UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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 26, 1997
[ ] 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 10, 1998, 40,717,273 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 $1,076,462,905 (based on the last price on that date of
$26.4375 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 19, 1998 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
23-47) for the fiscal year ended December 26, 1997, is incorporated by
reference in Part I and Part II of this report.
<PAGE>
FOSTER WHEELER CORPORATION
1997 Form 10-K/A Annual Report
Table of Contents
Page
PART I
Item 1. Business 3 - 6
2. Properties 7 - 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of
Security Holders 9
Executive Officers of the Registrant 9
PART II
5. Market for the Registrant's Common
Equity and Related Stockholder Matters 10
6. Selected Financial Data 10
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
10. Directors and Executive Officers of
the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial
Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 13 - 57
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.
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 17 on page 46 in the Notes to Financial
Statements in Foster Wheeler's Annual Report to Stockholders for the year ended
December 26, 1997.
Narrative Description of Business:
The business of the Corporation and its subsidiaries falls within three business
groups. The Engineering and Construction Group ("E&C 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 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 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 the second quarter of 1997, the Corporation sold the business of Glitsch
International, Inc. For segment reporting purposes, the earnings of Glitsch
International, Inc. up to the closing date of June 27, 1997 were included in the
operating results of the Corporation within the Energy Equipment Group.
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.
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 1997, 1996 and 1995, 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.
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 26, 1997 of
$7,184,600,000 as compared to a backlog as of December 27, 1996 of
$7,135,400,000. 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 26, 1997 and December 27,
1996 is as follows:
1997 1996
---- ----
Engineering and
Construction $5,295,600,000 $4,958,200,000
Energy Equipment 1,604,500,000 1,763,400,000
Power Systems 255,000,000 384,900,000
Corporate and Financial
Services 29,500,000 28,900,000
---------------- ----------------
$7,184,600,000 $7,135,400,000
============== ==============
<PAGE>
The Power Systems Group projects consist of the following:
<TABLE>
<CAPTION>
Plant Location Type and Size Unit Fuel Operation
<S> <C> <C> <C>
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 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
Lagoven, Venezuela 50 MM SCFD Hydrogen Plant -- 1997
- -----------------------------------------------------------------------------------------
Lisbon, Portugal 2015 Ton/Day Waste-to-Energy Refuse Construction
Concepcion, Chile 65 MW Cogeneration Plant Plus Coke Construction
12,000 Barrels/Day Coker and
7,014 Barrels/Day Hydrotreater
Ferrara, Central, Italy 145 MW Cogeneration Natural Gas Construction
Teverola, Italy 140 MW Cogeneration Natural Gas Construction
University of Minnesota 15 MW Cogeneration Coal/Gas/Oil Construction
Lomellina, Italy 400 Ton/Day Waste-to-Energy RDF Permitting
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
* Includes Recycling.
- -----------------------------------------------------------------------------------------
</TABLE>
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.
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 1997, approximately $16,100,000, and in 1996
and 1995, $16,900,000 and $11,100,000 respectively, was spent on Foster Wheeler
sponsored research activities. During the same periods, approximately
$40,400,000, $29,600,000 and $25,900,000, 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.
<PAGE>
Foster Wheeler had approximately 11,090 full-time employees on December 26,
1997. 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 26, December 27, December 29,
1997 1996 1995
Engineering and
Construction 7,625 7,130 7,560
Energy Equipment 3,025 4,350 4,540
Power Systems 410 410 390
Corporate and Financial
Services 30 195 160
---------- --------- ---------
11,090 12,085 12,650
======== ======== ========
Financial Information about Foreign and Domestic Operations and Export Sales:
Incorporated by reference to Note 17 on page 46 in the Notes to Financial
Statements in Foster Wheeler's Annual Report to Stockholders for the year ended
December 26, 1997.
<PAGE>
ITEM 2. PROPERTIES
Company and (Industry Segment*)
<TABLE>
<CAPTION>
Building Lease
Location Use Land Area Square Feet Expires
<S> <C> <C> <C> <C>
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 Office 17.5 acres 238,000 (1)(4)
Foster Wheeler Energy Corporation (EE)
Dansville, New York Manufacturing
& Offices 82.4 acres 513,786
Foster Wheeler USA Corporation (EC)
Houston, Texas General Offices -- 107,890 2003
Foster Wheeler Iberia, S.A. (EC)
Madrid, Spain Office & Engineering 4.2 acres 82,500
Foster Wheeler France, S.A. (EC)
Paris, France Office & Engineering -- 109,029 2006
Paris, France Archive Storage Space 12,985 2006
Foster Wheeler International Corp. (Thailand Branch) (EC)
Sriracha, Thailand Office & Engineering -- 26,400 2000
Foster Wheeler Constructors, Inc. (EC)
McGregor, Texas Storage
Facilities 15.0 acres 24,000
Mobile (Chickasaw), Storage and 3.5 acres 60,000 2000
Alabama Fabrication
Foster Wheeler Limited (England) (EC)
Glasgow, Scotland Office & Engineering 2.26 acres 28,798
Reading, England Office & Engineering -- 288,472 1998/2016
Teeside, England Office & Engineering -- 18,100 1998/2014
Foster Wheeler Limited (Canada) (EE)
Niagara-On-The-Lake,
Ontario Office Building 34.5 acres 86,000 (1)
Foster Wheeler Andina, S.A. (EC)
Bogota, Colombia Office & Engineering 2.25 acres 26,000
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 -- 26,000 2000
Foster Wheeler Eastern Private Limited (EC)
Singapore Office & Engineering -- 25,000 1999
Foster Wheeler Environmental Corporation (EC)
Atlanta, Georgia General Offices 24,865 1999
Bellevue, Washington General Offices 53,545 2000
Boston, Massachusetts General Offices 26,326 1999
Lakewood, Colorado General Offices 27,263 2000
Oak Ridge, Tennessee General Offices 14,494 1999
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-
Facility Site 21 acres 2028
Hydrogen Plant-Facility Site 1.4 acres 2013
Paraquana, Venezuela Hydrogen Plant
Facility Site 3.9 acres -- 2013
Laydown Site 2.8 acres -- 1998
Foster Wheeler Pyropower, Inc. (EE)
San Diego, California Office 9.25 acres 86,000 (1)
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 1999
Helsinki, Finland Office 11,841 1999
Foster Wheeler Energy FAKOP Ltd. (EE)
Sosnowiec, Poland Manufacturing & Offices 15.57 acres 231,688
</TABLE>
*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 26, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
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 53 Chairman, President and Chief Executive
Officer
David J. Roberts 53 Vice Chairman and Chief Financial Officer
N. William Atwater 63 Executive Vice President - Engineering and
Construction Group
Henry E. Bartoli 51 Senior Vice President - Energy Equipment
Group
(Vice President and General Manager,
1987-1992, Burns and Roe Company.)
Claudio Ferrari 61 Senior Vice President - Power Systems Group
Thomas R. O'Brien 59 Senior Vice President and General Counsel
(Partner in the law firm of Wolff & Samson,
1986-1993.)
Lisa Fries Gardner 41 Vice President, Secretary and Chief
Compliance Officer
Robert D. Iseman 49 Vice President and Treasurer
James E. Schessler 52 Vice President - Human Resources and
Administration
George S. White 61 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.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to Note 12 on page 42 in Foster Wheeler's Annual
Report to Stockholders for the year ended December 26, 1997. The Corporation's
common stock is traded on the New York Stock Exchange. The approximate number of
stockholders of record as of the end of 1997 was 6,480.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except Per Share Data)
1997(4) 1996 1995* 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $4,172,015 $4,040,611 $3,081,930 $2,271,123 $2,654,505
Net earnings 5,624(1) 82,240(2) 28,534(3) 65,410 57,704
Net earnings per share:
Basic .14 2.03 .79 1.83 1.62
Diluted .14 2.02 .78 1.82 1.61
Shares outstanding:
Basic:
Weighted average number
of shares outstanding 40,677 40,592 36,322 35,788 35,656
Diluted:
Effect of stock options 127 167 107 90 83
------- ------- ------- -------- --------
Total diluted 40,804 40,759 36,429 35,878 35,739
====== ====== ====== ====== ======
Total assets 3,357,700 3,510,334 2,975,809 2,140,334 1,806,201
Long-term borrowings
(including current
installments) 889,196 829,043 589,052 499,202 429,264
Cash dividends per
common share .835 .81 .77 .72 .645
</TABLE>
(1) Includes in 1997 a net charge of $50,900 ($37,400 after tax) consisting of
the following pretax items: Second quarter amounts: Gain on sale of Glitsch
International, Inc.'s operations-$56,400; provision for reorganization
costs of the Energy Equipment Group-$32,000; and write-downs of long-lived
assets-$6,500. Third quarter amounts: contract write-downs-$24,000
(Engineering & Construction Group) and $30,000 (Energy Equipment Group).
Fourth quarter amount: Realignment of the Engineering & Construction
Group's European operations-$14,800.
(2) Includes in 1996 a provision of $24,000 ($15,600 after tax) for asbestos
claims.
(3) Includes in 1995 a provision of $50,120 ($46,500 after tax) for
reorganization costs.
(4) Restated from amounts previously reported. See Note 1 to financial
statements.
* During the fourth quarter of 1995, the Corporation acquired the
power-generation business of A. Ahlstrom Corporation, Pyropower.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to pages 24 to 31 in Foster Wheeler's Annual Report to
Stockholders for the year ended December 26, 1997.
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 26, 1997:
A. Consolidated Balance Sheet, December 26, 1997 and December 27, 1996
(page 32)
B. Consolidated Statement of Earnings for the years ended December 26,
1997; December 27, 1996; and December 29, 1995 (page 33)
C. Consolidated Statement of Changes in Stockholders' Equity for the years
ended December 26, 1997; December 27, 1996; and December 29, 1995 (page
34)
D. Consolidated Statement of Cash Flows for the years ended December 26,
1997; December 27, 1996; and December 29, 1995 (page 35)
E. Notes to Consolidated Financial Statements (pages 36-47)
F. Report of Independent Accountants (page 33)
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
<PAGE>
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 19, 1998, for the Annual Meeting of Stockholders to be held April
27, 1998. 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 7-14 of Foster Wheeler's Proxy Statement,
dated March 19, 1998, for the Annual Meeting of Stockholders to be held April
27, 1998.
