-----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, Q4qumvWzKn6MpR6XkPTMOuIVcIyafSsV2tpEIt9xds+dQdyr5WD8EJ1BnSTsMz8u +VyYiace6g+rVrxGWy596w== 0000950123-98-002706.txt : 19980323 0000950123-98-002706.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950123-98-002706 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971226 FILED AS OF DATE: 19980319 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: SEC FILE NUMBER: 001-00286 FILM NUMBER: 98569006 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-K 1 FOSTER WHEELER CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 26, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .......... to .......... Commission file number 1-286-2 FOSTER WHEELER CORPORATION (Exact Name of Registrant as specified in its charter) NEW YORK 13-1855904 (State of incorporation) (I.R.S. Employer Identification No.) PERRYVILLE CORPORATE PARK, CLINTON, NEW JERSEY 08809-4000 (Address of Principal Executive Offices) (Zip Code) (908) 730-4000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: FOSTER WHEELER CORPORATION NEW YORK STOCK EXCHANGE COMMON STOCK, $1.00 PAR VALUE (Name of Each Exchange on Which (Title of Class) Registered) Securities registered pursuant to Section 12(g) of the Act: NONE Title of Class Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ]No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 10, 1998, 40,717,273 shares of the Registrant's Common Stock, excluding stock held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by nonaffiliates of the Registrant on such date was approximately $1,076,462,905 (based on the last price on that date of $26.4375 per share). List hereunder the following documents if incorporated by reference, and the Part of the Form 10-K into which the document is incorporated: DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference, and the Part of the Form 10-K into which the document is incorporated: (1) Portions of the Registrant's Proxy Statement dated March 19, 1998 filed with the Commission are incorporated by reference in Part III of this report. (2) The Financial Section of the Annual Report to Stockholders (pages 23-47) for the fiscal year ended December 26, 1997, is incorporated by reference in Part I and Part II of this report. 2 FOSTER WHEELER CORPORATION 1997 Form 10-K Annual Report Table of Contents Page PART I Item 1. Business 3 - 7 2. Properties 8 - 11 3. Legal Proceedings 11 4. Submission of Matters to a Vote of Security Holders 11 Executive Officers of the Registrant 12 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 13 6. Selected Financial Data 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 8. Financial Statements and Supplementary Data 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 PART III 10. Directors and Executive Officers of the Registrant 15 11. Executive Compensation 15 12. Security Ownership of Certain Beneficial Owners and Management 15 13. Certain Relationships and Related Transactions 15 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16 - 25 This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth in this report. 2 3 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS: Foster Wheeler Corporation was incorporated under the laws of the State of New York in 1900. Executive offices of Foster Wheeler Corporation are at Perryville Corporate Park, Clinton, New Jersey, 08809-4000 (Telephone (908) 730-4000). Except as the context otherwise requires, the terms "Foster Wheeler" or the "Corporation" as used herein includes Foster Wheeler Corporation and its subsidiaries. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: Incorporated by reference to Note 17 on page 46 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997. NARRATIVE DESCRIPTION OF BUSINESS: The business of the Corporation and its subsidiaries falls within three business groups. The ENGINEERING AND CONSTRUCTION GROUP ("E&C Group") designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. The ENERGY EQUIPMENT GROUP designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NOx burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. The POWER SYSTEMS GROUP utilizes Foster Wheeler strengths in design, engineering, manufacturing and construction to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities as well as facilities for the process and petrochemical industries. This Group generates revenues from construction and operating activities pursuant to long-term off-take and operating and maintenance agreements and from returns on its equity positions. A special-purpose subsidiary established for each new project manages that project from the permitting stage through plant construction and operation. All of the special-purpose subsidiary project debt is limited-recourse. This Group refinances its equity interest in selected projects from time to time when 3 4 such refinancing will result in risk mitigation, a lower effective financing cost or a potential increased return on investment. In the second quarter of 1997, the Corporation sold the business of Glitsch International, Inc. For segment reporting purposes, the earnings of Glitsch International, Inc. up to the closing date of June 27, 1997 were included in the operating results of the Corporation within the Energy Equipment Group. Effective September 30, 1995, the Corporation acquired the power generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $200,000,000 including acquisition costs. The preliminary purchase price allocation was adjusted by $80.0 million in the fourth quarter of 1996, based upon a final calculation of assets acquired and liabilities assumed. The quarterly earnings previously reported were not significantly impacted by this change. Foster Wheeler markets its services and products through a staff of sales and marketing personnel and through a network of sales representatives. The businesses of its industry groups are not seasonal nor are they dependent on a limited group of customers. No one customer accounted for 10 percent or more of Foster Wheeler's consolidated revenues in fiscal 1997, 1996 and 1995, although in any given year one customer could contribute significantly to such revenues. The materials used in Foster Wheeler's manufacturing and construction operations are obtained from both domestic and foreign sources. Materials, which consist mainly of steel products and manufactured items, are heavily dependent on foreign sources, particularly for overseas projects. Generally, lead time for delivery of materials does not constitute a problem. Foster Wheeler owns and licenses patents, trademarks and know-how which are used in each of its industry groups. Such licenses, patents and trademarks are of varying durations. No Group is materially dependent upon any particular or related group of patents, trademarks or licenses. Foster Wheeler has licensed companies throughout the world to manufacture marine and stationary steam generators and related equipment and certain of its other products. Principal licensees are in Finland, Japan, the Netherlands, Italy, Spain, Portugal, Norway and England. For the most part, Foster Wheeler products are custom designed and manufactured and are not produced for inventory. As is the practice in the Engineering and Construction Group and Energy Equipment Group, customers often make a down payment at the time a contract is entered into, and continue to make progress payments until the contract is completed and the work has been accepted as meeting contract guarantees. Foster Wheeler had a backlog of firm orders as of December 26, 1997 of $7,184,600,000 as compared to a backlog as of December 27, 1996 of $7,135,400,000. The elapsed time from the award of a contract to completion of performance may be up to four years. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, 4 5 there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog not to be performed. The backlog by major industry segments as of December 26, 1997 and December 27, 1996 is as follows:
1997 1996 ---- ---- Engineering and Construction $5,295,600,000 $4,958,200,000 Energy Equipment 1,604,500,000 1,763,400,000 Power Systems 255,000,000 384,900,000 Corporate and Financial Services 29,500,000 28,900,000 -------------- -------------- $7,184,600,000 $7,135,400,000 ============== ==============
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 Coal/Gas/Oil 1992 InterPower, Pennsylvania 102 MW Power Waste Coal 1995 Concepcion, Chile 8 MM SCFD Hydrogen Plant -- 1996 Robbins, Illinois 1600 Ton/Day Waste-to-Energy* Refuse/RDF 1996 Lagoven, Venezuela 50 MM SCFD Hydrogen Plant -- 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Lisbon, Portugal 2015 Ton/Day Waste-to-Energy Refuse Construction Concepcion, Chile 65 MW Cogeneration Plant Plus Coke Construction 12,000 Barrels/Day Coker and 7,014 Barrels/Day Hydrotreater Ferrara, Central, Italy 145 MW Cogeneration Natural Gas Construction Teverola, Italy 140 MW Cogeneration Natural Gas Construction University of Minnesota 15 MW Cogeneration Coal/Gas/Oil Construction Lomellina, Italy 400 Ton/Day Waste-to-Energy RDF Permitting - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ * Includes Recycling. - ------------------------------------------------------------------------------------------------------------------------------------
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 1997, approximately $16,100,000, and in 1996 and 1995, $16,900,000 and $11,100,000 respectively, was spent on Foster Wheeler sponsored research activities. During the same periods, approximately $40,400,000, $29,600,000 and $25,900,000, respectively, was spent on research activities that were paid for by customers of Foster Wheeler. Foster Wheeler and its domestic subsidiaries are subject to certain Federal, state and local environmental, occupational health and product safety laws. Foster Wheeler believes all its operations are in compliance with such laws and does not anticipate any material capital expenditures or adverse effect on earnings or cash flows in maintaining compliance with such laws. Foster Wheeler had approximately 11,090 full-time employees on December 26, 1997. Following is a tabulation of the number of full-time employees of Foster Wheeler in each of its industry segments on the dates indicated:
December 26, December 27, December 29, 1997 1996 1995 ------ ------ ------ Engineering and Construction 7,625 7,130 7,560 Energy Equipment 3,025 4,350 4,540 Power Systems 410 410 390 Corporate and Financial Services 30 195 160 ------ ------ ------ 11,090 12,085 12,650 ====== ====== ======
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: Incorporated by reference to Note 17 on page 46 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997. 7 8 ITEM 2. PROPERTIES COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES Foster Wheeler Corporation (CF) New York City, New York Executive Offices -- 1,148 1998 Livingston, New Jersey General Office & Engineering 31.0 acres 288,000 (2) Union Township, Undeveloped 203.8 acres -- New Jersey General Office & Engineering 29.4 acres 294,000 General Office & Engineering 21.0 acres 292,000 2003 Storage and Reproduction Facilities 10.8 acres 30,400 Livingston, New Jersey Research Center 6.7 acres 51,355 Bedminster, New Jersey Office 10.72 acres 135,000 (1)(3) Bridgewater, New Jersey Undeveloped 100.4 acres -- (4) Bridgewater, New Jersey Office 17.5 acres 238,000 (1)(4) Foster Wheeler Energy Corporation (EE) Dansville, New York Manufacturing & Offices 82.4 acres 513,786 Foster Wheeler USA Corporation (EC) Houston, Texas General Offices -- 107,890 2003 Foster Wheeler Iberia, S.A. (EC) Madrid, Spain Office & Engineering 4.2 acres 82,500 Foster Wheeler France, S.A. (EC) Paris, France Office & Engineering -- 109,029 2006 Paris, France Archive Storage Space 12,985 2006 Foster Wheeler International Corp. (Thailand Branch) (EC) Sriracha, Thailand Office & Engineering -- 26,400 2000 Foster Wheeler Constructors, Inc. (EC) McGregor, Texas Storage Facilities 15.0 acres 24,000 Mobile (Chickasaw), Storage and 3.5 acres 60,000 2000 Alabama Fabrication
8 9 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES Foster Wheeler Limited (England) (EC) Glasgow, Scotland Office & Engineering 2.26 acres 28,798 Reading, England Office & Engineering -- 288,472 1998/2016 Teeside, England Office & Engineering -- 18,100 1998/2014 Foster Wheeler Limited (Canada) (EE) Niagara-On-The-Lake, Ontario Office Building 34.5 acres 86,000 (1) Foster Wheeler Andina, S.A. (EC) Bogota, Colombia Office & Engineering 2.25 acres 26,000 Foster Wheeler Energia, S.A. (EE) Tarragona, Spain Manufacturing & Office 11.96 acres 77,794 Madrid, Spain Office Building 1.26 acres 27,500 Foster Wheeler Italiana, S.p.A. (EC) Milan, Italy (via S. Caboto,1) Office & Engineering -- 161,400 2001 Milan, Italy (via S. Caboto,7) Office & Engineering -- 133,000 2002 Birlesik Insaat ve Muhendislik A.S. (BIMAS) (EC) Istanbul, Turkey Engineering & Office -- 26,000 2000
9 10 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES Foster Wheeler Eastern Private Limited (EC) Singapore Office & Engineering -- 25,000 1999 Foster Wheeler Environmental Corporation (EC) Atlanta, Georgia General Offices 24,865 1999 Bellevue, Washington General Offices 53,545 2000 Boston, Massachusetts General Offices 26,326 1999 Lakewood, Colorado General Offices 27,263 2000 Oak Ridge, Tennessee General Offices 14,494 1999 Costa Mesa, California General Offices 14,754 2000 Foster Wheeler Power Systems, Inc. (PS) Martinez, California Cogeneration Plant 6.4 acres -- Mt. Carmel, Cogeneration Plant 105 acres -- 2010 Pennsylvania Charleston, Waste-to-Energy 18 acres -- 2010 South Carolina Plant Hudson Falls, New York Waste-to-Energy 11.2 acres -- Plant Camden, New Jersey Waste-to-Energy 18 acres -- 2011 Plant Robbins, Illinois Waste-to-Energy Plant Facility Site 16.1 acres -- 2029 Laydown Site 14.6 acres -- 2029 Talcahuano, Chile Cogeneration Plant-Facility Site 21 acres -- 2028 Hydrogen Plant-Facility Site 1.4 acres 2013 Paraquana, Venezuela Hydrogen Plant Facility Site 3.9 acres -- 2013 Laydown Site 2.8 acres -- 1998 Foster Wheeler Pyropower, Inc. (EE) San Diego, California Office 9.25 acres 86,000 (1)
10 11 COMPANY AND (INDUSTRY SEGMENT*)
BUILDING LEASE LOCATION USE LAND AREA SQUARE FEET EXPIRES Foster Wheeler Energia OY (EE) Varkhaus, Finland Manufacturing & Offices 22 acres 366,527 Karhula, Finland Research Center 12.84 acres 15,100 2095 Office Laboratory 57,986 Kouvola, Finland Manufacturing & Offices 9.09 acres 79,903 Kaarina, Finland Office 24,762 1999 Helsinki, Finland Office 11,841 1999 Foster Wheeler Energy FAKOP Ltd. (EE) Sosnowiec, Poland Manufacturing & Offices 15.57 acres 231,688
*Designation of Industry Groups: EC - Engineering and Construction EE - Energy Equipment PS - Power Systems CF - Corporate & Financial Services (1) Portion or entire facility leased or subleased to responsible tenants. (2) Entire facility leased to a responsible tenant, with a portion being subleased back to Foster Wheeler subsidiaries. (3) 50% ownership interest. (4) 75% ownership interest. With the exception of the New York office of the Corporation, locations of less than 10,000 square feet are not listed. Except as noted above, the properties set forth are held in fee. All or part of listed locations may be leased or subleased to other affiliates. All properties are in good condition and adequate for their intended use. ITEM 3. LEGAL PROCEEDINGS Incorporated by reference to Note 13 on page 43 in the Notes to Financial Statements in Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE 11 12 EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G (3) of Form 10-K information regarding executive officers is included in PART I. The executive officers of Foster Wheeler, all of whom have held executive positions with Foster Wheeler or its subsidiaries for more than the past five years, except Messrs. Bartoli and O'Brien are as follows:
NAME AGE POSITION ---- --- -------- Richard J. Swift 53 Chairman, President and Chief Executive Officer David J. Roberts 53 Vice Chairman and Chief Financial Officer N. William Atwater 63 Executive Vice President - Engineering and Construction Group Henry E. Bartoli 51 Senior Vice President - Energy Equipment Group (Vice President and General Manager, 1987-1992, Burns and Roe Company.) Claudio Ferrari 61 Senior Vice President - Power Systems Group Thomas R. O'Brien 59 Senior Vice President and General Counsel (Partner in the law firm of Wolff & Samson, 1986-1993.) Lisa Fries Gardner 41 Vice President, Secretary and Chief Compliance Officer Robert D. Iseman 49 Vice President and Treasurer James E. Schessler 52 Vice President - Human Resources and Administration George S. White 61 Vice President and Controller
Each officer holds office for a term running until the Board of Directors meeting next following the Annual Meeting of Stockholders and until his/her successor is elected and qualified. There are no family relationships between the officers listed above. There are no arrangements or understandings between any of the listed officers and any other person, pursuant to which he/she was elected as an officer. 12 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference to Note 12 on page 42 in Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997. The Corporation's common stock is traded on the New York Stock Exchange. The approximate number of stockholders of record as of the end of 1997 was 6,480. ITEM 6. SELECTED FINANCIAL DATA (In Thousands of Dollars, Except Per Share Data)
1997 1996 1995** 1994 1993 ---- ---- ------ ---- ---- Revenues $ 4,172,015 $ 4,040,611 $ 3,081,930 $ 2,271,123 $ 2,654,505 Net (Loss)/earnings (10,463)(1) 82,240(2) 28,534(3) 65,410 57,704 Net (Loss)/earnings per share: Basic (.26) 2.03 .79 1.83 1.62 Diluted (.26) 2.02 .78 1.82 1.61 Shares outstanding: Basic: Weighted average number of shares outstanding 40,677 40,592 36,322 35788 35,656 Diluted: Effect of stock options * 167 107 90 83 ----------- ----------- ----------- ----------- ----------- Total diluted 40,677 40,759 36,429 35,878 35,739 =========== =========== =========== =========== =========== Total assets 3,366,363 3,510,334 2,975,809 2,140,334 1,806,201 Long-term borrowings (including current installments) 889,196 829,043 589,052 499,202 429,264 Cash dividends per common share .835 .81 .77 .72 .645
