uses the equity method of accounting for investment ownership of between 20% and 50% in affiliates unless significant economic or political considerations indicate that the cost method is appropriate. Investment ownership of less than 20% in affiliates is carried at cost. Currently, all of the Corporation's significant investments in affiliates are recorded using the equity method. INCOME TAXES - Deferred income taxes are provided on a liability method whereby deferred tax assets are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Corporation's tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount. 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 $305,000 at December 27, 1996. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated. 37 21 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 and cash flows at monthly weighted average rates. Foreign currency transaction (losses) for 1996, 1995 and 1994 were approximately $(500), $(1,600) and $(120), respectively [$(320), $(1,000) and $(80) 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. Amounts receivable or payable under foreign exchange hedges are recognized as deferred gains or losses, and are included in either contracts in process or estimated costs to complete long-term contracts. The Corporation utilizes foreign exchange contracts solely for hedging purposes. Corporate policy prohibits the speculative use of financial instruments. INVENTORIES - Inventories, principally materials and supplies, are stated at lower of cost or market, determined primarily on the average cost method. INTANGIBLE ASSETS - Intangible assets for 1996 and 1995 consist principally of the excess of cost over the fair value of net assets acquired (goodwill) ($232,213 and $156,370), trademarks ($62,970 and $65,000) and patents ($36,280 and $38,700), respectively. These assets are being amortized on a straight-line basis over periods of 10 to 40 years. The Corporation periodically evaluates goodwill on a separate operating unit basis to assess recoverability and impairments, if any, are recognized in earnings. In the event facts and circumstances indicate that the carrying amount of goodwill associated with an investment is impaired, the Corporation reduces the carrying amount to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation. EARNINGS PER SHARE - Per-share data has been computed based on the weighted average number of shares of common stock outstanding of: 1996-40,592,494; 1995-36,321,626; and 1994-35,787,658. Outstanding stock options have been disregarded because their effect on earnings per share would not be significant. 2. ACQUISITIONS In the fourth quarter of 1995, the Corporation acquired the power-generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $200,000, including acquisition costs. The Pyropower agreement provided for post-closing adjustments to the purchase price based upon the final valuation of the acquired assets and assumed liabilities. This adjustment included provisions for working capital and net worth deficiencies. In addition, provision in the final adjustment was made for a minimum level of backlog and gross margin in backlog. Since Pyropower was acquired late in 1995 and was a complex worldwide operation, which required a comprehensive review of asset values and liabilities and a significant part of the study had to take into consideration the integration of Pyropower into the Energy Equipment Group, the final assessment of the values of the assets and liabilities was not completed until early in the fourth quarter of 1996. During 1996, the Corporation obtained more comprehensive information that was not available during the preliminary allocation period. The determination of the final fair values resulted in adjustments consisting of changes from initially determined values as of the end of 1995. The most significant adjustments included increases in the estimated cost to complete long-term contracts ($68.3 million), decreases in land, buildings and equipment ($4.4 million), and other changes including decreases in long-term investments and increases in several allowance accounts ($7.3 million). These changes resulted in a corresponding increase in goodwill. The quarterly earnings previously reported were not significantly impacted by these changes. The unaudited pro forma consolidated results of operations of the Corporation and Pyropower for the years ended December 29, 1995 and December 30, 1994, which assume the acquisition had been made as of the beginning of each fiscal year, are summarized below: (38 continued) 22
1995 1994 ---- ---- Revenues $3,331,602 $2,499,104 Net earnings 14,260(1) 56,290 Net earnings per share $ .39 $ 1.57