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 19, 1998, for the Annual Meeting of Stockholders to be held April
27, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
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.
4.1 Amended and Restated Rights Agreement dated as of September 30, 1997,
between Foster Wheeler Corporation and Chase Mellon Shareholder
Services, L.L.C., as Rights Agent (filed as Exhibit 1.2 to Foster
Wheeler Corporation's Form 8-A dated October 1, 1997 and incorporated
herein by reference.)
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 Shares Dividend Requirements (Page 25)
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 23-47) 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 (Exhibit 21)
23 Consent of independent accountants (page 22)
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.
333-25945 (filed April 28, 1997), 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.
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.
<PAGE>
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, 33-59739 and 333-25945) of our report dated
January 27, 1998 (which indicates that the consolidated financial statements for
the year ended December 26, 1997 have been restated), on our audits of the
consolidated financial statements of Foster Wheeler Corporation and Subsidiaries
as of December 26, 1997 and December 27, 1996, and for each of the three years
in the period ended December 26, 1997, which report is incorporated by reference
in this Annual Report on Form 10-K/A.
PricewaterhouseCoopers L.L.P.
New York, New York
December 17, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOSTER WHEELER CORPORATION
(Registrant)
Date: December 17, 1998 /s/ George S. White
---------------------- -------------------
George S. White
Vice President and Controller
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
- -----------------------------------------------------------------------------
1997(1) 1996 1995 1994 1993
---- ---- ---- ---- ----
Earnings:
Net Earnings $ 5,624 $82,240 $ 28,534 65,410 $ 57,704
Taxes on Income 13,892 44,626 41,129 41,457 39,114
Total Fixed Charges 84,541 74,002 60,920 45,412 43,371
Capitalized Interest (10,379) (6,362) (1,634) (467) (213)
Capitalized Interest 2,184 2,528 2,273 2,189 2,180
Amortized
Equity Earnings of
non-consolidated
associated companies
accounted for by the
equity method, net of
Dividends (9,796) (1,474) (1,578) (623) (883)
------- -------- -------- -------- ---------
$86,066 $195,560 $129,644 $153,378 $141,273
Fixed Charges:
Interest Expense $54,675 $54,940 $49,011 $34,978 $33,558
Capitalized Interest 10,379 6,362 1,634 467 213
Imputed Interest on
non-capitalized lease
payment 19,487 12,700 10,275 9,967 9,600
------- -------- -------- -------- ---------
$84,541 $74,002 $60,920 $45,412 $43,371
Ratio of Earnings to 1.02 2.64 2.13 3.38 3.26
Fixed Charges
* 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. (1) Restated from
amounts previously reported. See Note 1 to financial statements.
EXHIBIT 13
-----------
Foster Wheeler Corporation And Subsidiaries
FINANCIAL SECTION
----------------------------------------------------------
Comparative Financial Statistics
----------------------------------------------------------
Management's Discussion and Analysis
----------------------------------------------------------
Consolidated Balance Sheet
----------------------------------------------------------
Consolidated Statement of Earnings
----------------------------------------------------------
Report of Independent Accountants
----------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
----------------------------------------------------------
Consolidated Statement of Cash Flows
----------------------------------------------------------
Notes to Financial Statements
----------------------------------------------------------
COMPARATIVE FINANCIAL STATISTICS
(In Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
1997<F4> 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unfilled orders, end of year...................... $7,184,628 $7,135,413 $6,473,990 $5,135,452 $3,884,114
Revenues.......................................... 4,172,015 4,040,611 3,081,930 2,271,123 2,654,505
Provision for special charges..................... - 24,000 50,120 - -
Earnings before income taxes...................... 19,516 <F1> 126,866 <F2> 69,663 <F3> 106,867 96,818
Provision for income taxes........................ 13,892 44,626 41,129 41,457 39,114
Net earnings...................................... 5,624 82,240 28,534 65,410 57,704
Earnings per share:
Basic........................................ $ .14 $2.03 $ .79 $1.83 $1.62
Diluted...................................... $ .14 $2.02 $ .78 $1.82 $1.61
Shares outstanding:
Basic:
Weighted average number of shares
outstanding............................. 40,677 40,592 36,322 35,788 35,656
Diluted:
Effect of stock options................... 127 167 107 90 83
------ ------ ------ ------ ------
Total diluted................................ 40,804 40,759 36,429 35,878 35,739
====== ====== ====== ====== ======
Current assets.................................... $1,545,271 $1,762,448 $1,468,973 $1,112,709 $983,454
Current liabilities............................... 1,412,302 1,441,894 1,270,276 890,579 778,989
Working capital................................... 132,969 320,554 198,697 222,130 204,465
Land, buildings and equipment (net)............... 824,452 724,779 644,812 566,156 567,216
Total assets...................................... 3,357,700 3,510,334 2,975,809 2,140,334 1,806,201
Bank loans........................................ 53,748 52,278 86,869 77,350 59,725
Long-term borrowings (including current
installments):
Corporate and other debt...................... 445,836 441,399 289,958 190,819 118,961
Project debt.................................. 443,360 387,644 299,094 308,383 310,303
Net assets owned.................................. 635,517 688,958 625,867 456,494 400,176
Net assets owned per common share of stock $15.60 $16.95 $15.46 $12.75 $11.21
Rate of return on net assets.................... 0.8% 13.1% 6.3% 16.3% 14.9%
Cash dividends per share of common stock... $.835 $.81 $.77 $.72 $.645
<FN>
<F1> Includes in 1997 a net charge of $50,900 ($37,400 after tax) consisting of
the following pretax items: Second quarter amounts: Gain on sale of Glitsch
International, Inc.'s operations-$56,400; provision for reorganization
costs of the Energy Equipment Group-$32,000; and write-downs of long-lived
assets-$6,500. Third quarter amounts: Contract write-downs-$24,000
(Engineering & Construction Group) and $30,000 (Energy Equipment Group).
Fourth quarter amount: Realignment of the Engineering & Construction
Group's European operations-$14,800.
<F2> Includes in 1996 a provision of $24,000 ($15,600 after tax) for asbestos
claims.
<F3> Includes in 1995 a provision of $50,120 ($46,500 after tax) for
reorganization costs.
<F4> Restated from amounts previously reported.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results Of Operations
BUSINESS GROUPS (See Note 17 to Financial Statements.)
(In Millions of Dollars)
<TABLE>
<CAPTION>
Corporate
Engineering and
and Energy Power Financial
Total Construction Equipment Systems Services (1)
----- ------------ --------- ------- ------------
1997 <F6>
- ----
<S> <C> <C> <C> <C> <C>
Unfilled orders................................. 7,184.6 5,295.6 1,604.5 255.0 29.5
New orders booked............................... 5,063.9 3,583.5 1,295.4 159.2 25.8
Revenues........................................ 4,172.0 2,808.7 1,143.4 208.5 11.4
Interest expense<F2>............................ 54.7 5.7 12.6 23.2 13.2
Earnings before income taxes.................... 19.5 51.5 <F5> 49.0 <F5> (26.7)<F5> (54.3)<F5>
Identifiable assets............................. 3,357.7 1,241.3 896.9 879.3 340.2
Capital expenditures............................ 189.8 42.1 14.6 131.2 1.9
Depreciation.................................... 52.3 22.6 13.8 13.2 2.7
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<F2>............................ 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)<F4>
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<F2>............................ 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<F3> 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
</TABLE>
<PAGE>
GEOGRAPHIC AREAS (See Note 17 to Financial Statements.)
(In Millions of Dollars)
<TABLE>
<CAPTION>
Corporate
and
United Financial
Total States Europe Canada Services <F1>
----- ------ ------ ------ ------------
1997 <F6>
- ----
<S> <C> <C> <C> <C> <C>
Unfilled orders................................. 7,184.6 3,496.7 3,591.4 67.0 29.5
New orders booked............................... 5,063.9 2,112.5 2,812.9 112.7 25.8
Revenues........................................ 4,172.0 1,690.1 2,378.7 91.8 11.4
Interest expense<F2>............................ 54.7 36.0 4.7 0.8 13.2
Earnings before income taxes.................... 19.5 (12.2)<F5> 78.1<F5> 7.9<F1> (54.3)<F5>
Identifiable assets............................. 3,357.7 1,635.7 1,335.5 46.3 340.2
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<F2>............................ 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)<F4>
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<F2>............................ 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<F3> 92.9 (26.0)<F3> (45.1)
Identifiable assets............................. 2,975.8 1,444.5 1,032.6 51.9 446.8
<FN>
<F1> Includes general corporate income and expense, and the Corporation's
captive insurance operation.
<F2> Includes intercompany interest charged by
Corporate to the business groups on outstanding borrowings.
<F3> Includes in 1995 a provision of $50.1 for reorganization costs. Geographic
allocation: United States-$24.7; Canada-$25.4.
<F4> Includes in 1996 a provision of $24.0 for asbestos claims.
<F5> Includes in 1997 a net charge of $50.9 ($37.4 after tax) consisting of the
following pretax items: Second quarter amounts: Gain on sale of Glitsch
International, Inc.'s operations-$56.4 (Energy Equipment Group); provision
for reorganization costs-$32.0 (Energy Equipment Group); and write-downs of
long-lived assets-$6.5 (Corporate and Financial Services). Third quarter
amounts: Contract write-downs-$24.0 (Engineering & Construction Group) and
$30.0 (Energy Equipment Group). Fourth quarter amount: European realignment
cost-$14.8 (Engineering & Construction Group). The geographic allocation of
the $50.9 is as follows: United States-$4.8, Europe-$34.3, Canada-$5.3 and
Corporate and Financial Services-$6.5.
<F6> Restated from amounts previously reported.
Unaudited as to unfilled orders and new orders booked.
</FN>
</TABLE>
<PAGE>
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.
All 1997 data included herein has been restated as described in Note 1 to
the financial statements.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
THREE YEARS ENDED DECEMBER 26, 1997
General
The Corporation's consolidated backlog at the end of fiscal 1997 was $7,184.6
million, an increase of $49.2 million over the amount reported for the end of
fiscal 1996 of $7,135.4 million, which in turn represented an increase of 10%
from a backlog at the end of fiscal 1995 of $6,474.0 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 which may not
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 1997 was $619.5 million,
compared with $966.2 million in fiscal 1996 and $249.3 million in fiscal 1995.