(1) Includes in 1997 a net charge of $110,900 ($76,600 after tax) consisting of the following pretax items: Second quarter amounts: Gain on sale of Glitsch International, Inc.'s operations-$56,400; provision for Robbins Resource Recovery Facility-$60,000; provision for reorganization costs of the Energy Equipment Group-$32,000; and write-downs of long-lived assets-$6,500. Third quarter amounts: contract write-downs-$24,000 (Engineering & Construction Group) and $30,000 (Energy Equipment Group). Fourth quarter amount: Realignment of the Engineering & Construction Group's European operations-$14,800. (2) Includes in 1996 a provision of $24,000 ($15,600 after tax) for asbestos claims. (3) Includes in 1995 a provision of $50,120 ($46,500 after tax) for reorganization costs. * The effect of the stock options was not included in the calculation of diluted earnings per share as these options were antidilutive due to the 1997 loss. ** During the fourth quarter of 1995, the Corporation acquired the power-generation business of A. Ahlstrom Corporation, "Pyropower". 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages 24 to 31 in Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to the following sections of Foster Wheeler's Annual Report to Stockholders for the year ended December 26, 1997: A. Consolidated Balance Sheet, December 26, 1997 and December 27, 1996 (page 32) B. Consolidated Statement of Earnings for the years ended December 26, 1997; December 27, 1996; and December 29, 1995 (page 33) C. Consolidated Statement of Changes in Stockholders' Equity for the years ended December 26, 1997; December 27, 1996; and December 29, 1995 (page 34) D. Consolidated Statement of Cash Flows for the years ended December 26, 1997; December 27, 1996; and December 29, 1995 (page 35) E. Notes to Consolidated Financial Statements (pages 36-47) F. Report of Independent Accountants (page 33) Schedules Required by Regulation S-X NOTE: All schedules are omitted because they are either not applicable or not required or the information is shown elsewhere in the financial statements or in the notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 14 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to pages 1-4 of Foster Wheeler's Proxy Statement, dated March 19, 1998, for the Annual Meeting of Stockholders to be held April 27, 1998. Certain information regarding executive officers is included in PART I hereof in accordance with General Instruction G (3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 7-13 of Foster Wheeler's Proxy Statement, dated March 19, 1998, for the Annual Meeting of Stockholders to be held April 27, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2-5 of Foster Wheeler's Proxy Statement, dated March 19, 1998, for the Annual Meeting of Stockholders to be held April 27, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 15 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1 Financial Statements The index to Financial Statements is incorporated in this paragraph by reference to Item 8, page 15 All schedules and financial statements other than those indicated above have been omitted because of the absence of conditions requiring them or because the required information is shown in the financial statements or the notes thereto. 3 The following Exhibits are required by Item 601 of Regulation S-K and by paragraph (c) of Item 14 of Form 10-K: 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated August 12, 1996 (filed as Exhibit 3.1 to Foster Wheeler Corporation's 1996 Quarterly Report on Form 10-Q for the quarter ended September 27, 1996 and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 4.1 Amended and Restated Rights Agreement dated as of September 30, 1997, between Foster Wheeler Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent (filed as Exhibit 1.2 to Foster Wheeler Corporation's Form 8-A dated October 1, 1997 and incorporated herein by reference.) 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 16 17 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 10.4 Short-term Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.2 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 12 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Shares Dividend Requirements 13 Except for those portions thereof which are expressly incorporated by reference in this filing, the Financial Section of the Annual Report to Stockholders of Foster Wheeler Corporation (pages 23-47) for the fiscal year ended December 26, 1997 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (Exhibit 21) 23 Consent of independent accountants (Exhibit 23) 27 Financial data schedule (for the informational purposes of the Commission only). (b) Current Reports on Form 8-K: NONE For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 333-25945 (filed April 28, 1997), 33-59739 (filed June 1, 1995), 33-40878 (filed May 29, 1991) and 33-34694 (filed May 2, 1990): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such 17 18 liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. A copy of the By-Laws of the Corporation, as amended through June 27, 1995, is available upon request to the Office of the Secretary, Foster Wheeler Corporation, Perryville Corporate Park, Clinton, New Jersey 08809-4000. 18 19 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Foster Wheeler Corporation on (1) Form S-3 (File No. 33-61809) and (2) Form S-8 (File Nos. 33-34694, 33-40878, 33-59739 and 333-25945) of our report dated January 27, 1998, on our audits of the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries as of December 26, 1997 and December 27, 1996, and for each of the three years in the period ended December 26, 1997, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. New York, New York March 18, 1998 19 20 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOSTER WHEELER CORPORATION (Registrant) Dated March 18, 1998 By /s/ Lisa Fries Gardner --------------------- ---------------------- Lisa Fries Gardner Vice President, Secretary and Chief Compliance Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of March 18, 1998, by the following persons on behalf of the registrant, in the capacities indicated. Signature Title --------- ----- /s/ Richard J. Swift Director, Chairman, President and Richard J. Swift Chief Executive Officer (Principal Executive Officer) /s/ David J. Roberts Director, Vice Chairman and David J. Roberts Chief Financial Officer (Principal Financial Officer) /s/ George S. White Vice President and Controller George S. White (Principal Accounting Officer) /s/ Eugene D. Atkinson Director Eugene D. Atkinson /s/ Louis E. Azzato Director Louis E. Azzato /s/ David J. Farris Director David J. Farris /s/ E. James Ferland Director E. James Ferland 20 21 Signature Title --------- ----- /s/ Martha Clark Goss Director Martha Clark Goss /s/ Constance J. Horner Director Constance J. Horner /s/ Joseph J. Melone Director Joseph J. Melone /s/ Frank E. Perkins Director Frank E. Perkins /s/ John E. Stuart Director John E. Stuart /s/ Charles Y. C. Tse Director Charles Y. C. Tse 21 22 EXHIBIT INDEX ------------- 3.1 Copy of Restated Certificate of Incorporation of Foster Wheeler Corporation, dated August 12, 1996 (filed as Exhibit 3.1 to Foster Wheeler Corporation's 1996 Quarterly Report on Form 10-Q for the quarter ended September 27, 1996 and incorporated herein by reference). 3.2 By-Laws of Foster Wheeler Corporation, as amended June 27, 1995 (filed as Exhibit 3 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference). 4 Foster Wheeler Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler Corporation and its consolidated subsidiaries to the Commission upon its request. 4.1 Amended and Restated Rights Agreement dated as of September 30, 1997, between Foster Wheeler Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent (filed as Exhibit 1.2 to Foster Wheeler Corporation's Form 8-A dated October 1, 1997 and incorporated herein by reference.) 10.1 Purchase Agreement dated as of June 21, 1995 by and between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.1 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.2 Supplement and Amendment Agreement dated as of September 30, 1995 between Foster Wheeler Corporation and A. Ahlstrom Corporation (filed as Exhibit 10.2 to Foster Wheeler Corporation's Current Report on Form 8-K dated October 12, 1995 and incorporated herein by reference). 10.3 Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.1 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 10.4 Short-term Revolving Credit Agreement among the Corporation and the Lenders Signatory thereto, dated September 20, 1995 (filed as Exhibit 10.2 to Foster Wheeler Corporation's Quarterly Report on Form 10-Q for the quarter ending September 29, 1995 and incorporated herein by reference). 12 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Shares Dividend Requirements 13 Except for those portions thereof which are expressly incorporated by reference in this filing, the Financial Section of the Annual Report to Stockholders of Foster Wheeler Corporation (pages 23-47) for the fiscal year ended December 26, 1997 is furnished for the informational purposes of the Commission and is not deemed "filed" as part of this filing. 21 Subsidiaries of the registrant (Exhibit 21) 23 Consent of independent accountants (Exhibit 23) 27 Financial data schedule (for the informational purposes of the Commission only). EX-12 2 STATEMENT OF COMPUTATION OF EARNINGS 1 EXHIBIT 12 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS ($000's)
Fiscal Year ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Earnings: Net (Loss)/Earnings $ (10,463) $ 82,240 $ 28,534 65,410 $ 57,704 Taxes on Income 5,229 44,626 41,129 41,457 39,114 Total Fixed Charges 84,541 74,002 60,920 45,412 43,371 Capitalized Interest (10,379) (6,362) (1,634) (467) (213) Capitalized Interest Amortized 2,184 2,528 2,273 2,189 2,180 Equity Earnings of non- consolidated associated companies accounted for by the equity method, net of Dividends (9,796) (1,474) (1,578) (623) (883) --------- --------- --------- --------- --------- Fixed Charges: $ 61,316 $ 195,560 $ 129,644 $ 153,378 $ 141,273 Interest Expense Capitalized Interest $ 54,675 $ 54,940 $ 49,011 $ 34,978 $ 33,558 Imputed Interest on non- 10,379 6,362 1,634 467 213 capitalized lease payment 19,487 12,700 10,275 9,967 9,600 --------- --------- --------- --------- --------- $ 84,541 $ 74,002 $ 60,920 $ 45,412 $ 43,371 Ratio of Earnings to Fixed Charges 0.73 2.64 2.13 3.38 3.26
*There were no preferred shares outstanding during any of the periods indicated and therefore the consolidated ratio of earnings to fixed charges and combined fixed charges and preferred share dividend requirements would have been the same as the consolidated ratio of earnings to fixed charges and combined fixed charges for each period indicated. EX-13 3 EXCERPT FROM ANNUAL REPORT 1 EXHIBIT 13 FOSTER WHEELER CORPORATION AND SUBSIDIARIES FINANCIAL SECTION Comparative Financial Statistics 23 ---------------------------------------------------------- Management's Discussion and Analysis 24 ---------------------------------------------------------- Consolidated Balance Sheet 32 ---------------------------------------------------------- Consolidated Statement of Earnings 33 ---------------------------------------------------------- Report of Independent Accountants 33 ---------------------------------------------------------- Consolidated Statement of Changes in Stockholders' Equity 34 ---------------------------------------------------------- Consolidated Statement of Cash Flows 35 ---------------------------------------------------------- Notes to Financial Statements 36 COMPARATIVE FINANCIAL STATISTICS (In Thousands, Except per Share Amounts)
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Unfilled orders, end of year ............. $ 7,184,628 $ 7,135,413 $ 6,473,990 $ 5,135,452 $ 3,884,114 Revenues ................................. 4,172,015 4,040,611 3,081,930 2,271,123 2,654,505 Provision for special charges ............ -- 24,000 50,120 -- -- (Loss)/earnings before income taxes ...... (5,234)(1) 126,866(2) 69,663(3) 106,867 96,818 Provision for income taxes ............... 5,229 44,626 41,129 41,457 39,114 Net (loss)/earnings ...................... (10,463) 82,240 28,534 65,410 57,704 (Loss)/earnings per share: Basic ................................ $ (.26) $ 2.03 $ .79 $ 1.83 $ 1.62 Diluted .............................. $ (.26) $ 2.02 $ .78 $ 1.82 $ 1.61 Shares outstanding: Basic: Weighted average number of shares outstanding ..................... 40,677 40,592 36,322 35,788 35,656 Diluted: Effect of stock options ........... * 167 107 90 83 ----------- ----------- ----------- ----------- ----------- Total diluted ........................ 40,677 40,759 36,429 35,878 35,739 =========== =========== =========== =========== =========== Current assets ........................... $ 1,545,271 $ 1,762,448 $ 1,468,973 $ 1,112,709 $ 983,454 Current liabilities ...................... 1,437,052 1,441,894 1,270,276 890,579 778,989 Working capital .......................... 108,219 320,554 198,697 222,130 204,465 Land, buildings and equipment (net) ...... 824,452 724,779 644,812 566,156 567,216 Total assets ............................. 3,366,363 3,510,334 2,975,809 2,140,334 1,806,201 Bank loans ............................... 53,748 52,278 86,869 77,350 59,725 Long-term borrowings (including current installments): Corporate and other debt ............. 445,836 441,399 289,958 190,819 118,961 Project debt ......................... 443,360 387,644 299,094 308,383 310,303 Net assets owned ......................... 619,430 688,958 625,867 456,494 400,176 Net assets owned per common share of stock $ 15.21 $ 16.95 $ 15.46 $ 12.75 $ 11.21 Rate of return on net assets ............. (1.5)% 13.1% 6.3% 16.3% 14.9% Cash dividends per share of common stock . $ .835 $ .81 $ .77 $ .72 $ .645
(1) Includes in 1997 a net charge of $110,900 ($76,400 after tax) consisting of the following pretax items: Second quarter amounts: Gain on sale of Glitsch International, Inc.'s operations-$56,400; provision for Robbins Resource Recovery Facility-$60,000; provision for reorganization costs of the Energy Equipment Group-$32,000; and write-downs of long-lived assets-$6,500. Third quarter amounts: Contract write-downs-$24,000 (Engineering & Construction Group) and $30,000 (Energy Equipment Group). Fourth quarter amount: Realignment of the Engineering & Construction Group's European operations-$14,800. (2) Includes in 1996 a provision of $24,000 ($15,600 after tax) for asbestos claims. (3) Includes in 1995 a provision of $50,120 ($46,500 after tax) for reorganization costs. * The effect of the stock options was not included in the calculation of diluted earnings per share as these options were antidilutive due to the 1997 loss. 23 2 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS BUSINESS GROUPS (See Note 17 to Financial Statements.) (In Millions of Dollars)
CORPORATE ENGINEERING AND AND ENERGY POWER FINANCIAL TOTAL CONSTRUCTION EQUIPMENT SYSTEMS SERVICES (1) ----- ------------ --------- ------- ------------ 1997 Unfilled orders ..................... 7,184.6 5,295.6 1,604.5 255.0 29.5 New orders booked ................... 5,063.9 3,583.5 1,295.4 159.2 25.8 Revenues ............................ 4,172.0 2,808.7 1,143.4 208.5 11.4 Interest expense (2) ................ 54.7 5.7 12.6 23.2 13.2 Loss before income taxes ............ (5.2) 51.5(5) 49.0(5) (51.4)(5) (54.3)(5) Identifiable assets ................. 3,366.4 1,241.3 896.9 888.0 340.2 Capital expenditures ................ 189.8 42.1 14.6 131.2 1.9 Depreciation ........................ 52.3 22.6 13.8 13.2 2.7 1996 Unfilled orders ..................... 7,135.4 4,958.2 1,763.4 384.9 28.9 New orders booked ................... 5,570.3 3,568.4 1,787.7 209.3 4.9 Revenues ............................ 4,040.6 2,580.9 1,309.4 158.9 (8.6) Interest expense (2) ................ 54.9 3.1 15.5 23.3 13.0 Earnings before provision for special charges and income taxes .......... 150.9 92.0 79.2 27.3 (47.6) Earnings before income taxes ........ 126.9 92.0 79.2 27.3 (71.6)(4) Identifiable assets ................. 3,510.3 1,165.0 1,130.2 730.3 484.8 Capital expenditures ................ 158.5 36.7 18.1 96.8 6.9 Depreciation ........................ 54.3 19.2 19.0 12.4 3.7 1995 Unfilled orders ..................... 6,474.0 4,566.6 1,651.6 227.0 28.8 New orders booked ................... 4,071.4 2,927.7 1,000.5 138.4 4.8 Revenues ............................ 3,081.9 2,146.2 774.5 157.2 4.0 Interest expense (2) ................ 49.0 2.8 8.1 24.5 13.6 Earnings before provision for special charges and income taxes .......... 119.8 84.4 51.2 29.3 (45.1) Earnings before income taxes ........ 69.7 84.4 1.1(3) 29.3 (45.1) Identifiable assets ................. 2,975.8 1,022.3 923.6 583.1 446.8 Capital expenditures ................ 59.4 23.0 18.9 14.0 3.5 Depreciation ........................ 51.7 16.6 13.6 17.6 3.9
24 3 FOSTER WHEELER CORPORATION AND SUBSIDIARIES GEOGRAPHIC AREAS (See Note 17 to Financial Statements.) (In Millions of Dollars)
