UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 26, 1998
OR
[ ] 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Perryville Corporate Park, Clinton, N. J. 08809-4000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908)-730-4000
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. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 40,736,864 shares of the
Corporation's common stock ($1.00 par value) were outstanding as of June 26,
1998.
<PAGE>
FOSTER WHEELER CORPORATION
INDEX
Part I Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at June 26, 1998 and
December 26, 1997
Condensed Consolidated Statement of Earnings and
Comprehensive Income Three and Six Months Ended June 26, 1998
and June 27, 1997
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 26, 1998 and June 27, 1997
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II Other Information:
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
June 26, 1998 December 26,
ASSETS (Unaudited) 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 144,382 $ 167,417
Short-term investments 69,764 91,888
Accounts and notes receivable 785,129 799,375
Contracts in process and inventories 478,130 415,186
Prepaid and refundable income taxes 49,000 46,175
Prepaid expenses 27,765 25,230
------------ -----------
Total Current Assets 1,554,170 1,545,271
---------- ----------
Land, buildings and equipment 1,180,018 1,138,098
Less accumulated depreciation 324,798 313,646
----------- -----------
Net book value 855,220 824,452
----------- -----------
Notes and accounts receivable - long-term 90,099 86,353
Investments and advances 134,773 127,629
Intangible assets - net 294,419 298,217
Prepaid pension costs and benefits 176,362 187,200
Other, including insurance recoveries 286,726 275,582
Deferred income taxes 16,122 21,659
----------- -----------
Total Assets $3,407,891 $3,366,363
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments on long-term debt $ 34,415 $ 33,528
Bank loans 81,000 53,748
Accounts payable and accrued expenses 629,189 626,160
Estimated costs to complete long-term contracts 518,463 603,224
Advance payments by customers 107,804 98,865
Income taxes 32,685 21,527
----------- -----------
Total Current Liabilities 1,403,556 1,437,052
Special-purpose project debt 429,012 432,772
Other long-term debt 499,257 422,896
Postretirement and other employee benefits
other than pensions 166,083 169,212
Other long-term liabilities, deferred credits and
minority interest in subsidiary companies 251,064 250,853
Deferred income taxes 34,683 34,148
------------ ------------
Total Liabilities 2,783,655 2,746,933
========== ==========
Stockholders' Equity:
Common stock 40,748 40,746
Paid-in capital 201,154 201,105
Retained earnings 447,384 426,761
Accumulated other comprehensive income (64,755) (48,887)
------------- -------------
624,531 619,725
Less cost of treasury stock (295) (295)
--------------- ---------------
Total Stockholders' Equity 624,236 619,430
------------ -----------
Total Liabilities and Stockholders' Equity $3,407,891 $3,366,363
========== ==========
See notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 26, 1998 June 27, 1997(a) June 26, 1998 June 27, 1997(a)
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 1,033,825 $ 1,030,634 $ 2,061,786 $ 1,995,748
Other income 20,329 66,487 30,122 79,853
------------- ------------- ------------- --------------
Total revenues 1,054,154 1,097,121 2,091,908 2,075,601
----------- ----------- ----------- -----------
Cost and expenses:
Cost of operating revenues 938,146 999,686 1,873,671 1,854,201
Selling, general and adminis-
trative expenses 60,485 73,067 116,899 143,984
Other deductions/minority
interest 22,455 27,841 40,737 47,527
------------- ------------- ------------- -------------
Total costs and expenses 1,021,086 1,100,594 2,031,307 2,045,712
----------- ----------- ----------- -----------
Earnings/(loss) before income taxes 33,068 (3,473) 60,601 29,889
Provision for income taxes 12,730 158 22,877 13,298
------------ -------------- ------------ ------------
Net earnings/(loss) 20,338 (3,631) 37,724 16,591
Other comprehensive income:
Foreign currency translation
adjustment (8,076) 1,859 (15,868) (22,768)
------------ ---------- ------------- ------------
Comprehensive income/(loss) $ 12,262 $ (1,772) $ 21,856 $ (6,177)
=========== =========== =========== ============
Earnings/(loss) per share:
Basic $ .50 $(.09) $ .93 $ .41
===== ====== ===== =====
Diluted: $ .50 $(.09) $ .93 $ .41
===== ====== ===== =====
Shares outstanding:
Basic:
Weighted average number of
shares outstanding 40,736,754 40,643,171 40,735,809 40,642,341
Diluted:
Effect of stock options 7,463 * 7,300 136,681
------------ --------------- ------------- ------------
Total diluted 40,744,217 40,643,171 40,743,109 40,779,022
=========== =========== =========== ===========
Cash dividends paid per
common share $ .21 $ .21 $ .42 $ .415
====== ====== ====== ======
</TABLE>
(a) In the second quarter of 1997, the Corporation recorded a pretax gain of
$56.4 million ($36.6 million after tax) in other income related to the sale
of Glitsch International, Inc.'s assets. Also, in the second quarter of
1997 the Corporation recorded provisions reflected in cost of operating
revenues of $60.0 million ($39.0 million after tax) against the Power
Systems Group with respect to the Robbins Resource Recovery Facility and
$32.0 million ($20.8 million after tax) against the Energy Equipment Group
for reorganization costs. A charge of $6.5 million ($4.2 million after tax)
for the write-down of long-lived assets was also included in other
deductions.
* 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
quarter loss in 1997.
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Six Months Ended
June 26, 1998 June 27, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 37,724 $ 16,591
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation and amortization 29,746 31,085
Noncurrent deferred tax 5,876 (21,031)
Net gain on sale of subsidiary - (49,900)
Equity earnings, net of dividends (3,283) (689)
Other (3,682) (2,624)
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
Receivables 35,291 (166,719)
Contracts in process and inventories (65,437) (19,724)
Accounts payable and accrued expenses (30,562) 39,560
Estimated costs to complete long-term contracts (82,734) 123,665
Advance payments by customers 9,305 23,119
Income taxes 8,018 (26,295)
Other assets and liabilities (910) (33,119)
----------- ----------
NET CASH USED BY OPERATING ACTIVITIES (60,648) (86,081)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (58,404) (70,278)
Proceeds from sale of subsidiary - 195,283
Proceeds from sale of properties 2,225 1,914
Increase in investments and advances (5,201) (46,394)
Decrease in short-term investments 21,351 45,826
Partnership distributions (4,256) (4,800)
------------ ------------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES (44,285) 121,551
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (17,101) (16,859)
Proceeds from the exercise of stock options 51 152
Increase in short-term debt 28,337 316
Proceeds from long-term debt 83,288 64,915
Repayment of long-term debt (9,403) (67,946)
------------ ------------
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES 85,172 (19,422)
Effect of exchange rate changes on cash and cash equivalents (3,274) (14,930)
------------ ------------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (23,035) 1,118
Cash and cash equivalents at beginning of year 167,417 267,149
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 144,382 $ 268,267
========== ==========
Cash paid during period:
Interest (net of amount capitalized) $ 20,783 $ 21,307
Income taxes $ 10,740 $ 11,729
See notes to financial statements.
</TABLE>
<PAGE>
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
1. The condensed consolidated balance sheet as of June 26, 1998, and the
related condensed consolidated statements of earnings and comprehensive
income and cash flows for the three and six month periods ended June
26, 1998 and June 27, 1997 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments only consisted of
normal recurring items. Interim results are not necessarily indicative
of results for a full year.
The financial statements and notes are presented in accordance with
Form 10-Q and do not contain certain information included in Foster
Wheeler Corporation's Annual Report on Form 10-K for the fiscal year
ended December 26, 1997 filed with the Securities and Exchange
Commission on March 19, 1998. The Condensed Consolidated Balance Sheet
as of December 26, 1997 has been derived from the audited Consolidated
Balance Sheet included in the 1997 Annual Report. A summary of the
Corporation's significant accounting policies is presented on pages 36
and 37 (not shown) of its 1997 Annual Report to Stockholders. Users of
financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report to Stockholders
when reviewing interim financial results. There has been no material
change in the accounting policies followed by the company during 1998,
except as described in Note 7 of these Condensed Consolidated Financial
Statements.
In conformity with generally accepted accounting principles, management
must make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.
2. In the ordinary course of business, Foster Wheeler Corporation (the
"Corporation") and its subsidiaries enter into contracts providing for
assessment of damages for nonperformance or delays in completion. Suits
and claims have been or may be brought against the Corporation by
customers alleging deficiencies in either equipment design or plant
construction. Based on its knowledge of the facts and circumstances
relating to the Corporation's liabilities, if any, and to its insurance
coverage, management of the Corporation believes that the disposition
of such suits will not result in charges against assets or earnings
materially in excess of amounts 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 1970's and prior. As
of June 26, 1998, there were approximately 63,000 claims pending. In
1998, approximately 12,000 new claims were filed and approximately
14,000 were either settled or dismissed without payment. The
Corporation has agreements with insurance carriers covering
significantly more than a majority of the potential costs relating to
these exposures. The Corporation has recorded, with respect to asbestos
litigation, an asset relating to the 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.
In 1996, the Corporation completed the construction of a recycling and
waste-to-energy project (the "Robbins Project") for the Village of
Robbins, Illinois. A subsidiary of the Corporation, Robbins Resource
Recovery Limited Partnership (the "Partnership") operates this facility
under a long-term operating lease. By virtue of the facility qualifying
under the Illinois Retail Rate Law (the "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. Also, the State adopted the
Illinois Electric Service Customer Choice and Rate Relief Law of 1997
which creates additional uncertainty relating to the availability of
tax credits under the Retail Rate Law. This law becomes effective
August 1, 1998. The Partnership is contesting the Illinois
legislature's partial repeal of the Retail Rate Law in Court, however,
the relief sought is prospective only, and the Corporation will not be
entitled to any recovery of lost revenue. 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 Robbins Project. The
Corporation established a reserve of $60,000 in the second quarter of
1997, which was considered sufficient to cover the anticipated
operating losses until the year 1999, reflecting the time period within
which the Corporation expected the courts to provide relief from the
partial repeal of the Retail Rate Law. The calculation of this reserve
was based on a number of operating assumptions impacting both revenue
and costs. It is now expected that the reserve will be fully utilized
during the fourth quarter of 1998. As a result of modifications, it is
expected that plant availability in 1999 will increase substantially.
In accordance with the requirements of FAS 121, "Accounting for the
Impairment of Long-Lived Assets," the Corporation continues to assess
the long-term profitability of the Robbins Project based on numerous
operating scenarios. This evaluation is not complete and, accordingly,
any further adjustments that may be appropriate have not been reflected
in its financial statements. However, it is reasonably possible that
the evaluation of the assumptions and changes in future plans may
result in significant additional charges to earnings. As of June 26,
1998, the Corporation had financial guarantees and consolidated assets
related to the Robbins Project totaling approximately $175,000.
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 "Camden 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 certain involved parties, including the State of New
Jersey, seeking among other things, to void the applicable contracts
and agreements governing the Camden Project. Pending final outcome of
the litigation and the results of legislative initiatives in New Jersey
to resolve the issues relating to the debt obligations associated with
the Camden Project, management believes that the plant will continue to
operate at full capacity while earning sufficient revenues to cover its
fees as operator of the plant. However, at this time, management cannot
determine the effect of the foregoing on the Camden Project.
The ultimate legal and financial liability of the Corporation in
respect to all claims, lawsuits and proceedings cannot be estimated
with certainty. As additional information concerning the estimates used
by the Corporation becomes known, the Corporation reassesses its
position both with respect to gain contingencies and accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change relate to legal matters, which
are subject to change as events evolve and as additional information
becomes available during the administration and litigation process.
3. The Corporation maintains two revolving credit agreements with a
syndicate of banks. One is a short-term revolving credit agreement of
$100,000 with a maturity of 364 days and the second is a $300,000
revolving credit agreement with a maturity of four years (collectively,
the "Revolving Credit Agreements"). These Revolving Credit Agreements
require the maintenance of a maximum Consolidated Leverage Ratio and a
minimum Consolidated Fixed Charges Coverage Ratio. As of June 26, 1998,
the Corporation was in compliance with both of these provisions. During
the second quarter of 1998, the Corporation filed a Registration
Statement on Form S-3 relating to up to $300.0 million of debt, equity
and other securities.
4. A total of 2,559,718 shares were reserved for issuance under the stock
option plans; of this total 751,916 were not under option.
5. 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.
<PAGE>
6. Interest income and cost for the following periods are:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income $ 5,368 $ 5,781 $11,369 $11,167
======= ======= ======= =======
Interest cost $18,442 $17,944 $35,311 $33,308
======= ======= ======= =======
</TABLE>
Included in interest cost is interest capitalized on self-constructed
assets, for the three and six months ended June 26, 1998 of $2,926 and
$5,790, respectively, compared to $2,885 and $4,726 for the comparable
periods in 1997.
7. In the first quarter of 1998, the Corporation adopted the provisions of
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," No. 130, "Reporting Comprehensive
Income", and No. 131, "Disclosure about Segments of an Enterprise and
Related Information." Where applicable, prior data has been restated to
conform to the 1998 presentation.
The Financial Accounting Standards Board released in June 1998,
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. This statement addresses the accounting for derivative
instruments including certain derivative instruments embedded in other
contracts and for hedging activities. The Corporation is currently
assessing the impact of adoption of this new Statement.
In the second quarter of 1998, the Accounting Standard Executive
Committee of the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities." This statement provides guidance on
financial reporting of start-up costs and organizational costs. This
Statement of Position is effective for financial statements for fiscal
years beginning after December 15, 1998. This Statement of Position
requires start-up costs to be expensed as incurred. The Corporation is
currently assessing the financial statement impact of adoption of this
Statement of Position.
<PAGE>
8. Changes in equity for the six months ended June 26, 1998 were as follows:
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Paid-in Retained Comprehensive Treasury Stock Stockholders
Shares Amount Capital Earnings Loss Shares Amount Equity
---------- -------- -------- -------- --------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 26, 1997 40,745,668 $ 40,746 $ 201,105 $ 426,761 $ (48,887) (10,804) $ (295) $ 619,430
Net Earnings 37,724 37,724
Dividends paid - common (17,101) (17,101)
Comprehensive loss (15,868) (15,868)
Sold under stock options 2,000 2 49 51
----------- ---------- ---------- ----------- ------------ --------- -------- ---------
Balance June 26, 1998 40,747,668 $ 40,748 $201,154 $ 447,384 $ (64,755) (10,804) $ (295) $ 624,236
========== ========== ========= ========= ========== ======== ======== ==========
</TABLE>
<PAGE>
9. Major Business Groups
<TABLE>
<CAPTION>
FOR SIX MONTHS Engineering Corporate and
and Energy Power Financial
Total Construction Equipment Systems Service *
<S> <C> <C> <C> <C> <C>
Ended
June 26, 1998
Revenues $2,091,908 $1,547,806 $ 540,010 $ 88,356 $ (84,264)
Interest Expense 29,520 4,430 3,657 11,165 10,268
Earnings/(Loss) Before Income Taxes 60,601 48,030 22,407 10,934 (20,770)
Provision/(Benefit) for Income Taxes 22,877 17,507 8,251 4,399 (7,280)
---------- ------------- ------------ ----------- -----------
Net Earnings/(Loss) $ 37,724 $ 30,523 $ 14,156 $ 6,535 $ (13,490)
========== ============ =========== ========== ============
Engineering Corporate and
and Energy Power Financial
Total Construction Equipment Systems Service *
Ended
June 27, 1997
Revenues $2,075,601 $1,418,408 $ 673,353 $ 81,402 $ (97,562)
Interest Expense 28,582 2,005 6,827 11,430 8,320
Earnings/(Loss) Before Income Taxes 29,889 53,256 55,530 (47,244) (31,653)
Provision/(Benefit) for Income Taxes 13,298 20,713 18,918 (15,519) (10,814)
---------- ---------- ---------- ---------- -----------
Net Earnings/(Loss) $ 16,591 $ 32,543 $ 36,612 $ (31,725) $ (20,839)
========== ========== ========== =========== ===========
*Includes intersegment eliminations
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES
(Unaudited)
The following is Management's Discussion and Analysis of certain significant
factors that have affected the financial condition and results of operations of
the Corporation for the periods indicated below. This discussion and analysis
should be read in conjunction with the 1997 Annual Report on Form 10-K filed
March 19, 1998.
Results of Operations
<TABLE>
<CAPTION>
CONSOLIDATED DATA
(In Millions of Dollars)
Three Months Ended Six Months Ended
------------------ ----------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Backlog $7,796.4 $7,437.0 $7,796.4 $7,437.0
======== ======== ======== ========
New orders $1,369.7 $1,446.7 $2,818.6 $2,667.4
======== ======== ======== ========
Revenues $1,054.2 $1,097.1 $2,091.9 $2,075.6
======== ======== ======== ========
Net earnings $ 20.3 $ (3.6) $ 37.7 $ 16.6
========== =========== ========== ==========
</TABLE>
The Corporation's consolidated backlog at June 26, 1998 totaled $7,796.4, the
highest in the history of the Corporation, which represented an increase of 5%
over the amount as of June 27, 1997. The dollar amount of backlog is not
necessarily indicative of the future earnings of the Corporation related to the
performance of such work. The backlog of unfilled orders includes amounts based
on signed contracts as well as agreed letters of intent which management has
determined are likely to be performed. Although backlog represents only business
which is considered firm, cancellations or scope adjustments may occur. Due to
factors outside the Corporation's control, such as changes in project schedules,
the Corporation cannot predict with certainty the portion of backlog not to be
performed. Backlog is adjusted to reflect project cancellations, deferrals, sale
of subsidiaries and revised project scope and cost. This adjustment for the six
months ended June 26, 1998 was $146.5, compared with $116.5 for the six months
ended June 27, 1997. Furthermore, the Corporation's future award prospects
include several large-scale international projects and, because the large size
and uncertain timing of these projects can create variability in the
Corporation's contract awards, future award trends are difficult to predict.
New orders awarded for the three and six months ended June 26, 1998 were
$1,369.7 and $2,818.6 respectively, compared to $1,446.7 and $2,667.4 for the
periods ended June 27, 1997. Approximately 65% of new orders booked in the six
months ended June 26, 1998 were for projects awarded to the Corporation's
subsidiaries located outside the United States. Key geographic regions
contributing to new orders awarded for the six months ended June 26, 1998 were
the United States, Singapore, Europe and the Middle East.
In the second quarter of 1997 the Corporation recorded provisions totaling $98.5
and a $56.4 pretax gain on the sale of a subsidiary. The net amount of $42.1
($27.4 after tax or $.67 per share) included the following:
(a) $60.0 provision recorded in cost of operating revenues in the Power
Systems Group with respect to the Robbins Resource Recovery Facility,
(b) $32.0 provision recorded in cost of operating revenues in the Energy
Equipment Group for the last phase of the Group's reorganization started
in 1995 following the Ahlstrom Pyropower acquisition,
(c) $6.5 provision included in other deductions in Corporate and Financial
Services for the write-downs of long-lived assets, and
(d) $56.4 gain included in other income in the Energy Equipment Group for the
sale of Glitsch International, Inc.'s assets
Operating revenues increased slightly in the three months ended June 26, 1998
compared to the three months ended June 27, 1997 to $1,033.8 from $1,030.6. The
most recent six month period reflects an increase in operating revenues of $66.0
from $1,995.8 in 1997 to $2,061.8 in 1998. Included in 1997 operating revenues
were $143.4 for the six-month period and $81.7 for the second quarter for
Glitsch International Inc., which was sold in June 1997.
Gross earnings, which are equal to operating revenues minus the cost of
operating revenues, increased by $46.6 in the six months ended June 26, 1998 as
compared with the six months ended June 27, 1997 to $188.1 from $141.5. Gross
earnings increased by $64.7 in the three months ended June 26, 1998 as compared
with the three months ended June 27, 1997 to $95.7 from $31.0. These increases
were primarily the result of the negative impact of provisions taken in the
second quarter of 1997, which were discussed above, offset by the reduction in
gross earnings in 1998 due to the sale of Glitsch International, Inc.
Selling, general and administrative expenses decreased by 19% in the six months
ended June 26, 1998 as compared with the same period in 1997, from $144.0 to
$116.9. Selling, general and administrative expenses decreased by 17% in the
three months ended June 26, 1998 as compared with the same period in 1997, from
$73.1 to $60.5. Both the three and six month decreases are primarily due to the
sale of Glitsch International, Inc. in June 1997.
Other income in the six months ended June 26, 1998 as compared with June 27,
1997 decreased to $30.1 from $79.9. Other income in the three months ended June
26, 1998 as compared with June 27, 1997 decreased to $20.3 from $66.5.
Approximately $56.4 of the differences for both the three and six month period,
was due to the gain recorded on the sale of Glitsch International, Inc.'s
assets.
Other deductions in the six months ended June 26, 1998, of $40.0, were 11% lower
than that reported in the six months ended June 27, 1997 primarily due to the
$6.5 write-off of long-lived assets in the second quarter of 1998. This was
partially offset by an increase in interest expense of approximately $1.0.
Interest expense for the quarter ended June 26, 1998 increased by $.5 compared
to the second quarter of 1997.
The effective tax rate of 38.5% and 37.8% for the three and six months ended
June 26, 1998, respectively, exceed the U.S. statutory rate primarily due to
state taxes and the impact of foreign source earnings.
Net earnings for the six months ended June 26, 1998 were $37.7 or $.93 per
share-basic compared to $16.6 for the six months ended June 27, 1997. Net
earnings for the three months ended June 26, 1998 were $20.3 or $.50 per
share-basic compared to a loss of $3.6 for the three months ended June 27, 1997.
<PAGE>
<TABLE>
<CAPTION>
ENGINEERING AND CONSTRUCTION GROUP
(In Millions of Dollars)
Three Months Ended Six Months Ended
------------------ ----------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Backlog $6,108.2 $5,333.5 $6,108.2 $5,333.5
======== ======== ======== ========
New orders $1,148.3 $ 915.3 $2,408.0 $1,767.2
======== ========= ======== ========
Operating Revenues $ 723.5 $ 732.7 $1,530.2 $1,404.8
========= ========= ======== ========
Gross earnings from
operations $50.7 $59.6 $ 103.9 $115.4
===== ===== ======= ======
</TABLE>
The Engineering and Construction Group ("E&C Group"), had a record backlog of
$6,108.2 at June 26, 1998, which represented a 15% increase from June 27, 1997
due primarily to orders awarded to the Continental European and United States
subsidiaries. Approximately 20% of the E&C Group's backlog as of June 26, 1998
was based on awards for projects in Southeast Asia. The majority of the
Southeast Asian backlog represents orders for export oriented projects from
national oil companies or multinational corporations. New orders booked for the
three and six month periods ended June 26, 1998 increased by 25% and 36%,
respectively, compared with the periods ended June 27, 1997. These increases
were primarily the result of the significant orders taken by the Continental
European and United States operating subsidiaries. Operating revenues for the
three month period ended June 26, 1998 decreased slightly compared to the three
month period ended June 27, 1997; while operating revenues increased by 9% for
the six month period in 1998 compared with 1997. The United States and United
Kingdom subsidiaries were primarily responsible for the six-month increase.
Gross earnings from operations decreased by 15% and 10% for the three and
six-month periods ended June 26, 1998, respectively, compared with the periods
ended June 27, 1997. The gross earnings for the three-month period were lower
primarily due to the decrease reported by the Environmental ($4.0) and the
Continental European ($4.2) subsidiaries. The six-month gross earnings were
lower primarily due to the decrease reported by the Environmental subsidiary of
$11.1 and the Continental European decrease of $6.5. This was partially offset
by the increase in gross earnings reported by the United Kingdom subsidiary of
$8.0.
<PAGE>
<TABLE>
<CAPTION>
ENERGY EQUIPMENT GROUP
(In Millions of Dollars)
Three Months Ended Six Months Ended
------------------ ----------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Backlog $1,451.9 $1,843.6 $1,451.9 $1,843.6
======== ======== ======== ========
New orders $ 202.4 $ 497.1 $ 342.5 $ 848.9
========= ========= ========= =========
Operating Revenues $ 294.6 $ 332.6 $ 535.4 $ 605.1
========= ========= ========= =========
Gross earnings from
operations $31.9 $15.7 $61.2 $58.4
===== ===== ===== =====
</TABLE>
The Energy Equipment Group had a backlog of $1,451.9 at June 26, 1998, which
represented a 21% decrease from June 27, 1997 due primarily to lower orders
awarded to the North American subsidiaries and the result of the sale of Glitsch
International, Inc. in the second quarter of 1997. Approximately 50% of the
Energy Equipment Group's backlog as of June 26, 1998 represents orders from
China. These orders are for large utility size boilers, payments under which are
supported by financing agreements guaranteed by United States, European or
Japanese export credit agencies. New orders booked for the three and six-month
periods ended June 26, 1998 decreased by 59% and 60%, respectively. The sale of
Glitsch International, Inc. accounted for approximately $54.0 and $130.0 of the
three and six month decreases. Operating revenues for the three month period
ended June 26, 1998 decreased primarily due to the sale of Glitsch
International, Inc. Gross earnings from operations increased by $16.2 and $2.8
for the three and six-month periods ended June 26, 1998 compared with the
periods ended June 27, 1997. The gross earnings for the three-month period were
higher primarily due to the $32.0 provision taken for reorganization costs
offset by the effect of selling Glitsch International, Inc. in 1997.
<TABLE>
<CAPTION>
POWER SYSTEMS GROUP
(In Millions of Dollars)
Three Months Ended Six Months Ended
------------------ ----------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Backlog $ 271.8 $ 384.3 $ 271.8 $ 384.3
======== ======== ======== ========
New orders $ 33.6 $ 37.5 $ 94.0 $ 76.9
======== ========= ========= =========
Operating Revenues $ 36.8 $ 37.5 $ 77.2 $ 77.5
======== ========= ========= =========
Gross earnings/(loss)
from operations $12.5 $(45.1) $21.8 $(33.6)
===== ======= ===== =======
</TABLE>
The Power Systems Group's gross earnings from operations improved primarily due
to the impact of the $60.0 provision taken in the second quarter of 1997 for the
Robbins Resource Recovery Facility. This improvement was offset by lower
revenues at the Camden Municipal Solid Waste Facility of $1.7 for the three
months and $4.1 for the six months primarily due to flow-control legislation
introduced in 1997 (see Footnote 2).
<PAGE>
Financial Condition
The Corporation's consolidated financial condition slightly improved during the
six months ended June 26, 1998 as compared to December 26, 1997. Stockholders'
equity for the six months ended June 26, 1998 increased by $4.8 million, due to
net earnings reduced by dividends and the accumulated translation adjustment.
During the six months ended June 26, 1998, the Corporation's long-term
investments in land, buildings and equipment were $58.4 million as compared with
$70.3 million for the comparable period in 1997. Approximately $22.7 million was
invested by the Power Systems Group in build, own and operate projects during
the first six months of 1998.
Since December 26, 1997, long-term debt, including current installments, and
bank loans increased by $102.2 million.
In the ordinary course of business, the Corporation and its subsidiaries enter
into contracts providing for assessment of damages for nonperformance or delays
in completion. Suits and claims have been or may be brought against the
Corporation by customers alleging deficiencies in either equipment design or
plant construction. Based on its knowledge of the facts and circumstances
relating to the Corporation's liabilities, if any, and to its insurance
coverage, management of the Corporation believes that the disposition of such
suits will not result in charges against assets or earnings materially in excess
of amounts provided in the accounts.
Liquidity and Capital Resources
Cash and cash equivalents totaled $144.4 million at June 26, 1998, a decrease of
$23.0 million from fiscal year end 1997. Short-term investments decreased by
$22.1 million to $69.8 million. During the six months of fiscal 1998, the
Corporation paid $17.1 million in dividends to stockholders. Cash used by
operating activities amounted to $60.6 million. The Power Systems Group invested
approximately $22.7 million in the construction of waste-to-energy, cogeneration
and hydrogen plants.
Over the last several years working capital needs have increased as a result of
the Corporation satisfying its customers' requests for more favorable payment
terms under contracts. Such requests generally include reduced advance payments
and more favorable payment schedules. Such terms, which require the Corporation
to defer receipt of payments from its customers, have had a negative impact on
the Corporation's available working capital. Management expects its customers'
requests for more favorable payment terms under the Energy Equipment Group
contracts to continue as a result of the competitive markets in which the
Corporation operates. The Corporation intends to satisfy its continuing working
capital needs by borrowing under its Revolving Credit Agreements, through
internal cash generation and third-party financings in the capital markets. The
Corporation's pricing of contracts recognizes costs associated with the use of
working capital.
Management of the Corporation believes that cash and cash equivalents of $144.4
million and short-term investments of $69.8 million at June 26, 1998, combined
with cash flows from operating activities, amounts available 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. During the second quarter of 1998, the Corporation filed a
Registration Statement on Form S-3 relating to up to $300.0 million of debt,
equity and other securities.
<PAGE>
Other Matters
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 1970's and prior. As of June 26, 1998, there were
approximately 63,000 claims pending. In 1998, approximately 12,000 new claims
were filed and approximately 14,000 were either settled or dismissed without
payment. The Corporation has agreements with insurance carriers covering
significantly more than a majority of the potential costs relating to these
exposures. The Corporation has recorded, with respect to asbestos litigation, an
asset relating to the 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.
In 1996, the Corporation completed the construction of a recycling and
waste-to-energy project (the "Robbins Project") for the Village of Robbins,
Illinois. A subsidiary of the Corporation, Robbins Resource Recovery Limited
Partnership (the "Partnership"), operates this facility under a long-term
operating lease. By virtue of the facility qualifying under the Illinois Retail
Rate Law (the "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. Also, the State adopted the Illinois Electric Service Customer
Choice and Rate Relief Law of 1997 which creates additional uncertainty relating
to the availability of tax credits under the Retail Rate Law. This law becomes
effective August 1, 1998. The Partnership is contesting the Illinois
legislature's partial repeal of the Retail Rate Law in Court, however, the
relief sought is prospective only, and the Corporation will not be entitled to
any recovery of lost revenue. 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 Robbins
Project. The Corporation established a reserve of $60.0 million in the second
quarter of 1997, which was considered sufficient to cover the anticipated
operating losses until the year 1999, reflecting the time period within which
the Corporation expected the courts to provide relief from the partial repeal of
the Retail Rate Law. The calculation of this reserve was based on a number of
operating assumptions impacting both revenue and costs. It is now expected that
the reserve will be fully utilized during the fourth quarter of 1998. As a
result of modifications, it is expected that plant availability in 1999 will
increase substantially. In accordance with the requirements of FAS 121,
"Accounting for the Impairment of Long-Lived Assets," the Corporation continues
to assess the long-term profitability of the Robbins Project based on numerous
operating scenarios. This evaluation is not complete and, accordingly, any
further adjustments that may be appropriate have not been reflected in its
financial statements. However, it is reasonably possible that the evaluation of
the assumptions and changes in future plans may result in significant additional
charges to earnings. As of June 26, 1998, the Corporation had financial
guarantees and consolidated assets related to the Robbins Project totaling
approximately $175.0 million.
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 "Camden 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 certain
involved parties, including the State of New Jersey, seeking among other things,
to void the applicable contracts and agreements governing the Camden Project.
Pending final outcome of the litigation and the results of legislative
initiatives in New Jersey to resolve the issues relating to the debt obligations
associated with the Camden Project, management believes that the plant will
continue to operate at full capacity while earning sufficient revenues to cover
its fees as operator of the plant. However, at this time, management cannot
determine the effect of the foregoing on the Camden Project.
The ultimate legal and financial liability of the Corporation in respect to all
claims, lawsuits and proceedings cannot be estimated with certainty. As
additional information concerning the estimates used by the Corporation becomes
known, the Corporation reassesses its position both with respect to gain
contingencies and accrued liabilities and other potential exposures. Estimates
that are particularly sensitive to future change relate to legal matters, which
are subject to change as events evolve and as additional information becomes
available during the administration and litigation process.
Safe Harbor Statement
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Form 10-Q 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.
<PAGE>
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and similar state laws, the current owner or operator
of real property and the past owners or operators of real property (if disposal
took place during such past ownership or operation) may be jointly and severally
liable for the costs of removal or remediation of toxic or hazardous substances
on or under their property, regardless of whether such materials were released
in violation of law or whether the owner or operator knew of, or was responsible
for, the presence of such substances. Moreover, under CERCLA and similar state
laws, persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be jointly and severally liable for the costs of the removal
or remediation of such substances at a disposal or treatment site, whether or
not such site was owned or operated by such person ("off-site facility").
Liability at such off-site facilities is typically allocated among all of the
viable responsible parties based on such factors as the relative amount of waste
contributed to a site, toxicity of such waste, relationship of the waste
contributed by a party to the remedy chosen for the site, and other factors.
The Corporation currently owns and operates industrial facilities and has also
transferred its interests in industrial facilities that it formerly owned or
operated. It is likely that as a result of its current or former operations,
such facilities have been impacted by hazardous substances. The Corporation is
not aware of any conditions at its currently owned facilities in the United
States that it expects will cause the Corporation to incur significant costs.
The Corporation is aware of potential environmental liabilities at facilities
that it recently acquired in Europe, but the Corporation has the benefit of an
indemnity from the Seller with respect to any required remediation or other
environmental violations that it believes will address the costs of any such
remediation or other required environmental measures. The Corporation also may
receive claims, pursuant to indemnity obligations from owners of recently sold
facilities that may require the Corporation to incur costs for investigation
and/or remediation. Based on the available information, the Corporation does not
believe that such costs will be material. No assurance can be provided that the
Corporation will not discover environmental conditions at its currently owned or
operated properties, or that additional claims will be made with respect to
formerly owned properties, that would require the Corporation to incur material
expenditures to investigate and/or remediate such conditions.
As of June 10, 1998, the Corporation had been notified that it was a potentially
responsible party ("PRP") under CERCLA or similar states laws at three (3)
off-site facilities, excluding sites as to which the Corporation has resolved
its liability. At each of these sites, the Corporation's liability should be
substantially less than the total site remediation costs because the percentage
of waste attributable to the Corporation compared to the attributable to all
other PRPs is low. The Corporation does not believe that its share of cleanup
obligations at any of the three off-site facilities as to which it has received
a notice of potential liability will individually exceed $1.0 million.
The Corporation received an Administrative Order and Notice of Civil
Administrative Penalty Assessment (the "Administrative Order") dated April 1,
1997 alleging state air act violations at the Camden County Energy Recovery
Associates facility in New Jersey. The Administrative Order seeks a penalty of
$32,000 and revocation of the Certificate to Operate. The Corporation requested
an administrative hearing to challenge the Administrative Order, which request
automatically stayed any permit revocation. The Corporation expects an
additional penalty demand to increase to more than $100,000 as a result of other
violations which the Corporation expects the state to allege. The Corporation
believes that it will be able to address all issues of concern to the state and
that the resulting civil penalty will not be material to the Corporation.
The Corporation received a Complaint for Injunction and Civil Penalties from the
State of Illinois date April 28, 1998 alleging primarily state air act
violations at the Robbins Resource Recovery facility (People of the State of
Illinois v. Foster Wheeler Robbins, Inc., filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division). Although the complaint
seeks substantial civil penalties for numerous violations of up to $50,000 for
each violation, with an additional penalty of $10,000 for each day of each
violation, the maximum allowed under the statute, and an injunction against
continuing violations, the Corporation has submitted a plan to the state
designed to correct all violations and expects that the resulting penalty will
not be material to the Corporation.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
10 Form of Change in Control Agreement entered into by
the Corporation and the following executive officers:
N. W. Atwater
H. E. Bartoli
J. Blythe
C. Ferrari
L. Fries Gardner
R. D. Iseman
T. R. O'Brien
D. J. Roberts
J. E. Schessler
R. J. Swift
G. S. White
12-1 Statement of Computation of Consolidated Ratio of
Earnings to Fixed Charges and Combined Fixed Charges
and Preferred Share Dividend Requirements
27 Financial Data Schedule (For the informational
purposes of the Securities and Exchange Commission
only.)
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOSTER WHEELER CORPORATION
(Registrant)
Date: July 30, 1998 /s/ Richard J. Swift
------------------------------------- --------------------
Richard J. Swift
Chairman, President and
Chief Executive Officer
Date: July 30, 1998 /s/ David J. Roberts
-------------------------------------- --------------------
David J. Roberts
Vice Chairman and
Chief Financial Officer
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between Foster Wheeler Corporation, a New York
corporation (the "Company") and ________________(the "Executive"), dated as of
the ____ day of _________________, 199_.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person to own 20%
or more of the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not be deemed to result
in a Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with clauses (i), (ii) and (iii) of subsection (c)
below; and provided, further, that if any Person's beneficial ownership of the
Outstanding Company Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (i) or (ii) above, and such Person subsequently
acquires beneficial ownership of additional voting securities of the Company,
such subsequent acquisition shall be treated as an acquisition that causes such
Person to own 20% or more of the Outstanding Company Voting Securities; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (such Board of Directors, the "Board" and such
individuals, the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, but subject to
Section 3(b)(ix) below, the Executive shall be awarded, for each fiscal year
ending during the Employment Period, an annual bonus (the "Annual Bonus") in
cash at least equal to the Executive's highest Annual Incentive Payment
under the Annual Incentive Segment of the Company's Executive Compensation
Plan, or any comparable bonus under any successor plan, for the last three
full fiscal years prior to the Effective Date (annualized in the event that
the Executive was not employed by the Company for the whole of such fiscal
year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii)Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but, subject to Section 3(b)(ix) below, in no event shall such
plans, practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of those provided
by the Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable
to the Executive, those provided generally at any time after the Effective
Date to other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices, policies
and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use
of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vii)Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(ix) As soon as practicable following the Effective Date, the Executive
shall receive an immediate payment in cash of the Executive's Annual
Incentive Payment under the Executive Compensation Plan for the year in
which the Change of Control takes place, based upon the Executive's Target
Incentive percentage with an Adjustment Factor of 1.0. If it is determined,
after the end of such year, that the Annual Incentive Payment (or other
bonus) that is actually earned for such year exceeds the amount paid
pursuant to the preceding sentence, the excess shall be paid to such
participant in accordance with the terms of the Plan. In addition, as soon
as practicable following the Effective Date, the Executive shall receive
immediate payment in cash of a pro rata portion of the Executive's
Performance Units under the Executive Compensation Plan for each Cycle that
includes the Effective Date, based upon a Performance Unit value equal to
the highest such value paid with respect to any of the most recent three
Cycles ending before the Effective Date, and pro-rated based upon the ratio
of the number of days during the portion of the relevant Cycle that occurs
before the Effective Date to the total number of days during such Cycle. If
it is determined, after the end of the relevant Cycle, that the value of the
Performance Units for such Cycles as actually earned exceeds the amount paid
with respect thereto pursuant to the preceding sentence, the excess shall be
paid to such participant in accordance with the terms of the Plan.
Notwithstanding the foregoing, if as of the Effective Date the Executive
Compensation Plan has been amended or replaced, such that any of the
foregoing provisions are no longer applicable, the Executive shall be
entitled to receive payments with respect to the annual and long-term awards
thereunder for periods that include the Effective Date on an equivalent
basis (i.e., payment of the annual awards as if target performance had been
achieved, without pro-ration, and payment of a pro-rata portion of the
long-term awards based upon the highest level of achievement during the
three performance periods immediately preceding the Effective Date).
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner in
which the Board or Chief Executive Officer believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product
of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year consisting
of less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most recently
completed fiscal year during the Employment Period, if any (such higher
amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365 and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary, (y) the Highest Annual Bonus
and (z) the highest long-term bonus amount paid under the Executive
Compensation Plan (or any successor thereto) for any of the three most
recent performance cycles ending before the Effective Date; and
(C) an amount equal to the difference between (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the Company's
qualified defined benefit retirement plan (the "Retirement Plan")
immediately prior to the Effective Date, and any excess or supplemental
retirement plan in which the Executive participates (together, the
"SERP") which the Executive would receive if the Executive's employment
continued for three years after the Date of Termination assuming for
this purpose that all accrued benefits are fully vested, and, assuming
that the Executive's compensation in each of the three years is that
required by Section 4(b)(i) and Section 4(b)(ii), and (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP as of the Date of Termination
plus amounts, if any, that the Executive would have contributed under
the Retirement Plan and the SERP during such three-year period; and
(D) payment for any shares of restricted stock issued under the
Company's Management and Sales Incentive Plan or any other plan
(whether or not vested), to the extent such shares are tendered to the
Company by the Executive within 20 days after the Date of Termination,
at a price per share equal to the highest of (i) the market price on
the New York Stock Exchange of a share of Company stock at the close of
business on the date of such tender, (ii) the highest price paid for a
share of Company stock in any Change of Control transaction occurring
on or after the Effective Date, or (iii) the market price on the New
York Stock Exchange of a share of Company stock at the close of
business on the date of any such Change of Control transaction.
(ii) for five years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of
the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until the fifth anniversary of the Date of Termination and to have
retired on such fifth anniversary;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Coopers &
Lybrand or such other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
[Name]
[Address]
If to the Company:
Foster Wheeler Corporation
Perryville Corporate Park
Clinton, New Jersey 08809-4000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
by either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
___________________________
[NAME OF EXECUTIVE OFFICER]
FOSTER WHEELER CORPORATION
By___________________________
<TABLE>
<CAPTION>
Exhibit 12-1
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)
Unaudited
Fiscal Year
6 months --------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net Earnings/(Loss) $ 37,724 $ (10,463) $ 82,240 $ 28,534 $ 65,410 $ 57,704
Taxes on Income 22,877 5,229 44,626 41,129 41,457 39,114
Total Fixed Charges 44,904 84,541 74,002 60,920 45,412 43,371
Capitalized Interest (5,790) (10,379) (6,362) (1,634) (467) (213)
Capitalized Interest Amortized 1,092 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 (3,283) (9,796) (1,474) (1,578) (623) (883)
--------- --------- --------- --------- ---------- ----------
$ 97,524 $ 61,316 $ 195,560 $129,644 $153,378 $141,273
Fixed Charges:
Interest Expense $ 29,520 $ 54,675 $ 54,940 $ 49,011 $ 34,978 $ 33,558
Capitalized Interest 5,790 10,379 6,362 1,634 467 213
Imputed Interest on non-capitalized
lease payments 9,594 19,487 12,700 10,275 9,967 9,600
-------- -------- ------ ------- ------- -------
$ 44,904 $ 84,541 $ 74,002 $ 60,920 $ 45,412 $ 43,371
Ratio of Earnings to Fixed Charges 2.17 0.73 2.64 2.13 3.38 3.26
</TABLE>
*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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary of financial information extracted from the
condensed consolidated balance sheet and statement of earnings for the 6 months
ended June 26, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> JUN-26-1998
<CASH> 144,382
<SECURITIES> 69,764
<RECEIVABLES> 785,129
<ALLOWANCES> 0
<INVENTORY> 478,130
<CURRENT-ASSETS> 1,554,170
<PP&E> 1,180,018
<DEPRECIATION> 324,798
<TOTAL-ASSETS> 3,407,891
<CURRENT-LIABILITIES> 1,403,556
<BONDS> 928,269
0
0
<COMMON> 40,748
<OTHER-SE> 583,488
<TOTAL-LIABILITY-AND-EQUITY> 3,407,891
<SALES> 2,061,786
<TOTAL-REVENUES> 2,091,908
<CGS> 1,990,570
<TOTAL-COSTS> 1,990,570
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,520
<INCOME-PRETAX> 60,601
<INCOME-TAX> 22,877
<INCOME-CONTINUING> 37,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,724
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
