Foster Wheeler Corporation History
Clinton, New Jersey 08809-4000
Telephone: (908) 730-4000
Fax: (908) 730-4404
Sales: $4.04 billion (1996)
Stock Exchanges: New York
SICs: 8711 Engineering Services; 1629 Heavy Construction, Not Elsewhere Classified
Whether it's fueling transportation, lighting cities, warming homes, or protecting the environment, Foster Wheeler is at the forefront: helping developing nations utilize their natural resources to improve their standard of living; helping to produce cleaner fuels for transportation and home heating; providing the energy to light up cities around the world; helping to protect the environment and the world's natural resources. This is Foster Wheeler&mdash-gineering to help the world run better.
Foster Wheeler Corporation is an international company overseeing a wide range of engineering and construction enterprises. The company is organized into three business groups: an engineering and construction group, an energy equipment group, and a power systems group. The engineering and construction (E&C) group designs, engineers, and manages the construction of process plants for oil refiners, chemical and pharmaceutical producers, and a wide range of other industries. The E&C group also provides a broad range of services, including recruiting and training plant staff, maintenance and operating services, and environmental remediation services. The energy equipment group designs and fabricates steam generating equipment, condensers, and related equipment, and conducts research in such areas as fluid dynamics, combustion and fuel technology, and materials engineering. The power systems group develops, operates, and in some cases owns plants that produce electricity, thermal energy, and hydrogen.
Although Foster Wheeler was incorporated in 1927, the origins of the enterprise date several decades earlier to the founding of two manufacturing companies: Wheeler Condenser & Engineering Company and Power Specialty Company. In 1891, Wheeler Condenser and Engineering Company was created with offices in New York City and a plant in Carteret, New Jersey. Its steam condensers, pumps, and heat exchangers were bought primarily by the power and marine industries. During the Spanish-American War the U.S. Navy contracted with the company for condensers for a number of vessels, beginning what would later be a long and important relationship for Foster Wheeler with the armed forces. In the ensuing years, the Wheeler Condenser & Engineering Company became a primary equipment supplier to the growing electrical utility industry.
Power Specialty Company, founded in New York City in 1900, followed a pattern of growth similar to that of Wheeler Condenser & Engineering. The company began by marketing waterworks equipment but was soon designing and manufacturing boiler components in its Dansville, New York, plant. Primarily building superheaters, Power Specialty also expanded to serve the new electrical power industry.
Like Wheeler Condenser & Engineering, Power Specialty developed an affiliation with the armed forces early in the company's history. During World War I, the company used its engineering expertise to design an advanced marine boiler for the U.S. Merchant Marines. In the 1920s Power Specialty diversified its operations by entering the industry of petroleum refinery equipment--designing and manufacturing--including crude oil distillation units and fired heaters.
In 1927 the two companies merged, forming the Foster Wheeler Corporation, and established their headquarters in New York City. The same year, a former Power Specialty office in London was incorporated as a Foster Wheeler subsidiary. In 1928, Foster Wheeler Limited (Canada), another former Power Specialty office, was incorporated, with a manufacturing plant and offices in Ontario, Canada. Two years after the merger, the New York Stock Exchange offered Foster Wheeler common and preferred stock.
The new corporation's first goal was expanding its product line, which was initiated through the production of feedwater heaters, evaporators, and cooling towers. The company also acquired the D. Connelly Boiler Company in 1931, enabling them to design and produce all steam generator system components. Foster Wheeler had another burst of expansion during World War II, when engineering expertise and manufacturing were in demand from the armed forces.
The establishment of Foster Wheeler France, S.A. in 1949 opened an era of international expansion for Foster Wheeler. Operations were begun in Milan in 1957 with the organization of Foster Wheeler Italiana, S.p.A., Foster Wheeler Iberia was established in Madrid in 1965, and Foster Wheeler Australia Pty. Ltd. was established in Victoria, Australia, in 1967. The company also created a subsidiary to handle international construction.
Challenges in the Late 1950s
Although the company was expanding internationally, several engineering crises hurt Foster Wheeler's reputation and bottom line in the late 1950s and early 1960s. Former corporation president Frank A. Lee told Forbes writer Geoffrey Smith, "When you're talking about a 600-megawatt boiler that looks like a 14-story apartment house, and some tubes begin to rupture, you're talking about a tremendous amount of money. A couple of those a year and you're going to be in a loss position. And that's what happened. We had quite a few engineering problems in our boiler business--and an image problem in the market." Foster Wheeler's revenues dropped, and the company even operated at a loss in 1957 and 1963.
Over the next several years, the company gradually regained a good reputation in the boiler manufacturing business. However, those earlier setbacks caused Foster Wheeler to adopt a conservative attitude toward growth. Rather than expand into new business areas where the company lacked expertise, such as the growing field of nuclear energy, Foster Wheeler expanded geographically, selling products and services in regions where it could confidently establish a foothold.
