FWLT (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2007

or

o		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 001-31305

     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 þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ       Accelerated filer o      Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 71,835,337 common shares ($0.01 par value) were outstanding as of October 31, 2007.

 

 

FOSTER WHEELER LTD.
INDEX

Part I FINANCIAL INFORMATION
Item 1 –		Financial Statements (Unaudited):
		Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 28, 2007 and September 29, 2006
		Condensed Consolidated Balance Sheet as of September 28, 2007 and December 29, 2006
		Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended September 28, 2007 and September 29, 2006
		Condensed Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 28, 2007 and September 29, 2006
		Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 28, 2007 and September 29, 2006
		Notes to Condensed Consolidated Financial Statements
Item 2 –		Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 –		Quantitative and Qualitative Disclosures about Market Risk
Item 4 –		Controls and Procedures
Part II OTHER INFORMATION
Item 1 –		Legal Proceedings
Item 1A –		Risk Factors
Item 6 –		Exhibits
Signatures
EX-10.1: CONSULTING AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I. FINANCIAL INFORMATION

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

FOSTER WHEELER LTD. AND SUBSIDIARIES

     Revenues and profits on cost-reimbursable contracts are recorded as the services are rendered. We include flow-through costs consisting of materials, equipment and subcontractor costs as revenue on cost-reimbursable contracts when we are responsible for the engineering specifications and procurement or procurement services for such costs.

     Contracts in process are stated at cost, increased for profits recorded on the completed effort or decreased for estimated losses, less billings to the customer and progress payments on uncompleted contracts.

     We have numerous contracts that are in various stages of completion. Such contracts require estimates to determine the extent of revenue and profit recognition. These estimates may be revised from time to time as additional information becomes available. In accordance with the accounting and disclosure requirements of the American Institute of Certified Public Accountants Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” and Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3,” we review all of our material contracts monthly and revise our estimates as appropriate. These estimate revisions, which include both increases and decreases in estimated profit, result from events such as earning project incentive bonuses or the incurrence or forecasted incurrence of contractual liquidated damages for performance or schedule issues, executing services and purchasing third-party materials and equipment at costs differing from those previously estimated and testing of completed facilities which, in turn, eliminates or confirms completion and warranty-related costs. Project incentives are recognized when it is probable they will be earned. Project incentives are frequently tied to cost, schedule and/or safety targets and, therefore, tend to be earned late in a project’s life cycle. There were 38 and 19 separate projects that had final estimated profit revisions exceeding $1,000 during the first nine months of 2007 and 2006, respectively. The changes in final estimated profits resulted in a net increase to contract profit of $17,980 and $34,120 during the three and nine months ended September 28, 2007, respectively. Similarly, the changes in final estimated profits resulted in a net increase/(decrease) to contract profit of $(10,270) and $1,020 during the three and nine months ended September 29, 2006, respectively. Please see Note 11 for further information related to changes in final estimated profits.

     Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that we seek to collect from customers or others for delays, errors in specifications and designs, contract terminations, disputed or unapproved change orders as to both scope and price or other causes of unanticipated additional costs. We record claims in accordance with paragraph 65 of SOP 81-1, which states that recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. Those two requirements are satisfied by the existence of all of the following conditions: the contract or other evidence provides a legal basis for the claim; additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in our performance; costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and the evidence supporting the claim is objective and verifiable. If such requirements are met, revenue from a claim may be recorded only to the extent that contract costs relating to the claim have been incurred. Costs attributable to claims are treated as costs of contract performance as incurred and are recorded in contracts in process. As of September 28, 2007, our condensed consolidated financial statements assumed recovery of commercial claims from customers of $16,900, of which $2,400 was yet to be expended. As of December 29, 2006, our condensed consolidated financial statements assumed recovery of commercial claims from customers of $3,900, all of which was recorded on our condensed consolidated balance sheet.