The Corporation's future award prospects include several large-scale
international projects. The large size and uncertain timing of these projects
can create variability in the Corporation's contract awards, and therefore,
future award trends are difficult to predict.
New orders awarded for fiscal 1997 ($5,063.9 million) were 9.1% lower than
new orders awarded in fiscal 1996 ($5,570.3 million), which were 37% higher than
new orders awarded in fiscal 1995 ($4,071.4 million). A total of 58% of new
orders in fiscal 1997 was for projects awarded to the Corporation's subsidiaries
located outside of the United States as compared to 56% in fiscal 1996 and 55%
in fiscal 1995. Key geographic regions outside of the United States contributing
to new orders awarded in fiscal 1997 were Europe, China, Southeast Asia and the
Middle East.
Operating revenues increased in fiscal 1997 by $54.5 million compared to
fiscal 1996, to $4,060.0 million from $4,005.5 million, which in turn
represented a 32% or $963.3 million increase as compared to fiscal 1995 of
$3,042.2 million.
Gross earnings from operations, which are equal to operating revenues minus
the cost of operating revenues ("gross earnings"), decreased $226.5 million or
46% in fiscal 1997 as compared to fiscal 1996, to $268.0 million from $494.5
million, which was an increase of approximately 24% over gross earnings for
fiscal 1995. Included in cost of operating revenues for 1997 were the following
provisions:$32.0 million for reorganization of the Energy Equipment Group, $24.0
million for contract write-downs in the Engineering and Construction Group,
$30.0 million for contract write-downs in the Energy Equipment Group and $13.3
million for realignment of the European operations of the Engineering and
Construction Group. In addition, the Robbins Facility reported a gross loss of
$36.3 million for 1997. In the fourth quarter of 1996, the Corporation recorded
a special pretax charge of $24.0 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.
Selling, general and administrative expenses decreased $28.9 million in
fiscal 1997 as compared to fiscal 1996, to $268.0 million from $296.9 million,
which in turn represented an increase from expenses reported in fiscal 1995 of
$250.4 million. General and administrative expenses decreased by $20.9 million
in fiscal 1997 and selling expenses decreased by $6.7 million, principally as a
result of the sale of Glitsch International in the second quarter.
Other income in fiscal 1997 as compared to fiscal 1996 increased $76.9
million to $112.0 million from $35.1 million. The Corporation recorded a $56.4
million gain on the sale of Glitsch International, Inc.'s operations to Koch
Engineering Company. This gain was included in other income in the second
quarter. The Corporation received approximately $185.0 million in cash for the
majority of the assets of Glitsch International, Inc. The retained net assets
have been valued at their current estimated realizable value which are not
material to the overalloperations of the Corporation. For segment reporting
purposes, the earnings of Glitsch International, Inc. up to the closing date of
June 27, 1997, were included in the operating results of the Corporation within
the Energy Equipment Group. In addition to the Glitsch transaction gain,
approximately $13.4 million in equity earnings of unconsolidated affiliates, and
a gain of $2.8 million related to the sale of an office building in France were
included in other income in 1997. Other income in fiscal 1996 as compared to
fiscal 1995 decreased $4.7 million or 12% to $35.1 million from $39.8 million,
of which $1.7 million was related to lower interest income.
Other deductions in fiscal 1997 increased $12.8 million primarily due to
the provision of approximately $8.0 million for disposition of certain
under-performing assets. Included in the $8.0 million was a provision of $6.5
million for the disposition of Ullrich Copper, Inc. This subsidiary was sold in
the third quarter with no additional financial impact. In fiscal 1996, other
deductions increased $11.7 million primarily due to increases in interest
expense of $5.9 million and amortization of intangibles of $6.3 million.
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 relates to the reorganization of the operations of the
Energy Equipment Group that existed before the acquisition of Pyropower.
Approximately 50% of the above provision had a cash impact. This reorganization
was completed at the end of 1997 in accordance with the initial plan.
The tax provision for fiscal 1997 was $13.9 million on earnings before
income taxes of $19.5 million primarily due to taxes on foreign earnings and
losses. The effective tax rate for fiscal 1996 was 35.2% compared to 59.0% in
fiscal 1995. 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 resulted in additional deferred tax assets for financial
reporting purposes, thereby reducing the likelihood that a portion of the tax
credit carryforwards will be utilized.
The net earnings for 1997 was $5.6 million or $.14 basic per share. The net
earnings included after-tax charges recorded in the second and fourth quarters
of $25.0 million and $12.2 million, respectively, and the after-tax gain on sale
of Glitsch International, Inc. of $36.7. The 1997 results also included a net
loss of $25.3 million related to the Robbins Facility. Net earnings for 1996
were $82.2 million or $2.03 basic per share, after recording a special after-tax
charge for asbestos claims of $15.6 million ($.38 basic per share). Net earnings
excluding the provision for asbestos claims were $97.8 million or $2.41 basic
per share. Net earnings for 1995 were $28.5 million or $.79 basic per share,
which included an after-tax provision for reorganization costs of $46.5 million
($1.28 basic per share).
Engineering and Construction Group
The E&C Group's backlog at the end of fiscal 1997 was $5,295.6 million, a 7%
increase over backlog of $4,958.2 million at the end of fiscal 1996, which in
turn represented a 9% increase from backlog of $4,566.6 million at the end of
fiscal 1995. The increase in fiscal 1996 as compared to fiscal 1995 was due to
awards of a polysilicon plant in the United States and a LNG plant in Oman.
New orders awarded to the E&C Group in fiscal 1997 amounted to $3,583.5
million compared with $3,568.4 million in fiscal 1996. New orders increased 22%
in fiscal 1996 as compared to fiscal 1995 levels of $2,927.7 million. The 1996
increase was due primarily to the LNG and polysilicon plants.
The E&C Group reported an 8% increase in operating revenues in fiscal 1997
as compared to fiscal 1996 from $2,556.1 million to $2,772.9 million, which in
turn represented a 21% increase from fiscal 1995 operating revenues of $2,120.2
million. The increase in fiscal 1997 operating revenues compared to 1996 was due
to increased activities in the United Kingdom and the United States. 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 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 the
mix of business in the years compared. Historically, engineering service
revenues have higher margins than either construction or maintenance services.
The E&C Group's gross earnings decreased $41.6 million in fiscal 1997 as
compared with fiscal 1996 or 20%, to $166.1 million from $207.7 million, which
in turn represented an increase of 7% from gross earnings of $194.8 million in
fiscal 1995. The decrease in fiscal 1997 was attributed to a provision of
approximately $24.0 million on several projects in the third quarter of 1997 for
which the Corporation is seeking recovery of a significant portion from clients
and the $13.3 million provision for the realignment of the Group's European
operations. The new structure will bring the Italian, French and Spanish
operations under common management, headquartered in Milan, Italy. The $13.3
million pretax charge includes $6.2 million for severance and benefits for
employees to be terminated and $6.6 million for office lease expense, due to the
consolidation of the Reading, United Kingdom operations into one facility. Also
in 1997, there was a decrease in gross earnings in the Spanish subsidiary of
$13.1 million. Approximately $2.4 million of the increase in fiscal 1996 as
compared to fiscal 1995 was attributable to the Corporation's environmental
remediation and service activities. The remaining increases in fiscal 1996 were
attributable to the successful completion of several major contracts by
subsidiaries in the United Kingdom, Spain and Italy.
<PAGE>
Management's Discussion and Analysis
Energy Equipment Group
The Energy Equipment Group's backlog was $1,604.5 million at the end of fiscal
1997, representing a 9% decrease in the backlog of $1,763.4 million at the end
of fiscal 1996, which in turn represented a 7% increase over backlog of $1,651.6
million at the end of fiscal 1995. Approximately $130.0 million of the decrease
in backlog in fiscal 1997 was attributable to the sale of Glitsch International,
Inc.
New orders awarded to the Energy Equipment Group were $1,295.4 million,
$1,787.7 million and $1,000.5 million in fiscal years 1997, 1996 and 1995,
respectively. Of such new orders, $113.0 million, $260.7 million and $331.8
million were related to Glitsch International, Inc.'s activities, which were
sold at the end of June 1997. This accounted for the majority of the decrease in
1997. Power generation new orders amounted to $1,182.4 million, $1,527.0 million
and $668.7 million for fiscal years 1997, 1996 and 1995, respectively.
Operating revenues for the Energy Equipment Group decreased 18% in fiscal
1997 as compared to fiscal 1996, to $1,064.1 million from $1,294.9 million,
which in turn represented an increase of 70% from fiscal 1995 of $761.9 million.
The decrease in 1997 is primarily attributable to the sale of Glitsch
International, Inc.'s operations in the second quarter. The increase in
operating revenues in 1996 primarily resulted from power-generation activities
including the acquisition of Pyropower.
The Energy Equipment Group's gross earnings decreased by $134.0 million or
60%, to $88.1 million in fiscal 1997 from $222.1 million in fiscal 1996, which
in turn represented a 52% increase from gross earnings in fiscal 1995 of $76.4
million. The decrease in 1997 is attributable to (1) the sale of Glitsch
International, Inc. accounting for $34.0 million, (2) reorganization costs of
$32.0 million recorded in the second quarter of 1997, and (3) $30.0 million in
provisions for increased costs on three projects, which were initially bid and
executed out of the San Diego office. The reorganization costs represent the
last phase of the Group's reorganization started in 1995 following the Pyropower
acquisition. These actions will result in a further reduction in operating costs
with a more efficient project execution capability. This plan includes $14.5
million for the discontinuance of certain product lines, including incremental
costs on certain completed contracts. Approximately $9.2 million of the charge
relates to the consolidation of the San Diego operations with the Group's
activities in New Jersey. Of this amount $5.2 million was for personnel costs,
including severance and related benefits, and the balance represents write-downs
of property to its net realizable value. These San Diego long-lived assets are
now considered to be for sale and have been accounted for at their current
market value less estimated cost to sell. The remaining balance of $8.3 million
is primarily related to the write-down of a Canadian cogeneration plant to its
net realizable value. Approximately 70% of the Energy Equipment Group's charges
mentioned above will have a cash impact. 50% of this cost was paid out by
year-end and the balance will be paid out during 1998.