Although Foster Wheeler was more cautious in buying out companies in the late 1960s and 1970s than many competitors, the corporation did acquire several subsidiaries that eventually composed the core of its industrial and environmental group. The first, Fritz W. Glitsch and Sons, Inc. (renamed Glitsch International, Inc.), manufactures fractionating equipment and pressure vessels and was obtained in 1967. In 1973, the company acquired Ullrich Copper, Inc. This subsidiary produced bus bar and copper extrusions used in electrical switch gear and motor-control centers, and specialty copper components used in rapid-transit systems and computers. In 1976, another major subsidiary was obtained: Thermacote Welco Company, a distributor of welding supplies, including welding rod and wire, connectors, electrode holders, safety goggles, and brazing materials.
Reorganization and Profitability in the 1970s
Beginning in 1974, the company embarked on a significant reorganization plan. Foster Wheeler Corporation became a holding company, and Foster Wheeler Energy Corporation became the major operating company in the United States. Its responsibilities were later divided, with Foster Wheeler USA Corporation handling the process plants and project direction duties, and Foster Wheeler Energy Corporation the energy equipment operations. Other subsidiaries were created to improve the operating efficiency of the company's engineering and construction group, including Foster Wheeler Constructors, Inc., which handled project construction; FW Management Operations, Ltd., which provided management and plant operating services and trained staff for industry; Foster Wheeler Development Corporation, which provided contract research and development services; and Foster Wheeler Petroleum Development Ltd., which provided storage and shipping terminals, equipment for offshore gas and oil drilling, wellhead recovery and piping systems, and field development services.
Foster Wheeler's conservative strategy apparently paid off. Despite the drop in refinery construction after the oil embargo of 1974, the company's share price quadrupled from 1974 to 1979 and the return on equity steadily increased; while other companies were hard pressed to keep up with rampant inflation, Foster Wheeler was earning 19.3 percent.
Foster Wheeler's large backlogs and substantial cash reserves made the corporation a prime target for takeover. In 1979, McDonnell Douglas seemed poised to attempt a takeover, having bought 4.9 percent of Foster Wheeler's common stock. However, corporation president Frank Lee was adamant in his refusal to consider a takeover.
Foster Wheeler developed several technological advances that contributed to the company's high standing in the industry. For example, in 1980 the energy equipment group designed and constructed the first private industry fluidized bed steam generator fired by coal in the United States. They also created a unique cyclone design for their circulating fluidized bed boiler, a design which increased heat transfer, enabled a quicker start-up, reduced space requirements, and lowered maintenance costs.
Slowdown in the 1980s
In the late 1970s and early 1980s, Foster Wheeler benefited greatly from the boom in oil and utility power industries, achieving excellent profit margins in their contracts. However, the industry's heavy overbuilding resulted in a substantial reversal in the 1980s. Foster Wheeler's profits slumped, as indicated by a period of several years when dividends on common stock were held at 11 cents per share. The company's backlog, generally a reliable predictor of future revenues, lingered at approximately $1 billion through the mid-1980s.
To lessen its reliance on the sagging oil and power utility industries, Foster Wheeler developed subsidiaries in new industries, including Foster Wheeler Power Systems, Inc., and Foster Wheeler Environmental Services, Inc. Foster Wheeler Power Systems built, owned, and operated waste-to-energy plants, recycling and composting plants, and cogeneration facilities. The company had some experience to draw on in this area, having built the first waterfall mass-burning refuse boiler in the United States. Foster Wheeler Environmental Services handled hazardous waste management and later became the holding company of the subsidiaries Foster Wheeler Enviresponse, Inc., which offered environmentally related regulatory, technical, design, and remediation services, and Barsotti's, Inc., which offered asbestos abatement services.
Foster Wheeler also reacted to the economic downturn of the early 1980s by selling real estate properties and underperforming subsidiaries. In 1988 Conergics Corporation was sold to Phillips Industries, Inc., for $43.2 million, and in 1989 TANCO Corporation bought Forney Engineering Company for an undisclosed sum. The proceeds were used to strengthen Foster Wheeler's ventures into waste-to-energy and hazardous waste management.
In 1987 Foster Wheeler moved headquarters to Clinton, New Jersey, after nearly 25 years in Livingston, New Jersey; the same year, Foster Wheeler became the object of another takeover attempt. Asher B. Edelman seemed determined to have the company, stating that if the board of directors would not consider his offer, he would appeal directly to the stockholders. Although he garnered stock holdings of nearly 12 percent, the company rejected his offer. Edelman backed down, reducing his holdings over several months until they reached 4.9 percent.
Steady Growth in the 1990s
The company's traditional businesses, particularly its engineering and construction enterprises, were revitalized in the early 1990s. The company's backlog grew from the steady $1 billion mark of the 1980s to $3.47 billion by 1992. Foster Wheeler received several international contracts for oil refinery construction or modernization, including an upgrading project at three Saudi Arabian oil refineries with an estimated final cost of $4 billion, refinery work in France worth approximately $50 million, and an $80 million joint venture in the Soviet Union for materials and engineering for a new refining unit. In addition, the reconstruction in Kuwait after the Gulf War provided some refinery work for Foster Wheeler.
