-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PSEfH48jECFPIbDjPmjUo8C9av2Mb4myp1XWk9FqPzY09tRCS3Fa7CpOwNskInl+ PD0OXclYhKHonD9tLn6yVA== 0000950123-96-001182.txt : 19960320 0000950123-96-001182.hdr.sgml : 19960320 ACCESSION NUMBER: 0000950123-96-001182 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951229 FILED AS OF DATE: 19960319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00286 FILM NUMBER: 96536303 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ---------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 1995 [ ] 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 15, 1996, 40,500,686 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 $1,857,968,970 (based on the last price on that date of $45.875 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 22, 1996 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 21-43) for the fiscal year ended December 29, 1995, is incorporated by reference in Part I and Part II of this report. 2 FOSTER WHEELER CORPORATION 1995 Form 10-K Annual Report Table of Contents
Page ---- Part I Item 1. Business 3 - 7 2. Properties 8 - 12 3. Legal Proceedings 12 4. Submission of Matters to a Vote of Security Holders 13 Executive Officers of the Registrant 13 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 14 6. Selected Financial Data 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 8. Financial Statements and Supplementary Data 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 Part III 10. Directors and Executive Officers of the Registrant 16 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management 16 13. Certain Relationships and Related Transactions 16 Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 17 - 26
2 3 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS: Foster Wheeler Corporation was incorporated under the laws of the State of New York in 1900. Executive offices of Foster Wheeler Corporation are at Perryville Corporate Park, Clinton, New Jersey, 08809-4000 (Telephone (908) 730-4000). Except as the context otherwise requires, the terms "Foster Wheeler" or the "Corporation" as used herein includes Foster Wheeler Corporation and its subsidiaries. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: Incorporated by reference to Note 19 on page 43 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 29, 1995. NARRATIVE DESCRIPTION OF BUSINESS: The business of the Corporation and its subsidiaries falls within three business groups. The ENGINEERING AND CONSTRUCTION GROUP designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. The ENERGY EQUIPMENT GROUP designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NOx burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. The Energy Equipment Group also provides proprietary solutions and systems for many separation applications and manufacturers highly-engineered chemical separation equipment for the petroleum refining, petrochemical, chemical and gas processing industries. The POWER SYSTEMS GROUP designs, engineers, manufactures and constructs to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities and 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 3 4 plant construction and operation. All of the special-purpose subsidiary project debt is limited-recourse. This Group refinances its equity interest in selected projects from time to time when such refinancing will result in risk mitigation, a lower effective financing cost or a potential increased return on investment. In 1993, Foster Wheeler Enviresponse, Inc. was consolidated as the Environmental Services division of Foster Wheeler USA Corporation which, in October 1994 expanded in the environmental field by purchasing Enserch Environmental Corporation ("Enserch"), a full-service provider of hazardous and mixed-waste investigation and remediation control services, wastewater treatment, waste management, risk analysis and environmental permitting. The acquisition resulted in the formation of Foster Wheeler Environmental Corporation. During 1994 Glitsch International, Inc. acquired the assets of Optimized Process Designs, Inc. ("OPD"), an engineering and construction contractor in Katy, Texas. OPD's principal expertise is in the area of natural gas and natural gas liquids conditioning, treating and processing. Effective September 30, 1995, the Corporation acquired the power generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $207,500,000 including acquisition costs. Also, during September 1995, the Corporation finalized (i) the purchase for approximately $2,500,000 of the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana, and (ii) the purchase for approximately $16,000,000 of the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas. Foster Wheeler markets its services and products through a staff of sales and marketing personnel and through a network of sales representatives. The businesses of its industry groups are not seasonal nor are they dependent on a single customer or a very few customers. No one customer accounted for 10 percent or more of Foster Wheeler's consolidated revenues in fiscal 1995, 1994 and 1993, 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 presently constitute a problem. Foster Wheeler owns and licenses patents, trademarks and know-how which are used in each of its industry groups. Such licenses, patents and trademarks are of varying durations. No 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 4 5 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 29, 1995 of $6,474,000,000 as compared to a backlog as of December 30, 1994 of $5,135,500,000. 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 29, 1995 and December 30, 1994 is as follows:
1995 1994 ---- ---- Engineering and Construction $4,566,600,000 $3,798,200,000 Energy Equipment 1,651,600,000 1,037,900,000 Power Systems 227,000,000 257,900,000 Corporate and Financial Services 28,800,000 41,500,000 -------------- -------------- $6,474,000,000 $5,135,500,000 ============== ==============
5 6 The Power Systems Group projects consist of the following:
PLANT LOCATION TYPE AND SIZE UNIT FUEL OPERATION -------------- ------------------ ---- --------- Martinez, California 99.9 MW Cogeneration Refinery Gas/NG 1987 Chapleau, Ontario, Canada 360 Ton/Day Wood Waste Wood Waste 1987 Gilberton, Pennsylvania 80 MW Cogeneration Waste Coal 1988 Mt. Poso, California 49.5 MW Cogeneration Coal 1989 Charleston, South Carolina 600 Ton/Day Waste-to-Energy Refuse 1989 Mt. Carmel, Pennsylvania 40 MW Cogeneration Waste Coal 1990 ACE, California 96 MW Cogeneration Coal 1991 Camden County, New Jersey 1050 Ton/Day Waste-to-Energy Refuse 1991 Hudson Falls, New York 400 Ton/Day Waste-to-Energy Refuse 1992 University of Minnesota Heating Plant Operation and Upgrade Coal/Gas/Oil 1992 InterPower, Pennsylvania 102 MW Power Waste Coal 1995 Wilmington, Delaware Facilities Management -- -- - -------------------------------------------------------------------------------------------------------------- Robbins, Illinois 1600 Ton/Day Waste-to-Energy* RDF Construction Lisbon, Portugal 2200 Ton/Day Waste-to-Energy Refuse Construction Concepcion, Chile 8 MM SCFD Hydrogen Plant -- Construction Lagoven, Venezuela 50 MM SCFD Hydrogen Plant -- Construction Concepcion, Chile 65 MW Cogeneration Plant Plus Coke Financing 12,000 Barrels/Day Coker and 7014 Barrels/Day Hydrotreater Montreal, Quebec, Canada 2200 Ton/Day Waste-to-Energy* Refuse Final Permitting Wilkes-Barre, Pennsylvania 40 MW Small Power Wood Waste Permitting Comunanza, Italy 145 MW Cogeneration Natural Gas Permitting Teverola, Italy 145 MW Cogeneration Natural Gas Construction - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- * Includes Recycling. - --------------------------------------------------------------------------------------------------------------
For waste-to-energy (resource recovery) projects, generally, it takes approximately two to three years from award of a contract and the signing of a service agreement with a community to the beginning of construction. Many companies compete in the engineering and construction segment of Foster Wheeler's business. Management of the Corporation estimates, based on industrial publications, that Foster Wheeler is among the ten largest of the many large and small companies engaged in the design and construction of petroleum refineries and chemical plants. In the manufacture of refinery and chemical plant equipment, neither Foster Wheeler nor any other single company contributes a large percentage of the total volume of such business. 6 7 On an international basis many companies compete in the Energy Equipment segment of Foster Wheeler's business. Management of the Corporation estimates, based on industrial surveys and trade association materials, that it is among the ten largest suppliers of utility and industrial-sized steam generating and auxiliary equipment in the world and among the three largest in the United States. For the most part, contracts are awarded on the basis of price, delivery, performance and service. Foster Wheeler is continually engaged in research and development efforts both in performance and analytical services on current projects and in development of new products and processes. During 1995, approximately $11,100,000, and in 1994 and 1993, $9,800,000 and $8,300,000 respectively, was spent on Foster Wheeler sponsored research activities. During the same periods, approximately $25,900,000, $38,200,000 and $40,900,000, 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, occupation health and product safety laws. Foster Wheeler believes all its operations are in compliance with such laws and does not anticipate any material capital expenditures or adverse effect on earnings or cash flows in maintaining compliance with such laws. Foster Wheeler had approximately 12,650 full-time employees on December 29, 1995. 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 29, December 30, December 31, 1995 1994 1993 ------------ ------------ ------------ Engineering and Construction 7,560 7,940 5,630 Energy Equipment 4,540 3,200 3,110 Power Systems 390 360 270 Corporate and Financial Services 160 185 340 ------ ------ ----- 12,650 11,685 9,350 ====== ====== =====
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: Incorporated by reference to Note 19 on page 43 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 29, 1995. 7 8 ITEM 2. PROPERTIES COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Corporation (CF) New York City, New York Executive Offices -- 1,148 1998 Livingston, New Jersey General Office & Engineering 31.0 acres 288,000 (2) Lebanon, New Jersey General Offices -- 155,288 1996/1997 Clinton Township, General Office -- 23,753 1996 New Jersey Union Township, Under construction 21.0 acres 292,000 New Jersey Union Township, Undeveloped 203.8 acres -- New Jersey General Office & Engineering 29.4 294,000 Storage and Reproduction Facilities 10.8 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 118 acres -- (4) Foster Wheeler Energy Corporation (EE) Dansville, New York Manufacturing & Offices 82.4 acres 513,786 McGregor, Texas Storage Facilities 15.0 acres 24,000 Foster Wheeler USA Corporation (EC) Houston, Texas General Offices -- 71,058 2003
8 9 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Foster Wheeler Iberia, S.A. (EC) Madrid, Spain Office & Engineering 4.2 acres 82,500 Foster Wheeler France (EC) Paris, France Office & Engineering -- 86,555 (1) Foster Wheeler (Thailand) Limited (EC) Sriracha, Thailand Office & Engineering -- 26,400 1998 Foster Wheeler Limited (England) (EC) Glasgow, Scotland Office & Engineering -- 27,610 1997 Reading, England Office & Engineering -- 279,061 1996/2016 Teeside, England Office & Engineering -- 18,100 1997/2014 Foster Wheeler Limited (Canada) (EE) Edmonton, Alberta Assembly -- 10,960 1995 Niagara-On-The-Lake, Ontario Office Building 34.5 acres 86,000 (1) Port Robinson, Ontario Undeveloped Land 17.0 acres -- St. Catharines, Ontario Manufacturing & Office 29.0 acres 233,500 Stoney Creek, Ontario Construction Tools Depot -- 19,546 1997 Foster Wheeler Andina, S.A. (EC) Bogota, Colombia Office & Engineering 2.25 acres 25,000 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 Office & Engineering -- 161,400 2001 Milan, Italy Office & Engineering -- 12,900 2006 Milan, Italy Office & Engineering -- 25,800 2005
9 10 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Birlesik Insaat ve Muhendislik A.S. (BIMAS) (EC) Istanbul, Turkey Engineering & Office -- 20,000 2000 Ullrich Copper, Inc. (CF) Kenilworth, New Jersey Manufacturing -- 90,000 1998 Greenwood, South Carolina Warehouse -- 10,000 1998 Foster Wheeler Environmental Corporation (EC) Atlanta, Georgia General Offices 30,618 1999 Bellevue, Washington General Offices 50,798 1999 Boston, Massachusetts General Offices 26,326 1999 Lakewood, Colorado General Offices 44,743 2000 Lyndhurst, New Jersey General Offices 34,753 1999 General Offices 23,540 1996 Oak Ridge, Tennessee General Offices 14,494 1999 General Offices 29,551 1996 Sacramento, California General Offices 10,271 1996 Costa Mesa, California General Offices 11,183 2000 Foster Wheeler Eastern Private Limited (EC) Singapore Office & Engineering -- 25,000 1996 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
10 11 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- 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 Foster Wheeler Pyropower, Inc. (EE) San Diego, California General Offices 9.25 acres 86,000 San Diego, California Research Center 1.11 acres 17,410 San Diego, California General Offices 2.5 acres 38,000(1) Foster Wheeler Energia OY (EE) Varkhaus, Finland Manufacturing & Offices 22 acres 366,527 Karhula, Finland Research Center 12.84 acres 73,086 Kouvola, Finland Manufacturing & Offices 9.09 acres 73,903 Foster Wheeler Energia, FAKOP, Ltd. (EE) Sosnowiec, Poland Manufacturing & Offices 15.57 acres 231,688 Glitsch International, Inc. (EE) Dallas, Texas Manufacturing & Office 38.0 acres 505,644 Eldorado, Kansas Manufacturing & Office -- 16,000 1996 Houston, Texas Warehouse & Office 2.83 acres 18,000 Uxbridge, Ontario, Manufacturing 12.0 acres 84,500 Canada Camrose, Alberta, Undeveloped Land 20.0 acres -- Canada Aprilia, Italy Manufacturing 20.5 acres 72,000
11 12 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES -------- --- --------- ----------- ------- Parsippany, New Jersey Manufacturing & Office 8.3 acres 63,790 Kirkby Stephen, U.K. Manufacturing & Office 2.4 acres 42,000 Arles, France Manufacturing & Office 5.1 acres 70,736
- ------------------- *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 39 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 29, 1995. On March 14, 1996, Illinois Governor Jim Edgar signed legislation repealing the Illinois Retail Rate Law, as discussed in Note 13 of the Corporation's 1995 Annual Report. The repeal legislation did not expressly provide "grandfathered" status to the Village of Robbins, Illinois Project. The Corporation intends to pursue all appropriate legal and equitable remedies to protect the interests of its shareholders and the project lenders. Management of the Corporation believes the repeal of the Illinois Retail Rate Law will not result in a material, adverse effect on the financial position of the Corporation. 12 13 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, O'Brien and Whittaker, are as follows:
NAME AGE POSITION ---- --- -------- Richard J. Swift 51 Chairman, President and Chief Executive Officer David J. Roberts 51 Vice Chairman and Chief Financial Officer N. William Atwater 61 Executive Vice President - Engineering and Construction Group Henry E. Bartoli 49 Vice President - Power Systems Group (Vice President and General Manager, 1987-1992, Burns and Roe Company.) Jack E. Deones 64 Vice President and Secretary Lisa Fries-Gardner 39 Vice President and Chief Compliance Officer Robert D. Iseman 47 Vice President and Treasurer Thomas R. O'Brien 57 Vice President and General Counsel (Partner in the law firm of Wolff & Samson, 1986-1993.) James E. Schessler 50 Vice President - Human Resources and Administration George S. White 59 Vice President and Controller Robert A. Whittaker 48 Vice President - Energy Equipment Group (General Manager, Steam Turbine Business for General Electric Industries and Power Systems, 1989-1992. Various engineering, manufacturing, marketing and service positions for General Electric, 1969-1988.)
Each officer holds office for a term running until the Board of Directors meeting next following the Annual Meeting of Stockholders and until his/her successor is elected and qualified. There are no family relationships between the officers listed above. There are no arrangements or understandings between any of the listed officers and any other person, pursuant to which he/she was elected as an officer. 13 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference to Note 12 on page 39 in Foster Wheeler's Annual Report to Stockholders for the year ended December 29, 1995. The Corporation's common stock is traded on the New York Stock Exchange. The approximate number of stockholders of record as of December 29, 1995 was 7,414. ITEM 6. SELECTED FINANCIAL DATA
(In Thousands of Dollars, Except Per Share Data) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues $3,081,930 $2,271,123 $2,654,505 $2,529,464 $2,031,620 Earnings before accounting change 28,534(1) 65,410 57,704 45,504(2) 43,268 Earnings per share before accounting change .79 1.83 1.62 1.28(2) 1.22 Total assets 2,775,809 2,140,334 1,806,201 1,763,264 1,638,874 Long-term borrowings (including current installments) 589,052 499,202 429,264 439,578 454,826 Cash dividends per common share .77 .72 .645 .585 .53
(1) Includes a provision of $46,500 ($1.28 per share) for reorganization costs. (2) As of the beginning of 1992, the Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The effect of the accounting change at the beginning of 1992 was a charge to earnings of $91,259 after tax and valuation allowance, or $2.57 per share. 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages 22 to 28 in Foster Wheeler's Annual Report to Stockholders for the year ended December 29, 1995. 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 29, 1995: A. Consolidated Balance Sheet, December 29, 1995 and December 30, 1994 (page 29) B. Consolidated Statement of Earnings for the years ended December 29, 1995; December 30, 1994; and December 31, 1993 (page 30) C. Consolidated Statement of Changes in Stockholders' Equity for the years ended December 29, 1995; December 30, 1994; and December 31, 1993 (page 31) D. Consolidated Statement of Cash Flows for the years ended December 29, 1995; December 30, 1994; and December 31, 1993 (page 32) E. Notes to Consolidated Financial Statements (pages 33-43) F. Report of Independent Accountants (page 30) Schedules Required by Regulation S-X NONE ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to pages 1-4 of Foster Wheeler's Proxy Statement, dated March 22, 1996, for the Annual Meeting of Stockholders to be held April 30, 1996. Certain information regarding executive officers is included in Part I hereof in accordance with General Instruction G (3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 6-12 of Foster Wheeler's Proxy Statement, dated March 22, 1996, for the Annual Meeting of Stockholders to be held April 30, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2-4 of Foster Wheeler's Proxy Statement, dated March 22, 1996, for the Annual Meeting of Stockholders to be held April 30, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 16 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1 Financial Statements The index to Financial Statements is incorporated in this paragraph by reference to Item 8, page 15 All schedules and financial statements other than those indicated above have been omitted because of the absence of conditions requiring them or because the required information is shown in the financial statements or the notes thereto. 3 The following Exhibits are required by Item 601 of Regulation S-K and by paragraph (c) of Item 14 of Form 10-K: 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated June 5, 1989 (filed as Exhibit 2 to Foster Wheeler Corporation's 1989 Annual Report on Form 10-K and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler 17 18 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). 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 21-43) for the fiscal year ended December 29, 1995 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (pages 20-22) 23 Consent of independent accountants (page 24) 27 Financial data schedule (for the informational purposes of the Commission only). (b) Current Reports on Form 8-K: The following Current Reports on Form 8-K have been filed during the period September 30 through December 29, 1995: 1. Current Report on Form 8-K dated October 12, 1995 and filed with the Commission on October 13, 1995, as amended by the Current Report on Form 8-K/A dated October 31, 1995 and filed with the Commission on October 31, 1995. 2. Current Report on Form 8-K dated October 27, 1995 and filed with the Commission on November 1, 1995. 3. Current Report on Form 8-K dated November 17, 1995 and filed with the Commission on November 17, 1995. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 33-59739 (filed June 1, 1995), 33-40878 (filed May 29, 1991) and 33-34694 (filed May 2, 1990): 18 19 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. 19 20 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization AUSTRALIA Foster Wheeler Australia Pty. Ltd., Melbourne BERMUDA FW Management Operations, Ltd., Hamilton Foster Wheeler Trading Co. Ltd., Hamilton Power Systems International, Ltd., Hamilton York Jersey Liability Ltd., Hamilton CANADA Foster Wheeler Limited, St. Catharines Les Chaudieres Foster Wheeler Inc., Quebec Chapleau Co-generation Ltd., Chapleau Foster Wheeler Canadian Resources Limited, Alberta Foster Wheeler Fired Heaters, Ltd., Calgary Glitsch Canada, Ltd., Uxbridge, Ontario La Societe D'Energie Foster Wheeler Ltd., Quebec 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 (India) Ltd., Reading Foster Wheeler (Northern) Ltd., Reading Foster Wheeler (Pacific) Ltd., Reading Foster Wheeler Petroleum Development Ltd., Reading Foster Wheeler World Services, Ltd., Reading FW Management Operations Ltd., Reading Glitsch (U.K.) Ltd., Kirkby Stephen Cumbria Glitsch Field Services, Ltd., Dorking Foster Wheeler (Indonesia) Ltd., Reading Foster Wheeler Petroleum Development (Norway) Ltd., Reading FINLAND Foster Wheeler Energia, OY, Helsinki FRANCE Foster Wheeler France, S.A., Paris Foster Wheeler Conception Etudes Entretien, Paris Foster Wheeler World Services, France, S.A., Paris Glitsch France, S.A., Arles Societe Fonciere-Bourdonnais Rivoli, S.A., Paris INDIA Glitsch Process India, Ltd. ITALY Foster Wheeler Italiana, S.p.A., Milan Steril, S.p.A., Milan Foster Wheeler World Services, S.p.A., Rome Glitsch Italiana, S.p.A., Campoverde Foster Wheeler Financial Services S.p.A., Milan Foster Wheeler Environmental Italia, Srl, Milan JAPAN Glitsch Japan Corporation, Kawasaki MEXICO Foster Wheeler Ingenieros y Constructores, S.A. de C.V. Quadalajara NETHERLANDS ANTILLES Foster Wheeler N.V., Curacao NETHERLANDS Foster Wheeler Europe, B.V., Amsterdam Foster Wheeler Power Systems, B.V., Amsterdam SINGAPORE (REPUBLIC OF) Foster Wheeler Eastern Private, Ltd., Singapore SPAIN Foster Wheeler Iberia, S.A., Madrid Foster Wheeler Energia, S.A., Madrid Foster Wheeler Trading Co. A.G., S.A., Madrid F.I. Controles, S.A., Madrid Foster Wheeler Power Systems, S.A., Madrid Conequip, S.A., Madrid 20 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization UNITED STATES Camden County Energy Recovery Associates, New Jersey Camden County Energy Recovery Corporation, Delaware Foster Wheeler Arabia Ltd., Delaware Foster Wheeler Bedminster, Inc., Delaware Foster Wheeler Bridgewater, Inc., Delaware Foster Wheeler Broome County, Inc., Delaware Foster Wheeler Charleston Resource Recovery, Inc., Delaware Foster Wheeler China, Inc., Delaware Foster Wheeler Constructors, Inc., Delaware Foster Wheeler Development Corporation, Delaware Foster Wheeler (Emirates) Corporation, Delaware Foster Wheeler Energy Corporation, Delaware Foster Wheeler Energy International, Inc., Delaware Foster Wheeler Energy Manufacturing, Inc., Delaware Foster Wheeler Environmental Corporation, Delaware Foster Wheeler Facilities Management Delaware, Inc., Delaware Foster Wheeler Hudson Falls, 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 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 Twin Cities, Inc., Delaware Foster Wheeler USA Corporation, Delaware Foster Wheeler Wood Resources, Inc., Delaware Foster Wheeler World Services Corporation, Delaware Foster Wheeler Zack, Inc., Delaware FWPS Specialty Products, Inc., Delaware Glitsch Field Services, Inc., Texas Glitsch Inc., Delaware Glitsch International, Inc., Delaware Glitsch Special Products, Inc., Texas Glitsch Technology Corporation, Delaware Optimized Process Designs, Inc., Delaware Otto H. York Company, Delaware POSCO Gilberton, Inc., California Pyropower Operating Services Company, Inc., California TPA, Inc., Delaware Ullrich Copper, Inc., Delaware Yargo, Inc., Minnesota 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 21 22 PRINCIPAL AFFILIATED COMPANIES (PERCENT DIRECTLY OR INDIRECTLY OWNED BY FOSTER WHEELER CORPORATION) COLOMBIA Foster Wheeler Andina, S.A., Bogota (60%) FINLAND OY Bioflow AB, Varkhaus (51%) ITALY F.FW Fiatavio Foster Wheeler Per L'Energia, S.p.A., Milan (40%) Software Technology, S.p.A., Milan (90%) JAPAN Foster Wheeler Pyropower KK (85%) NIGERIA Foster Wheeler (Nigeria) Ltd., Lagos (60%) POLAND Foster Wheeler Energy Fakop, Ltd. (51%) 22 23 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. 23 24 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. 33-61089) and (2) Form S-8 (File No.'s 33-34694, 33-40878 and 33-59739) of our report dated February 12, 1996, on our audits of the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries as of December 29, 1995 and December 30, 1994, and for each of the three years in the period ended December 29, 1995, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. New York, New York March 18, 1996 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOSTER WHEELER CORPORATION (Registrant) Dated March 19, 1996 By /s/ Jack E. Deones ------------------- ----------------------- Jack E. Deones Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of March 19, 1996, by the following persons on behalf of the registrant, in the capacities indicated. Signature Title --------- ----- /s/ Richard J. Swift Director, Chairman, President and --------------------------- Chief Executive Officer Richard J. Swift (Principal Executive Officer) /s/ David J. Roberts Director, Vice Chairman and --------------------------- Chief Financial Officer David J. Roberts (Principal Financial Officer) /s/ George S. White Vice President and Controller --------------------------- (Principal Accounting Officer) George S. White /s/ Eugene D. Atkinson Director --------------------------- Eugene D. Atkinson Director --------------------------- Louis E. Azzato /s/ Kenneth A. DeGhetto Director --------------------------- Kenneth A. DeGhetto /s/ Martha Clark Goss Director --------------------------- Martha Clark Goss 25 26 Signature Title --------- ----- /s/ E. James Ferland Director --------------------------- E. James Ferland /s/ John A. Hinds Director --------------------------- John A. Hinds /s/ Joseph J. Melone Director --------------------------- Joseph J. Melone /s/ Frank E. Perkins Director --------------------------- Frank E. Perkins /s/ Charles Y. C. Tse Director --------------------------- Charles Y. C. Tse /s/ Robert Van Buren Director --------------------------- Robert Van Buren 26 27 EXHIBIT INDEX 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated June 5, 1989 (filed as Exhibit 2 to Foster Wheeler Corporation's 1989 Annual Report on Form 10-K and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 10.4 Short-term Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.2 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 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 21-43) for the fiscal year ended December 29, 1995 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (pages 20-22) 23 Consent of independent accountants (page 24) 27 Financial data schedule (for the informational purposes of the Commission only). EX-13 2 PORTIONS OF ANNUAL REPORT 1 FOSTER WHEELER CORPORATION AND SUBSIDIARIES EXHIBIT 13 FINANCIAL SECTION Comparative Financial Statistics..................................... 21 Management's Discussion and Analysis................................. 22-28 Consolidated Balance Sheet........................................... 29 Consolidated Statement of Earnings................................... 30 Report of Independent Accountants.................................... 30 Consolidated Statement of Changes in Stockholders' Equity............ 31 Consolidated Statement of Cash Flows................................. 32 Notes to Financial Statements........................................ 33-43
COMPARATIVE FINANCIAL STATISTICS - -------------------------------------------------------------------------------- (In Thousands, Except per Share Amounts)
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Unfilled orders, end of period............... $6,473,990 $5,135,452 $3,884,114 $3,806,757 $3,465,339 Revenues..................................... 3,081,930 2,271,123 2,654,505 2,529,464 2,031,620 Provision for reorganization costs........... 50,120 - - - - Earnings before income taxes and accounting change.......................... 69,663(2) 106,867 96,818 67,825 61,285 Provision for income taxes................... 41,129 41,457 39,114 22,321 18,017 Earnings before accounting change............ 28,534 65,410 57,704 45,504 43,268 Effect of accounting change.................. - - - (91,259)(1) - Net earnings/(loss).......................... 28,534 65,410 57,704 (45,755) 43,268 Earnings per share * Earnings before accounting change.......... $ .79 $1.83 $ 1.62 $ 1.28 $ 1.22 Effect of change in accounting principle... - - - (2.57)(1) - ---------- ---------- ---------- ---------- ---------- Net earnings/(loss)........................ $ .79 $ 1.83 $ 1.62 $ (1.29) $ 1.22 ========== ========== ========== ========== ========== Weighted average number of shares of common stock outstanding.......................... 36,322 35,788 35,656 35,596 35,522 Current assets............................... $1,438,973 $1,112,709 $ 983,454 $ 924,886 $ 842,747 Current liabilities.......................... 1,240,276 890,579 778,989 721,018 588,567 Working capital.............................. 198,697 222,130 204,465 203,868 254,180 Land, buildings and equipment (net).......... 644,812 566,156 567,216 595,946 613,778 Total assets................................. 2,775,809 2,140,334 1,806,201 1,763,264 1,638,874 Bank loans................................... 86,869 77,350 59,725 54,929 45,605 Long-term borrowings (including current installments).............................. 589,052 499,202 429,264 439,578 454,826 Net assets owned............................. 625,867 456,494 400,176 387,297 500,124 Net assets owned per common share of stock... $ 15.46 $ 12.75 $ 11.21 $ 10.87 $ 14.06 Rate of return on net assets................. 6.3% 16.3% 14.9% (9.1)% 9.1% Cash dividends per share of common stock..... $ .77 $ .72 $ .645 $ .585 $ .53
* Computed on the weighted average number of shares of common stock outstanding. (1) Relates to effect of change in accounting principle for postretirement benefits other than pensions. (2) Includes in 1995 a provision of $50,120 for reorganization costs. 21 2 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS BUSINESS GROUPS (See Note 19 to Financial Statements.) (In Millions of Dollars)
Corporate Engineering and and Energy Power Financial Total Construction Equipment Systems Services (1) ----- ------------ --------- ------- ------------ 1995 - ---- Unfilled orders................................. 6,474.0 4,566.6 1,651.6 227.0 28.8 New orders booked............................... 4,071.4 2,927.7 1,000.5 138.4 4.8 Revenues........................................ 3,081.9 2,146.2 774.5 157.2 4.0 Interest expense (2)............................ 49.0 2.8 8.1 24.5 13.6 Earnings before provision for reorganization costs and income taxes...................... 119.8 84.4 51.2 29.3 (45.1) Earnings before income taxes.................... 69.7 84.4 1.1 (3) 29.3 (45.1) Identifiable assets............................. 2,775.8 1,022.3 923.6 583.1 246.8 Capital expenditures............................ 59.4 23.0 18.9 14.0 3.5 Depreciation.................................... 51.7 16.6 13.6 17.6 3.9 1994 - ---- Unfilled orders................................. 5,135.5 3,798.2 1,037.9 257.9 41.5 New orders booked............................... 3,091.0 2,138.6 759.6 188.7 4.1 Revenues........................................ 2,271.1 1,569.4 537.5 149.1 15.1 Interest expense (2)............................ 35.0 0.8 2.8 24.0 7.4 Earnings before income taxes.................... 106.9 73.7 55.2 18.1 (40.1) Identifiable assets............................. 2,140.3 878.4 454.1 537.7 270.1 Capital expenditures............................ 38.5 14.5 10.1 9.1 4.8 Depreciation.................................... 43.7 14.1 8.6 17.4 3.6 1993 - ---- Unfilled orders................................. 3,884.1 2,724.3 890.5 210.5 58.8 New orders booked............................... 2,982.8 1,921.2 670.4 273.8 117.4 Revenues........................................ 2,654.5 1,833.5 569.8 159.5 91.7 Interest expense (2)............................ 33.6 0.7 2.1 23.7 7.1 Earnings before income taxes.................... 96.8 64.9 47.9 25.1 (41.1) Identifiable assets............................. 1,806.2 649.6 411.3 514.1 231.2 Capital expenditures............................ 27.8 12.1 11.1 1.8 2.8 Depreciation.................................... 43.7 14.2 8.0 17.3 4.2
22 3 GEOGRAPHIC AREAS (See Note 19 to Financial Statements.) (In Millions of Dollars)
Corporate and United Financial Total States Europe Canada Services (1) ----- ------ ------ ------ ------------ 1995 - ---- Unfilled orders................................. 6,474.0 3,098.3 3,318.3 28.6 28.8 New orders booked............................... 4,071.4 1,832.9 2,167.6 66.1 4.8 Revenues........................................ 3,081.9 1,520.9 1,491.2 65.8 4.0 Interest expense (2)............................ 49.0 31.3 2.5 1.6 13.6 Earnings before provision for reorganization costs and income taxes...................... 119.8 72.6 92.9 (0.6) (45.1) Earnings before income taxes.................... 69.7 47.9 (3) 92.9 (26.0) (3) (45.1) Identifiable assets............................. 2,775.8 1,444.5 1,032.6 51.9 246.8 1994 - ---- Unfilled orders................................. 5,135.5 2,790.7 2,229.5 73.8 41.5 New orders booked............................... 3,091.0 1,101.0 1,870.3 115.6 4.1 Revenues........................................ 2,271.1 1,114.1 1,053.4 88.5 15.1 Interest expense (2)............................ 35.0 25.4 1.3 0.9 7.4 Earnings before income taxes.................... 106.9 60.1 83.0 3.9 (40.1) Identifiable assets............................. 2,140.3 1,082.3 718.8 69.1 270.1 1993 - ---- Unfilled orders................................. 3,884.1 2,262.2 1,514.4 48.7 58.8 New orders booked............................... 2,982.8 1,407.0 1,373.2 85.2 117.4 Revenues........................................ 2,654.5 948.1 1,539.0 75.7 91.7 Interest expense (2)............................ 33.6 24.1 1.7 0.7 7.1 Earnings before income taxes.................... 96.8 66.7 65.4 5.8` (41.1) Identifiable assets............................. 1,806.2 857.4 658.8 58.8 231.2
(1) Includes general corporate income and expense, and the Corporation's insurance operation. In 1993, the business of the Corporation was redefined to focus on the three business groups. Thermacote Welco Company (sold in September 1993), Barsotti's Inc. (discontinued operation at the end of 1993) and Ullrich Copper, Inc. were aggregated as part of the Corporate and Financial Services Group. (2) Includes intercompany interest charged by Corporate to the business groups on outstanding borrowings. (3) Includes in 1995 a provision of $50.1 for reorganization costs. Geographic allocation - United States - $24.7; Canada - $25.4. Unaudited as to unfilled orders and new orders booked. 23 4 MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. THREE YEARS ENDED DECEMBER 29, 1995 GENERAL The Corporation's consolidated backlog at the end of fiscal 1995 was $6,474.0 million, an increase of $1,338.5 million or 26% over the amount reported for the end of fiscal 1994 of $5,135.5 million, which in turn represented an increase of 32% from a backlog at the end of fiscal 1993 of $3,884.1 million. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. Backlog has been adjusted to reflect project cancellations, deferrals, and revised project scopes and costs. The net reduction in backlog from project adjustments and cancellations for fiscal 1995 was $249.3 million, compared with $385.2 million in fiscal 1994 and $184.9 million in fiscal 1993. Furthermore, the Corporation's future award prospects include several large-scale international projects and, because the large size and uncertain timing of these projects can create variability in the Corporation's contract awards, future award trends are difficult to predict with certainty. New orders awarded for fiscal 1995 ($4,071.4 million) were 32% higher than new orders awarded in fiscal 1994 ($3,091.0 million), which were slightly higher than new orders awarded in fiscal 1993 ($2,982.8 million). A total of 55% of new orders in fiscal 1995 was for projects awarded to the Corporation's subsidiaries located outside of the United States as compared to 64% in fiscal 1994 and 49% in fiscal 1993. Key geographic regions outside of the United States contributing to new orders awarded in fiscal 1995 were Europe, China, Southeast Asia and the Indian subcontinent. Operating revenues increased in fiscal 1995 by 36% or $807.8 million compared to fiscal 1994, to $3,042.2 million from $2,234.4 million, which in turn represented a 14% or $348.6 million decrease as compared to fiscal 1993 of $2,583.0 million. Gross earnings from operations, which is equal to operating revenues minus the cost of operating revenues ("gross earnings"), increased $75.4 million or 23% in fiscal 1995 as compared to fiscal 1994, to $399.9 million from $324.5 million, which was an increase of approximately 11% over gross earnings for fiscal 1993. Selling, general and administrative expenses increased $47.0 million in fiscal 1995 as compared to fiscal 1994, to $250.4 million from $203.4 million, which in turn represented a slight decrease from expenses reported in fiscal 1993 of $204.0 million. General and administrative expenses increased by $21.7 million in fiscal 1995 and selling expenses increased by $23.7 million, principally as a result of increased costs related to the acquisitions of Enserch Environmental Corporation ("Enserch") in September 1994 and the power-generation business of A. Ahlstrom Corporation ("Pyropower") effective September 30, 1995. Other income in fiscal 1995 as compared to fiscal 1994 increased $3.1 million or 8% to $39.8 million from $36.7 million. Other income in fiscal 1994 as compared to fiscal 1993 decreased $34.8 million, to $36.7 million from $71.5 million. This decrease was primarily a result of the gains in 1993 of $10.9 million from the sale of Thermacote Welco and $25.3 million from the sale of 49.5% limited partnership interest in a waste-to-energy plant. Other deductions in fiscal 1995 increased $19.1 million primarily due to increases in interest expense of $14.0 million and amortization of intangibles of $2.4 million. Other deductions in fiscal 1994 decreased $14.8 million primarily due to nonrecurring events in fiscal 1993, including the acceleration of the amortization of goodwill as a result of the valuation of such subsidiary's future cash flows, and the establishment of a provision to cover potential exposure for non-recovery of development costs related to waste-to-energy projects in the Power Systems Group. 24 (continued) 5 In connection with the acquisition of Pyropower, the Corporation recorded a one-time 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. The reorganization plan, when fully completed, will result in substantial cost savings and is expected to improve the competitive position of the Energy Equipment Group. This reorganization plan includes a rationalization of manufacturing capacity and the reduction of approximately 630 salaried and hourly personnel. The provision for reorganization costs includes $10.2 million for the write-off of excess buildings and equipment due to the rationalization of production capacity, $16.9 million for employee severance cost and related benefits, $19.3 million for asset write-downs (including stranded inventory) and provisions related to discontinuance of certain product lines (including incremental costs on certain completed contracts) and $3.7 million for other costs (including 24 6 write-off of accumulated translation adjustment for curtailed operations). A tax benefit (after valuation allowance increase) of $3.6 million has been recognized, resulting in a net provision of $46.5 million. Approximately 50% of the above provision is expected to have a cash impact. As of year end, the majority of the cash-related liability remains to be paid. The spending is expected to be substantially completed by the end of 1996. The effective tax rate for fiscal 1995 was 59.0% compared to 38.8% in fiscal 1994 and 40.4% in fiscal 1993. The fiscal 1995 effective tax rate differed from the U.S. statutory rate primarily as a result of increasing the deferred tax asset valuation allowance by $14.5 million and an increase in state income taxes. The increase in the valuation allowance resulted from the 1995 provision for reorganization costs. This provision will result in additional deferred tax assets for financial reporting purposes, thereby making it less likely that a portion of the tax credit carryforwards will be utilized. Without the increase in the valuation allowance, the effective tax rate would have been 38.2%. The fiscal 1993 effective tax rate differed from the U.S. statutory rate primarily as a result of the accelerated amortization of cost in excess of net assets of a subsidiary acquired, and the recapture of investment tax credits related to the sale of the limited partnership interest. Net earnings were $28.5 million or $.79 per share. Net earnings excluding the provision for reorganization costs of $46.5 million ($1.28 per share) were $75.0 million or $2.07 per share, a 13% increase compared to 1994. Net earnings increased $7.7 million or 13% in fiscal 1994 as compared to fiscal 1993, from $57.7 million to $65.4 million. ENGINEERING AND CONSTRUCTION GROUP The E&C Group's backlog at the end of fiscal 1995 was $4,566.6 million, a 20% increase over backlog of $3,798.2 million at the end of fiscal 1994, which in turn represented a 39% increase from backlog of $2,724.3 million at the end of fiscal 1993. The increase in fiscal 1995 as compared with fiscal 1994 was attributable to two primary factors. First, approximately $500 million of this increase was attributable to the acquisition of Enserch in 1994. Second, contracts awarded to the French subsidiary in the E&C Group amounted to $300 million in 1995. These contracts included the engineering, procurement and construction supervision contract for a waste-to-energy plant in Portugal, and two chemical projects in France. New orders awarded to the E&C Group increased 37% in fiscal 1995 as compared with fiscal 1994, from $2,138.6 million in fiscal 1994 to $2,927.7 million in fiscal 1995. New orders increased 11% in fiscal 1994 as compared to fiscal 1993 levels of $1,921.2 million. The increase in new orders in fiscal 1995 and 1994 can be attributed to (1) the environmental company and (2) increased awards in France in 1995 and the U.K. in 1994. The E&C Group reported a 37% increase in operating revenues in fiscal 1995 as compared to fiscal 1994 from $1,543.3 million to $2,120.2 million, which in turn represented a 14% decrease from fiscal 1993 operating revenues of $1,803.1 million. The increase in fiscal 1995 operating revenues as compared to fiscal 1994 was primarily the result of increased activities in the environmental subsidiary in the United States, acquired in late 1994, and the Italian and Spanish subsidiaries in Europe. The decrease in fiscal 1994 operating revenues as compared to fiscal 1993 was the result of reduced pass-through costs and lower operating levels on long-term contracts of the European subsidiaries. The Corporation includes pass-through costs on cost-plus contracts which are general-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 services revenues have higher margins than either construction or maintenance services. The British, French and Italian subsidiaries had a mix of engineering and construction contracts in fiscal 1994 that required a lower value of material cost to be reimbursed by customers as compared to the mix of contracts in fiscal 1993 and fiscal 1995. In addition, while backlog increased for the E&C Group in fiscal 1994, the lower operating revenues were partially a result of lower levels of operating activity. 25 (continued) 7 The E&C Group's gross earnings increased $45.9 million in fiscal 1995 as compared with fiscal 1994 or 31%, to $194.8 million from $148.9 million, which in turn represented an increase of 13% from gross earnings of $132.1 million in fiscal 1993. An increase in fiscal 1995 of $29.1 million as compared to fiscal 1994 and a $10.9 million increase in fiscal 1994 as compared to fiscal 1993 was attributable to the Corporation's environmental service activities. The remaining increases in fiscal 1995 and fiscal 1994 were attributable to the successful completion of several major contracts by the United Kingdom subsidiary in fiscal 1995 and 1994, the Spanish subsidiary in fiscal 1995 and the Italian subsidiary in fiscal 1994. ENERGY EQUIPMENT GROUP The Energy Equipment Group's backlog was $1,651.6 million at the end of fiscal 1995, representing a 59% increase over backlog of $1,037.9 million at the end of fiscal 1994, which in turn represented a 17% increase over backlog of $890.5 million at the end of fiscal 1993. 25 8 MANAGEMENT'S DISCUSSION AND ANALYSIS The increase in backlog in fiscal 1995 as compared to fiscal 1994 was attributable to two primary factors. First, approximately $475 million of this increase was attributable to the acquisition of Pyropower. Second, contracts awarded to the Spanish subsidiary for two 350-MW boiler islands in China and a 130-MW boiler for Chile accounted for $200 million of the increase. The increase in backlog in fiscal 1994 as compared to fiscal 1993 was attributable to the award to the United States subsidiary of major power-generation contracts located in India ($100 million) and Japan ($158 million). New orders awarded to the Energy Equipment Group were $1,000.5 million, $759.6 million and $670.4 million in fiscal 1995, fiscal 1994 and fiscal 1993, respectively. Of such new orders, $331.8 million, $202.0 million and $176.9 million related to chemical separation activities and $668.7 million, $557.6 million and $493.5 million related to power-generation for fiscal 1995, fiscal 1994 and fiscal 1993, respectively. Operating revenues for the Energy Equipment Group increased 44% in fiscal 1995 as compared to fiscal 1994, to $761.9 million from $529.5 million, which in turn represented a decrease of 5% from fiscal 1993 of $558.6 million. These changes in operating revenues for the periods stated resulted primarily from power-generation activities including the acquisition of Pyropower. The Energy Equipment Group's gross earnings increased by $21.2 million or 17%, to $145.7 million in fiscal 1995 from $124.5 million in fiscal 1994, which in turn represented a 21% increase from gross earnings in fiscal 1993 of $102.8 million. The increase in fiscal 1995 can be attributed to a higher level of operating revenues partially offset by lower gross earnings of the Spanish subsidiary due to completion of a major contract for the supply of two coal-fired steam generators in Mexico. For fiscal 1994, approximately $13 million of the increase was due to improved execution of the contract in Mexico. Also, for fiscal 1995 and fiscal 1994 the increases were attributed to increased margins on the sale of chemical separations equipment. POWER SYSTEMS GROUP The Power Systems Group's backlog at the end of fiscal 1995 was $227.0 million, a 12% decrease from backlog of $257.9 million at the end of fiscal 1994, which in turn represented a 23% increase from backlog of $210.5 million at the end of fiscal 1993. The decrease of backlog for fiscal 1995 is the result of reduced awards during the period. The increase in backlog for fiscal 1994 as compared to fiscal 1993 was the result of the financing and start of construction of a recycling and waste-to-energy project to be operated under contract with the Village of Robbins, Illinois. The Power Systems Group's operating revenues increased by 5% in fiscal 1995 as compared to fiscal 1994, to $150.8 million from $143.5 million, which in turn represented a 9% increase from fiscal 1993 operating revenues of $131.8 million. The Power Systems Group's gross earnings increased $9.7 million in fiscal 1995 as compared with fiscal 1994 to $57.6 million from $47.9 million, which in turn represented an increase of $1.4 million from gross earnings of $46.5 million in fiscal 1993. 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 1995, fiscal 1994 and fiscal 1993, approximately $11.1 million, $9.8 million and $8.3 million, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $25.9 million, $38.2 million and $40.9 million, respectively, were spent on customer-sponsored research activities that were paid for by customers of the Corporation. 26 (continued) 9 FINANCIAL CONDITION The Corporation's consolidated financial condition improved during the three-year period ended December 29, 1995. Stockholders' equity at the end of fiscal 1995 was $625.9 million as compared to $456.5 million at the end of fiscal 1994 and $400.2 million at the end of fiscal 1993. 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 1995, increases from net earnings of $28.5 million, the change in the accumulated translation adjustment of $9.1 million and the proceeds of the equity issuance of $158.3 million were partially offset by dividends to stockholders of $27.6 million. From the beginning of fiscal 1993 to the end of fiscal 1995, net assets have increased by $238.6 million. For the fiscal years 1993, 1994 and 1995, long-term investments in land, buildings and equipment were $27.8 million, $38.5 million and $59.4 million, respectively. In fiscal 1994, the Corporation acquired Enserch and Optimized Process Designs, Inc. with net cash payments after cash acquired of $50.9 million. In 1993, a 49.5% limited partnership interest in the Camden waste-to-energy facility was sold to an institutional investor and Thermacote Welco was sold; aggregate proceeds amounted to $50.3 million. Effective September 30, 1995, the Corporation acquired Pyropower for approximately $207.5 million, including acquisition costs. Also, in September 1995, the Corporation purchased, for approximately $2.5 million, the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana and for approximately $16.0 million the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas. During the next few years, capital expenditures will continue to be directed primarily toward strengthening and supporting the Corporation's core businesses. 26 10 Long-term debt, including current installments, and bank loans increased by $181.4 million, net of repayments of $173.3 million, during the three-year period. Payments in fiscal 1995 included $22 million for the second installment on the Corporation's 8.58% unsecured promissory private placement notes (the "Private Notes") and a net reduction of $95.0 million of borrowings under the Corporation's revolving credit facilities. In November 1995, the Corporation sold $200 million of 6 3/4% Notes, due 2005, in the public market, the net proceeds of which were used to repay the revolving credit debt and fund operating requirements. In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management of the Corporation believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts provided in the accounts. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents amounted to $167.1 million at December 29, 1995, a decrease of $68.7 million from the prior fiscal year-end, principally as a result of using corporate cash to fund a portion of the Pyropower purchase. During fiscal 1995, the Corporation paid $27.6 million in stockholder dividends, repaid debt of $130.3 million including $95.0 million of borrowings under the Corporation's revolving credit agreements and a scheduled $22.0 million repayment on the Private Notes and paid approximately $207.5 million for the purchase of Pyropower. The Corporation incurred new borrowings of $227.2 million primarily through the issuance of $200.0 million aggregate principal amount of 6 3/4% Notes due November 15, 2005 and raised $158.3 million through the sale of 4,620,000 shares of the Corporation's Common Stock. The net proceeds of the debt and equity offerings were used to repay borrowings under the Corporation's revolving credit agreement which were incurred to (i) fund a portion of the Pyropower acquisition, (ii) fund working capital needs, (iii) refinance bank debt previously incurred in the acquisition of Enserch and (iv) pay a scheduled principal installment on the Private Notes. During fiscal 1994, the Corporation paid $25.8 million in stockholder dividends and repaid debt totaling $30.5 million, including a $22.0 million principal repayment on the Private Notes. New borrowings amounted to $115.4 million resulting primarily from increased working capital needs and the Enserch acquisition. During fiscal 1995, cash flow used by operating activities totaled $105.3 million. This represented an increase of $91.0 million from 1994. The reduction in cash flow from operating activities during a period of improving operating profitability resulted from an increase in the Corporation's working capital needs which vary from period to period depending on the mix, stage of completion and commercial terms and conditions of the Corporation's contracts. Working capital needs have increased as a result of the Corporation satisfying requests from its customers, primarily in the Energy Equipment Group, for more favorable payment terms under contracts. Such requests generally include reduced advance payments and more favorable payment schedules. Such terms required the Corporation to defer receipt of payment from its customers which, combined with the acquisitions of Pyropower, Zack and TPA, had a negative impact on the Corporation's working capital in 1995. The Corporation's contracts in process and inventories increased by $184.4 million during 1995 from $198.8 million at December 30, 1994 to $383.2 million at December 29, 1995. Approximately $83.7 million of the increase in contracts in process and inventories in fiscal 1995 was attributable to the E&C Group, primarily due to United States subsidiaries ($50.2 million) and the Italian subsidiary ($32.0 million). The balance of the increase can be attributed primarily to Pyropower for $32.8 million and $64.1 million to the Power Systems Group. In addition, accounts and notes receivable increased by $218.7 million in fiscal 1995 to $715.7 million at fiscal year-end 1995 from $497.0 million. The E&C Group increased by approximately $113.9 million, primarily due to the significant contracts of the Spanish subsidiary in South America. The balance of the increase can be attributed principally to the Energy Equipment Group as the result of the acquisition of Pyropower ($65.0 million) and increased activities of Glitsch International ($25.4 million). 27 (continued) 11 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 Facilities and third-party financing in the capital markets. Under the Corporation's existing shelf registration statement, there is approximately $135 million available. On September 20, 1995, the Corporation established two revolving credit facilities with a syndicate of banks led by National Westminster Bank PLC and Mellon Bank, N.A. One facility is a short-term revolving credit facility of $200 million with a maturity of 364-days and the second is a $300 million revolving credit facility with a maturity of four years (collectively, the "Revolving Credit Facilities"). On November 15, 1995, the short-term revolving credit facility was permanently reduced to $100 million. Borrowings under these facilities were incurred to (i) fund a portion of the Pyropower acquisition, (ii) refinance bank debt previously incurred to fund working capital and the acquisition of Enserch and (iii) make a $22 million scheduled principal payment on the Private Notes. The Corporation will be required to pay scheduled 27 12 MANAGEMENT'S DISCUSSION AND ANALYSIS principal installments of $22.0 million on the Private Notes on September 30, 1996, 1997 and 1998. The Corporation expects to make such payments from internally generated cash, borrowings under its Revolving Credit Facilities and/or third-party financing in the capital markets. The Corporation has lease payments due under two long-term operating leases of $9.1 million in fiscal 1996, $87.6 million in fiscal 1997 and $37.7 million in fiscal 1998 and other rental payments under leases for office space. The primary reason for the increase in 1997 is the payment of a required advance lease payment for a 1,600-ton-per-day recycling and waste-to-energy plant located in Robbins, Illinois, which is scheduled to go into operation in 1997. The Corporation expects to make these lease payments from cash available from operations and borrowings under the Revolving Credit Facilities. Leasing arrangements for equipment, which are short-term in nature, are not expected to impact the Corporation's liquidity or capital resources. The Corporation is in the process of constructing a recycling and waste-to-energy project for the Village of Robbins, Illinois. The Corporation will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the present Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it will receive electricity revenues projected to be substantially higher than the utility's "avoided cost." The utility is entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State will be reimbursed by the facility for the tax credit beginning after the 20th year following initial sale of electricity to the utility. The State is currently considering repealing the Retail Rate Law. If the Law is repealed and the project is not granted "grandfathered" status, there may be a significant adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions applied over the operating life of the facility, Management of the Corporation believes that should such a repeal occur, the financial impact on the operating results of the project will not result in a material, adverse effect on the financial position of the Corporation. Management's strategy for managing risks associated with interest rate fluctuations is to enter into financial instrument transactions, such as interest rate swaps and forward rate agreements, to reduce such risks. Management's strategy for managing transaction risks associated with currency fluctuations is for each operating unit to enter into forward foreign exchange agreements to hedge its exposure on contracts into the operating unit's functional currency. The Corporation utilizes all such financial instruments solely for hedging. Corporate policy prohibits the speculative use of such instruments. The Corporation is exposed to credit loss in the event of nonperformance by the counterparties to such financial instruments. To minimize this risk, the Corporation enters into these financial instruments with financial institutions that are primarily rated A or better by Standard & Poor's or A2 or better by Moody's. Management believes that the geographical diversity of the Corporation's operations mitigates the effects of the currency translation exposure. No significant unhedged assets or liabilities are maintained outside the functional currency of the operating subsidiaries. Accordingly, translation exposure is not hedged. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States and Canada, in which plaintiffs claim damages for personal injury or property damage alleged to have arisen from the exposure to or use of asbestos. At December 29, 1995, there were approximately 77,700 (1994-57,000) suits pending. Approximately 39,000 new claims were filed in fiscal 1995 and settlement costs not covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of potential costs relating to pending claims. During the three-year period ended December 29, 1995, the Corporation tried, settled or summarily disposed of approximately 40,000 (1995-18,300) asbestos-related claims. Approximately $66 million, substantially all of which was reimbursed or will be reimbursed, was spent on asbestos litigation defense and case resolution during the three-year period (1993-$21 million; 1994-$24 million; 1995-$21 million). The Corporation has recorded, with respect to asbestos litigation for the years 1994 and 1995, an asset relating to probable insurance recoveries of approximately $77 million and $83 million, respectively, and a liability relating to probable losses of approximately $78 million and $87 million, respectively. 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 the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation. 28 (continued) 13 Management of the Corporation believes that cash and cash equivalents on hand of $167.1 million and short-term investments of $112.9 million at December 29, 1995, combined with cash flow from operating activities, available credit under its Revolving Credit Facilities 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. OTHER ACCOUNTING MATTERS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). SFAS 121 requires companies to review their long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable. Impairment is measured using the lower of a long-lived asset's book value or its fair market value. Management has not yet completed its review of the potential impact this Standard may have on the consolidated financial statements. 28 14 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands of Dollars, Except per Share Amounts)
December 29, December 30, 1995 1994* ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents ...................................... $ 167,131 $ 235,801 Short-term investments ......................................... 112,853 118,561 Accounts and notes receivable: Trade ...................................................... 630,751 442,127 Other ...................................................... 84,988 54,854 Contracts in process ........................................... 340,526 171,144 Inventories .................................................... 42,716 27,634 Prepaid and refundable income taxes ............................ 39,346 47,543 Prepaid expenses ............................................... 20,662 15,045 ----------- ----------- Total current assets ....................................... 1,438,973 1,112,709 ----------- ----------- Land, buildings and equipment ....................................... 944,596 815,746 Less accumulated depreciation ....................................... 299,784 249,590 ----------- ----------- Net book value ............................................. 644,812 566,156 ----------- ----------- Notes and accounts receivable - long-term ........................... 63,632 51,658 Investments and advances ............................................ 56,767 42,665 Intangible assets, net .............................................. 260,070 72,128 Deferred charges and prepaid pension cost ........................... 308,369 289,117 Deferred income taxes ............................................... 3,186 5,901 ----------- ----------- TOTAL ASSETS ............................................... $ 2,775,809 $ 2,140,334 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ......................... $ 34,648 $ 32,565 Bank loans ..................................................... 86,869 77,350 Accounts payable ............................................... 372,949 211,627 Accrued expenses ............................................... 166,633 139,582 Estimated costs to complete long-term contracts ................ 475,899 294,881 Advance payments by customers .................................. 74,821 104,239 Income taxes ................................................... 28,457 30,335 ----------- ----------- Total current liabilities .................................. 1,240,276 890,579 Long-term debt, less current installments ........................... 554,404 466,637 Minority interest in subsidiary companies ........................... 13,438 10,344 Deferred income taxes ............................................... 21,841 19,651 Other long-term liabilities, deferred credits and postretirement benefits other than pensions ................................... 319,983 296,629 ----------- ----------- TOTAL LIABILITIES .......................................... 2,149,942 1,683,840 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock Authorized 1,500,000 shares; no par value - none outstanding Common Stock $1.00 par value; authorized 80,000,000 shares; issued: 1995-40,498,481; 1994-35,832,664 ................... 40,498 35,833 Paid-in capital ................................................ 192,721 38,266 Retained earnings .............................................. 421,804 420,861 Accumulated translation adjustment ............................. (28,861) (37,915) ----------- ----------- 626,162 457,045 Less cost of treasury stock (shares: 1995-10,804; 1994-20,129) ......................... 295 551 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ................................. 625,867 456,494 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 2,775,809 $ 2,140,334 =========== ===========
See notes to financial statements. * Reclassified to conform to 1995 presentation. 29 15 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (In Thousands of Dollars, Except per Share Amounts)
1995 1994 1993 ---------- ---------- ---------- REVENUES: Operating revenues .......................... $3,042,177 $2,234,441 $2,583,000 Other income (including interest: 1995-$23,404; 1994-$25,014; 1993-$26,627) 39,753 36,682 71,505 ---------- ---------- ---------- Total Revenues .......................... 3,081,930 2,271,123 2,654,505 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of operating revenues .................. 2,642,290 1,909,893 2,290,395 Selling, general and administrative expenses 250,369 203,445 204,049 Other deductions (including interest: 1995-$49,011; 1994-$34,978; 1993-$33,558) 64,998 45,906 60,722 Provision for reorganization costs .......... 50,120 -- -- Minority interest ........................... 4,490 5,012 2,521 ---------- ---------- ---------- Total Costs and Expenses ................ 3,012,267 2,164,256 2,557,687 ---------- ---------- ---------- Earnings before income taxes ..................... 69,663 106,867 96,818 Provision for income taxes ....................... 41,129 41,457 39,114 ---------- ---------- ---------- Net earnings ..................................... $ 28,534 $ 65,410 $ 57,704 ========== ========== ========== Earnings per share ............................... $ .79 $ 1.83 $ 1.62 ========== ========== ==========
See notes to financial statements. 30 (continued) 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Foster Wheeler Corporation: We have audited the accompanying consolidated balance sheet of Foster Wheeler Corporation and Subsidiaries as of December 29, 1995 and December 30, 1994, 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 29, 1995. 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 29, 1995 and December 30, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 29, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York February 12, 1996 30 17 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars, Except per Share Amounts)
1995 1994 1993 ---- ---- ---- COMMON STOCK Balance at beginning of year .................................................. $ 35,833 $ 35,707 $ 35,656 Sold under stock options: (shares: 1995-45,817; 1994-125,682; 1993-50,786) .... 45 126 51 Issued in public offerings (shares: 1995-4,620,000) ........................... 4,620 -- -- --------- --------- --------- Balance at end of year ................................................... 40,498 35,833 35,707 --------- --------- --------- PAID-IN CAPITAL Balance at beginning of year .................................................. 38,266 35,076 34,085 Stock option exercise price less par value .................................... 573 2,214 791 Excess of market value over cost of treasury stock issued under incentive plans 46 -- -- Tax benefits related to stock options ......................................... 192 976 200 Excess of proceeds received on issuance of common stock in public offerings less par value and costs .................................................... 153,644 -- -- --------- --------- --------- Balance at end of year ................................................... 192,721 38,266 35,076 --------- --------- --------- RETAINED EARNINGS Balance at beginning of year .................................................. 420,861 381,205 346,487 Net earnings for the year ..................................................... 28,534 65,410 57,704 Cash dividends paid: Common (per share outstanding: 1995-$.77; 1994-$.72; 1993-$.645) ............ (27,591) (25,754) (22,986) --------- --------- --------- Balance at end of year ................................................... 421,804 420,861 381,205 --------- --------- --------- ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year .................................................. (37,915) (51,261) (28,380) Change in accumulated translation adjustment during the year .................. 9,054 13,346 (22,881) --------- --------- --------- Balance at end of year ................................................... (28,861) (37,915) (51,261) --------- --------- --------- TREASURY STOCK Balance at beginning of year .................................................. 551 551 551 Issued under incentive plans (shares: 1995-9,325) ............................. (256) -- -- --------- --------- --------- Balance at end of year ................................................... 295 551 551 --------- --------- --------- TOTAL STOCKHOLDERS' EQUITY .................................................... $ 625,867 $ 456,494 $ 400,176 ========= ========= =========
See notes to financial statements. 31 18 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars)
1995 1994 1993 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ........................................................ $ 28,534 $ 65,410 $ 57,704 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization .................................... 54,625 44,288 51,456 Noncurrent deferred tax .......................................... 5,049 9,609 11,632 Gain on sale of subsidiary and partnership interest .............. -- -- (36,175) Gain on sale of land, buildings and equipment .................... (1,283) (915) (165) Equity earnings, net of dividends ................................ (1,578) (623) (883) Provision for reorganization costs ............................... 50,120 -- -- Other noncash items .............................................. (4,891) (1,517) 1,356 Changes in assets and liabilities, net of effects of acquisitions and divestitures: Receivables ...................................................... (143,023) (24,942) 27,987 Contracts in process and inventories ............................. (131,759) (51,863) (11,376) Accounts payable and accrued expenses ............................ 29,566 (8,286) (22,632) Estimated costs to complete long-term contracts .................. 50,096 (23,089) 90,196 Advance payments by customers .................................... (34,237) 22,316 10,847 Income taxes ..................................................... 3,801 (8,198) (14,623) Other assets and liabilities ..................................... (10,327) (36,487) (18,599) --------- --------- --------- Net cash (used)/provided by operating activities ................. (105,307) (14,297) 146,725 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................................ (59,432) (38,501) (27,849) Proceeds from sale of properties .................................... 2,918 4,671 1,476 Proceeds from sale of subsidiary and partnership interest ........... -- -- 50,288 Payments for acquisitions of businesses, net of cash acquired ....... (133,451) (50,946) -- Increase in investments and advances ................................ (13,596) (5,002) (2,421) Decrease/(increase) in short-term investments ....................... 7,026 14,621 (17,541) Partnership distribution ............................................ (4,883) (3,000) (3,235) --------- --------- --------- Net cash (used)/provided by investing activities ................. (201,418) (78,157) 718 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders ........................................... (27,591) (25,754) (22,986) Proceeds from public offering of common stock, net .................. 158,264 -- -- Proceeds from the exercise of stock options ......................... 618 2,340 842 Increase in short-term debt ......................................... 7,243 14,583 9,246 Proceeds from long-term debt ........................................ 219,978 100,848 265 Repayment of long-term debt ......................................... (130,329) (30,540) (12,439) --------- --------- --------- Net cash provided/(used) by financing activities ................. 228,183 61,477 (25,072) --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ........ 9,872 17,264 (19,342) --------- --------- --------- (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS ......................... (68,670) (13,713) 103,029 Cash and cash equivalents at beginning of year ........................... 235,801 249,514 146,485 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 167,131 $ 235,801 $ 249,514 ========= ========= ========= Cash paid during the year for: Interest (net of amount capitalized) ................................ $ 45,434 $ 36,191 $ 32,167 Income taxes ........................................................ $ 18,162 $ 26,115 $ 27,949
See notes to financial statements. 32 19 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Foster Wheeler Corporation and all significant domestic and foreign subsidiary companies. The Corporation's fiscal year is the 52- or 53-week annual accounting period ending the last Friday in December for domestic operations and December 31 for foreign operations. For domestic operations, the year 1993 included 53 weeks while the years 1994 and 1995 included 52 weeks. In conformity with generally accepted accounting principles, management must 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION ON LONG-TERM CONTRACTS - The Corporation reports profits on long-term contracts on a percentage-of-completion basis determined on the ratio of earned revenues to total contract price, after considering accumulated costs and estimated costs to complete each contract. Contracts in process are valued at cost plus accrued profits less earned revenues and progress payments on uncompleted contracts. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The elapsed time from award of a contract to completion of performance may be up to four years. Contracts of the Engineering and Construction Group are generally considered substantially complete when engineering is completed and/or field construction is completed, while for the Energy Equipment Group it is when manufacturing and/or field construction is completed. The Corporation includes pass-through costs on cost-plus contracts which are general-customer reimbursable materials, equipment and subcontractor costs when the Corporation determines that it is responsible for the engineering specification, procurement and management of such cost components on behalf of the customer. The Corporation has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. The Corporation has a substantial history of making reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. However, current estimates may be revised as additional information becomes available. Certain special-purpose subsidiaries in the Power Systems Group are reimbursed for their costs, including repayment of project debt, for building and owning certain facilities over the lives of the service contracts. The Corporation records revenues relating to debt repayment on these contracts on a straight-line basis over the lives of the service contracts and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly liquid short-term investments purchased with original maturities of three months or less. TRADE ACCOUNTS RECEIVABLE - In accordance with terms of long-term contracts, certain percentages of billings are withheld by customers until completion and acceptance of the contracts. Final payments of all such amounts withheld which might not be received within a one-year period are indicated in Note 3. In conformity with trade practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets. 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 30 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. 33 (continued) 20 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 $236,000 at December 29, 1995. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated. 33 21 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and income and expenses and cash flows at monthly weighted average rates. Foreign currency transaction (losses)/gains for 1995, 1994 and 1993 were approximately $(1,600), $(120) and $4,200, respectively ($(1,000), $(80) and $2,700 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 consist principally of the excess of cost over the fair value of net assets acquired (goodwill) ($156,370), trademarks ($65,000) and patents ($38,700). 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 acquired operating unit basis to assess recoverability and impairments, if any, are recognized in earnings. In the event facts and circumstances indicate that the carrying amount of goodwill associated with an investment is impaired, the Corporation reduces the carrying amount to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation. EARNINGS PER SHARE - Per-share data has been computed based on the weighted average number of shares of common stock outstanding of 1995-36,321,626, 1994-35,787,658 and 1993- 35,655,886. Outstanding stock options have been disregarded because their effect on earnings per share would not be significant. In the fourth quarter of 1995, the Corporation completed the sale of 4,620,000 shares of its common stock in a public offering. The net proceeds of the sale were used to repay borrowings under the Corporation's revolving credit agreement which were incurred to (i) fund a portion of the Pyropower acquisition (see Note 2), (ii) fund wording capital needs, (iii) refinance bank debt previously incurred in the acquisition of Enserch and (iv) pay a scheduled principal installment on the Corporation's 8.58% unsecured private placement notes. If the common stock offering had occurred as of the beginning of 1995, the earnings per share would have been $.84 per share adjusted for interest expense. 2. ACQUISITIONS The Corporation acquired Optimized Process Designs, Inc. (OPD) for $6,100 effective July 1994. OPD's principal process design expertise is in the area of natural gas and gas liquids conditioning, treating and processing. In October 1994, Enserch Environmental Corporation ("Enserch"), a subsidiary of ENSERCH Corporation, was acquired for $50,000, after the sale of $60,000 of receivables under a Receivable Purchase Agreement guaranteed by ENSERCH Corporation. Enserch provides full-service capabilities for hazardous and mixed-waste investigations and remediation, pollution control systems, wastewater treatment, waste management, risk analysis and impacts and environmental permitting. These acquisitions have been accounted for as purchases, accordingly, the purchase prices were allocated to the assets acquired and liabilities assumed based upon their estimated fair market values at the dates of acquisitions. The results of operations of OPD and Enserch are included in the Corporation's financial statements since the dates of acquisition. On the basis of a pro forma combination of the results of operations as if the acquisitions had occurred at the beginning of 1993 and 1994, combined pro forma revenues, net earnings and earnings per share would not have been materially different. 34 (continued) 22 Effective September 30, 1995, the Corporation acquired the power-generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $207,500, including acquisition costs. During September 1995, the Corporation finalized (i) the purchase for approximately $2,500, of the assets of Zack Power & Industrial Co., a construction company in Gary, Indiana, and (ii) the purchase of the assets of TPA, Inc., a supplier of sulfur-recovery equipment based in Dallas, Texas, for approximately $16,000. In addition, the Corporation increased its ownership in Foster Wheeler Andina, S.A. (Bogota, Colombia), an engineering company from 19% to 60% for $2,500. These acquisitions have been accounted for as purchases and the results of operations of these companies have been included in the consolidated financial statements since the dates of acquisition. Total consideration for these acquisitions was approximately $228,000, of which $94,500 was 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. At December 29, 1995, approximately $22,000 remains to be paid. The pro forma unaudited consolidated results of operations of the Corporation and Pyropower for the years ended December 29, 1995 and December 30, 1994, which assume the acquisition had been made as of the beginning of each fiscal year, are summarized below:
1995 1994 ---- ---- Revenues $3,331,602 $2,499,104 Net earnings 14,260 (1) 56,290 Net earnings per share $ .39 $ 1.57
(1) Includes provision for reorganization costs of $46,500, net of income taxes ($1.28 per share). 34 23 The pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional depreciation expenses as the result of a step-up in the basis of fixed assets, additional amortization expense as a result of cost in excess of assets acquired, and other intangible assets and the increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect at the beginning of 1994 and 1995 or of future results of operations of the consolidated entities. The other acquisitions made in 1995 have not been included in the pro forma results because revenues, net earnings and earnings per share would not have been materially different. 3. ACCOUNTS AND NOTES RECEIVABLE The following tabulation shows the components of trade accounts and notes receivable:
1995 1994 ---- ---- From long-term contracts: Amounts billed due within one year ................ $299,594 $277,530 -------- -------- Retentions: Billed: Estimated to be due in: 1995 .................................... -- 30,929 1996 .................................... 21,950 7,288 1997 .................................... 1,196 -- 1999 .................................... 19,765 6,905 -------- -------- Total billed ............................ 42,911 45,122 -------- -------- Unbilled: Estimated to be due in: 1995 .................................... -- 38,074 1996 .................................... 178,357 3,171 1998 .................................... 724 -- -------- -------- Total unbilled .......................... 179,081 41,245 -------- -------- Total retentions ........................ 221,992 86,367 -------- -------- Total receivables from long-term contracts ................ 521,586 363,897 Other trade and notes receivable ....................... 115,119 82,898 -------- -------- 636,705 446,795 Less, allowance for doubtful accounts .................. 5,954 4,668 -------- -------- $630,751 $442,127 ======== ========
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:
1995 1994 1993 ---- ---- ---- Contracts in process .................. $340,526 $171,144 $87,076 ======== ======== ======= Inventories: Materials and supplies ............. $ 31,633 $ 21,447 $18,700 Work in process .................... 6,072 1,894 1,810 Finished goods ..................... 5,011 4,293 3,990 -------- -------- ------- $ 42,716 $ 27,634 $24,500 ======== ======== =======
35 (continued) 24 The following tabulation shows the elements included in contracts in process as related to long-term contracts:
1995 1994 1993 -------- -------- -------- Costs plus accrued profits less earned revenues on contracts currently in process .................................... $694,877 $350,897 $229,604 Less, Progress payments .................................... 354,351 179,753 142,528 -------- -------- -------- $340,526 $171,144 $ 87,076 ======== ======== ========
5. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are stated at cost and are set forth below:
1995 1994 ---------- --------- Land and land improvements . . . . . . . . . . $ 21,599 $ 16,412 Buildings . . . . . . . . . . . . . . . . . . . 146,858 98,263 Equipment . . . . . . . . . . . . . . . . . . . 737,624 679,686 Construction in progress . . . . . . . . . . . 38,515 21,385 ---------- --------- $ 944,596 $ 815,746 ========== =========
Depreciation expense for the years 1995, 1994 and 1993 was $51,706, $43,729 and $43,732, 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. Effective with retirements after April 1, 1993, 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. 35 25 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) The following table sets forth the plans' funded status as of the end of December 1995 and 1994:
1995 1994 --------- --------- Actuarial present value of accumulated benefit obligations: Vested .................................................... $ 334,082 $ 271,579 Nonvested ................................................. 10,382 7,005 --------- --------- Total .................................................. $ 344,464 $ 278,584 ========= ========= Plan assets at fair value, primarily listed stocks and bonds ................................ $ 446,519 $ 379,820 Projected benefit obligations ............................. (383,036) (308,382) --------- --------- Excess of plan assets over projected benefit obligations .. 63,483 71,438 Unrecognized net loss due to past experience different from assumptions made ....................................... 34,672 32,693 Unrecognized prior service cost ........................... 15,923 14,888 Unrecognized net assets being amortized over 12 years ..... (17,198) (23,011) --------- --------- Prepaid pension cost ...................................... $ 96,880 $ 96,008 ========= =========
Net periodic pension expense/(credits) included the following components:
1995 1994 1993 -------- -------- -------- Service cost ..................................... $ 13,602 $ 15,289 $ 11,024 Interest cost on projected benefit obligation .... 27,327 25,070 24,117 Actual return on plan assets ..................... (38,848) (38,081) (33,370) Net amortization and deferrals ................... (637) (2,799) (2,929) -------- -------- -------- Net periodic pension expense/(credits) ........... $ 1,444 $ (521) $ (1,158) ======== ======== ========
In determining the actuarial present value of the projected benefit obligations, discount rates ranging from 7.0% to 8.5% (1994 - 7.5% to 8.5%), and rates of increase for future compensation levels ranging from 3.0% to 6.0% (1994 - - 4.5% to 6.5%) were utilized. The expected long-term rate of return on assets was 10%. In conjunction with the reorganization, the Corporation offered an enhanced retirement package to employees over the age of 65. This resulted in additional service cost under the provisions of SFAS 88 of approximately $1,900. The Corporation has a 401(k) plan for salaried employees. The Corporation, for the years 1995, 1994 and 1993, contributed a 50% match of the employees' contributions which amounted to a cost of $3,700, $3,400 and $3,300, 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. 36 (continued) 26 The following sets forth the plans' funded status reconciled with amounts reported in the Corporation's consolidated balance sheet at the end of December 1995 and 1994:
Accumulated postretirement benefit obligation: 1995 1994 --------- --------- Retirees ........................................... $ 71,861 $ 71,792 Fully-eligible active plan participants ............ 11,712 10,458 Other active plan participants ..................... 38,409 35,380 --------- --------- Accumulated postretirement benefit ................. 121,982 117,630 Unrecognized net (loss)/gain ....................... (669) 1,570 Unrecognized prior service cost .................... 31,077 33,205 --------- --------- Accrued postretirement benefit liability ........... $ 152,390 $ 152,405 ========= =========
Net periodic postretirement benefit cost for 1995, 1994 and 1993 included the following components:
1995 1994 1993 ------- ------- ------- Service cost ........................... $ 1,247 $ 1,244 $ 1,809 Interest cost .......................... 6,186 6,478 7,233 Net amortization and deferrals ......... (2,165) (2,094) (1,578) ------- ------- ------- Net periodic postretirement benefit cost $ 5,268 $ 5,628 $ 7,464 ======= ======= =======
In 1993, the Corporation announced certain changes to its health care plan that establish a premium based on length of service and a cap for future medical costs of active employees. A 9.0% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1996, 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 29, 1995, by $3,850 and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1995 by $308. A discount rate of 7.25% (1994 - 8.5%) was used to determine the accumulated postretirement benefit obligation. 7. BANK BORROWINGS The approximate weighted average interest rates on borrowings outstanding (primarily foreign) at the end of 1995 and 1994 were 9% and 6%, respectively. Unused lines of credit for short-term bank borrowings aggregated $130,400 at year-end 1995, 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. 36 27 Interest costs incurred in 1995, 1994 and 1993 were $49,117, $35,445 and $33,771 of which $106, $467 and $213, respectively, were capitalized. 8. LONG-TERM DEBT Long-term debt consisted of the following:
1995 1994 -------- -------- Corporate Debt -------------- 8.58% unsecured promissory notes due in installments of $22,000 on September 30 in each of the years 1996 to 1998 .................................. $ 66,000 $ 88,000 Revolving Credit Agreements .......................................... -- 95,000 6 3/4% Notes due November 15, 2005 ................................... 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 (1995 year-end rate 6.4%), due semiannually through July 30, 2006 ...................................................... 56,887 59,640 Floating/Fixed Rate Resource Recovery Revenue Bonds, interest varies based on tax-exempt money market rates (1995 year-end rate 5.3%), due semiannually August 1, 1997 through February 1, 2010 ............................ 45,448 45,448 Collateralized note payable, interest varies based on one of several money market rates (1995 year-end rate 7.47%), due semiannually through February 1, 1996 .............................. 3,104 7,340 Solid Waste Disposal and Resource Recovery System Revenue Bonds, interest 7.125% to 7.5%, due annually December 1, 1999 through December 1, 2010 ........................................... 120,150 120,150 Resource Recovery Revenue Bonds, interest 7.9% to 10%, due annually December 15, 1996 through 2012 .................................................. 73,505 75,805 Other ----- Bank loans, interest 9.2% .......................................... 3,982 4,446 Other .............................................................. 19 ,976 3,373 -------- -------- 589,052 499,202 Less, Current portion .............................................. 34 ,648 32,565 -------- -------- $554,404 $466,637 ======== ========
37 (continued) 28 Principal payments are payable in annual installments of: 1997 .................................................... $ 38,867 1998 .................................................... 35,740 1999 .................................................... 34,522 2000 .................................................... 26,239 2001 .................................................... 25,351 Balance due in installments through 2012 ......................................... 393,685 --------- $ 554,404 =========
CORPORATE DEBT - During 1995, the Corporation sold $200,000 notes in the public market which bear interest at a fixed rate of 6 3/4% per annum, payable semiannually, and mature November 15, 2005. The Notes have been rated BBB and Baa2 by Standard and Poor's and Moody's, respectively, and were issued under an indenture between the Corporation and Harris Trust and Savings Bank. The Notes are not redeemable prior to maturity and are not subject to any sinking fund requirements. The Notes will constitute senior unsecured indebtedness of the Corporation and will rank on a parity with the Corporation's other senior unsecured indebtedness. In conjunction with the 8.58% unsecured promissory notes, the Corporation entered into interest rate swap agreements under which it pays to the counterparties interest at a variable rate based on the London Interbank Offered Rate (LIBOR) on the current notional principal of $66,000 and the counterparties pay the Corporation interest at 7.165% (average) on the notional principal. The notional principal of the swap amortizes through September 30, 1998. Amounts receivable under the swap agreements are reflected as a reduction of interest expense. The Corporation has entered into a four-year revolving credit agreement ($300,000) and a 364-day revolving credit agreement ($100,000) (the "Revolving Credit Agreements") with a group of banks. The loans are for general corporate purposes. The maturity dates of the Revolving Credit Agreements are renewed each year subject to the approval of the Corporation and the banks. At year-end 1995, the Corporation had $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 Agreement require the maintenance of a maximum Consolidated Leverage Ratio of .50 to 1 and a minimum Consolidated Fixed Charge Coverage Ratio of 2.50 to 1. At December 29, 1995, these ratios were .37 to 1 and 2.83 to 1, respectively. 37 29 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 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 $56,887 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 29, 1995 was $30,326. The Floating/Fixed Rate Resource Recovery Revenue Bonds in the amount of $45,448 were issued in a total amount of $45,450 and the collateralized note in the amount of $3,104 represents a loan under a bank credit facility. The bonds are collateralized by an irrevocable standby letter of credit issued by a commercial bank. WASTE-TO-ENERGY PROJECTS - The Solid Waste Disposal and Resource Recovery System Revenue Bonds 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 $73,505 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 1995, 1994 and 1993, approximately $11,100, $9,800 and $8,300, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $25,900, $38,200 and $40,900, respectively, were spent on customer-sponsored research activities which were paid by customers of the Corporation. 10. INCOME TAXES The components of earnings before income taxes for the years 1995, 1994 and 1993 were taxed under the following jurisdictions:
1995 1994 1993 --------- ---------- ---------- Domestic . . . . . . . . . . . . . . . $ 2,775 $ 19,955 $ 25,602 Foreign . . . . . . . . . . . . . . . . 66,888 86,912 71,216 --------- ---------- ---------- Total . . . . . . . . . . . . . . . . . $ 69,663 $ 106,867 $ 96 ,818 ========= ========== ========== The provision for income taxes on those earnings was as follows: Current tax expense: Domestic . . . . . . . . . . . . . . . $ 6,306 $ 2,931 $ 10,735 Foreign . . . . . . . . . . . . . . . . 17,883 36,739 27,047 --------- ---------- ---------- Total current . . . . . . . . . . . . . 24,189 39,670 37,782 --------- ---------- ---------- Deferred tax expense/(benefit): Domestic . . . . . . . . . . . . . . . 5,508 5,423 (9,886) Foreign . . . . . . . . . . . . . . . . 11,432 (6,600) (4,966) --------- ---------- ---------- Total deferred . . . . . . . . . . . . 16,940 (1,177) (14 ,852) --------- ---------- ---------- Investment tax credit recapture . . . . - - 2 ,009 Utilization of operating loss carryforwards . . . . . . . . . . . . . - 2 ,964 14,175 --------- ---------- ---------- - 2 ,964 16,184 --------- ---------- ---------- Total provision for income taxes . . . . . $ 41,129 $ 41,457 $ 39,114 ========= ========== ==========
38 (continued) 30
Deferred tax liabilities (assets) consist of the following: 1995 1994 ---------- --------- Difference between book and tax depreciation . . . . . . . . . . . . . . . . $ 85,739 $ 71,907 Pension assets . . . . . . . . . . . . . . . . . . . 33,762 30,685 Capital lease transactions . . . . . . . . . . . . . 12,451 12,652 Revenue recognition . . . . . . . . . . . . . . . . . 19,146 15,814 Other . . . . . . . . . . . . . . . . . . . . . . 4,397 4,933 ---------- --------- Gross deferred tax liabilities . . . . . . . . . . . 155,495 135,991 ---------- --------- Current taxability of estimated costs to complete long-term contracts . . . . . . . . . . . . . . . . . . . . (12,989) (23,768) Reorganization costs . . . . . . . . . . . . . . . . (18,120) - Income currently taxable deferred for financial reporting . . . . . . . . . . . . . (7,059) (7,380) Expenses not currently deductible for tax purposes . . . . . . . . . . . . . . . . (21,690) (22,104) Investment tax credit carryforwards . . . . . . . . . (30,251) (28,600) Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . (65,919) (55,112) Minimum tax credits . . . . . . . . . . . . . . . . . (6,605) (6,710) Foreign tax credits . . . . . . . . . . . . . . . . . (21,400) (21,400) Other . . . . . . . . . . . . . . . . . . . . . . (1,071) (2,966) Valuation allowance . . . . . . . . . . . . . . . . . 20,000 5,500 ---------- --------- Net deferred tax assets . . . . . . . . . . . . . . . (165,104) (162,540) ---------- --------- $ (9,609) $ (26,549) ========== =========
The domestic investment tax credit carryforwards, if not used, will expire in the years 2002 through 2007. Foreign tax credits carryforwards, if not used, will expire in the years 1996 through 2000. As reflected above, the Corporation has recorded various deferred tax assets. Realization is dependent on generating sufficient taxable income prior to the expiration of the various credits. The valuation allowance was 38 31 increased by $14,500 as a result of the 1995 provision for reorganization costs. Such provision has resulted in additional deferred tax assets for financial reporting purposes, thereby making it less likely that a portion of the tax credits will be utilized. Although realization is not assured, management believes that it is more likely than not that all of the deferred tax assets (after consideration of the valuation allowance) will be realized. The amount of the deferred tax assets considered realizable, however, could change in the near future if estimates of future taxable income during the carryforward period are changed. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
1995 1994 1993 ---- ---- ---- Tax at U.S. statutory rate . . . . . . . . . . 35.0% 35.0% 35.0% State income taxes, net of Federal income tax benefit . . . . . . . . 4.4 1.2 1.3 Increase in valuation allowance . . . . . . . . 20.8 - - Nondeductible goodwill write-off . . . . . . . - - 2.5 Investment tax credit recapture . . . . . . . . - - 2.1 Other . . . . . . . . . . . . . . . . . . . (1.2) 2.6 (.5) ---- --- --- 59.0% 38.8% 40.4% ==== ==== ====
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 is scheduled to go into operation in 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 1993 through 1995 totaled $9,300 annually. The minimum lease payments under these long-term noncancelable operating leases are as follows: 1996 . . . . . . . . . . . . . . . $ 9,144 1997 . . . . . . . . . . . . . . . 87,596 1998 . . . . . . . . . . . . . . . 37,654 1999 . . . . . . . . . . . . . . . 38,128 2000 . . . . . . . . . . . . . . . 38,563 Thereafter . . . . . . . . . . . . 704,097 --------- Total . . . . . . . . . . . . . . . $ 915,182 =========
The Corporation and certain of its subsidiaries are obligated under operating lease agreements primarily for office space. Rental expense for these leases amounted to $26,000 in 1995, $20,600 in 1994 and $19,500 in 1993. Future minimum rental commitments on noncancelable leases are as follows: 1996 - $24,300; 1997 - $19,700; 1998 - $16,900; 1999 - $14,800; 2000 - $12,100; and an aggregate of $27,100 thereafter. 39 (continued) 32 12. QUARTERLY FINANCIAL DATA (Unaudited)
Three Months Ended ------------------------------------------------------------------------ 1995 March 31 June 30 Sept. 29 Dec. 29 ---- -------- ------- -------- ------- Operating revenues .................. $ 635,993 $ 678,733 $ 779,938 $ 947,513 Gross earnings from operations ...... 89,766 90,904 96,870 122,347 Net earnings/(loss) ................. 17,880 18,890 17,210 (25,446)(a) Earnings/(loss) per share (b) ....... .50 .53 .48 (.67)(a) Cash dividends per share ............ .185 .195 .195 .195 Stock prices: High ............................. 34.50 37.625 39.50 43.50 Low .............................. 29.375 31.625 33.375 34.625 1994 April 1 July 1 Sept. 30 Dec. 30 ---- ------- ------ -------- ------- Operating revenues .................. $ 469,645 $ 571,247 $ 533,599 $ 659,950 Gross earnings from operations ...... 77,119 77,247 75,033 95,149 Net earnings ........................ 15,403 16,659 14,684 18,664 Earnings per share (b) .............. .43 .47 .41 .52 Cash dividends per share ............ .165 .185 .185 .185 Stock prices: High ............................. 45.00 45.125 42.00 37.125 Low .............................. 32.50 35.00 33.875 26.625
