UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 28, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ............ to .............
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Commission file number
001-31305
FOSTER WHEELER LTD.
(Exact name of registrant as
specified in its charter)
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BERMUDA
(State or other jurisdiction of
incorporation or organization)
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22-3802649
(I.R.S. Employer Identification
No).
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Perryville Corporate Park, Clinton, New Jersey
(Address of Principal Executive
Offices)
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08809-4000
(Zip Code)
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Registrants telephone number, including area code:
(908) 730-4000
Securities registered pursuant to Section 12(b) of the Act:
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(Title of Each Class)
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(Name of Each Exchange on which Registered)
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Foster Wheeler Ltd.,
Common Shares, $0.01 par value
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NASDAQ Stock Market LLC
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Foster Wheeler Ltd.,
Class A Common Share Purchase Warrants
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NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act:
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(Title of Each Class)
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(Name of Each Exchange on which Registered)
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Foster Wheeler Ltd.,
Series B Convertible Preferred Shares, $0.01 par
value
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Over-the-Counter Bulletin Board
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
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Yes
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No
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.
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Yes
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No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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(Do not check if a smaller reporting company)
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Smaller reporting
company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act).
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Yes
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No
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was
approximately $6,805,600,000 as of the last business day of the
registrants most recently completed second fiscal quarter,
based upon the closing sale price on the NASDAQ Global Select
Market reported for such date. Common shares held as of such
date by each officer and director and by each person who owns 5%
or more of the outstanding common shares have been excluded in
that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 144,113,515 of the registrants common shares
issued and outstanding as of February 15, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE:
Part III incorporates information by reference from the
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of the
registrants fiscal year ended December 28, 2007.
FOSTER
WHEELER LTD.
INDEX
This annual report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set
forth in this annual report on
Form 10-K.
See Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations
Safe Harbor Statement for further information.
1
PART I
ITEM 1. BUSINESS
General
Foster Wheeler Ltd. is incorporated under the laws of Bermuda
and is a holding company that owns the stock of its various
subsidiary companies. Except as the context otherwise requires,
the terms Foster Wheeler, us and
we, as used herein, include Foster Wheeler Ltd. and
its direct and indirect subsidiaries. Amounts in Part I,
Item 1 are presented in thousands, except for number of
employees.
Business
We operate through two business groups: our
Global
Engineering and Construction Group
, which we refer to as our
Global E&C Group, and our
Global Power Group
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Our Global E&C Group, which operates worldwide, designs,
engineers and constructs onshore and offshore upstream oil and
gas processing facilities, natural gas liquefaction facilities
and receiving terminals,
gas-to-liquids
facilities, oil refining, chemical and petrochemical,
pharmaceutical and biotechnology facilities and related
infrastructure, including power generation and distribution
facilities, and gasification facilities. Our Global E&C
Group provides engineering, project management and construction
management services, and purchases equipment, materials and
services from third-party suppliers and contractors.
Our Global E&C Group is also involved in the design of
facilities in new or developing market sectors, including carbon
capture and storage, solid fuel-fired integrated gasification
combined-cycle power plants,
coal-to-liquids
and biofuels. Our Global E&C Group owns one of the leading
refinery residue upgrading technologies and a hydrogen
production process used in oil refineries and petrochemical
plants. Additionally, our Global E&C Group has experience
with, and is able to work with, a wide range of processes owned
by others. Our Global E&C Group performs environmental
remediation services, together with related technical,
engineering, design and regulatory services.
Our Global E&C Group is also involved in the development,
engineering, construction, ownership and operation of power
generation facilities, from conventional and renewable sources,
and of
waste-to-energy
facilities in Europe. Our Global E&C Group generates
revenues from engineering and construction activities pursuant
to contracts spanning up to approximately four years in duration
and from returns on its equity investments in various production
facilities.
Our Global Power Group designs, manufactures and erects steam
generating and auxiliary equipment for electric power generating
stations and industrial facilities worldwide. Our steam
generating equipment includes a full range of technologies,
offering independent power producer, utility and industrial
clients high-value technology solutions for economically
converting a wide range of fuels, including coal, petroleum
coke, oil, gas, biomass and municipal solid waste, into steam
and power. Our circulating fluidized-bed boiler technology,
which we refer to as CFB, is ideally suited to burning a very
wide range of fuels, including low-quality fuels, fuels with
high moisture content and waste-type fuels, and we
believe is generally recognized as one of the environmentally
cleanest solid-fuel steam generating technologies available in
the world today. For both our CFB and pulverized coal, which we
refer to as PC, boilers, we offer supercritical
once-through-unit designs to further improve the energy
efficiency and, therefore, the environmental performance of
these units. Once-through supercritical boilers operate at
higher steam pressures than traditional plants, which results in
higher efficiencies and lower emissions, including emissions of
carbon dioxide, or
CO
2
,
which is considered a greenhouse gas.
Further, for the longer term, we are actively developing
oxy-combustion technology for both our CFB and PC boilers. We
believe that oxy-combustion is one part of a practical solution
for capturing and storing the majority of the
CO
2
from coal power plants. This technology produces a concentrated
stream of
CO
2
as part of the boiler combustion process avoiding the need for
large and expensive post-combustion
CO
2
separation equipment. We also design, manufacture and
install auxiliary equipment, which includes feedwater heaters,
steam condensers and heat-recovery equipment. Our Global Power
Group also offers a full line of new and retrofit
nitrogen-oxide, which we refer to as NOx, reduction systems such
as selective non-catalytic and
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catalytic NOx reduction systems as well as complete low-NOx
combustion systems. We provide a broad range of site services
relating to these products, including construction and erection
services, maintenance engineering, plant upgrading and life
extensions.
Our Global Power Group also provides research analysis and
experimental work in fluid dynamics, heat transfer, combustion
and fuel technology, materials engineering and solid mechanics.
In addition, our Global Power Group owns and operates
cogeneration, independent power production and
waste-to-energy
facilities, as well as power generation facilities for the
process and petrochemical industries. Our Global Power Group
generates revenues from engineering activities, equipment supply
and construction contracts, operating activities pursuant to the
long-term sale of project outputs, such as electricity and
steam, operating and maintenance agreements, royalties from
licensing our technology, and from returns on its equity
investments in various power production facilities.
In addition to these two business groups, which also represent
operating segments for financial reporting purposes, we report
corporate center expenses and expenses related to certain legacy
liabilities, such as asbestos, in the Corporate and Finance
Group, which we also treat as an operating segment for financial
reporting purposes and which we refer to as the C&F Group.
Please refer to Note 17 to the consolidated financial
statements in this annual report on
Form 10-K
for a discussion of our operating segments and geographic
financial information relating to our domestic and foreign
operations.
Products
and Services
Our Global E&C Groups services include:
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Consulting
Our Global E&C Group provides
technical and economic analyses and study reports to owners,
investors, developers, operators and governments. These services
include concept and feasibility studies, market studies, asset
assessments, product demand and supply modeling, and technology
evaluations.
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Design and Engineering
Our Global E&C
Group provides a broad range of engineering and design-related
services. Our design and engineering capabilities include
process, civil, structural, architectural, mechanical,
instrumentation, electrical, and health, safety and
environmental management. For each project, we identify the
project requirements and then integrate and coordinate the
various design elements. Other critical tasks in the design
process may include value engineering to optimize costs, risk
and hazard reviews, and the assessment of construction,
maintenance and operational requirements.
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Project Management and Project Control
Our
Global E&C Group offers a wide range of project management
and project control services for overseeing engineering,
procurement and construction activities. These services include
estimating costs, project planning and project cost control. The
provision of these services is an integral part of the planning,
design and construction phases of projects that we execute
directly for clients. We also provide these services to our
clients in the role of project management or program management
consultant, where we oversee, on our clients behalf, the
execution by other contractors of all or some of the planning,
design and construction phases of a project.
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Procurement
Our procurement activities focus
on those projects where we also execute the design and
engineering work. We manage the procurement of materials,
subcontractors and craft labor. Often, we purchase materials,
equipment or services on behalf of our client, where the client
will pay for the materials at cost and reimburse us the cost of
our services plus a margin or fee.
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Construction/Commissioning and
Start-up
Our Global E&C Group provides construction and
construction management services on a worldwide basis. Our
construction, commissioning and
start-up
activities focus on those projects where we have performed most
of the associated design and engineering work. Depending on the
project, we may function as the primary contractor or as a
subcontractor to another firm. On some projects, we function as
the construction manager, engaged by the customer to oversee
another contractors compliance with design specifications
and contracting
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terms. In some instances, we have responsibility for
commissioning and plant
start-up,
or, where the client has responsibility for these activities, we
provide experts to work as part of our clients team.
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Operations and Maintenance
We provide project
management, plant operations and maintenance services, such as
repair, renovation, predictive and preventative services and
other aftermarket services. In some instances, our contracts may
require us to operate a plant, which we have designed and built,
for an initial period that may vary from a very short period to
up to approximately two years.
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The principal products of our Global Power Group are steam
generators, commonly referred to as boilers. Our boilers produce
steam in a range of conditions and qualities, from low-pressure
saturated steam to high quality superheated steam at either
sub-critical
or supercritical conditions (steam pressures above 3,600
pounds-force per square inch absolute). The steam produced by
our boilers can be used to produce electricity in power plants,
heat buildings and in the production of many manufactured goods
and products, such as paper, chemicals and food products. Our
boilers convert the energy of a wide range of solid and liquid
fuels, as well as hot process gases, into steam and can be
classified into several types: circulating fluidized-bed,
pulverized coal, oil and natural gas, grate, heat recovery steam
generators and fully assembled package boilers. The two most
significant elements of our product portfolio are our CFB and PC
boilers.
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Circulating Fluidized-Bed Boilers
Our Global
Power Group designs, manufactures and supplies boilers that
utilize proprietary CFB technology. We believe that CFB
combustion is generally recognized as one of the most efficient,
environmentally friendly and versatile ways to generate steam
from coal and many other solid fuels and waste products with
reduced environmental pollutants. A CFB boiler utilizes air jets
at the base of the boiler to blow the fuel particles as they
burn, resulting in a very efficient combustion and heat transfer
process. The fuel and other added solid materials, such as
limestone, are continuously recycled through the furnace to
maximize combustion efficiency and capture pollutants, such as
the oxides of sulfur, which we refer to as SOx. Due to the
efficient mixing of the fuel with the air and other solid
materials and the long period of time the fuel remains in the
combustion process, the temperature of the process can be
greatly reduced below that of a conventional burning process.
This has the added benefit of reducing the formation of NOx,
which is another pollutant formed in the combustion process. Due
to these benefits, additional SOx and NOx control systems are
frequently not needed. The application of supercritical steam
technology to CFB technology is the latest technical
development. By dramatically raising the pressure of the water
as it is converted to steam, supercritical steam technology
allows the steam to absorb more heat from the combustion
process, resulting in a substantial improvement of approximately
5-10% in the efficiency of an electric power plant. We sell our
CFB boilers to clients worldwide.
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Pulverized Coal Boilers
Our Global Power
Group designs, manufactures and supplies PC boilers. PC boilers
are commonly used in large electric coal-fired power plant
applications. The coal is pulverized into fine particles and
injected through specially designed low emission burners. Our PC
boilers control NOx by utilizing advanced low-NOx combustion
technology and selective catalytic reduction technology, which
we refer to as SCR. PC technology requires pollution control
equipment to be installed along with the boiler to capture SOx.
We offer our PC boilers with either conventional
sub-critical
steam technology or more efficient supercritical steam
technology for electric power plant applications. We sell our PC
boilers to clients worldwide.
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Auxiliary Equipment and Aftermarket Services
Our Global Power Group also manufactures and installs
integral components for natural gas, oil and solid fuel-fired
power generation facilities, including surface condensers,
feedwater heaters, coal pulverizers and NOx reduction systems.
The NOx reduction systems include selective catalytic reduction,
or SCR, equipment and low NOx combustion systems, and can
significantly reduce NOx emissions. These products can be used
with a wide range of boilers. Our Global Power Group also
supplies replacement components, repair parts, boiler
modifications and engineered solutions for boilers worldwide.
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We provide a broad range of site services relating to these
products, including construction and erection services,
maintenance engineering, plant upgrading and life extension, and
plant repowering. Our Global Power Group also provides research
analysis and experimental work in fluid dynamics, heat transfer,
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combustion and fuel technology, materials engineering and solid
mechanics. In addition, our Global Power Group licenses
technology to a limited number of third-parties in select
countries.
Industries
We Serve
We serve the following industries:
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Oil and gas;
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Oil refining;
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Chemical/petrochemical;
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Pharmaceutical;
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Environmental;
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Power generation; and
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Power plant operation and maintenance.
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Customers
and Marketing
We market our services and products through a worldwide staff of
sales and marketing personnel, and through a network of sales
representatives and through partnership or joint venture
arrangements with unrelated third-parties. Our businesses are
not seasonal and are not dependent on a limited group of
clients. Except for one client that accounted for approximately
12% and 13% of our consolidated revenues (inclusive of
flow-through revenues) in fiscal years 2007 and 2006,
respectively, no other single client accounted for ten percent
or more of our consolidated revenues (inclusive of flow-through
revenues) in fiscal years 2007, 2006 or 2005. Representative
clients include state-owned and multinational oil and gas
companies, major petrochemical, chemical, and pharmaceutical
companies, national and independent electric power generation
companies, and government agencies throughout the world. The
majority of our revenues and new business originates outside of
the United States.
Licenses,
Patents and Trademarks
We own and license patents, trademarks and know-how, which are
used in each of our business groups. The life cycles of the
patents and trademarks are of varying durations. We are not
materially dependent on any particular patent or trademark,
although we depend on our ability to protect our intellectual
property rights to the technologies and know-how used in our
proprietary products. As noted above, we have granted licenses
to a limited number of companies in select countries to
manufacture stationary boilers and related equipment and certain
of our other products. Our principal licensees are located in
China, India, Italy, Japan and South Korea. Recurring royalty
revenues have historically ranged from approximately $5,000 to
$10,000 per year.
Unfilled
Orders
We execute our contracts on lump-sum turnkey, fixed-price,
target-price with incentives and cost-reimbursable bases.
Generally, contracts are awarded on the basis of price, delivery
schedule, technical capability and service. On certain contracts
our clients may make a down payment at the time a contract is
executed and continue to make progress payments until the
contract is completed and the work has been accepted as meeting
contract guarantees. Our Global Power Groups products are
custom designed and manufactured, and are not produced for
inventory. Our Global E&C Group frequently purchases
materials, equipment, and third-party services at cost for
clients on a cash neutral/reimbursable basis when providing
engineering specification or procurement services. Such
flow-through amounts are recorded both as revenues
and cost of operating revenues with no profit recognized. Our
Global E&C Group does not purchase such materials and
equipment for inventory.
We measure our unfilled orders in terms of expected future
revenues. Included in future revenues are flow-through revenues,
which result when we are performing an engineering or
construction contract and purchase materials, equipment or
subcontractor services on behalf of our customers on a
reimbursable basis with no profit added to the cost of the
materials, equipment or subcontractor services. We also measure
our unfilled orders in terms of Foster Wheeler scope, which
excludes flow-through revenues. As such, Foster
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Wheeler scope measures the component of backlog with profit
potential and represents our services plus fees for reimbursable
contracts and total selling price for lump-sum or fixed-price
contracts.
Please refer to Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, for a discussion of the changes in unfilled
orders, both in terms of expected future revenues and Foster
Wheeler scope. See also Item 1A, Risk
Factors Risks Related to Our Operations
Projects included in our backlog may be delayed or canceled,
which could materially adversely affect our business, financial
condition, results of operations and cash flows.
Use of
Raw Materials
We obtain the materials used in our manufacturing and
construction operations from both domestic and foreign sources.
The procurement of materials, consisting mainly of steel
products and manufactured items, is heavily dependent on
unrelated third-party foreign sources.
Compliance
with Government Regulations
We are subject to certain foreign, federal, state and local
environmental, occupational health and product safety laws
arising from the countries where we operate. We also purchase
materials and equipment from third-parties, and engage
subcontractors, who are also subject to these laws and
regulations. We believe that all our operations are in material
compliance with those laws and we do not anticipate any material
capital expenditures or material adverse effect on earnings or
cash flows as a result of complying with those laws.
Employees
The following table indicates the number of full-time, temporary
and agency personnel in each of our business groups. We believe
that our relationship with our employees is satisfactory.
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As of
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December 28,
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December 29,
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2007
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2006
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Global E&C Group
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10,498
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8,887
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Global Power Group
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3,278
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3,027
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C&F Group
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83
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78
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13,859
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11,992
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Competition
Many companies compete with us in the engineering and
construction business. Neither we nor any other single company
has a dominant market share of the total design, engineering and
construction business servicing the global businesses previously
described. Many companies also compete in the global energy
business and neither we nor any other single competitor has a
dominate market share. Companies that compete with our Global
E&C Group include but are not limited to the following:
Bechtel Corporation; Chicago Bridge & Iron Company
N.V.; Chiyoda Corporation; Fluor Corporation; Jacobs Engineering
Group Inc.; JGC Corporation; KBR, Inc.; McDermott International;
Saipem S.p.A.; Shaw Group, Inc.; Technip; and Worley Parsons
Ltd. Companies that compete with our Global Power Group include
but are not limited to the following: Aker Kvaerner ASA; Alstom
Power; Austrian Energy & Environment AG.; The
Babcock & Wilcox Company; Babcock Power Inc.;
Doosan-Babcock; Hitachi, Ltd.; and Mitsubishi Heavy Industries
Ltd.
Available
Information
You may obtain free electronic copies of our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and all amendments to these documents at our
website,
www.fwc.com
, under the heading Investor
Relations by selecting the heading SEC
Filings. We make these documents available on our website
as soon as reasonably practicable after we electronically file
them with or furnish them to the SEC. The information disclosed
on our website is not incorporated herein and does not form a
part of this annual report on
Form 10-K.
You may also read and copy any materials that we file with or
furnish to the SEC at the SECs Public Reference Room
located at 100 F Street NE, Room 1580,
Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains electronic versions of our filings on its
website at
www.sec.gov
.
6
ITEM 1A. RISK
FACTORS (amounts in thousands of dollars)
Our business is subject to a number of risks and uncertainties,
including those described below. If any of these events occur,
our business could be harmed and the trading price of our
securities could decline. The following discussion of risks
relating to our business should be read carefully in connection
with evaluating our business and the forward-looking statements
contained in this annual report on
Form 10-K.
For additional information regarding forward-looking statements,
see Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations
Safe Harbor Statement.
The categorization of risks set forth below is meant to help you
better understand the risks facing our business and is not
intended to limit consideration of the possible effects of these
risks to the listed categories. Any adverse effects related to
the risks discussed below may, and likely will, adversely affect
many aspects of our business.
Risks
Related to Our Operations
Our
current and future lump-sum or fixed-price contracts and other
shared risk contracts may result in significant losses if costs
are greater than anticipated.
Some of our contracts are fixed-price contracts and other
shared-risk contracts that are inherently risky because we agree
to the selling price of the project at the time we enter into
the contract. The selling price is based on estimates of the
ultimate cost of the contract and we assume substantially all of
the risks associated with completing the project, as well as the
post-completion warranty obligations. Certain of these contracts
are lump-sum turnkey projects where we are responsible for all
aspects of the work from engineering through construction, as
well as commissioning, all for a fixed selling price. As of
December 28, 2007, our backlog included $1,950,400
attributed to lump-sum turnkey and other fixed-price contracts,
which represented 21% of our total backlog.
We assume the projects technical risk and associated
warranty obligations, meaning that we must tailor products and
systems to satisfy the technical requirements of a project even
though, at the time the project is awarded, we may not have
previously produced such a product or system. We also assume the
risks related to revenue, cost and gross profit realized on such
contracts that can vary, sometimes substantially, from the
original projections due to changes in a variety of other
factors, including but not limited to:
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engineering design changes;
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unanticipated technical problems with the equipment being
supplied or developed by us, which may require that we spend our
own money to remedy the problem;
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changes in the costs of components, materials or labor;
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difficulties in obtaining required governmental permits or
approvals;
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changes in local laws and regulations;
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changes in local labor conditions;
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project modifications creating unanticipated costs;
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delays caused by local weather conditions; and
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our project owners, suppliers or
subcontractors failure to perform.
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These risks may be exacerbated by the length of time between
signing a contract and completing the project because most
lump-sum or fixed-price projects are long-term. The term of our
contracts can be as long as approximately four years. In
addition, we sometimes bear the risk of delays caused by
unexpected conditions or events. Long-term, fixed-price projects
often make us subject to penalties if portions of the project
are not completed in accordance with
agreed-upon
time limits. Therefore, significant losses can result from
performing large, long-term projects on a fixed-price or
lump-sum basis. These losses may be material,
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including in some cases up to or exceeding the full contract
value in certain events of non-performance, and could negatively
impact our business, financial condition, results of operations
and cash flows.
We may increase the size and number of fixed-price or lump-sum
turnkey contracts, sometimes in countries where or with clients
with whom we have limited previous experience.
We may bid for and enter into such contracts through
partnerships or joint ventures with third-parties. This may
increase our ability and willingness to bid for increased
numbers of contracts
and/or
increased size of contracts. In addition, in some cases,
applicable law and joint venture or other agreements may provide
that each joint venture partner is jointly and severally liable
for all liabilities of the venture. Entering into these
partnerships or joint ventures will expose us to credit and
performance risks of those third-party partners, which could
have a negative impact on our business and our results of
operations if these parties fail to perform under the
arrangements.
Because we recognize operating revenues and costs of operating
revenues on a
percentage-of-completion
basis on long-term fixed-price contracts, revisions to estimated
revenues and estimated costs could result in changes to
revenues, costs and profits. For further information on our
revenue recognition methodology, please refer to Note 1,
Summary of Significant Accounting Policies
Revenue Recognition on Long-Term Contracts, to the
consolidated financial statements in this annual report on
Form 10-K.
Failure
by us to successfully defend against claims made against us by
project owners, suppliers or project subcontractors, or failure
by us to recover adequately on claims made against project
owners, suppliers or subcontractors, could materially adversely
affect our business, financial condition, results of operations
and cash flows.
In the ordinary course of business, claims involving project
owners, suppliers and subcontractors are brought against us and
by us in connection with our project contracts. Claims brought
against us include back charges for alleged defective or
incomplete work, breaches of warranty
and/or
late
completion of the project work and claims for canceled projects.
The claims and back charges can involve actual damages, as well
as contractually agreed upon liquidated sums. Claims brought by
us against project owners include claims for additional costs
incurred in excess of current contract provisions arising out of
project delays and changes in the previously agreed scope of
work. Claims between us and our suppliers, subcontractors and
vendors include claims like any of those described above. These
project claims, if not resolved through negotiation, are often
subject to lengthy and expensive litigation or arbitration
proceedings. Charges associated with claims could materially
adversely impact our business, financial condition, results of
operations and cash flows. For further information on project
claims, please refer to Note 19, Litigation and
Uncertainties to the consolidated financial statements in
this annual report on
Form 10-K.
Projects
included in our backlog may be delayed or canceled, which could
materially adversely affect our business, financial condition,
results of operations and cash flows.
The dollar amount of backlog does not necessarily indicate
future earnings related to the performance of that work. Backlog
refers to expected future revenues under signed contracts and
legally binding letters of intent that we have determined are
likely to be performed. Backlog represents only business that is
considered firm, although cancellations or scope adjustments may
and do occur. Because of changes in project scope and schedule,
we cannot predict with certainty when or if backlog will be
performed or the associated revenue will be recognized. In
addition, even where a project proceeds as scheduled, it is
possible that contracted parties may default and fail to pay
amounts owed to us. Material delays, cancellations or payment
defaults could materially adversely affect our business,
financial condition, results of operations and cash flows.
Because
our operations are concentrated in four particular industries,
we may be adversely impacted by economic or other developments
in these industries.
We derive a significant amount of revenues from services
provided to clients that are concentrated in four industries:
oil and gas, oil refining, chemical/petrochemical and power.
Unfavorable economic or other developments in one or more of
these industries could adversely affect our clients and could
materially
8
adversely affect our business, financial condition, results of
operations and cash flows. Our business has not been impacted to
date by the U.S. credit crunch resulting from the
sub-prime
mortgage crisis. However, the full impact of the credit crunch
on the U.S. and global economy has yet to be fully
established and therefore the possibility remains that credit
conditions, as well as a slowdown or recession in economic
growth, could adversely affect the industries in which our
clients operate.
We may
lose business to competitors.
We are engaged in highly competitive businesses in which
customer contracts are often awarded through bidding processes
based on price and the acceptance of certain risks. We compete
with other general and specialty contractors, both foreign and
domestic, including large international contractors and small
local contractors. The strong competition in our markets
requires maintaining skilled personnel, investing in technology
and also puts pressure on profit margins. Because of this, we
could be prevented from obtaining contracts for which we have
bid due to price, greater perceived financial strength and
resources of our competitors
and/or
perceived technology advantages.
A
failure by us to attract and retain qualified personnel, joint
venture partners, advisors and subcontractors could materially
adversely affect our business, financial condition, results of
operations and cash flows.
Our ability to attract and retain qualified engineers and other
professional personnel, as well as joint venture partners,
advisors and subcontractors, will be an important factor in
determining our future success. The market for these
professionals is competitive and we may not be successful in
efforts to attract and retain these professionals. Failure to
attract or retain these professionals, joint venture partners,
advisors and subcontractors could materially adversely affect
our business, financial condition, results of operations and
cash flows.
Our
worldwide operations involve risks that may limit or disrupt
operations, limit repatriation of cash, increase foreign
taxation or otherwise materially adversely affect our business,
financial condition, results of operations and cash
flows.
We have worldwide operations that are conducted through foreign
and domestic subsidiaries, as well as through agreements with
joint venture partners. Our
non-U.S. subsidiaries,
which accounted for approximately 80% of our operating revenues
and substantially all of our operating cash flows in fiscal year
2007, have operations located in Europe, Asia, Australia, the
Middle East, South Africa and South America. Operating cash flow
of our U.S. subsidiaries also includes expenses associated
with our corporate center. Additionally, we purchase materials
and equipment on a worldwide basis and are heavily dependent on
unrelated third-party foreign sources for these materials and
equipment. Our worldwide operations are subject to risks that
could materially adversely affect our business, financial
condition, results of operations and cash flows, including:
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uncertain political, legal and economic environments;
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potential incompatibility with foreign joint venture partners;
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foreign currency controls and fluctuations;
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energy prices and availability;
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terrorist attacks;
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the imposition of additional governmental controls and
regulations;
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war and civil disturbances;
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labor problems; and
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interruption or delays in international shipping.
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Because of these risks, our worldwide operations and our
execution of projects may be limited, or disrupted; our
contractual rights may not be enforced fully or at all; our
foreign taxation may be increased; or
9
we may be limited in repatriating earnings. These potential
events and liabilities could materially adversely affect our
business, financial condition, results of operations and cash
flows.
In addition, many of the countries in which we transact business
have laws that restrict the offer or payment of anything of
value to government officials or other persons with the intent
of gaining business or favorable government action. We are
subject to these laws in addition to being governed by
U.S. Federal laws restricting these types of activities. In
addition to prohibiting certain bribery-related activity with
foreign officials and other persons, these laws provide for
recordkeeping and reporting obligations. Any failure to comply
with these legal and regulatory obligations could impact us in a
variety of ways that include, but are not limited to,
significant criminal, civil and administrative penalties. The
failure to comply with these legal and regulatory obligations
could also result in the disruption of our business activities.
Our
business may be materially adversely impacted by regional,
national and/or global requirements to significantly limit or
reduce greenhouse gas emissions in the future.
Greenhouse gases that result from human activities, including
burning of fossil fuels, have been the focus of increased
scientific and political scrutiny and are being subjected to
various legal requirements. International agreements, national
laws, state laws and various regulatory schemes limit or
otherwise regulate emissions of greenhouse gases, and additional
restrictions are under consideration by different governmental
entities. We derive a significant amount of revenues and
contract profits from engineering and construction services to
clients that own
and/or
operate a wide range of process plants and from the supply of
our manufactured equipment to clients that own
and/or
operate electric power generating plants. Additionally, we own
or partially own plants that generate electricity from burning
natural gas or various types of solid fuels. These plants emit
greenhouse gases as part of the process to generate electricity
or other products. Compliance with the existing greenhouse gas
regulation may prove costly or difficult. It is possible that
owners and operators of existing or future process plants and
electric generating plants could be subject to new or changed
environmental regulations that result in significantly limiting
or reducing the amounts of greenhouse gas emissions, increasing
the cost of emitting such gases or requiring emissions
allowances. The costs of controlling such emissions or obtaining
required emissions allowances could be significant. It also is
possible that necessary controls or allowances may not be
available. Such regulations could negatively impact client
investments in capital projects in our markets, which could
negatively impact the market for our manufactured products and
certain of our services, and also could negatively affect the
operations and profitability of our own electric power plants.
This could materially adversely affect our business, financial
condition, results of operations and cash flows.
We are
subject to various environmental laws and regulations in the
countries in which we operate. If we fail to comply with these
laws and regulations, we may incur significant costs and
penalties that could materially adversely affect our business,
financial condition, results of operations and cash
flows.
Our operations are subject to U.S., European and other laws and
regulations governing the generation, management and use of
regulated materials, the discharge of materials into the
environment, the remediation of environmental contamination, or
otherwise relating to environmental protection. Both our Global
E&C Group and our Global Power Group make use of and
produce as wastes or byproducts substances that are considered
to be hazardous under these environmental laws and regulations.