(1) Includes provision for reorganization costs of $46,500, net of income taxes ($1.28 per share). The unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional depreciation expenses as the result of a step-up in the basis of fixed assets, additional amortization expense as a result of goodwill, and other intangible assets and the increased interest expense on acquisition debt. The unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect at the beginning of 1994 and 1995 or of future results of operations of the consolidated entities. The other acquisitions made in 1995 have not been included in the pro forma results because revenues, net earnings and earnings per share would not have been materially different. Also in 1995, the Corporation finalized (i) the purchase of the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana, for approximately $2,500, and (ii) the purchase of the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas, for approximately $16,000. In addition, the Corporation increased its ownership in Foster Wheeler Andina, S.A. (Bogota, Colombia), an engineering company, from 19% to 60% for $2,500. The acquisitions made in 1995 have all been accounted for as purchases and the results of operations of these companies have been included in the consolidated financial statements since the dates of acquisition. Approximately $175,000 were allocated to cost in excess of net assets of subsidiaries acquired, $38,700 to patents and $65,000 to trademarks. The intangibles are being amortized on a straight-line basis over an average life of 35 years. The assets acquired also included $73,000 in cash and fixed assets of $79,000. In connection with acquisitions, contracts in process have been valued at an estimated contract price less estimated cost to complete and a reasonable profit margin on the completion effort. 38 23 3. ACCOUNTS AND NOTES RECEIVABLE The following tabulation shows the components of trade accounts and notes receivable:
1996 1995 ---- ---- From long-term contracts: Amounts billed due within one year................ $477,394 $299,594 -------- -------- Retentions: Billed: Estimated to be due in: 1996 .................................. -- 21,950 1997 .................................. 21,578 1,196 1998 .................................. 16,046 -- 1999 .................................. 20,028 19,765 -------- -------- Total billed............................ 57,652 42,911 -------- -------- Unbilled: Estimated to be due in: 1996 .................................. -- 178,357 1997 .................................. 135,241 -- 1998 .................................. 824 724 -------- -------- Total unbilled.......................... 136,065 179,081 -------- -------- Total retentions........................ 193,717 221,992 -------- -------- Total receivables from long-term contracts.................. 671,111 521,586 Other trade and notes receivable..................... 102,458 115,119 -------- -------- 773,569 636,705 Less, allowance for doubtful accounts................ 4,075 5,954 -------- -------- $769,494 $630,751 ======== ========
4. CONTRACTS IN PROCESS AND INVENTORIES Costs of contracts in process and inventories considered in the determination of cost of operating revenues are shown below:
1996 1995 1994 ---- ---- ---- Contracts in process................................... $363,716 $340,526 $171,144 ======== ======== ======== Inventories: Materials and supplies.............................. $ 31,037 $ 31,633 $ 21,447 Work in process..................................... 2,445 6,072 1,894 Finished goods...................................... 6,317 5,011 4,293 -------- -------- -------- $ 39,799 $ 42,716 $ 27,634 ======== ======== ========
The following tabulation shows the elements included in contracts in process as related to long-term contracts:
1996 1995 1994 ---- ---- ---- Costs plus accrued profits less earned revenues on contracts currently in process..................................... $633,392 $694,877 $350,897 Less, Progress payments..................................... 269,676 354,351 179,753 -------- -------- -------- $363,716 $340,526 $171,144 ======== ======== ========
(39 continued) 24 5. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are stated at cost and are set forth below:
1996 1995 ---- ---- Land and land improvements.............................. $ 21,419 $ 21,599 Buildings............................................... 154,160 146,858 Equipment............................................... 743,434 737,624 Construction in progress................................ 135,773 38,515 ---------- -------- $1,054,786 $944,596 ========== ========
Depreciation expense for the years 1996, 1995 and 1994 was $54,374, $51,706 and $43,729, respectively. 6. 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. Under the plans, retirement benefits are primarily a function of both years of service and level of compensation; the plans are noncontributory. Retirement benefits for domestic employees are determined based on 1.2% of the average of the highest five 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. 39 25 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) The following table sets forth the plans' funded status as of the end of December 1996 and 1995:
1996 1995 ---- ---- Actuarial present value of accumulated benefit obligations: Vested ................................................ $ 375,765 $ 334,082 Nonvested ............................................. 9,135 10,382 --------- --------- Total ............................................. $ 384,900 $ 344,464 ========= ========= Plan assets at fair value, primarily listed stocks and bonds ............................... $ 490,659 $ 446,519 Projected benefit obligations ............................. (424,285) (383,036) --------- --------- Excess of plan assets over projected benefit obligations ........................................... 66,374 63,483 Unrecognized net loss due to past experience different from assumptions made ....................... 37,047 34,672 Unrecognized prior service cost ........................... 16,638 15,923 Unrecognized net assets being amortized over 12 years .............................................. (12,179) (17,198) --------- --------- Prepaid pension cost ...................................... $ 107,880 $ 96,880 ========= =========