     In certain circumstances, we may defer pre-contract costs when it is probable that these costs will be recovered under a future contract. Such deferred costs would then be included in contract costs on receipt of the anticipated contract. We had no deferred pre-contract costs as of September 28, 2007 or December 29, 2006.

     Certain special-purpose subsidiaries in our global power business group are reimbursed by customers for their costs, including amounts related to principal repayments of non-recourse project debt, for building and operating certain facilities over the lives of the corresponding service contracts.

      Cash and Cash Equivalents — Cash and cash equivalents include highly liquid short-term investments with original maturities of three months or less. Cash and cash equivalents included $671,038 and $490,934 maintained by our foreign subsidiaries as of September 28, 2007 and December 29, 2006, respectively. These subsidiaries require a portion of these funds to support their liquidity and working capital needs, as well as to comply with required minimum capitalization and contractual restrictions. Accordingly, a portion of these funds may not be readily available for repatriation to U.S. entities.

      Trade Accounts Receivable — Trade accounts receivable represent amounts billed to customers. In accordance with terms of long-term contracts, our customers may withhold certain percentages of such billings until completion and acceptance of the work performed. Final payments of all such amounts withheld might not be received within a one-year period. In conformity with industry practice, however, the full amount of accounts receivable, including such amounts withheld, are included in current assets on the condensed consolidated balance sheet.

     Trade accounts receivable are continually evaluated for collectibility. Provisions are established on a project-specific basis when there is an issue associated with the client’s ability to make payments or there are circumstances where the client is not making payment due to contractual issues.

      Contracts in Process and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts — Under long-term contracts, amounts recorded in contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts may not be realized or paid, respectively, within a one-year period. In conformity with industry practice, however, the full amount of contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts is included in current assets and current liabilities, respectively.

      Land, Buildings and Equipment — Depreciation is computed on a straight-line basis using estimated lives ranging from 10 to 50 years for buildings and from 3 to 35 years for equipment. Expenditures for maintenance and repairs are charged to operations as incurred. Renewals and betterments are capitalized. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses, if any, are reflected in earnings.

      Investments in and Advances to Unconsolidated Affiliates — We use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50% unless significant economic or governance considerations indicate that we are unable to exert significant influence in which case the cost method is used. The equity method is also used for affiliates in which our investment ownership is greater than 50% but we do not have a controlling interest. Currently, all of our significant investments in affiliates that are not consolidated are recorded using the equity method. Affiliates in which our investment ownership is less than 20% are carried at cost.

      Intangible Assets — Intangible assets consist principally of goodwill, trademarks and patents. Goodwill is allocated to our reporting units on a relative fair value basis at the time of the original purchase price allocation. Patents and trademarks are amortized on a straight-line basis over periods of 11 to 40 years.

     We test goodwill for impairment at the reporting unit level as defined in SFAS No. 142, “Goodwill and Other Intangible Assets.” This test is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value, which is estimated based on discounted future cash flows, exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the second step must be performed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. In the fourth quarter of each year, we evaluate goodwill at each reporting unit to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. SFAS No. 142 also requires that intangible assets with determinable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

     As of September 28, 2007 and December 29, 2006, we had goodwill of $52,052 and $51,573, respectively. The increase of $479 in goodwill resulted from changes in foreign currency exchange rates. All of the goodwill is related to our global power business group. In 2006, the fair value of the reporting units exceeded the carrying amounts.

     As described further in Note 2, in February 2007, we acquired a Finnish company that owns patented coal flow measuring technology. In conjunction with the acquisition, we recorded $1,463 of identifiable intangible assets. We had total unamortized identifiable intangible assets of $61,953 and $62,004 as of September 28, 2007 and December 29, 2006, respectively. The following table details amounts relating to those assets:

     Amortization expense related to patents and trademarks, which is recorded within cost of operating revenues on the condensed consolidated statement of operations, totaled $912 and $2,720 for the three and nine months ended September 28, 2007, respectively. Similarly, amortization expense totaled $898 and $2,676 for the three and nine months ended September 29, 2006, respectively. Amortization expense is expected to approximate $3,600 each year in the next five years.

