<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 2, 1995
--------------------------------
Foster Wheeler Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 1-286-2 13-1855904
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Perryville Corporate Park, Service Road East 173, Clinton, N.J. 08809-4000
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 730-4000
------------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 30, 1995, Foster Wheeler Corporation (the "Company")
completed the acquisition of the power generation business of A. Ahlstrom
Corporation, a privately held Finnish corporation ("Pyropower"), for a purchase
price of approximately $200 million. The acquisition of Pyropower consisted of
the purchase of stock in the United States, Europe, Scandinavia and Asia and
assets in Finland and the United States. The final price is subject to
post-closing adjustments based on Pyropower's financial performance in 1995. The
Company expects this acquisition to be accretive to its 1996 earnings.
Pyropower is a leader in the design, manufacture and supply of
circulating fluidized bed (CFB) systems (including steam generators that burn a
wide variety of solid fuels) to utility and industrial customers worldwide and
also provides a range of boiler services including plant operations and
maintenance services. CFB technology accommodates a variety of hard-to-burn
fuels, is environmentally compliant, and is cost-competitive with traditional
steam generator technologies. Pyropower's products and services are delivered
worldwide through its operations in the United States, Europe and Asia.
Management of the Company believes that the acquisition of Pyropower and its
technology positions the Company to compete successfully for the opportunity to
supply a significant portion of new international power generation projects,
particularly in Scandinavia, eastern Europe and certain parts of Asia and to
participate in the developing market for repowering in the United States and
Europe.
Pyropower currently has approximately 1,500 employees and 1995 revenues
are expected to approximate $350 million. Pyropower currently has backlog of
approximately $550 million and will become a part of the power generation
segment of the Company's Energy Equipment Group.
In connection with the acquisition of Pyropower, the Company will
record a one-time reorganization charge against earnings in the fourth quarter
of 1995 of approximately $46 million before taxes. This charge will result in
substantial ongoing cost savings commencing in 1996. The restructuring is
likely to include the rationalization of manufacturing capacity and the
reduction of approximately 500 salaried and hourly personnel from a total of
3,200 people in the combined operations.
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Pro Forma Financial Data.
(i) Introduction to Pro Forma Financial Data.
(ii) Foster Wheeler Corporation and Pyropower Pro Forma Unaudited
Condensed Combined Balance Sheet as of June 30, 1995.
(iii) Foster Wheeler Corporation and Pyropower Pro Forma Unaudited
Condensed Combined Statements of Earnings for the Year Ended December
30, 1994 and the Six Months Ended June 30, 1995.
(iv) Notes to Pro Forma Unaudited Condensed Combined Financial Data.
(b) Pyropower Historical Financial Statements.
(i) Independent Auditors' Report
(ii) Pyropower Combined Statement of Revenues and Expenses for the
Year Ended December 31, 1994.
(iii) Pyropower Combined Statement of Assets and Liabilities as of
December 31, 1994.
(iv) Pyropower Combined Statement of Cash Flows for the Year Ended
December 31, 1994.
(v) Notes to Combined Financial Statements.
(c) Exhibits.
Purchase Agreement dated as of June 21, 1995 between Foster Wheeler
Corporation and A. Ahlstrom Corporation, as supplemented and amended by
the Supplement and Amendment Agreement between Foster Wheeler
Corporation and A. Ahlstrom Corporation, dated as of September 30,
1995.
-3-
<PAGE> 4
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
AND AHLSTROM PYROPOWER
The following Pro Forma Unaudited Condensed Combined Balance
Sheet as of June 30, 1995 and the Pro Forma Unaudited Condensed Combined
Statements of Earnings for the year ended December 30, 1994 and the six months
ended June 30, 1995 (collectively, the "Pro Forma Financial Data") combine
(i) the historical consolidated balance sheets of Foster Wheeler Corporation and
Subsidiaries (the Company) and Ahlstrom Pyropower (Pyropower) as if the
acquisition had been effected on June 30, 1995, and (ii) the historical
statements of earnings as if the acquisition had been effected at January 1,
1994.
The pro forma unaudited condensed combined financial data has
been prepared on the basis of the assumptions described in the notes to the pro
forma unaudited condensed combined financial data and includes assumptions
relating to the allocation of the consideration paid for Pyropower to the
combined assets and liabilities of Pyropower based on preliminary estimates of
their respective fair values. The actual allocation of such consideration may
differ from that reflected in the pro forma unaudited condensed combined
financial data after an appropriate review of the fair values of the combined
assets and liabilities of Pyropower has been completed. Amounts allocated will
be based upon the estimated fair values at the time of acquisition, which could
vary from the amounts as of June 30, 1995. The acquisition will be accounted
for using the purchase method. Although certain items noted herein are subject
to potential adjustment, Management does not believe that the effect of any such
adjustments will be material to the Pro Forma Financial Data.
The pro forma unaudited condensed combined financial data
presented is not necessarily indicative of the actual results that would have
been achieved had the acquisition closed on the dates assumed herein.
The pro forma unaudited condensed combined financial data
should be read in conjunction with the financial statements and related notes
thereto of the Company appearing in its 1994 Form 10-K and its June 30, 1995
Form 10-Q and of Pyropower appearing in this Form 8-K.