Power Systems Group
The Power Systems Group's operating revenues increased in fiscal 1997 as
compared to fiscal 1996, to $197.7 million from $149.6 million, and 1995
operating revenues of $150.8 million.
The Group's gross earnings decreased $51.5 million in fiscal 1997 as
compared with fiscal 1996 to $11.3 million from $62.8 million, which in turn
represented an increase of $5.2 million from gross earnings of $57.6 million in
fiscal 1995. The loss in 1997 is primarily due to $38.9 million pre-tax loss
with respect to the Robbins Resource Recovery Facility. A subsidiary of the
Corporation, Robbins Resource Recovery Limited Partnership, operates this
facility under a long-term operating lease. By virtue of this facility's
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 costs." Since the State
repealed the Retail Rate Law and a 1997 decision in State Court regarding
procedural matters, management of the Corporation determined that a charge
against current earnings was required. In addition, earnings of the Group were
negatively impacted as a result of noncapitalizable development costs.
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 1997, 1996 and 1995,
approximately $16.1 million, $16.9 million and $11.1 million, respectively, were
spent on Corporation-sponsored research activities. During the same periods,
approximately $40.4 million, $29.6 million and $25.9 million, respectively, were
spent on customer-sponsored research activities that were paid for by customers
of the Corporation.
Financial Condition
From the beginning of fiscal 1995 to the end of fiscal 1997, net assets have
increased by $179.0 million. Stockholders' equity at the end of fiscal 1997 was
$635.5 million as compared to $689.0 million at the end of fiscal 1996 and
$625.9 million at the end of fiscal 1995. 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 1997, the net earnings of
$5.6 million, change in the accumulated translation adjustment of $28.3 million
and payment of dividends to stockholders of $34.0 million had the effect of
reducing stockholders' equity in 1997.
For the fiscal years 1995, 1996 and 1997, long-term investments in land,
buildings and equipment were $59.4 million, $158.5 million and $189.8 million,
respectively. During the next few years, capital expenditures will continue to
be directed primarily toward strengthening and supporting the Corporation's core
businesses. At the end of June 1997, the Corporation sold the majority of the
operations of Glitsch International, Inc. for approximately $185.0 million in
cash.
Long-term debt, including current installments, and bank loans increased by
$366.3 million, net of repayments of $212.5 million, during the three-year
period. At year-end 1997, the Corporation had $205.0 million outstanding 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 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.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $167.4 million at December 26, 1997, a
decrease of $99.7 million from the prior fiscal year-end, principally as a
result of the increase in cash required for operating activities. Short-term
investments decreased $45.3 million to $91.9 million at the end of 1997. During
fiscal 1997, the Corporation paid $34.0 million in stockholder dividends, repaid
debt of $34.6 million, including a scheduled $22.0 million repayment of the
Private Notes, and funded other operating requirements. The Corporation incurred
incremental borrowings of $33.5 million under the Revolving Credit Agreements.
During fiscal 1997, cash flow used for operating activities totaled $120.1
million. In 1996, cash flow provided from operating activities amounted to
$111.0 million. This change was primarily due to a reduction of 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's 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 less favorable payment schedules to the Corporation.
The Corporation's contracts in process and inventories increased by $11.7
million during 1997 from $403.5 million at December 27, 1996, to $415.2 million
at December 26, 1997. The increase in the contracts in process and inventories
in fiscal 1997 can be attributed to increases in the E&C Group of $49.8 million
and $17.1 million in the Energy Equipment Group, offset by reductions in the
Power Systems Group of $41.8 million and $13.4 million in Corporate and
Financial Services. In addition, accounts and notes receivable decreased by
$86.4 million in fiscal 1997 to $799.4 million from $885.8 million in fiscal
1996. The E&C Group decreased by approximately $33.6 million, primarily due to a
reduction of contracts in the Spanish and French subsidiaries. The balance of
the decrease can be attributed principally to the Energy Equipment Group,
primarily due to the sale of Glitsch International, Inc's operations.
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 $135.0 million available.
The Corporation will be required to pay the final principal installment of
$22.0 million on the Private Notes on September 30, 1998. The Corporation
expects to make such payment from internally generated cash, borrowings under
its Revolving Credit Agreements and/or third-party financing in the capital
markets.
The Corporation has lease payments due under two long-term operating leases
of $14.0 million in fiscal 1998, $18.2 million in fiscal 1999 and $35.6 million
in fiscal 2000 and other rental payments under leases for office space. 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
have a material impact on the Corporation's liquidity or capital resources.
Management of the Corporation believes that cash and cash equivalents on
hand of $167.4 million and short-term investments of $91.9 million at December
26, 1997, 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.
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 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 will be an
additional adverse financial impact on the operating results of the project.
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and regulations. The
immediate effect was to eliminate the guaranteed supply of municipal solid waste
to the Camden County Waste-to-Energy Project (the "Project") with its
corresponding tipping fee revenues. As a result, tipping fees have been reduced
to market rate in order to provide a steady supply of fuel to the plant. Those
market-based revenues are not expected to be sufficient to service the debt on
outstanding bonds, which were issued to construct the plant and to acquire a
landfill for Camden County's use. The Corporation has filed suit against the
involved parties, including the State of New Jersey, seeking among other things
to void the applicable contracts and agreements governing the Project. Pending
outcome of the litigation and the results of legislative initiatives in New
Jersey to solve the crisis, management believes that the plant will continue to
operate at full capacity while receiving market rates for waste disposal. At
this time, management cannot determine the ultimate outcome and its effect on
the Project.
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 counter parties 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 effectsof 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 exposure to or use of
asbestos in connection with work performed by the Corporation and its
subsidiaries during the 1970s and prior. As of December 26, 1997, there were
approximately 65,000 (1996-92,600) claims pending. Approximately 29,800 new
claims were filed in 1997. The Corporation has agreements with insurance
carriers covering a substantial portion of the potential costs relating to these
exposures. During the three-year period ended December 26, 1997, the Corporation
tried, settled or summarily disposed of approximately 96,300 (1997-57,300)
asbestos-related claims. Approximately $76,700, substantially all of which was
reimbursed or will be reimbursed, were spent on asbestos litigation defense and
case resolution during the three-year period (1995-$21,000; 1996-$27,000;
1997-$28,700). 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 18).
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.
Other Accounting Matters
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
This Statement requires that a company (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
This Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
SFAS No. 131 establishes standards for the way that public business
companies report information about operating segments in annual financial
statements and requires that those companies report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers.
This Statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated.
The adoption of these Statements will not have an impact on the
Corporation's consolidated results of operations, financial position or cash
flow.
Year 2000 Conversion
The Corporation has established a committee to coordinate the identification,
evaluation, and implementation of changes to computer systems and applications
necessary to achieve a year 2000-date conversion. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. Major areas of potential business impact are currently being
identified. The assessment has yet to be made of the total cost of compliance
and its effect on the Corporation's future results of operations.
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars, Except per Share Amounts)
<TABLE>
<CAPTION>
December 26, December 27,
1997 <F1> 1996
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................ $ 167,417 $ 267,149
Short-term investments............................... 91,888 137,180
Accounts and notes receivable:
Trade............................................ 663,505 769,494
Other............................................ 135,870 116,291
Contracts in process................................. 406,378 363,716
Inventories.......................................... 8,808 39,799
Prepaid and refundable income taxes.................. 46,175 38,627
Prepaid expenses..................................... 25,230 30,192
----------- -----------
Total current assets............................. 1,545,271 1,762,448
----------- -----------
Land, buildings and equipment............................. 1,138,098 1,054,786
Less accumulated depreciation............................. 313,646 330,007
----------- -----------
Net book value................................... 824,452 724,779
----------- -----------
Notes and accounts receivable - long-term................. 86,353 74,296
Investments and advances.................................. 127,629 73,725
Intangible assets, net.................................... 298,217 331,463
Prepaid pension cost and benefits......................... 187,200 180,473
Other, including insurance recoveries..................... 275,582 359,362
Deferred income taxes..................................... 12,996 3,788
----------- -----------
TOTAL ASSETS..................................... $ 3,357,700 $ 3,510,334
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments on long-term debt............... $ 33,528 $ 32,764
Bank loans........................................... 53,748 52,278
Accounts payable..................................... 380,016 359,503
Accrued expenses..................................... 246,144 275,527
Estimated costs to complete long-term
contracts........................................ 578,474 562,984
Advance payments by customers........................ 98,865 116,903
Income taxes......................................... 21,527 41,935
----------- -----------
Total current liabilities........................ 1,412,302 1,441,894
Long-term debt, less current installments................. 855,668 796,279
Minority interest in subsidiary companies................. 26,730 13,106
Deferred income taxes..................................... 34,148 30,095
Postretirement and other employee benefits
other than pensions.................................. 169,212 180,210
Other long-term liabilities and deferred
credits ............................................ 224,123 359,792
----------- -----------
TOTAL LIABILITIES................................ 2,722,183 2,821,376
----------- -----------
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: 1997-40,745,668;
1996-40,651,241...................................... 40,746 40,651
Paid-in capital........................................... 201,105 197,970
Retained earnings......................................... 442,848 471,177
Accumulated translation adjustment........................ (48,887) (20,545)
------------ -----------
635,812 689,253
Less cost of treasury stock (10,804 shares)............... 295 295
------------ -----------
TOTAL STOCKHOLDERS' EQUITY....................... 635,517 688,958
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 3,357,700 $ 3,510,334
============= ===========
See notes to financial statements.