CORPORATE AND UNITED FINANCIAL TOTAL STATES EUROPE CANADA SERVICES (1) ----- ------ ------ ------ ------------ 1997 Unfilled orders ..................... 7,184.6 3,496.7 3,591.4 67.0 29.5 New orders booked ................... 5,063.9 2,112.5 2,812.9 112.7 25.8 Revenues ............................ 4,172.0 1,690.1 2,378.7 91.8 11.4 Interest expense (2) ................ 54.7 36.0 4.7 0.8 13.2 Loss before income taxes ............ (5.2) (36.9)(5) 78.1(5) 7.9(5) (54.3)(5) Identifiable assets ................. 3,366.4 1,644.4 1,335.5 46.3 340.2 1996 Unfilled orders ..................... 7,135.4 3,377.0 3,677.7 51.8 28.9 New orders booked ................... 5,570.3 2,468.2 2,998.2 99.0 4.9 Revenues ............................ 4,040.6 1,671.9 2,301.7 75.6 (8.6) Interest expense (2) ................ 54.9 36.2 4.3 1.4 13.0 Earnings before provision for special charges and income taxes .......... 150.9 60.4 128.8 9.3 (47.6) Earnings before income taxes ........ 126.9 60.4 128.8 9.3 (71.6)(4) Identifiable assets ................. 3,510.3 1,730.0 1,247.7 47.8 484.8 1995 Unfilled orders ..................... 6,474.0 3,098.3 3,318.3 28.6 28.8 New orders booked ................... 4,071.4 1,832.9 2,167.6 66.1 4.8 Revenues ............................ 3,081.9 1,520.9 1,491.2 65.8 4.0 Interest expense (2) ................ 49.0 31.3 2.5 1.6 13.6 Earnings before provision for special charges and income taxes .......... 119.8 72.6 92.9 (0.6) (45.1) Earnings before income taxes ........ 69.7 47.9(3) 92.9 (26.0)(3) (45.1) Identifiable assets ................. 2,975.8 1,444.5 1,032.6 51.9 446.8
(1) Includes general corporate income and expense, and the Corporation's captive insurance operation. (2) Includes intercompany interest charged by Corporate to the business groups on outstanding borrowings. (3) Includes in 1995 a provision of $50.1 for reorganization costs. Geographic allocation: United States-$24.7; Canada-$25.4. (4) Includes in 1996 a provision of $24.0 for asbestos claims. (5) Includes in 1997 a net charge of $110.9 ($76.4 after tax) consisting of the following pretax items: Second quarter amounts: Gain on sale of Glitsch International, Inc.'s operations-$56.4 (Energy Equipment Group); provision for Robbins Resource Recovery Facility-$60.0 (Power Systems Group); provision for reorganization costs-$32.0 (Energy Equipment Group); and write-downs of long-lived assets-$6.5 (Corporate and Financial Services). Third quarter amounts: Contract write-downs-$24.0 (Engineering & Construction Group) and $30.0 (Energy Equipment Group). Fourth quarter amount: European realignment cost- $14.8 (Engineering & Construction Group). The geographic allocation of the $110.9 is as follows: United States-$64.8, Europe-$34.3, Canada-$5.3 and Corporate and Financial Services-$6.5. Unaudited as to unfilled orders and new orders booked. 25 4 MANAGEMENT'S DISCUSSION AND ANALYSIS This Management's Discussion and Analysis of Financial Condition and other sections of this Annual Report contain forward-looking statements that are based on management's assumptions, expectations and projections about the various industries within which the Corporation operates. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Corporation cautions that a variety of factors, including but not limited to the following, could cause business conditions and results to differ materially from what is contained in forward-looking statements: changes in the rate of economic growth in the United States and other major international economies, changes in investment by the energy, power and environmental industries, changes in regulatory environment, changes in project schedules, changes in trade, monetary and fiscal policies worldwide, currency fluctuations, outcomes of pending and future litigation, protection and validity of patents and other intellectual property rights and increasing competition by foreign and domestic companies. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. THREE YEARS ENDED DECEMBER 26, 1997 GENERAL The Corporation's consolidated backlog at the end of fiscal 1997 was $7,184.6 million, an increase of $49.2 million over the amount reported for the end of fiscal 1996 of $7,135.4 million, which in turn represented an increase of 10% from a backlog at the end of fiscal 1995 of $6,474.0 million. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. Although backlog represents only business which is considered firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to additional factors outside of the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog which may not be performed. Backlog has been adjusted to reflect project cancellations, deferrals, and revised project scopes and costs. The net reduction in backlog from project adjustments and cancellations for fiscal 1997 was $619.5 million, compared with $966.2 million in fiscal 1996 and $249.3 million in fiscal 1995. The Corporation's future award prospects include several large-scale international projects. The large size and uncertain timing of these projects can create variability in the Corporation's contract awards, and therefore, future award trends are difficult to predict. New orders awarded for fiscal 1997 ($5,063.9 million) were 9.1% lower than new orders awarded in fiscal 1996 ($5,570.3 million), which were 37% higher than new orders awarded in fiscal 1995 ($4,071.4 million). A total of 58% of new orders in fiscal 1997 was for projects awarded to the Corporation's subsidiaries located outside of the United States as compared to 56% in fiscal 1996 and 55% in fiscal 1995. Key geographic regions outside of the United States contributing to new orders awarded in fiscal 1997 were Europe, China, Southeast Asia and the Middle East. Operating revenues increased in fiscal 1997 by $54.5 million compared to fiscal 1996, to $4,060.0 million from $4,005.5 million, which in turn represented a 32% or $963.3 million increase as compared to fiscal 1995 of $3,042.2 million. Gross earnings from operations, which are equal to operating revenues minus the cost of operating revenues ("gross earnings"), decreased $251.3 million or 51% in fiscal 1997 as compared to fiscal 1996, to $243.2 million from $494.5 million, which was an increase of approximately 24% over gross earnings for fiscal 1995. Included in cost of operating revenues for 1997 were the following provisions: $60.0 million for the Robbins Resource Recovery Facility, $32.0 million for reorganization of the Energy Equipment Group, $24.0 million for contract write-downs in the Engineering and Construction Group, $30.0 million for contract write-downs in the Energy Equipment Group and $13.3 million for realignment of the European operations of the Engineering and Construction Group. 26 (continued) 5 In the fourth quarter of 1996, the Corporation recorded a special pretax charge of $24.0 million with respect to estimated probable payments for asbestos litigation that may not be covered by insurance due to insurers that have become, or may in the future become insolvent. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries prior to and during the 1970s for which the insolvent insurers provided coverage. In conjunction with outside experts, the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that after recognition of the special charge, insurers will continue to adequately fund the balance of the claims and defense costs relating to current and future asbestos litigation. The Corporation anticipates funding the major portion of this charge over the next five to ten years. Selling, general and administrative expenses decreased $28.9 million in fiscal 1997 as compared to fiscal 1996, to $268.0 million from $296.9 million, which in turn represented an increase from expenses reported in fiscal 1995 of $250.4 million. General and administrative expenses decreased by $20.9 million in fiscal 1997 and selling expenses decreased by $6.7 million, principally as a result of the sale of Glitsch International in the second quarter. Other income in fiscal 1997 as compared to fiscal 1996 increased $76.9 million to $112.0 million from $35.1 million. The Corporation recorded a $56.4 million gain on the sale of Glitsch International, Inc.'s operations to Koch Engineering Company. This gain was included in other income in the second quarter. The Corporation received approximately $185.0 million in cash for the majority of the assets of Glitsch International, Inc. The retained net assets have been valued at their current estimated realizable value which are not material to the overall 26 6 FOSTER WHEELER CORPORATION AND SUBSIDIARIES operations of the Corporation. For segment reporting purposes, the earnings of Glitsch International, Inc. up to the closing date of June 27, 1997, were included in the operating results of the Corporation within the Energy Equipment Group. In addition to the Glitsch transaction gain, approximately $13.4 million in equity earnings of unconsolidated affiliates, and a gain of $2.8 million related to the sale of an office building in France were included in other income in 1997. Other income in fiscal 1996 as compared to fiscal 1995 decreased $4.7 million or 12% to $35.1 million from $39.8 million, of which $1.7 million was related to lower interest income. Other deductions in fiscal 1997 increased $12.8 million primarily due to the provision of approximately $8.0 million for disposition of certain under-performing assets. Included in the $8.0 million was a provision of $6.5 million for the disposition of Ullrich Copper, Inc. This subsidiary was sold in the third quarter with no additional financial impact. In fiscal 1996, other deductions increased $11.7 million primarily due to increases in interest expense of $5.9 million and amortization of intangibles of $6.3 million. In connection with the acquisition of Pyropower, the Corporation recorded a pretax provision for reorganization costs in the fourth quarter of 1995 of $50.1 million. This provision relates to the reorganization of the operations of the Energy Equipment Group that existed before the acquisition of Pyropower. Approximately 50% of the above provision had a cash impact. This reorganization was completed at the end of 1997 in accordance with the initial plan. The tax provision for fiscal 1997 was $5.2 million on losses before income taxes of $5.2 million primarily due to taxes on foreign earnings and losses. The effective tax rate for fiscal 1996 was 35.2% compared to 59.0% in fiscal 1995. The fiscal 1995 effective tax rate differed from the U.S. statutory rate primarily as a result of increasing the deferred tax asset valuation allowance by $14.5 million and an increase in state income taxes. The increase in the valuation allowance resulted from the 1995 provision for reorganization costs. This provision resulted in additional deferred tax assets for financial reporting purposes, thereby reducing the likelihood that a portion of the tax credit carryforwards will be utilized. The net loss for 1997 was $(10.5) million or $(.26) basic per share. The net loss included after-tax charges recorded in the second and fourth quarters of $64.0 million and $12.2 million, respectively, and the after-tax gain on sale of Glitsch International, Inc. of $36.7. Net earnings for 1996 were $82.2 million or $2.03 basic per share, after recording a special after-tax charge for asbestos claims of $15.6 million ($.38 basic per share). Net earnings excluding the provision for asbestos claims were $97.8 million or $2.41 basic per share. Net earnings for 1995 were $28.5 million or $.79 basic per share, which included an after-tax provision for reorganization costs of $46.5 million ($1.28 basic per share). ENGINEERING AND CONSTRUCTION GROUP The E&C Group's backlog at the end of fiscal 1997 was $5,295.6 million, a 7% increase over backlog of $4,958.2 million at the end of fiscal 1996, which in turn represented a 9% increase from backlog of $4,566.6 million at the end of fiscal 1995. The increase in fiscal 1996 as compared to fiscal 1995 was due to awards of a polysilicon plant in the United States and a LNG plant in Oman. New orders awarded to the E&C Group in fiscal 1997 amounted to $3,583.5 million compared with $3,568.4 million in fiscal 1996. New orders increased 22% in fiscal 1996 as compared to fiscal 1995 levels of $2,927.7 million. The 1996 increase was due primarily to the LNG and polysilicon plants. The E&C Group reported an 8% increase in operating revenues in fiscal 1997 as compared to fiscal 1996 from $2,556.1 million to $2,772.9 million, which in turn represented a 21% increase from fiscal 1995 operating revenues of $2,120.2 million. The increase in fiscal 1997 operating revenues compared to 1996 was due to increased activities in the United Kingdom and the United States. The increase in fiscal 1996 operating revenues as compared to fiscal 1995 was primarily the result of increased activities of the Italian and Spanish subsidiaries. The Corporation includes pass-through costs on cost-plus contracts, which are customer-reimbursable materials, equipment and subcontractor costs when the Corporation determines that it is responsible for the engineering specification, procurement and management of such cost components on behalf of the customer. The percentage relationship between pass-through costs of contracts and revenues will fluctuate from year to year depending on a variety of factors including the mix of business in the years compared. Historically, engineering service revenues have higher margins than either construction or maintenance services. 27 (continued) 7 The E&C Group's gross earnings decreased $41.6 million in fiscal 1997 as compared with fiscal 1996 or 20%, to $166.1 million from $207.7 million, which in turn represented an increase of 7% from gross earnings of $194.8 million in fiscal 1995. The decrease in fiscal 1997 was attributed to a provision of approximately $24.0 million on several projects in the third quarter of 1997 for which the Corporation is seeking recovery of a significant portion from clients and the $13.3 million provision for the realignment of the Group's European operations. The new structure will bring the Italian, French and Spanish operations under common management, headquartered in Milan, Italy. The $13.3 million pretax charge includes $6.2 million for severance and benefits for employees to be terminated and $6.6 million for office lease expense, due to the consolidation of the Reading, United Kingdom operations into one facility. Also in 1997, there was a decrease in gross earnings in the Spanish subsidiary of $13.1 million. Approximately $2.4 million of the increase in fiscal 1996 as compared to fiscal 1995 was attributable to the Corporation's environmental remediation and service activities. The remaining increases in fiscal 1996 were attributable to the successful completion of several major contracts by subsidiaries in the United Kingdom, Spain and Italy. 27 8 MANAGEMENT'S DISCUSSION AND ANALYSIS ENERGY EQUIPMENT GROUP The Energy Equipment Group's backlog was $1,604.5 million at the end of fiscal 1997, representing a 9% decrease in the backlog of $1,763.4 million at the end of fiscal 1996, which in turn represented a 7% increase over backlog of $1,651.6 million at the end of fiscal 1995. Approximately $130.0 million of the decrease in backlog in fiscal 1997 was attributable to the sale of Glitsch International, Inc. New orders awarded to the Energy Equipment Group were $1,295.4 million, $1,787.7 million and $1,000.5 million in fiscal years 1997, 1996 and 1995, respectively. Of such new orders, $113.0 million, $260.7 million and $331.8 million were related to Glitsch International, Inc.'s activities, which were sold at the end of June 1997. This accounted for the majority of the decrease in 1997. Power generation new orders amounted to $1,182.4 million, $1,527.0 million and $668.7 million for fiscal years 1997, 1996 and 1995, respectively. Operating revenues for the Energy Equipment Group decreased 18% in fiscal 1997 as compared to fiscal 1996, to $1,064.1 million from $1,294.9 million, which in turn represented an increase of 70% from fiscal 1995 of $761.9 million. The decrease in 1997 is primarily attributable to the sale of Glitsch International, Inc.'s operations in the second quarter. The increase in operating revenues in 1996 primarily resulted from power-generation activities including the acquisition of Pyropower. The Energy Equipment Group's gross earnings decreased by $134.0 million or 60%, to $88.1 million in fiscal 1997 from $222.1 million in fiscal 1996, which in turn represented a 52% increase from gross earnings in fiscal 1995 of $76.4 million. The decrease in 1997 is attributable to (1) the sale of Glitsch International, Inc. accounting for $34.0 million, (2) reorganization costs of $32.0 million recorded in the second quarter of 1997, and (3) $30.0 million in provisions for increased costs on three projects, which were initially bid and executed out of the San Diego office. The reorganization costs represent the last phase of the Group's reorganization started in 1995 following the Pyropower acquisition. These actions will result in a further reduction in operating costs with a more efficient project execution capability. This plan includes $14.5 million for the discontinuance of certain product lines, including incremental costs on certain completed contracts. Approximately $9.2 million of the charge relates to the consolidation of the San Diego operations with the Group's activities in New Jersey. Of this amount $5.2 million was for personnel costs, including severance and related benefits, and the balance represents write-downs of property to its net realizable value. These San Diego long-lived assets are now considered to be for sale and have been accounted for at their current market value less estimated cost to sell. The remaining balance of $8.3 million is primarily related to the write-down of a Canadian cogeneration plant to its net realizable value. Approximately 70% of the Energy Equipment Group's charges mentioned above will have a cash impact. 