      Income Taxes — Deferred tax assets/liabilities are established for the difference between the financial reporting and income tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

     We do not make a provision for U.S. federal income taxes on foreign subsidiary earnings if we expect such earnings to be permanently reinvested outside the United States.

      Foreign Currency — The functional currency of our foreign operations is the local currency of their country of domicile. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at period-end exchange rates and income and expenses and cash flows are translated at weighted-average exchange rates for the period.

     We maintain a foreign currency risk-management strategy that uses foreign currency forward contracts to protect us from unanticipated fluctuations in cash flows that may arise from volatility in currency exchange rates between the functional currencies of our subsidiaries and the foreign currencies in which some of our operating purchases and sales are denominated. We utilize these contracts solely to hedge specific foreign currency exposures, whether or not they qualify for hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” During the three and nine months ended September 28, 2007 and September 29, 2006, none of the contracts met the requirements for hedge accounting under SFAS No. 133. Accordingly, we recorded a pre–tax foreign exchange gain/(loss) of $(90) and $576 for the three and nine months ended September 28, 2007, respectively. Similarly, we recorded pre–tax foreign exchange gains of $487 and $2,857 for the three and nine months ended September 29, 2006, respectively. These amounts were recorded in the following line items on our condensed consolidated statement of operations for the periods indicated:

     The mark-to-market adjustments on foreign exchange contracts for these unrealized gains or losses are recorded in either contracts in process or billings in excess of costs and estimated earnings on uncompleted contracts on our condensed consolidated balance sheet.

     During the nine months ended September 28, 2007 and September 29, 2006, we included cash inflows/(outflows) on the settlement of derivatives of $4,280 and $990, respectively, within the net change in

contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts in the operating activities section of our condensed consolidated statement of cash flows.

      Interest Rate Risk — We use interest rate swap contracts to manage interest rate risk associated with some of our variable rate special-purpose limited recourse project debt. Certain of our affiliates in which we have an equity interest also use interest rate swap contracts to manage interest rate risk associated with their limited recourse project debt. Upon entering into the swap contracts, we designate the interest rate swaps as cash flow hedges in accordance with SFAS No. 133. We assess at inception, and on an ongoing basis, whether the interest rate swaps are highly effective in offsetting changes in the cash flows of the project debt. Consequently, we record the fair value of our interest rate swap contracts on our condensed consolidated balance sheet at each balance sheet date. Changes in the fair value of the interest rate swap contracts are recorded as a component of comprehensive income on our condensed consolidated statement of comprehensive income. As of September 28, 2007 and December 29, 2006, we had net gains on the swap contracts of $1,621 and $342, respectively, which were recorded net of tax of $798 and $203, respectively, and were included in accumulated other comprehensive loss on our condensed consolidated balance sheet.

      Restrictions on Shareholders’ Dividends — We have not declared or paid a common share dividend since July 2001 and we do not have any plans to declare or pay any common share dividends. Our current credit agreement contains limitations on dividend payments.

      Earnings per Common Share — Basic and diluted earnings per common share are computed using net income attributable to common shareholders rather than total net income. As described further in Note 9, we completed two common share purchase warrant offer transactions in January 2006, which increased the number of common shares delivered upon the exercise of our Class A and Class B warrants during the offer period. We issued 373,948 additional common shares as a result of the warrant offers. Since the warrant holders were not necessarily common shareholders prior to the warrant offers, the issuance of the additional shares was not considered a pro rata common share dividend to common shareholders. Rather, the fair value of the additional shares was treated as a preferential distribution to a sub-set of common shareholders. Accordingly, we were required to reduce net income attributable to the common shareholders by the fair value of the additional common shares when calculating earnings per common share for the nine months ended September 29, 2006. The fair value of the additional shares issued was $19,445, which was determined using the common share price at the time of issuance of the shares.

     Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the reporting period, excluding non-vested restricted shares of 82,980 and 875,028 as of September 28, 2007 and September 29, 2006, respectively. Restricted shares and restricted share units (collectively, “restricted awards”) are included in the weighted-average number of common shares outstanding when such shares vest.

     Diluted earnings per common share is computed by dividing net income attributable to common shareholders by the combination of the weighted-average number of common shares outstanding during the reporting period and the impact of dilutive securities, if any, such as outstanding stock options, warrants to purchase common shares and the non-vested portion of restricted awards to the extent such securities are dilutive.

     In profitable periods, outstanding stock options and warrants have a dilutive effect under the treasury stock method when our average common share market price for the period exceeds the assumed proceeds from the exercise of the warrant or option. The assumed proceeds include the exercise price, compensation cost, if any, for future service that has not yet been recognized in the condensed consolidated statement of operations, and any tax benefits that would be recorded in paid-in capital when the option or warrant is exercised. Under the treasury stock method, the assumed proceeds are assumed to be used to repurchase common shares in the current period. The dilutive impact of the non-vested portion of restricted awards is determined using the treasury stock method, but the proceeds include only the unrecognized compensation cost and tax benefits as assumed proceeds.

     The computations of basic and diluted earnings per common share were as follows:

		Three Months Ended								Nine Months Ended
		September 28,				September 29,				September 28,				September 29,
		2007				2006				2007				2006
Net income		$	129,101			$	75,827			$	315,776			$	198,876
Fair value of additional shares issued as part of warrant offers			—				—				—				(19,445	)
Net income attributable to common shareholders		$	129,101			$	75,827			$	315,776			$	179,431
Basic earnings per common share:
Net income attributable to common shareholders		$	129,101			$	75,827			$	315,776			$	179,431
Weighted-average number of common shares outstanding for basic earnings per common share			71,258,764				67,710,728				70,517,309				65,871,698
Basic earnings per common share		$	1.81			$	1.12			$	4.48			$	2.72
Diluted earnings per common share:
Net income attributable to common shareholders		$	129,101			$	75,827			$	315,776			$	179,431
Weighted-average number of common shares outstanding for basic earnings per common share			71,258,764				67,710,728				70,517,309				65,871,698
Effect of dilutive securities:
Options to purchase common shares			336,289				1,306,035				576,644				1,571,787
Warrants to purchase common shares			820,267				1,092,055				1,067,458				1,906,512
Non-vested portion of restricted awards			130,912				1,012,770				121,636				1,024,313
Weighted-average number of common shares outstanding for diluted earnings per common share			72,546,232				71,121,588				72,283,047				70,374,310
Diluted earnings per common share		$	1.78			$	1.07			$	4.37			$	2.55

     The following table summarizes the common share equivalent of potentially dilutive securities that have been excluded from the denominator used in the calculation of diluted earnings per common share due to their antidilutive effect:

      Share-Based Compensation Plans — Our share-based compensation plans are accounted for in accordance with the provisions of SFAS No. 123R, “Share-Based Payment.” We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. We then recognize the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:

	•		Expected volatility – we estimate the volatility of our common share price at the date of grant using historical volatility adjusted for periods of unusual stock price activity.
	•		Expected term – we estimate the expected term of options granted to our chief executive officer based on a combination of vesting schedules, contractual life of the option, past history and estimates of future exercise behavior patterns. For other employees and the non-employee directors, we estimate the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin No. 107, “Topic 14: Share-Based Payment.”
	•		Risk-free interest rate – we estimate the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected life of the options in effect at the time of grant.
	•		Dividends – we use an expected dividend yield of zero because we have not declared or paid a common share dividend since July 2001 and we do not have any plans to declare or pay any common share dividends.

     We used the following weighted-average assumptions to estimate the fair value of the options granted for the periods indicated:

     We estimate the fair value of restricted awards using the market price of our common shares on the date of grant. We then recognize the fair value of each restricted award as compensation cost ratably using the straight-line attribution method over the service period (generally the vesting period).