<FN>
<F1> Restated - see Note 1 to the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands of Dollars, Except per Share Amounts)
<CAPTION>
1997 <F1> 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Operating revenues.......................................... $4,059,965 $4,005,503 $3,042,177
Other income (including interest:
1997-$21,669; 1996-$21,714; 1995-$23,404)............... 112,050 35,108 39,753
---------- ---------- ----------
Total Revenues.......................................... 4,172,015 4,040,611 3,081,930
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operating revenues.................................. 3,791,998 3,510,970 2,642,290
Selling, general and administrative expenses................ 268,026 296,921 250,369
Other deductions (including interest:
1997-$54,675; 1996-$54,940; 1995-$49,011)............... 89,544 76,678 64,998
Provision for special charges............................... - 24,000 50,120
Minority interest........................................... 2,931 5,176 4,490
---------- ---------- ----------
Total Costs and Expenses................................ 4,152,499 3,913,745 3,012,267
---------- ---------- ----------
Earnings before income taxes..................................... 19,516 126,866 69,663
Provision for income taxes....................................... 13,892 44,626 41,129
---------- ---------- ----------
Net earnings..................................................... $ 5,624 $ 82,240 $ 28,534
========== ========== ==========
Earnings per share:
Basic.................................................... $.14 $2.03 $.79
======= ======= ======
Diluted.................................................. $.14 $2.02 $.78
======= ======= ======
Shares outstanding:
Basic:
Weighted average number of shares outstanding........ 40,677 40,592 36,322
Diluted:
Effect of stock options.............................. 127 167 107
---------- ---------- ----------
Total diluted............................................ 40,804 40,759 36,429
========== ========== ==========
See notes to financial statements.
<FN>
<F1> Restated - see Note 1 to financial statements.
</FN>
</TABLE>
<PAGE>
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 26, 1997 and December 27,
1996, 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 26, 1997. 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 26, 1997 and December 27, 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 26, 1997 in conformity with
generally accepted accounting principles.
As indicated on Note 1, the consolidated financial statements as of and for
the year ended December 26, 1997 have been restated.
PricewaterhouseCoopers L.L.P.
New York, New York January 27, 1998, except for the restatement paragraph of
Note 1 as to which the date is December 17, 1998
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of
Dollars, Except per Share Amounts)
1997 <F1> 1996 1995
---- ---- ----
COMMON STOCK
<S> <C> <C> <C>
Balance at beginning of year....................................................... $ 40,651 $ 40,498 $ 35,833
Sold under stock options: (shares: 1997-94,427; 1996-128,199;
1995-45,817)..................................................................... 95 128 45
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........................................................... 40,746 40,651 40,498
-------- -------- --------
PAID-IN CAPITAL
Balance at beginning of year....................................................... 197,970 192,721 38,266
Stock option exercise price less par value......................................... 2,665 3,417 573
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.............................................. 470 764 192
Excess of proceeds received on issuance of common stock in public
offerings less par value and costs............................................... - - 153,644
--------- -------- --------
Balance at end of year........................................................... 201,105 197,970 192,721
--------- -------- --------
RETAINED EARNINGS
Balance at beginning of year....................................................... 471,177 421,804 420,861
Net earnings for the year.......................................................... 5,624 82,240 28,534
Cash dividends paid:
Common (per share outstanding: 1997-$.835; 1996-$.81; 1995-$.77)................. (33,953) (32,867) (27,591)
--------- -------- --------
Balance at end of year........................................................... 442,848 471,177 421,804
-------- -------- --------
ACCUMULATED TRANSLATION ADJUSTMENT
Balance at beginning of year....................................................... (20,545) (28,861) (37,915)
Change in accumulated translation adjustment during the year....................... (34,615) 8,316 9,054
Amount transferred to income upon sale of subsidiary............................... 6,273 - -
-------- ------- --------
Balance at end of year........................................................... (48,887) (20,545) (28,861)
--------- -------- ---------
TREASURY STOCK
Balance at beginning of year....................................................... 295 295 551
Issued under incentive plans (shares: 1995-9,325).................................. - - (256)
-------- -------- --------
Balance at end of year........................................................... 295 295 295
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY......................................................... $635,517 $688,958 $625,867
======== ======== ========
See notes to financial statements.
<FN>
<F1> Restated - see Note 1 to financial statements.
</FN>
</TABLE>
<PAGE>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
1997 <F1> 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................................... $ 5,624 $ 82,240 $ 28,534
Adjustments to reconcile net (loss)/earnings to
cash flows from operating activities:
Depreciation and amortization........................................... 62,010 63,605 54,625
Noncurrent deferred tax................................................. (4,553) 5,338 5,049
Gain on sale of land, buildings and equipment........................... (5,583) (400) (1,283)
Equity earnings, net of dividends....................................... (13,429) (1,474) (1,578)
Net gain on sale of subsidiaries........................................ (49,400) - -
Provision for special charges........................................... - 24,000 50,120
Other noncash items..................................................... (6,534) (5,133) (4,891)
Changes in assets and liabilities, net of effects of acquisitions and
divestitures:
Receivables............................................................. (62,072) (148,023) (143,023)
Contracts in process and inventories.................................... (72,533) (19,983) (131,759)
Accounts payable and accrued expenses................................... 37,940 64,219 29,566
Estimated costs to complete long-term contracts......................... 58,925 17,376 50,096
Advance payments by customers........................................... 1,251 39,300 (34,237)
Income taxes............................................................ (22,472) 13,520 3,801
Other assets and liabilities............................................ (49,231) (23,629) (10,327)
---------- --------- ---------
Net cash (used)/provided by operating activities........................ (120,057) 110,956 (105,307)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................................... (189,767) (158,526) (59,432)
Proceeds from sale of properties........................................... 12,516 16,278 2,918
Payments for acquisitions of businesses, net of cash acquired.............. - (14,798) (133,451)
Sales of subsidiaries...................................................... 185,601 - -
Increase in investments and advances....................................... (40,426) (10,926) (13,596)
Decrease/(increase)in short-term investments............................... 34,160 (19,713) 7,026
Partnership distribution................................................... (4,800) (4,859) (4,883)
--------- --------- ---------
Net cash used by investing activities................................... (2,716) (192,544) (201,418)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders.................................................. (33,953) (32,867) (27,591)
Proceeds from public offering of common stock, net......................... - - 158,264
Proceeds from the exercise of stock options................................ 2,760 3,545 618
Increase/(decrease)in short-term debt...................................... 7,590 (35,258) 7,243
Proceeds from long-term debt............................................... 98,761 287,937 219,978
Repayment of long-term debt................................................ (34,551) (47,646) (130,329)
--------- --------- ---------
Net cash provided by financing activities.......................... 40,607 175,711 228,183
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents.............. (17,566) 5,895 9,872
--------- --------- ---------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS................................ (99,732) 100,018 (68,670)
Cash and cash equivalents at beginning of year.................................. 267,149 167,131 235,801
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................................ $167,417 $267,149 $167,131
========= ========= =========
Cash paid during the year for:
Interest (net of amount capitalized).................................... $40,225 $45,985 $45,434
Income taxes............................................................ $30,099 $20,271 $18,162
See notes to financial statements.
<FN>
<F1>(a) Restated - see Note 1 to financial statements.
</FN>
</TABLE>
<PAGE>
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 1995, 1996 and
1997 included 52 weeks.
Restatement
The 1997 earnings were restated to eliminate a charge of $60.0 million that was
taken in the second quarter of 1997. This charge related to the anticipated
losses of a waste-to-energy plant located in the Village of Robbins, Illinois
(the "Robbins Facility"). These losses were initially provided for because the
Corporation expected the income and cash to be generated by the Robbins Facility
would not be sufficient to cover the lease expense. Based on further detailed
review and analysis, the Corporation determined that the costs associated with
this operating lease agreement should only be accrued in the event that the
lessee no longer benefits from the use of the property (formal exit plan). Since
the Corporation has an obligation to continue to operate the facility, it was
determined that the losses should be recognized as incurred and not accrued
based on probable scenarios.
The effect of this restatement is shown below:
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Net As Previously Earnings Per Earnings
Earnings/(Loss) Reported Share-Basic As Revised Share-Basic
-------- ----------- ---------- -----------
1997
<S> <C> <C> <C> <C>
First quarter $ 20,221 $ .50 $ 20,221 $ .50
------- -------
Second quarter (3,631) $ (.09) 22,586 $ .56
-------- -------
Third quarter (29,348) $ (.72) (34,976) $ (.86)
-------- -------
Fourth quarter 2,295 $ (.06) (2,207) $ (.05)
---------- -------- ----------- -------
Year $ (10,463) $ (0.26) $ 5,624 $ 0.14
========== ========= ========== ========
</TABLE>
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. Significant estimates are used when
accounting for long-term contracts including customer and vendor claims,
depreciation, employee benefit plans, taxes, and contingencies (see Note 13),
among others.
Revenue Recognition on Long-term Contracts - The Engineering and
Construction Group records 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.
Contracts of the Engineering and Construction Group are generally considered
substantially complete when engineering is completed 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 Energy Equipment Group primarily records profits on long-term contracts
on a percentage-of-completion basis determined on a variation of the
efforts-expended and the cost-to-cost methods, which include multiyear contracts
that require significant engineering efforts and multiple delivery units. These
methods are periodically subject to physical verification of the actual progress
towards completion. Contracts of the Energy Equipment Group are generally
considered substantially complete when manufacturing and/or field erection is
completed.
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. If estimates of costs to complete
long-term contracts indicate a loss, provision is made currently for the total
loss anticipated. The elapsed time from award of a contract to completion of
performance may be up to four years.
Certain special-purpose subsidiaries in the 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 obligations on these
contracts on a straight-line basis over the lives of the service contracts, and
records depreciation of the facilities on a straight-line basis over the
estimated useful lives of the facilities, after consideration of the estimated
residual value.
Cash and Cash Equivalents - Cash and cash equivalents include highly liquid
short-term investments purchased with original maturities of three months or
less.
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 industry practice, however, the full amount of accounts
receivable, including such amounts withheld, has been included in current
assets.
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 $273,000 at December 26, 1997. It is not practicable
to estimate the additional tax that would be incurred, if any, if these amounts
were repatriated.
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 gains/(losses) for 1997, 1996 and 1995 were approximately $2,600,
$(500) and $(1,600), respectively [$1,700, $(320) and $(1,000) net of taxes].
The Corporation enters into foreign exchange contracts in its management of
foreign currency exposures. Realized and unrealized gains and losses on
contracts that qualify as designated hedges are deferred. 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 1997 and 1996 consist principally of
the excess of cost over the fair value of net assets acquired (goodwill)
($206,807 and $232,213), trademarks ($58,390 and $62,970) and patents ($33,020
and $36,280), 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 - At the end of 1997, the Corporation adopted the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share."