Although most of the company's new business had come from international contracts, particularly in Europe and Asia, Foster Wheeler anticipated a surge of refinery work in the United States due to new federal clean-air legislation that required many refineries to upgrade their facilities by 1995. Other business areas also seemed to be improving in the early 1990s, as indicated by Foster Wheeler's first order for a large central station steam generator in several years. The general outlook for Foster Wheeler in the early 1990s seemed good. The company's book value per share had been rising steadily--from $12.79 in 1988 to $15.13 in 1991. Despite a recession, Foster Wheeler's revenues increased 20 percent in 1991, and the growing backlog of business suggested a continued rise in revenues.
Along with increased oil refinery renovation, the company expected to see demand for utility construction to rise with the economic recovery in the United States in the mid-1990s. However, domestic business for Foster Wheeler grew more slowly than many analysts had predicted. With pressure from energy companies, legislators pushed back compliance dates mandated by the Clean Air Act. Therefore, the massive improvements to oil refineries Foster Wheeler was anticipating were delayed. Utility construction also did not materialize with the economic recovery. Apparently, supply had so outstripped demand in the United States in the late 1980s that even the warming economy did not require new plant construction.
Nevertheless, Foster Wheeler's international presence benefited the company in the mid-1990s. With environmental concerns growing in Europe, the demand for improvements to refineries and coal-burning plants increased, offering opportunities to Foster Wheeler's engineering and construction group. With offices in Singapore and Thailand, the company was well positioned to take advantage of the Asian economic boom. In 1993 the company signed new contracts with China to build two 600-megawatt boilers, and in 1996 it signed a $200 million contract with the Philippines to build a polyethylene plant.
Foster Wheeler reorganized in 1993, incorporating its environmental group into its engineering and construction group. The following year the company acquired Enserch Environmental Corporation. By merging it with its Environmental Services Division to form Foster Wheeler Environmental Corporation, Foster Wheeler created the largest full-service environmental services company in the world. The acquisition of Optimized Process Designs in 1994 provided Foster Wheeler with the means to provide engineering and construction to the hydrocarbon processing industry.
In 1995 the company expanded further both internationally and domestically. It acquired the power-generating company Pyropower from the A. Ahlstrom Corporation, bringing Foster Wheeler operations into Finland, Poland, and Japan. The $207.5 million deal also expanded Foster Wheeler's operations in the former Soviet Union. The same year the company bought a Texas-based supplier of sulfur-recovery equipment, TPA, Inc.
The analysts' predictions of booming contracts for Foster Wheeler came to fruition in the mid-1990s. The company's backlog of unfilled orders rose from 2.5 billion in 1992 to $5.1 billion in 1994. By 1996, that number stood at a record $7.1 billion. Much of the increase came from Foster Wheeler's international business, which accounted for approximately 70 percent of new bookings in 1996. Revenues and net earnings had grown commensurably throughout the mid-1990s. The company's revenues of $2.3 billion in 1994 had almost doubled to $4.0 billion in 1996, and net earnings had risen from $65 million in 1994 to $82 million in 1996.
In 1997 Foster Wheeler reorganized its pharmaceutical and fine chemicals unit. As part of the engineering and construction group, the unit accounted for 42 percent of that group's operating revenue in 1996. Later in 1997, the company sold Glitch International, Inc., a supplier of mass transfer systems and chemical separations equipment. The company received $250 million cash for Glitch, which had revenues of $300 million in 1996.
The outlook for Foster Wheeler in the late 1990s seemed bright. Its strong international presence stood to gain from the rising energy needs of developing nations in Latin America and Asia, particularly in China. The company also anticipated new projects for its energy equipment group from the increasingly privatized power generating industry in Europe.
Principal Subsidiaries: Foster Wheeler International Corporation; Foster Wheeler USA Corporation; Foster Wheeler Constructors, Inc.; Foster Wheeler Environmental Corporation; Foster Wheeler Energy Limited (United Kingdom); Foster Wheeler Energy International, Inc.; Foster Wheeler Energy Corporation; Foster Wheeler Power Systems, Inc.
- "A Comeback for Foster Wheeler?," Business Week, August 8, 1988.
- "Foster Wheeler Reorganizes Drug Unit," The Record, March 28, 1997, p. B3.
- "Foster Wheeler Sells Unit for $250M Cash," The Report, June 28, 1997, p. A9.
- Halpern, Steve, "Investors Eye China," Knight Ridder/Tribune News Service, November 19, 1993.
- Hardman, Adrienne, "All Pumped Up," Financial World, May 11, 1993, p. 30.
- Kuhn, Susan E., "The Best Capital Goods Stocks to Buy Now," Fortune, April 4, 1994, pp. 33-34.
- Smith, Geoffrey, "No Hiding Place," Forbes, September 3, 1979.
- "Swelling Backlog Sets Stage for a Surge in Earnings," Barrons, August 19, 1991.
Source: International Directory of Company Histories, Vol. 23. St. James Press, 1998.