-4-
<PAGE> 5
PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
AND AHLSTROM PYROPOWER
As of June 30, 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Foster Wheeler Ahlstrom Pro Forma Pro Forma
Corporation Pyropower Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 199,725 $ 17,075 $ 45,000 (C1) $ 191,800
(70,000)(C2)
Short-term investments 96,157 (20,000)(C2) 76,157
Accounts and notes receivable 585,764 95,356 681,120
Contracts in process 242,326 242,326
Inventories 35,847 16,605 (2,800)(C6) 49,652
Prepaid and refundable income taxes 46,537 46,537
Prepaid expenses 15,608 5,134 20,742
---------- -------- -------- ----------
Total current assets 1,221,964 134,170 (47,800) 1,308,334
Land, buildings and equipment - net 566,212 52,036 35,000 (C4) 638,448
(14,800)(C6)
Notes and accounts receivable -
long-term 57,831 976 58,807
Investments and advances 52,686 8,874 (6,500)(C1) 55,060
Cost in excess of net assets of
subsidiaries acquired 67,563 147,129 (C4) 214,692
Deferred charges and prepaid
pension cost 221,335 16,968 (16,968)(C3) 215,335
(6,000)(C6)
Deferred income taxes 3,958 3,958
---------- -------- -------- ----------
TOTAL ASSETS $2,191,549 $213,024 $ 90,061 $2,494,634
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt $ 32,669 $ 22 $ 32,691
Bank loans 110,070 7,196 117,266
Accounts payable and accrued expenses 333,528 56,239 20,000 (C4) 430,467
Estimated costs to complete long-term 20,700 (C6)
contracts 339,252 111,610 450,862
Advance payments by customers 89,565 5,694 95,259
Income taxes 34,309 (3,000)(C5) 28,309
(3,000)(C6)
---------- -------- -------- ----------
Total current liabilities 939,393 180,761 34,700 1,154,854
Long-term debt, less current
installments 515,618 2,836 120,000 (C2) 638,454
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C>
Deferred income taxes 21,733 21,733
Other long-term liabilities, deferred
credits and postretirement benefits
other than pensions and minority
interest in subsidiary companies 226,551 3,088 1,700 (C6) 231,339
---------- -------- -------- ----------
TOTAL LIABILITIES 1,703,295 186,685 156,400 2,046,380
TOTAL STOCKHOLDERS' EQUITY 3,000 (C5)
45,000 (C1)
(71,339)(C1)
488,254 26,339 (43,000)(C6) 448,254
---------- -------- -------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,191,549 $213,024 $ 90,061 $2,494,634
========== ======== ======== ==========
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
data are an integral part of this data.
-6-
<PAGE> 7
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF EARNINGS
FOSTER WHEELER CORPORATION AND AHLSTROM PYROPOWER
For the Year Ended December 30, 1994 and the Six Months Ended June 30, 1995
(In Thousands of Dollars, Except per Share Amounts)
<TABLE>
<CAPTION>
YEAR 1994 SIX MONTHS 1995
------------------------------------------------ -----------------------------------------------
Foster Pro Forma Foster Pro Forma
Wheeler Ahlstrom Adjust- Pro Forma Wheeler Ahlstrom Adjust- Pro Forma
Corporation Pyropower ments (C5) Combined Corporation Pyropower ments (C5) Combined
----------- ---------- --------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Operating revenues $2,234,441 $226,334 $2,460,775 $1,314,726 $ 135,792 $1,450,518
Other income 36,682 4,647 $(3,000) 38,329 15,149 436 $ (1,500) 14,085
---------- -------- ------- ---------- ---------- --------- -------- ----------
Total Revenues 2,271,123 230,981 (3,000) 2,499,104 1,329,875 136,228 (1,500) 1,464,603
---------- -------- ------- ---------- ---------- --------- -------- ----------
COSTS AND EXPENSES:
Cost of operating revenues 1,909,893 225,913 (39,300) 2,096,506 1,134,056 148,590 (25,400) 1,257,246
Selling, general and 203,445 - 38,900 242,345 110,909 - 25,200 136,109
administrative expenses
Other deductions 45,906 6,085 8,200 60,191 27,049 3,068 4,100 34,217
Minority interest 5,012 (923) 4,089 1,804 (342) 1,462
---------- -------- ------- ---------- ---------- --------- -------- ----------
Total Costs and Expenses 2,164,256 231,075 7,800 2,403,131 1,273,818 151,316 3,900 1,429,034
---------- -------- ------- ---------- ---------- --------- -------- ----------
Earnings before income taxes 106,867 (94) (10,800) 95,973 56,057 (15,088) (5,400) 35,569
Provision (benefit) for
income taxes 41,457 2,006 (3,780) 39,683 19,287 (556) (4,890) 13,841
---------- -------- ------- ---------- ---------- --------- -------- ----------
Net earnings/(loss) $ 65,410 $ (2,100) $(7,020) $ 56,290 $ 36,770 $ (14,532) $ (510) $ 21,728
========== ======== ======= ========== ========== ========= ======== ==========
Earnings per share $ 1.83 - - $ 1.57 $ 1.03 - - $ .61
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
data are an integral part of this data.