(a) Includes a provision for reorganization costs of $46,500, net of income taxes ($1.28 per share) See Note 18. (b) Based on weighted average number of shares outstanding in each quarter. 13. LITIGATION AND UNCERTAINTIES In the ordinary course of business the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts provided in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States and Canada, in which plaintiffs claim damages for personal injury or property damage alleged to have arisen from the exposure to or use of asbestos. At December 29, 1995, there were 39 33 NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) approximately 77,700 (1994-57,000) suits pending. Approximately 39,000 new claims were filed in fiscal 1995 and settlement costs not covered by the Corporation's insurance carriers were immaterial. The Corporation has agreements with insurance carriers covering a substantial portion of potential costs relating to pending claims. During the three-year period ended December 29, 1995, the Corporation tried, settled or summarily disposed of approximately 40,000 (1995-18,300) asbestos-related claims. Approximately $66,000, substantially all of which was reimbursed or will be reimbursed, was spent on asbestos litigation defense and case resolution during the three-year period (1993-$21,000; 1994-$24,000; 1995-$21,000). The Corporation has recorded, with respect to asbestos litigation for the years 1994 and 1995, an asset relating to probable insurance recoveries of approximately $77,000 and $83,500, respectively, and a liability relating to probable losses of approximately $78,000 and $87,000, respectively. 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 the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation. The Corporation is in the process of constructing a recycling and waste-to-energy project for the Village of Robbins, Illinois. The Corporation will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the present Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it will receive electricity revenues projected to be substantially higher than the utility's "avoided cost." The utility is entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State will be reimbursed by the facility for the tax credit beginning after the 20th year following initial sale of electricity to the utility. The State is currently considering repealing the Retail Rate Law. If the Law is repealed and the project is not granted "grandfathered" status, there may be a significant adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions applied over the operating life of the facility, Management of the Corporation believes that should such a repeal occur, the financial impact on the operating results of the project will not result in a material, adverse effect on the financial position of the Corporation. 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 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 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:
1995 Net earnings - as reported $ 28,534 ======== Net earnings - pro forma $ 24,434 ======== Earnings per share - as reported $0.79 ===== Earnings per share - pro forma $0.67 =====
The assumption regarding the stock options issued to executives in 1995 was that 100% of such options vested in 1995, rather than 1/3 as required by the Plan, since 1/3 of 1993 and 1994 would have vested in 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 used for grants in 1995: dividend yield of 2.21%; expected volatility of 0.3720%; risk-free interest rate of 7.68%; and expected lives of 7.5 years. 40 (continued) 34 Under the plan approved by the stockholders in April 1995, the total number of shares of common stock that may be granted is 1,500,000. In April 1990, the stockholders approved a Stock Option Plan for Directors of the Corporation. This plan authorizes the granting of options on 150,000 shares of common stock to directors who are not employees of the Corporation, who will automatically receive an option to acquire 2,000 shares each year. These plans provide that shares granted come from the Corporation's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100 percent of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant and no option 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. 40 35 Information regarding these option plans for 1995, 1994 and 1993 is as follows:
1995 1994 1993 ----------------------------- ---- ---- Weighted- Average Exercise Shares Price Shares Shares ------ ----- ------ ------ Options outstanding, beginning of year . . . . . . . . . . . 546,462 $28.12 493,810 417,596 Options exercised . . . . . . . . . . . . . (45,817) 13.49 (125,682) (50,786) Options granted . . . . . . . . . . . . . . 490,700 30.10 178,334 127,000 Options outstanding, end of year . . . . . 991,345 $29.78 546,462 493,810 ======= ========= ======== Option price range at end of year $14 .50 to $12.25 to $12.25 to $40.0625 $40.0625 $28.75 Option price range for exercised shares . . . . . . . . . . . . $12 .25 to $12.25 to $12.25 to $13.6875 $28.75 $22.0625 Options available for grant at end of year . . . . . . . . . . . . . 1,543,000 539,578 717,912 ========= ========= ======== Weighted-average fair value of options, granted during the year . . . . . . . . $13.12
The following table summarizes information about fixed-price stock options outstanding at December 29, 1995:
Options Outstanding Options Exercisable ---------------------------------------------------- ---------------------------- Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/29/95 Contractual Life Exercise Price at 12/29/95 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- 14.50 9,158 4 years 14.50 9,158 14.50 21.3125 to 22.125 33,986 5 years 21.50 33,986 21.50 22.0625 to 28.6875 61,500 6 years 23.03 61,500 23.03 26.9375 to 27.4375 98,000 7 years 27.35 98,000 27.35 27.4375 to 28.75 119,667 8 years 28.55 85,778 28.47 32.9375 to 40.0625 178,334 9 years 35.73 72,778 36.53 29.75 to 35.25 490,700 10 years 30.10 -- -- ------- ------ 14.50 to 40.0625 991,345 361,200 ======= =======
41 (continued) 36 15. PREFERRED SHARE PURCHASE RIGHTS On September 22, 1987, the Corporation's Board of Directors declared a dividend distribution of one Preferred Share Purchase Right on each share of the Corporation's common stock outstanding as of October 2, 1987. Each Right allows the shareholder to purchase a one one-hundredth of a share of a new series of preferred stock of the Corporation at an exercise price of $75. Rights are exercisable only if a person or group acquires 20% or more of the Corporation's common stock or announces a tender offer the consummation of which would result in ownership by a person or group of 20% or more of the Corporation's common stock. The Rights, which do not have the right to vote or receive dividends, expire on October 2, 1997, and may be redeemed, prior to becoming exercisable, by the Board of Directors at $.02 per Right or by shareholder action with an acquisition proposal. If any person or group acquires 20% or more of the Corporation's outstanding common stock, the "flip-in" provision of the Rights will be triggered and the Rights will entitle a holder (other than such person or any member of such group) to acquire a number of additional shares of the Corporation's common stock having a market value of twice the exercise price of each Right. In the event the Corporation is involved in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring Corporation's common stock having a market value at that time of twice the Right's exercise price. 16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate values: CASH AND SHORT-TERM INVESTMENTS - All investments are considered available for sale and the carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM INVESTMENTS - The fair values of some investments are estimated based on quoted market prices for those or similar investments. For other investments for which there are no quoted market prices, a reasonable estimate of fair market value could not be made without incurring excessive costs. Additional information pertinent to the value of an unquoted investment is provided below. LONG-TERM DEBT - The fair value of the Corporation's long-term debt (including current installments) is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. FOREIGN CURRENCY CONTRACTS 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). 41 37 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:
1995 1994 ------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Nonderivatives: Cash and short-term investments . . . . . . . . . . . . $279,984 $279,984 $354,362 $354,362 Long-term investments for which it is: Practicable to estimate fair value . 700 1,200 700 1,500 Not practicable . . . . . . . . . . 3,450 4,500 Long-term debt . . . . . . . . . . . . (589,052) (595,000) (499,202) (495,000) Derivatives: ` Foreign currency contracts . . . . . . (17,700) (17,700) (3,400) (3,400) Interest rate swaps . . . . . . . . . . -- 200 -- (2,000)
It is not practicable to estimate the fair value of an investment representing the preferred stock of a public Corporation because this stock is not traded; that investment is carried at its original cost of $3,450 in the consolidated balance sheet. At the end of September 1995 (latest available financial statements of this public Corporation), the total assets reported were $113,384 and the stockholders' equity was $59,986. Revenues were $107,198 and net income was $18,054 for nine months. In the ordinary course of business, the Corporation is contingently liable for performance under letters of credit totaling approximately $139,000 and $132,000 at December 29, 1995 and December 30, 1994, respectively. In the Corporation's past experience, virtually no claims have been made against these financial instruments. Management of the Corporation does not expect any material losses to result from these off-balance-sheet instruments because performance is not expected to be required, and therefore, is of the opinion that the fair value of these instruments is zero. As of December 29, 1995, the Corporation had $312,000 of forward exchange contracts outstanding. These forward exchange contracts mature between 1996 and 1997. Approximately 36% 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 29, 1995 and December 30, 1994, the Corporation had no significant concentrations of credit risk. The Corporation has issued third party off-balance sheet financial guarantees totaling approximately $20,000. 42 (continued) 38 17. OTHER LONG-TERM ASSETS AND LIABILITIES The long-term assets and liabilities consist of the following:
1995 1994 ---- ---- Deferred charges and prepaid pension cost: Prepaid pension cost $ 96,880 $ 96,008 Cash surrender value of life insurance 59,803 53,811 Prepaid rent 30,464 28,036 Insurance recovery - asbestos 83,500 77,000 Other 37,722 34,262 -------- -------- $308,369 $289,117 ======== ======== Other long-term liabilities, deferred credits and postretirement benefits other than pensions: Postretirement benefit liability $152,390 $152,405 Accrued dismissal indemnity 25,740 22,438 Long-term deferred income 20,213 20,937 Accrued probable loss - asbestos 87,000 78,000 Other 34,640 22,849 -------- -------- $319,983 $296,629 ======== ========
18. PROVISION FOR REORGANIZATION COSTS In connection with the acquisition of Pyropower, the Corporation recorded a one-time pretax reorganization provision in the fourth quarter of 1995 of $50,120. This provision related to the reorganization of the operations of the Energy Equipment Group that existed before the acquisition of Pyropower. The reorganization plan, when fully complete, will result in substantial cost savings and is expected to improve the competitive position of the Energy Equipment Group. This reorganization plan included a rationalization of manufacturing capacity and the reduction of approximately 630 salaried and hourly personnel. The provision for reorganization costs includes the following items:
Nature of Costs United States Canada Total --------------- ------------- ------ ----- Write-off of excess buildings and equipment due to the rationalization of production capacity $ 3,125 $ 7,077 $10,202 Employee severance cost and related benefits 6,950 9,977 16,927 Asset write-downs (including stranded inventory) and provisions related to discontinuance of certain product lines (including incremental costs on certain completed contracts) 13,164 6,176 19,340 Other, including the write-off of accumulated translation adjustment for curtailed operations 1,500 2,151 3,651 ------- ------- ------- Total pretax provision $24,739 $25,381 $50,120 ======= ======= =======
42 39 Approximately 50% of the above provision is expected to have a cash impact. As of year-end, the majority of the liability remains to be paid. The spending is expected to be substantially completed by the end of 1996. 19. BUSINESS SEGMENTS - DATA The business of the Corporation and its subsidiaries falls within three business groups. The ENGINEERING AND CONSTRUCTION GROUP that designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. The ENERGY EQUIPMENT GROUP designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NOx burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. The Energy Equipment Group also provides proprietary solutions and systems for many separation applications and manufactures highly-engineered chemical separations equipment for the petroleum refining, petrochemical, chemical and gas processing industries. The POWER SYSTEMS GROUP designs, engineers, manufactures and constructs to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities and 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 1995, the Group accounted for approximately 70% of the operating revenues. The geographic dispersion of these operating revenues was as follows: 34% North America, 23% Asia, 19% Europe, 15% Middle East and 9% other. The Energy Equipment Group accounted for 25% of the operating revenues of the Corporation. The geographic dispersion of these operating revenues was as follows: 49% North America, 32% Asia, 15% Europe and 4% other. The Power Systems Group accounted for 5% of the Corporation's 1995 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 1995, 1994 and 1993 is on pages 22 and 23 (unaudited as to unfilled orders and new orders booked). 43 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary of financial information extracted from the consolidated balance sheet and statement of earnings for the year ended December 29, 1995 and is qualified in its entirety by reference to such financial statments. 1000 YEAR DEC-29-1995 DEC-31-1994 DEC-29-1995 167131 112853 715739 (5934) 383242 1438973 944596 299784 2775809 1240276 554404 0 0 40498 585369 2775809 3042177 3042177 2642290 2642290 0 0 49011 69663 41129 28534 0 0 0 28534 .79 .79
-----END PRIVACY-ENHANCED MESSAGE-----