We may be subject to liabilities for environmental contamination
as an owner or operator (or former owner or operator) of a
facility or as a generator of hazardous substances without
regard to negligence or fault, and we are subject to additional
liabilities if we do not comply with applicable laws regulating
such hazardous substances, and, in either case, such liabilities
can be substantial. These laws and regulations could expose us
to liability arising out of the conduct of current and past
operations or conditions, including those associated with
formerly owned or operated properties caused by us or others, or
for acts by us or others which were in compliance with all
applicable laws at the time the acts were performed. In some
cases, we have assumed contractual indemnification obligations
for environmental liabilities associated with some formerly
owned properties. The ongoing costs of complying with existing
environmental laws and regulations could be substantial.
Additionally, we may be subject to claims alleging personal
injury, property damage or natural resource damages as a result
of
10
alleged exposure to or contamination by hazardous substances.
Changes in the environmental laws and regulations, remediation
obligations, enforcement actions, stricter interpretations of
existing requirements, future discovery of contamination or
claims for damages to persons, property, natural resources or
the environment could result in material costs and liabilities
that we currently do not anticipate.
We may
lose future business to our competitors and be unable to operate
our business profitably if our patents and other intellectual
property rights do not adequately protect our proprietary
products.
Our success depends significantly on our ability to protect our
intellectual property rights to the technologies and know-how
used in our proprietary products. We rely on patent protection,
as well as a combination of trade secret, unfair competition and
similar laws and nondisclosure, confidentiality and other
contractual restrictions to protect our proprietary technology.
However, these legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or
keep any competitive advantage. We also rely on unpatented
proprietary technology. We cannot provide assurance that we can
meaningfully protect all our rights in our unpatented
proprietary technology or that others will not independently
develop substantially equivalent proprietary products or
processes or otherwise gain access to our unpatented proprietary
technology. We also hold licenses from third-parties that are
necessary to utilize certain technologies used in the design and
manufacturing of some of our products. The loss of such licenses
would prevent us from manufacturing and selling these products,
which could harm our business.
We
rely on our information systems in our operations. Failure to
protect these systems against security breaches could adversely
affect our business and results of operations. Additionally, if
these systems fail or become unavailable for any significant
period of time, our business could be harmed.
The efficient operation of our business is dependent on computer
hardware and software systems. Information systems are
vulnerable to security breaches by computer hackers and cyber
terrorists. The unavailability of the information systems, the
failure of these systems to perform as anticipated for any
reason or any significant breach of security could disrupt our
business and could result in decreased performance and increased
overhead costs, causing our business and results of operations
to suffer.
Risks
Related to Asbestos Claims
The
number and cost of our current and future asbestos claims in the
United States could be substantially higher than we have
estimated and the timing of payment of claims could be sooner
than we have estimated, which could materially adversely affect
our business, financial condition, results of operations and
cash flows.
Some of our subsidiaries are named as defendants in numerous
lawsuits and
out-of-court
administrative claims pending in the United States in which the
plaintiffs claim damages for alleged bodily injury or death
arising from exposure to asbestos in connection with work
performed, or heat exchange devices assembled, installed
and/or
sold,
by our subsidiaries. We expect these subsidiaries to be named as
defendants in similar suits and that claims will be brought in
the future. For purposes of our financial statements, we have
estimated the indemnity and defense costs to be incurred in
resolving pending and forecasted domestic claims through
year-end 2022. Although we believe our estimates are reasonable,
the actual number of future claims brought against us and the
cost of resolving these claims could be substantially higher
than our estimates. Some of the factors that may result in the
costs of asbestos claims being higher than our current estimates
include:
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the rate at which new claims are filed;
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the number of new claimants;
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changes in the mix of diseases alleged to be suffered by the
claimants, such as type of cancer, asbestosis or other illness;
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increases in legal fees or other defense costs associated with
asbestos claims;
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increases in indemnity payments;
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decreases in the proportion of claims dismissed with zero
indemnity payments;
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indemnity payments being required to be made sooner than
expected;
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bankruptcies of other asbestos defendants, causing a reduction
in the number of available solvent defendants and thereby
increasing the number of claims and the size of demands against
our subsidiaries;
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adverse jury verdicts requiring us to pay damages in amounts
greater than we expect to pay in settlements;
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changes in legislative or judicial standards that make
successful defense of claims against our subsidiaries more
difficult; or
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enactment of federal legislation requiring us to contribute
amounts to a national settlement trust in excess of our expected
net liability, after insurance, in the tort system.
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The total liability recorded on our balance sheet is based on
estimated indemnity and defense costs expected to be incurred
through year-end 2022. We believe that it is likely that there
will be new claims filed after 2022, but in light of
uncertainties inherent in long-term forecasts, we do not believe
that we can reasonably estimate the indemnity and defense costs
that might be incurred after 2022. Our forecast contemplates
that the number of new claims requiring indemnity will decline
from year to year. If future claims fail to decline as we
expect, our aggregate liability for asbestos claims will be
higher than estimated.
Since year-end 2004, we have worked with Analysis Research
Planning Corporation, or ARPC, nationally recognized consultants
in projecting asbestos liabilities, to estimate the amount of
asbestos-related indemnity and defense costs. ARPC reviews our
asbestos indemnity payments, defense costs and claims activity
and compares them to our
15-year
forecast prepared at the previous year-end. Based on its review,
ARPC may recommend that the assumptions used to estimate our
future asbestos liability be updated, as appropriate.
Our forecast of the number of future claims is based, in part,
on a regression model, which employs the statistical analysis of
our historical claims data to generate a trend line for future
claims and, in part, on an analysis of future disease incidence.
Although we believe this forecast method is reasonable, other
forecast methods that attempt to estimate the population of
living persons who could claim they were exposed to asbestos at
worksites where our subsidiaries performed work or sold
equipment could also be used and might project higher numbers of
future claims than our forecast.
The actual number of future claims, the mix of disease types and
the amounts of indemnity and defense costs may exceed our
current estimates. We update our forecasts at least annually to
take into consideration recent claims experience and other
developments, such as legislation and litigation outcomes, that
may affect our estimates of future asbestos-related costs. The
announcement of increases to asbestos liabilities as a result of
revised forecasts, adverse jury verdicts or other negative
developments involving asbestos litigation or insurance
recoveries may cause the value or trading prices of our
securities to decrease significantly. These negative
developments could also negatively impact our liquidity, cause
us to default under covenants in our indebtedness, cause our
credit ratings to be downgraded, restrict our access to capital
markets or otherwise materially adversely affect our business,
financial condition, results of operations and cash flows.
The
adequacy and timing of insurance recoveries of our
asbestos-related costs in the United States is uncertain. The
failure to obtain insurance recoveries could materially
adversely affect our business, financial condition, results of
operations and cash flows.
Although we believe that a significant portion of our
subsidiaries liability and defense costs for asbestos
claims will be covered by insurance, the adequacy and timing of
insurance recoveries is uncertain. Since year-end 2005, we have
worked with Peterson Risk Consulting, nationally recognized
experts in the estimation of insurance recoveries, to review our
estimate of the value of the settled insurance asset and assist
in the estimation of our unsettled asbestos insurance asset.
Based on insurance policy data, historical claims data, future
liability estimates including the expected timing of payments
and allocation methodology assumptions
12
we provided them, Peterson Risk Consulting provided an analysis
of the unsettled insurance asset as of year-end 2007. We
utilized that analysis to determine our estimate of the value of
the unsettled insurance asset.
The asset recorded on our consolidated balance sheet represents
our best estimate of settled and probable future insurance
settlements relating to our domestic liability for pending and
estimated future asbestos claims through year-end 2022. The
estimate of recoveries from unsettled insurers in the insurance
litigation discussed below is based upon the resolution of
certain insurance coverage issues and the application of certain
assumptions relating to cost allocation and other factors. The
insurance asset also includes an estimate of the amount of
recoveries under existing settlements with other insurers. On
February 13, 2001, litigation was commenced against certain
of our subsidiaries by certain of our insurers seeking to
recover from other insurers amounts previously paid by them and
to adjudicate their rights and responsibilities under our
subsidiaries insurance policies. As of December 28,
2007, we estimated the value of our asbestos insurance asset
contested by our subsidiaries insurers in this litigation
at $27,600. While this litigation has been pending, we have had
to cover a substantial portion of our settlement payments and
defense costs out of our cash flows.
Certain of our subsidiaries have entered into settlement
agreements calling for certain insurers to make lump-sum
payments, as well as payments over time, for use by our
subsidiaries to fund asbestos-related indemnity and defense
costs and, in certain cases, for reimbursement for portions of
out-of-pocket
costs that we previously have incurred. We entered into four
additional settlements in 2007 and we intend to continue to
attempt to negotiate additional settlements where achievable on
a reasonable basis in order to minimize the amount of future
costs that we would be required to fund out of the cash flows
generated from our operations. Unless we settle the remaining
unsettled insurance asset at amounts significantly in excess of
our current estimates, it is likely that the amount of our
insurance settlements will not cover all future asbestos-related
costs and we will continue to fund a portion of such future
costs, which will reduce our cash flows and our working capital.
Additionally, certain of the settlements with insurance
companies during the past several years were for fixed dollar
amounts that do not change as the liability changes.
Accordingly, increases in the asbestos liability will not result
in an equal increase in the insurance asset.
An adverse outcome in the pending insurance litigation described
above could limit our remaining insurance recoveries. However, a
favorable outcome in all or part of the litigation could
increase remaining insurance recoveries above our current
estimate.
Even if the coverage litigation is resolved in a manner
favorable to us, our insurance recoveries (both from the
litigation and from settlements) may be limited by future
insolvencies among our insurers. We have not assumed recovery in
the estimate of our asbestos insurance asset from any of our
currently insolvent insurers. Other insurers may become
insolvent in the future and our insurers may fail to reimburse
amounts owed to us on a timely basis. If we fail to realize
expected insurance recoveries, or experience delays in receiving
material amounts from our insurers, our business, financial
condition, results of operations and cash flows could be
materially adversely affected.
A
number of asbestos-related claims have been received by our
subsidiaries in the United Kingdom. To date, these claims have
been covered by insurance policies and proceeds from the
policies have been paid directly to the plaintiffs. The timing
and amount of asbestos claims that may be made in the future,
the financial solvency of the insurers and the amount that may
be paid to resolve the claims, are uncertain. The insurance
carriers failure to make payments due under the policies
could materially adversely affect our business, financial
condition, results of operations and cash flows.
Some of our subsidiaries in the United Kingdom have received
claims alleging personal injury arising from exposure to
asbestos in connection with work performed, or heat exchange
devices assembled, installed
and/or
sold,
by our subsidiaries. We expect these subsidiaries to be named as
defendants in additional suits and claims brought in the future.
To date, insurance policies have provided coverage for
substantially all of the costs incurred in connection with
resolving asbestos claims in the United Kingdom. In our
consolidated balance sheet, we have recorded U.K.
asbestos-related insurance recoveries equal to the U.K.
asbestos-related liabilities, which are comprised of an
estimated liability relating to open (outstanding) claims and an
estimated liability relating to future unasserted claims through
year-end 2022. Our ability to continue to recover under
13
these insurance policies is dependent upon, among other things,
the timing and amount of asbestos claims that may be made in the
future, the financial solvency of our insurers and the amount
that may be paid to resolve the claims. These factors could
significantly limit our insurance recoveries, which could
materially adversely affect our business, financial condition,
results of operations and cash flows.
Risks
Related to Our Liquidity and Capital Resources
We
require cash repatriations from our
non-U.S.
subsidiaries to meet our domestic cash needs related to our
asbestos-related and other liabilities and corporate overhead
expenses. Our ability to repatriate funds from our
non-U.S.
subsidiaries is limited by a number of factors.
As a holding company, we are dependent on cash inflows from our
subsidiaries in order to fund our asbestos-related and other
liabilities and corporate overhead expenses. To the extent that
our U.S. subsidiaries do not generate enough cash flows to
cover our holding company payments and expenses, we are
dependent on cash repatriations from our
non-U.S. subsidiaries.
There can be no assurance that the forecasted foreign cash
repatriation will occur as our
non-U.S. subsidiaries
need to keep certain amounts available for working capital
purposes, to pay known liabilities, to comply with covenants and
for other general corporate purposes. The repatriation of funds
may also subject those funds to taxation. The inability to
repatriate cash could negatively impact our business, financial
condition, results of operations and cash flows.
Certain
of our various debt agreements impose financial covenants, which
may prevent us from capitalizing on business opportunities,
which could negatively impact our business.
Our senior domestic credit agreement imposes financial covenants
on us. These covenants limit our ability to incur indebtedness,
pay dividends or make other distributions, make investments and
sell assets. These limitations may restrict our ability to
pursue business opportunities, which could negatively impact our
business.
We may
have high working capital requirements, which could negatively
impact our business, financial condition, and cash
flows.
In some cases, we may require significant amounts of working
capital to finance the purchase of materials and in the
performance of engineering, construction and other work on
certain of our projects before we receive payment from our
customers. In some cases, we are contractually obligated to our
customers to fund working capital on our projects. Increases in
working capital requirements could negatively impact our
business, financial condition and cash flows. In addition, as
described below, we may in the future make acquisitions of other
entities or operations. To the extent we use cash to make
acquisitions, the amount of cash available for the working
capital needs described above would be reduced.
We may
invest in longer-term investment opportunities, such as the
acquisition of other entities or operations in the engineering
and construction industry or power industry. Acquisitions of
other entities or operations have risks that could materially
adversely affect our business, financial condition, results of
operations and cash flows.
Since 2007, we have been exploring possible strategic
acquisitions within the engineering and construction industry to
complement or expand on our technical capabilities or access to
new market segments. We may also decide to explore small size
acquisitions within the power industry to complement our product
offering. The acquisition of companies and assets in the
engineering and construction and power industries are subject to
substantial risks, including the failure to identify material
problems during due diligence, the risk of over-paying for
assets and the inability to arrange financing for an acquisition
as may be required or desired. Further, the integration and
consolidation of acquisitions requires substantial human,
financial and other resources including management time and
attention, and ultimately, our acquisitions may not be
successfully integrated and our resources may be diverted. There
can be no assurances that we will consummate any such
acquisitions, that any future acquisitions will perform as
expected or that the returns from such acquisitions will support
the investment required to acquire them or the capital
expenditures needed to develop them.
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Risk
Factors Related to Our Financial Reporting and Corporate
Governance
If we
have a material weakness in our internal control over financial
reporting, our ability to report our financial results on a
timely and accurate basis may be adversely
affected.
Although we had no material weaknesses as of December 28,
2007, we have reported material weaknesses in our internal
control over financial reporting in the past. We cannot assure
that we will avoid a material weakness in the future. If we have
another material weakness in our internal control over financial
reporting in the future, it could adversely impact our ability
to report our financial results in a timely and accurate manner.
We
have anti-takeover provisions in our bye-laws that may
discourage a change of control.
Our bye-laws contain provisions that could make it more
difficult for a third-party to acquire us without the consent of
our board of directors. These provisions provide for:
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The board of directors to be divided into three classes serving
staggered three-year terms and the reservation for the board of
directors, not the shareholders, of the right to increase the
size of the board of directors. In addition, directors may be
removed from office only for cause, by the affirmative vote of
the holders of two-thirds of the issued shares generally
entitled to vote and vacancies on the board of directors may
only be filled by the remaining directors. These provisions of
our bye-laws may delay or limit the ability of a shareholder to
obtain majority representation on the board of directors.
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Any amendment to the bye-law limiting the removal of directors
to be approved by the board of directors and the affirmative
vote of the holders of three-quarters of the issued shares
entitled to vote at general meetings.
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Restrictions on the time period in which directors may be
nominated or shareholder proposals may be submitted. A
shareholder notice to nominate an individual for election as a
director or a shareholder proposal must be received no less than
120 calendar days prior to the anniversary of the date on which
we first mailed our proxy materials for the preceding
years annual meeting. To be timely for consideration at
the annual meeting of shareholders, a shareholder proposal must
be received no less than 45 days prior to the anniversary
of the date on which we first mailed our proxy materials for the
preceding years annual meeting.
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The board of directors to determine the powers, preferences and
rights of preference shares and to issue preference shares
without shareholder approval.
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A general prohibition on business combinations
between Foster Wheeler Ltd. and an interested
member. Specifically, business combinations
between an interested member, which is generally defined as a
person or group of persons that owns, directly or indirectly,
20% or more of the issued voting shares of Foster Wheeler Ltd.,
and Foster Wheeler Ltd. are prohibited for a period of five
years after the time the interested member acquires 20% or more
of our outstanding voting shares, unless the business
combination or the transaction resulting in the person becoming
an interested member is approved by the board of directors prior
to the date the interested member acquires 20% or more of the
outstanding voting shares.
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Any matter submitted to the shareholders at a meeting called on
the requisition of shareholders holding not less than one-tenth
of our
paid-up
voting shares to be approved by the affirmative vote of all of
the shares eligible to vote at such meeting.
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These provisions could make it more difficult for a third-party
to acquire us, even if the third-partys offer may be
considered beneficial by many shareholders. As a result,
shareholders may be limited in their ability to obtain a premium
for their shares.
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We are
a Bermuda company and it may be difficult to enforce judgments
against us or our directors and executive
officers.
We are a Bermuda exempted company. As a result, the rights of
our shareholders will be governed by Bermuda law and by our
memorandum of association and bye-laws. The rights of
shareholders under Bermuda law may differ from the rights of
shareholders of companies incorporated in other jurisdictions. A
substantial portion of our assets are located outside the United
States. It may be difficult for investors to enforce in the
United States judgments obtained in U.S. courts against us
or our directors based on the civil liability provisions of the
U.S. securities laws. Uncertainty exists as to whether
courts in Bermuda will enforce judgments obtained in other
jurisdictions, including the United States, under the securities
laws of those jurisdictions or entertain actions in Bermuda
under the securities laws of other jurisdictions.
Our
bye-laws restrict shareholders from bringing legal action
against our officers and directors.
Our bye-laws contain a broad waiver by our shareholders of any
claim or right of action, both individually and on our behalf,
against any of our officers or directors. The waiver applies to
any action taken by an officer or director, or the failure of an
officer or director to take any action, in the performance of
his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director.
This waiver limits the right of shareholders to assert claims
against our officers and directors unless the act or failure to
act involves fraud or dishonesty.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
16
ITEM 2. PROPERTIES
The following table provides the name of each subsidiary that
owns or leases materially important physical properties, along
with the location and general use of each of our properties as
of December 28, 2007, and the business segment in which
each property is grouped. All or part of the listed properties
may be leased or subleased to other affiliates. All properties
are in good condition and adequate for their intended use.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company (Business Segment*)
|
|
|
|
|
|
Building
|
|
|
Lease
|
|
and Location
|
|
Use
|
|
Land Area
|
|
Square Feet
|
|
|
Expires
(1)
|
|
|
Foster Wheeler Realty Services, Inc. (C&F)
|
Union Township, New Jersey
|
|
Investment in undeveloped land
|
|
|
203.8 acres
|
|
|
|
|
|
|
|
|
|
|
General office & engineering
|
|
|
29.4 acres
|
|
|
294,000
|
|
|
|
2022
|
|
|
|
Storage and reproduction facilities
|
|
|
10.8 acres
|
|
|
30,400
|
|
|
|
|
|
Livingston, New Jersey
|
|
Research center
|
|
|
6.7 acres
|
|
|
51,355
|
|
|
|
|
|
|
Foster Wheeler Energy Services, Inc. (GPG)
|
San Diego, California
|
|
Office
|
|
|
|
|
|
11,015
|
|
|
|
2008
|
|
|
Foster Wheeler USA Corporation (E&C)
|
Houston, Texas
|
|
Office & engineering
|
|
|
|
|
|
107,890
|
|
|
|
2008
|
(2)
|
Houston, Texas
|
|
Office & engineering
|
|
|
|
|
|
59,671
|
|
|
|
2009
|
|
Houston, Texas
|
|
Office & engineering
|
|
|
|
|
|
74,025
|
|
|
|
2009
|
|
|
Foster Wheeler Iberia, S.A. (E&C)/(GPG)
|
Madrid, Spain
|
|
Office & engineering
|
|
|
5.5 acres
|
|
|
110,000
|
|
|
|
2015
|
|
Santiago, Chile
|
|
Office & engineering
|
|
|
|
|
|
16,071
|
|
|
|
2011
|
|
|
Foster Wheeler Energia, S.A. (GPG)
|
Tarragona, Spain
|
|
Manufacturing & office
|
|
|
25.6 acres
|
|
|
77,794
|
|
|
|
|
|
|
Foster Wheeler France, S.A. (E&C)
|
Paris, France
|
|
Office & engineering
|
|
|
|
|
|
64,584
|
|
|
|
2013
|
|
|
Foster Wheeler International Corporation (Thailand Branch)
(E&C)
|
Sriracha, Thailand
|
|
Office & engineering
|
|
|
|
|
|
59,944
|
|
|
|
2008
|
|
Sriracha, Thailand
|
|
Office & engineering
|
|
|
|
|
|
49,199
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foster Wheeler International Engineering &
Consulting (Shanghai) Company Limited (GPG and E&C)
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai, China
|
|
Office & engineering
|
|
|
|
|
|
35,796
|
|
|
|
2008
|
|
Shanghai, China
|
|
Office & engineering
|
|
|
|
|
|
21,083
|
|
|
|
2009
|
|
Shanghai, China
|
|
Office & engineering
|
|
|
|
|
|
21,031
|
|
|
|
2010
|
|
|
Foster Wheeler Constructors, Inc. (GPG)
|
McGregor, Texas
|
|
Storage facilities
|
|
|
15.0 acres
|
|
|
24,000
|
|
|
|
|
|
|
Foster Wheeler Limited (England) (E&C)
|
Glasgow, Scotland
|
|
Office & engineering
|
|
|
2.3 acres
|
|
|
28,798
|
(3)
|
|
|
|
|
Reading, England
|
|
Office & engineering
|
|
|
|
|
|
76,711
|
|
|
|
2011
|
|
Reading, England
|
|
Office & engineering
|
|
|
14.0 acres
|
|
|
365,521
|
|
|
|
2024
|
|
Reading, England
|
|
Office & engineering
|
|
|
|
|
|
30,000
|
|
|
|
2009
|
|
Reading, England
|
|
Investment in undeveloped land
|
|
|
12.0 acres
|
|
|
|
|
|
|
|
|
Teesside, England
|
|
Office & engineering
|
|
|
|
|
|
18,001
|
|
|
|
2014
|
|
|
Foster Wheeler Limited (Nigeria) (E&C)
|
Lagos, Nigeria
|
|
Office & engineering
|
|
|
|
|
|
13,000
|
|
|
|
2008
|
|
|
Foster Wheeler Saudi Arabia Company Limited (E&C)
|
Al-Khobar, Saudi Arabia
|
|
Office
|
|
|
|
|
|
45,000
|
|
|
|
2008
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company (Business Segment*)
|
|
|
|
|
|
Building
|
|
|
Lease
|
|
and Location
|
|
Use
|
|
Land Area
|
|
Square Feet
|
|
|
Expires
(1)
|
|
|
Foster Wheeler South Africa (PTY) Limited (E&C)
|
Midrand, South Africa
|
|
Office & engineering
|
|
|
|
|
|
55,294
|
|
|
|
2011
|
|
|
Foster Wheeler India Private Limited (E&C)
|
Chennai, India
|
|
Office & engineering
|
|
|
|
|
|
101,150
|
|
|
|
2011
|
|
Kolkatta, India
|
|
Office & engineering
|
|
|
|
|
|
74,907
|
|
|
|
2016
|
|
|
Foster Wheeler Canada Ltd. (GPG and E&C)
|
Niagara-On-The-Lake,
Ontario
|
|
Office & engineering
|
|
|
|
|
|
29,066
|
|
|
|
2008
|
|
|
Foster Wheeler Power Machinery Company Limited (GPG)
|
Xinhui, Guangdong, China
|
|
Manufacturing & office
|
|
|
29.2 acres
|
|
|
362,257
|
(4)
|
|
|
2045
|
|
Xinhui, Guangdong, China
|
|
Manufacturing
|
|
|
2.6 acres
|
|
|
|
|
|
|
2008
|
|
Xinhui, Guangdong, China
|
|
Manufacturing
|
|
|
3.2 acres
|
|
|
|
|
|
|
2012
|
|
Xinhui, Guangdong, China
|
|
Storage facilities
|
|
|
|
|
|
48,141
|
|
|
|
2008
|
|
|
Foster Wheeler Italiana, S.p.A. (E&C)
|
Milan, Italy
|
|
Office & engineering
|
|
|
|
|
|
142,000
|
|
|
|
2012
|
|
Milan, Italy
|
|
Office & engineering
|
|
|
|
|
|
121,870
|
(3)
|
|
|
2008
|
|
Milan, Italy
|
|
Office & engineering
|
|
|
|
|
|
10,764
|
|
|
|
2011
|
|
Milan, Italy
|
|
Office & engineering
|
|
|
|
|
|
10,764
|
|
|
|
2012
|
|
Milan, Italy
|
|
Office & engineering
|
|
|
|
|
|
15,210
|
|
|
|
2009
|
|
|
Foster Wheeler Pyropower, Inc. (GPG)
|
Ridgecrest, California
|
|
Office & storage facilities
|
|
|
|
|
|
10,000
|
|
|
|
month to
month
|
|
|
Foster Wheeler Bimas Birlesik Insaat ve Muhendislik A.S.
(E&C)
|
Istanbul, Turkey
|
|
Office & engineering
|
|
|
|
|
|
25,833
|
|
|
|
2010
|
|
|
Foster Wheeler Eastern Private Limited (E&C)
|
Singapore
|
|
Office & engineering
|
|
|
|
|
|
85,428
|
|
|
|
2008
|
|
|
Foster Wheeler Power Systems, Inc. (GPG)
|
Martinez, California
|
|
Cogeneration plant
|
|
|
6.4 acres
|
|
|
|
|
|
|
|
|
Camden, New Jersey
|
|
Waste-to-energy plant
|
|
|
18.0 acres
|
|
|
|
|
|
|
2011
|
|
Talcahuano, Chile
|
|
Cogeneration plant-facility site
|
|
|
21.0 acres
|
|
|
|
|
|
|
2028
|
|
|
Foster Wheeler Energia Oy (GPG)
|
Varkaus, Finland
|
|
Manufacturing & office
|
|
|
22.2 acres
|
|
|
366,716
|
|
|
|
|
|
Varkaus, Finland
|
|
Office
|
|
|
|
|
|
100,750
|
|
|
|
2031
|
|
Espoo, Finland
|
|
Office
|
|
|
|
|
|
14,639
|
|
|
|
2011
|
|
|
Foster Wheeler Energi Aktiebolag (GPG)
|
Norrkoping, Sweden
|
|
Manufacturing & office
|
|
|
|
|
|
37,990
|
|
|
|
2014
|
|
|
Foster Wheeler Service (Thailand) Limited (GPG)
|
Rayong, Thailand
|
|
Manufacturing & office
|
|
|
3.15 acres
|
|
|
41,916
|
|
|
|
2017
|
|
|
Foster Wheeler Energy FAKOP Sp. z o.o. (GPG)
|
Sosnowiec, Poland
|
|
Manufacturing & office
|
|
|
19.5 acres
|
|
|
271,152
|
(5)
|
|
|
2089
|
|
|
|
|
* Designation of Business Segments:
|
|
E&C - Global Engineering &
Construction Group
|
|
|
GPG - Global Power Group
|
|
|
C&F - Corporate & Finance Group
|
18
|
|
|
(1)
|
|
Represents leases in which Foster Wheeler is the lessee.
Properties for which a lease expiration is not indicated are
owned.
|
|
(2)
|
|
Foster Wheeler USA Corporation has provided notice to terminate
the lease in July 2008 and to move to a new 332,000 square
foot facility with a lease expiration of 2018.
|
|
(3)
|
|
Portion or entire facility leased or subleased to third parties.
|
|
(4)
|
|
52% ownership interest.
|
|
(5)
|
|
53% ownership interest.
|
ITEM 3. LEGAL
PROCEEDINGS
For information on asbestos claims and other material litigation
affecting us, see Item 1A, Risk Factors,
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations
Application of Critical Accounting Estimates and
Note 19, Litigation and Uncertainties, to our
consolidated financial statements in this annual report on
Form 10-K.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 8, 2008, our shareholders approved an increase
in our authorized share capital at a special general meeting of
common shareholders. The voting results of the special general
meeting of common shareholders were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Against or
|
|
|
|
|
|
Broker
|
|
|
|
For
|
|
|
Withheld
|
|
|
Abstentions
|
|
|
Non-Votes
|
|
|
Increase in authorized share capital
|
|
|
63,448,418
|
|
|
|
354,870
|
|
|
|
50,270
|
|
|
|
0
|
|
The increase in authorized share capital was necessary in order
to effect a
two-for-one
stock split of our common shares which was approved by our Board
of Directors on November 6, 2007. The stock split was
effected on January 22, 2008 in the form of a stock
dividend to common shareholders of record at the close of
business on January 8, 2008 in the ratio of one additional
Foster Wheeler common share in respect of each common share
outstanding.
19
PART II
ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares are listed and traded on the NASDAQ Global
Select Market under the symbol FWLT.
On January 8, 2008, our shareholders approved an increase
in our authorized share capital at a special general meeting of
common shareholders. The increase in authorized share capital
was necessary in order to effect a
two-for-one
stock split of our common shares which was approved by our Board
of Directors on November 6, 2007. The stock split was
effected on January 22, 2008 in the form of a stock
dividend to the common shareholders of record at the close of
business on January 8, 2008 in the ratio of one additional
Foster Wheeler common share in respect of each common share
outstanding. As a result of these capital alterations, all
references to common share prices, share capital, the number of
shares, stock options, restricted awards, per share amounts,
cash dividends, and any other reference to shares in this annual
report on
Form 10-K,
unless otherwise noted, have been adjusted to reflect the stock
split on a retroactive basis.