50% of this cost was paid out by year-end and the balance will be paid out during 1998. POWER SYSTEMS GROUP The Power Systems Group's operating revenues increased in fiscal 1997 as compared to fiscal 1996, to $197.7 million from $149.6 million, and 1995 operating revenues of $150.8 million. The Group's gross earnings decreased $76.3 million in fiscal 1997 as compared with fiscal 1996 to a $13.5 million loss from earnings of $62.8 million, which in turn represented an increase of $5.2 million from gross earnings of $57.6 million in fiscal 1995. The loss in 1997 is primarily due to a $60.0 million provision with respect to the Robbins Resource Recovery Facility. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership, operates this facility under a long-term operating lease. By virtue of this facility's qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided costs." Since the State repealed the Retail Rate Law and a 1997 decision in State Court regarding procedural matters, management of the Corporation determined that a charge against current earnings was required. Management considers this charge to be sufficient to cover the anticipated losses until the end of 1999, reflecting the time period within which the Corporation expects the Courts to provide relief from the State government's repeal of the Illinois Retail Rate Law or other alternatives are undertaken. Approximately 60% of the $60.0 million had a cash-flow impact in 1997; the balance will be expended over the following two years. In addition, earnings of the Group were negatively impacted as a result of noncapitalizable development costs. 28 (continued) 9 RESEARCH AND DEVELOPMENT The Corporation is continually engaged in research and development efforts, both in performance and analytical services on current projects and in development of new products and processes. During fiscal years 1997, 1996 and 1995, approximately $16.1 million, $16.9 million and $11.1 million, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $40.4 million, $29.6 million and $25.9 million, respectively, were spent on customer-sponsored research activities that were paid for by customers of the Corporation. 28 10 FOSTER WHEELER CORPORATION AND SUBSIDIARIES FINANCIAL CONDITION From the beginning of fiscal 1995 to the end of fiscal 1997, net assets have increased by $162.9 million. Stockholders' equity at the end of fiscal 1997 was $619.4 million as compared to $689.0 million at the end of fiscal 1996 and $625.9 million at the end of fiscal 1995. In November 1995, the Corporation issued 4,620,000 shares of common stock in a public offering, which increased stockholders' equity by $158.3 million. For fiscal 1997, the net loss of $10.5 million, change in the accumulated translation adjustment of $28.3 million and payment of dividends to stockholders of $34.0 million had the effect of reducing stockholders' equity in 1997. For the fiscal years 1995, 1996 and 1997, long-term investments in land, buildings and equipment were $59.4 million, $158.5 million and $189.8 million, respectively. During the next few years, capital expenditures will continue to be directed primarily toward strengthening and supporting the Corporation's core businesses. At the end of June 1997, the Corporation sold the majority of the operations of Glitsch International, Inc. for approximately $185.0 million in cash. Long-term debt, including current installments, and bank loans increased by $366.3 million, net of repayments of $212.5 million, during the three-year period. At year-end 1997, the Corporation had $205.0 million outstanding under the Revolving Credit Agreements, the proceeds of which were used to fund domestic working capital and other corporate requirements and make a scheduled $22.0 million debt repayment under the Corporation's 8.58% unsecured promissory private placement notes (the "Private Notes"). In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management of the Corporation believes that the disposition of such suits will not result in charges materially in excess of amounts provided in the accounts. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents amounted to $167.4 million at December 26, 1997, a decrease of $99.7 million from the prior fiscal year-end, principally as a result of the increase in cash required for operating activities. Short-term investments decreased $45.3 million to $91.9 million at the end of 1997. During fiscal 1997, the Corporation paid $34.0 million in stockholder dividends, repaid debt of $34.6 million, including a scheduled $22.0 million repayment of the Private Notes, and funded other operating requirements. The Corporation incurred incremental borrowings of $33.5 million under the Revolving Credit Agreements. During fiscal 1997, cash flow used for operating activities totaled $120.1 million. In 1996, cash flow provided from operating activities amounted to $111.0 million. This change was primarily due to a reduction of advance payments by customers and current status of contracts in process. The majority of the operating cash flow was generated by international operations, as domestic working capital needs were significant. The Corporation's working capital varies from period to period depending on the mix, stage of completion and commercial terms and conditions of the Corporation's contracts. Working capital needs have increased as a result of the Corporation's satisfying requests from its customers, primarily in the Energy Equipment Group, for more favorable payment terms under contracts. Such requests generally include reduced advance payments and less favorable payment schedules to the Corporation. The Corporation's contracts in process and inventories increased by $11.7 million during 1997 from $403.5 million at December 27, 1996, to $415.2 million at December 26, 1997. The increase in the contracts in process and inventories in fiscal 1997 can be attributed to increases in the E&C Group of $49.8 million and $17.1 million in the Energy Equipment Group, offset by reductions in the Power Systems Group of $41.8 million and $13.4 million in Corporate and Financial Services. In addition, accounts and notes receivable decreased by $86.4 million in fiscal 1997 to $799.4 million from $885.8 million in fiscal 1996. The E&C Group decreased by approximately $33.6 million, primarily due to a reduction of contracts in the Spanish and French subsidiaries. The balance of the decrease can be attributed principally to the Energy Equipment Group, primarily due to the sale of Glitsch International, Inc's operations. 29 (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 29 12 MANAGEMENT'S DISCUSSION AND ANALYSIS capital needs through internal cash generation, borrowings under its Revolving Credit Agreements and third-party financing in the capital markets. Under the Corporation's existing shelf registration statement, there is approximately $135.0 million available. The Corporation will be required to pay the final principal installment of $22.0 million on the Private Notes on September 30, 1998. The Corporation expects to make such payment from internally generated cash, borrowings under its Revolving Credit Agreements and/or third-party financing in the capital markets. The Corporation has lease payments due under two long-term operating leases of $14.0 million in fiscal 1998, $18.2 million in fiscal 1999 and $35.6 million in fiscal 2000 and other rental payments under leases for office space. The Corporation expects to make these lease payments from cash available from operations and borrowings under the Revolving Credit Agreements. Leasing arrangements for equipment, which are short term in nature, are not expected to have a material impact on the Corporation's liquidity or capital resources. Management of the Corporation believes that cash and cash equivalents on hand of $167.4 million and short-term investments of $91.9 million at December 26, 1997, combined with cash flow from operating activities, available credit under its Revolving Credit Agreements and access to third-party financings in the capital markets will be adequate to meet its working capital and liquidity needs for the foreseeable future. In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership ("the Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State repealed the Retail Rate Law insofar as it applies to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in Court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be an additional adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions, the Corporation in the second quarter of 1997 recorded a charge of $60.0 million sufficient to cover the anticipated losses until the year 1999. This time period is subject to considerable uncertainty. In 1997, the United States Supreme Court effectively invalidated New Jersey's long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy Project (the "Project") with its corresponding tipping fee revenues. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the plant. Those market-based revenues are not expected to be sufficient to service the debt on outstanding bonds, which were issued to construct the plant and to acquire a landfill for Camden County's use. The Corporation has filed suit against the involved parties, including the State of New Jersey, seeking among other things to void the applicable contracts and agreements governing the Project. Pending outcome of the litigation and the results of legislative initiatives in New Jersey to solve the crisis, management believes that the plant will continue to operate at full capacity while receiving market rates for waste disposal. At this time, management cannot determine the ultimate outcome and its effect on the Project. Management's strategy for managing risks associated with interest rate fluctuations is to enter into financial instrument transactions, such as interest rate swaps and forward rate agreements, to reduce such risks. Management's strategy for managing transaction risks associated with currency fluctuations is for each operating unit to enter into forward foreign exchange agreements to hedge its exposure on contracts into the operating unit's functional currency. The Corporation utilizes all such financial instruments solely for hedging. Corporate policy prohibits the speculative use of such instruments. The Corporation is exposed to credit loss in the event of nonperformance by the counter parties to such financial instruments. To minimize this risk, the Corporation enters into these financial instruments with financial institutions that are primarily rated A or better by Standard & Poor's or A2 or better by Moody's. Management believes that the geographical diversity of the Corporation's operations mitigates the effects 30 13 FOSTER WHEELER CORPORATION AND SUBSIDIARIES of the currency translation exposure. No significant unhedged assets or liabilities are maintained outside the functional currency of the operating subsidiaries. Accordingly, translation exposure is not hedged. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of December 26, 1997, there were approximately 65,000 (1996-92,600) claims pending. Approximately 29,800 new claims were filed in 1997. The Corporation has agreements with insurance carriers covering a substantial portion of the potential costs relating to these exposures. During the three-year period ended December 26, 1997, the Corporation tried, settled or summarily disposed of approximately 96,300 (1997-57,300) asbestos-related claims. Approximately $76,700, substantially all of which was reimbursed or will be reimbursed, were spent on asbestos litigation defense and case resolution during the three-year period (1995-$21,000; 1996-$27,000; 1997-$28,700). The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation (see Note 18). INFLATION The effect of inflation on the Corporation's revenues and earnings is minimal. Although a majority of the Corporation's revenues are made under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to complete in these future periods. In addition, some contracts provide for price adjustments through escalation clauses. OTHER ACCOUNTING MATTERS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) and No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement requires that a company (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. SFAS No. 131 establishes standards for the way that public business companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. This Statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. The adoption of these Statements will not have an impact on the Corporation's consolidated results of operations, financial position or cash flow. 31 (continued) 14 YEAR 2000 CONVERSION The Corporation has established a committee to coordinate the identification, evaluation, and implementation of changes to computer systems and applications necessary to achieve a year 2000-date conversion. Software failures due to processing errors potentially arising from calculations using the year 2000 date are a known risk. Major areas of potential business impact are currently being identified. The assessment has yet to be made of the total cost of compliance and its effect on the Corporation's future results of operations. 31 15 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands of Dollars, Except per Share Amounts)
December 26, December 27, 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents .................................................... $ 167,417 $ 267,149 Short-term investments ....................................................... 91,888 137,180 Accounts and notes receivable: Trade ..................................................................... 663,505 769,494 Other ..................................................................... 135,870 116,291 Contracts in process ......................................................... 406,378 363,716 Inventories .................................................................. 8,808 39,799 Prepaid and refundable income taxes .......................................... 46,175 38,627 Prepaid expenses ............................................................. 25,230 30,192 ----------- ----------- Total current assets ...................................................... 1,545,271 1,762,448 ----------- ----------- Land, buildings and equipment .................................................. 1,138,098 1,054,786 Less accumulated depreciation .................................................. 313,646 330,007 ----------- ----------- Net book value ............................................................ 824,452 724,779 ----------- ----------- Notes and accounts receivable - long-term ...................................... 86,353 74,296 Investments and advances ....................................................... 127,629 73,725 Intangible assets, net ......................................................... 298,217 331,463 Prepaid pension cost and benefits .............................................. 187,200 180,473 Other, including insurance recoveries .......................................... 275,582 359,362 Deferred income taxes .......................................................... 21,659 3,788 ----------- ----------- TOTAL ASSETS .............................................................. $ 3,366,363 $ 3,510,334 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ....................................... $ 33,528 $ 32,764 Bank loans ................................................................... 53,748 52,278 Accounts payable ............................................................. 380,016 359,503 Accrued expenses ............................................................. 246,144 275,527 Estimated costs to complete long-term contracts ................................................................. 603,224 562,984 Advance payments by customers ................................................ 98,865 116,903 Income taxes ................................................................. 21,527 41,935 ----------- ----------- Total current liabilities ................................................. 1,437,052 1,441,894 Long-term debt, less current installments ...................................... 855,668 796,279 Minority interest in subsidiary companies ...................................... 26,730 13,106 Deferred income taxes .......................................................... 34,148 30,095 Postretirement and other employee benefits other than pensions .......................................................... 169,212 180,210 Other long-term liabilities and deferred credits ...................................................................... 224,123 359,792 ----------- ----------- TOTAL LIABILITIES ......................................................... 2,746,933 2,821,376 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock Authorized 1,500,000 shares; no par value - none outstanding Common Stock $1.00 par value; authorized 160,000,000 shares; issued: 1997-40,745,668; 1996-40,651,241 .............................................................. 40,746 40,651 Paid-in capital ................................................................ 201,105 197,970 Retained earnings .............................................................. 426,761 471,177 Accumulated translation adjustment ............................................. (48,887) (20,545) ----------- ----------- 619,725 689,253 Less cost of treasury stock (10,804 shares) .................................... 295 295 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ................................................ 619,430 688,958 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 3,366,363 $ 3,510,334 =========== ===========
See notes to financial statements. 32 16 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (In Thousands of Dollars, Except per Share Amounts)