     We estimate pre-vesting forfeitures at the time of grant using a combination of historical data and demographic characteristics, and we revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We record share-based compensation expense only for those awards that are expected to vest.

      Recent Accounting Developments — In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are still evaluating whether we want to adopt this new optional standard.

2. Business Combinations

     On April 7, 2006, we completed the purchase of the remaining 51% interest in MF Power, a company that was 49% owned by us prior to the acquisition. Subsequent to the acquisition, we own 100% of the equity interests of MF Power, which was renamed FW Power S.r.L. (“FW Power”). FW Power is dedicated to the development, construction and operation of electric power generating wind farm projects in Italy. In accordance with the terms of the purchase agreement, we were required to pay a purchase price of up to €16,393, of which €12,580 (approximately $15,200 at the exchange rate in effect at the time of payment) was paid at closing and the final payment of €3,440 (approximately $4,800 at the exchange rate in effect at the time of payment) was paid in September 2007 upon start of construction of a third wind farm being developed by FW Power as part of the purchase contract with the seller.

     In February 2007, we purchased the stock of a Finnish company that owns patented coal flow measuring technology. The purchase price, net of cash acquired, was €1,112 (approximately $1,473 at the exchange rate in effect at the time of the acquisition). The purchase price allocation for this acquisition was not material.

3. Equity Interests

     We own non-controlling equity interests in two electric power generation projects, one waste-to-energy project and one wind farm project in Italy and in a refinery/electric power generation project in Chile. The two electric power generation projects are each 42% owned by us, the waste-to-energy project is 39% owned by us and the wind farm project is 50% owned by us. The project in Chile is 85% owned by us; however, we do not have a controlling interest in the Chilean project as a result of participating rights held by the minority shareholder. The following is summarized financial information for the entities (each as a whole) in which we have an equity interest:

     Our share of equity in the net earnings of these partially-owned affiliates, which are recorded within other income on the condensed consolidated statement of operations, totaled $18,935 and $29,503 for the three and nine months ended September 28, 2007, respectively. For the three and nine months ended September 29, 2006, our share of equity in the net earnings of these partially-owned affiliates totaled $562 and $23,227, respectively. Our share of the equity earnings on certain of the Italian projects were favorably impacted by $6,283 during the third quarter of 2007, of which $4,398 related to the first and second quarters of 2007, due to a tariff rate increase occurring in the quarter as a result of the favorable outcome of a rate appeal. In the third quarter of 2006, the majority owners of certain of the Italian projects sold their interests to another third party. Prior to this sale, our share of equity in the net earnings of these projects was reported on a pretax basis in other income and the associated taxes were reported in the provision for income taxes because we and the other partners elected pass-through taxation treatment under local law. As a direct result of the ownership change arising from the sale, the subject entities are now precluded from electing pass-through taxation treatment. As a result, commencing in the third quarter of 2006, we began reporting our share of the related after-tax earnings in other income. Our share of equity in the net earnings of these projects is reported in other income, net of a $4,300 and $7,400 tax provision for the three and nine months ended September 28, 2007, respectively.

     Our investment in these equity affiliates, which is recorded within investments in and advances to unconsolidated affiliates on the condensed consolidated balance sheet, totaled $182,338 and $150,752 as of September 28, 2007 and December 29, 2006, respectively. Distributions of $10,946 and $17,688 were received from these equity affiliates during the nine months ended September 28, 2007 and September 29, 2006, respectively.

     Since the third quarter of 2006, we have evaluated our investment in the wind farm project in Italy under FASB Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities,” and have concluded that while the entity is a variable interest entity, we were not the primary beneficiary. In July 2007, the wind farm project secured project financing. As a result, in the third quarter of 2007, we re-evaluated our previous conclusion and reconfirmed our conclusion that we are not the primary beneficiary. As such, we have included our share of the net earnings of the wind farm project in our condensed consolidated financial statements using the equity method.