On November 29, 2004, our shareholders approved a series of
capital alterations including the consolidation of our
authorized common share capital at a ratio of
one-for-twenty
and a reduction in the par value of our common shares and
preferred shares. As a result of these capital alterations, all
references to common share prices, share capital, the number of
shares, stock options, restricted awards, per share amounts,
cash dividends, and any other reference to shares in this annual
report on
Form 10-K,
unless otherwise noted, have been adjusted to reflect such
capital alterations on a retroactive basis.
The following chart lists the quarterly high and low sales
prices of our common shares on the NASDAQ Global Select Market
during our fiscal years 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 30,
|
|
|
June 29,
|
|
|
September 28,
|
|
|
December 28,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Common share prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.80
|
|
|
$
|
55.19
|
|
|
$
|
68.40
|
|
|
$
|
84.24
|
|
Low
|
|
$
|
23.25
|
|
|
$
|
28.97
|
|
|
$
|
42.17
|
|
|
$
|
63.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 29,
|
|
|
December 29,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Common share prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
26.85
|
|
|
$
|
26.44
|
|
|
$
|
22.43
|
|
|
$
|
28.47
|
|
Low
|
|
$
|
17.99
|
|
|
$
|
17.43
|
|
|
$
|
16.01
|
|
|
$
|
19.03
|
|
We had 5,506 common shareholders of record and 144,113,515
common shares outstanding as of February 15, 2008.
We have not declared or paid a cash dividend since July 2001 and
we do not have any plans to declare or pay any cash dividends.
Our current domestic senior credit agreement contains
limitations on our ability to pay cash dividends.
20
Performance
Graph
The stock performance graph below shows how an initial
investment of $100 in our common shares would have compared over
a five-year period with an equal investment in (1) the
S&P 500 Index and (2) industry peer group indices that
each consist of several peer companies (referred to as the
Peer Group and the Old Peer Group), as
defined below. Due to the acquisition of one company included in
the Old Peer Group, and in an effort to include a range of
companies that more accurately reflects the industry sectors in
which we compete as well as companies of similar size to Foster
Wheeler, we changed our industry peer group index. Accordingly,
for the fiscal year ended December 28, 2007, we are
replacing the Old Peer Group with the Peer Group. The companies
included in each of the Old Peer Group and the Peer Group are
stated below.
Comparision
of Cumulative Total Return
In the preparation of the line graph, we used the following
assumptions: (i) $100 was invested in each of the common
shares of Foster Wheeler Ltd., the S&P 500 Index, the Peer
Group and the Old Peer Group on December 27, 2002,
(ii) dividends, if any, were reinvested, and (iii) the
investments were weighted on the basis of market capitalization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 27,
|
|
December 26,
|
|
December 31,
|
|
December 30,
|
|
December 29,
|
|
December 28,
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Foster Wheeler Ltd.
|
|
$
|
100.00
|
|
|
$
|
91.06
|
|
|
$
|
64.51
|
|
|
$
|
149.51
|
|
|
$
|
224.15
|
|
|
$
|
635.24
|
|
S&P 500 Index
|
|
|
100.00
|
|
|
|
127.47
|
|
|
|
143.41
|
|
|
|
150.45
|
|
|
|
174.21
|
|
|
|
185.05
|
|
Peer
Group
(1)
|
|
|
100.00
|
|
|
|
148.19
|
|
|
|
192.11
|
|
|
|
293.73
|
|
|
|
358.18
|
|
|
|
722.82
|
|
Old Peer
Group
(2)
|
|
|
100.00
|
|
|
|
154.71
|
|
|
|
195.28
|
|
|
|
310.41
|
|
|
|
395.29
|
|
|
|
893.98
|
|
|
|
|
(1)
|
|
The following companies comprise the Peer Group: Chicago
Bridge & Iron Company N.V., Fluor Corporation, Jacobs
Engineering Group Inc., KBR, Inc., McDermott International, Inc.
and Shaw Group, Inc. The Peer Group consists of companies that
were compiled by us beginning this year for benchmarking the
performance of our common shares.
|
|
(2)
|
|
The following companies comprise the Old Peer Group: Fluor
Corporation, Foster Wheeler Ltd., Jacobs Engineering Group Inc.,
Washington Group International, Inc. (formerly Morrison Knudsen
and acquired by URS on November 15, 2007) and
McDermott International, Inc. On January 25, 2003,
Washington Group International, Inc. emerged from
Chapter 11 Bankruptcy protection and under the Plan of
Reorganization Washington Groups old common stock (WNGXQ)
was canceled and new common stock was issued and distributed to
lenders and creditors in accordance with the Plan. Washington
Group International, Inc. is not included in the Old Peer Group
for the year ended December 28, 2007 as Washington Group
International, Inc. was acquired by another company on
November 15, 2007. The Old Peer Group consists of companies
that were compiled by us in 1996 for benchmarking the
performance of our common shares; we have used this peer index
since 1996 until adopting the Peer Group noted above.
|
21
ITEM 6. SELECTED
FINANCIAL DATA
COMPARATIVE
FINANCIAL STATISTICS
(amounts in thousands of dollars, except share data and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 26,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
5,107,243
|
|
|
$
|
3,495,048
|
|
|
$
|
2,199,955
|
|
|
$
|
2,661,324
|
|
|
$
|
3,723,815
|
|
Income/(loss) before income taxes
|
|
|
530,294
|
(1)
|
|
|
343,693
|
(2)
|
|
|
(70,181
|
)
(3)
|
|
|
(232,172
|
)
(4)
|
|
|
(109,637
|
)
(5)
|
Provision for income taxes
|
|
|
(136,420
|
)
|
|
|
(81,709
|
)
|
|
|
(39,568
|
)
|
|
|
(53,122
|
)
|
|
|
(47,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
393,874
|
|
|
$
|
261,984
|
|
|
$
|
(109,749
|
)
|
|
$
|
(285,294
|
)
|
|
$
|
(157,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common
share:
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.78
|
|
|
$
|
1.82
|
(7)
|
|
$
|
(1.18
|
)
|
|
$
|
(28.92
|
)
|
|
$
|
(38.27
|
)
|
Diluted
|
|
$
|
2.72
|
|
|
$
|
1.72
|
(7)
|
|
$
|
(1.18
|
)
|
|
$
|
(28.92
|
)
|
|
$
|
(38.27
|
)
|
Shares
outstanding:
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for basic
earnings/(loss) per common share
|
|
|
141,661,046
|
|
|
|
132,996,384
|
|
|
|
93,140,176
|
|
|
|
9,864,740
|
|
|
|
4,104,458
|
|
Effect of dilutive securities
|
|
|
3,087,176
|
|
|
|
8,221,592
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for diluted
earnings/(loss) per common share
|
|
|
144,748,222
|
|
|
|
141,217,976
|
|
|
|
93,140,176
|
|
|
|
9,864,740
|
|
|
|
4,104,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 26,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,044,383
|
|
|
$
|
1,389,628
|
|
|
$
|
851,523
|
|
|
$
|
1,039,458
|
|
|
$
|
1,174,376
|
|
Current liabilities
|
|
|
1,523,773
|
|
|
|
1,247,603
|
|
|
|
997,564
|
|
|
|
1,251,581
|
|
|
|
1,350,359
|
|
Working capital
|
|
|
520,610
|
|
|
|
142,025
|
|
|
|
(146,041
|
)
|
|
|
(212,123
|
)
|
|
|
(175,983
|
)
|
Land, buildings and equipment, net
|
|
|
337,485
|
|
|
|
302,488
|
|
|
|
258,672
|
|
|
|
280,305
|
|
|
|
309,615
|
|
Total assets
|
|
|
3,248,988
|
|
|
|
2,565,549
|
|
|
|
1,894,706
|
|
|
|
2,177,699
|
|
|
|
2,506,530
|
|
Long-term debt (including current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
installments)
|
|
|
205,346
|
|
|
|
202,969
|
|
|
|
315,412
|
|
|
|
570,073
|
|
|
|
1,033,072
|
|
Total temporary equity
|
|
|
2,728
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity/(deficit)
|
|
|
571,041
|
|
|
|
62,727
|
|
|
|
(341,158
|
)
|
|
|
(525,565
|
)
|
|
|
(872,440
|
)
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfilled orders (in terms of future revenues), end of year
|
|
$
|
9,420,400
|
|
|
$
|
5,431,400
|
|
|
$
|
3,692,300
|
|
|
$
|
2,048,100
|
|
|
$
|
2,285,400
|
|
New orders booked (in terms of future revenues)
|
|
|
8,882,800
|
|
|
|
4,892,200
|
|
|
|
4,163,000
|
|
|
|
2,437,100
|
|
|
|
2,163,500
|
|
|
|
|
(1)
|
|
Includes in fiscal year 2007: increased contract profit of
$35,100 from the regular re-evaluation of contract profit
estimates; gains of $13,500 on the settlement of coverage
litigation with certain asbestos insurance carriers; and a net
charge of $(7,400) on the revaluation of our asbestos liability
and related asset resulting primarily from increased asbestos
defense costs projected through year-end 2022 and for the
addition of another year to our rolling
15-year
asbestos liability estimate.
|
|
(2)
|
|
Includes in fiscal year 2006: decreased contract profit of
$(5,700) from the regular re-evaluation of contract profit
estimates; a charge of $(15,600) on the revaluation of our
asbestos liability and related asset; asbestos-related gains of
$115,700 primarily from settlement of coverage litigation with
certain asbestos insurance carriers; an aggregate charge of
$(15,000) recorded in conjunction with the voluntary termination
|
22
|
|
|
|
|
of our prior domestic senior credit agreement; and a net charge
of $(12,500) recorded in conjunction with the debt reduction
initiatives completed in April and May 2006.
|
|
(3)
|
|
Includes in fiscal year 2005: increased contract profit of
$99,600 from the regular re-evaluation of contract profit
estimates; a charge of $(113,700) on the revaluation of our
estimated asbestos liability and asbestos insurance receivable;
credit agreement costs associated with our prior domestic senior
credit facility of $(3,500); and an aggregate charge of
$(58,300) recorded in conjunction with the exchange offers for
our trust preferred securities and our senior notes due 2011,
which we refer to as our 2011 senior notes.
|
|
(4)
|
|
Includes in fiscal year 2004: increased contract profit of
$37,600 from the regular re-evaluation of contract profit
estimates; a gain of $19,200 on the sales of minority equity
interests in special-purpose companies established to develop
power plant projects in Europe; a loss of $(3,300) on the sale
of 10% of our equity interest in a
waste-to-energy
project in Italy; a charge of $(75,800) on the revaluation of
asbestos insurance assets as a result of an adverse court
decision in asbestos coverage allocation litigation; a net gain
of $15,200 on the settlement of coverage litigation with certain
asbestos insurance carriers; restructuring and credit agreement
costs of $(17,200); a net charge of $(175,100) recorded in
conjunction with the 2004
equity-for-debt
exchange; and charges for severance cost of $(5,700).
|
|
(5)
|
|
Includes in fiscal year 2003: a $(15,100) impairment loss on the
anticipated sale of a domestic corporate office building; a
$16,700 gain on the sale of certain assets of Foster Wheeler
Environmental Corporation and a gain of $4,300 on the sale of a
waste-to-energy
plant; a gain on revisions to project claim estimates and
related cost of $1,500; a charge related to revisions of project
estimates and related receivable allowances of $(32,300); a
provision for asbestos claims of $(68,100); restructuring and
credit agreement costs of $(43,600); and charges for severance
cost of $(15,900).
|
|
(6)
|
|
Amounts give retroactive effect to the
two-for-one
stock split that was effective January 22, 2008 and the
one-for-twenty
reverse stock split that was effective November 29, 2004.
|
|
(7)
|
|
As described further in Note 13 to the consolidated
financial statements in this annual report on
Form 10-K,
we completed two common share purchase warrant offer
transactions in January 2006. The fair value of the additional
shares issued as part of the warrant offer transactions reduced
net income attributable to our common shareholders when
calculating earnings/(loss) per common share. The fair value of
the additional shares issued was $19,445.
|
|
*
|
|
The impact of potentially dilutive securities such as
outstanding stock options, warrants to purchase common shares,
and the non-vested portion of restricted common shares and
restricted common share units were not included in the
calculation of diluted loss per common share in loss periods due
to their antidilutive effect.
|
23
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (amounts in thousands of dollars)
The following is managements discussion and analysis of
certain significant factors that have affected our financial
condition and results of operations for the periods indicated
below. This discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto included in this annual report on
Form 10-K.
Safe
Harbor Statement
This managements discussion and analysis of financial
condition and results of operations, other sections of this
annual report on
Form 10-K
and other reports and oral statements made by our
representatives from time to time may contain forward-looking
statements that are based on our assumptions, expectations and
projections about Foster Wheeler and the various industries
within which we operate. These include statements regarding our
expectation about revenues (including as expressed by our
backlog), our liquidity, the outcome of litigation and legal
proceedings and recoveries from customers for claims, and the
costs of current and future asbestos claims and the amount and
timing of related insurance recoveries. Such forward-looking
statements by their nature involve a degree of risk and
uncertainty. We caution that a variety of factors, including but
not limited to the factors described under Item 1A,
Risk Factors and the following, could cause business
conditions and our 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 oil and gas, oil refining,
chemical/petrochemical, and power industries;
|
|
|
|
changes in the financial condition of our customers;
|
|
|
|
changes in regulatory environments;
|
|
|
|
changes in project design or schedules;
|
|
|
|
contract cancellations;
|
|
|
|
changes in our estimates of costs to complete projects;
|
|
|
|
changes in trade, monetary and fiscal policies worldwide;
|
|
|
|
compliance with laws and regulations relating to our global
operations;
|
|
|
|
currency fluctuations;
|
|
|
|
war
and/or
terrorist attacks on facilities either owned or where equipment
or services are or may be provided;
|
|
|
|
interruptions to shipping lanes or other methods of transit;
|
|
|
|
outcomes of pending and future litigation, including litigation
regarding our liability for damages and insurance coverage for
asbestos exposure;
|
|
|
|
protection and validity of our patents and other intellectual
property rights;
|
|
|
|
increasing competition by foreign and domestic companies;
|
|
|
|
compliance with our debt covenants;
|
|
|
|
recoverability of claims against our customers and others by us
and claims by third-parties against us; and
|
|
|
|
changes in estimates used in our critical accounting policies.
|
Other factors and assumptions not identified above were also
involved in the formation of these forward-looking statements
and the failure of such other assumptions to be realized, as
well as other factors, may also cause actual results to differ
materially from those projected. Most of these factors are
difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described above
in connection with any forward-looking statements that may be
made by us.
24
We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised,
however, to consult any additional disclosures we make in proxy
statements, quarterly reports on
Form 10-Q,
annual reports on
Form 10-K
and current reports on
Form 8-K
filed with the Securities and Exchange Commission.
Overview
We operate through two business groups the Global
Engineering & Construction Group, which we refer to as
our Global E&C Group, and our Global Power Group. In
addition to these two business groups, we also report corporate
center expenses and expenses related to certain legacy
liabilities, such as asbestos, in the Corporate and Finance
Group, which we refer to as the C&F Group.
Since 2007, we have been exploring strategic acquisitions within
the engineering and construction industry to complement or
expand on our technical capabilities or access to new market
segments. We may also decide to explore small size acquisitions
within the power industry to complement our product offering.
However, there is no assurance that we will consummate any
acquisitions.
Fiscal
Year 2007 Results
We earned record net income in fiscal year 2007, driven
primarily by the strong operating performance from both our
Global E&C Group and our Global Power Group. Our net income
for fiscal year 2007 was $393,900, which included the following
after-tax amounts: gains of $13,500 on the settlement of
coverage litigation with certain asbestos insurance carriers and
a net charge of $7,400 reflecting the revaluation of our
asbestos liability and related asset resulting primarily from
increased asbestos defense costs projected through year-end 2022
and for the addition of another year to our rolling
15-year
asbestos liability estimate.
Highlights for fiscal year 2007 included the following:
|
|
|
|
|
Our consolidated operating revenues increased 46.1% to
$5,107,200, as compared to fiscal year 2006, reflecting greater
business activity in both our Global E&C Group and our
Global Power Group.
|
|
|
|
Our consolidated new orders, measured in terms of future
revenues, increased 81.6% to $8,882,800, as compared to fiscal
year 2006.
|
|
|
|
Our consolidated backlog of unfilled orders, measured in future
revenues, as of December 28, 2007 increased 73.4% to
$9,420,400, as compared to December 29, 2006.
|
|
|
|
Our consolidated backlog, measured in terms of Foster Wheeler
scope (as defined below), as of December 28, 2007 increased
30.3% to $3,294,600, as compared to December 29, 2006.
|
|
|
|
We generated net cash from operations of $425,200 and ended the
year with record total cash, restricted cash and short-term
investments of $1,069,500.
|
|
|
|
E&C
man-hours
in
backlog (in thousands) as of December 28, 2007 were 13,400,
as compared to 11,600 as of December 29, 2006.
|
Challenges
and Drivers
Our primary operating focus continues to be booking quality new
business and executing our contracts well. The global markets in
which we operate are largely dependent on overall economic
growth and the resultant demand for oil and gas, electric power,
petrochemicals and refined products. These markets continued to
be strong in 2007, which in turn continued to stimulate
investment in new and expanded plants by our clients. We expect
sustained market demand in 2008. Therefore, attracting and
retaining qualified technical personnel to execute the existing
backlog of unfilled orders and future bookings will continue to
be a management priority.
The Global E&C Groups new orders increased 86.0% to
$6,874,600 in fiscal year 2007, compared to fiscal year 2006. We
expect that capital investments in the markets served by our
Global E&C Group, including the chemical, petrochemical,
oil refining, liquefied natural gas, which we refer to as LNG,
and upstream oil and gas industries, will remain strong in 2008.
As a result, we also expect the demand for the services and
equipment supplied by engineering and construction contractors
such as us to remain strong in 2008.
25
The Global Power Groups new orders increased 67.8% to
$2,008,200 in fiscal year 2007, compared to fiscal year 2006. We
believe that the global power markets have strengthened and that
there are significant growth opportunities in 2008 in the power
markets we serve, such as solid fuel-fired boilers, boiler
services, boiler environmental products and boiler-related
construction services.
We believe that we are well positioned to compete in both our
Global E&C Group and Global Power Group markets during
2008. The challenges and drivers for each of our Global E&C
Group and our Global Power Group are discussed in more detail in
the section entitled, Business Segments, within this
Item 7.
Results
of Operations:
Operating
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
5,107,243
|
|
|
$
|
3,495,048
|
|
|
$
|
2,199,955
|
|
$ Change
|
|
|
1,612,195
|
|
|
|
1,295,093
|
|
|
|
|
|
% Change
|
|
|
46.1
|
%
|
|
|
58.9
|
%
|
|
|
|
|
The increase in operating revenues in fiscal year 2007, compared
to fiscal year 2006, reflects our success in meeting the strong
market demand in both our Global E&C Group and our Global
Power Group (please refer to the section entitled,
Business Segments, within this Item 7 and in
Note 17 to the consolidated financial statements included
in this annual report on
Form 10-K
for further information). However, $848,300 of the fiscal year
2007 increase results from an increase, versus fiscal year 2006,
in flow-through revenues and costs on projects executed by our
Global E&C Group. Flow-through revenues and costs result
when we are performing an engineering or construction contract
and purchase materials, equipment or subcontractor services on
behalf of our customer on a reimbursable basis with no profit
added to the cost of the materials, equipment or subcontractor
services. Flow-through revenues and costs do not impact contract
profit or net earnings, but increased amounts of flow-through
revenues have the effect of reducing our reported profit margins
as a percent of operating revenues.
Operating revenues increased in fiscal year 2006, versus fiscal
year 2005, driven by our ability to address the strong market
activity in both the Global E&C Group and Global Power
Group. Included in the increase of fiscal year 2006 operating
revenues, compared to fiscal year 2005, are flow-through
revenues of $289,400 from our Global E&C Group.
Contract Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
744,321
|
|
|
$
|
507,787
|
|
|
$
|
346,342
|
|
$ Change
|
|
|
236,534
|
|
|
|
161,445
|
|
|
|
|
|
% Change
|
|
|
46.6
|
%
|
|
|
46.6
|
%
|
|
|
|
|
Contract profit is computed as operating revenues less cost of
operating revenues. The increase in contract profit in fiscal
year 2007, compared to fiscal year 2006, primarily reflects a
significant increase in the volume of revenues, excluding the
flow-through revenues described above, and increased margins
earned in both our Global E&C Group and our Global Power
Group, partially offset by a $30,000 charge on a Global Power
Group legacy project.
The increase in contract profit for fiscal year 2006, compared
to fiscal year 2005, primarily reflects the significant increase
in volume of revenues described above in both our Global
E&C Group and our Global Power Group, and from increased
margins earned by our Global E&C Group, partially offset by
certain project write-downs in the Global Power Group.
Please refer to the section entitled, Business
Segments, within this Item 7 for further information.
26
Selling, General, and Administrative (SG&A)
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
246,237
|
|
|
$
|
225,330
|
|
|
$
|
216,691
|
|
$ Change
|
|
|
20,907
|
|
|
|
8,639
|
|
|
|
|
|
% Change
|
|
|
9.3
|
%
|
|
|
4.0
|
%
|
|
|
|
|
SG&A expenses include the costs associated with general
management, sales pursuit, including proposal expenses, and
research and development costs. The increase in SG&A
expenses in fiscal year 2007, compared to fiscal year 2006,
results primarily from increases in sales pursuit costs of
$10,300, general overhead costs of $7,400 and research and
development costs of $3,200. The increases result primarily from
the increased volume of business in fiscal year 2007, which
drove an increase in the number of technical personnel as well
as non-technical support staff and related costs.
The increase in SG&A expenses in fiscal year 2006, compared
to fiscal year 2005, results primarily from increases in general
overhead costs of $23,800 and research and development costs of
$100, which were partially offset by a decrease in sales pursuit
costs of $15,300. The increase in general overhead results
primarily from $3,200 of severance costs in fiscal year 2006 in
our domestic and European Global Power Group businesses, $7,600
of additional non-cash equity-based compensation expense in
fiscal year 2006 resulting primarily from the adoption of
Statement of Financial Accounting Standard, or SFAS,
No. 123R, Share-Based Payment, a $6,200
increase in personnel costs including an increase in related
short-term incentive expense, and $2,800 from costs associated
with the wind down of our Canadian operations. The decline in
sales pursuit costs reflects, in part, a reduction in the number
of major lump-sum turnkey proposals during fiscal year 2006.
Other
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
61,410
|
|
|
$
|
48,610
|
|
|
$
|
54,847
|
|
$ Change
|
|
|
12,800
|
|
|
|
(6,237
|
)
|
|
|
|
|
% Change
|
|
|
26.3
|
%
|
|
|
(11.4
|
)%
|
|
|
|
|
Other income in fiscal year 2007 consists primarily of $37,300
in equity method earnings generated from our investments,
primarily from our minority ownership interests in build, own,
and operate projects in Italy and Chile (as described further in
Note 5 to the consolidated financial statements in this
annual report on
Form 10-K),
a $6,600 gain on a real estate investment, a $9,400 gain
recognized at our Camden, New Jersey
waste-to-energy
facility from the State of New Jerseys payment on the
projects debt and $1,500 of investment income.
Other income in fiscal year 2006 consists primarily of $29,300
in equity method earnings generated from our investments,
primarily from minority ownership interests in build, own, and
operate projects in Italy and Chile (as described further in
Note 5 to the consolidated financial statements in this
annual report on
Form 10-K),
a $1,000 gain on the sale of a previously closed manufacturing
facility in Dansville, New York, a $9,200 gain recognized at our
Camden, New Jersey
waste-to-energy
facility from the State of New Jerseys payment on the
projects debt and $600 of investment income. 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 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
of the projects 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 fiscal year 2006, our equity in the
after-tax earnings of these projects is reported in other
income. This change reduced other income and the provision for
taxes by $8,600 in fiscal year 2006.
27
Other income in fiscal year 2005 consists primarily of $30,600
in equity method earnings generated from our investments,
primarily from minority ownership interests in build, own, and
operate projects in Italy and Chile (as described further in
Note 5 to the consolidated financial statements in this
annual report on
Form 10-K),
a $1,500 gain recognized in the United Kingdom on the sale of an
investment, a $9,000 gain recognized at our Camden, New Jersey
waste-to-energy
facility from the State of New Jerseys payment on the
projects debt and $1,300 of investment income.
Other
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
45,540
|
|
|
$
|
45,453
|
|
|
$
|
36,529
|
|
$ Change
|
|
|
87
|
|
|
|
8,924
|
|
|
|
|
|
% Change
|
|
|
0.2
|
%
|
|
|
24.4
|
%
|
|
|
|
|
Other deductions in fiscal year 2007 consists primarily of
$3,600 of bank fees, $20,500 of legal fees, $800 of consulting
fees, $2,600 of foreign exchange losses, $1,500 of tax penalties
and accrued penalties on unrecognized tax benefits and a $10,100
provision for dispute resolution and environmental remediation
costs.
Other deductions in fiscal year 2006 consists primarily of
$7,200 of bank fees, $17,300 of legal fees, $4,800 of consulting
fees, $1,700 of foreign exchange losses, a $6,400 provision for
dispute resolution and environmental remediation costs and a
$4,100 charge for tax penalties, partially offset by $(1,300) of
bad debt recovery.
Other deductions in fiscal year 2005 consists primarily of
$8,800 of bank fees, $3,500 of which was associated with a prior
senior credit facility, $12,800 of legal fees, $2,700 of foreign
exchange losses, $4,200 of environmental costs and $1,400 in
charges related to the common share purchase warrants offers
that we commenced in December 2005, partially offset by $(6,700)
of bad debt recovery.
Interest
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
35,627
|
|
|
$
|
15,119
|
|
|
$
|
8,876
|
|
$ Change
|
|
|
20,508
|
|
|
|
6,243
|
|
|
|
|
|
% Change
|
|
|
135.6
|
%
|
|
|
70.3
|
%
|
|
|
|
|
The increase in interest income in fiscal year 2007, compared to
fiscal year 2006, resulted primarily from a higher average cash
and cash equivalents balance with additional benefits from
higher interest rates and investment yields.
The increase in interest income in fiscal year 2006, compared to
fiscal year 2005, resulted primarily from a higher average cash
and cash equivalents balance.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
19,855
|
|
|
$
|
24,944
|
|
|
$
|
50,618
|
|
$ Change
|
|
|
(5,089
|
)
|
|
|
(25,674
|
)
|
|
|
|
|
% Change
|
|
|
(20.4
|
)%
|
|
|
(50.7
|
)%
|
|
|
|
|
The decrease in interest expense in fiscal year 2007, compared
to fiscal year 2006, reflects the benefits of our debt reduction
initiatives completed in the second quarter of 2006.
The decrease in interest expense in fiscal year 2006, compared
to fiscal year 2005, reflects the benefits of our debt reduction
initiatives completed in the second quarter of 2006 and the
latter half of fiscal year 2005.
28
Please refer to Note 6 to the consolidated financial
statements in this annual report on
Form 10-K
for more information.
Minority
Interest in Income of Consolidated Affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
5,577
|
|
|
$
|
4,789
|
|
|
$
|
4,382
|
|
$ Change
|
|
|
788
|
|
|
|
407
|
|
|
|
|
|
% Change
|
|
|
16.5
|
%
|
|
|
9.3
|
%
|
|
|
|
|
Minority interest in income of consolidated affiliates reflects
third-party ownership interests in the results of our Global
Power Groups Martinez, California gas-fired cogeneration
facility and our manufacturing facilities in Poland and the
Peoples Republic of China. The change in minority interest
in income of consolidated affiliates is based upon changes in
the underlying earnings of the subsidiaries. The increase in
minority interest in income of consolidated affiliates for 2007
primarily reflects higher plant availability in 2007 at the
Martinez facility. This facility was shut down for two repair
outages during 2006.
Net
Asbestos-Related Gains/(Provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
6,145
|
|
|
$
|
100,131
|
|
|
$
|
(113,680
|
)
|
$ Change
|
|
|
(93,986
|
)
|
|
|
213,811
|
|
|
|
|
|
% Change
|
|
|
(93.9
|
)%
|
|
|
N/M
|
|
|
|
|
|
N/M not meaningful.
In fiscal year 2007, the net asbestos-related gain results from
gains of $13,500 on the settlement of coverage litigation with
certain asbestos insurance carriers, which were partially offset
by a net charge of $7,400 on the revaluation of our asbestos
liability and related asset resulting primarily from increased
asbestos defense costs projected through year-end 2022 and for
the addition of another year to our rolling
15-year
asbestos liability estimate.
The net asbestos-related gain in fiscal year 2006 results
primarily from asbestos-related insurance settlement gains of
$96,200 and a gain of $19,500 on our successful appeal of a New
York state trial court decision that previously had held that
New York, rather than New Jersey, law applies in the coverage
litigation with our subsidiaries insurers, partially
reduced by a charge of $15,600 reflecting the revaluation of our
asbestos liability and related asset resulting from increased
asbestos defense costs projected through year-end 2021 and for
the addition of another year to our rolling
15-year
asbestos liability estimate.
The net asbestos-related provision in fiscal year 2005 results
from the revaluation of our estimated asbestos indemnity and
defense costs liability and our estimated asbestos insurance
receivable.
Please refer to Note 19 to the consolidated financial
statements in this annual report on
Form 10-K
for more information.
Prior
Domestic Senior Credit Agreement Fees and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
|
|
|
$
|
14,955
|
|
|
$
|
|
|
$ Change
|
|
|
(14,955
|
)
|
|
|
14,955
|
|
|
|
|
|
% Change
|
|
|
(100.0
|
)%
|
|
|
N/M
|
|
|
|
|
|
N/M not meaningful.