1997 1996 1995 ----------- ---------- ---------- REVENUES: Operating revenues .............................. $ 4,059,965 $4,005,503 $3,042,177 Other income (including interest: 1997-$21,669; 1996-$21,714; 1995-$23,404) ... 112,050 35,108 39,753 ----------- ---------- ---------- Total Revenues .............................. 4,172,015 4,040,611 3,081,930 ----------- ---------- ---------- COSTS AND EXPENSES: Cost of operating revenues ...................... 3,816,748 3,510,970 2,642,290 Selling, general and administrative expenses .... 268,026 296,921 250,369 Other deductions (including interest: 1997-$54,675; 1996-$54,940; 1995-$49,011) ... 89,544 76,678 64,998 Provision for special charges ................... -- 24,000 50,120 Minority interest ............................... 2,931 5,176 4,490 ----------- ---------- ---------- Total Costs and Expenses .................... 4,177,249 3,913,745 3,012,267 ----------- ---------- ---------- (Loss)/earnings before income taxes .................. (5,234) 126,866 69,663 Provision for income taxes ........................... 5,229 44,626 41,129 ----------- ---------- ---------- Net (loss)/earnings .................................. $ (10,463) $ 82,240 $ 28,534 =========== ========== ========== (Loss)/earnings per share: Basic ........................................... $ (.26) $ 2.03 $ .79 =========== ========== ========== Diluted ......................................... $ (.26) $ 2.02 $ .78 =========== ========== ========== Shares outstanding: Basic: Weighted average number of shares outstanding 40,677 40,592 36,322 Diluted: Effect of stock options ..................... * 167 107 ----------- ---------- ---------- Total diluted ................................... 40,677 40,759 36,429 =========== ========== ==========
* The effect of the stock options was not included in the calculation of diluted earnings per share as these options were antidilutive due to the 1997 loss. See notes to financial statements. 33 (continued) 17 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Foster Wheeler Corporation We have audited the accompanying consolidated balance sheet of Foster Wheeler Corporation and Subsidiaries as of December 26, 1997 and December 27, 1996, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 26, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Foster Wheeler Corporation and Subsidiaries as of December 26, 1997 and December 27, 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 26, 1997 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York January 27, 1998 33 18 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars, Except per Share Amounts)
1997 1996 1995 --------- --------- --------- COMMON STOCK Balance at beginning of year ........................ $ 40,651 $ 40,498 $ 35,833 Sold under stock options: (shares: 1997-94,427; 1996-128,199; 1995-45,817) ........................ 95 128 45 Restricted stock issued under incentive plans (shares: 1996-24,561) ............................. -- 25 -- Issued in public offerings (shares: 1995-4,620,000) . -- -- 4,620 --------- --------- --------- Balance at end of year ............................ 40,746 40,651 40,498 --------- --------- --------- PAID-IN CAPITAL Balance at beginning of year ........................ 197,970 192,721 38,266 Stock option exercise price less par value .......... 2,665 3,417 573 Excess of market value over cost of treasury stock or common stock issued under incentive plans ......... -- 1,068 46 Tax benefits related to stock options ............... 470 764 192 Excess of proceeds received on issuance of common stock in public offerings less par value and costs -- -- 153,644 --------- --------- --------- Balance at end of year ............................ 201,105 197,970 192,721 --------- --------- --------- RETAINED EARNINGS Balance at beginning of year ........................ 471,177 421,804 420,861 Net (loss)/earnings for the year .................... (10,463) 82,240 28,534 Cash dividends paid: Common (per share outstanding: 1997-$.835; 1996-$.81; 1995-$.77) .......................... (33,953) (32,867) (27,591) --------- --------- --------- Balance at end of year ............................ 426,761 471,177 421,804 --------- --------- --------- ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year ........................ (20,545) (28,861) (37,915) Change in accumulated translation adjustment during the year .......................................... (34,615) 8,316 9,054 Amount transferred to income upon sale of subsidiary 6,273 -- -- --------- --------- --------- Balance at end of year ............................ (48,887) (20,545) (28,861) --------- --------- --------- TREASURY STOCK Balance at beginning of year ........................ 295 295 551 Issued under incentive plans (shares: 1995-9,325) ... -- -- (256) --------- --------- --------- Balance at end of year ............................ 295 295 295 --------- --------- --------- TOTAL STOCKHOLDERS' EQUITY .......................... $ 619,430 $ 688,958 $ 625,867 ========= ========= =========
See notes to financial statements. 34 19 FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars)
1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss)/earnings ................................................. $ (10,463) $ 82,240 $ 28,534 Adjustments to reconcile net (loss)/earnings to cash flows from operating activities: Depreciation and amortization .................................. 62,010 63,605 54,625 Noncurrent deferred tax ........................................ (13,216) 5,338 5,049 Gain on sale of land, buildings and equipment .................. (5,583) (400) (1,283) Equity earnings, net of dividends .............................. (13,429) (1,474) (1,578) Net gain on sale of subsidiaries ............................... (49,400) -- -- Provision for special charges .................................. -- 24,000 50,120 Other noncash items ............................................ (6,534) (5,133) (4,891) Changes in assets and liabilities, net of effects of acquisitions and divestitures: Receivables .................................................... (62,072) (148,023) (143,023) Contracts in process and inventories ........................... (72,533) (19,983) (131,759) Accounts payable and accrued expenses .......................... 37,940 64,219 29,566 Estimated costs to complete long-term contracts ................ 83,675 17,376 50,096 Advance payments by customers .................................. 1,251 39,300 (34,237) Income taxes ................................................... (22,472) 13,520 3,801 Other assets and liabilities ................................... (49,231) (23,629) (10,327) --------- --------- --------- Net cash (used)/provided by operating activities ............... (120,057) 110,956 (105,307) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................................ (189,767) (158,526) (59,432) Proceeds from sale of properties .................................... 12,516 16,278 2,918 Payments for acquisitions of businesses, net of cash acquired .................................................. -- (14,798) (133,451) Sales of subsidiaries ............................................... 185,601 -- -- Increase in investments and advances ................................ (40,426) (10,926) (13,596) Decrease/(increase)in short-term investments ........................ 34,160 (19,713) 7,026 Partnership distribution ............................................ (4,800) (4,859) (4,883) --------- --------- --------- Net cash used by investing activities .......................... (2,716) (192,544) (201,418) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to stockholders ........................................... (33,953) (32,867) (27,591) Proceeds from public offering of common stock, net .................. -- -- 158,264 Proceeds from the exercise of stock options ......................... 2,760 3,545 618 Increase/(decrease)in short-term debt ............................... 7,590 (35,258) 7,243 Proceeds from long-term debt ........................................ 98,761 287,937 219,978 Repayment of long-term debt ......................................... (34,551) (47,646) (130,329) --------- --------- --------- Net cash provided by financing activities .................... 40,607 175,711 228,183 --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ............................................... (17,566) 5,895 9,872 --------- --------- --------- (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS ......................... (99,732) 100,018 (68,670) Cash and cash equivalents at beginning of year ........................... 267,149 167,131 235,801 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 167,417 $ 267,149 $ 167,131 ========= ========= ========= Cash paid during the year for: Interest (net of amount capitalized) ................................ $ 40,225 $ 45,985 $ 45,434 Income taxes ........................................................ $ 30,099 $ 20,271 $ 18,162
See notes to financial statements. 35 20 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Foster Wheeler Corporation and all significant domestic and foreign subsidiary companies. The Corporation's fiscal year is the 52- or 53-week annual accounting period ending the last Friday in December for domestic operations and December 31 for foreign operations. For domestic operations, the years 1995, 1996 and 1997 included 52 weeks. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Significant estimates are used when accounting for long-term contracts including customer and vendor claims, depreciation, employee benefit plans, taxes, and contingencies (see Note 13), among others. REVENUE RECOGNITION ON LONG-TERM CONTRACTS - The Engineering and Construction Group records profits on long-term contracts on a percentage-of-completion basis determined on the ratio of earned revenues to total contract price, after considering accumulated costs and estimated costs to complete each contract. Contracts in process are valued at cost plus accrued profits less earned revenues and progress payments on uncompleted contracts. Contracts of the Engineering and Construction Group are generally considered substantially complete when engineering is completed and/or field construction is completed. The Corporation includes pass-through costs on cost-plus contracts, which are customer-reimbursable materials, equipment and subcontractor costs when the Corporation determines that it is responsible for the engineering specification, procurement and management of such cost components on behalf of the customer. The Energy Equipment Group primarily records profits on long-term contracts on a percentage-of-completion basis determined on a variation of the efforts-expended and the cost-to-cost methods, which include multiyear contracts that require significant engineering efforts and multiple delivery units. These methods are periodically subject to physical verification of the actual progress towards completion. Contracts of the Energy Equipment Group are generally considered substantially complete when manufacturing and/or field erection is completed. The Corporation has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. The Corporation has a substantial history of making reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. However, current estimates may be revised as additional information becomes available. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The elapsed time from award of a contract to completion of performance may be up to four years. Certain special-purpose subsidiaries in the Power Systems Group are reimbursed for their costs, including repayment of project debt, for building and owning certain facilities over the lives of the service contracts. The Corporation records revenues relating to debt repayment obligations on these contracts on a straight-line basis over the lives of the service contracts, and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly liquid short-term investments purchased with original maturities of three months or less. TRADE ACCOUNTS RECEIVABLE - In accordance with terms of long-term contracts, certain percentages of billings are withheld by customers until completion and acceptance of the contracts. Final payments of all such amounts withheld, which might not be received within a one-year period, are indicated in Note 3. In conformity with industry practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets. LAND, BUILDINGS AND EQUIPMENT - Depreciation is computed on a straight-line basis using composite estimated lives ranging from 10 to 50 years for buildings and from 3 to 35 years for equipment. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in earnings. 36 (continued) 21 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 36 22 FOSTER WHEELER CORPORATION AND SUBSIDIARIES are adjusted for the effects of changes in tax laws and rates on the date of enactment. Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Corporation's tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount. Provision is made for Federal income taxes which may be payable on foreign subsidiary earnings to the extent that the Corporation anticipates they will be remitted. Unremitted earnings of foreign subsidiaries, which have been, or are intended to be, permanently reinvested (and for which no Federal income tax has been provided) aggregated $273,000 at December 26, 1997. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated. FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and income and expenses and cash flows at monthly weighted average rates. Foreign currency transaction gains/(losses) for 1997, 1996 and 1995 were approximately $2,600, $(500) and $(1,600), respectively [$1,700, $(320) and $(1,000) net of taxes]. The Corporation enters into foreign exchange contracts in its management of foreign currency exposures. Realized and unrealized gains and losses on contracts that qualify as designated hedges are deferred. Amounts receivable or payable under foreign exchange hedges are recognized as deferred gains or losses, and are included in either contracts in process or estimated costs to complete long-term contracts. The Corporation utilizes foreign exchange contracts solely for hedging purposes. Corporate policy prohibits the speculative use of financial instruments. INVENTORIES - Inventories, principally materials and supplies, are stated at lower of cost or market, determined primarily on the average cost method. INTANGIBLE ASSETS - Intangible assets for 1997 and 1996 consist principally of the excess of cost over the fair value of net assets acquired (goodwill) ($206,807 and $232,213), trademarks ($58,390 and $62,970) and patents ($33,020 and $36,280), respectively. These assets are being amortized on a straight-line basis over periods of 10 to 40 years. The Corporation periodically evaluates goodwill on a separate operating unit basis to assess recoverability, and impairments, if any, are recognized in earnings. In the event facts and circumstances indicate that the carrying amount of goodwill associated with an investment is impaired, the Corporation reduces the carrying amount to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation. EARNINGS PER SHARE - At the end of 1997, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." All per share data has been restated to conform to the provisions of this Statement. Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data has been computed on the basic plus the dilution of stock options. 2. ACQUISITIONS AND DIVESTITURES In the fourth quarter of 1995, the Corporation acquired the power-generation business of A. Ahlstrom Corporation ("Pyropower") for approximately $200,000, including acquisition costs. The Pyropower agreement provided for post-closing adjustments to the purchase price based upon the final valuation of the acquired assets and assumed liabilities. This adjustment included provisions for working capital and net worth deficiencies. In addition, provision in the final adjustment was made for a minimum level of backlog and gross margin in backlog. Since Pyropower was acquired late in 1995 and was a complex worldwide operation, which required a comprehensive review of asset values and liabilities and a significant part of the study had to take into consideration the integration of Pyropower into the Energy Equipment Group, the final assessment of the values of the assets and liabilities was not completed until early in the fourth quarter of 1996. The acquisition made in 1995 has been accounted for as a purchase and the results of operations of this company have been included in the consolidated financial statements since the date of acquisition. Approximately $255,000 were allocated to cost in excess of net assets of subsidiaries acquired, $38,700 to patents and $65,000 to trademarks. The intangibles are being amortized on a straight-line basis over an average life of 35 years. The assets acquired also included $73,000 in cash and fixed assets of $79,000. In connection with acquisitions, contracts in process have been valued at an estimated contract price less estimated cost to complete and a reasonable profit margin on the completion effort. As a result, estimated cost to complete long-term contracts was increased by $68,300. 37 (continued) 23 In 1997, the Corporation sold two subsidiaries: (1) in the second quarter, an accrual for $6,500 was recognized for the valuation of Ullrich Copper, Inc. Since this subsidiary (a manufacturer of copper extrusions) was not part of the Corporation's three core business groups, management of the Corporation reached a decision to sell this subsidiary which was valued at the estimated fair value less the cost to sell. The final sale was completed in the third quarter of 1997 with no additional financial impact; and (2) in the second quarter, the Corporation recorded a $56,400 pretax ($36,660 after tax) gain on the sale of Glitsch International, Inc.'s operations to Koch Engineering Company. This gain was included in the second quarter. The Corporation received approximately $185,000 in cash for the majority of the assets 37 24 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) of Glitsch International, Inc. The retained net assets have been valued at their current estimated realizable value, which are not considered material to the overall operations of the Corporation. For segment reporting purposes, the earnings of Glitsch International, Inc. up to the closing date of June 27, 1997, were included in the operating results of the Corporation within the Energy Equipment Group. 3. ACCOUNTS AND NOTES RECEIVABLE The following tabulation shows the components of trade accounts and notes receivable:
1997 1996 -------- -------- From long-term contracts: Amounts billed due within one year ......... $443,355 $477,394 -------- -------- Retentions: Billed: Estimated to be due in: 1997 ............................. -- 21,578 1998 ............................. 48,694 16,046 1999 ............................. 3,367 20,028 2000 ............................. 148 -- -------- -------- Total billed ..................... 52,209 57,652 -------- -------- Unbilled: Estimated to be due in: 1997 ............................. -- 135,241 1998 ............................. 131,583 824 1999 ............................. 540 -- 2000 ............................. 337 -- -------- -------- Total unbilled ................... 132,460 136,065 -------- -------- Total retentions ................. 184,669 193,717 -------- -------- Total receivables from long-term contracts ........... 628,024 671,111 Other trade and notes receivable .............. 36,719 102,458 -------- -------- 664,743 773,569 Less, allowance for doubtful accounts ......... 1,238 4,075 -------- -------- $663,505 $769,494 ======== ========
4. CONTRACTS IN PROCESS AND INVENTORIES Costs of contracts in process and inventories considered in the determination of cost of operating revenues are shown below:
1997 1996 1995 -------- -------- -------- Contracts in process .... $406,378 $363,716 $340,526 ======== ======== ======== Inventories: Materials and supplies $ 7,336 $ 31,037 $ 31,633 Work in process ...... -- 2,445 6,072 Finished goods ....... 1,472 6,317 5,011 -------- -------- -------- $ 8,808 $ 39,799 $ 42,716 ======== ======== ========
The following tabulation shows the elements included in contracts in process as related to long-term contracts:
1997 1996 1995 -------- -------- -------- Costs plus accrued profits less earned revenues on contracts currently in process ....... $837,556 $633,392 $694,877 Less, Progress payments ....... 431,178 269,676 354,351 -------- -------- -------- $406,378 $363,716 $340,526 ======== ======== ========
38 (continued) 25 5. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are stated at cost and are set forth below:
1997 1996 ---- ---- Land and land improvements.............................. $ 19,820 $ 21,419 Buildings............................................... 134,574 154,160 Equipment............................................... 744,484 743,434 Construction in progress................................ 239,220 135,773 ----------- ----------- $ 1,138,098 $ 1,054,786 =========== ===========
Depreciation expense for the years 1997, 1996 and 1995 was $52,336, $54,374 and $51,706, respectively. 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS RETIREMENT BENEFITS - The Corporation and its domestic and foreign subsidiaries have several pension plans covering substantially all full-time employees. Under the plans, retirement benefits are primarily a function of both years of service and level of compensation; the plans are noncontributory. Retirement benefits for domestic employees are determined based on 1.2% of the average of the highest five consecutive years of salary in the last ten years of employment. It is the Corporation's policy to fund the plans on a current basis to the extent deductible under existing Federal tax regulations. Such contributions, when made, are intended 38 26 FOSTER WHEELER CORPORATION AND SUBSIDIARIES to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the plans' funded status as of the end of December 1997 and 1996:
1997 1996 --------- --------- Actuarial present value of accumulated benefit obligations: Vested ................................................ $ 439,455 $ 375,765 Nonvested ............................................. 8,991 9,135 --------- --------- Total ............................................. $ 448,446 $ 384,900 ========= ========= Plan assets at fair value, primarily listed stocks and bonds ............................... $ 542,601 $ 490,659 Projected benefit obligations ............................. (500,744) (424,285) --------- --------- Excess of plan assets over projected benefit obligations ................................... 41,857 66,374 Unrecognized net loss due to past experience different from assumptions made ...................................... 63,698 37,047 Unrecognized prior service cost ........................... 16,735 16,638 Unrecognized net assets being amortized over 12 years ............................... (6,288) (12,179) --------- --------- Prepaid pension cost ...................................... $ 116,002 $ 107,880 ========= =========
Net periodic pension expense included the following components:
1997 1996 1995 -------- -------- -------- Service cost ................. $ 25,363 $ 17,424 $ 13,602 Interest cost on projected benefit obligation ....... 33,526 29,476 27,327 Actual return on plan assets . (61,110) (43,600) (38,848) Net amortization and deferrals 11,076 (2,279) (637) -------- -------- -------- Net periodic pension expense . $ 8,855 $ 1,021 $ 1,444 ======== ======== ========
In determining the actuarial present value of the projected benefit obligations, discount rates ranging from 7.0% to 8.5%, and rates of increase for future compensation levels ranging from 3.0% to 6.5% were utilized. The expected long-term rate of return on assets was 10%. In conjunction with the 1995 reorganization, the Corporation offered an enhanced retirement package to employees. This resulted in additional service cost under the provisions of SFAS No. 88 of approximately $1,900. The Corporation has a 401(k) plan for salaried employees. The Corporation, for the years 1997, 1996 and 1995, contributed a 50% match of the employees' contributions, which amounted to a cost of $5,500, $5,900 and $5,700, respectively. In addition to providing pension benefits, the Corporation and some of its domestic subsidiaries provide certain health care and life insurance benefits for retired employees. Employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation. Benefits are provided through insurance companies. The following sets forth the plans' funded status reconciled with amounts reported in the Corporation's consolidated balance sheet at the end of December 1997 and 1996. Accumulated postretirement benefit obligation:
1997 1996 --------- -------- Retirees ............................... $ 82,329 $ 70,095 Fully-eligible active plan participants 7,704 11,927 Other active plan participants ......... 33,099 36,895 --------- -------- Accumulated postretirement benefit ..... 123,132 118,917 Unrecognized net (loss)/gain ........... (2,442) 3,052 Unrecognized prior service cost ........ 25,865 28,976 --------- -------- Accrued postretirement benefit liability $ 146,555 $150,945 ========= ========
39 (continued) 27 Net periodic postretirement benefit cost for 1997, 1996 and 1995 included the following components:
1997 1996 1995 ------- ------- ------- Service cost ................. $ 1,000 $ 1,623 $ 1,247 Interest cost ................ 6,264 6,010 6,186 Net amortization and deferrals (2,211) (2,101) (2,165) ------- ------- ------- Net periodic postretirement benefit cost .............. $ 5,053 $ 5,532 $ 5,268 ======= ======= =======
An 8.5% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1998, gradually decreasing to 5% by the year 2011. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 26, 1997, by $3,740 and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1997 by $275. Discount rates of 7.25% for 1997 and 7.75% for 1996 were used to determine the accumulated postretirement benefit obligation. 7. BANK BORROWINGS The approximate weighted average interest rates on borrowings outstanding (primarily foreign) at the end of 1997 and 1996 were 7% and 5%, respectively. Unused lines of credit for short-term bank borrowings aggregated $128,710 at year-end 1997, of which approximately 83% was available in the United States and Canada at interest rates not exceeding the prime commercial lending rate and the remainder was available overseas in various currencies at rates consistent with market conditions in the respective countries. Interest costs incurred in 1997, 1996 and 1995 were $65,054, $61,302 and $49,117 of which $10,379, $6,362 and $106, respectively, were capitalized. 39 28 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 8. LONG-TERM DEBT Long-term debt consisted of the following:
1997 1996 -------- -------- Corporate Debt 8.58% unsecured promissory notes due on September 30, 1998 .................................................... $ 22,000 $ 44,000 Revolving Credit Agreements (average interest rate 6%) ................... 205,000 171,500 6.75% Notes due November 15, 2005 ........................................ 200,000 200,000 Special-purpose Project Debt The Corporation's obligations with respect to this debt are limited to guaranteeing the operating performance of the projects. Collateralized note payable, interest varies based on one of several money market rates (1997-year-end rate 6.895%), due semiannually through July 30, 2006 ......................................................... 50,493 53,853 Floating/Fixed Rate Resource Recovery Revenue Bonds, interest varies based on tax-exempt money market rates (1997 year-end rate 4.2%), due semiannually August 1, 1998 through February 1, 2010 ............................... 43,648 45,448 Fixed Rate Trust Certificates, interest at 7.36%, due semiannually August 15, 1998 through February 15, 2014 ..................................................... 162,000 97,923 Solid Waste Disposal and Resource Recovery System Revenue Bonds, interest 7.125% to 7.5%, due annually December 1, 1999 through 2010 .......................................................... 120,150 120,150 Resource Recovery Revenue Bonds, interest 7.9% to 10%, due annually December 15, 1998 through 2012 ..................................................... 67,070 70,270 Other .................................................................... 18,835 25,899 -------- -------- 889,196 829,043 Less, Current portion .................................................... 33,528 32,764 -------- -------- $855,668 $796,279 ======== ========
Principal payments are payable in annual installments of: 1999......................................................................... $ 40,232 2000......................................................................... 30,097 2001......................................................................... 232,431 2002......................................................................... 29,921 2003......................................................................... 33,596 Balance due in installments through 2014.............................................................. 489,391 -------- $855,668 ========
CORPORATE DEBT - The Corporation has $200,000 Notes in the public market which bear interest at a fixed rate of 6.75% per annum, payable semiannually, and mature November 15, 2005. The Notes have been rated BBB and Baa2 by Standard & Poor's and Moody's, respectively, and were issued under an indenture between the Corporation and Harris Trust and Savings Bank. The Notes are not redeemable prior to maturity and are not subject to any sinking fund requirements. The Notes will constitute senior unsecured indebtedness of the Corporation and will rank on parity with the Corporation's other senior unsecured indebtedness. 40 (continued) 29 The Corporation has entered into a four-year Revolving Credit Agreement ($300,000) and a 364-day Revolving Credit Agreement ($100,000) (the "Revolving Credit Agreements") with a group of banks. The loans are for general corporate purposes. The maturity dates of the Revolving Credit Agreements are renewed each year subject to the approval of the Corporation and the banks. At year-end 1997, the Corporation had $205,000 outstanding of the $400,000 available under the Revolving Credit Agreements. The Corporation pays to the banks a facility fee on the total facility. The Note Agreement, pursuant to which the 8.58% unsecured promissory notes were issued, and the Revolving Credit Agreements require the maintenance of a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio. At December 26, 1997, the Corporation was in compliance with all these provisions. SPECIAL-PURPOSE SUBSIDIARY PROJECT DEBT - Special-purpose Subsidiary Project Debt represents debt incurred to finance the construction of cogeneration facilities or waste-to-energy projects. The notes and/or bonds are collateralized by the assets of each project. COGENERATION PROJECTS - The note payable for $50,493 represents a loan under a bank credit facility to a limited partnership whose general partner is a Special-purpose Project Subsidiary. The limited partnership entered into an interest rate swap agreement, which fixed the interest rate on $62,000 of the original principal amount of the debt. Under this agreement, the limited partnership pays to the counterparties interest at 8.85% on the current notional principal and the counterparties pay to the limited partnership interest at a variable rate based on LIBOR on the notional principal. The notional principal of the swap amortizes through July 30, 1999, and at December 26, 1997, was $16,620. Amounts receivable under the swap agreements are reflected as a reduction of interest expense. 40 30 FOSTER WHEELER CORPORATION AND SUBSIDIARIES The Floating/Fixed Rate Resource Recovery Revenue Bonds in the amount of $43,648 were issued in a total amount of $45,450. The bonds are collateralized by an irrevocable standby letter of credit issued by a commercial bank. The Fixed Rate Trust Certificates were issued and remain outstanding in a total amount of $162,000 by a Chilean limited liability company owned 85% by a Special-purpose Subsidiary and 15% by the Chilean national oil company and one of its affiliates. WASTE-TO-ENERGY PROJECTS - The Solid Waste Disposal and Resource Recovery System Revenue Bonds totaling $120,150 were issued in a total amount of $133,500. The bonds are collateralized by a pledge of certain revenues and assets of the project. The Resource Recovery Revenue Bonds of $67,070 were issued in a total amount of $86,780. The bonds are collateralized by a pledge of certain revenues and assets of the project. 9. RESEARCH AND DEVELOPMENT For the years 1997, 1996 and 1995, approximately $16,100, $16,900 and $11,100, respectively, were spent on Corporation-sponsored research activities. During the same periods, approximately $40,400, $29,600 and $25,900, respectively, were spent on customer-sponsored research activities, which were paid by customers of the Corporation. 10. INCOME TAXES The components of (loss)/earnings before income taxes for the years 1997, 1996 and 1995 were taxed under the following jurisdictions:
1997 1996 1995 -------- --------- ------- Domestic ..................... $(91,188) $ (11,261) $ 2,775 Foreign ...................... 85,954 138,127 66,888 -------- --------- ------- Total ........................ $ (5,234) $ 126,866 $69,663 ======== ========= ======= The provision for income taxes on those earnings was as follows: Current tax (benefit)/expense: Domestic ..................... $(12,183) $ 6,002 $ 6,306 Foreign ...................... 40,059 31,197 17,883 -------- --------- ------- Total current ................ 27,876 37,199 24,189 -------- --------- ------- Deferred tax (benefit)/expense: Domestic ..................... (18,162) (5,434) 5,508 Foreign ...................... (4,485) 12,861 11,432 -------- --------- ------- Total deferred ............... (22,647) 7,427 16,940 -------- --------- ------- Total provision for income taxes $ 5,229 $ 44,626 $41,129 ======== ========= =======
41 (continued) 31 FOSTER WHEELER CORPORATION AND SUBSIDIARIES Deferred tax liabilities (assets) consist of the following:
1997 1996 --------- --------- Difference between book and tax depreciation ............... $ 89,562 $ 90,995 Pension assets .................... 36,092 36,024 Capital lease transactions ........ 11,899 12,201 Revenue recognition ............... 24,546 19,994 Other ............................. 2,023 6,416 --------- --------- Gross deferred tax liabilities .... 164,122 165,630 --------- --------- Current taxability of estimated costs to complete long-term contracts ............ (7,331) (9,061) Income currently taxable deferred for financial reporting ........ (6,291) (6,697) Expenses not currently deductible for tax purposes ............... (60,969) (37,104) Investment tax credit carryforwards (30,251) (30,251) Postretirement benefits other than pensions .................. (64,707) (64,900) Asbestos claims ................... (6,370) (8,400) Minimum tax credits ............... (9,822) (6,832) Foreign tax credits ............... (21,400) (21,400) Other ............................. (1,809) (3,166) Valuation allowance ............... 20,000 20,000 --------- --------- Net deferred tax assets ........... (188,950) (167,811) --------- --------- $ (24,828) $ (2,181) ========= =========