-7-
<PAGE> 8
NOTES TO PRO FORMA UNAUDITED
CONDENSED COMBINED FINANCIAL DATA
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
AND AHLSTROM PYROPOWER
(IN THOUSANDS OF DOLLARS)
1. The acquisition of Ahlstrom Pyropower (Pyropower) by Foster Wheeler
Corporation and Subsidiaries (the Company) will be accounted for as a
purchase. The resulting adjustments, which include the effects of
converting the Pyropower financial data to U.S. generally accepted
accounting principles, are based on the historical consolidated financial
statements of the Company and Pyropower as well as the financing of the
transaction. Final adjustments will be based upon the fair market value of
the assets and liabilities of Pyropower and a payment based upon bookings
of Pyropower in 1995, which payment the Company has estimated to be
approximately $20 million (the "Bookings Payment"). Management does not
expect the aggregate of such adjustments to exceed $2 million in either
direction. The pro forma statements of earnings were translated using
average exchange rates during the periods. The pro forma balance sheet was
translated using the exchange rate at June 30, 1995.
The pro forma unaudited condensed financial data is based on the following:
(a) The acquisition was assumed to have occurred as of June 30, 1995 for
balance sheet purposes and on January 1, 1994 for statements of
earnings purposes.
(b) The purchase price was funded initially by the long-term Revolving
Credit Facilities established on September 20, 1995 with a syndicate
of banks led by National Westminster Bank PLC and Mellon Bank, N.A.
One facility is a short-term revolving credit facility 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.
(c) The pro-forma adjustments to reflect the effects of the transaction
are as follows:
(1) To record the infusion of $45,000 of cash by A. Ahlstrom
Corporation to fund the working capital deficiency as required by
Section 3.3 of the Purchase Agreement and to eliminate
Pyropower's equity accounts of $71,339 which include the
revaluation of investments of $6,500 made under International
Accounting Standards.
(2) To reflect the sources of the consideration paid for the
estimated purchase price of $200,000, plus estimated direct costs
of $10,000 to be incurred in consummating the acquisition:
<TABLE>
<S> <C>
Cash $ 30,000
Short-term investments 20,000
Cash acquired 40,000
Long-term Revolving Credit Facilities 120,000
--------
$210,000
========
</TABLE>
-8-
<PAGE> 9
<TABLE>
<S> <C>
(3) To eliminate purchased negative goodwill and capitalized research
and development costs aggregating $16,968.
(4) To reflect estimated net assets acquired:
Estimated purchase price, including the
estimated Bookings Payment of $20
million (see 2 above) $210,000
Plus: Estimated amounts related to employee
redundancy, relocation and facilities closing
costs incidental to the acquisition of Pyropower 20,000*
Less: net assets of Pyropower (71,339)
--------
Excess of purchase price over carrying
value of net assets acquired $158,661
========
Allocated to:
Land, buildings and equipment $ 35,000
Intangibles 147,129
Purchased negative goodwill and
capitalized research and
development costs (16,968)
Revaluation of investments (6,500)
--------
$158,661
========
* Capitalized costs of $20 million referred to above reflect
Management's estimate of the costs related to severance for and
relocation of Pyropower employees and the costs associated with
the closing of certain Pyropower facilities. In accordance with
APB 16 and FTB 85-5, such estimate does not include any costs
related to existing Foster Wheeler Corporation personnel or
facilities, nor does it include any indirect or general expenses
related to the acquisition. An approximation of expense
categories is as follows:
Duplicate research and development facilities $ 12,000
Closure of excess manufacturing facilities 5,000
Redundancy in sales, general and administrative
areas-severance 3,000
--------
Total $ 20,000
========
(5) To reflect the adjustments to the pro forma condensed combined
statements of earnings, as follows:
</TABLE>
-9-
<PAGE> 10
<TABLE>
<CAPTION>
Six
Year Months
1994 1995
-------- --------
<S> <C> <C>
Interest income(i) $ (3,000) $ (1,500)
======== ========
Cost of operating revenues:
Depreciation(ii) $ 1,400 $ 700
Research and development
costs(iii) (1,800) (900)
Selling, general administrative
expenses(iv) (38,900) (25,200)
-------- --------
$(39,300) $(25,400)
======== ========
Other deductions:
Amortization of cost in excess of
net assets acquired (v) $ 4,000 $ 2,000
Interest expense (vi) 7,200 3,600
Interest expense (vii) (3,000) (1,500)
-------- --------
$ 8,200 $ 4,100
======== ========
</TABLE>
(i) The reduction of interest income relates to the use of $50,000
of the Company's cash and short-term investments to finance the
acquisition and was calculated based on historical returns for
the periods presented.
(ii) Estimated incremental depreciation expense resulting from costs
allocated to buildings and equipment based on preliminary,
third-party appraisals. The estimated economic lives assigned
to acquired building and equipment will be approximately 25 to
40 years and 10 to 20 years, respectively, unless appraisals
indicate different useful lives.
(iii) The amortization of capitalized research and development costs
was eliminated to reflect the fact that such costs were written
off at January 1, 1994 as required by U.S. generally accepted
accounting principles.
(iv) To reclassify Pyropower's selling, general and administrative
expenses from cost of operating revenues to conform to the
Company's presentation.
(v) Management has estimated that a composite useful life for
intangibles of approximately 35 years will be used based upon
the continued viability and application of the acquired
"circulating fluidized bed (CFB)" technology in the market
place, which technology is not subject to rapid obsolescence.
(vi) Interest expense was calculated based on the current rate of
six percent available to the Company under each of the
Revolving Credit Facilities.