29
Our prior domestic senior credit agreement fees and expenses
resulted from the voluntary replacement of our prior domestic
senior credit agreement with a new domestic senior credit
agreement in October 2006. We were required to pay a prepayment
fee of $5,000 as a result of the early termination of our prior
agreement along with $500 in other termination fees and
expenses. The early termination also resulted in the impairment
of $9,500 of unamortized fees and expenses paid in 2005
associated with this agreement. In total, we recorded a charge
of $15,000 in fiscal year 2006 in connection with the
termination of our prior domestic senior credit agreement.
Loss
on Debt Reduction Initiatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
|
|
|
$
|
12,483
|
|
|
$
|
58,346
|
|
$ Change
|
|
|
(12,483
|
)
|
|
|
(45,863
|
)
|
|
|
|
|
% Change
|
|
|
(100.0
|
)%
|
|
|
(78.6
|
)%
|
|
|
|
|
The loss on debt reduction initiatives in fiscal year 2006
results from the debt reduction activities completed in the
second quarter of 2006. The charge to income reflects a loss of
$8,200 on the exchange transaction for our 2011 senior notes
resulting primarily from the difference between the fair market
value of the common shares issued and the carrying value of our
2011 senior notes exchanged, a loss of $3,900 on the redemption
of our 2011 senior notes resulting primarily from a make-whole
premium payment, and a loss of $200 on the redemptions of our
trust preferred securities and our convertible notes resulting
primarily from the write-off of deferred charges. The loss on
the debt reduction initiatives for fiscal 2006 was offset by an
improvement in shareholders equity/(deficit) of $58,800,
resulting from the issuance of our common shares.
The loss on debt reduction initiatives in fiscal year 2005
results from our trust preferred securities exchange offer
consummated in August 2005 and our 2011 senior notes exchange
offer consummated in November 2005, which resulted in charges to
income of $41,500 and $16,800, respectively. The charges were
offset by an aggregate improvement in shareholders
equity/(deficit) of $297,000. The charges, which were
substantially non-cash, reflect the differences between the
carrying values of the debt and the market prices of the common
shares on the closing dates of the exchanges.
Please refer to Note 6 to the consolidated financial
statements in this annual report on
Form 10-K
for more information.
Provision
for Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
136,420
|
|
|
$
|
81,709
|
|
|
$
|
39,568
|
|
$ Change
|
|
|
54,711
|
|
|
|
42,141
|
|
|
|
|
|
% Change
|
|
|
67.0
|
%
|
|
|
106.5
|
%
|
|
|
|
|
Our effective tax rate can fluctuate significantly from period
to period and may differ significantly from the
U.S. federal statutory rate as a result of the fact that
most of our operating units are profitable and are recording a
provision for
non-U.S.,
national
and/or
local
income taxes, while others are unprofitable and are unable to
recognize a tax benefit for losses. SFAS No. 109,
Accounting for Income Taxes, requires us to reduce
our deferred tax benefits by a valuation allowance when, based
upon available evidence, it is more likely than not that the tax
benefit of losses (or other deferred tax assets) will not be
realized in the future. In periods when operating units subject
to a valuation allowance generate pretax earnings, the
corresponding reduction in the valuation allowance favorably
impacts our effective tax rate.
Our effective tax rate is, therefore, dependent on the location
and amount of our taxable earnings and the effects of changes in
valuation allowances. Compared to the U.S. statutory rate
of 35%, our effective tax rate for fiscal year 2007 was lower
because of
non-U.S. earnings
being taxed at rates lower than the U.S. statutory
30
rate and because of earnings in jurisdictions where we have
previously recorded a full valuation allowance. These variances
were partially offset by losses in certain other jurisdictions
for which no benefit is recognized (a valuation allowance is
established) and other permanent differences.
Compared to the U.S. statutory rate of 35%, our effective
tax rate for fiscal year 2006 was lower because of
non-U.S. earnings
being taxed at rates lower than the U.S. statutory rate and
because of earnings in jurisdictions where we have previously
recorded a full valuation allowance (primarily the United
States). These variances were partially offset by losses in
certain other
non-U.S. jurisdictions
for which no benefit is recognized (a valuation allowance is
established) and because of other permanent differences. We
monitor valuation allowances against deferred tax assets in
jurisdictions where valuation allowances were established in
previous years. As we currently have positive earnings in most
jurisdictions, we evaluate on a quarterly basis the need for the
valuation allowances against deferred tax assets in those
jurisdictions. Such evaluation includes a review of all
available evidence, both positive and negative, in determining
whether a valuation allowance is necessary.
For statutory purposes, the majority of the U.S. federal
tax benefits, against which valuation allowances have been
established, do not expire until fiscal year 2024 and beyond,
based on current tax laws.
As described further under Application of Critical
Accounting Estimates within this Item 7, we adopted
the provisions of Financial Accounting Standards Board, or FASB,
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, Accounting for Income Taxes, on
December 30, 2006, the first day of fiscal year 2007.
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
$
|
591,840
|
|
|
$
|
399,514
|
|
|
$
|
8,652
|
|
$ Change
|
|
|
192,326
|
|
|
|
390,862
|
|
|
|
|
|
% Change
|
|
|
48.1
|
%
|
|
|
4517.6
|
%
|
|
|
|
|
EBITDA for fiscal year 2007 reflects increased volumes of
business, sustained margins and the overall strong operating
performances by our Global E&C Group and our Global Power
Group, along with $14,400 of income related to the favorable
resolution of project claims and gains of $13,500 on the
settlement of coverage litigation with certain asbestos
insurance carriers, which were partially offset by a $30,000
charge on a Global Power Group legacy project and a net charge
of $7,400 reflecting the revaluation of our asbestos liability
and related asset resulting primarily from increased asbestos
defense costs projected through year-end 2022 and for the
addition of another year to our rolling
15-year
asbestos liability estimate.
EBITDA for fiscal year 2006 includes the impact of the increased
margins and volume of work being executed by our Global E&C
Group and the net asbestos gains of $100,100 described above,
partially offset by a $25,000 charge on the aforementioned
Global Power Group legacy project, the impact of our debt
reduction initiatives and the costs associated with the
voluntary replacement of our prior domestic senior credit
agreement.
EBITDA for fiscal year 2005 includes charges related to asbestos
and to the completed equity-for-debt exchange offers. The strong
operating performance in our Global E&C Group was partially
offset by $50,200 of write-downs on Global Power Group projects
in Europe and North America.
Please refer to the section entitled, Business
Segments, within this Item 7 for further information.
EBITDA is a supplemental financial measure not defined in
generally accepted accounting principles, or GAAP. We define
EBITDA as income before interest expense, income taxes,
depreciation and amortization. We have presented EBITDA because
we believe it is an important supplemental measure of operating
performance. EBITDA, after adjustment for certain unusual and
infrequent items specifically excluded in the terms of our
current and prior senior credit agreements, is used for certain
covenants under our current and prior senior credit agreements.
We believe that the line item on the consolidated statements of
operations and comprehensive income/(loss) entitled net
income/(loss) is the most directly comparable GAAP
financial
31
measure to EBITDA. Since EBITDA is not a measure of performance
calculated in accordance with GAAP, it should not be considered
in isolation of, or as a substitute for, net income/(loss) as an
indicator of operating performance or any other GAAP financial
measure. EBITDA, as calculated by us, may not be comparable to
similarly titled measures employed by other companies. In
addition, this measure does not necessarily represent funds
available for discretionary use and is not necessarily a measure
of our ability to fund our cash needs. As EBITDA excludes
certain financial information that is included in net
income/(loss), users of this financial information should
consider the type of events and transactions that are excluded.
Our non-GAAP performance measure, EBITDA, has certain material
limitations as follows:
|
|
|
|
|
It does not include interest expense. Because we have borrowed
money to finance some of our operations, interest is a necessary
and ongoing part of our costs and has assisted us in generating
revenue. Therefore, any measure that excludes interest expense
has material limitations;
|
|
|
|
It does not include taxes. Because the payment of taxes is a
necessary and ongoing part of our operations, any measure that
excludes taxes has material limitations; and
|
|
|
|
It does not include depreciation and amortization. Because we
must utilize property, plant and equipment and intangible assets
in order to generate revenues in our operations, depreciation
and amortization are necessary and ongoing costs of our
operations. Therefore, any measure that excludes depreciation
and amortization has material limitations.
|
A reconciliation of EBITDA to net income/(loss) is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
C&F
|
|
|
|
Total
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Group
(1)
|
|
|
For the Year Ended December 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(2)
|
|
$
|
591,840
|
|
|
$
|
505,647
|
|
|
$
|
139,177
|
|
|
$
|
(52,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(19,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(41,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
530,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(136,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
393,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(3)
|
|
$
|
399,514
|
|
|
$
|
323,297
|
|
|
$
|
95,039
|
|
|
$
|
(18,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(24,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(30,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
343,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(81,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
261,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(4)
|
|
$
|
8,652
|
|
|
$
|
165,629
|
|
|
$
|
107,266
|
|
|
$
|
(264,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(50,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(28,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(70,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(39,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(109,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes general corporate income and expense, our captive
insurance operation and eliminations.
|
32
|
|
|
(2)
|
|
Includes in fiscal year 2007: increased/(decreased) contract
profit of $35,100 from the regular re-evaluation of contract
profit estimates: $54,500 in our Global E&C Group and
$(19,400) in our Global Power Group; a charge of $(7,400) in our
C&F Group reflecting the revaluation of our asbestos
liability and related asset resulting primarily from increased
asbestos defense costs projected through year-end 2022 and for
the addition of another year to our rolling
15-year
asbestos liability estimate; and gains of $13,500 on the
settlement of coverage litigation with certain asbestos
insurance carriers recorded in our C&F Group.
|
|
(3)
|
|
Includes in fiscal year 2006: (decreased)/increased contract
profit of $(5,700) from the regular re-evaluation of contract
profit estimates: $14,700 in our Global E&C Group and
$(20,400) in our Global Power Group; a charge of $(15,600) in
our C&F Group reflecting the revaluation of our asbestos
liability and related asset; net asbestos-related gains of
$115,700 recorded in our C&F Group primarily from
settlement of coverage litigation with certain asbestos
insurance carriers; an aggregate charge of $(15,000) recorded in
our C&F Group in conjunction with the voluntary termination
of our prior domestic senior credit agreement; and a net charge
of $(12,500) recorded in our C&F Group in conjunction with
the debt reduction initiatives completed in April and May 2006.
|
|
(4)
|
|
Includes in fiscal year 2005: increased contract profit of
$99,600 from the regular re-evaluation of contract profit
estimates: $66,300 in our Global E&C Group and $33,300 in
our Global Power Group; a charge of $(113,700) in our C&F
Group on the revaluation of our estimated asbestos liability and
asbestos insurance receivable; credit agreement costs in our
C&F Group associated with our prior senior credit facility
of $(3,500); and an aggregate charge of $(58,300) in our
C&F Group recorded in conjunction with the exchange offers
for our trust preferred securities and our 2011 senior notes.
|
Business
Segments
We use several financial metrics to measure the performance of
our business segments. EBITDA, as discussed and defined above,
is the primary earnings measure used by our chief operating
decision maker.
Global
E&C Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating revenues
|
|
$
|
3,681,259
|
|
|
$
|
2,219,104
|
|
|
$
|
1,471,948
|
|
$ Change
|
|
|
1,462,155
|
|
|
|
747,156
|
|
|
|
|
|
% Change
|
|
|
65.9
|
%
|
|
|
50.8
|
%
|
|
|
|
|
EBITDA
|
|
$
|
505,647
|
|
|
$
|
323,297
|
|
|
$
|
165,629
|
|
$ Change
|
|
|
182,350
|
|
|
|
157,668
|
|
|
|
|
|
% Change
|
|
|
56.4
|
%
|
|
|
95.2
|
%
|
|
|
|
|
Results
The increase in operating revenues in fiscal year 2007, compared
to fiscal year 2006, reflects increased volumes of work at all
of our Global E&C Group operating units. Major projects in
North America, South America, Asia, Australasia, Europe and the
Middle East in the oil and gas, refining, chemical/petrochemical
and LNG industries led the increase in activities.
The increase in EBITDA in fiscal year 2007, compared to fiscal
year 2006, results primarily from the increased volumes of work
at our Global E&C Group operating units and sustained
margins, excluding the impact of flow-through revenues. We
increased our direct technical manpower, which includes agency
workforce, by 21% in fiscal year 2007, primarily in our Asian,
North American and United Kingdom offices, to continue to
address growing market opportunities. We plan to continue to
expand our operational capacity in 2008 through the combination
of organic growth and selective acquisitions.
The increase in operating revenues in fiscal year 2006, compared
to fiscal year 2005, reflects increased volumes of work at all
of our Global E&C Group operating units. Major projects in
Australasia, Europe, the Middle East and South America in the
oil and gas, refining, and chemical/petrochemical industries led
the increase in activities.
33
The increase in EBITDA in fiscal year 2006 results primarily
from the increased volumes of work and improved margins at all
of our Global E&C operations. We increased our direct
technical manpower, which includes agency workforce, by 47% in
fiscal year 2006, primarily in our Asian, North American, and
United Kingdom offices, to help capture the market growth.
Overview
of Segment
We expect sustained demand for oil and gas, petrochemicals and
refined products that stimulated investment in new and expanded
plants over the last 12 to 24 months to continue in 2008.
While our business has not been impacted to date by the
U.S. credit crunch resulting from the sub-prime mortgage
crisis, the full impact on the U.S. and global economy has
yet to be fully established and therefore the possibility
remains that credit conditions, as well as a slowdown or
recession in economic growth, could adversely affect the
industries in which our clients operate and as a result, our
business. However, the overall proportion of the U.S. in
terms of global gross domestic product has reduced over time,
with the emergence of China and India as increasingly
significant contributors to global gross domestic product. While
global gross domestic product growth is expected to decrease in
2008 relative to 2007, the emerging markets continue to show few
signs of any growth impact from recent financial and economic
volatility and we believe that the downside risks may be
mitigated, in whole or in part, by the forecast for continued
strong economic growth in emerging markets, such as China and
India.
We anticipate that historically high oil prices and continued
strong demand for oil will sustain the high levels of client
investment in upstream oil and gas facilities that we are
currently witnessing in most regions, particularly in West
Africa, the Middle East, Russia and the Caspian states. We
believe that rising demand for natural gas in Europe, Asia and
the United States, combined with a shortfall in indigenous
production, will continue to act as a stimulant to the LNG
business. Although LNG demand continues to grow strongly, the
pace at which new liquefaction train construction projects have
received approval to proceed has slowed over the last two or
three years. We believe this indicates that significant
additional liquefaction capacity over and above the approved
projects will need to be developed.
We believe that the global refining system is currently running
at very high utilization rates and that global demand for
transportation fuels will be sustained, especially jet
fuel/kerosene and middle distillates (primarily diesel).
Additionally, the price differential between heavier,
higher-sulfur crude oil and lighter, sweeter crudes remains
higher than the historic average. All of these factors are
continuing to stimulate refinery investment, particularly to
enable refiners to process the higher-sulfur crudes and to
upgrade lower-value refinery residue to higher-value
transportation fuels and we expect to see continued investment
in these projects. We have considerable experience and expertise
in this area, including our proprietary delayed coking
technology, which enables refineries to upgrade lower quality
crude oil or refinery residue to high value refined products
such as transportation fuels. We are currently executing a
significant number of delayed coking projects, including
feasibility studies, front-end engineering and design, or FEED,
contracts, delayed coking technology license agreements,
engineering, procurement and construction supervision contracts
and full engineering, procurement and construction contracts.
These projects are located in North America, South America,
Asia, Europe, and the Middle East. The subsequent phases of some
of these projects offer us further opportunities. We believe
that the majority of new investment in coking will take place in
regions such as Asia where investment in residue upgrading has
not previously been a prime focus for refiners.
We believe that refining capacity will continue to be added
through the development of grassroots refineries, notably in the
Middle East, India and China. Significant upgrades and
expansions continue to be planned or are underway at existing
refineries in many regions. Clean fuel programs are also being
implemented to meet new fuel specifications for refiners
production to domestic
and/or
export markets. We are currently working on refining projects in
the Americas, Europe, Asia and the Middle East.
In order to add value to their refinery streams and therefore
improve margins, we believe that refiners are also investing in
refinery/petrochemical integration. We are working on a number
of integrated projects in Asia and the Middle East.
Investment in petrochemical plants began to rise sharply in 2004
in response to strong growth in demand. The majority of this
investment has been centered in Asia and the Middle East. We are
seeing continued
34
strong demand supporting further new investment in these
regions, which we expect to continue throughout 2008. We are
also seeing investment in specialty chemicals, particularly in
the Middle East, stimulated by governmental desire to further
diversify their economies to lessen their dependence on crude
oil exports and to provide sustained employment for their
growing young populations. We continue to execute several major
petrochemical contracts and expect to secure new petrochemicals
business throughout 2008.
While the outlook for oil and gas, refining and petrochemicals
in 2008 remains positive, we are seeing that, as the demand and
cost for engineering and construction services, materials and
equipment and commodities continues to rise, some companies are
electing to commit to only partial or staged investments, to
reduce the scope of their investments, or to postpone or cancel
investments, until the market slows. As we work with our clients
in the early study and front-end design phases of their
projects, we are helping some of them develop a revised project
that meets their investment parameters, develop a staged
investment plan, or revise the scope of or configuration of
their original project so that they are able to obtain approval
to proceed with their investment. In addition, as discussed
above, we believe the full impact of the U.S. credit crunch
resulting from the sub-prime mortgage crisis has yet to be fully
realized. There are a number of substantial downside risks to
the global economic growth forecasts for 2008.
Investment in new pharmaceutical production facilities has
slowed since 2003. We believe this is attributable to a range of
factors including industry cost pressure. Investment has focused
on plant rationalization, upgrading and improvement projects
rather than on major new greenfield production facilities and on
biotechnology facilities. There are now indications of some
renewed interest in more significant plant investment in the key
pharmaceutical investment hubs Singapore, the U.S.,
Ireland and Puerto Rico.
Global
Power Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating revenues
|
|
$
|
1,425,984
|
|
|
$
|
1,275,944
|
|
|
$
|
728,024
|
|
$ Change
|
|
|
150,040
|
|
|
|
547,920
|
|
|
|
|
|
% Change
|
|
|
11.8
|
%
|
|
|
75.3
|
%
|
|
|
|
|
EBITDA
|
|
$
|
139,177
|
|
|
$
|
95,039
|
|
|
$
|
107,266
|
|
$ Change
|
|
|
44,138
|
|
|
|
(12,227
|
)
|
|
|
|
|
% Change
|
|
|
46.4
|
%
|
|
|
(11.4
|
)%
|
|
|
|
|
Results
The increase in operating revenues in fiscal year 2007, as
compared to fiscal year 2006, results from the volume of
business in our operations in North America, Europe and China.
Our Global Power Group experienced higher levels of EBITDA in
fiscal year 2007, as compared to fiscal year 2006, as a result
of increased volumes of business and increased margins
experienced by our contracts executed in North America, Europe
and China. In addition, EBITDA in fiscal year 2007 included
$14,400 related to the favorable resolution of project claims.
The $14,400 impacted contract profit by $9,600, interest income
by $4,000 and reduced other deductions by $800. EBITDA was also
adversely impacted by a $30,000 contingency taken in fiscal year
2007 on a legacy engineering, procurement and construction
project in Europe. The $30,000 contingency was in addition to a
$25,000 contingency established during the fourth quarter of
2006 and other write-downs and profit reversals in 2004. This
project was bid in 2001 and awarded in 2002, prior to the
implementation of our current system of risk management controls
and our Project Risk Management Group. The two plants involved
in this project are completed and have been operating, but have
experienced a series of technical issues, which largely involve
corrosion in the front-end of the plant, which we believe is
caused by the clients use of fuel that is not within the
contract specifications, as well as back-end corrosion of
subcontractor-provided emissions control equipment and induction
fans. The cause of the back-end corrosion, which we discovered
during the second quarter of 2007 to be more extensive than
previously determined, is under investigation. We have
identified a technical solution to ameliorate the corrosive
effects of the out-of-specification fuel, and the client is in
the process of evaluating the proposed
35
solution for the front-end corrosion. Disavowing responsibility
for the fuel specification, the client has refused to pay for
the cost of the corrective work and has reserved its rights
against us under the contract, which could include repairing or
rejecting the plants and recovering consequential damages in the
event we are determined to be grossly negligent. We have advised
the client that we are not responsible for the cost of
corrective work to address corrosion resulting from
out-of-specification fuel and anticipate having discussions with
the client in the near future regarding our claim. For further
information, please see Note 19 to the consolidated
financial statements in this annual report on
Form 10-K.
The increase in operating revenues in fiscal year 2006 over
fiscal year 2005 results from execution on increased bookings
that occurred largely in the latter half of 2005 and the early
part of 2006 in our operations in Europe and North America.
Our Global Power Group experienced lower levels of EBITDA in
fiscal year 2006, compared to fiscal year 2005. The Global Power
Groups EBITDA was adversely impacted by poor performance
on eight contracts resulting in approximately $54,200 of charges
and lost profit opportunity in Europe and North America in
fiscal year 2006; net gains of approximately $2,600 on contract
dispute settlements with clients in North America that occurred
in fiscal year 2005 that were not repeated in fiscal year 2006;
a charge of approximately $7,100 in fiscal year 2006 associated
with the wind down of our Canadian operations; and from reduced
margins on projects currently being executed in Europe and North
America versus several high margin contracts executed in Asia
during fiscal year 2005. Included in the $54,200 of charges and
lost profit opportunity is the aforementioned contingency of
$25,000.
Overview
of Segment
Although the solid fuel-fired boiler market remains highly
competitive, we believe that there are several continuing global
market forces that will positively impact our Global Power Group
over the next two to three years. We believe that continued
worldwide economic growth is driving power demand growth in most
world regions. In addition, continued tight global natural gas
and oil supplies have driven gas and oil prices upwards to
historically high levels. We expect natural gas fuel price
volatility to remain high over the next two to three years due
to declining domestic supplies in Europe and the United States.
Due to further tightening of environmental regulations,
including the development and growing acceptance of global
greenhouse gas regulation, we expect continued growth in demand
for products and services in the area of environmental
retrofitting, such as selective non-catalytic and catalytic NOx
reduction systems, over-fire air systems, coal/air balancing
systems and coal mill upgrade equipment. We believe that the
combined effect of these factors will have a positive impact on
the demand for our products and services, such as new utility
and industrial solid fuel boilers, boiler services, boiler
environmental products and boiler-related construction services.
While our Global Power Group has not been impacted to date by
the U.S. credit crunch resulting from the sub-prime
mortgage crisis, the full impact on the U.S. and global
economy has yet to be fully established and therefore the
possibility remains that credit conditions, as well as a
slowdown or recession in economic growth, could adversely affect
the industries in which our clients operate and as a result, our
business. Our Global Power Group is dependant on the
U.S. market as U.S. clients represent a significant
portion of our Global Power Group business. In addition,
although we believe that our Global Power Group is
well-positioned to offer our clients solutions, such as
supercritical PC boilers and CFB boilers capable of utilizing
bio-mass and recycled fuels, which can help address increasing
greenhouse gas regulations, regulation in this area is still
developing in several geographies in which we and our clients
operate. Such regulations could negatively impact client
investments in capital projects, which could negatively impact
the market for our manufactured products and certain of our
services, and also could negatively affect the operations and
profitability of our own electric power plants. This could
materially adversely affect our business, financial conditions,
results of operations and cash flows.
North
America
In North America, we believe the declining generating capacity
reserves across the region, coupled with persistent historically
high oil and natural gas pricing, is spurring market growth for
large coal utility boilers. However, we are also seeing
escalating plant costs and the concern for greenhouse gas
emissions having a growing impact on this market.
36
We believe plant price escalation is driven by the historically
high demand for utility steam power plants globally and is a
result of strained supply of some key components needed to build
the new plants, such as steel, cement and labor. As in most
markets, we believe price will have a dampening or smoothing
effect to the up and down swings of this market.
To capitalize on this business opportunity, our Global Power
Group is actively marketing large-scale supercritical boiler
technology in its key geographic markets as part of our utility
boiler product portfolio. We have been successful in securing
two projects based on supercritical technology: (i) a
project, awarded in 2006 and planned to be commercially
operational by 2009, in Poland where we will be supplying the
worlds first supercritical circulating fluidized-bed, or
CFB, boiler that will utilize Siemens advanced BENSON vertical
tube supercritical steam technology and (ii) a project,
awarded in 2007 and planned to be commercially operational by
2010, for the design and supply, or D&S, of a supercritical
once-through pulverized-coal, or PC, steam boiler for a
coal-fired generating facility located in West Virginia. This
D&S project will be the first application of Siemens
advanced BENSON vertical tube supercritical steam technology to
a PC boiler. We believe that we can leverage these key wins to
further grow our position in the supercritical utility boiler
market for both PC and CFB boilers.
In anticipation of future greenhouse gas regulation, we are
actively involved in developing oxy-combustion boiler technology
designed to provide a practical solution to producing a
concentrated stream of carbon-dioxide, or
CO
2
,
from a coal power plant. This
CO
2
stream could then be transported to a storage location in the
most cost effective manner. To support the development and
commercialization of this new technology, we have entered into
two separate alliance agreements. One is with a large industrial
gas company which allows us to co-pursue and develop specific
key demonstration projects. Together we believe that we form a
strong technology team for the successful development of the
technology. In addition, we have entered into an alliance
agreement with another organization to support the development
of an oxy-combustion pilot testing facility to be built in Spain.
From the industrial sector, we are seeing growth in the solid
fuel industrial boiler market, driven by historically high oil
and natural gas pricing. These boilers offer industrial clients
an attractive economic solution to supply their energy needs by
utilizing low cost biomass and other solid opportunity fuels.
Many of these fuels also carry governmental tax credits and
other financial incentives to encourage their use as renewable
fuels, making them more attractive to both the industrial and
utility power sectors. We believe that our leading CFB
technology is well positioned to serve this market segment due
to its ability to burn difficult-to-burn fuels, its
outstanding fuel flexibility and its excellent environmental
performance, compared to other solid fuel.
The United States Environmental Protection Agencys,
or EPAs, Clean Air Interstate Rule, which became effective
during 2005, as well as the continued settlements of earlier New
Source Review lawsuits brought against a number of utilities by
the EPA, continue to drive a strong retrofit pollution control
market, including add-on pollution control systems, such as low
NOx combustion systems, selective catalytic reduction systems
and flue gas desulphurization systems. We believe this market
trend will benefit sales of our environmental products. We also
believe that, due to reducing capacity margins (which represent
the amount of unused available electric generating capacity as a
percentage of total electric capacity), coal-fired power plants
for independent power producers and utilities are operating at
greater capacity to produce more electricity, which, in turn, is
spurring maintenance investment by owners. We also see evidence
that owners are making larger capital investments in these
plants to extend their useful lives. We believe these factors
are helping to maintain a strong boiler service market, which
should benefit our boiler service business.
Europe
We believe that many of the same market forces discussed above
are resulting in similar beneficial market trends for our Global
Power Group business in Europe. We believe that declining power
capacity reserves across the region, coupled with persistent
historically high oil and natural gas pricing, are spurring
market growth for large utility coal boilers (greater than 500
megawatt-electric unit size). Similar to the market in North
America, we are also seeing escalating plant costs and the
concern for greenhouse gas emissions having a growing impact on
restraining this market.
37
Due to Europes historical preference for high efficiency
coal-fired power plants and active greenhouse gas regulation for
power plants (such as Europes emissions trading scheme,
which became effective in 2005), we believe supercritical boiler
technology will continue to be the preference in the European
utility boiler market sector. We believe that, with the
supercritical CFB and PC boiler projects described above, we are
well positioned to pursue this market sector by offering both PC
and CFB-type supercritical boilers. Historically, PC boiler
technology has been the only combustion technology choice for
the supercritical utility boiler market segment globally.
However, we believe that supercritical CFB boiler technology has
the potential to penetrate the supercritical utility boiler
market and to shift a portion of the market away from PC to
CFB-type boilers, especially for non-premium solid fuels such as
lignite, brown coals and waste coals. Since we expect to be the
first boiler supplier with an operational supercritical CFB
reference plant (which is expected to be commissioned in 2009),
we believe we are well positioned to pursue this market
opportunity.
From the industrial sector, driven by increasing power prices
and historically high oil and natural gas pricing, we are seeing
growth in the solid fuel industrial power market, which is
benefiting sales of our industrial boilers. The European Union,
or EU, has established regulation and incentive programs to
encourage the use of biomass and other waste fuels, which we
believe is spurring growth both in the industrial and utility
sectors for our CFB boilers market. The EUs landfill and
waste recycling directives (which became effective in
2004) have opened a new market for our CFB boilers firing
refuse-derived fuels. The EUs Large Combustion Plant
Directive, or LCPD (which has governed the emission regulation
of utility power plants in Europe over the last five years and
continues to be revised to enforce even tighter emission
standards), is expected to drive growth in the retrofit
pollution control market, which should benefit our environmental
products business. Due to the LCPDs relatively mild first
step reduction goals, we do not expect to see significant growth
until after 2008 when the second phase of the program calls for
tighter emission limits. Finally, coal power plants for
independent power producers and utilities in Europe are
operating at greater capacity to produce more electricity
spurring maintenance and life extension investment by owners.
Similar to the United States, reduced capacity margins are
driving this market, which is having a positive effect on the
volume of our boiler service sales.