All per share data has been restated to conform to the provisions of this
Statement. Basic per share data has been computed based on the weighted average
number of shares of common stock outstanding. Diluted per share data has been
computed on the basic plus the dilution of stock options.
2. ACQUISITIONS AND DIVESTITURES
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. The acquisition made in 1995 has been accounted for as a purchase and
the results of operations of this company have been included in the consolidated
financial statements since the date of acquisition. Approximately $255,000 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. As a result, estimated cost to complete long-term contracts
was increased by $68,300.
In 1997, the Corporation sold two subsidiaries: (1) in the second quarter,
an accrual for $6,500 was recognized for the valuation of Ullrich Copper, Inc.
Since this subsidiary (a manufacturer of copper extrusions) was not part of the
Corporation's three core business groups, management of the Corporation reached
a decision to sell this subsidiary which was valued at the estimated fair value
less the cost to sell. The final sale was completed in the third quarter of 1997
with no additional financial impact; and (2) in the second quarter, the
Corporation recorded a $56,400 pretax ($36,660 after tax) gain on the sale of
Glitsch International, Inc.'s operations to Koch Engineering Company. This gain
was included in the second quarter. The Corporation received approximately
$185,000 in cash for the majority of the assets of Glitsch International, Inc.
The retained net assets have been valued at their current estimated realizable
value, which are not considered material to the overall operations of the
Corporation. For segment reporting purposes, the earnings of Glitsch
International, Inc. up to the closing date of June 27, 1997, were included in
the operating results of the Corporation within the Energy Equipment Group.
3. ACCOUNTS AND NOTES RECEIVABLE
The following tabulation shows the components of trade accounts and notes
receivable:
1997 1996
---- ----
From long-term contracts:
Amounts billed due within one year....... $443,355 $477,394
-------- --------
Retentions:
Billed:
Estimated to be due in:
1997 ............................ - 21,578
1998 ............................ 48,694 16,046
1999 ............................ 3,367 20,028
2000 ............................ 148 -
-------- ------
Total billed..................... 52,209 57,652
-------- ------
Unbilled:
Estimated to be due in:
1997 ............................ - 135,241
1998 ............................ 131,583 824
1999 ............................ 540 -
2000 ............................ 337 -
-------- -------
Total unbilled................... 132,460 136,065
-------- --------
Total retentions................. 184,669 193,717
-------- --------
Total receivables from
long-term contracts........... 628,024 671,111
Other trade and notes receivable............ 36,719 102,458
-------- --------
664,743 773,569
Less, allowance for doubtful accounts....... 1,238 4,075
-------- --------
$663,505 $769,494
======== ========
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:
1997 1996 1995
---- ---- ----
Contracts in process.................... $406,378 $363,716 $340,526
======== ======== ========
Inventories:
Materials and supplies............... $ 7,336 $ 31,037 $ 31,633
Work in process...................... - 2,445 6,072
Finished goods....................... 1,472 6,317 5,011
---------- --------- ---------
$ 8,808 $ 39,799 $ 42,716
========= ======== ========
The following tabulation shows the elements included in contracts in process as
related to long-term contracts:
1997 1996 1995
---- ---- ----
Costs plus accrued profits less
earned revenues on contracts
currently in process.................... $837,556 $633,392 $694,877
Less, Progress payments.................... 431,178 269,676 354,351
--------- --------- ---------
$406,378 $363,716 $340,526
======== ======== ========
5. LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are stated at cost and are set forth below:
1997 1996
---- ----
Land and land improvements.................... $ 19,820 $ 21,419
Buildings..................................... 134,574 154,160
Equipment..................................... 744,484 743,434
Construction in progress...................... 239,220 135,773
----------- -----------
$1,138,098 $1,054,786
=========== ==========
Depreciation expense for the years 1997, 1996 and 1995 was $52,336,
$54,374 and $51,706, 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.
The following table sets forth the plans' funded status as of the end of
December 1997 and 1996:
The following table sets forth the plans' funded status as of the end of
December 1997 and 1996:
1997 1996
---- ----
Actuarial present value of accumulated benefit
obligations:
Vested......................................... $ 439,455 $ 375,765
Nonvested...................................... 8,991 9,135
--------- ---------
Total....................................... $ 448,446 $ 384,900
========= =========
Plan assets at fair value, primarily
listed stocks and bonds........................ $ 542,601 $ 490,659
Projected benefit obligations...................... (500,744) (424,285)
---------- ----------
Excess of plan assets over projected
benefit obligations............................ 41,857 66,374
Unrecognized net loss due to past
experience different from
assumptions made............................... 63,698 37,047
Unrecognized prior service cost.................... 16,735 16,638
Unrecognized net assets being
amortized over 12 years........................ (6,288) (12,179)
---------- ----------
Prepaid pension cost............................... $ 116,002 $ 107,880
========= =========
Net periodic pension expense included the following components:
1997 1996 1995
---- ---- ----
Service cost........................ $ 25,363 $ 17,424 $ 13,602
Interest cost on projected
benefit obligation............... 33,526 29,476 27,327
Actual return on plan assets........ (61,110) (43,600) (38,848)
Net amortization and deferrals...... 11,076 (2,279) (637)
-------- --------- ---------
Net periodic pension expense........ $ 8,855 $ 1,021 $ 1,444
========= ========= =========
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 1997, 1996 and 1995, contributed a 50% match of the employees'
contributions, which amounted to a cost of $5,500, $5,900 and $5,700,
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
1997 and 1996.
Accumulated postretirement benefit obligation:
1997 1996
Retirees.................................... $ 82,329 $ 70,095
Fully-eligible active plan participants..... 7,704 11,927
Other active plan participants.............. 33,099 36,895
--------- ---------
Accumulated postretirement benefit.......... 123,132 118,917
Unrecognized net (loss)/gain................ (2,442) 3,052
Unrecognized prior service cost............. 25,865 28,976
--------- ---------
Accrued postretirement benefit liability.... $ 146,555 $ 150,945
========= =========
Net periodic postretirement benefit cost for 1997, 1996 and 1995
included the following components:
<PAGE>
1997 1996 1995
---- ---- ----
Service cost...................... $ 1,000 $ 1,623 $ 1,247
Interest cost..................... 6,264 6,010 6,186
Net amortization and deferrals.... (2,211) (2,101) (2,165)
--------- -------- --------
Net periodic postretirement
benefit cost.................... $ 5,053 $ 5,532 $ 5,268
========= ======== ========
An 8.5% annual rate of increase in the per capita costs of covered health
care benefits was assumed for 1998, 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 26, 1997, by $3,740 and increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for 1997 by
$275. Discount rates of 7.25% for 1997 and 7.75% for 1996 were 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 1997 and 1996 were 7% and 5%, respectively.
Unused lines of credit for short-term bank borrowings aggregated $128,710
at year-end 1997, of which approximately 83% 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 1997, 1996 and 1995 were $65,054, $61,302 and
$49,117 of which $10,379, $6,362 and $106, respectively, were capitalized.
Notes to Financial Statements
(In Thousands of Dollars, Except per Share Amounts)
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following: 1996 1997
---- ----
<S> <C> <C>
Corporate Debt
8.58% unsecured promissory notes due on
September 30, 1998......................................... $ 22,000 $ 44,000
Revolving Credit Agreements (average interest rate 6%)........ 205,000 171,500
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 (1997-year-end rate 6.895%), due semiannually through
July 30, 2006.............................................. 50,493 53,853
Floating/Fixed Rate Resource Recovery
Revenue Bonds, interest varies based on tax-exempt money market rates
(1997 year-end rate 4.2%), due semiannually August 1, 1998 through
February 1, 2010 43,648 45,448
Fixed Rate Trust Certificates, interest at 7.36%,
due semiannually August 15, 1998 through
February 15, 2014.......................................... 162,000 97,923
Solid Waste Disposal and Resource Recovery
System Revenue Bonds, interest 7.125% to
7.5%, due annually December 1, 1999
through 2010............................................... 120,150 120,150
Resource Recovery Revenue Bonds, interest
7.9% to 10%, due annually December 15,
1998 through 2012.......................................... 67,070 70,270
Other......................................................... 18,835 25,899
----- -------- --------
889,196 829,043
Less, Current portion............................................ 33,528 32,764
-------- --------
$855,668 $796,279
======== ========
Principal payments are payable in annual installments of:
1999........................................................... $ 40,232
2000........................................................... 30,097
2001........................................................... 232,431
2002........................................................... 29,921
2003........................................................... 33,596
Balance due in installments through 2014....................... 489,391
--------
$855,668
========
</TABLE>
Corporate Debt - The Corporation has $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 &
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 parity with the Corporation's other senior unsecured indebtedness.
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 1997,
the Corporation had $205,000 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 and a minimum Consolidated Fixed Charge
Coverage Ratio. At December 26, 1997, the Corporation was in compliance with all
these provisions.
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.
Cogeneration Projects - The note payable for $50,493 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 26, 1997, was
$16,620. Amounts receivable under the swap agreements are reflected as a
reduction of interest expense.
<PAGE>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
The Floating/Fixed Rate Resource Recovery Revenue Bonds in the amount of
$43,648 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 were issued and remain outstanding 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 $67,070 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 1997, 1996 and 1995, approximately $16,100, $16,900 and $11,100,
respectively, were spent on Corporation-sponsored research activities. During
the same periods, approximately $40,400, $29,600 and $25,900, respectively, were
spent on customer-sponsored research activities, which were paid by customers of
the Corporation.