(vii) Interest expense on prior intercompany notes which were
capitalized under the Purchase Agreement.
-10-
<PAGE> 11
(viii) Income tax benefit ($3 million) was calculated under SFAS 109
based upon the allowable losses incurred in the United States
only, since foreign losses would have resulted in a full
valuation allowance due primarily to uncertainty of future
foreign earnings. This is the only reconciling tax adjustment
between IAS and U.S. GAAP.
(6) To reflect the estimated effects of the reorganization charge to be
recorded in the fourth quarter of 1995. Such charge has not been
reflected in the pro forma statements of earnings as it is considered
to be nonrecurring. An estimated tax benefit of $3 million has been
included. The components of the reorganization charge which relate to
the business of Foster Wheeler Corporation are as follows:
<TABLE>
<S> <C>
Inventory $ 2,800
Land, buildings and equipment 14,800
Deferred charges and prepaid pension costs 6,000
Accounts payable and accrued expenses 20,700
Other long-term liabilities 1,700
-------
Total 46,000
Less tax benefit 3,000
-------
Net reorganization charge $43,000
=======
</TABLE>
(7) Based on Management's review of accounting for pensions, differences
between International Accounting Standards and U.S. generally accepted
accounting principles are not considered material.
- The income tax provision (benefit) was adjusted to reflect income
taxes on pro forma adjustments, assuming a 35 percent tax rate.
-11-
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF A. AHLSTROM CORPORATION:
We have audited the accompanying combined statements of assets and liabilities
of Ahlstrom Pyropower representing the Power Generation Business of A. Ahlstrom
Corporation and its subsidiaries (as defined in Note 1 to the Combined Financial
Statements) as at December 31, 1994 and related combined statements of revenues
and expenses and cash flows for the year then ended. These combined financial
statements are the responsibility of A. Ahlstrom Corporation's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the financial statements of Ahlstrom
Pyropower, Inc. and subsidiaries, an entity included in the combined financial
statements, which statements reflect total assets constituting 49 percent and
total revenues constituting 30 percent in 1994 of the related combined totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Ahlstrom Pyropower, Inc. and subsidiaries, is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing standards
in Finland and the United States. These 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 audit and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of Ahlstrom Pyropower as at December 31, 1994
and the results of its operations and its cash flows for the year then ended in
conformity with International Accounting Standards.
International Accounting Standards vary in certain significant respects from
generally accepted accounting principles in the United States. A description of
significant differences between International Accounting Standards and generally
accepted accounting principles in the United States, as they relate to Ahlstrom,
is included in Note 4 to the Combined Financial Statements.
HELSINKI, OCTOBER 5, 1995
KPMG WIDERI OY AB
Eric Haglund
Authorized Public Accountant
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Ahlstrom Pyropower, Inc.
We have audited the special purpose ("carve-out") consolidated balance sheet of
Ahlstrom Pyropower, Inc. and subsidiaries exclusive of certain liabilities and
the investments in Ahlstrom Development Corporation and Multipower Associates,
but inclusive of Ahlstrom Development Corporation's investment in Pyropower
Operating Services Corporation (collectively, the "Company") as of December 31,
1994 and the related special purpose consolidated statements of operations,
stockholder's equity and cash flows for the year then ended. Such financial
statements are not separately included herein. These financial statements have
been prepared from the historical books and records of Ahlstrom Pyropower, Inc.
except that certain assets, obligations and liabilities that will not be assumed
by Foster Wheeler Corporation have been excluded from these financial
statements. These consolidated special purpose financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated special purpose financial statements based on our
audit. We did not audit the financial statements of a partnership (Pyro-Pacific
Operating Company) in which the Company's ownership reflects total assets of
$2,791,000 at December 31, 1994, and income of $2,516,000 for the year then
ended. Those statements were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to amounts included for
that partnership, is based solely on the report of the other auditor.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 audit and the report of other auditors provide
a reasonable basis for our opinion.
The accompanying special purpose consolidated financial statements were prepared
to present the consolidated financial position of the Company at December 31,
1994 and the consolidated results of its operations and its cash flows for the
year then ended, pursuant to the Purchase Agreement between A. Ahlstrom
Corporation and Foster Wheeler Corporation dated June 21, 1995 as amended
September 30, 1995 ("Purchase Agreement") and are not intended to be a complete
presentation of Ahlstrom Pyropower, Inc. and subsidiaries' consolidated
financial position at December 31, 1994 nor the consolidated results of their
operations and their cash flows for the year then ended.
Ahlstrom Pyropower, Inc. and A. Ahlstrom Corporation of Finland ("A. Ahlstrom"),
which is the ultimate parent company, and certain affiliates of A. Ahlstrom
allocate certain administrative expenses to the Company. These charges are based
on A. Ahlstrom corporate policies for allocation of such amounts.
In our opinion, based on our audit and the report of the other auditors, the
accompanying special purpose consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1994, and the consolidated results of its
operations and its cash flows for the year then ended, pursuant to the Purchase
Agreement, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
April 21, 1995, except as to matters
relating to the Purchase Agreement,
the date as to which is September 30, 1995
<PAGE> 14
DELOITTE & TOUCHE LLP
REPORT OF INDEPENDENT AUDITORS
The Partners
Pyro-Pacific Operating Company
Bakersfield, California
We have audited the balance sheet of Pyro-Pacific Operating Company, a
partnership, as of December 31, 1994, and the related statements of income,
partners' capital, and cash flows for the year then ended (such financial
statements are not separately included herein). These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As more fully described in the notes to the financial statements, Pyro-Pacific
Operating Company earns substantially all of its revenues from Mt. Poso
Cogeneration Company, a partnership which has common controlling ownership, and
it purchases certain management personnel services from several other affiliated
entities.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pyro-Pacific Operating Company as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Fresno, California
January 17, 1995
<PAGE> 15
AHLSTROM PYROPOWER
COMBINED STATEMENT OF REVENUES AND EXPENSES
for the year ended 31st December, 1994
(FIM in thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenues 1,162,453
Costs and expenses (1,123,356)
----------
GROSS PROFIT 39,097
Depreciation and amortization (36,934)
----------
OPERATING INCOME 2,163
Interest and other financing expense (21,312)
Interest income 2,953
Exchange losses (9,942)
Share of profits of associated companies 20,827
Dividends received 91
----------
LOSS BEFORE TAXES AND MINORITY INTEREST (5,220)
Taxes (10,303)
----------
LOSS BEFORE MINORITY INTERESTS (15,523)
Minority interest 4,739
----------
NET LOSS (10,784)
==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 16
AHLSTROM PYROPOWER
COMBINED STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
(FIM in thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
FINANCIAL ASSETS:
Liquid funds 33,666
Accounts receivable 156,629
Notes receivable 48,085
Prepaid expenses and accrued income 11,969
Other financial assets 9,856
-------
Total financial assets 260,205
-------
INVENTORIES:
Materials and supplies 18,005
Finished goods and work in progress 14,597
-------
Total inventories 32,602
-------
PROPERTY, PLANT AND EQUIPMENT:
Construction in progress 490
Land and water areas 37,352
Buildings and constructions 113,476
Machinery and equipment 98,046
-------
Total property, plant and equipment 249,364
-------
OTHER NONCURRENT ASSETS:
Long-term receivables 4,325
Investment in associated companies 52,507
Intangible assets 41,258
Capitalized research and development costs 39,139
-------
Total other noncurrent assets 137,229
-------
TOTAL ASSETS 679,400
=======
</TABLE>
See accompanying notes to financial statements
<PAGE> 17
AHLSTROM PYROPOWER
COMBINED STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
(FIM IN THOUSANDS)
LIABILITIES AND NET INVESTMENT
OF A. AHLSTROM CORPORATION
<TABLE>
<S> <C>
LIABILITIES:
Short-term liabilities:
Accounts payable 136,220
Notes payable 7,566
Advances received 14,702
Accrued liabilities 93,518
Current portion of long-term debt 332
Other short-term liabilities 26,235
Progress billings of uncompleted
construction contracts 1,824,443
Less costs and earnings (1,634,159)
----------
Total short-term liabilities 468,857
----------
Long-term liabilities:
Long-term debt 5,761
Other long-term liabilities 6,977
----------
Total long-term liabilities 12,738
----------
MINORITY INTEREST 9,358
NEGATIVE GOODWILL 11,465
NET INVESTMENT OF A. AHLSTROM CORPORATION 176,982
----------
TOTAL LIABILITIES AND NET INVESTMENT
OF A. AHLSTROM CORPORATION 679,400
==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 18
AHLSTROM PYROPOWER
COMBINED STATEMENT OF CASH FLOWS
for the year ended 31st December, 1994
(FIM in thousands)
<TABLE>
<S> <C>
Cash flow from operating activities:
Loss before taxes and minority interest (5,220)
Adjustments for:
Depreciation and amortization 36,934
Unrealized foreign exchange gains and losses 2,439
Share of net income of associated companies (20,827)
Interest income (2,953)
Interest expense 21,312
Other 2,210
--------
Operating income before working capital changes 33,895
Increase in inventories (23,140)
Decrease in uncompleted construction contracts 234,129
Increase in accounts receivable (5,284)
Decrease in other short-term receivables 9,813
Decrease in prepaid expenses and accrued income 43,150
Decrease in non-interest bearing current liabilities (63,200)
--------
Cash generated from operations 229,363
Interest received 2,953
Interest paid (20,992)
Income taxes paid (744)
--------
Net cash from operating activities 210,580
--------
Cash flow from investing activities:
Capital expenditures (See notes 7-15) (45,163)
Proceeds from sale of noncurrent assets 7,513
Distributions from associated companies 12,841
--------
Net cash used in investing activities: (24,809)
--------
</TABLE>
See accompanying notes to financial statements
<PAGE> 19
AHLSTROM PYROPOWER
COMBINED STATEMENT OF CASH FLOWS
for the year ended 31st December, 1994
(FIM in thousands)
<TABLE>
<S> <C>
Cash flow from financing activities:
Proceeds from issuance of share capital 11,997
Capital investment by minority shareholders 5,451
Change in the Net Investment of A. Ahlstrom Corporation (175,824)
Payments of long-term interest bearing liabilities (4,567)
Payments of short-term interest bearing liabilities (8,955)
Payments of long-term receivables (1,484)
Payments of notes receivable (10,931)
--------
Net cash used in financing activities (184,313)
--------
Net increase in cash and cash equivalents 1,458
Cash and cash equivalents at beginning of period 38,008
Foreign exchange adjustment (5,800)
--------
Cash and cash equivalents at end of period 33,666
========
</TABLE>
See accompanying notes to financial statements
<PAGE> 20
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
Ahlstrom Pyropower (AP) develops and markets advanced combustion
technology and related products for worldwide industrial and
utility markets and specializes in power generation systems based
on fluidized bed technology. AP presents the power generation
sector of A. Ahlstrom Corporation (Ahlstrom) of Finland that is
being sold to Foster Wheeler Corporation (FWC) pursuant to the
Purchase Agreement, as defined below in Note 2.