Asia
In Asia, we believe that high economic growth continues to drive
strong power demand growth and demand for new power capacity. We
believe that the regions historically high coal use, now
coupled with historically high world oil and natural gas
pricing, will likely continue to drive growth for coal-fueled
utility and industrial boilers in the region. The region
contains some of the worlds largest utility and industrial
boiler markets, such as China and India, offering opportunities
to our Global Power Group businesses. Historically, it has been
difficult for foreign companies to penetrate these markets due
to national trade policies and client preference for local
companies. To maximize our opportunities, we are continuing our
licensing strategy, which allows us to gain access to these
closed markets while also expanding our capacity and resources
through our licensees allowing us to expand further in the
global market place. Due to the regions growing
environmental awareness, including
CO
2
and its link to global warming, we see opportunities for our
entire new boiler line from small industrial boilers to large
utility supercritical boilers, as well as for our environmental
retrofit products (such as low NOx combustion systems and coal
pulverizers). Finally, reduced spare capacity margins are also
resulting in coal power plants for independent power producers
and utilities operating at higher operating rates to produce
more electricity, which in turn spurs maintenance and life
extension investment by owners, offering further opportunity for
our boiler services.
Liquidity
and Capital Resources
Fiscal
Year 2007 Activities
As of December 28, 2007, we had a record amount of cash and
cash equivalents, short-term investments and restricted cash
totaling $1,069,500, compared to $630,000 as of
December 29, 2006. The increase results from cash provided
by operations of $425,200, cash provided by financing activities
of $38,200, favorable exchange rate changes on cash and cash
equivalents of $20,200, partially offset by cash used in
investing activities of $46,000. Of the $1,069,500 total at
December 28, 2007, $819,400 was held by our foreign
subsidiaries and $20,900 was represented by restricted cash.
Please refer to Note 1 to the consolidated
38
financial statements in this annual report on
Form 10-K
for additional details on cash and restricted cash balances.
Cash provided by operations was $425,200 in fiscal year 2007,
compared to $263,700 and $50,800 of cash provided by operations
in fiscal years 2006 and 2005, respectively. The cash provided
by operations in fiscal year 2007 was attributable primarily to
our strong operating performance, partially offset by making
$45,000 of mandatory and discretionary contributions to our
domestic pension plan and funding $19,000 of asbestos liability
indemnity payments and defense costs. The cash provided by
operations in fiscal years 2006 and 2005 resulted from increased
margins and volumes of business from the international
operations of our Global E&C Group. Our working capital
varies from period to period depending on the mix, stage of
completion and commercial terms and conditions of our contracts.
Working capital in our Global E&C Group tends to rise as
the workload of reimbursable contracts increases since services
are rendered prior to billing clients while working capital
tends to decrease in our Global Power Group when the workload
increases as cash tends to be received prior to ordering
materials and equipment.
Cash used in investing activities was $46,000 in fiscal year
2007, compared to $25,600 of cash used in investing activities
in fiscal year 2006 and $63,600 of cash provided by investing
activities in fiscal year 2005. The cash used in investing
activities in fiscal year 2007 was attributable primarily to
capital expenditures of $51,300 (which includes $13,800 of
expenditures in FW Power S.r.l. as we continue construction of
an electric power generating wind farm project in Italy), a
$1,500 purchase of a Finnish company that owns patented coal
flow measuring technology and $4,800 in September 2007 related
to the final payment for the 2006 purchase of the remaining 51%
interest of FW Power S.r.l., partially offset by a $6,300
distribution from our unconsolidated affiliates and proceeds
from the sale of assets of $7,600. The cash used in investing
activities in fiscal year 2006 was attributable primarily to
capital expenditures of $30,300 and a $6,600 increase in
investments in and advances to unconsolidated affiliates,
partially offset by a decrease in cash subject to restrictions
of $8,900 and $1,900 in proceeds from asset sales. The cash
provided by investing activities in fiscal year 2005 was
attributable primarily to a decrease in cash subject to
restrictions of $46,200, a decrease in short-term investments of
$24,400 and $4,900 in proceeds from asset sales, partially
offset by capital expenditures of $10,800. The capital
expenditures related primarily to project construction (see
above noted FW Power S.r.l. electric power generating wind farm
projects in Italy), leasehold improvements, information
technology equipment and office equipment. These expenditures
reflect increased spending on project construction and the
increased volumes of business in fiscal years 2007 and 2006. The
increase in capital expenditures over the three year period has
been driven primarily by our Global E&C Group, with
particular increases driven by operations in Asia, Continental
Europe and the United Kingdom. Our Global Power Group capital
expenditure increase was driven by our China operations with the
expansion of our manufacturing facility and office relocation.
For further information on capital expenditures by segment,
please see Note 17 to the consolidated financial statements
in this annual report on
Form 10-K.
Cash provided by financing activities was $38,200 in fiscal year
2007, compared to $500 of cash provided by financing activities
in fiscal year 2006 and $41,500 of cash used in financing
activities in fiscal year 2005. The cash provided by financing
activities in fiscal year 2007 reflects primarily stock option
and warrant proceeds and proceeds from the issuance of
special-purpose limited recourse project debt by FW Power
S.r.l., partially offset by the repayment of debt and capital
lease obligations. The cash provided by financing activities in
fiscal year 2006 reflects primarily stock option and warrant
proceeds, partially offset by the reduction in debt, including
our 2011 senior notes, and capital lease obligations and the
payment of deferred financing costs in conjunction with the
senior credit agreement. The cash used in financing activities
in fiscal year 2005 reflects primarily the reduction in debt and
capital lease obligations and the payment of deferred financing
costs in conjunction with the domestic senior credit agreement.
Outlook
Our liquidity forecasts cover, among other analyses, existing
cash balances, cash flows from operations, cash repatriations
from
non-U.S. subsidiaries,
working capital needs, unused credit line availability and
claims recoveries and proceeds from asset sales, if any. These
forecasts extend over a rolling
12-month
period. Based on these forecasts, we believe our existing cash
balances and forecasted net cash provided from operating
39
activities will be sufficient to fund our operations throughout
the next 12 months. Based on these forecasts, our primary
cash needs for fiscal 2008 will be to fund working capital,
capital expenditures, asbestos liability indemnity and defense
costs, and acquisitions. The majority of our cash balances are
invested in short-term interest bearing accounts. We continue to
consider investing some of our cash in longer-term investment
opportunities, including the acquisition of other entities or
operations in the engineering and construction industry or power
industry
and/or
the
reduction of certain liabilities such as unfunded pension
liabilities.
It is customary in the industries in which we operate to provide
standby letters of credit, bank guarantees or performance bonds
in favor of clients to secure obligations under contracts. We
believe that we will have sufficient letter of credit capacity
from existing facilities throughout the next 12 months.
Our domestic operating entities do not generate sufficient cash
flows to fund our obligations related to corporate overhead
expenses and asbestos-related liabilities. Consequently, we
require cash repatriations from our
non-U.S. subsidiaries
in the normal course of our operations to meet our domestic cash
needs and have successfully repatriated cash for many years. We
believe we can repatriate the required amount of cash from our
foreign subsidiaries and we continue to have access to the
revolving credit portion of our domestic senior credit facility,
if needed.
We funded $19,000 of asbestos liability indemnity payments and
defense costs from our cash flows in fiscal year 2007, net of
the cash received from insurance settlements. We expect to fund
a total of $25,000 of the asbestos liability indemnity and
defense costs from our cash flows in fiscal year 2008, net of
the cash expected to be received from existing insurance
settlements. This estimate assumes no additional settlements
with insurance companies or elections by us to fund additional
payments. As we continue to collect cash from insurance
settlements and assuming no increase in our asbestos-related
insurance liability or any future insurance settlements, the
asbestos-related insurance receivable recorded on our balance
sheet will continue to decrease.
On May 4, 2007, we executed an amendment to our 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 an
accordion feature, which permits further incremental
increases of up to $100,000 in total availability under the
facility. We had $245,800 and $189,000 of letters of credit
outstanding under our domestic senior credit agreement as of
December 28, 2007 and December 29, 2006, respectively.
The letter of credit fees now range from 1.50% to 1.60%,
excluding a fronting fee of 0.125% per annum. We do not intend
to borrow under our domestic senior revolving credit facility
during 2008. 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 assigned to the domestic senior
credit agreement by Moodys Investors Service
and/or
Standard & Poors. However, this performance
pricing is not expected to materially impact our liquidity or
capital resources in 2008.
We anticipate spending 42,990 (approximately $63,300 at
the exchange rate as of December 28, 2007) in FW Power
S.r.L., in fiscal year 2008 as we continue construction of the
electric power generating wind farm projects in Italy. We have
secured total borrowing capacity under the FW Power credit
facilities of 75,350 (approximately $110,950 at the
exchange rate as of December 28, 2007).
Please refer to Note 7 to the consolidated financial
statements in this annual report on
Form 10-K
for further information regarding our debt obligations.
We have not declared or paid a cash dividend since July 2001 and
we do not have any plans to declare or pay any cash dividends.
Our current credit agreement contains limitations on cash
dividend payments.
Off-Balance
Sheet Arrangements
We own several non-controlling equity interests in power
projects in Chile and Italy. Certain of the projects have
third-party debt that is not consolidated on our balance sheet.
We have also issued certain guarantees for the Chilean project.
Please refer to Note 5 to the consolidated financial
statements in this annual report on
Form 10-K
for further information related to these projects.
40
Contractual
Obligations
We have contractual obligations comprised of long-term debt,
non-cancelable operating lease commitments, purchase
commitments, capital lease commitments and pension funding
requirements. Our expected cash flows related to contractual
obligations outstanding as of December 28, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5 Years
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
136,900
|
|
|
$
|
18,000
|
|
|
$
|
50,200
|
|
|
$
|
14,900
|
|
|
$
|
53,800
|
|
Interest
|
|
|
59,900
|
|
|
|
10,400
|
|
|
|
16,300
|
|
|
|
9,100
|
|
|
|
24,100
|
|
Non-cancelable operating lease commitments
|
|
|
433,800
|
|
|
|
52,800
|
|
|
|
85,300
|
|
|
|
66,600
|
|
|
|
229,100
|
|
Purchase commitments
|
|
|
1,403,000
|
|
|
|
1,315,400
|
|
|
|
85,000
|
|
|
|
2,000
|
|
|
|
600
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
68,400
|
|
|
|
1,300
|
|
|
|
3,400
|
|
|
|
4,100
|
|
|
|
59,600
|
|
Interest
|
|
|
76,500
|
|
|
|
7,200
|
|
|
|
13,600
|
|
|
|
12,900
|
|
|
|
42,800
|
|
Pension funding requirements
U.S.
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension funding requirements
foreign
(2)
|
|
|
151,500
|
|
|
|
33,400
|
|
|
|
62,000
|
|
|
|
56,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
2,330,000
|
|
|
$
|
1,438,500
|
|
|
$
|
315,800
|
|
|
$
|
165,700
|
|
|
$
|
410,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Funding requirements are not expected in the next
five years; however, data for contribution requirements
beyond five years are not yet available. These projections
assume we do not make any discretionary contributions.
|
|
(2)
|
|
Funding requirements are expected to extend beyond
five years; however, data for contribution requirements
beyond five years are not yet available. These projections
assume we do not make any discretionary contributions.
|
The table above does not include payments of our
asbestos-related liabilities as we cannot reasonably predict the
timing of the net cash outflows associated with this liability
beyond 2008. We expect to fund $25,000 of our asbestos liability
indemnity and defense costs from our cash flows in fiscal year
2008, net of the cash expected to be received from existing
insurance settlements. Please refer to Note 19 to the
consolidated financial statements in this annual report on
Form 10-K
for more information.
The table above does not include payments relating to our
uncertain tax positions as we cannot reasonably predict the
timing of the net cash outflows associated with this liability
beyond 2008. We expect to pay $3,300 relating to our uncertain
tax provisions (including interest and penalties) from our cash
flows in fiscal year 2008. Our total liability (including
accrued interest and penalties) is $76,400 as of
December 28, 2007. Please refer to Note 15 to the
consolidated financial statements in this annual report on
Form 10-K
for more information.
In certain instances in the normal course of business, we have
provided security for contract performance consisting of standby
letters of credit, bank guarantees and surety bonds. As of
December 28, 2007, such commitments and their period of
expiration are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5 Years
|
|
|
Bank issued letters of credit and guarantees
|
|
$
|
788,700
|
|
|
$
|
303,100
|
|
|
$
|
243,100
|
|
|
$
|
179,100
|
|
|
$
|
63,400
|
|
Surety bonds
|
|
|
29,900
|
|
|
|
|
|
|
|
|
|
|
|
29,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
818,600
|
|
|
$
|
303,100
|
|
|
$
|
243,100
|
|
|
$
|
209,000
|
|
|
$
|
63,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please refer to Note 9 to the consolidated financial
statements in this annual report on
Form 10-K
for a discussion of guarantees.
41
Backlog
and New Orders
The backlog of unfilled orders includes amounts based on signed
contracts as well as agreed letters of intent, which we have
determined are legally binding and likely to proceed. Although
backlog represents only business that is considered likely to be
performed, cancellations or scope adjustments may and do occur.
The elapsed time from the award of a contract to completion of
performance may be up to approximately four years. The dollar
amount of backlog is not necessarily indicative of our future
earnings related to the performance of such work due to factors
outside our control, such as changes in project schedules, scope
adjustments or project cancellations. We cannot predict with
certainty the portion of backlog to be performed in a given
year. Backlog is adjusted quarterly to reflect project
cancellations, deferrals, revised project scope and cost, and
sales of subsidiaries, if any.
Backlog measured in Foster Wheeler scope reflects the dollar
value of backlog excluding third-party costs incurred by us on a
reimbursable basis as agent or principal, which we refer to as
flow-through costs. Foster Wheeler scope measures the component
of backlog with profit potential and corresponds to our services
plus fees for reimbursable contracts and total selling price for
fixed-price or lump-sum contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
NEW ORDERS (FUTURE REVENUES) BY PROJECT LOCATION:
|
For the Year Ended December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
212,300
|
|
|
$
|
1,028,500
|
|
|
$
|
1,240,800
|
|
South America
|
|
|
30,100
|
|
|
|
144,100
|
|
|
|
174,200
|
|
Europe
|
|
|
845,400
|
|
|
|
649,600
|
|
|
|
1,495,000
|
|
Asia
|
|
|
1,468,500
|
|
|
|
172,800
|
|
|
|
1,641,300
|
|
Middle East
|
|
|
437,700
|
|
|
|
5,300
|
|
|
|
443,000
|
|
Australasia and other
|
|
|
3,880,600
|
|
|
|
7,900
|
|
|
|
3,888,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,874,600
|
|
|
$
|
2,008,200
|
|
|
$
|
8,882,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
287,000
|
|
|
$
|
755,400
|
|
|
$
|
1,042,400
|
|
South America
|
|
|
11,200
|
|
|
|
85,900
|
|
|
|
97,100
|
|
Europe
|
|
|
735,300
|
|
|
|
268,500
|
|
|
|
1,003,800
|
|
Asia
|
|
|
1,307,200
|
|
|
|
83,700
|
|
|
|
1,390,900
|
|
Middle East
|
|
|
1,043,800
|
|
|
|
1,600
|
|
|
|
1,045,400
|
|
Australasia and other
|
|
|
310,800
|
|
|
|
1,800
|
|
|
|
312,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,695,300
|
|
|
$
|
1,196,900
|
|
|
$
|
4,892,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
67,300
|
|
|
$
|
540,600
|
|
|
$
|
607,900
|
|
South America
|
|
|
119,100
|
|
|
|
14,700
|
|
|
|
133,800
|
|
Europe
|
|
|
567,200
|
|
|
|
471,400
|
|
|
|
1,038,600
|
|
Asia
|
|
|
679,500
|
|
|
|
46,300
|
|
|
|
725,800
|
|
Middle East
|
|
|
534,800
|
|
|
|
5,600
|
|
|
|
540,400
|
|
Australasia and other
|
|
|
1,113,000
|
|
|
|
3,500
|
|
|
|
1,116,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,080,900
|
|
|
$
|
1,082,100
|
|
|
$
|
4,163,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
NEW ORDERS (FUTURE REVENUES) BY INDUSTRY:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
96,000
|
|
|
$
|
1,883,500
|
|
|
$
|
1,979,500
|
|
Oil refining
|
|
|
1,218,400
|
|
|
|
|
|
|
|
1,218,400
|
|
Pharmaceutical
|
|
|
81,800
|
|
|
|
|
|
|
|
81,800
|
|
Oil and gas
|
|
|
4,082,100
|
|
|
|
|
|
|
|
4,082,100
|
|
Chemical/petrochemical
|
|
|
1,356,000
|
|
|
|
|
|
|
|
1,356,000
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
124,700
|
|
|
|
124,700
|
|
Environmental
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
Other, net of eliminations
|
|
|
25,300
|
|
|
|
|
|
|
|
25,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,874,600
|
|
|
$
|
2,008,200
|
|
|
$
|
8,882,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
95,700
|
|
|
$
|
1,096,100
|
|
|
$
|
1,191,800
|
|
Oil refining
|
|
|
1,342,200
|
|
|
|
|
|
|
|
1,342,200
|
|
Pharmaceutical
|
|
|
107,600
|
|
|
|
|
|
|
|
107,600
|
|
Oil and gas
|
|
|
444,500
|
|
|
|
|
|
|
|
444,500
|
|
Chemical/petrochemical
|
|
|
1,593,300
|
|
|
|
|
|
|
|
1,593,300
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
100,800
|
|
|
|
100,800
|
|
Environmental
|
|
|
87,800
|
|
|
|
|
|
|
|
87,800
|
|
Other, net of eliminations
|
|
|
24,200
|
|
|
|
|
|
|
|
24,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,695,300
|
|
|
$
|
1,196,900
|
|
|
$
|
4,892,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
142,600
|
|
|
$
|
949,600
|
|
|
$
|
1,092,200
|
|
Oil refining
|
|
|
1,068,300
|
|
|
|
|
|
|
|
1,068,300
|
|
Pharmaceutical
|
|
|
74,600
|
|
|
|
|
|
|
|
74,600
|
|
Oil and gas
|
|
|
1,368,700
|
|
|
|
|
|
|
|
1,368,700
|
|
Chemical/petrochemical
|
|
|
371,100
|
|
|
|
|
|
|
|
371,100
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
132,500
|
|
|
|
132,500
|
|
Environmental
|
|
|
50,100
|
|
|
|
|
|
|
|
50,100
|
|
Other, net of eliminations
|
|
|
5,500
|
|
|
|
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,080,900
|
|
|
$
|
1,082,100
|
|
|
$
|
4,163,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
BACKLOG (FUTURE REVENUES) BY CONTRACT TYPE:
|
As of December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump-sum turnkey
|
|
$
|
66,500
|
|
|
$
|
434,700
|
|
|
$
|
501,200
|
|
Other fixed-price
|
|
|
470,900
|
|
|
|
978,300
|
|
|
|
1,449,200
|
|
Reimbursable
|
|
|
7,289,700
|
|
|
|
191,200
|
|
|
|
7,480,900
|
|
Eliminations
|
|
|
(5,100
|
)
|
|
|
(5,800
|
)
|
|
|
(10,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,822,000
|
|
|
$
|
1,598,400
|
|
|
$
|
9,420,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump-sum turnkey
|
|
$
|
194,000
|
|
|
$
|
256,100
|
|
|
$
|
450,100
|
|
Other fixed-price
|
|
|
454,600
|
|
|
|
637,600
|
|
|
|
1,092,200
|
|
Reimbursable
|
|
|
3,886,600
|
|
|
|
37,500
|
|
|
|
3,924,100
|
|
Eliminations
|
|
|
(33,700
|
)
|
|
|
(1,300
|
)
|
|
|
(35,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,501,500
|
|
|
$
|
929,900
|
|
|
$
|
5,431,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump-sum turnkey
|
|
$
|
376,600
|
|
|
$
|
313,000
|
|
|
$
|
689,600
|
|
Other fixed-price
|
|
|
238,800
|
|
|
|
610,200
|
|
|
|
849,000
|
|
Reimbursable
|
|
|
2,163,100
|
|
|
|
55,500
|
|
|
|
2,218,600
|
|
Eliminations
|
|
|
(47,800
|
)
|
|
|
(17,100
|
)
|
|
|
(64,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,730,700
|
|
|
$
|
961,600
|
|
|
$
|
3,692,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
BACKLOG (FUTURE REVENUES) BY PROJECT LOCATION:
|
As of December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
150,900
|
|
|
$
|
742,900
|
|
|
$
|
893,800
|
|
South America
|
|
|
26,200
|
|
|
|
132,800
|
|
|
|
159,000
|
|
Europe
|
|
|
610,700
|
|
|
|
580,000
|
|
|
|
1,190,700
|
|
Asia
|
|
|
2,014,200
|
|
|
|
137,700
|
|
|
|
2,151,900
|
|
Middle East
|
|
|
1,051,900
|
|
|
|
600
|
|
|
|
1,052,500
|
|
Australasia and other
|
|
|
3,968,100
|
|
|
|
4,400
|
|
|
|
3,972,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,822,000
|
|
|
$
|
1,598,400
|
|
|
$
|
9,420,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
205,600
|
|
|
$
|
459,700
|
|
|
$
|
665,300
|
|
South America
|
|
|
55,700
|
|
|
|
49,200
|
|
|
|
104,900
|
|
Europe
|
|
|
599,800
|
|
|
|
338,700
|
|
|
|
938,500
|
|
Asia
|
|
|
1,269,200
|
|
|
|
80,000
|
|
|
|
1,349,200
|
|
Middle East
|
|
|
1,592,300
|
|
|
|
800
|
|
|
|
1,593,100
|
|
Australasia and other
|
|
|
778,900
|
|
|
|
1,500
|
|
|
|
780,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,501,500
|
|
|
$
|
929,900
|
|
|
$
|
5,431,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
95,200
|
|
|
$
|
447,000
|
|
|
$
|
542,200
|
|
South America
|
|
|
107,900
|
|
|
|
13,200
|
|
|
|
121,100
|
|
Europe
|
|
|
436,200
|
|
|
|
393,900
|
|
|
|
830,100
|
|
Asia
|
|
|
684,700
|
|
|
|
101,900
|
|
|
|
786,600
|
|
Middle East
|
|
|
445,000
|
|
|
|
2,600
|
|
|
|
447,600
|
|
Australasia and other
|
|
|
961,700
|
|
|
|
3,000
|
|
|
|
964,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,730,700
|
|
|
$
|
961,600
|
|
|
$
|
3,692,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
BACKLOG (FUTURE REVENUES) BY INDUSTRY:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
56,400
|
|
|
$
|
1,476,600
|
|
|
$
|
1,533,000
|
|
Oil refining
|
|
|
1,633,100
|
|
|
|
|
|
|
|
1,633,100
|
|
Pharmaceutical
|
|
|
41,400
|
|
|
|
|
|
|
|
41,400
|
|
Oil and gas
|
|
|
4,078,600
|
|
|
|
|
|
|
|
4,078,600
|
|
Chemical/petrochemical
|
|
|
1,988,000
|
|
|
|
|
|
|
|
1,988,000
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
121,800
|
|
|
|
121,800
|
|
Environmental
|
|
|
12,700
|
|
|
|
|
|
|
|
12,700
|
|
Other, net of eliminations
|
|
|
11,800
|
|
|
|
|
|
|
|
11,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,822,000
|
|
|
$
|
1,598,400
|
|
|
$
|
9,420,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foster Wheeler scope in backlog
|
|
$
|
1,709,100
|
|
|
$
|
1,585,500
|
|
|
$
|
3,294,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&C
man-hours
in
backlog (in thousands)
|
|
|
13,400
|
|
|
|
|
|
|
|
13,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
122,000
|
|
|
$
|
812,200
|
|
|
$
|
934,200
|
|
Oil refining
|
|
|
1,736,400
|
|
|
|
|
|
|
|
1,736,400
|
|
Pharmaceutical
|
|
|
106,000
|
|
|
|
|
|
|
|
106,000
|
|
Oil and gas
|
|
|
901,700
|
|
|
|
|
|
|
|
901,700
|
|
Chemical/petrochemical
|
|
|
1,576,800
|
|
|
|
|
|
|
|
1,576,800
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
117,700
|
|
|
|
117,700
|
|
Environmental
|
|
|
61,700
|
|
|
|
|
|
|
|
61,700
|
|
Other, net of eliminations
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,501,500
|
|
|
$
|
929,900
|
|
|
$
|
5,431,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foster Wheeler scope in backlog
|
|
$
|
1,611,500
|
|
|
$
|
916,700
|
|
|
$
|
2,528,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&C
man-hours
in
backlog (in thousands)
|
|
|
11,600
|
|
|
|
|
|
|
|
11,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
154,600
|
|
|
$
|
833,600
|
|
|
$
|
988,200
|
|
Oil refining
|
|
|
897,200
|
|
|
|
|
|
|
|
897,200
|
|
Pharmaceutical
|
|
|
123,500
|
|
|
|
|
|
|
|
123,500
|
|
Oil and gas
|
|
|
1,148,400
|
|
|
|
|
|
|
|
1,148,400
|
|
Chemical/petrochemical
|
|
|
302,600
|
|
|
|
|
|
|
|
302,600
|
|
Power plant operation and maintenance
|
|
|
|
|
|
|
128,000
|
|
|
|
128,000
|
|
Environmental
|
|
|
88,000
|
|
|
|
|
|
|
|
88,000
|
|
Other, net of eliminations
|
|
|
16,400
|
|
|
|
|
|
|
|
16,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,730,700
|
|
|
$
|
961,600
|
|
|
$
|
3,692,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foster Wheeler scope in backlog
|
|
$
|
1,212,400
|
|
|
$
|
947,300
|
|
|
$
|
2,159,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&C
man-hours
in
backlog (in thousands)
|
|
|
9,300
|
|
|
|
|
|
|
|
9,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Inflation
The effect of inflation on our financial results is minimal.
Although a majority of our revenues are realized under long-term
contracts, the selling prices of such contracts, established for
deliveries in the future, generally reflect estimated costs to
complete the projects in these future periods. In addition, many
of our projects are reimbursable at actual cost plus a fee,
while some of the fixed-price contracts provide for price
adjustments through escalation clauses.
Application
of Critical Accounting Estimates
The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the
United States of America. Management and the Audit Committee of
the Board of Directors approve the critical accounting policies.
Highlighted below are the accounting policies that we consider
significant to the understanding and operations of our business
as well as key estimates that are used in implementing the
policies.
Revenue
Recognition
Revenues and profits on long-term fixed-price contracts are
recorded under the percentage-of-completion method. Progress
towards completion is measured using physical completion of
individual tasks for all contracts with a value of $5,000 or
greater. Progress toward completion of fixed-priced contracts
with a value less than $5,000 is measured using the cost-to-cost
method.
Revenues and profits on cost-reimbursable contracts are recorded
as the services are rendered based on the estimated revenue per
man-hour,
including any incentives assessed as probable. We include
flow-through costs consisting of materials, equipment or
subcontractor services as revenue on cost-reimbursable contracts
when we are responsible for the engineering specifications and
procurement or procurement services for such costs.
We have numerous contracts that are in various stages of
completion. Such contracts require estimates to determine the
extent of revenue and profit recognition. We rely extensively on
estimates to forecast quantities of labor
(man-hours),
materials and equipment, the costs for those quantities
(including exchange rates), and the schedule to execute the
scope of work including allowances for weather, labor and civil
unrest. Many of these estimates cannot be based on historical
data, as most contracts are unique, specifically designed
facilities. In determining the revenues, we must estimate the
percentage-of-completion, the likelihood that the client will
pay for the work performed, and the cash to be received net of
any taxes ultimately due or withheld in the country where the
work is performed. Projects are reviewed on an individual basis
and the estimates used are tailored to the specific
circumstances. In establishing these estimates, we exercise
significant judgment, and all possible risks cannot be
specifically quantified.
The percentage-of-completion method requires that adjustments or
re-evaluations to estimated project revenues and costs,
including estimated claim recoveries, be recognized on a
project-to-date cumulative basis, as changes to the estimates
are identified. Revisions to project estimates are made as
additional information becomes known, including information that
becomes available subsequent to the date of the consolidated
financial statements up through the date such consolidated
financial statements are filed with the Securities and Exchange
Commission. If the final estimated profit to complete a
long-term contract indicates a loss, provision is made
immediately for the total loss anticipated. Profits are accrued
throughout the life of the project based on the
percentage-of-completion. The project life cycle, including
project-specific warranty commitments, can be up to
approximately six years in duration.
The actual project results can be significantly different from
the estimated results. When adjustments are identified near or
at the end of a project, the full impact of the change in
estimate is recognized as a change in the profit on the contract
in that period. This can result in a material impact on our
results for a single reporting period. In accordance with the
accounting and disclosure requirements of the American Institute
of Certified Public Accountants Statement of Position, or SOP,
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts and
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
47
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
projects life cycle. There were 38, 29 and 45 separate
projects that had final estimated profit revisions exceeding
$1,000 in fiscal years 2007, 2006 and 2005, respectively. These
changes in final estimated profits resulted in a net
increase/(decrease) to contract profit of $35,100, $(5,700) and
$99,600 in fiscal years 2007, 2006 and 2005, respectively.
Asbestos
Some of our U.S. and U.K. subsidiaries are defendants in
numerous asbestos-related lawsuits and out-of-court informal
claims pending in the United States and the United Kingdom.
Plaintiffs claim damages for personal injury alleged to have
arisen from exposure to or use of asbestos in connection with
work allegedly performed by our subsidiaries during the 1970s
and earlier. The calculation of asbestos-related liabilities and
assets involves the use of estimates as discussed below.
We believe the most critical assumptions within our asbestos
liability estimate are the number of future mesothelioma claims
to be filed against us, the number of mesothelioma claims that
ultimately will require payment from us or our insurers, and the
indemnity payments required to resolve those mesothelioma claims.