     We have guaranteed certain performance obligations of the Chilean project. We have a contingent obligation, which is measured annually based on the operating results of the Chilean project for the preceding year. We did not have a current payment obligation under this guarantee as of December 29, 2006.

     We also have a guarantee that supports the obligations of our subsidiary under the Chilean project’s operations and maintenance agreement. The guarantee is limited to $20,000 over the life of the operations and maintenance agreement, which extends through 2016. No amounts have ever been paid under the guarantee.

     In addition, we have provided a $10,000 debt service reserve letter of credit to cover debt service payments in the event that the Chilean project does not generate sufficient cash flow to make such payments. We are required to maintain the debt service reserve letter of credit during the term of the Chilean project’s debt, which matures in 2014. As of September 28, 2007, no amounts have ever been drawn under this letter of credit.

4. Long-term Debt

     The following table shows the components of our long-term debt:

      Domestic Senior Credit Agreement — In October 2006, we executed a five-year domestic senior credit agreement. In May 2007, we executed an amendment to the domestic senior credit agreement to increase the facility by $100,000 to $450,000, to reduce the pricing on a portion of the letters of credit issued under the facility and to restore a provision which permits future incremental increases of up to $100,000 in total availability under the facility. We can issue up to $450,000 under the letter of credit facility. A portion of the letters of credit issued under the domestic senior credit agreement have performance pricing that is decreased (or increased) as a result of improvements (or reductions) in the credit rating of the domestic senior credit agreement as reported by Moody’s Investors Service and/or Standard & Poor’s (“S&P”). We also have the option to use up to $100,000 of the $450,000 for revolving borrowings at a rate equal to adjusted LIBOR plus 1.50%, subject also to the performance pricing noted above. As a result of the improvement in our S&P credit rating in March 2007, we have achieved the lowest possible pricing under the performance pricing provisions of our domestic senior credit agreement.

     We had $312,435 and $189,036 of letters of credit outstanding under our domestic senior credit agreement as of September 28, 2007 and December 29, 2006, respectively. The letter of credit fees currently range from 1.50% to 1.60% of the outstanding amount. There were no funded borrowings under this agreement as of September 28, 2007 or December 29, 2006.

5. Pensions and Other Postretirement Benefits

     We have defined benefit pension plans in the United States, the United Kingdom, South Africa, France, Canada and Finland, and we have other postretirement benefit plans for health care and life insurance benefits in the United States and Canada.

      Pension Benefits — Our defined benefit pension plans cover certain full-time employees. The components of benefit cost for our pension plans are as follows:

     The U.S. pension plans, which are frozen to new entrants and additional benefit accruals, and the Canadian, Finnish and French plans are non-contributory. The U.K. plan, which is closed to new entrants, and the South African plan are contributory.

     At year-end 2006, we expected to make mandatory contributions of $20,400 to our U.S. pension plans in 2007. In March 2007, we made the full year 2007 mandatory contribution of $20,400 to our U.S. pension plans plus an additional discretionary contribution of $14,600. We do not expect to be required to make any further mandatory contributions to the U.S. pension plans until 2013 or later given our current actuarial assumptions. We also made a mandatory contribution of $26,400 to our foreign pension plans during the nine months ended September 28, 2007. We expect to make total mandatory contributions approximating $35,100 to our foreign plans in 2007.

      Other Postretirement Benefits — Certain employees in the United States and Canada may become eligible for health care and life insurance benefits (“other postretirement benefits”) if they qualify for and commence normal or early retirement pension benefits as defined in the pension plans while working for us. Additionally, one of our subsidiaries in the United States also has a benefit plan, referred to as the Survivor Income Plan (“SIP”), which provides coverage for an employee’s beneficiary upon the death of the employee. This plan has been closed to new entrants since 1988.

     The components of benefit cost for our other postretirement plans, including the SIP, are as follows: