-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ih6td6Y2PkSGo9vT4IGML89qnHDOwHtW8kpqv6g0h41fYcnBGLx68DO3hbDiKEEi 0J6N4GF4UiEp8Qiz/5+hOg== 0000950127-98-000297.txt : 19980803 0000950127-98-000297.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950127-98-000297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19980731 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00286 FILM NUMBER: 98675282 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-Q 1 FORM 10-Q 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. 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
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 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.
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) 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 ====== ====== ====== ======
(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.
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 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.
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. 6. Interest income and cost for the following periods are:
Three Months Ended Six Months Ended June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997 ------------- ------------- ------------- ------------- Interest income $ 5,368 $ 5,781 $11,369 $11,167 ======= ======= ======= ======= Interest cost $18,442 $17,944 $35,311 $33,308 ======= ======= ======= =======
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. 8. Changes in equity for the six months ended June 26, 1998 were as follows:
Accumulated Other Total Common Stock Paid-in Retained Comprehensive Treasury Stock Stockholders Shares Amount Capital Earnings Loss Shares Amount Equity ---------- -------- -------- -------- --------------- -------- -------- ------------ 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 ========== ========== ========= ========= ========== ======== ======== ==========
9. Major Business Groups
FOR SIX MONTHS Engineering Corporate and and Energy Power Financial Total Construction Equipment Systems Service * 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
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
CONSOLIDATED DATA (In Millions of Dollars) Three Months Ended Six Months Ended ------------------ ---------------- June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997 ------------- ------------- ------------- ------------- 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 ========== =========== ========== ==========
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.
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 ------------- ------------- ------------- ------------- 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 ===== ===== ======= ======
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.
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 ------------- ------------- ------------- ------------- 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 ===== ===== ===== =====
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.
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 ------------- ------------- ------------- ------------- 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) ===== ======= ===== =======
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). 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. 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. 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. 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 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 EX-10 2 CHANGE OF CONTROL EMPLOYMENT AGREEMENT 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___________________________ EX-12.1 3 STATEMENT RE COMPUTATION OF RATIOS
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 ---- ---- ---- ---- ---- ---- 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
*There were no preferred shares outstanding during any of the periods indicated and therefore the consolidated ratio of earnings to fixed charges and combined fixed charges and preferred share dividend requirements would have been the same as the consolidated ratio of earnings to fixed charges and combined fixed charges for each period indicated. EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-25-1998 DEC-27-1997 JUN-26-1998 144,382 69,764 785,129 0 478,130 1,554,170 1,180,018 324,798 3,407,891 1,403,556 928,269 0 0 40,748 583,488 3,407,891 2,061,786 2,091,908 1,990,570 1,990,570 0 0 29,520 60,601 22,877 37,724 0 0 0 37,724 0.93 0.93
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