These financial statements present the combined financial
position, results of operations and cash flows of AP in accordance
with International Accounting Standards (IAS), as adopted by
Ahlstrom. These financial statements have been prepared from the
historical books and records of AP except that certain assets,
obligations and liabilities that will not be assumed by FWC have
been excluded from these financial statements. All debts to
affiliated companies have been capitalized in accordance with the
Purchase Agreement discussed in Note 2 and are included in the Net
Investment of A. Ahlstrom Corporation. In addition, income tax
expense was determined as if AP had filed a separate tax return.
The Net Investment of A. Ahlstrom Corporation in the combined
statement of assets and liabilities represents the difference
between assets to be acquired and liabilities to be assumed by
FWC.
Based on the most recent information available to management as of
the date of the issuance of these financial statements, October 5,
1995, about conditions that existed at the balance sheet date,
certain adjustments, which were not material to the A. Ahlstrom
Corporation financial statements, have been made to net assets as
of January 1, 1994 and to the results of operations for the year
ended December 31, 1994, to reflect the latest profitability and
loss estimates on individual contracts and related warranty
reserve provision. Such adjustments have been reflected in
conformity with both IAS and U.S. generally accepted accounting
principles (US GAAP).
<PAGE> 21
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
2. Purchase Agreement
On June 21, 1995 FWC entered into a Purchase Agreement (Agreement)
with Ahlstrom. Under the terms of the Agreement, FWC will acquire
the stock of certain subsidiaries of Ahlstrom and certain of AP's
assets and assume certain liabilities as defined in the Agreement.
3. Summary of Significant Accounting Policies
The financial statements of AP have been prepared in connection
with International Accounting Standards (IAS).
Accounting convention
The financial statements are presented in Finnish marks and are
prepared under the historic cost convention except for
revaluations of certain items included in noncurrent assets.
Principles of combination
The combined financial statements include the accounts of
Varkaus Boiler Works (part of A. Ahlstrom Corporation)
Hans Ahlstrom Laboratory (part of A. Ahlstrom Corporation)
Steka Oy, Finland
Bioflow Oy, Finland
Ahlstrom Pyropower Inc. and subsidiaries, USA
Ahlstrom Fakop Ltd., Poland
Ahlstrom Pyropower K.K., Japan
Ahlstrom Pyropower Europe B.V., The Netherlands
The equity method of accounting is used to account for investments
in associated companies in which AP has 20 to 50 percent of the
voting shares. Shares in associated companies are revalued to
their fair value with a corresponding increase to equity.
The results of operations of companies acquired during the year
are included in the financial statements from the date of
acquisition, and companies that have been sold during the year are
included up to the date of sale.
<PAGE> 22
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
All significant intercompany accounts and transactions are
eliminated in combination.
Acquisitions are accounted for under the purchase method of
accounting and accordingly, in each case, the purchase price is
allocated to the assets acquired and the liabilities assumed
based upon their estimated fair values at the date of
acquisition. The excess of the fair value of the net assets
acquired over the purchase price is recorded on the statement of
assets and liabilities as negative goodwill. Negative goodwill
is amortized on a straight-line basis over a maximum of 10 years.
Revenue recognition
Revenue from the sale of goods and services is recognized when the
goods are delivered or the services are rendered.
Revenue from construction contracts is recognized under the
percentage of completion method.
Net sales are shown net of returns, discounts and gains and
losses on forward exchange contracts entered into for hedging of
sales contracts. Other exchange gains and losses related to
sales appear under the caption "Exchange losses."
Losses and warranty claims for construction contracts
Anticipated contract losses are recognized in full when they
become known. Estimated warranty costs are charged to income at
the time of completion of the contracts.
Foreign currency translation
Assets and liabilities that result from foreign currency
transactions are restated at the exchange rates in effect at
year-end. The resulting gains and losses are credited or charged
to income.
Foreign currency financial statements are translated into Finnish
marks using exchange rates in effect at year-end. The effect of
the adjustments arising from such translation is included in the
Net Investment of A. Ahlstrom Corporation.
<PAGE> 23
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Research and development costs
Research and development costs are expensed as incurred.
However, the costs of certain strategic development projects are
capitalized and amortized over a maximum of ten years.
Inventories
Inventories are stated at the lower of cost or market, primarily
on a first-in, first-out basis. The cost of inventories includes
all direct costs as well as an allocation of production
overheads.
Property, plant and equipment
Property, plant and equipment is carried at cost or in certain
cases, revalued amounts, less accumulated depreciation.
Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets within the following ranges:
<TABLE>
<S> <C>
Buildings 25 - 40 years
Heavy machinery 10 - 20 years
Other machinery 3 - 10 years
</TABLE>
Intangible assets
Intangible assets are amortized over a maximum of twenty years.
Capitalization of interest costs
Interest costs are capitalized as part of the acquisition costs
of assets which are constructed for AP's own use.
Taxes
For AP's U.S. based companies, deferred taxes are provided for
temporary differences between the book and tax basis of assets
and liabilities in accordance with local practice. For AP's
other companies, the deferred tax liability is recorded only if
it is likely to crystallize or become payable in the foreseeable
future.
<PAGE> 24
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Corporate expenses
Ahlstrom has charged AP for certain corporate administrative
expenses. The charges were designed to reimburse Ahlstrom for
management, financial and certain other services provided in
accordance with Ahlstrom's corporate policies for allocation of
such amounts. The amounts allocated are not material to total
costs and expenses and, in Management's estimate, the difference
between such amounts and expenses incurred on a stand-alone basis
would not be material to results of operations.
4. Summary of significant differences between IAS and U.S. GAAP
The combined financial statements of AP have been prepared in
accordance with International Accounting Standards (IAS). IAS
differ in certain respects from U.S. GAAP. A summary of such
differences, as they relate to AP, follows.
Research and development costs
AP capitalizes the costs of certain strategic development
projects, which are amortized over a maximum of ten years.
U.S. GAAP requires that research and development costs be
expensed as incurred.
Translation of foreign subsidiaries financial statements
In the combined financial statements of AP, the assets and
liabilities and the revenue and expense accounts of the foreign
entities are translated from the entities' foreign currency into
Finnish marks using the exchange rates prevailing at the end of
each period.
Under U.S. GAAP, the profit and loss accounts of foreign
subsidiaries would be translated to Finnish marks at the average
exchange rates prevailing during the year. Differences arising
on translation would also be recorded directly to net investment
of A. Ahlstrom Corporation.
Revaluation of land and buildings
IAS provides the opportunity to revalue property, plant and
equipment to its fair value with a corresponding increase to
equity. Depreciation is based upon the revalued basis of the
assets acquired.
<PAGE> 25
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Under U.S. GAAP, revaluation of fixed assets is not allowed and
depreciation is based upon the historical cost basis of the
assets acquired.
Deferred income taxes
Under IAS, the company records a liability for deferred income
taxes for timing differences to the extent that it is likely to
reverse or crystallize in the foreseeable future, except for U.S.
operations which are recorded in accordance with U.S. GAAP.
U.S. GAAP requires that deferred taxes be established on all
differences between the book basis and the tax basis of assets
and liabilities (i.e., temporary differences) regardless of the
likelihood of reversal or crystallization. U.S. GAAP allows
deferred tax assets to be established for all temporary
differences which will be future tax deductions and tax loss
carry forwards, to the extent that it is "more likely than not"
that AP will realize a tax benefit.
Acquisitions
AP uses the purchase method to account for the acquisition of a
business. In certain cases, the fair value of the net assets
acquired may exceed the purchase price (i.e., "negative good
will"). AP amortizes negative goodwill as income in the revenue
and expense accounts.
Under U.S. GAAP, negative goodwill is required to be first
applied to reduce the carrying value of acquired long-term
tangible and identifiable intangible assets. Any remaining
negative goodwill is then recorded as a deferred credit in the
statement of assets and liabilities and amortized to income in
the revenue and expense accounts over its estimated useful life.
Revaluation of shares and equity investments
IAS provides the opportunity to revalue shares in associated
companies accounted for by the equity method to its fair value
with a corresponding increase to equity.
Under U.S. GAAP, revaluation of shares and equity investments is
not allowed.
<PAGE> 26
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Pensions
AP has various pension schemes in subsidiaries as required by
local conditions and practices of the countries in which they
operate. AP's policy for funding its pension plans is to satisfy
local statutory funding requirements for tax deductible
contributions. These contributions are charged against profits.
Accounting for pension costs under U.S. GAAP is governed by SFAS
No. 87, "Employers' Accounting for Pensions." SFAS No. 87 is
more prescriptive, particularly as to the use of actuarial
assumptions, and requires that a specific actuarial method, the
projected unit cost method, be used.
5. Minority interests
The minority interest benefit in the statement of revenues and
expenses is the result of losses being incurred primarily by the
Polish company of AP, which is 49.11% owned by minority
shareholders.
6. Subsequent events
In connection with the acquisition of Ahlstrom Pyropower by Foster
Wheeler Corporation (see Note 2), certain adjustments were made to the
assets and to the liabilities of AP, including additional provisions
for possible future warranty liabilities and certain contingencies.
In Management's opinion, it is not appropriate under IAS or US GAAP
that these adjustments be reflected in the financial statements as of
December 31, 1994, as these adjustments relate to conditions or events
which occured subsequent to December 31, 1994.