10. INCOME TAXES
The components of (loss)/earnings before income taxes for the years 1997, 1996
and 1995 were taxed under the following jurisdictions:
1997 1996 1995
---- ---- ----
Domestic...........................$(66,438) $(11,261) $ 2,775
Foreign............................ 85,954 138,127 66,888
-------- -------- --------
Total..............................$ 19,516 $126,866 $ 69,663
======== ======== ========
The provision for income taxes on those was as follows:
Current tax (benefit)/expense:
Domestic........................... (12,183) $ 6,002 $ 6,306
Foreign............................ 40,059 31,197 17,883
-------- -------- --------
Total current...................... 27,876 37,199 24,189
-------- -------- --------
Deferred tax (benefit)/expense:
Domestic........................... (9,499) (5,434) 5,508
Foreign............................ (4,485) 12,861 11,432
--------- -------- --------
Total deferred..................... (13,984) 7,427 16,940
--------- -------- --------
Total provision for income taxes......$ 13,892 $ 44,626 $ 41,129
======== ======== ========
<PAGE>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
Deferred tax liabilities (assets) consist of the following:
1997 1996
Difference between book and
tax depreciation............................ $ 89,562 $ 90,995
Pension assets................................. 36,092 36,024
Capital lease transactions..................... 11,899 12,201
Revenue recognition............................ 24,546 19,994
Other .................................... 2,023 6,416
-------- --------
Gross deferred tax liabilities................. 164,122 165,630
-------- --------
Current taxability of estimated
costs to complete
long-term contracts......................... (7,331) (9,061)
Income currently taxable deferred
for financial reporting..................... (6,291) (6,697)
Expenses not currently deductible
for tax purposes............................ (52,306) (37,104)
Investment tax credit carryforwards............ (30,251) (30,251)
Postretirement benefits other
than pensions............................... (64,707) (64,900)
Asbestos claims................................ (6,370) (8,400)
Minimum tax credits............................ (9,822) (6,832)
Foreign tax credits............................ (21,400) (21,400)
Other .................................... (1,809) (3,166)
Valuation allowance............................ 20,000 20,000
--------- ---------
Net deferred tax assets........................ (180,287) (167,811)
---------- ----------
$ (16,165) $ (2,181)
========== =========
The domestic investment tax credit carryforwards, if not used, will
expire in the years 2002 through 2007. Foreign tax credit carryforwards are
recognized based on their potential utilization and, if not used, will expire in
the years 1998 through 2002. 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. 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 through future
earnings and/or tax planning strategies. 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(In Thousands of Dollars, Except per Share Amounts)
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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax (benefit)/provision
at U.S. statutory rate............................. 35.0 % 35.0% 35.0%
State income taxes, net of
Federal income tax benefit......................... 9.9 2.0 4.4
Increase in valuation allowance....................... - - 20.8
Difference in estimated
income taxes on foreign income and losses,
net of previously provided amounts ................ 28.1 - -
Other ........................................... (1.8) (1.8) (1.2)
------ ------ ------
71.2% 35.2% 59.0%
====== ====== ======
</TABLE>
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
1995, 1996 and 1997 was $9,300, $9,300 and $32,700, respectively.
The minimum lease payments under these long-term noncancelable operating
leases are as follows:
1998 ............................. $ 14,012
1999 ............................. 18,218
2000 ............................. 35,578
2001 ............................. 35,580
2002 ............................. 53,598
Thereafter ............................. 692,566
---------
Total ............................. $849,552
========
The Corporation and certain of its subsidiaries are obligated under
operating lease agreements primarily for office space. Rental expense for these
leases amounted to $26,500 in 1997, $28,800 in 1996 and $26,000 in 1995. Future
minimum rental commitments on noncancelable leases are as follows: 1998 -
$25,200; 1999 - $23,600; 2000 - $20,400; 2001 - $19,800; 2002-$17,500; and an
aggregate of $16,300 thereafter.
<PAGE>
12. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
1997 (1) March 28 June 27 Sept. 26 Dec. 26
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenues........................ $965,114 $1,030,634 $1,029,994 $1,034,223
Gross earnings from
operations............................ 110,599 71,280 10,829 75,259
Net earnings/(loss)....................... 20,221 22,586(a) (34,976)(b) (2,207)(c)
Earnings/(loss) per share:
Basic................................. .50 .56 (.86) (.05)
Diluted............................... .50 .55 (.86) (.05)
Shares outstanding:
Basic:
Weighted average
number of shares outstanding..... 40,642 40,643 40,688 40,734
Diluted:
Effect of stock options............ 140 133 * *
------- -------- --------- --------
Total diluted......................... 40,782 40,776 40,688 40,734
====== ====== ====== =======
Cash dividends per share.................. .205 .21 .21 .21
Stock prices:
High ................................. 42.75 41.50 48.125 44.75
Low ................................. 35.875 35.125 39.75 26.688
(1) Restated - see Note 1 to financial statements.
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(d)
Earnings per share:
Basic................................. .58 .62 .59 .24
Diluted............................... .58 .61 .59 .24
Shares outstanding:
Basic:
Weighted average
number of shares outstanding.... 40,513 40,596 40,621 40,640
Diluted:
Effect of stock options............ 202 194 177 127
------- ------- ------- -------
Total diluted......................... 40,715 40,790 40,798 40,767
====== ====== ====== ======
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
</TABLE>
(a) Includes a gain of $56,400 related to the sale of Glitsch International,
Inc. and a charge of $38,500, a net gain of $11,600 net of income taxes
$(.29) per share. See Notes 2 and 18.
(b) Includes $54,000 for contract write-downs, a net loss of $36,800 $(.91) per
share. See Note 18.
(c) Includes a charge of $14,800 for the realignment of the Engineering &
Construction Group in Europe, a net loss of $12,200 $(.30) per share. See
Note 18.
(d) Includes a provision for asbestos claims of $15,600, net of income taxes
$(.38) per share. See Note 18.
* The effect of the stock options was not included in the calculation of
diluted earnings per share as these options were antidilutive due to the
quarterly loss.
<PAGE>
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 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 suits will not result in
charges against assets or earnings materially in excess of amounts previously
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 exposure to or use of
asbestos in connection with work performed by the Corporation and its
subsidiaries during the 1970s and prior. As of December 26, 1997, there were
approximately 65,000 (1996-92,600) claims pending. Approximately 29,800 new
claims were filed in 1997. The Corporation has agreements with insurance
carriers covering a substantial portion of the potential costs relating to these
exposures. During the three-year period ended December 26, 1997, the Corporation
tried, settled or summarily disposed of approximately 96,300 (1997-57,300)
asbestos-related claims. Approximately $76,700, substantially all of which was
reimbursed or will be reimbursed, were spent on asbestos litigation defense and
case resolution during the three-year period (1995-$21,000; 1996-$27,000;
1997-$28,700). 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 18).
In 1997, the United States Supreme Court effectively invalidated New
Jersey's long-standing municipal solid waste flow rules and regulations. The
immediate effect was to eliminate the guaranteed supply of municipal solid waste
to the Camden County Waste-to-Energy Project (the "Project") with its
corresponding tipping fee revenue. As a result, tipping fees have been reduced
to market rate in order to provide a steady supply of fuel to the plant. Those
market-based revenues are not expected to be sufficient to service the debt on
outstanding bonds which were issued to construct the plant and to acquire a
landfill for Camden County's use. The Corporation has filed suit against the
involved parties, including the State of New Jersey, seeking among other things
to void the applicable contracts and agreements governing the Project. Pending
outcome of the litigation and the results of legislative initiatives in New
Jersey to solve the crisis, management believes that the plant will continue to
operate at full capacity while receiving market rates for waste disposal. At
this time, management cannot determine the ultimate outcome and its effect on
the Project.
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 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.
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.
<PAGE>
Notes to Financial Statements
(In Thousands of Dollars, Except per Share Amounts)
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 1997, 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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings - as reported $ 5,624 $ 82,240 $ 28,534
========= ======== ========
Net earnings - pro forma $ 2,994 $ 79,725 $ 24,434
========= ======== ========
Earnings per share - as reported
Basic $ .14 $2.03 $ .79
Diluted $ .14 $2.02 $ .78
Earnings per share - pro forma
Basic $ .07 $1.96 $ .67
Diluted $ .07 $1.96 $ .67
</TABLE>
* Stock options not included in diluted earnings per share due to loss in
1997.
The assumption regarding the stock options issued to executives in 1997
and 1996 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 1997, 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:
1997 1996 1995
---- ---- ----
Dividend yield 2.22% 1.83% 2.21%
Expected volatility 27.52% 27.56% 37.20%
Risk-free interest rate 6.25% 5.63% 7.68%
Expected life (years) 5.0 7.5 7.5
Under the 1995 Stock Option 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. On April 29, 1997, the stockholders approved an
amendment of the Directors' Stock Option Plan, which authorizes the granting of
options on 400,000 shares of common stock to directors who are not employees of
the Corporation, who will automatically receive an option to acquire 3,000
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.
Information regarding these option plans for 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year..... 1,123,230 $33.00 991,345 $29.78 546,462 $28.12
Options exercised (94,427) 29.23 (128,199) 27.65 (45,817) 13.49
Options granted 379,500 36.96 260,084 42.63 490,700 30.10
---------- -------- -------
Options outstanding, end of year 1,408,303 $34.32 1,123,230 $33.00 991,345 $29.78
========= ========= ========
Option price range at end of year $14.50 to $14.50 to $14.50 to
$45.6875 $45.6875 $40.0625
Option price range for exercised shares $21.3125 to $14.50 to $12.25 to
$42.1875 $32.9375 $13.6875
Options available for grant at end of year....1,153,416 1,282,916 1,543,000
========= ========= =========
Weighted-average fair value of options,
granted during the year... $10.67 $14.90 $13.12
</TABLE>
<PAGE>
The following table summarizes information about fixed-price
stock options outstanding at December 26, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ------------------------------
Weighted-
Number Average Weighted- Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/26/97 Contractual Life Exercise Price at 12/26/97 Exercise Price
<S> <C> <C> <C> <C> <C>
$14.50 2,691 2 years $14.50 2,691 $14.50
21.3125 to 22.125 24,727 3 years 21.54 24,727 21.54
22.0625 to 28.6875 40,500 4 years 23.37 40,500 23.37
26.9375 to 27.4375 76,833 5 years 27.33 76,833 27.33
27.4375 to 28.75 89,667 6 years 28.49 89,667 28.49
32.9375 to 40.0625 160,834 7 years 36.04 160,834 36.04
29.75 to 35.25 375,967 8 years 30.19 317,578 30.22
42.1875 to 45.6875 257,584 9 years 42.64 114,528 43.20
36.9375 to37.25 379,500 10 years 36.96 - -
------- -----------
14.50 to 45.6875 1,408,303 827,358
========= =======
</TABLE>
15. PREFERRED SHARE PURCHASE RIGHTS
On September 22, 1987, the Corporation's Board of Directors (the "Board")
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 and
adopted the Rights Agreement, dated as of September 22, 1987 (the "Rights
Agreement"). On September 30, 1997, the Board amended and restated the Rights
Agreement. 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 $175. Rights are exercisable only if a person or group acquires 20% or
more of the Corporation's common stock or announces a tender offer the
consummation of which would result in ownership by a person or group of 20% or
more of the Corporation's common stock. The Rights, which do not have the right
to vote or receive dividends, expire on October 2, 2007, and may be redeemed,
prior to becoming exercisable, by the Board 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 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).