Net periodic pension expense/(credits) included the following components:
1996 1995 1994 ---- ---- ---- Service cost ................................ $ 17,424 $ 13,602 $ 15,289 Interest cost on projected benefit obligation ................................ 29,476 27,327 25,070 Actual return on plan assets ................ (43,600) (38,848) (38,081) Net amortization and deferrals .............. (2,279) (637) (2,799) -------- -------- -------- Net periodic pension expense/(credits) ...... $ 1,021 $ 1,444 $ (521) ======== ======== ========
In determining the actuarial present value of the projected benefit obligations, discount rates ranging from 7.0% to 8.5%, and rates of increase for future compensation levels ranging from 3.0% to 6.5% were utilized. The expected long-term rate of return on assets was 10%. In conjunction with the 1995 reorganization, the Corporation offered an enhanced retirement package to employees. This resulted in additional service cost under the provisions of SFAS No. 88 of approximately $1,900. The Corporation has a 401(k) plan for salaried employees. The Corporation, for the years 1996, 1995 and 1994, contributed a 50% match of the employees' contributions which amounted to a cost of $4,300, $3,700 and $3,400, 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. The following sets forth the plans' funded status reconciled with amounts reported in the Corporation's consolidated balance sheet at the end of December 1996 and 1995. (40 continued) 26 Accumulated postretirement benefit obligation:
1996 1995 ---- ---- Retirees............................................. $ 70,095 $ 71,861 Fully-eligible active plan participants.............. 11,927 11,712 Other active plan participants....................... 36,895 38,409 -------- -------- Accumulated postretirement benefit................... 118,917 121,982 Unrecognized net gain/(loss)......................... 3,052 (669) Unrecognized prior service cost...................... 28,976 31,077 -------- -------- Accrued postretirement benefit liability............. $150,945 $152,390 ======== ========
Net periodic postretirement benefit cost for 1996, 1995 and 1994 included the following components:
1996 1995 1994 ---- ---- ---- Service cost.......................................... $ 1,623 $ 1,247 $ 1,244 Interest cost......................................... 6,010 6,186 6,478 Net amortization and deferrals........................ (2,101) (2,165) (2,094) ------- ------- ------- Net periodic postretirement benefit cost.............. $ 5,532 $ 5,268 $ 5,628 ======= ======= =======
An 8.5% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1997, gradually decreasing to 5% by the year 2011. 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 27, 1996, by $3,550 and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1996 by $280. A discount rate of 7.75% (1995 - 7.25%) was used to determine the accumulated postretirement benefit obligation. 7. BANK BORROWINGS The approximate weighted average interest rates on borrowings outstanding (primarily foreign) at the end of 1996 and 1995 were 5% and 9%, respectively. Unused lines of credit for short-term bank borrowings aggregated $125,723 at year-end 1996, of which approximately 88% was available in the United States and Canada at interest rates not exceeding the prime commercial lending rate and the remainder was available overseas in various currencies at rates consistent with market conditions in the respective countries. Interest costs incurred in 1996, 1995 and 1994 were $61,302, $49,117 and $35,445 of which $6,362, $106 and $467, respectively, were capitalized. 40 27 8. LONG-TERM DEBT
Long-term debt consisted of the following: 1996 1995 ---- ---- Corporate Debt - - --------------- 8.58% unsecured promissory notes due in installments of $22,000 on September 30 in each of the years 1997 and 1998 .................................... $ 44,000 $ 66,000 Revolving Credit Agreements (average interest rate 6%) ................... 171,500 -- 6.75% Notes due November 15, 2005 ........................................ 200,000 200,000 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 (1996 year-end rate 6.4%), due semiannually through July 30, 2006 ......................................................... 53,853 56,887 Floating/Fixed Rate Resource Recovery Revenue Bonds, interest varies based on tax-exempt money market rates (1996 year-end rate 4.2%), 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 ................................................................. -- 3,104 Fixed Rate Trust Certificates, interest at 7.36%, due semiannually August 15, 1997 through February 15, 2014 ..................................................... 