United States
As of December 28, 2007, we had recorded total liabilities
of $403,300 comprised of an estimated liability of $165,100
relating to open (outstanding) claims being valued and an
estimated liability of $238,200 relating to future unasserted
claims through year-end 2022. Of the total, $72,000 is recorded
in accrued expenses and $331,300 is recorded in asbestos-related
liability on the consolidated balance sheet.
Since year-end 2004, we have worked with Analysis Research
Planning Corporation, or ARPC, nationally recognized consultants
in projecting asbestos liabilities, to estimate the amount of
asbestos-related indemnity and defense costs at year-end for the
next 15 years. Based on its review of fiscal year 2007
activity, ARPC recommended that the assumptions used to estimate
our future asbestos liability be updated as of year-end 2007.
Accordingly, we developed a revised estimate of our aggregate
indemnity and defense costs through year-end 2022 considering
the advice of ARPC. In the fourth quarter of 2007, we increased
our liability for asbestos indemnity and defense costs through
year-end 2022 to $403,300, which brought our liability to a
level consistent with ARPCs reasonable best estimate. In
connection with updating our estimated asbestos liability and
related asset, we recorded a charge of $7,400 in the fourth
quarter of 2007.
Our liability estimate is based upon the following information
and/or
assumptions: number of open claims, forecasted number of future
claims, estimated average cost per claim by disease
type mesothelioma, lung cancer, and
non-malignancies and the breakdown of known and
future claims into disease type mesothelioma, lung
cancer or non-malignancies. The total estimated liability, which
has not been discounted for the time value of money, includes
both the estimate of forecasted indemnity amounts and forecasted
defense costs. Total defense costs and indemnity liability
payments are estimated to be incurred through year-end 2022,
during which period the incidence of new claims is forecasted to
decrease each year. We believe that it is likely that there will
be new claims filed after 2022, but in light of uncertainties
inherent in long-term forecasts, we do not believe that we can
reasonably estimate the indemnity and defense costs that might
be incurred after 2022. Historically, defense costs have
represented approximately 28% of total defense and indemnity
costs. Through December 28, 2007, cumulative indemnity
costs paid, prior to insurance recoveries, were approximately
$625,300 and total defense costs paid were approximately
$248,400.
As of December 28, 2007, we had recorded assets of
$326,200, which represents our best estimate of actual and
probable insurance recoveries relating to our liability for
pending and estimated future asbestos claims through year-end
2022; $47,100 of this asset is recorded within accounts and
notes receivable-other, and $279,100 is recorded as
asbestos-related insurance recovery receivable on the
consolidated balance sheet. The asbestos-related asset recorded
within accounts and notes receivable-other as of
December 28, 2007
48
reflects amounts due in the next 12 months under executed
settlement agreements with insurers and does not include any
estimate for future settlements. The recorded asbestos-related
insurance recovery receivable includes an estimate of recoveries
from unsettled insurers in the insurance coverage litigation
referred to below based upon the resolution of certain insurance
coverage issues and the application of certain assumptions
relating to cost allocation and other factors as well as an
estimate of the amount of recoveries under existing settlements
with other insurers. Such amounts have not been discounted for
the time value of money.
Since year-end 2005, we have worked with Peterson Risk
Consulting, nationally recognized experts in the estimation of
insurance recoveries, to review our estimate of the value of the
settled insurance asset and assist in the estimation of our
unsettled asbestos insurance asset. Based on insurance policy
data, historical claim data, future liability estimates
including the expected timing of payments and allocation
methodology assumptions we provided them, Peterson Risk
Consulting provided an analysis of the unsettled insurance asset
as of December 28, 2007. We utilized that analysis to
determine our estimate of the value of the unsettled insurance
asset as of December 28, 2007.
As of December 28, 2007, we estimated the value of our
unsettled asbestos insurance asset contested by our
subsidiaries insurers in ongoing litigation in New York
state court at $27,600. The litigation relates to the amounts of
insurance coverage available for asbestos-related claims and the
proper allocation of the coverage among our subsidiaries
various insurers and our subsidiaries as self-insurers. We
believe that any amounts that our subsidiaries might be
allocated as self-insurer would be immaterial.
An adverse outcome in the pending insurance litigation described
above could limit our remaining insurance recoveries and result
in a reduction in our insurance asset. However, a favorable
outcome in all or part of the litigation could increase
remaining insurance recoveries above our current estimate. If we
prevail in whole or in part in the litigation, we will re-value
our asset relating to remaining available insurance recoveries
based on the asbestos liability estimated at that time.
We have considered the asbestos litigation and the financial
viability and legal obligations of our subsidiaries
insurance carriers and believe that, except for those insurers
that have become insolvent for which a reserve has been
provided, the insurers or their guarantors will continue to
reimburse a significant portion of claims and defense costs
relating to asbestos litigation. The overall historic average
combined indemnity and defense cost per resolved claim was $2.6.
The average cost per resolved claim is increasing and we believe
will continue to increase in the future.
As we did at year-end 2007, we plan to update our forecasts
periodically to take into consideration our future experience
and other considerations to update our estimate of future costs
and expected insurance recoveries. The estimate of the
liabilities and assets related to asbestos claims and recoveries
is subject to a number of uncertainties that may result in
significant changes in the current estimates. Among these are
uncertainties as to the ultimate number and type of claims
filed, the amounts of claim costs, the impact of bankruptcies of
other companies with asbestos claims, uncertainties surrounding
the litigation process from jurisdiction to jurisdiction and
from case to case, as well as potential legislative changes.
Increases in the number of claims filed or costs to resolve
those claims could cause us to increase further the estimates of
the costs associated with asbestos claims and could have a
material adverse effect on our financial condition, results of
operations and cash flows.
The following chart reflects the sensitivities in the 2007
consolidated financial statements associated with a change in
certain estimates used in relation to the domestic
asbestos-related liabilities.
|
|
|
|
|
|
|
Approximate Change
|
|
Changes (Increase or Decrease) in Assumption:
|
|
in Liability
|
|
|
One-percentage point change in the inflation rate related to the
indemnity and defense costs
|
|
$
|
24,000
|
|
Twenty-five percent change in average indemnity settlement amount
|
|
|
70,400
|
|
Twenty-five percent change in forecasted number of new claims
|
|
|
59,500
|
|
Based on the year-end 2007 liability estimate, an increase of
25% in the average per claim indemnity settlement amount would
increase the liability by $70,400 as described above and the
impact on expense would be dependent upon available additional
insurance recoveries. Assuming no change to the assumptions
49
currently used to estimate our insurance asset, this increase
would result in a charge in the statement of operations in the
range of approximately 70% to 80% of the increase in the
liability. Long-term cash flows would ultimately change by the
same amount. Should there be an increase in the estimated
liability in excess of this 25%, the percentage of that increase
that would be expected to be funded by additional insurance
recoveries will decline.
Our subsidiaries have been effective in managing the asbestos
litigation, in part, because our subsidiaries: (1) have
access to historical project documents and other business
records going back more than 50 years, allowing them to
defend themselves by determining if the claimants were present
at the location of the alleged asbestos exposure and, if so, the
timing and extent of their presence; (2) maintain good
records on insurance policies and have identified and validated
policies issued since 1952; and (3) have consistently and
vigorously defended these claims which has resulted in dismissal
of claims that are without merit or settlement of meritorious
claims at amounts that are considered reasonable.
United Kingdom
As of December 28, 2007, we had recorded total liabilities
of $48,500 comprised of an estimated liability relating to open
(outstanding) claims of $9,000 and an estimated liability
relating to future unasserted claims through year-end 2022 of
$39,500. Of the total, $3,000 was recorded in accrued expenses
and $45,500 was recorded in asbestos-related liability on the
consolidated balance sheet. An asset in an equal amount was
recorded for the expected U.K. asbestos-related insurance
recoveries, of which $3,000 was recorded in accounts and notes
receivable-other and $45,500 was recorded as asbestos-related
insurance recovery receivable on the consolidated balance sheet.
The liability estimates are based on a U.K. House of Lords
judgment that pleural plaque claims do not amount to a
compensable injury and accordingly, we have reduced our
liability assessment. Should this ruling be reversed by
legislation, the asbestos liability and related asset recorded
in the U.K. would be approximately $66,100.
Defined
Benefit Pension and Other Postretirement Benefit Plans
We have defined benefit pension plans in the United States, the
United Kingdom, France, Canada and Finland, and we have other
postretirement benefit plans for health care and life insurance
benefits in the United States and Canada. The U.S. 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, is contributory. Additionally, one of our subsidiaries
in the United States also has a benefit plan which provides
coverage for an employees beneficiary upon the death of
the employee. This plan has been closed to new entrants since
1988.
We adopted the provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements 87,
88, 106, and 132(R), on December 29, 2006, the last
day of fiscal year 2006. SFAS No. 158 requires us to
recognize the funded status of each of our defined benefit
pension and other postretirement benefit plans on the
consolidated balance sheet. SFAS No. 158 also requires
us to recognize any gains or losses, which are not recognized as
a component of annual service cost, as a component of other
comprehensive income/(loss), net of tax. Upon adoption of
SFAS No. 158, we recorded net actuarial losses, prior
service cost/(credits) and a net transition asset as a net
charge to accumulated other comprehensive loss on the
consolidated balance sheet. Please refer to Note 8 of the
consolidated financial statements in this annual report on
Form 10-K
for more information.
The calculations of defined benefit pension and other
postretirement benefit liabilities, annual service cost and cash
contributions required, rely heavily on estimates about future
events often extending decades into the future. We are
responsible for establishing the assumptions used for the
estimates, which include:
|
|
|
|
|
The discount rate used to calculate the present value of future
obligations;
|
|
|
|
The expected long-term rate of return on plan assets;
|
|
|
|
The expected rate of annual salary increases;
|
|
|
|
The selection of the actuarial mortality tables;
|
|
|
|
The annual healthcare cost trend rate (only for the other
postretirement benefit plans); and
|
50
|
|
|
|
|
The annual inflation rate.
|
We utilize our business judgment in establishing the estimates
used in the calculations of our defined benefit pension and
other postretirement benefit liabilities, annual service cost
and cash contributions. These estimates are updated on an annual
basis or more frequently upon the occurrence of significant
events. The estimates can vary significantly from the actual
results and we cannot provide any assurance that the estimates
used to calculate the defined benefit pension and postretirement
benefit liabilities included herein will approximate actual
results. The volatility between the assumptions and actual
results can be significant.
The following table summarizes the estimates used for our
defined benefit pension plans for fiscal years 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Other
|
|
|
States
|
|
|
Kingdom
|
|
|
Other
|
|
|
States
|
|
|
Kingdom
|
|
|
Other
|
|
|
Weighted-average assumptions net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.81
|
%
|
|
|
5.14
|
%
|
|
|
4.50
|
%
|
|
|
5.45
|
%
|
|
|
4.86
|
%
|
|
|
4.60
|
%
|
|
|
5.48
|
%
|
|
|
5.44
|
%
|
|
|
5.03
|
%
|
Long-term rate of return
|
|
|
8.00
|
%
|
|
|
6.94
|
%
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
|
|
6.84
|
%
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
|
|
7.32
|
%
|
|
|
7.50
|
%
|
Salary growth
|
|
|
N/A
|
|
|
|
3.83
|
%
|
|
|
2.35
|
%
|
|
|
N/A
|
|
|
|
3.84
|
%
|
|
|
3.21
|
%
|
|
|
N/A
|
|
|
|
3.33
|
%
|
|
|
2.95
|
%
|
Weighted-average assumptions projected
benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.31
|
%
|
|
|
5.72
|
%
|
|
|
5.30
|
%
|
|
|
5.80
|
%
|
|
|
5.13
|
%
|
|
|
4.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary growth
|
|
|
N/A
|
|
|
|
4.12
|
%
|
|
|
3.47
|
%
|
|
|
N/A
|
|
|
|
3.82
|
%
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The discount rate is developed using a market-based approach
that matches our projected benefit payments to a spot yield
curve of high-quality corporate bonds. Changes in the discount
rate from period-to-period were generally due to changes in
long-term interest rates.
The expected long-term rate of return on plan assets is
developed using a weighted-average methodology, blending the
expected returns on each class of investment in the plans
portfolios. The expected returns by asset class are developed
considering both past performance and future considerations.
The following charts reflect the sensitivities in the
consolidated financial statements associated with a change in
certain estimates used in relation to the U.S. and U.K.
defined benefit pension plans. Each of the sensitivities below
reflects an evaluation of the change based solely on a change in
that particular estimate.
|
|
|
|
|
|
|
|
|
|
|
Approximate Increase (Decrease)
|
|
|
|
|
|
|
Impact on 2008
|
|
|
|
Impact on Liabilities
|
|
|
Benefit Cost
|
|
|
U.S. Pension Plans:
|
|
|
|
|
|
|
|
|
One-tenth of a percentage point increase in the discount rate
|
|
$
|
(3,602
|
)
|
|
$
|
(54
|
)
|
One-tenth of a percentage point decrease in the discount rate
|
|
|
3,644
|
|
|
|
50
|
|
One-tenth of a percentage point increase in the expected return
on plan assets
|
|
|
|
|
|
|
(319
|
)
|
One-tenth of a percentage point decrease in the expected return
on plan assets
|
|
|
|
|
|
|
319
|
|
U.K. Pension Plans:
|
|
|
|
|
|
|
|
|
One-tenth of a percentage point increase in the discount rate
|
|
$
|
(15,973
|
)
|
|
$
|
(2,021
|
)
|
One-tenth of a percentage point decrease in the discount rate
|
|
|
16,372
|
|
|
|
2,049
|
|
One-tenth of a percentage point increase in the expected return
on plan assets
|
|
|
|
|
|
|
(725
|
)
|
One-tenth of a percentage point decrease in the expected return
on plan assets
|
|
|
|
|
|
|
723
|
|
51
As of December 28, 2007, our defined benefit pension plans
had net actuarial losses of $347,600, which were recognized in
accumulated other comprehensive loss on the consolidated balance
sheet. The net actuarial losses reflect differences between
expected and actual plan experience and changes in actuarial
assumptions, all of which occurred over time. These net
actuarial losses, to the extent not offset by future actuarial
gains, will result in increases in our future pension costs
depending on several factors, including whether such losses
exceed the corridor in which losses are not amortized. The net
actuarial losses outside the corridor are amortized over the
expected remaining service periods of active participants for
the foreign plans (11 years for the U.K. plans,
11 years for the Canadian plan and 18 years for the
Finnish plan) and average life expectancy of participants for
the U.S. plans (approximately 26 years) since benefits
are frozen. In addition, our defined benefit pension plans had
prior service costs of $33,400, which were recognized in
accumulated other comprehensive loss on the consolidated balance
sheet as of December 28, 2007. The prior service costs are
amortized over schedules established at the date of each plan
change (11 years for the U.K. plans). The estimated net
actuarial loss and prior service cost that will be amortized
from accumulated other comprehensive loss into net periodic
benefit cost over the next fiscal year are $20,400 and $1,900,
respectively.
A one-tenth of a percentage point decrease or increase in the
funding segment rates, used for calculating future funding
requirements to the U.S. plans through 2012, would not
change the respective aggregate contributions over the next five
years due to the current over-funded status of the
U.S. plans.
A one-tenth of a percentage point decrease in the funding
interest rate, used for calculating future funding requirements
to the U.K. plans through 2012, would increase aggregate
contributions over the next five years by approximately $7,300,
while an increase by one-tenth of a percentage point would
decrease aggregate contributions by approximately $5,600.
The following table summarizes the estimates used for our other
postretirement benefit plans for fiscal years 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average assumptions net periodic
postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.73
|
%
|
|
|
5.39
|
%
|
|
|
5.35
|
%
|
Weighted-average assumptions accumulated
postretirement benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.20
|
%
|
|
|
5.73
|
%
|
|
|
|
|
The discount rate is developed using a market-based approach
that matches our projected benefit payments to a spot yield
curve of high-quality corporate bonds. Changes in the discount
rate from period-to-period were generally due to changes in
long-term interest rates.
As of December 28, 2007, our other postretirement benefit
plans had net actuarial losses of $10,900, which were recognized
in accumulated other comprehensive loss on the consolidated
balance sheet. The net actuarial losses outside the corridor are
amortized over the average life expectancy of inactive
participants (11 years) because benefits are frozen. In
addition, our other postretirement benefit plans had prior
service credits of $43,500, which were recognized in accumulated
other comprehensive loss on the consolidated balance sheet as of
December 28, 2007. The prior service credits are amortized
over schedules established at the date of each plan change
(9 years). The estimated net actuarial loss and prior
service credit that will be amortized from accumulated other
comprehensive loss into net periodic postretirement benefit cost
over the next fiscal year are $800 and $(4,800), respectively.
Share-Based
Compensation Plans
Our share-based compensation plans include both restricted
awards and stock option awards. Prior to December 31, 2005,
we accounted for share-based employee compensation plans under
the measurement and recognition provisions of Accounting
Principles Board, or APB, Opinion No. 25, Accounting
for Stock Issued to Employees, as permitted by
SFAS No. 123, Accounting for Stock-Based
Compensation. Accordingly, we used the intrinsic value
method of accounting for our stock option awards and did not
recognize compensation
52
expense for stock options that were granted at an exercise price
equal to or greater than the market price of our common stock on
the date of grant. As a result, the recognition of share-based
compensation expense was generally limited to the expense
attributed to restricted awards. In accordance with
SFAS No. 123 and SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, we provided pro forma net
income or loss and net earnings or loss per common share
disclosures for each period prior to December 31, 2005, as
if we had applied the fair value method in measuring
compensation expense for our share-based compensation plans,
including stock options.
Effective December 31, 2005, the first day of fiscal 2006,
we adopted the fair value provisions of SFAS No. 123R
using the modified prospective transition method. Under this
method, we recognize share-based compensation expense for
(i) all share-based payments granted prior to, but not yet
vested as of, December 31, 2005, based on the grant date
fair value originally estimated in accordance with the
provisions of SFAS No. 123, and (ii) all future
share-based payment awards based on the grant date fair value
estimated in accordance with the provisions of
SFAS No. 123R. Because we elected to use the modified
prospective transition method, results for periods prior to
fiscal year 2006 have not been restated to reflect the
compensation expense for the fair value of the awards that
vested prior to December 31, 2005.
Compensation cost for our share-based plans of $7,100, $16,500
and $8,900 was charged against income for fiscal years 2007,
2006 and 2005, respectively. The related income tax benefit
recognized in the consolidated statement of operations was $200,
$300 and $300 for fiscal years 2007, 2006 and 2005,
respectively. We received $18,100, $17,600 and $1,200 in cash
from option exercises under our share-based compensation plans
for fiscal years 2007, 2006 and 2005, respectively.
As of December 28, 2007, there was $8,600 and $9,700 of
total unrecognized compensation cost related to stock options
and restricted awards, respectively. Those costs are expected to
be recognized over a weighted-average period of approximately
27 months.
We estimate the fair value of each option award on the date of
grant using the Black-Scholes option valuation model, which
incorporates assumptions regarding a number of complex and
subjective variables. We then recognize the fair value of each
option as compensation cost ratably using the straight-line
attribution method over the service period (generally the
vesting period). The Black-Scholes model incorporates the
following assumptions:
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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.
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|
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 grants to other employees and the remaining
directors, we estimate the expected term using the
simplified method, as outlined in Staff Accounting
Bulletin No. 107, Topic 14: Share-Based
Payment.
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Risk-free interest rate we estimate the risk-free
interest rate using the U.S. Treasury yield curve for
periods equal to the expected term of the options in effect at
the time of grant.
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|
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|
Dividends we use an expected dividend yield of zero
because we have not declared or paid a cash dividend since July
2001 and we do not have any plans to declare or pay any cash
dividends.
|
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.
If factors change and we employ different assumptions in the
application of SFAS No. 123R in future periods, the
compensation expense that we record under
SFAS No. 123R for future awards may differ
significantly from what we have recorded in the current period.
There is a high degree of subjectivity involved in selecting the
option pricing model assumptions used to estimate share-based
compensation expense under SFAS No. 123R. Option
pricing models were developed for use in estimating the value of
traded options that have no vesting or hedging restrictions, are
fully transferable and do not cause dilution. Because our
share-based payments have characteristics significantly
different from those of freely traded options, and because
53
changes in the subjective input assumptions can materially
affect our estimates of fair value, existing valuation models
may not provide reliable measures of the fair value of our
share-based compensation. Consequently, there is a risk that our
estimates of the fair value of our share-based compensation
awards on the grant dates may bear little resemblance to the
actual value realized upon the exercise, expiration or
forfeiture of those share-based payments in the future. Stock
options may expire worthless or otherwise result in zero
intrinsic value compared to the fair value originally estimated
on the grant date and reported in the consolidated financial
statements. Alternatively, value may be realized from these
instruments that are significantly in excess of the fair value
originally estimated on the grant date and reported in the
consolidated financial statements.
There are significant differences among valuation models. This
may result in a lack of comparability with other companies that
use different models, methods and assumptions. There is also a
possibility that we will adopt different valuation models in the
future. This may result in a lack of consistency in future
periods and may materially affect the fair value estimate of
share-based payments.
Goodwill
and Intangible Assets
At least annually, we evaluate goodwill for potential
impairment, as prescribed by SFAS No. 142,
Goodwill and Other Intangible Assets. We test for
impairment at the reporting unit level as defined in
SFAS No. 142. 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 based on 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
units goodwill with the carrying amount of that goodwill.
In the fourth quarter of each year, we evaluate goodwill on a
separate reporting unit basis 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.
Goodwill of $53,300 and intangible assets of $15,600 relate to
our Global Power Groups European operations that have
experienced a number of performance related issues. Should the
performance of this unit deteriorate in the future, it is
possible that these amounts could become impaired requiring a
write-down of the carrying values. In 2007, the evaluation
indicated that no adjustment to the carrying value of goodwill
or intangible assets of our Global Power Groups European
operations was required.
In 2007, we recorded a goodwill impairment charge of $2,400
based on discounted cash flows in connection with the decision
to wind down the operations of one of our domestic reporting
units.
Income
Taxes
Deferred income taxes are provided on a liability method whereby
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, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
For statutory purposes, the majority of the deferred tax assets
for which a valuation allowance is provided as of
December 28, 2007 do not begin to expire until 2024 or
later, based on the current tax laws. We have a valuation
allowance of $294,300 recorded as of December 28, 2007.
In June 2006, the FASB issued FIN 48, which addresses the
determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. We adopted the provisions of FIN 48 on
December 30, 2006, the first day of fiscal year 2007. Under
FIN 48, we recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax
position will be
54
sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the financial statements from such a position are based on the
largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement. FIN 48 also
provides guidance on the derecognition of the benefit of an
uncertain tax position, classification of the unrecognized tax
benefits in the balance sheet, accounting for and classification
of interest and penalties on income tax uncertainties,
accounting in interim periods and disclosures.
Our subsidiaries file income tax returns in numerous tax
jurisdictions, including the United States, several
U.S. states and numerous
non-U.S. jurisdictions
around the world. Tax returns are also filed in jurisdictions
where our subsidiaries execute project-related work. The statute
of limitations varies by the various jurisdictions in which we
operate. Because of the number of jurisdictions in which we file
tax returns, in any given year the statute of limitations in
certain jurisdictions may expire without examination within the
12-month
period from the balance sheet date. As a result, we expect
recurring changes in unrecognized tax benefits due to the
expiration of the statute of limitations, none of which are
expected to be individually significant. With few exceptions, we
are no longer subject to U.S. (including federal, state and
local) or
non-U.S. income
tax examinations by tax authorities for years before fiscal year
2002.
A number of tax years are under audit by the relevant state, and
foreign tax authorities. We anticipate that several of these
audits may be concluded in the foreseeable future, including in
fiscal year 2008. Based on the status of these audits, it is
reasonably possible that the conclusion of the audits may result
in a reduction of unrecognized tax benefits. However, it is not
possible to estimate the impact of this change at this time.
As a result of the adoption of FIN 48, we recognized a
$4,400 reduction in the opening balance of our
shareholders equity as of December 30, 2006. This
resulted from changes in the amount of tax benefits recognized
related to uncertain tax positions and the accrual of interest
and penalties.
As of December 28, 2007, we had $52,200 of unrecognized tax
benefits, of which $51,800 would, if recognized, affect our
effective tax rate, before existing valuation allowance
considerations.
We recognize interest accrued on the unrecognized tax benefits
in interest expense and penalties on the unrecognized tax
benefits in other deductions on our consolidated statement of
operations. We recorded $2,700 in interest expense and penalties
in fiscal year 2007. We had $24,200 accrued for the payment of
interest and penalties as of December 28, 2007.
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. In February 2008, the
FASB issued a partial one-year deferral of
SFAS No. 157 for nonfinancial assets and liabilities
that are only subject to fair value measurement on a
non-recurring basis. The standard is effective for financial
assets and liabilities, as well as for any other assets and
liabilities that are required to be measured at fair value on a
recurring basis in financial statements, for all financial
statements issued with 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 at fair value many financial instruments and
certain other assets and liabilities 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 do not expect to elect the fair
value option provided in this new standard.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations.
SFAS No. 141R replaces SFAS No. 141,
Business Combinations and changes how business
acquisitions are accounted. SFAS No. 141R requires the
acquiring entity in a business combination to recognize all (and
only)
55
the assets acquired and liabilities assumed in the transaction
and establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed in a business combination. Certain provisions of this
standard will, among other things, impact the determination of
acquisition-date fair value of consideration paid in a business
combination (including contingent consideration); exclude
transaction costs from acquisition accounting; and change
accounting practices for acquired contingencies,
acquisition-related restructuring costs, in-process research and
development, indemnification assets, and tax benefits. Most of
the provisions of SFAS No. 141R apply prospectively to
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Early adoption is
not permitted. We are currently assessing the impact that
SFAS No. 141R may have on our financial position,
results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51.
SFAS No. 160, amends the accounting and reporting
standards for the noncontrolling interest in a subsidiary (often
referred to as minority interest) and for the
deconsolidation of a subsidiary. Under SFAS No. 160,
the noncontrolling interest in a subsidiary is reported as
equity in the parent companys consolidated financial
statements. SFAS No. 160 also requires that the parent
companys consolidated statement of operations include both
the parent and noncontrolling interest share of the
subsidiarys statement of operations. Formerly, the
noncontrolling interest share was shown as a reduction of income
on the parents consolidated statement of operations.
SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. SFAS No. 160 is to be applied
prospectively as of the beginning of the fiscal year in which
this statement is initially applied; however, presentation and
disclosure requirements shall be applied retrospectively for all
periods presented. We are currently assessing the impact that
SFAS No. 160 may have on our financial position,
results of operations and cash flows.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(amounts in thousands of dollars)
Interest Rate Risk
We are exposed to changes
in interest rates should we need to borrow under our domestic
senior credit agreement (there were no such borrowings as of
December 28, 2007 and, based on current operating plans and
cash flow forecasts, none are expected in 2008) and, to a
limited extent, under our variable rate project debt for any
portion of the debt for which we have not entered into a fixed
rate swap agreement. If average market rates are 100-basis
points higher in the next twelve months, our interest expense
for such period of time would increase, and our income before
income taxes would decrease, by approximately $100. This amount
has been determined by considering the impact of the
hypothetical interest rates on our variable rate borrowings as
of December 28, 2007 and does not reflect the impact of
interest rate changes on outstanding debt held by certain of our
equity interests since such debt is not consolidated on our
balance sheet.
Foreign Currency Risk
We operate on a
worldwide basis with substantial operations in Europe that
subject us to translation risk on the Euro and British pound. As
part of our policies we do not hedge translation risk exposure.
All significant activities of our
non-U.S. affiliates
are recorded in their functional currency, which is typically
the country of domicile of the affiliate. While this mitigates
the potential impact of earnings fluctuations as a result of
changes in foreign currency exchange rates, our affiliates do
enter into transactions through the normal course of operations
in currencies other than their functional currency. We seek to
minimize the resulting exposure to foreign currency fluctuations
by matching the revenues and expenses in the same currency for
our long-term contracts.
We further mitigate these foreign currency exposures through the
use of foreign currency forward exchange contracts to hedge the
exposed item, such as anticipated purchases or revenues, back to
their functional currency. We utilize all such financial
instruments solely for hedging, and our company policy prohibits
the speculative use of such instruments. However, for financial
reporting purposes, these contracts are generally not accounted
for as hedges. Please refer to Note 16 to the consolidated
financial statements in this annual report on
Form 10-K
for further information. If the counterparties to these
contracts fail to perform under the settlement terms of the
financial instruments, we could be subject to foreign currency
exposure. To
56
minimize this risk, we enter into these financial instruments
with financial institutions that are primarily rated
BBB+ or better by Standard & Poors
(or the equivalent by other recognized credit rating agencies).
At December 28, 2007, our primary foreign currency forward
exchange contracts are set forth below:
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|
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Hedged Foreign
|
|
|
Notional Amount of
|
|
|
Notional Amount of
|
|
|
|
|
|
|
Currency Exposure
|
|
|
Forward Buy Contracts
|
|
|
Forward Sell Contract
|
|
Currency Hedged
|
|
Functional
|
|
|
(in equivalent
|
|
|
(in equivalent
|
|
|
(in equivalent
|
|
(bought or sold forward)
|
|
Currency
|
|
|
U.S. dollars)
|
|
|
U.S. dollars)
|
|
|
U.S. dollars)
|
|
|
Euro
|
|
|
British pound
|
|
|
$
|
5,328
|
|
|
$
|
2,502
|
|
|
$
|
2,826
|
|
|
|
|
Chilean peso
|
|
|
|
387
|
|
|
|
|
|
|
|
387
|
|
Polish zloty
|
|
|
Euro
|
|
|
|
105,335
|
|
|
|
105,335
|
|
|
|
|
|
|
|
|
U.S. dollar
|
|
|
|
720
|
|
|
|
720
|
|
|
|
|
|
Thai baht
|
|
|
British pound
|
|
|
|
1,839
|
|
|
|
1,839
|
|
|
|
|
|
U.S. dollar
|
|
|
British pound
|
|
|
|
154,357
|
|
|
|
|
|
|
|
154,357
|
|
|
|
|
Euro
|
|
|
|
3,832
|
|
|
|
3,832
|
|
|
|
|
|
|
|
|
Singapore dollar
|
|
|
|
211
|
|
|
|
|
|
|
|
211
|
|
United Arab Emirates dirham
|
|
|
British pound
|
|
|
|
2,307
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
274,316
|
|
|
$
|
116,535
|
|
|
$
|
157,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional amount provides one measure of the transaction
volume outstanding as of year-end. Amounts ultimately realized
upon final settlement of these financial instruments, along with
the gains and losses on the underlying exposures within our
long-term contracts, will depend on actual market exchange rates
during the remaining life of the instruments. The contracts
mature between 2008 and 2010. Increases in fair value of the
currencies sold forward result in losses while increases in the
fair value of the currencies bought forward result in gains. The
contracts have been established by various international
subsidiaries to sell a variety of currencies and receive their
respective functional currency or other currencies for which
they have payment obligations to third-parties. Please refer to
Note 16 to the consolidated financial statements in this
annual report on
Form 10-K
for further information regarding derivative financial
instruments.
57
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Foster Wheeler
Ltd.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Foster Wheeler Ltd. (the
Company) and its subsidiaries at December 28, 2007
and December 29, 2006, and the results of their operations
and their cash flows for each of the three years in the period
ended December 28, 2007 in conformity with accounting
principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 28, 2007, based on criteria
established in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A of the Companys
Form 10-K.
Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 1 and Note 8 to the consolidated
financial statements, the Company changed the manner in which it
accounts for share-based compensation and pension and other
postretirement benefits in fiscal year 2006. As discussed in
Note 15 to the consolidated financial statements, the
Company changed the manner in which it accounts for uncertain
tax positions in fiscal year 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 26, 2008
59
FOSTER
WHEELER LTD. AND SUBSIDIARIES
(in thousands of dollars, except per share amounts)
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|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating revenues
|
|
$
|
5,107,243
|
|
|
$
|
3,495,048
|
|
|
$
|
2,199,955
|
|
Cost of operating revenues
|
|
|
(4,362,922
|
)
|
|
|
(2,987,261
|
)
|
|
|
(1,853,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract profit
|
|
|
744,321
|
|
|
|
507,787
|
|
|
|
346,342
|
|
Selling, general and administrative expenses
|
|
|
(246,237
|
)
|
|
|
(225,330
|
)
|
|
|
(216,691
|
)
|
Other income
|
|
|
61,410
|
|
|
|
48,610
|
|
|
|
54,847
|
|
Other deductions
|
|
|
(45,540
|
)
|
|
|
(45,453
|
)
|
|
|
(36,529
|
)
|
Interest income
|
|
|
35,627
|
|
|
|
15,119
|
|
|
|
8,876
|
|
Interest expense
|
|
|
(19,855
|
)
|
|
|
(24,944
|
)
|
|
|
(50,618
|
)
|
Minority interest in income of consolidated affiliates
|
|
|
(5,577
|
)
|
|
|
(4,789
|
)
|
|
|
(4,382
|
)
|
Net asbestos-related gains/(provision)
|
|
|
6,145
|
|
|
|
100,131
|
|
|
|
(113,680
|
)
|
Prior domestic senior credit agreement fees and expenses
|
|
|
|
|
|
|
(14,955
|
)
|
|
|
|
|
Loss on debt reduction initiatives
|
|
|
|
|
|
|
(12,483
|
)
|
|
|
(58,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
|
530,294
|
|
|
|
343,693
|
|
|
|
(70,181
|
)
|
Provision for income taxes
|
|
|
(136,420
|
)
|
|
|
(81,709
|
)
|
|
|
(39,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
393,874
|
|
|
$
|
261,984
|
|
|
$
|
(109,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share (see Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.78
|
|
|
$
|
1.82
|
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.72
|
|
|
$
|
1.72
|
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
60
FOSTER
WHEELER LTD. AND SUBSIDIARIES
(in
thousands of dollars, except share data and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,048,544
|
|
|
$
|
610,887
|
|
Accounts and notes receivable, net:
|
|
|
|
|
|
|
|
|
Trade
|
|
|
580,883
|
|
|
|
483,819
|
|
Other
|
|
|
98,708
|
|
|
|
83,497
|
|
Contracts in process
|
|
|
239,737
|
|
|
|
159,121
|
|
Prepaid, deferred and refundable income taxes
|
|
|
36,532
|
|
|
|
21,016
|
|
Other current assets
|
|
|
39,979
|
|
|
|
31,288
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,044,383
|
|
|
|
1,389,628
|
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
|
337,485
|
|
|
|
302,488
|
|
Restricted cash
|
|
|
20,937
|
|
|
|
19,080
|
|
Notes and accounts receivable long-term
|
|
|
2,941
|
|
|
|
5,395
|
|
Investments in and advances to unconsolidated affiliates
|
|
|
198,346
|
|
|
|
167,186
|
|
Goodwill, net
|
|
|
53,345
|
|
|
|
51,573
|
|
Other intangible assets, net
|
|
|
61,190
|
|
|
|
62,004
|
|
Asbestos-related insurance recovery receivable
|
|
|
324,588
|
|
|
|
350,322
|
|
Other assets
|
|
|
93,737
|
|
|
|
91,081
|
|
Deferred income taxes
|
|
|
112,036
|
|
|
|
126,792
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
3,248,988
|
|
|
$
|
2,565,549
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS
EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current installments on long-term debt
|
|
$
|
19,368
|
|
|
$
|
21,477
|
|
Accounts payable
|
|
|
372,531
|
|
|
|
263,715
|
|
Accrued expenses
|
|
|
331,814
|
|
|
|
288,658
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
744,236
|
|
|
|
622,422
|
|
Income taxes payable
|
|
|
55,824
|
|
|
|
51,331
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,523,773
|
|
|
|
1,247,603
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
185,978
|
|
|
|
181,492
|
|
Deferred income taxes
|
|
|
81,008
|
|
|
|
66,048
|
|
Pension, postretirement and other employee benefits
|
|
|
290,741
|
|
|
|
385,976
|
|
Asbestos-related liability
|
|
|
376,803
|
|
|
|
424,628
|
|
Other long-term liabilities
|
|
|
185,143
|
|
|
|
166,169
|
|
Minority interest
|
|
|
31,773
|
|
|
|
29,923
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,675,219
|
|
|
|
2,501,839
|
|
|
|
|
|
|
|
|
|
|
Temporary Equity:
|
|
|
|
|
|
|
|
|
Non-vested restricted awards subject to redemption
|
|
|
2,728
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
TOTAL TEMPORARY EQUITY
|
|
|
2,728
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Preferred shares:
|
|
|
|
|
|
|
|
|
$0.01 par value; authorized: December 28,
2007 901,943 shares and December 29,
2006 903,714 shares; issued and outstanding:
December 28, 2007 1,887 shares and
December 29, 2006 3,658 shares
|
|
|
|
|
|
|
|
|
Common shares:
|
|
|
|
|
|
|
|
|
$0.01 par value; authorized: December 28,
2007 296,007,011 shares and December 29,
2006 296,003,468 shares; issued and
outstanding: December 28, 2007 - 143,877,804 shares
and December 29, 2006 138,182,948 shares
|
|
|
1,439
|
|
|
|
1,382
|
|
Paid-in capital
|
|
|
1,385,311
|
|
|
|
1,348,800
|
|
Accumulated deficit
|
|
|
(554,595
|
)
|
|
|
(944,113
|
)
|
Accumulated other comprehensive loss
|
|
|
(261,114
|
)
|
|
|
(343,342
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
571,041
|
|
|
|
62,727
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS
EQUITY
|
|
$
|
3,248,988
|
|
|
$
|
2,565,549
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
61
FOSTER
WHEELER LTD. AND SUBSIDIARIES
(in
thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Preferred Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
3,658
|
|
|
$
|
|
|
|
|
4,195
|
|
|
$
|
|
|
|
|
75,484
|
|
|
$
|
1
|
|
Preferred shares converted into common shares
|
|
|
(1,771
|
)
|
|
|
|
|
|
|
(537
|
)
|
|
|
|
|
|
|
(71,289
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
1,887
|
|
|
$
|
|
|
|
|
3,658
|
|
|
$
|
|
|
|
|
4,195
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
138,182,948
|
|
|
$
|
1,382
|
|
|
|
114,924,524
|
|
|
$
|
1,150
|
|
|
|
81,085,796
|
|
|
$
|
810
|
|
Issuance of common shares upon exercise of common share purchase
warrants
|
|
|
1,801,798
|
|
|
|
18
|
|
|
|
16,888,556
|
|
|
|
169
|
|
|
|
949,218
|
|
|
|
10
|
|
Issuance of common shares upon
equity-for-debt
exchanges
|
|
|
|
|
|
|
|
|
|
|
2,555,800
|
|
|
|
26
|
|
|
|
23,322,890
|
|
|
|
234
|
|
Issuance of common shares upon exercise of stock options
|
|
|
2,976,020
|
|
|
|
30
|
|
|
|
3,046,430
|
|
|
|
30
|
|
|
|
255,890
|
|
|
|
2
|
|
Issuance of common shares related to restricted awards
|
|
|
686,818
|
|
|
|
7
|
|
|
|
701,614
|
|
|
|
7
|
|
|
|
34,832
|
|
|
|
2
|
|
Cancellation of common shares upon forfeiture of restricted
awards
|
|
|
|
|
|
|
|
|
|
|
(4,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares upon conversion of preferred shares
|
|
|
230,220
|
|
|
|
2
|
|
|
|
70,976
|
|
|
|
|
|
|
|
9,275,898
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
143,877,804
|
|
|
$
|
1,439
|
|
|
|
138,182,948
|
|
|
$
|
1,382
|
|
|
|
114,924,524
|
|
|
$
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
$
|
1,348,800
|
|
|
|
|
|
|
$
|
1,186,943
|
|
|
|
|
|
|
$
|
882,762
|
|
Issuance of common shares upon exercise of common share purchase
warrants
|
|
|
|
|
|
|
8,430
|
|
|
|
|
|
|
|
75,514
|
|
|
|
|
|
|
|
4,441
|
|
Issuance of common shares upon
equity-for-debt
exchanges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,737
|
|
|
|
|
|
|
|
296,759
|
|
Issuance of common shares upon exercise of stock options
|
|
|
|
|
|
|
18,046
|
|
|
|
|
|
|
|
17,565
|
|
|
|
|
|
|
|
1,198
|
|
Issuance of common shares related to restricted awards
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
1,229
|
|
Share-based compensation expense-stock options and restricted
awards
|
|
|
|
|
|
|
5,350
|
|
|
|
|
|
|
|
15,491
|
|
|
|
|
|
|
|
|
|
Excess tax benefit related to share-based compensation
|
|
|
|
|
|
|
4,694
|
|
|
|
|
|
|
|
2,915
|
|
|
|
|
|
|
|
645
|
|
Reclassification of unearned compensation balance upon adoption
of SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,358
|
)
|
|
|
|
|
|
|
|
|
Issuance of common shares upon conversion of preferred shares
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
$
|
1,385,311
|
|
|
|
|
|
|
$
|
1,348,800
|
|
|
|
|
|
|
$
|
1,186,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
$
|
(944,113
|
)
|
|
|
|
|
|
$
|
(1,206,097
|
)
|
|
|
|
|
|
$
|
(1,096,348
|
)
|
Cumulative effect of adoption of FIN 48
|
|
|
|
|
|
|
(4,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, as adjusted
|
|
|
|
|
|
|
(948,469
|
)
|
|
|
|
|
|
|
(1,206,097
|
)
|
|
|
|
|
|
|
(1,096,348
|
)
|
Net income/(loss) for the year
|
|
|
|
|
|
|
393,874
|
|
|
|
|
|
|
|
261,984
|
|
|
|
|
|
|
|
(109,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
$
|
(554,595
|
)
|
|
|
|
|
|
$
|
(944,113
|
)
|
|
|
|
|
|
$
|
(1,206,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
$
|
(343,342
|
)
|
|
|
|
|
|
$
|
(314,796
|
)
|
|
|
|
|
|
$
|
(296,743
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
31,939
|
|
|
|
|
|
|
|
31,612
|
|
|
|
|
|
|
|
(22,928
|
)
|
Net gains on derivative instruments designated as cash flow
hedges (net of tax provision: 2007 $432;
2006 $203)
|
|
|
|
|
|
|
1,331
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
Defined benefit pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments (net of tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 $4,674; 2005 $8,456)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,087
|
|
|
|
|
|
|
|
4,875
|
|
Adjustment resulting from the adoption of SFAS No. 158
(net of tax benefit: 2006 $54,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,587
|
)
|
|
|
|
|
|
|
|
|
Net actuarial gains arising during the period (net of tax
provision of $5,836)
|
|
|
|
|
|
|
33,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for amortization of prior service
cost/(credit), net loss/(gain) and transition obligation/
(asset) included in net periodic benefit expense (net of tax
provision of $6,799)
|
|
|
|
|
|
|
15,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
$
|
(261,114
|
)
|
|
|
|
|
|
$
|
(343,342
|
)
|
|
|
|
|
|
$
|
(314,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(8,358
|
)
|
|
|
|
|
|
$
|
(16,047
|
)
|
Issuance of restricted awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,230
|
)
|
Share-based compensation expense-restricted awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,919
|
|
Reclassification of unearned compensation balance upon adoption
of SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(8,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity/(Deficit)
|
|
|
|
|
|
$
|
571,041
|
|
|
|
|
|
|
$
|
62,727
|
|
|
|
|
|
|
$
|
(341,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
62
FOSTER
WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
(in
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income/(loss)
|
|
$
|
393,874
|
|
|
$
|
261,984
|
|
|
$
|
(109,749
|
)
|
Foreign currency translation adjustments
|
|
|
31,939
|
|
|
|
31,612
|
|
|
|
(22,928
|
)
|
Net gains on derivative instruments designated as cash flow
hedges (net of tax provision: 2007 $432;
2006 $203)
|
|
|
1,331
|
|
|
|
342
|
|
|
|
|
|
Defined benefit pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments (net of tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 $4,674; 2005 $8,456)
|
|
|
|
|
|
|
40,087
|
|
|
|
4,875
|
|
Net actuarial gains arising during the period (net of tax
provision of $5,836)
|
|
|
33,032
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for amortization of prior service
cost/(credit), net loss/(gain) and transition obligation/
(asset) included in net periodic benefit expense (net of tax
provision of $6,799)
|
|
|
15,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss)
|
|
$
|
476,102
|
|
|
$
|
334,025
|
|
|
$
|
(127,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
63
FOSTER
WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in
thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
393,874
|
|
|
$
|
261,984
|
|
|
$
|
(109,749
|
)
|
Adjustments to reconcile net income/(loss) to cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
41,691
|
|
|
|
30,877
|
|
|
|
28,215
|
|
Net asbestos-related (gains)/provision
|
|
|
7,374
|
|
|
|
(66,603
|
)
|
|
|
113,680
|
|
Loss on debt reduction initiatives
|
|
|
|
|
|
|
5,206
|
|
|
|
51,491
|
|
Prior domestic senior credit agreement fees and expenses
|
|
|
|
|
|
|
9,488
|
|
|
|
|
|
Share-based compensation expense-stock options and restricted
awards
|
|
|
7,095
|
|
|
|
16,474
|
|
|
|
8,919
|
|
Excess tax benefit related to share-based compensation
|
|
|
(4,694
|
)
|
|
|
(2,796
|
)
|
|
|
|
|
Deferred tax provision
|
|
|
31,937
|
|
|
|
14,302
|
|
|
|
10,527
|
|
Interest expense on subordinated deferrable interest debentures
|
|
|
|
|
|
|
|
|
|
|
5,288
|
|
Gain on sale of assets
|
|
|
(7,657
|
)
|
|
|
(1,464
|
)
|
|
|
(1,582
|
)
|
Equity in the net earnings of partially-owned affiliates, net of
dividends
|
|
|
(18,897
|
)
|
|
|
(7,837
|
)
|
|
|
(9,303
|
)
|
Other noncash items
|
|
|
(3,785
|
)
|
|
|
(4,555
|
)
|
|
|
8,021
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables
|
|
|
(83,930
|
)
|
|
|
(225,158
|
)
|
|
|
(7,563
|
)
|
Net change in contracts in process and billings in excess of
costs and estimated earnings on uncompleted contracts
|
|
|
25,833
|
|
|
|
177,350
|
|
|
|
(15,130
|
)
|
Increase/(decrease) in accounts payable and accrued expenses
|
|
|
123,968
|
|
|
|
39,908
|
|
|
|
(28,904
|
)
|
(Decrease)/increase in income taxes payable
|
|
|
(7,295
|
)
|
|
|
27,614
|
|
|
|
(14,756
|
)
|
Net change in other assets and liabilities
|
|
|
(80,315
|
)
|
|
|
(11,129
|
)
|
|
|
11,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
425,199
|
|
|
|
263,661
|
|
|
|
50,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(6,319
|
)
|
|
|
457
|
|
|
|
|
|
Change in restricted cash
|
|
|
(856
|
)
|
|
|
8,940
|
|
|
|
46,186
|
|
Capital expenditures
|
|
|
(51,295
|
)
|
|
|
(30,293
|
)
|
|
|
(10,809
|
)
|
Proceeds from sale of assets
|
|
|
7,567
|
|
|
|
1,914
|
|
|
|
4,853
|
|
Investments in and advances to unconsolidated affiliates
|
|
|
(1,382
|
)
|
|
|
(6,573
|
)
|
|
|
(1,067
|
)
|
Return of investment from unconsolidated affiliates
|
|
|
6,324
|
|
|
|
|
|
|
|
|
|
Decrease in short-term investments
|
|
|
|
|
|
|
|
|
|
|
24,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by investing activities
|
|
|
(45,961
|
)
|
|
|
(25,555
|
)
|
|
|
63,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
FOSTER
WHEELER LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars, except share data)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership distributions to minority partners
|
|
|
(2,063
|
)
|
|
|
(1,950
|
)
|
|
|
(2,233
|
)
|
Proceeds from common share purchase warrant exercises
|
|
|
8,448
|
|
|
|
75,683
|
|
|
|
4,451
|
|
Proceeds from stock option exercises
|
|
|
18,076
|
|
|
|
17,595
|
|
|
|
1,200
|
|
Excess tax benefit related to share-based compensation
|
|
|
4,694
|
|
|
|
2,796
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
|
|
|
|
(5,710
|
)
|
|
|
(13,724
|
)
|
Proceeds from issuance of long-term debt
|
|
|
15,628
|
|
|
|
2,138
|
|
|
|
371
|
|
Repayment of long-term debt and capital lease obligations
|
|
|
(6,598
|
)
|
|
|
(90,082
|
)
|
|
|
(31,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
|
|
38,185
|
|
|
|
470
|
|
|
|
(41,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
20,234
|
|
|
|
21,642
|
|
|
|
(13,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
437,657
|
|
|
|
260,218
|
|
|
|
59,102
|
|
Cash and cash equivalents at beginning of year
|
|
|
610,887
|
|
|
|
350,669
|
|
|
|
291,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
1,048,544
|
|
|
$
|
610,887
|
|
|
$
|
350,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of amount capitalized)
|
|
$
|
13,384
|
|
|
$
|
25,102
|
|
|
$
|
47,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
111,279
|
|
|
$
|
38,611
|
|
|
$
|
22,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
FINANCING ACTIVITIES
In April 2006, 2,555,800 common shares were exchanged for
$50,000 of aggregate principal amount of 2011 senior notes. See
Note 6 for information regarding the
equity-for-debt
exchange.
In 2005, 71,289 preferred shares were converted into 9,275,898
common shares resulting in a $1 reduction in preferred share
capital, a $92 increase in common share capital and a $91
reduction in paid-in capital.
In August 2005, 11,268,928 common shares were exchanged for
$65,214 of trust preferred securities. See Note 6 for
information regarding the
equity-for-debt
exchange.
In November 2005, 12,053,962 common shares were exchanged for
$150,003 of 2011 senior notes. See
Note 6 for information regarding the
equity-for-debt
exchange.
See notes to consolidated financial statements.
65
FOSTER
WHEELER LTD. AND SUBSIDIARIES
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Principles of Consolidation
The consolidated
financial statements include the accounts of Foster Wheeler Ltd.
and all significant domestic and foreign subsidiaries as well as
certain entities in which we have a controlling interest.
Intercompany transactions and balances have been eliminated.
Our fiscal year is the 52- or 53-week annual accounting period
ending the last Friday in December for domestic operations and
December 31 for foreign operations. For domestic operations,
fiscal years 2007, 2006 and 2005 included 52 weeks.
Capital Alterations
On January 8, 2008,
our shareholders approved an increase in our authorized share
capital at a special general meeting of common shareholders. The
increase in authorized share capital was necessary in order to
effect a
two-for-one
stock split of our common shares which was approved by our Board
of Directors on November 6, 2007. The stock split was
effected on January 22, 2008 in the form of a stock
dividend to common shareholders of record at the close of
business on January 8, 2008 in the ratio of one additional
Foster Wheeler common share in respect of each common share
outstanding. As a result of these capital alterations, all
references to share capital, the number of shares, stock
options, restricted awards, per share amounts, cash dividends,
and any other reference to shares in the consolidated financial
statements, unless otherwise noted, have been adjusted to
reflect the stock split on a retroactive basis.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and revenues and expenses during the periods
reported. Actual results could differ from those estimates.
Changes in estimates are reflected in the periods in which they
become known. Significant estimates are used when accounting for
long-term contracts including estimates of total costs and
customer and vendor claims, employee benefit plan obligations,
share-based compensation plans, uncertain tax positions and
deferred taxes, and asbestos liabilities and expected
recoveries, among others.
Revenue Recognition on Long-Term Contracts
Revenues and profits on long-term fixed-price contracts are
recorded under the
percentage-of-completion
method. Progress towards completion is measured using physical
completion of individual tasks for all contracts with a value of
$5,000 or greater. Progress toward completion of fixed-priced
contracts with a value less than $5,000 is measured using the
cost-to-cost
method.
Revenues and profits on cost-reimbursable contracts are recorded
as the services are rendered based on the estimated revenue per
man-hour,
including any incentives assessed as probable. We include
flow-through costs consisting of materials, equipment or
subcontractor services 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
66
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
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
projects life cycle. There were 38, 29 and 45 separate
projects that had final estimated profit revisions exceeding
$1,000 in fiscal years 2007, 2006 and 2005, respectively. These
changes in final estimated profits resulted in a net
increase/(decrease) to contract profit of $35,150, $(5,670) and
$99,555 in fiscal years 2007, 2006 and 2005, respectively.
Please see Note 17 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 December 28, 2007,
our consolidated financial statements assumed recovery of
commercial claims of $22,200, of which $3,700 was yet to be
expended. Similarly, as of December 29, 2006, our
consolidated financial statements assumed recovery of commercial
claims from customers of $3,900, all of which was recorded on
our 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 upon execution of the anticipated contract. We had no
deferred pre-contract costs as of December 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 of $800,036 and $490,934 were maintained by our
foreign subsidiaries as of December 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 consolidated balance sheet.
67
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
Trade accounts receivable are continually evaluated for
collectibility. Provisions are established on a project-specific
basis when there is an issue associated with the clients
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 on the consolidated balance sheet,
respectively.
Inventories
Inventories, principally
materials and supplies, are stated at the lower of cost or
market, determined primarily on the average-cost method. We had
inventories of $15,861 and $9,466 as of December 28, 2007
and December 29, 2006, respectively. Such amounts are
recorded within other current assets on the consolidated balance
sheet.
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 expense 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.
Restricted Cash
The following table details
the restricted cash held:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
Foreign
|
|
|
Domestic
|
|
|
Total
|
|
|
Foreign
|
|
|
Domestic
|
|
|
Total
|
|
|
Held by special-purpose entities and restricted for debt service
payments
|
|
$
|
5,766
|
|
|
$
|
257
|
|
|
$
|
6,023
|
|
|
$
|
5,236
|
|
|
$
|
252
|
|
|
$
|
5,488
|
|
Held to collateralize letters of credit and bank guarantees
|
|
|
6,800
|
|
|
|
|
|
|
|
6,800
|
|
|
|
5,345
|
|
|
|
|
|
|
|
5,345
|
|
Client funds held in escrow
|
|
|
6,787
|
|
|
|
1,327
|
|
|
|
8,114
|
|
|
|
7,622
|
|
|
|
625
|
|
|
|
8,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,353
|
|
|
$
|
1,584
|
|
|
$
|
20,937
|
|
|
$
|
18,203
|
|
|
$
|
877
|
|
|
$
|
19,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
68
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
compares the implied fair value of the reporting units
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 December 28, 2007 and December 29, 2006, we had
goodwill of $53,345 and $51,573, respectively. The increase in
goodwill of $1,772 resulted from an increase of $4,173 related
to changes in foreign currency exchange rates; partially offset
by a goodwill impairment charge of $2,401 related to winding
down the operations of one of our domestic reporting units. All
of the goodwill is related to our global power business group.
In 2007, the fair value of all other reporting units exceeded
the carrying amounts except for the domestic reporting unit
noted above.
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 $61,190 and
$62,004 as of December 28, 2007 and December 29, 2006,
respectively. The following table details amounts relating to
those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Patents
|
|
$
|
39,375
|
|
|
$
|
(21,026
|
)
|
|
$
|
18,349
|
|
|
$
|
37,185
|
|
|
$
|
(19,206
|
)
|
|
$
|
17,979
|
|
Trademarks
|
|
|
63,344
|
|
|
|
(20,503
|
)
|
|
|
42,841
|
|
|
|
62,699
|
|
|
|
(18,674
|
)
|
|
|
44,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
102,719
|
|
|
$
|
(41,529
|
)
|
|
$
|
61,190
|
|
|
$
|
99,884
|
|
|
$
|
(37,880
|
)
|
|
$
|
62,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to patents and trademarks, which is
recorded within cost of operating revenues on the consolidated
statement of operations, totaled $3,649, $3,581 and $3,571 for
fiscal years 2007, 2006 and 2005, 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 record 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. Unremitted
earnings of foreign subsidiaries, that have been, or are
intended to be, permanently reinvested (and for which no federal
income tax has been provided) aggregated $179,060 as of
December 28, 2007. It is not practicable to estimate the
additional tax that would be incurred, if any, if these amounts
were repatriated.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, Accounting for Income Taxes,
which addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, we
recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits
69
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
of the position. The tax benefits recognized in the financial
statements from such a position are based on the largest benefit
that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. FIN 48 also provides
guidance on the derecognition of the benefit of an uncertain tax
position, classification of the unrecognized tax benefits in the
balance sheet, accounting for and classification of interest and
penalties on income tax uncertainties, accounting in interim
periods and disclosures.
We recognize interest accrued on the unrecognized tax benefits
in interest expense and penalties on the unrecognized tax
benefits in other deductions on our consolidated statement of
operations.
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
with the resulting translation adjustment recorded as a separate
component within accumulated other comprehensive loss. Income
and expense accounts and cash flows are translated at
weighted-average exchange rates for the period. Transaction
gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional
currency are included in other income and other expense,
respectively. Foreign currency transaction losses for fiscal
years 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 28,
|
|
December 29,
|
|
December 30,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Foreign currency transaction losses
|
|
$
|
(2,640
|
)
|
|
$
|
(1,719
|
)
|
|
$
|
(2,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction losses, net of tax
|
|
$
|
(1,716
|
)
|
|
$
|
(1,117
|
)
|
|
$
|
(1,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, Accounting for Derivative
Instruments and Hedging Activities. 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 in our 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 other comprehensive income on our consolidated
statement of comprehensive income/(loss). As of
December 28, 2007 and December 29, 2006, we had net
gains on the swap contracts of $1,673 and $342, respectively,
which were recorded net of tax of $635 and $203, respectively,
and were included in accumulated other comprehensive loss on the
consolidated balance sheet.
Restrictions on Shareholders Dividends
We have not declared or paid a cash dividend since July 2001 and
we do not have any plans to declare or pay any cash dividends.
Our current credit agreement contains limitations on cash
dividend payments.
Earnings per Common Share
Basic and diluted
earnings/(loss) per common share are computed using net
income/(loss) attributable to common shareholders rather than
total net income. As described further in Note 13, 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 747,896 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
70
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
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 fiscal year 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/(loss) per common share is computed by dividing
net income/(loss) attributable to common shareholders by the
weighted-average number of common shares outstanding during the
reporting period, excluding non-vested restricted shares of
165,960, 659,262 and 2,222,362 as of December 28, 2007,
December 29, 2006 and December 30, 2005, 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/(loss) per common share is computed by dividing
net income/(loss) 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 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
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. In loss
periods, basic and diluted loss per common share is identical
since the effect of potentially dilutive securities is
antidilutive and therefore excluded from the calculations.