<PAGE>
Notes to Financial Statements
(In Thousands of Dollars, Except per Share Amounts)
Carrying Amounts and Fair Values - The estimated fair values of the
Corporation's financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Nonderivatives:
Cash and short-term
investments................................ $259,305 $259,305 $404,329 $404,329
Long-term investments......................... 700 1,240 700 1,170
Long-term debt................................ (889,196) (888,321) (829,043) (828,287)
Derivatives:
Foreign currency
contracts.................................. 31,210 31,210 1,430 1,430
Interest rate swaps........................... - (605) - 260
</TABLE>
In the ordinary course of business, the Corporation is contingently liable for
performance under letters of credit totaling approximately $252,000 and $166,000
at December 26, 1997 and December 27, 1996, respectively. In the Corporation's
past experience, no material 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 26,
1997, the Corporation had $475,000 of forward exchange contracts outstanding.
These forward exchange contracts mature between 1998 and 2002. Approximately 18%
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 26, 1997 and December 27, 1996, the Corporation had no
significant concentrations of credit risk. The Corporation had issued third-
party off-balance-sheet financial guarantees totaling approximately $77,000 and
$20,000 at year-end 1997 and 1996, respectively. Also, the Corporation has
agreed to provide a working capital support facility to the Robbins Resource
Recovery Limited Partnership of which $63,000 was available at year-end 1997.
17. BUSINESS SEGMENTS - DATA
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. At the end of June 1997,
the Energy Equipment Group sold Glitsch International, Inc. which provided
proprietary solutions and systems for many separation applications and
manufactured 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 1997, the Group accounted for approximately 68% of the
operating revenues. The geographic dispersion of these operating revenues was as
follows: 34% North America, 8% Asia, 35% Europe, 17% Middle East and 6% other.
The Energy Equipment Group accounted for 27% of the operating revenues of the
Corporation. The geographic dispersion of these operating revenues was as
follows: 27% North America, 44% Asia, 24% Europe and 5% other. The Power Systems
Group accounted for 5% of the Corporation's 1997 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 1997, 1996 and 1995 is on pages 24 and 25 (unaudited as to unfilled
orders and new orders booked).
18. OTHER EVENTS
In 1997, the Corporation recognized in the cost of operating revenues the
following:
(1) in the second quarter, $32,000 against the Energy Equipment Group
representing the last phase of the Group's reorganization started in
1995 following the Pyropower acquisition. These actions will result in
a further reduction in operating costs with a more efficient project
execution capability. This plan includes $14,500 for the discontinuance
of certain product lines including incremental costs on certain
completed contracts. Approximately $9,200 of the charge relates to the
consolidation of the San Diego operations with the Group's activities
in New Jersey. The $9,200 includes approximately $5,200 for personnel
costs including severance and related benefits. The balance ($4,000)
represents write-downs of San Diego assets (primarily land and
buildings) in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of." These San Diego long-lived assets are now considered to
be for sale and have been accounted for at their current market value
less estimated cost to sell. The remaining balance of approximately
$8,300 is primarily related to the write-down of a Canadian
cogeneration plant in accordance with SFAS No.121. As a result of the
current reorganization, this cogeneration plant is now considered to be
for sale. The basis of this plant has been adjusted to its estimated
fair market value less cost to sell. Approximately 70% of the Energy
Equipment Group's charges mentioned above will have a cash impact.
Approximately 50% of this cost was paid out by year-end and the balance
will be paid out during 1998.
(2) in the third quarter $54,000 related to: (a) The Engineering and
Construction Group recorded provisions amounting to $24,000 on several
projects for which it is seeking recovery of a portion from clients.
The ultimate outcome of these claims as to both timing and amount is
uncertain; (b) The Energy Equipment Group recorded approximately
$30,000 in provisions for increased cost on three projects, which were
initially bid and executed out of the San Diego office. As previously
announced in July 1997, this operation has been closed and the
execution of contracts transferred to the New Jersey headquarters.
(3) in the fourth quarter of 1997, the Corporation recorded a previously
announced $14,800 provision for the realignment of the Engineering and
Construction Group's European operations. The new structure will bring
the Italian, French, and Spanish operations under common management,
headquartered in Milan, Italy. This provision includes a charge of
$6,200 for severance costs, $6,600 for office lease expense, due to the
consolidation of the Reading, United Kingdom operations into one
facility and $500 for other organizational costs. A $1,500 provision
for the write-down of certain under-performing assets was included in
other deductions.
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 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.
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.
This reorganization plan included a rationalization of manufacturing capacity
and the reduction of approximately 630 salaried and hourly personnel. The
reorganization plan was completed in 1997.
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
Bermuda
FW Management Operations, Ltd., Hamilton
Foster Wheeler Trading Co. Ltd., Hamilton
Perryville Service Company 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
Chapleau Co-generation Ltd., Chapleau
Foster Wheeler Canadian Resources Limited, Alberta
Foster Wheeler Fired Heaters, Ltd., Calgary
La Societe D'Energie Foster Wheeler Ltd., Quebec
Channel Islands
FW Channel Islands Limited, Jersey
Chile
Constructors Foster Wheeler Concepcion Limitada, Santiago de Chile
Foster Wheeler Chile, S.A., Santiago de Chile
China, Peoples Republic of
Foster Wheeler Power Machinery Company Limited,
Guangdong Province
England
Foster Wheeler Limited, Reading
Foster Wheeler Energy 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
Foster Wheeler (Indonesia) Ltd., Reading
Foster Wheeler Environmental (U.K.) 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
Germany
Foster Wheeler Energie GmbH, Dusseldorf
Greece
Foster Wheeler Hellas Engineering and Construction AE, Athens
Indonesia
Foster Wheeler (Indonesia) Ltd., Jakarta
Italy
Foster Wheeler Italiana, S.p.A., Milan
Steril, S.p.A., Milan
FW Financial Services S.p.A., Milan
Foster Wheeler Continental Europe, S.r.l., Rome
Foster Wheeler Environmental Italia, Srl, Milan
Lomellina Energia Operator S.r.l., ,Milan
Pesaro Energia S.r.l., Pesaro
World Services Italia S.p.A., Milan
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 Continental, B.V., Amsterdam
Foster Wheeler Energie, B.V., Amsterdam
Foster Wheeler Europe, B.V., Amsterdam
Phillipines
Foster Wheeler (Phillipines) Corporation, Mankati City
Poland
Foster Wheeler Energia Polska Sp.zo.o., Warsaw
Portugal
F.W. Gestao E Servicos, S.A., Sao Pedro
Singapore (Republic of)
Foster Wheeler Eastern Private, Ltd., Singapore
Foster Wheeler Energy Pte. Ltd., Singapore
South Africa
Foster Wheeler South Africa (Pty.) Ltd., Midrand
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, Delaware
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 Capital & Finance Corporation, Delaware
Foster Wheeler Charleston Resource Recovery, Inc., Delaware
Foster Wheeler China, Inc., Delaware
Foster Wheeler Constructors, Inc., Delaware
Foster Wheeler Continental U.S. 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 Hungarian Energy, 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
Hartman Consulting Corporation, Delaware
GTC Technology Corporation, Delaware
Process Consultants, Inc., Delaware
POSCO Gilberton, Inc., California
Pyropower Operating Services Company, Inc., California
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
<PAGE>
Principal Affiliated Companies
(Percent Directly or Indirectly Owned by Foster Wheeler Corporation)
Bermuda
The Hydrogen Company of Paraguana Ltd., Hamilton (50%)
Chile
Compania de Hidrogeno de Talcahuano, Santiago de Chile (51%)
Colombia
Foster Wheeler Andina, S.A., Bogota (60%)
Finland
OY Bioflow AB, Varkhaus (51%)
Italy
Centro Energia Operator Teverola, S.r.l., Teverola (50%)
Centro Energia S.p.A., Milan (50%)
Software Technology, S.p.A., Milan (90%)
Japan
Foster Wheeler Pyropower KK, Tokyo (85%)
Nigeria
Foster Wheeler (Nigeria) Ltd., Lagos (60%)
Norway
Sorco Holdings AS, Stavanger (45%)
Oman
Chiyoda-Foster Wheeler and Company LLC, Muscat (17.5%)
Poland
Foster Wheeler Energy Fakop Ltd., Sosnowiec (51%)
Thailand
Thai Maintenance Contracting Company Limited (TMC), Rayong (50%)
United States
Cera Filter Systems, Inc., Delaware (50%)
Venezuela
OTEPI FW S.A., Caracas (50%)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary of financial information extracted from the
condensed consolidated balance sheet and statement of earnings for the year
ended December 26, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-26-1997
<CASH> 167,417
<SECURITIES> 91,777
<RECEIVABLES> 799,375
<ALLOWANCES> 0
<INVENTORY> 415,186
<CURRENT-ASSETS> 1,545,271
<PP&E> 1,138,098
<DEPRECIATION> 313,646
<TOTAL-ASSETS> 3,357,700
<CURRENT-LIABILITIES> 1,412,302
<BONDS> 855,668
0
0
<COMMON> 40,746
<OTHER-SE> 594,771
<TOTAL-LIABILITY-AND-EQUITY> 3,357,700
<SALES> 4,059,965
<TOTAL-REVENUES> 4,172,015
<CGS> 4,060,024
<TOTAL-COSTS> 4,060,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,675
<INCOME-PRETAX> 19,516
<INCOME-TAX> 13,892
<INCOME-CONTINUING> 5,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,624
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