97,923 -- 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 Resource Recovery Revenue Bonds, interest 7.9% to 10%, due annually December 15, 1997 through 2012 ..................................................... 70,270 73,505 Other .................................................................... 25,899 23,958 -------- -------- 829,043 589,052 Less, Current portion .................................................... 32,764 34,648 -------- -------- $796,279 $554,404 ======== ======== Principal payments are payable in annual installments of: 1998................................................................ $ 48,800 1999................................................................ 27,154 2000................................................................ 202,920 2001................................................................ 28,510 2002................................................................ 29,927 Balance due in installments through 2014..................................................... 458,968 -------- $796,279 ========
(41 continued) 28 CORPORATE DEBT - During 1995, the Corporation sold $200,000 Notes in the public market which bear interest at a fixed rate of 6.75% per annum, payable semiannually, and mature November 15, 2005. The Notes have been rated BBB and Baa2 by Standard and Poor's and Moody's, respectively, and were issued under an indenture between the Corporation and Harris Trust and Savings Bank. The Notes are not redeemable prior to maturity and are not subject to any sinking fund requirements. The Notes will constitute senior unsecured indebtedness of the Corporation and will rank on a parity with the Corporation's other senior unsecured indebtedness. In conjunction with the 8.58% unsecured promissory notes, 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 $44,000 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. Amounts receivable under the swap agreements are reflected as a reduction of interest expense. The Corporation has entered into a four-year Revolving Credit Agreement ($300,000) and a 364-day Revolving Credit Agreement ($100,000) (the "Revolving Credit Agreements") with a group of banks. The loans are for general corporate purposes. The maturity dates of the Revolving Credit Agreements are renewed each year subject to the approval of the Corporation and the banks. At year-end 1996, the Corporation had $171,500 outstanding of the $400,000 available under the Revolving Credit Agreements. The Corporation pays to the banks a facility fee on the total facility. The Note Agreement, pursuant to which the 8.58% unsecured promissory notes were issued, and the Revolving Credit Agreements require the maintenance of a maximum Consolidated Leverage Ratio of .50 to 1 and a minimum Consolidated Fixed Charge Coverage Ratio of 2.50 to 1. At December 27, 1996, these ratios were .46 to 1 and 3.25 to 1, respectively. 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 by the assets of each project. 41 29 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) COGENERATION PROJECTS - The note payable for $53,853 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 and at December 27, 1996 was $23,806. Amounts receivable under the swap agreements are reflected as a reduction of interest expense. The Floating/Fixed Rate Resource Recovery Revenue Bonds in the amount of $45,448 were issued in a total amount of $45,450. The bonds are collateralized by an irrevocable standby letter of credit issued by a commercial bank. The Fixed Rate Trust Certificates in the amount of $97,923 were issued in a total amount of $162,000 by a Chilean limited liability company owned 85% by a Special-Purpose Subsidiary and 15% by the Chilean national oil company and one of its affiliates. WASTE-TO-ENERGY PROJECTS - The Solid Waste Disposal and Resource Recovery System Revenue Bonds totaling $120,150 were issued in a total amount of $133,500. The bonds are collateralized by a pledge of certain revenues and assets of the project. The Resource Recovery Revenue Bonds of $70,270 were issued in a total amount of $86,780. The bonds are collateralized by a pledge of certain revenues and assets of the project. 9. RESEARCH AND DEVELOPMENT For the years 1996, 1995 and 1994, approximately $16,900, $11,100 and $9,800, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $29,600, $25,900 and $38,200, respectively, were spent on customer-sponsored research activities which were paid by customers of the Corporation. 10. INCOME TAXES The components of earnings/(loss) before income taxes for the years 1996, 1995 and 1994 were taxed under the following jurisdictions:
1996 1995 1994 ---- ---- ---- Domestic .................................................... $(11,261) $ 2,775 $ 19,955 Foreign ..................................................... 138,127 66,888 86,912 -------- ------- -------- Total ....................................................... $126,866 $69,663 $106,867 ======== ======= ======== The provision for income taxes on those earnings was as follows: Current tax expense: Domestic .................................................... $ 6,002 $ 6,306 $ 2,931 Foreign ..................................................... 31,197 17,883 36,739 -------- ------- -------- Total current ............................................... 37,199 24,189 39,670 -------- ------- -------- Deferred tax expense/(benefit): Domestic .................................................... (5,434) 5,508 5,423 Foreign ..................................................... 12,861 11,432 (6,600) -------- ------- -------- Total deferred .............................................. 7,427 16,940 (1,177) -------- ------- -------- Utilization of operating loss carryforwards ............................................. -- -- 2,964 -------- ------- -------- Total provision for income taxes ............................... $ 44,626 $41,129 $ 41,457 ======== ======= ========
(42 continued) 30 Deferred tax liabilities (assets) consist of the following:
1996 1995 ---- ---- Difference between book and tax depreciation ....................................... $ 90,995 $ 85,739 Pension assets ............................................ 36,024 33,762 Capital lease transactions ................................ 12,201 12,451 Revenue recognition ....................................... 19,994 19,146 Other ..................................................... 6,416 4,397 --------- --------- Gross deferred tax liabilities ............................ 165,630 155,495 --------- --------- Current taxability of estimated costs to complete long-term contracts .............................................. (9,061) (12,989) Reorganization costs ...................................... -- (18,120) Income currently taxable deferred for financial reporting ................................ (6,697) (7,059) Expenses not currently deductible for tax purposes ....................................... (37,104) (21,690) Investment tax credit carryforwards ....................... (30,251) (30,251) Postretirement benefits other than pensions .......................................... (64,900) (65,919) Asbestos claims ........................................... (8,400) -- Minimum tax credits ....................................... (6,832) (6,605) Foreign tax credits ....................................... (21,400) (21,400) Other ..................................................... (3,166) (1,071) Valuation allowance ....................................... 20,000 20,000 --------- --------- Net deferred tax assets ................................... (167,811) (165,104) --------- --------- $ (2,181) $ (9,609) ========= =========
42 31 The domestic investment tax credit carryforwards, if not used, will expire in the years 2002 through 2007. Foreign tax credits carryforwards are recognized based on their potential utilization and, if not used, will expire in the years 1997 through 2001. The Corporation has significant foreign tax credit carryforwards for which deferred tax assets have not been recorded since their utilization is deemed remote. As reflected above, the Corporation has recorded various deferred tax assets. Realization is dependent on generating sufficient taxable income prior to the expiration of the various credits. The valuation allowance was increased by $14,500 as a result of the 1995 provision for reorganization costs. Such provision has resulted in additional deferred tax assets for financial reporting purposes, thereby making it less likely that a portion of the tax credits will be utilized. Although realization is not assured, Management believes that it is more likely than not that all of the deferred tax assets (after consideration of the valuation allowance) will be realized. The amount of the deferred tax assets considered realizable, however, could change in the near future if estimates of future taxable income during the carryforward period are changed. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
1996 1995 1994 ---- ---- ---- Tax at U.S. statutory rate .... 35.0 % 35.0 % 35.0% State income taxes, net of Federal income tax benefit . 2.0 4.4 1.2 Increase in valuation allowance -- 20.8 -- Other ......................... (1.8) (1.2) 2.6 ---- ---- ---- 35.2 % 59.0 % 38.8% ==== ==== ====
11. 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 lease back the plant under a long-term operating lease for 25 years. In 1994, the Corporation entered into a lease agreement for a 1,600-ton-per-day recycling and waste-to-energy plant located in Robbins, Illinois, which went into commercial operation in January 1997 (see Note 13). The terms of the agreement are to lease the facility under a long-term operating lease for 32 years. Recourse under these lease agreements is primarily limited to the assets of the special-purpose entities. The lease expense for the years 1994 through 1996 totaled $9,300 annually. The minimum lease payments under these long-term noncancelable operating leases are as follows: 1997.................. $ 98,528 1998.................. 33,743 1999.................. 33,626 2000.................. 33,529 2001.................. 35,352 Thereafter............ 687,248 -------- Total................. $922,026 ========
The Corporation and certain of its subsidiaries are obligated under operating lease agreements primarily for office space. Rental expense for these leases amounted to $28,800 in 1996, $26,000 in 1995 and $20,600 in 1994. Future minimum rental commitments on noncancelable leases are as follows: 1997 - $25,800; 1998 - $23,900; 1999 - $21,000; 2000 - $18,300; 2001-$16,600; and an aggregate of $25,800 thereafter. (43 continued) 32 12. QUARTERLY FINANCIAL DATA (Unaudited)
Three Months Ended ---------------------------------------------------------- 1996 March 29 June 28 Sept. 27 Dec. 27 - - ---- -------- ------- -------- ------- Operating revenues........................ $843,916 $970,535 $960,912 $1,230,140 Gross earnings from operations............ 117,274 117,495 128,011 131,753 Net earnings.............................. 23,436 25,065 23,965 9,774(a) Earnings per share(c)..................... .58 .62 .59 .24(a) Cash dividends per share.................. .195 .205 .205 .205 Stock prices: High.................................. 47.25 47.125 45.00 44.625 Low................................... 39.375 39.75 39.875 33.75
1995 March 31 June 30 Sept. 29 Dec. 29 - - ---- -------- ------- -------- ------- Operating revenues........................ $635,993 $678,733 $779,938 $947,513 Gross earnings from operations............ 89,766 90,904 96,870 122,347 Net earnings/(loss)....................... 17,880 18,890 17,210 (25,446)(b) Earnings/(loss) per share(c).............. .50 .53 .48 (.67)(b) Cash dividends per share.................. .185 .195 .195 .195 Stock prices: High.................................. 34.50 37.625 39.50 43.50 Low................................... 29.375 31.625 33.375 34.625
(a) Includes a provision for asbestos claims of $15,600, net of income taxes ($0.38 per share). See Note 17. (b) Includes a provision for reorganization costs of $46,500, net of income taxes ($1.28 per share) See Note 17. (c) Based on weighted average number of shares outstanding in each quarter. 13. LITIGATION AND UNCERTAINTIES 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. 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 materially in excess of amounts provided in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. At December 27, 1996, there were approximately 92,600 (1995-77,700) claims pending. Approximately 35,500 new claims were filed in fiscal 1996 and settlement costs not 43 33 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of potential costs relating to these exposures. During the three-year period ended December 27, 1996, the Corporation tried, settled or summarily disposed of approximately 60,000 (1996-20,600) asbestos-related claims. Approximately $72,000, substantially all of which was reimbursed or will be reimbursed, were spent on asbestos litigation defense and case resolution during the three-year period (1994-$24,000; 1995-$21,000; 1996-$27,000). The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation (see Note 17). In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership ("the Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State has repealed the Retail Rate Law insofar as it applied to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be a significant adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions applied over the operating life of the facility, Management of the Corporation believes that should the litigation not be successful, the financial impact on the operating results of the project will not result in a material adverse effect on the financial position of the Corporation. The ultimate legal and financial liability of the Corporation in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used by the Corporation becomes known, the Corporation reassesses its position both with respect to gain contingencies and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters, which are subject to change as events evolve and as additional information becomes available during the administration and litigation process. 14. STOCK OPTION PLANS The Corporation has two fixed option plans which reserve shares of common stock for issuance to executives, key employees and directors. The Corporation has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Corporation's two stock option plans been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123, the Corporation's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 ---- ---- Net earnings - as reported $ 82,240 $ 28,534 ======== ======== Net earnings - pro forma $ 79,725 $ 24,434 ======== ======== Earnings per share - as reported $ 2.03 $ 0.79 ======== ======== Earnings per share - pro forma $ 1.96 $ 0.67 ======== ========
(44 continued) 34 The assumption regarding the stock options issued to executives in 1996 and 1995 was that 100% of such options vested in each year, rather than one-third as required by the Plan, since one-third of the previous two years would have vested in 1996 and 1995. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1996 1995 ---- ---- Dividend yield 1.83% 2.21% Expected volatility 27.56% 37.20% Risk-free interest rate 5.63% 7.68% Expected life (years) 7.5 7.5
Under the plan approved by the stockholders in April 1995, the total number of shares of common stock that may be granted is 1,500,000. 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 will automatically receive an option to acquire 2,000 shares each year. These plans provide that shares granted come from the Corporation's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100% 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 will 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. 44 35 Information regarding these option plans for 1996, 1995 and 1994 is as follows:
1996 1995 1994 ------------------------- ------------------------ ---- Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price Shares ------ ----- ------ ----- ------ Options outstanding, beginning of year...................... 991,345 $29.78 546,462 $28.12 493,810 Options exercised.......................... (128,199) 27.65 (45,817) 13.49 (125,682) Options granted............................ 260,084 42.63 490,700 30.10 178,334 ---------- ---------- --------- Options outstanding, end of year........... 1,123,230 $33.00 991,345 $29.78 546,462 ========== ========== ========= Option price range at end of year.......... $ 14.50 to $ 14.50 to $ 12.25 to $ 45.6875 $ 40.0625 $ 40.0625 Option price range for excercised shares...................... $ 14.50 to $ 12.25 to $ 12.25 to $ 32.9375 $ 13.6875 $ 28.75 Options available for grant at end of year......................... 1,282,916 1,543,000 539,578 ========== ========== ========= Weighted-average fair value of options, granted during the year................ $ 14.90 $ 13.12
The following table summarizes information about fixed-price stock options outstanding at December 27, 1996:
Options Outstanding Options Exercisable --------------------------------------------------- -------------------------------- Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/27/96 Contractual Life Exercise Price at 12/27/96 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $14.50 2,691 3 years $14.50 2,691 $14.50 21.3125 to 22.125 28,387 4 years 21.51 28,387 21.51 22.0625 to 28.6875 48,000 5 years 23.17 48,000 23.17 26.9375 to 27.4375 88,000 6 years 27.34 88,000 27.34 27.4375 to 28.75 94,667 7 years 28.50 94,667 28.50 32.9375 to 40.0625 172,334 8 years 35.83 121,561 36.06 29.75 to 35.25 429,067 9 years 30.14 302,282 30.20 42.1875 to 45.6875 260,084 10 years 42.63 -- -- --------- ------- 14.50 to 45.6875 1,123,230 685,588 ========= =======
15. 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 (45 continued) 36 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 Corporation's common stock having a market value at that time of twice the Right's exercise price. 16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 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 values: CASH AND SHORT-TERM INVESTMENTS - All investments are considered available for sale and the carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM INVESTMENTS - The fair values of some investments are estimated based on quoted market prices for those or similar investments. 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 AND INTEREST RATE SWAPS - The fair values of these financial instruments (used for hedging purposes) are estimated by obtaining quotes from brokers. The Corporation is exposed to market risks from changes in interest rates and fluctuations in foreign exchange rates. Financial instruments are utilized by the Corporation to reduce these risks. The Corporation does not hold or issue financial instruments for trading purposes. The Corporation is exposed to credit loss in the event of 45 37 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) nonperformance by the counterparties. All of these financial instruments are with significant financial institutions that are primarily rated A (S&P) or better (see Notes 1 and 8). CARRYING AMOUNTS AND FAIR VALUES - The estimated fair values of the Corporation's financial instruments are as follows:
1996 1995 ------------------------- ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Nonderivatives: Cash and short-term investments ........... $ 404,329 $ 404,329 $ 279,984 $ 279,984 Long-term investments .... 700 1,170 4,150 4,650 Long-term debt ........... (829,043) (828,287) (589,052) (595,000) Derivatives: Foreign currency contracts 1,430 1,430 (17,700) (17,700) Interest rate swaps ...... -- 260 -- 200
In the ordinary course of business, the Corporation is contingently liable for performance under letters of credit totaling approximately $166,000 and $139,000 at December 27, 1996 and December 29, 1995, respectively. In the Corporation's past experience, virtually no claims have been made against these financial instruments. Management of the Corporation does not expect any material losses to result from these off-balance-sheet instruments and, therefore, is of the opinion that the fair value of these instruments is zero. As of December 27, 1996, the Corporation had $144,000 of forward exchange contracts outstanding. These forward exchange contracts mature between 1997 and 1998. Approximately 15% of these contracts require a domestic subsidiary to sell Japanese yen and receive U.S. dollars. The remaining contracts have been established by various international subsidiaries to sell a variety of currencies and either receive their respective functional currencies or other currencies for which they have payment obligations to third parties. 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 business and geographic areas. As of December 27, 1996 and December 29, 1995, the Corporation had no significant concentrations of credit risk. The Corporation had issued third party off-balance-sheet financial guarantees totaling approximately $20,000 at year end 1996 and 1995. 17. PROVISION FOR SPECIAL CHARGES (a) ASBESTOS CLAIMS - In the fourth quarter of 1996, the Corporation recorded a special pretax charge of $24,000 with respect to estimated probable payments for asbestos litigation that may not be covered by insurance due to insurers that have become, or may in the future become insolvent. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries prior to and during the 1970s for which the insolvent insurers provided coverage. In conjunction with outside experts, the Corporation has carefully considered the financial viability and legal obligations of (46 continued) 38 its insurance carriers and has concluded that after recognition of the special charge, insurers will continue to adequately fund the balance of the claims and defense costs relating to current and future asbestos litigation. The Corporation anticipates funding the major portion of this charge over the next five to ten years. (b) REORGANIZATION - In connection with the acquisition of Pyropower, the Corporation recorded a pretax reorganization provision in the fourth quarter of 1995 of $50,120. This provision related to the reorganization of the operations of the Energy Equipment Group that existed before the acquisition of Pyropower. The reorganization plan, when fully complete, will result in substantial cost savings and is expected to improve the competitive position of the Energy Equipment Group. This reorganization plan included a rationalization of manufacturing capacity and the reduction of approximately 630 salaried and hourly personnel. The provision for reorganization costs included the following items:
NATURE OF COSTS UNITED STATES CANADA TOTAL --------------- ------------- ------ ----- Write-off of excess buildings and equipment due to the rationalization of production capacity...................................... $ 3,125 $ 7,077 $10,202 Employee severance cost and related benefits............... 6,950 9,977 16,927 Asset write-downs (including stranded inventory) and provisions related to discontinuance of certain product lines (including incremental costs on certain completed contracts)..................................... 13,164 6,176 19,340 Other, including the write-off of accumulated translation adjustment for curtailed operations................................. 1,500 2,151 3,651 ------- ------- ------- Total pretax provision..................................... $24,739 $25,381 $50,120 ======= ======= =======
The reorganization has been substantially completed as of the end of 1996 in accordance with the initial plan. Approximately 50% of the provision had a cash impact. 46 39 18. BUSINESS SEGMENTS - DATA The business of the Corporation and its subsidiaries falls within three business groups. The Engineering and Construction Group that designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power- generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. The Energy Equipment Group designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized-bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NO(x) burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. The Energy Equipment Group also provides proprietary solutions and systems for many separation applications and manufactures highly-engineered chemical-separations equipment for the petroleum refining, petrochemical, chemical and gas processing industries. The Power Systems Group utilizes Foster Wheeler's strengths in design, engineering, manufacturing and construction to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities as well as facilities for the process and petrochemical industries. The Corporation conducts its business on a global basis. The E&C Group accounted for the largest portion of the Corporation's revenues and operating income over the last ten years. In 1996, the Group accounted for approximately 64% of the operating revenues. The geographic dispersion of these operating revenues was as follows: 25% North America, 19% Asia, 35% Europe, 14% Middle East and 7% other. The Energy Equipment Group accounted for 32% of the operating revenues of the Corporation. The geographic dispersion of these operating revenues was as follows: 34% North America, 34% Asia, 25% Europe and 7% other. The Power Systems Group accounted for 4% of the Corporation's 1996 operating revenues. Earnings of segments represent revenues less expenses attributable to that group or geographic area where the operating units are located. Revenues between business segments are immaterial and are netted against the revenues of the respective segments. 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 1996, 1995 and 1994 is on pages 26 and 27 (unaudited as to unfilled orders and new orders booked). 47 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary of financial information extracted from the consolidated balance sheet and statement of earnings for the year ended December 27, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-27-1996 DEC-30-1995 DEC-27-1996 267,149 137,180 885,785 0 403,515 1,762,448 1,054,786 330,007 3,510,334 1,441,894 796,279 0 0 40,651 648,307 3,510,334 4,005,503 4,040,611 3,807,891 3,807,891 0 0 54,940 126,866 44,626 82,240 0 0 0 82,240 2.03 2.03
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