The domestic investment tax credit carryforwards, if not used, will expire in the years 2002 through 2007. Foreign tax credit carryforwards are recognized based on their potential utilization and, if not used, will expire in the years 1998 through 2002. The Corporation has significant foreign tax credit carryforwards for which deferred tax assets have not been recorded since their utilization is deemed remote. As reflected above, the Corporation has recorded various deferred tax assets. Realization is dependent on generating sufficient taxable income prior to the expiration of the various credits. Management believes that it is more likely than not that all of the deferred tax assets (after consideration of the valuation allowance) will be realized through future earnings and/or tax planning strategies. The amount of the deferred tax assets considered realizable, however, could change in the near future if estimates of future taxable income during the carryforward period are changed. 41 32 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings before income taxes, as a result of the following:
1997 1996 1995 ------ ------ ------ Tax (benefit)/provision at U.S. statutory rate ................... ( 35.0%) 35.0% 35.0% State income taxes, net of Federal income tax benefit ............... 36.9 2.0 4.4 Increase in valuation allowance ............. -- -- 20.8 Difference in estimated income taxes on foreign income and losses, net of previously provided amounts ....... 104.9 -- -- Other ....................................... (6.9) (1.8) (1.2) ------ ------ ------ 99.9% 35.2% 59.0% ====== ====== ======
11. LEASES The Corporation entered into a sale/leaseback of the 600-ton-per-day waste-to-energy plant in Charleston, South Carolina, in 1989. The terms of the agreement are to lease back the plant under a long-term operating lease for 25 years. In 1994, the Corporation entered into a lease agreement for a 1,600-ton-per-day recycling and waste-to-energy plant located in Robbins, Illinois, which went into commercial operation in January 1997 (see Note 13). The terms of the agreement are to lease the facility under a long-term operating lease for 32 years. Recourse under these lease agreements is primarily limited to the assets of the special-purpose entities. The lease expense for the years 1995, 1996 and 1997 was $9,300, $9,300 and $32,700, respectively. The minimum lease payments under these long-term noncancelable operating leases are as follows: 1998 ................................ $ 14,012 1999 ................................ 18,218 2000 ................................ 35,578 2001 ................................ 35,580 2002 ................................ 53,598 Thereafter .......................... 692,566 -------- Total ............................... $849,552 ========
The Corporation and certain of its subsidiaries are obligated under operating lease agreements primarily for office space. Rental expense for these leases amounted to $26,500 in 1997, $28,800 in 1996 and $26,000 in 1995. Future minimum rental commitments on noncancelable leases are as follows: 1998 - $25,200; 1999 - $23,600; 2000 - $20,400; 2001 - $19,800; 2002 - $17,500; and an aggregate of $16,300 thereafter. 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended ----------------------------------------------------------- 1997 March 28 June 27 Sept. 26 Dec. 26 - ---- -------- ---------- ---------- ---------- Operating revenues $965,114 $1,030,634 $1,029,994 $1,034,223 Gross earnings from operations .... 110,599 30,948 19,487 82,183 Net earnings/(loss) 20,221 (3,631)(a) (29,348)(b) 2,295(c)
42 (continued) 33 Earnings/(loss) per share: Basic ........................... .50 (.09) (.72) .06 Diluted ......................... .50 (.09) (.72) .06 Shares outstanding: Basic: Weighted average number of shares outstanding 40,642 40,643 40,688 40,734 Diluted: Effect of stock options ...... 140 * * 68 ---------- ---------- ---------- ---------- Total diluted ................... 40,782 40,643 40,688 40,802 ========== ========== ========== ========== Cash dividends per share ............ .205 .21 .21 .21 Stock prices: High ............................ 42.75 41.50 48.125 44.75 Low ............................. 35.875 35.125 39.75 26.688
1996 March 29 June 28 Sept. 27 Dec. 27 -------- -------- -------- ---------- Operating revenues ................... $843,916 $970,535 $960,912 $1,230,140 Gross earnings from operations ....................... 117,274 117,495 128,011 131,753 Net earnings ......................... 23,436 25,065 23,965 9,774(d) Earnings per share: Basic ............................ .58 .62 .59 .24 Diluted .......................... .58 .61 .59 .24 Shares outstanding: Basic: Weighted average number of shares outstanding 40,513 40,596 40,621 40,640 Diluted: Effect of stock options ....... 202 194 177 127 -------- -------- -------- ---------- Total diluted .................... 40,715 40,790 40,798 40,767 ======== ======== ======== ========== Cash dividends per share ............. .195 .205 .205 .205 Stock prices: High ............................. 47.25 47.125 45.00 44.625 Low .............................. 39.375 39.75 39.875 33.75
(a) Includes a gain of $56,400 related to the sale of Glitsch International, Inc. and a charge of $98,500, a net loss of $27,400 net of income taxes $(.67) per share. See Notes 2 and 18. (b) Includes $54,000 for contract write-downs, a net loss of $36,800 $(.91) per share. See Note 18. (c) Includes a charge of $14,800 for the realignment of the Engineering & Construction Group in Europe, a net loss of $12,200 $(.30) per share. See Note 18. (d) Includes a provision for asbestos claims of $15,600, net of income taxes $(.38) per share. See Note 18. * The effect of the stock options was not included in the calculation of diluted earnings per share as these options were antidilutive due to the quarterly loss. 42 34 FOSTER WHEELER CORPORATION AND SUBSIDIARIES 13. LITIGATION AND UNCERTAINTIES In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment or plant construction. Based on its knowledge of the facts and circumstances relating to the Corporation's liabilities, if any, and to its insurance coverage, management of the Corporation believes that the disposition of suits will not result in charges against assets or earnings materially in excess of amounts previously provided in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of December 26, 1997, there were approximately 65,000 (1996-92,600) claims pending. Approximately 29,800 new claims were filed in 1997. The Corporation has agreements with insurance carriers covering a substantial portion of the potential costs relating to these exposures. During the three-year period ended December 26, 1997, the Corporation tried, settled or summarily disposed of approximately 96,300 (1997-57,300) asbestos-related claims. Approximately $76,700, substantially all of which was reimbursed or will be reimbursed, were spent on asbestos litigation defense and case resolution during the three-year period (1995-$21,000; 1996-$27,000; 1997-$28,700). The Corporation has recorded, with respect to asbestos litigation, an asset relating to probable insurance recoveries and a liability relating to probable losses. These assets and liabilities were estimated based on historical data developed in conjunction with outside experts. Management of the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that except for those insurers that have become or may become insolvent, the insurers will continue to adequately fund claims and defense costs relating to asbestos litigation (see Note 18). In 1997, the United States Supreme Court effectively invalidated New Jersey's long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy Project (the "Project") with its corresponding tipping fee revenue. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the plant. Those market-based revenues are not expected to be sufficient to service the debt on outstanding bonds which were issued to construct the plant and to acquire a landfill for Camden County's use. The Corporation has filed suit against the involved parties, including the State of New Jersey, seeking among other things to void the applicable contracts and agreements governing the Project. Pending outcome of the litigation and the results of legislative initiatives in New Jersey to solve the crisis, management believes that the plant will continue to operate at full capacity while receiving market rates for waste disposal. At this time, management cannot determine the ultimate outcome and its effect on the Project. In 1996, the Corporation completed the construction of a recycling and waste-to-energy project for the Village of Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership ("the Partnership"), will operate this facility under a long-term operating lease. By virtue of the facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State was to be reimbursed by the facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State repealed the Retail Rate Law insofar as it applied to this facility. The Partnership is contesting the Illinois legislature's partial repeal of the Retail Rate Law in Court. In the event this litigation is not successful and no other means are available to generate revenue from the sale of electric power above that provided by selling electricity at the "avoided cost," there may be a significant adverse financial impact on the operating results of the project. However, based on reasonable financial and economic assumptions, the Corporation in the second quarter of 1997 recorded a charge of $60,000 sufficient to cover the anticipated losses until the year 1999 (see Note 18), reflecting the time period within which the Corporation expects the Courts to provide relief from the State government's repeal of the Illinois Retail Rate Law or other alternatives are undertaken. This time period is subject to considerable uncertainty. The ultimate legal and financial liability of the Corporation in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used by the Corporation becomes known, the Corporation reassesses its position both with respect to gain contingencies and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters, which are subject to change as events evolve and as additional information becomes available during the administration and litigation process. 43 35 NOTES TO FINANCIAL STATEMENTS (In Thousands of Dollars, Except per Share Amounts) 14. STOCK OPTION PLANS The Corporation has two fixed option plans which reserve shares of common stock for issuance to executives, key employees and directors. The Corporation has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Corporation's two stock option plans been determined based on the fair value at the grant date for awards in 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the Corporation's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ---- ---- ---- Net (loss)/earnings - as reported $(10,463) $ 82,240 $ 28,534 ========= ======== ======== Net (loss)/earnings - pro forma $(13,093) $ 79,725 $ 24,434 ========= ======== ======== (Loss)/earnings per share - as reported Basic $ (.26) $2.03 $ .79 Diluted $ (.26)* $2.02 $ .78 (Loss)/earnings per share - pro forma Basic $ (.32) $1.96 $ .67 Diluted $ (.32)* $1.96 $ .67
* Stock options not included in diluted earnings per share due to loss in 1997. The assumption regarding the stock options issued to executives in 1997 and 1996 was that 100% of such options vested in each year, rather than one-third as required by the Plan, since one-third of the previous two years would have vested in 1997, 1996 and 1995. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1997 1996 1995 ---- ---- ---- Dividend yield 2.22% 1.83% 2.21% Expected volatility 27.52% 27.56% 37.20% Risk-free interest rate 6.25% 5.63% 7.68% Expected life (years) 5.0 7.5 7.5
Under the 1995 Stock Option Plan approved by the stockholders in April 1995, the total number of shares of common stock that may be granted is 1,500,000. In April 1990, the stockholders approved a Stock Option Plan for Directors of the Corporation. On April 29, 1997, the stockholders approved an amendment of the Directors' Stock Option Plan, which authorizes the granting of options on 400,000 shares of common stock to directors who are not employees of the Corporation, who will automatically receive an option to acquire 3,000 shares each year. These plans provide that shares granted come from the Corporation's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100% of the fair market value of the shares on the date of grant. An option may not be exercised within one year from the date of grant and no option will be exercisable after ten years from the date granted. Under the Executive Compensation Plan, the long-term incentive segment provides for stock options to be issued. Participants may exercise approximately one-third of the stock option shares after the end of each year of the cycle. 44 (continued) 36 Information regarding these option plans for 1997, 1996 and 1995 is as follows:
1997 1996 1995 ------------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Options outstanding, beginning of year...... 1,123,230 $33.00 991,345 $29.78 546,462 $28.12 Options exercised........................... (94,427) 29.23 (128,199) 27.65 (45,817) 13.49 Options granted............................. 379,500 36.96 260,084 42.63 490,700 30.10 --------- --------- -------- Options outstanding, end of year............ 1,408,303 $34.32 1,123,230 $33.00 991,345 $29.78 ========= ========= ======== Option price range at end of year .......... $14.50 to $14.50 to $14.50 to $45.6875 $45.6875 $40.0625 Option price range for exercised shares..... $21.3125 to $14.50 to $12.25 to $42.1875 $32.9375 $13.6875 Options available for grant at end of year... 1,153,416 1,282,916 1,543,000 ========= ========= ========= Weighted-average fair value of options, granted during the year................. $10.67 $14.90 $13.12
44 37 FOSTER WHEELER CORPORATION AND SUBSIDIARIES The following table summarizes information about fixed-price stock options outstanding at December 26, 1997:
Options Outstanding Options Exercisable ---------------------------------------------------- --------------------------------- Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/26/97 Contractual Life Exercise Price at 12/26/97 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $14.50 2,691 2 years $14.50 2,691 $14.50 21.3125 to 22.125 24,727 3 years 21.54 24,727 21.54 22.0625 to 28.6875 40,500 4 years 23.37 40,500 23.37 26.9375 to 27.4375 76,833 5 years 27.33 76,833 27.33 27.4375 to 28.75 89,667 6 years 28.49 89,667 28.49 32.9375 to 40.0625 160,834 7 years 36.04 160,834 36.04 29.75 to 35.25 375,967 8 years 30.19 317,578 30.22 42.1875 to 45.6875 257,584 9 years 42.64 114,528 43.20 36.9375 to 37.25 379,500 10 years 36.96 - - ------- ------- 14.50 to 45.6875 1,408,303 827,358 ========= =======
15. PREFERRED SHARE PURCHASE RIGHTS On September 22, 1987, the Corporation's Board of Directors (the "Board") declared a dividend distribution of one Preferred Share Purchase Right on each share of the Corporation's common stock outstanding as of October 2, 1987 and adopted the Rights Agreement, dated as of September 22, 1987 (the "Rights Agreement"). On September 30, 1997, the Board amended and restated the Rights Agreement. Each Right allows the shareholder to purchase a one one-hundredth of a share of a new series of preferred stock of the Corporation at an exercise price of $175. Rights are exercisable only if a person or group acquires 20% or more of the Corporation's common stock or announces a tender offer the consummation of which would result in ownership by a person or group of 20% or more of the Corporation's common stock. The Rights, which do not have the right to vote or receive dividends, expire on October 2, 2007, and may be redeemed, prior to becoming exercisable, by the Board at $.02 per Right or by shareholder action with an acquisition proposal. If any person or group acquires 20% or more of the Corporation's outstanding common stock, the "flip-in" provision of the Rights will be triggered and the Rights will entitle a holder (other than such person or any member of such group) to acquire a number of additional shares of the Corporation's common stock having a market value of twice the exercise price of each Right. In the event the Corporation is involved in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring Corporation's common stock having a market value at that time of twice the Right's exercise price. 16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate values: CASH AND SHORT-TERM INVESTMENTS - All investments are considered available for sale and the carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM INVESTMENTS - The fair values of some investments are estimated based on quoted market prices for those or similar investments. LONG-TERM DEBT - The fair value of the Corporation's long-term debt (including current installments) is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. FOREIGN CURRENCY CONTRACTS AND INTEREST RATE SWAPS - The fair values of these financial instruments (used for hedging purposes) are estimated by obtaining quotes from brokers. The Corporation is exposed to market risks from changes in interest rates and fluctuations in foreign exchange rates. Financial instruments are utilized by the Corporation to reduce these risks. The Corporation does not hold or issue financial instruments for trading purposes. The Corporation is exposed to credit loss in the event of nonperformance by the counterparties. All of these financial instruments are with significant financial institutions that are primarily rated A (S&P) or better (see Notes 1 and 8). 45 38 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:
1997 1996 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Nonderivatives: Cash and short-term investments............................. $259,305 $259,305 $404,329 $404,329 Long-term investments...................... 700 1,240 700 1,170 Long-term debt............................. (889,196) (888,321) (829,043) (828,287) Derivatives: Foreign currency contracts............................... 31,210 31,210 1,430 1,430 Interest rate swaps........................ - (605) - 260