7. Capitalized research & development expenses
<TABLE>
<S> <C>
Cost at January 1, 1994 31,496
Translation adjustment (1,606)
Additions 9,249
------
Book value at December 31, 1994 39,139
======
</TABLE>
<PAGE> 27
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
8. Intangible rights
Cost at January 1, 1994 60,016
Translation adjustment (9,428)
Additions 2,502
Other increase/decrease 154
Accumulated depreciation (21,703)
-------
Book value at December 31, 1994 31,541
=======
9. Other intangible assets
Cost at January 1, 1994 38,677
Translation adjustment (2,933)
Additions 51
Sales (1,779)
Other increase/decrease 16
Accumulated amortization (24,315)
-------
Book value at December 31, 1994 9,717
=======
10. Land and water areas
Cost at January 1, 1994 45,598
Translation adjustment (8,246)
-------
Book value at December 31, 1994 37,352
=======
11. Buildings and constructions
Cost at January 1, 1994 178,646
Translation adjustment (22,355)
Additions 2,719
Other increase/decrease (71)
Accumulated depreciation (45,463)
--------
Book value at December 31, 1994 113,476
=======
</TABLE>
<PAGE> 28
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
12. Machinery and equipment
Cost at January 1, 1994 286,598
Translation adjustment (26,132)
Additions 28,247
Sales (13,677)
Other increase/decrease 1,715
Accumulated depreciation (179,576)
--------
Book value at December 31, 1994 97,175
========
13. Other tangible assets
Cost at January 1, 1994 5,747
Translation adjustment (812)
Additions 36
Other increase/decrease (1,672)
Accumulated depreciation (2,428)
--------
Book value at December 31, 1994 871
========
14. Advances paid and construction in progress
Cost at January 1, 1994 7,820
Translation adjustment (183)
Additions 113
Reductions (7,260)
--------
Book value at December 31, 1994 490
========
15. Investment in associated companies
Cost at January 1, 1994 44,397
Translation adjustment (2,386)
Additions 2,263
Other increase/decrease 8,233
--------
Book value at December 31, 1994 52,507
========
</TABLE>
16. Uncompleted construction contracts
<PAGE> 29
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Costs and Progress Net
earnings billings
<S> <C> <C> <C>
Contracts in which costs and
earnings exceed progress
billings 837,644 (741,953) 95,691
Contracts in which progress
billings exceed costs and
earnings 796,515 (1,082,490) (285,975)
--------- ---------- --------
Total 1,634,159 (1,824,443) (190,284)
========= ========== ========
</TABLE>
17. Contingent liabilities and collateral
<TABLE>
<S> <C>
Pledgings 7,105
Loan guarantees
In favor of others 1,677
Other guarantees
In favor of others 1,223
Letters of Credit* 58,282
</TABLE>
* No amounts have been drawn against these Letters of Credit.
AP also has surety bonds and other indemnity agreements outstanding to
various corporations, which primarily relate to specific performance
under contracts.
AP has transferable real estate collateral in the amount of 215,850
for use in potential secured lending arrangements. This collerateral
will be assigned to Foster Wheeler Corporation or its designees in
accordance with the Purchase Agreement described in Note 2.
18. Maturities of long-term loans
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000 or later
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
332 974 1,850 810 798 8,306
</TABLE>
<PAGE> 30
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
19. Net sales
Revenue from construction contracts recognized
by the percentage-of-completion method 943,903
Order backlog of contracts at
December 31, 1994 1,684,300
20. Depreciation and amortization
Intangible rights (4,490)
Goodwill 2,084
Other intangible assets (6,177)
Buildings and constructions (5,292)
Machinery and equipment (22,813)
Other tangible assets (246)
---------
Total (36,934)
=========
21. Taxes
For current year 10,303
</TABLE>
Taxes being greater than income before taxes and minority interest
results from the majority of the income of AP being generated by
Finnish operations, which has had tax provided for at a rate of 25%,
and losses being incurred by foreign operations, which cannot be used
to reduce Finnish taxable income and for which no deferred tax benefit
has been recognized.
<TABLE>
<S> <C> <C>
22. Investments in associated companies
Associated companies 52,262
Other companies 245
------
Total 52,507
======
</TABLE>
<PAGE> 31
AHLSTROM PYROPOWER
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
23. Revaluations
Buildings 3,280
Shares and equity investments 31,030
------
Total 34,310
======
24. Provisions for contingencies
Warranty costs 33,282
======
</TABLE>
HELSINKI, OCTOBER 5, 1995
Orvo Siimesto Hannu Hurri
A. Ahlstrom Corporation A. Ahlstrom Corporation
Chief Financial Officer Corporate Controller
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FOSTER WHEELER CORPORATION
(Registrant)
Date: October 31, 1995 By /s/ David J. Roberts
----------------------------------
Name: David J. Roberts
Title: Vice Chairman,
Chief Financial Officer
<PAGE> 33
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
<S> <C> <C>
10.1 Purchase Agreement*
10.2 Supplement and Amendment Agreement*
23.1 Consent of KPMG Wideri Oy Ab
</TABLE>
*Previously filed
<PAGE> 1
Exhibit 23.1
[KPMG Wideri Letterhead]
The Board of Directors of A. Ahlstrom Corporation
We consent to the incorporation by reference in the registration statements
(No.'s 2-91384, 33-34694, 33-40878 and 33-59739) on Form S-8 of Foster Wheeler
Corporation of our report dated October 5, 1995, with respect to the combined
statements of assets and liabilities of Ablstrom Pyropower as of December 31,
1994, and the related combined statements of revenues and expenses and cash
flows for the year then ended, which report appears in the Form 8-K/A of Foster
Wheeler Corporation dated October 31, 1995.
Helsinki, Finland, October 30, 1995
KPMG WIDERI OY AB
/s/ Eric Haglund
- ----------------------------
Eric Haglund
Authorized Public Accountant