In the ordinary course of business, the Corporation is contingently liable for performance under letters of credit totaling approximately $252,000 and $166,000 at December 26, 1997 and December 27, 1996, respectively. In the Corporation's past experience, no material claims have been made against these financial instruments. Management of the Corporation does not expect any material losses to result from these off-balance-sheet instruments and, therefore, is of the opinion that the fair value of these instruments is zero. As of December 26, 1997, the Corporation had $475,000 of forward exchange contracts outstanding. These forward exchange contracts mature between 1998 and 2002. Approximately 18% of these contracts require a domestic subsidiary to sell Japanese yen and receive U.S. dollars. The remaining contracts have been established by various international subsidiaries to sell a variety of currencies and either receive their respective functional currencies or other currencies for which they have payment obligations to third parties. Financial instruments, which potentially subject the Corporation to concentrations of credit risk, consist principally of cash equivalents and trade receivables. The Corporation places its cash equivalents with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Corporation's customer base and their dispersion across different business and geographic areas. As of December 26, 1997 and December 27, 1996, the Corporation had no significant concentrations of credit risk. The Corporation had issued third- party off-balance-sheet financial guarantees totaling approximately $77,000 and $20,000 at year-end 1997 and 1996, respectively. Also, the Corporation has agreed to provide a working capital support facility to the Robbins Resource Recovery Limited Partnership of which $63,000 was available at year-end 1997. 17. BUSINESS SEGMENTS - DATA The business of the Corporation and its subsidiaries falls within three business groups. THE ENGINEERING AND CONSTRUCTION GROUP designs, engineers and constructs petroleum, chemical, petrochemical and alternative-fuels facilities and related infrastructure, including power- generation and distribution facilities, production terminals, pollution control equipment and water treatment facilities and process plants for the production of fine chemicals, pharmaceuticals, dyestuffs, fragrances, flavors, food additives and vitamins. Also, the E&C Group provides a broad range of environmental remediation services, together with related technical, design and regulatory services. THE ENERGY EQUIPMENT GROUP designs, manufactures and erects steam- generating and auxiliary equipment for power stations and industrial markets worldwide. Steam-generating equipment includes a full range of fluidized-bed and conventional boilers firing coal, oil, gas, biomass and other municipal solid waste, waste wood and low-Btu gases. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment and low-NOX burners. Site services related to these products encompass plant erection, maintenance engineering, plant upgrading and life extension, and plant repowering. In addition, this Group provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. At the end of June 1997, the Energy Equipment Group sold Glitsch International, Inc. which provided proprietary solutions and systems for many separation applications and manufactured highly engineered chemical-separations equipment for the petroleum refining, petrochemical, chemical and gas processing industries. THE POWER SYSTEMS GROUP utilizes Foster Wheeler's strengths in design, engineering, manufacturing and construction to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities as well as facilities for the process and petrochemical industries. The Corporation conducts its business on a global basis. The E&C Group accounted for the largest portion of the Corporation's revenues and operating income over the last ten years. In 1997, the Group accounted for approximately 68% of the operating revenues. The geographic dispersion of these operating revenues was as follows: 34% North America, 8% Asia, 35% Europe, 17% Middle East and 6% other. The Energy Equipment Group accounted for 27% of the operating revenues of the Corporation. The geographic dispersion of these operating revenues was as follows: 27% North America, 44% Asia, 24% Europe and 5% other. The Power Systems Group accounted for 5% of the Corporation's 1997 operating revenues. 46 (continued) 39 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. 46 40 FOSTER WHEELER CORPORATION AND SUBSIDIARIES Identifiable assets by group are those assets that are directly related to and support the operations of each group. Corporate assets are principally cash, investments and real estate. Financial information with respect to business segments and geographic data for the years 1997, 1996 and 1995 is on pages 24 and 25 (unaudited as to unfilled orders and new orders booked). 18. OTHER EVENTS In 1997, the Corporation recognized in the cost of operating revenues the following: (1) in the second quarter, $92,000 related to: (a) $60,000 against the Power Systems Group with respect to the Robbins Resource Recovery facility. A subsidiary of the Corporation, Robbins Resource Recovery Limited Partnership, operates this facility under a long-term operating lease. By virtue of this facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost." The State repealed the Retail Rate Law insofar as it applied to this facility. As the result of the failure of the bill introduced in the Illinois State Legislature, which would have reinstated the Retail Rate Law and a 1997 decision in State Court regarding procedural matters, management of the Corporation determined that a charge against current earnings was required. Management considers this charge to be sufficient to cover the anticipated losses until the year 1999, reflecting the time period within which the Corporation expects the Courts to provide relief from the State government's repeal of the Illinois Retail Rate Law. Approximately 60% of the $60,000 had a cash-flow impact in 1997; the balance will be expended over the following two years. (b) $32,000 against the Energy Equipment Group representing the last phase of the Group's reorganization started in 1995 following the Pyropower acquisition. These actions will result in a further reduction in operating costs with a more efficient project execution capability. This plan includes $14,500 for the discontinuance of certain product lines including incremental costs on certain completed contracts. Approximately $9,200 of the charge relates to the consolidation of the San Diego operations with the Group's activities in New Jersey. The $9,200 includes approximately $5,200 for personnel costs including severance and related benefits. The balance ($4,000) represents write-downs of San Diego assets (primarily land and buildings) in accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." These San Diego long-lived assets are now considered to be for sale and have been accounted for at their current market value less estimated cost to sell. The remaining balance of approximately $8,300 is primarily related to the write-down of a Canadian cogeneration plant in accordance with SFAS No.121. As a result of the current reorganization, this cogeneration plant is now considered to be for sale. The basis of this plant has been adjusted to its estimated fair market value less cost to sell. Approximately 70% of the Energy Equipment Group's charges mentioned above will have a cash impact. Approximately 50% of this cost was paid out by year-end and the balance will be paid out during 1998. (2) in the third quarter $54,000 related to: (a) The Engineering and Construction Group recorded provisions amounting to $24,000 on several projects for which it is seeking recovery of a portion from clients. The ultimate outcome of these claims as to both timing and amount is uncertain; (b) The Energy Equipment Group recorded approximately $30,000 in provisions for increased cost on three projects, which were initially bid and executed out of the San Diego office. As previously announced in July 1997, this operation has been closed and the execution of contracts transferred to the New Jersey headquarters. (3) in the fourth quarter of 1997, the Corporation recorded a previously announced $14,800 provision for the realignment of the Engineering and Construction Group's European operations. The new structure will bring the Italian, French, and Spanish operations under common management, headquartered in Milan, Italy. This provision includes a charge of $6,200 for severance costs, $6,600 for office lease expense, due to the consolidation of the Reading, United Kingdom operations into one facility and $500 for other organizational costs. A $1,500 provision for the write-down of certain under-performing assets was included in other deductions. Asbestos Claims - In the fourth quarter of 1996, the Corporation recorded a special pretax charge of $24,000 with respect to estimated probable payments for asbestos litigation that may not be covered by insurance due to insurers that have become, or may in the future become insolvent. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from the exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries prior to and during the 1970s for which the insolvent insurers provided coverage. In conjunction with outside experts, the Corporation has carefully considered the financial viability and legal obligations of its insurance carriers and has concluded that after recognition of the special charge, insurers will continue to adequately fund the balance of the claims and defense costs relating to current and future asbestos litigation. The Corporation anticipates funding the major portion of this charge over the next five to ten years. 47 (continued) 41 Reorganization - In connection with the acquisition of Pyropower, the Corporation recorded a pretax reorganization provision in the fourth quarter of 1995 of $50,120. This provision related to the reorganization of the operations of the Energy Equipment Group that existed before the acquisition of Pyropower. This reorganization plan included a rationalization of manufacturing capacity and the reduction of approximately 630 salaried and hourly personnel. The reorganization plan was completed in 1997. 47 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization AUSTRALIA Foster Wheeler Australia Pty. Ltd., Melbourne BERMUDA FW Management Operations, Ltd., Hamilton Foster Wheeler Trading Co. Ltd., Hamilton Perryville Service Company Ltd., Hamilton Power Systems International, Ltd., Hamilton York Jersey Liability Ltd., Hamilton BRAZIL Foster Wheeler do Brasil Ltda., Rio De Janeiro CANADA Foster Wheeler Limited, St. Catharines Chapleau Co-generation Ltd., Chapleau Foster Wheeler Canadian Resources Limited, Alberta Foster Wheeler Fired Heaters, Ltd., Calgary La Societe D'Energie Foster Wheeler Ltd., Quebec CHANNEL ISLANDS FW Channel Islands Limited, Jersey CHILE Constructors Foster Wheeler Concepcion Limitada, Santiago de Chile Foster Wheeler Chile, S.A., Santiago de Chile CHINA, PEOPLES REPUBLIC OF Foster Wheeler Power Machinery Company Limited, Guangdong Province ENGLAND Foster Wheeler Limited, Reading Foster Wheeler Energy Ltd., Reading Foster Wheeler (Pacific) Ltd., Reading Foster Wheeler Petroleum Development Ltd., Reading Foster Wheeler World Services, Ltd., Reading FW Management Operations (U.K.) Ltd., Reading Foster Wheeler (Indonesia) Ltd., Reading Foster Wheeler Environmental (U.K.) Ltd., Reading Foster Wheeler Petroleum Development & Associates Ltd., Reading Foster Wheeler Petroleum Development (Norway) Ltd., Reading FINLAND Foster Wheeler Energia, OY, Helsinki Foster Wheeler Service OY, Kouvola FRANCE Foster Wheeler France, S.A., Paris GERMANY Foster Wheeler Energie GmbH, Dusseldorf GREECE Foster Wheeler Hellas Engineering and Construction AE, Athens INDONESIA Foster Wheeler (Indonesia) Ltd., Jakarta ITALY Foster Wheeler Italiana, S.p.A., Milan Steril, S.p.A., Milan FW Financial Services S.p.A., Milan Foster Wheeler Continental Europe, S.r.l., Rome Foster Wheeler Environmental Italia, Srl, Milan Lomellina Energia Operator S.r.l., Milan Pesaro Energia S.r.l., Pesaro World Services Italia S.p.A., Milan MALAYSIA Foster Wheeler (Malaysia) Sdn. Bhd., Kualau Lumper MEXICO Foster Wheeler Ingenieros y Constructores, S.A. de C.V. Quadalajara NETHERLANDS ANTILLES Foster Wheeler N.V., Curacao NETHERLANDS FW Europe, B.V., Amsterdam Foster Wheeler Continental, B.V., Amsterdam Foster Wheeler Energie, B.V., Amsterdam Foster Wheeler Europe, B.V., Amsterdam PHILLIPINES Foster Wheeler (Phillipines) Corporation, Mankati City POLAND Foster Wheeler Energia Polska Sp.zo.o., Warsaw PORTUGAL F.W. Gestao E Servicos, S.A., Sao Pedro SINGAPORE (REPUBLIC OF) Foster Wheeler Eastern Private, Ltd., Singapore Foster Wheeler Energy Pte. Ltd., Singapore SOUTH AFRICA Foster Wheeler South Africa (Pty.) Ltd., Midrand 2 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT FOSTER WHEELER CORPORATION (PARENT) PRINCIPAL CONSOLIDATED, WHOLLY OWNED SUBSIDIARIES (DIRECTLY OR INDIRECTLY) Listed by Jurisdiction of Organization SPAIN Foster Wheeler Iberia, S.A., Madrid Foster Wheeler Energia, S.A., Madrid Foster Wheeler Power Systems, S.A., Madrid SWEDEN Foster Wheeler Energi AB, Norrkoping UNITED STATES Camden County Energy Recovery Associates, Delaware Camden County Energy Recovery Corporation, Delaware Equipment Consultants, Inc., Delaware Foster Wheeler Adirondack, Inc., Delaware Foster Wheeler Andes, Inc., Delaware Foster Wheeler Arabia Ltd., Delaware Foster Wheeler Asia Ltd., Delaware Foster Wheeler Avon, Inc., Delaware Foster Wheeler Bedminster, Inc., Delaware Foster Wheeler Bridgewater, Inc., Delaware Foster Wheeler Broome County, Inc., Delaware Foster Wheeler Capital & Finance Corporation, Delaware Foster Wheeler Charleston Resource Recovery, Inc., Delaware Foster Wheeler China, Inc., Delaware Foster Wheeler Constructors, Inc., Delaware Foster Wheeler Continental U.S. Inc., Delaware Foster Wheeler Development Corporation, Delaware Foster Wheeler (Emirates) Corporation, Delaware Foster Wheeler Energy Corporation, Delaware Foster Wheeler Energy International, Inc., Delaware Foster Wheeler Energy Manufacturing, Inc., Delaware Foster Wheeler Energy Services, Inc., California Foster Wheeler Environmental Corporation, Texas Foster Wheeler Facilities Management, Inc., Delaware Foster Wheeler Hudson Falls, Inc., Delaware Foster Wheeler Hungarian Energy, Inc., Delaware Foster Wheeler Hydroven, Inc., Delaware Foster Wheeler Hydrox, Inc., Delaware Foster Wheeler Illinois, Inc., Delaware Foster Wheeler Intercontinental Corporation, Delaware Foster Wheeler International Corporation, Delaware Foster Wheeler Korea, Ltd., Delaware Foster Wheeler Martinez, Inc., Delaware Foster Wheeler Middle East Services, Inc., Delaware Foster Wheeler Midwest, Inc., Delaware Foster Wheeler Mt. Carmel, Inc., Delaware Foster Wheeler Passaic, Inc., Delaware Foster Wheeler Penn Resources, Inc., Delaware Foster Wheeler Power Corporation, Delaware Foster Wheeler Power Systems, Inc., Delaware Foster Wheeler Pyropower, Inc., New York Foster Wheeler Real Estate Development Corporation, Delaware Foster Wheeler Robbins, Inc., Delaware Foster Wheeler Santiago, Inc., Delaware Foster Wheeler Timokhovo, Inc., Delaware Foster Wheeler Twin Cities, Inc., Delaware Foster Wheeler USA Corporation, Delaware Foster Wheeler Virgin Islands, Inc., Delaware Foster Wheeler Wood Resources, Inc., Delaware Foster Wheeler World Services Corp., Delaware Foster Wheeler Zack, Inc., Delaware FWPS Specialty Products, Inc., Delaware Hartman Consulting Corporation, Delaware GTC Technology Corporation, Delaware Process Consultants, Inc., Delaware POSCO Gilberton, Inc., California Pyropower Operating Services Company, Inc., California THAILAND Foster Wheeler (Thailand) Limited, Sriracha TURKEY Foster Wheeler BIMAS Birlesik Insaat Ve Muhendislik, A. S., Istanbul U.S. VIRGIN ISLANDS Foster Wheeler F.S.C., Inc., St. Thomas VENEZUELA Foster Wheeler Caribe Corporation, C.A., Caracas 3 PRINCIPAL AFFILIATED COMPANIES (PERCENT DIRECTLY OR INDIRECTLY OWNED BY FOSTER WHEELER CORPORATION) BERMUDA The Hydrogen Company of Paraguana Ltd., Hamilton (50%) CHILE Compania de Hidrogeno de Talcahuano, Santiago de Chile (51%) COLOMBIA Foster Wheeler Andina, S.A., Bogota (60%) FINLAND OY Bioflow AB, Varkhaus (51%) ITALY Centro Energia Operator Teverola, S.r.l., Teverola (50%) Centro Energia S.p.A., Milan (50%) Software Technology, S.p.A., Milan (90%) JAPAN Foster Wheeler Pyropower KK, Tokyo (85%) NIGERIA Foster Wheeler (Nigeria) Ltd., Lagos (60%) NORWAY Sorco Holdings AS, Stavanger (45%) OMAN Chiyoda-Foster Wheeler and Company LLC, Muscat (17.5%) POLAND Foster Wheeler Energy Fakop Ltd., Sosnowiec (51%) THAILAND Thai Maintenance Contracting Company Limited (TMC), Rayong (50%) UNITED STATES Cera Filter Systems, Inc., Delaware (50%) VENEZUELA OTEPI FW S.A., Caracas (50%) EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Foster Wheeler Corporation on (1) Form S-3 (File No. 33-61809) and (2) Form S-8 (File Nos. 33-34694, 33-40878, 33-59739 and 333-25945) of our report dated January 27, 1998, on our audits of the consolidated financial statements of Foster Wheeler Corporation and Subsidiaries as of December 26, 1997 and December 27, 1996, and for each of the three years in the period ended December 26, 1997, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. New York, New York March 18, 1998 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-26-1997 DEC-28-1996 DEC-26-1997 167,417 91,888 799,375 0 415,186 1,545,271 1,138,098 313,646 3,366,363 1,437,052 855,668 0 0 40,746 578,684 3,366,363 4,059,965 4,172,015 4,084,774 4,084,774 0 0 54,675 (5,234) 5,229 (10,463) 0 0 0 (10,463) (0.26) (0.26)
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