71
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
The computations of basic and diluted earnings/(loss) per common
share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income/(loss)
|
|
$
|
393,874
|
|
|
$
|
261,984
|
|
|
$
|
(109,749
|
)
|
Fair value of additional shares issued as part of warrant offers
|
|
|
|
|
|
|
(19,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
|
$
|
393,874
|
|
|
$
|
242,539
|
|
|
$
|
(109,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
|
$
|
393,874
|
|
|
$
|
242,539
|
|
|
$
|
(109,749
|
)
|
Weighted-average number of common shares outstanding for basic
earnings/(loss) per common share
|
|
|
141,661,046
|
|
|
|
132,996,384
|
|
|
|
93,140,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per common share
|
|
$
|
2.78
|
|
|
$
|
1.82
|
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders
|
|
$
|
393,874
|
|
|
$
|
242,539
|
|
|
$
|
(109,749
|
)
|
Weighted-average number of common shares outstanding for basic
earnings/(loss) per common share
|
|
|
141,661,046
|
|
|
|
132,996,384
|
|
|
|
93,140,176
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common shares
|
|
|
1,082,254
|
|
|
|
2,997,096
|
|
|
|
|
|
Warrants to purchase common shares
|
|
|
1,790,072
|
|
|
|
3,443,376
|
|
|
|
|
|
Non-vested portion of restricted awards
|
|
|
214,850
|
|
|
|
1,781,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for diluted
earnings/(loss) per common share
|
|
|
144,748,222
|
|
|
|
141,217,976
|
|
|
|
93,140,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per common share
|
|
$
|
2.72
|
|
|
$
|
1.72
|
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
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/(loss)
per common share due to their antidilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Common shares issuable under outstanding options not included in
the computation of diluted earnings/(loss) per common share
because the assumed proceeds were greater than our average
common share price for the period
|
|
|
347,698
|
|
|
|
1,372,582
|
|
|
|
1,166,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issuable under outstanding options not included in
the computation of diluted earnings/(loss) per common share
because of their antidilutive effect
|
|
|
|
|
|
|
|
|
|
|
5,401,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase common shares not included in the
computation of diluted earnings/(loss) per common share due to
their antidilutive effect
|
|
|
|
|
|
|
|
|
|
|
18,936,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested portion of restricted awards not included in the
computation of diluted earnings/(loss) per common share due to
their antidilutive effect
|
|
|
|
|
|
|
|
|
|
|
3,379,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based Compensation Plans
Our
share-based compensation plans are described in Note 12. We
adopted the provisions of SFAS No. 123R,
Share-Based Payment, on December 31, 2005, the
first day of fiscal year 2006, using the modified prospective
transition method. Under this method, share-based compensation
expense recognized in the consolidated statement of operations
for fiscal years 2007 and 2006 includes compensation expense for
all share-based payments granted prior to, but not yet vested as
of, December 31, 2005, based on the grant date fair value
originally estimated in accordance with the provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation. We recognize compensation expense for all
share-based payment awards granted after December 30, 2005
based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123R. Because we elected to
use the modified prospective transition method, results for
periods prior to fiscal year 2006 have not been restated.
Prior to the adoption of SFAS No. 123R, share-based
employee compensation expense related to stock options was not
recognized in the consolidated statement of operations if the
exercise price of the option was at least equal to our common
share price on the grant date, in accordance with the
measurement and recognition provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, as permitted by
SFAS No. 123. As a result, the recognition of
share-based compensation expense was generally limited to the
expense attributed to restricted awards. In accordance with
SFAS No. 123 and SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, we provided pro forma net
income or loss and net earnings or loss per common share
disclosures for each period prior to the adoption of
SFAS No. 123R as if we had applied the fair value
method in measuring compensation expense for all of our
share-based compensation plans, including stock options. Had
compensation costs for our stock-based compensation plans been
accounted for using the fair value method of accounting
prescribed
73
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
by SFAS No. 123, our net loss attributable to common
shareholders and our basic and diluted loss per common share for
fiscal year 2005 would have been as follows:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 30,
|
|
|
|
2005
|
|
|
Net loss attributable to common shareholders as
reported
|
|
$
|
(109,749
|
)
|
Add: Total share-based employee compensation expense determined
under intrinsic value based method for awards and included
within reported net loss, net of $0 taxes
|
|
|
150
|
|
Deduct: Total share-based employee compensation expense
determined under fair value based method for awards, net of
taxes of $186
|
|
|
(6,740
|
)
|
|
|
|
|
|
Net loss attributable to common shareholders pro
forma
|
|
$
|
(116,339
|
)
|
|
|
|
|
|
Loss per common share basic and diluted:
|
|
|
|
|
As reported
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
Pro forma
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
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 as outlined in SFAS No. 123R. For grants to
other employees and the remaining 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 term 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 cash dividend since July
2001 and we do not have any plans to declare or pay any cash
dividends.
|
We used the following weighted-average assumptions to estimate
the fair value of the options granted for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
44
|
%
|
|
|
44
|
%
|
|
|
50
|
%
|
Expected term
|
|
|
3.5 years
|
|
|
|
4.1 years
|
|
|
|
3.1 years
|
|
Risk-free interest rate
|
|
|
3.63
|
%
|
|
|
4.81
|
%
|
|
|
4.23
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
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).
74
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
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. In February 2008, the FASB issued a
partial one-year deferral of SFAS No. 157 for
nonfinancial assets and liabilities that are only subject to
fair value measurement on a non-recurring basis. The standard is
effective for financial assets and liabilities, as well as for
any other assets and liabilities that are required to be
measured at fair value on a recurring basis in financial
statements for all financial statements issued with 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 at fair value many financial instruments and
certain other assets and liabilities 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 do not expect to elect the fair
value option provided in this new standard.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations.
SFAS No. 141R replaces SFAS No. 141,
Business Combinations and changes how business
acquisitions are accounted. SFAS No. 141R requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction and establishes the acquisition-date fair value as
the measurement objective for all assets acquired and
liabilities assumed in a business combination. Certain
provisions of this standard will, among other things, impact the
determination of acquisition-date fair value of consideration
paid in a business combination (including contingent
consideration); exclude transaction costs from acquisition
accounting; and change accounting practices for acquired
contingencies, acquisition-related restructuring costs,
in-process research and development, indemnification assets, and
tax benefits. Most of the provisions of SFAS No. 141R
apply prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. Early adoption is not permitted. We are currently
assessing the impact that SFAS No. 141R may have on
our financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51.
SFAS No. 160, amends the accounting and reporting
standards for the noncontrolling interest in a subsidiary (often
referred to as minority interest) and for the
deconsolidation of a subsidiary. Under SFAS No. 160,
the noncontrolling interest in a subsidiary is reported as
equity in the parent companys consolidated financial
statements. SFAS No. 160 also requires that the parent
companys consolidated statement of operations include both
the parent and noncontrolling interest share of the
subsidiarys statement of operations. Formerly, the
noncontrolling interest share was shown as a reduction of income
on the parents consolidated statement of operations.
SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. SFAS No. 160 is to be applied
prospectively as of the beginning of the fiscal year in which
this statement is initially applied; however, presentation and
disclosure requirements shall be applied retrospectively for all
periods presented.
75
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
|
|
1.
|
Summary
of Significant Accounting
Policies
(Continued)
|
We are currently assessing the impact that
SFAS No. 160 may have on our financial position,
results of operations and cash flows.
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 the last of three wind farms
being developed by FW Power as part of the purchase contract
with the seller. FW Power is included within our global
engineering and construction business segment.
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 and pro forma
financial information for this acquisition was not material to
our consolidated financial statements. This company is included
within our global power business segment.
In February 2008, we acquired all of the outstanding capital
stock of a biopharmaceutical engineering company, based in
Philadelphia, Pennsylvania, for an acquisition cost of $12,781
in cash, subject to certain post-closing adjustments. The
acquisition agreement allows for an earnout payment of up to an
additional $8,700 to be paid if certain milestones are met over
the following three years. This company provides design,
engineering, manufacture, installation, validation and
startup/commissioning services to the life science industry. The
purchase price allocation and pro forma information for this
acquisition are not material to our consolidated financial
statements. This company will be included within our global
engineering and construction business segment.
76
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
3. Accounts
and Notes Receivable
The following table shows the components of trade accounts and
notes receivable:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
From long-term contracts:
|
|
|
|
|
|
|
|
|
Amounts billed due within one year
|
|
$
|
548,290
|
|
|
$
|
467,268
|
|
|
|
|
|
|
|
|
|
|
Billed retention:
|
|
|
|
|
|
|
|
|
Estimated to be due in:
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
10,082
|
|
2008
|
|
|
16,557
|
|
|
|
1,962
|
|
2009
|
|
|
4,141
|
|
|
|
5,600
|
|
2010
|
|
|
19,749
|
|
|
|
3,481
|
|
2011
|
|
|
2,068
|
|
|
|
|
|
2012
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total billed retention
|
|
|
43,515
|
|
|
|
21,125
|
|
|
|
|
|
|
|
|
|
|
Total receivables from long-term contracts
|
|
|
591,805
|
|
|
|
488,393
|
|
Other trade accounts and notes receivable
|
|
|
1,476
|
|
|
|
3,274
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes receivable, gross
|
|
|
593,281
|
|
|
|
491,667
|
|
Less: allowance for doubtful accounts
|
|
|
(12,398
|
)
|
|
|
(7,848
|
)
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes receivable, net
|
|
$
|
580,883
|
|
|
$
|
483,819
|
|
|
|
|
|
|
|
|
|
|
The following table shows the components of non-trade accounts
and notes receivable:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Asbestos insurance receivable
|
|
$
|
50,076
|
|
|
$
|
49,191
|
|
Foreign refundable value-added tax
|
|
|
25,071
|
|
|
|
13,804
|
|
Other
|
|
|
23,561
|
|
|
|
20,502
|
|
|
|
|
|
|
|
|
|
|
Other accounts and notes receivable
|
|
$
|
98,708
|
|
|
$
|
83,497
|
|
|
|
|
|
|
|
|
|
|
4. Land,
Buildings and Equipment
Land, buildings and equipment are stated at cost and are set
forth below:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land and land improvements
|
|
$
|
25,548
|
|
|
$
|
23,394
|
|
Buildings
|
|
|
154,753
|
|
|
|
142,931
|
|
Furniture, fixtures and equipment
|
|
|
541,091
|
|
|
|
490,700
|
|
Construction in progress
|
|
|
13,007
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, gross
|
|
|
734,399
|
|
|
|
657,808
|
|
Less: accumulated depreciation
|
|
|
(396,914
|
)
|
|
|
(355,320
|
)
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
$
|
337,485
|
|
|
$
|
302,488
|
|
|
|
|
|
|
|
|
|
|
77
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
4. Land,
Buildings and
Equipment
(Continued)
Depreciation expense for fiscal years 2007, 2006 and 2005 was
$34,576, $26,191 and $23,982, respectively.
We own certain office and manufacturing facilities in Finland
that contain asbestos. We are required to remove the asbestos
from such facilities if such facilities are significantly
renovated or demolished. At present, there are no plans to
undertake a major renovation that would require the removal of
the asbestos or the demolition of the facilities. We do not have
sufficient information to estimate the fair value of the asset
retirement obligation because the settlement date or the range
of potential settlement dates has not been specified and
information is not currently available to apply an expected
present value technique. We will recognize a liability in the
period in which sufficient information is available to
reasonably estimate the fair value of the asset retirement
obligation.
5. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
Italian
|
|
|
Chilean
|
|
|
Italian
|
|
|
Chilean
|
|
|
|
Projects
|
|
|
Project
|
|
|
Projects
|
|
|
Project
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
294,482
|
|
|
$
|
49,353
|
|
|
$
|
199,606
|
|
|
$
|
27,013
|
|
Other assets (primarily buildings and equipment)
|
|
|
656,796
|
|
|
|
146,665
|
|
|
|
536,543
|
|
|
|
156,236
|
|
Current liabilities
|
|
|
72,009
|
|
|
|
21,044
|
|
|
|
42,134
|
|
|
|
18,226
|
|
Other liabilities (primarily long-term debt)
|
|
|
576,545
|
|
|
|
81,696
|
|
|
|
470,618
|
|
|
|
88,836
|
|
Net assets
|
|
|
302,724
|
|
|
|
93,278
|
|
|
|
223,397
|
|
|
|
76,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
Italian
|
|
|
Chilean
|
|
|
Italian
|
|
|
Chilean
|
|
|
Italian
|
|
|
Chilean
|
|
|
|
Projects
|
|
|
Project
|
|
|
Projects
|
|
|
Project
|
|
|
Projects
|
|
|
Project
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
319,611
|
|
|
$
|
70,427
|
|
|
$
|
304,786
|
|
|
$
|
43,462
|
|
|
$
|
293,588
|
|
|
$
|
39,659
|
|
Gross profit
|
|
|
75,549
|
|
|
|
42,234
|
|
|
|
72,070
|
|
|
|
21,198
|
|
|
|
65,419
|
|
|
|
19,725
|
|
Income before income taxes
|
|
|
59,402
|
|
|
|
35,391
|
|
|
|
69,096
|
|
|
|
15,012
|
|
|
|
52,646
|
|
|
|
10,031
|
|
Net earnings
|
|
|
45,684
|
|
|
|
30,258
|
|
|
|
41,365
|
|
|
|
16,025
|
|
|
|
46,070
|
|
|
|
7,782
|
|
Our share of equity in the net earnings of these partially-owned
affiliates, which are recorded within other income on our
consolidated statement of operations, totaled $36,445, $26,640
and $24,129 for fiscal years 2007, 2006 and 2005, respectively.
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
78
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
5. Equity
Interests
(Continued)
precluded from electing pass-through taxation treatment. As a
result, commencing in fiscal year 2006, our share of equity in
the after-tax earnings of these projects is reported in other
income. This change reduced other income and the provision for
taxes by $5,000 and $8,600 in fiscal years 2007 and 2006,
respectively.
Our investment in these equity affiliates, which is recorded
within investments in and advances to unconsolidated affiliates
on our consolidated balance sheet, totaled $190,887 and $150,752
as of December 28, 2007 and December 29, 2006,
respectively. Distributions of $23,784, $18,149 and $18,272 were
received during fiscal years 2007, 2006 and 2005, respectively.
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 28,
2007.
We also have a guarantee that supports the obligations of our
subsidiary under the Chilean projects 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 flows
to make such payments. We are required to maintain the debt
service reserve letter of credit during the term of the Chilean
projects debt, which matures in 2014. As of
December 28, 2007, no amounts have ever been drawn under
this letter of credit.
Under the Chilean projects operations and maintenance
agreement, our subsidiary provides services for the management,
operation and maintenance of the refinery/electric power
generation facility. Our annual service fees for these services
were $8,309, $8,276 and $7,511 for fiscal years 2007, 2006 and
2005, respectively, and were recorded in operating revenues on
our consolidated statement of operations. We had a receivable
from our partially-owned affiliate in Chile of $6,168 and $3,199
recorded in trade accounts and notes receivable on our
consolidated balance sheet as of December 28, 2007 and
December 29, 2006, respectively.
Our share of the undistributed retained earnings of our equity
investees amounted to $87,206 and $57,666 as of
December 28, 2007 and December 29, 2006, respectively.
6. Equity-for-Debt
Exchanges
In April 2006, we consummated an offer to exchange 2,555,800 of
our common shares for $50,000 of outstanding aggregate principal
amount of our 2011 senior notes. The exchange reduced the
carrying value of our 2011 senior notes by $51,648, representing
the aggregate principal amount plus the corresponding premium
and improved our shareholders equity/(deficit) by $50,567.
The exchange resulted in a $58,763 increase in common stock and
paid-in capital, which was partially offset by an $8,196 charge
to income. The pretax charge, which was substantially non-cash,
related primarily to the difference between the carrying value
of the 2011 senior notes, including unpaid accrued interest, and
the market price of the common shares on the closing date of the
exchange.
In November 2005, we completed an offer to exchange 12,053,962
of our common shares for $150,003 of outstanding aggregate
principal amount of our 2011 senior notes. The exchange reduced
the carrying value of our 2011 senior notes by $155,299,
representing the aggregate principal amount plus the
corresponding premium associated with the exchanged notes, and
improved our shareholders equity/(deficit) by $151,076.
The exchange resulted in a $167,909 increase in common stock and
paid-in capital, which was partially offset by a $16,833 charge
to income. The pretax charge, which was substantially non-cash,
related primarily to the difference between the carrying value
of the 2011 senior notes, including unpaid accrued interest, and
the market price of the common shares on the closing date of the
exchange. Concurrent with the exchange offer,
79
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
6. Equity-for-Debt
Exchanges
(Continued)
we also solicited consents from holders of the outstanding 2011
senior notes to amend the governing indenture to eliminate
substantially all of the restrictive operating and financial
covenants and certain events of default contained therein.
In August 2005, we completed an offer to exchange our common
shares for a portion of our trust preferred securities. Trust
preferred securities of 2,608,548 were tendered as part of the
exchange, resulting in the issuance of 11,268,928 common shares.
The exchange reduced the aggregate liquidation amount of our
existing trust preferred securities by $65,214, reduced the
amount of deferred accrued interest by $26,052 and improved our
shareholders equity/(deficit) by $87,571. The exchange
resulted in an increase to common stock and paid-in capital
totaling $129,084, which was partially offset by a $41,513
charge to income. The pretax charge, which was substantially
non-cash, related primarily to the difference between the
carrying value of the trust preferred securities, including
deferred accrued interest, and the market price of the common
shares on the closing date of the exchange.
7. Long-term
Debt
The following table shows the components of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
|
Capital Lease Obligations
|
|
$
|
1,318
|
|
|
$
|
67,095
|
|
|
$
|
68,413
|
|
|
$
|
1,537
|
|
|
$
|
65,319
|
|
|
$
|
66,856
|
|
Special-Purpose Limited Recourse Project Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden County Energy Recovery Associates
|
|
|
9,648
|
|
|
|
31,779
|
|
|
|
41,427
|
|
|
|
9,360
|
|
|
|
41,427
|
|
|
|
50,787
|
|
FW Power
|
|
|
|
|
|
|
45,041
|
|
|
|
45,041
|
|
|
|
4,881
|
|
|
|
24,862
|
|
|
|
29,743
|
|
Energia Holdings, LLC
|
|
|
4,144
|
|
|
|
21,101
|
|
|
|
25,245
|
|
|
|
3,613
|
|
|
|
25,245
|
|
|
|
28,858
|
|
Subordinated Robbins Facility Exit Funding Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999C Bonds at 7.25% interest, due October 15, 2009
|
|
|
18
|
|
|
|
19
|
|
|
|
37
|
|
|
|
16
|
|
|
|
37
|
|
|
|
53
|
|
1999C Bonds at 7.25% interest, due October 15, 2024
|
|
|
|
|
|
|
20,491
|
|
|
|
20,491
|
|
|
|
|
|
|
|
20,491
|
|
|
|
20,491
|
|
1999D Accretion Bonds at 7% interest, due October 15, 2009
|
|
|
|
|
|
|
286
|
|
|
|
286
|
|
|
|
|
|
|
|
267
|
|
|
|
267
|
|
Intermediate Term Loans in China at 7.02% interest
|
|
|
4,107
|
|
|
|
|
|
|
|
4,107
|
|
|
|
|
|
|
|
3,844
|
|
|
|
3,844
|
|
Convertible Subordinated Notes at 6.50% interest, due
June 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,070
|
|
|
|
|
|
|
|
2,070
|
|
Other
|
|
|
133
|
|
|
|
166
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,368
|
|
|
$
|
185,978
|
|
|
$
|
205,346
|
|
|
$
|
21,477
|
|
|
$
|
181,492
|
|
|
$
|
202,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Senior Credit Agreement
In October
2006, we executed a five-year domestic senior credit agreement
to be used for our domestic and foreign operations. In May 2007,
we executed an amendment to our 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
80
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
7. Long-term
Debt
(Continued)
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 Moodys Investors Service
and/or
Standard & Poors (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 paid $5,710 in fees and expenses in conjunction with the
execution of our domestic senior credit agreement in the fourth
quarter of 2006. Such fees and expenses are being amortized to
expense over the five-year term of the agreement, commencing in
the fourth quarter of 2006.
The assets
and/or
stock
of certain of our domestic and foreign subsidiaries
collateralize our obligations under our domestic senior credit
agreement. Our domestic senior credit agreement contains various
customary restrictive covenants that generally limit our ability
to, among other things, incur additional indebtedness or
guarantees, create liens or other encumbrances on property, sell
or transfer certain property and thereafter rent or lease such
property for substantially the same purposes as the property
sold or transferred, enter into a merger or similar transaction,
make investments, declare dividends or make other restricted
payments, enter into agreements with affiliates that are not on
an arms length basis, enter into any agreement that limits
our ability to create liens or the ability of a subsidiary to
pay dividends, engage in any new lines of business, with respect
to Foster Wheeler Ltd., change Foster Wheeler Ltd.s fiscal
year or, with respect to Foster Wheeler Ltd. and one of our
holding company subsidiaries, directly acquire ownership of the
operating assets used to conduct any business.
In addition, our domestic senior credit agreement contains
financial covenants requiring us not to exceed a total leverage
ratio, which compares total indebtedness to EBITDA, and to
maintain a minimum interest coverage ratio, which compares
EBITDA to interest expense. All such terms are defined in our
domestic senior credit agreement. The agreement also limits the
aggregate amount of capital expenditures in any single fiscal
year to $40,000, subject to certain exceptions. We must be in
compliance with the total leverage ratio at all times, while the
interest coverage ratio is measured quarterly. We are in
compliance with all financial covenants and other provisions of
our domestic senior credit agreement.
We had $245,765 and $189,036 of letters of credit outstanding
under this agreement as of December 28, 2007 and
December 29, 2006, respectively. The letter of credit fees
currently range from 1.50% to 1.60% of the outstanding amount,
excluding a fronting fee of 0.125% per annum. There were no
funded borrowings under this agreement as of December 28,
2007 or December 29, 2006.
Prior Domestic
S
enior Credit Agreement
In March 2005, we entered into a five-year $250,000 senior
credit agreement to be used for our domestic and foreign
operations. We voluntarily replaced this senior credit agreement
in October 2006. In fiscal year 2006, we recorded a charge of
$14,955 in connection with the termination of this agreement.
Capital Lease Obligations
We have entered
into a series of capital lease obligations, primarily for office
buildings. Assets under capital lease obligations are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Buildings and improvements
|
|
$
|
48,565
|
|
|
$
|
45,650
|
|
Less: accumulated amortization
|
|
|
(11,462
|
)
|
|
|
(9,272
|
)
|
|
|
|
|
|
|
|
|
|
Net assets under capital lease obligations
|
|
$
|
37,103
|
|
|
$
|
36,378
|
|
|
|
|
|
|
|
|
|
|
81
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
7. Long-term
Debt
(Continued)
The following are the minimum lease payments to be made in each
of the years indicated for our capital lease obligations as of
December 28, 2007:
|
|
|
|
|
Fiscal year:
|
|
|
|
|
2008
|
|
$
|
8,564
|
|
2009
|
|
|
8,657
|
|
2010
|
|
|
8,403
|
|
2011
|
|
|
8,751
|
|
2012
|
|
|
8,174
|
|
Thereafter
|
|
|
102,393
|
|
Less: interest
|
|
|
(76,529
|
)
|
|
|
|
|
|
Net minimum lease payments under capital lease obligations
|
|
|
68,413
|
|
Less: current portion of net minimum lease payments
|
|
|
(1,318
|
)
|
|
|
|
|
|
Long-term portion of net minimum lease payments
|
|
$
|
67,095
|
|
|
|
|
|
|
Special-Purpose Limited Recourse Project Debt
Special-purpose limited recourse project debt represents debt
incurred to finance the construction of cogeneration facilities,
waste-to-energy
or wind farm projects in which we are a majority-owner. Certain
assets of each project collateralize the notes
and/or
bonds. Our obligations with respect to this debt are limited to
contributing project equity during the construction phase of the
projects and the guarantee of the operating performance of our
Chilean project.
The Camden County Energy Recovery Associates debt represents
Solid Waste Disposal and Resource Recovery System Revenue Bonds.
The bonds bear interest at 7.5%, due annually December 1,
2004 through 2010, and mature on December 1, 2010. The
bonds are collateralized by a pledge of certain revenues and
assets of the project, but not the plant. The
waste-to-energy
project is located in New Jersey.
As a result of the purchase of the remaining 51% interest of FW
Power consummated on April 7, 2006, we now consolidate the
special-purpose limited recourse project debt of FW Power, which
is the owner of certain electric power generating wind farms in
Italy. See Note 2 for further information regarding the FW
Power acquisition. Upon acquisition, FW Power had project
financing for its Vallesaccarda wind farm project under a base
facility and a value-added tax (VAT) facility. The
base facility had a variable interest rate based upon the
6-month
Euribor plus 1.5% and was repayable semi-annually based upon a
pre-defined payment schedule through June 30, 2015. The VAT
facility had a variable interest rate based upon the
6-month
Euribor plus 0.9% and was repayable semi-annually based upon
actual VAT received during commercial operation through
December 31, 2010.
In December 2007, FW Power refinanced the base and VAT
facilities related to the Vallesaccarda wind farm project with
new base and VAT facilities, and also secured new base and VAT
facilities for its Scampitella wind farm project. The base
facilities bear interest at variable rates based upon
6-month
Euribor plus a spread varying from 0.8% to 1.1% throughout the
life of the debt and are repayable semi-annually based upon a
pre-defined payment schedule through December 31, 2019. The
VAT facilities bear interest at 0.5% and are repayable
semi-annually based upon actual VAT received during commercial
operation through June 30, 2010 and December 31, 2013
for the Vallesaccarda and Scampitella wind farms, respectively.
The debt is collateralized by certain revenues and assets of FW
Power. Our total borrowing capacity under the FW Power credit
facilities is 75,350 (approximately $110,950 at the
exchange rate as of December 28, 2007).
82
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
7. Long-term
Debt
(Continued)
We have executed interest rate swap contracts that effectively
convert approximately 75% of the base facilities to a
weighted-average fixed interest rate of 4.47%. The swap
contracts are in place through the life of the facilities. See
Note 1, Summary of Significant Accounting Policies
Interest Rate Risk, for our accounting policy
related to these interest rate swap contracts. The interest
rates on the VAT facilities and the portion of the base
facilities not subject to the interest rate swap contracts were
5.2% and 5.6%, respectively, as of December 28, 2007.
The Energia Holdings, LLC debt bears interest at 11.443%, due
annually April 15, 2004 through 2015, and matures on
April 15, 2015. The notes are collateralized by certain
revenues and assets of a special-purpose subsidiary, which is
the indirect owner of our refinery/electric power generation
project in Chile.
Subordinated Robbins Facility Exit Funding Obligations
(Robbins bonds)
In connection with
the restructuring of debt incurred to finance construction of a
waste-to-energy
facility in the Village of Robbins, Illinois, we entered into
certain subordinated obligations. The subordinated obligations
include 1999C Bonds due October 15, 2009 (the 1999C
bonds due 2009), 1999C Bonds due October 15, 2024
(the 1999C bonds due 2024) and 1999D Accretion Bonds
due October 15, 2009 (the 1999D bonds).
The 1999C bonds due 2009 and the 1999C bonds due 2024 bear
interest at 7.25% and are subject to mandatory sinking fund
reduction prior to maturity at a redemption price equal to 100%
of the principal amount thereof, plus accrued interest to the
redemption date. The total amount of 1999D bonds due on
October 15, 2009 is $325.
Intermediate Term Loans in China at 7.02% interest
(intermediate term loans)
In 2005,
one of our Chinese subsidiaries, which is 52% owned by us and
which we consolidate into our financial statements, entered into
two intermediate term loans. The intermediate term loans bear
interest at 7.02% and are due to be repaid in 2008.
Convertible Subordinated Notes at 6.50% interest, due
June 1, 2007 (convertible
notes)
In 2001, we issued convertible
notes having an aggregate principal amount of $210,000. In
September 2004, we completed an offer to exchange common shares
and preferred shares for $206,930 of convertible notes. In June
2006, we executed an open market purchase of $1,000 of
outstanding aggregate principal amount of convertible notes. We
repaid the remaining $2,070 of convertible notes at the
scheduled maturity date of June 1, 2007.
Interest Costs
Interest costs incurred in
fiscal years 2007, 2006, and 2005 were $18,603, $24,944 and
$50,618, respectively.
83
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
7. Long-term
Debt
(Continued)
Aggregate Maturities
Aggregate principal
repayments and sinking fund requirements of long-term debt,
excluding payments on capital lease obligations, over the next
five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Special-Purpose Limited Recourse Project Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden County Energy Recovery Associates
|
|
$
|
9,648
|
|
|
$
|
9,914
|
|
|
$
|
21,865
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,427
|
|
FW Power
|
|
|
|
|
|
|
4,795
|
|
|
|
5,273
|
|
|
|
5,257
|
|
|
|
5,683
|
|
|
|
24,033
|
|
|
|
45,041
|
|
Energia Holdings, LLC
|
|
|
4,144
|
|
|
|
4,675
|
|
|
|
3,188
|
|
|
|
2,019
|
|
|
|
1,913
|
|
|
|
9,306
|
|
|
|
25,245
|
|
Subordinated Robbins Facility Exit Funding Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999C Bonds at 7.25% interest, due October 15, 2009
|
|
|
18
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
1999C Bonds at 7.25% interest, due October 15, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,491
|
|
|
|
20,491
|
|
1999D Accretion Bonds at 7% interest, due October 15, 2009
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
Intermediate Term Loans in China at 7.02% interest
|
|
|
4,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107
|
|
Other
|
|
|
133
|
|
|
|
133
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,050
|
|
|
$
|
19,822
|
|
|
$
|
30,359
|
|
|
$
|
7,276
|
|
|
$
|
7,596
|
|
|
$
|
53,830
|
|
|
$
|
136,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Pensions
and Other Postretirement Benefits
We have defined benefit pension plans in the United States, the
United Kingdom, France, Canada and Finland, and we have other
postretirement benefit plans for health care and life insurance
benefits in the United States and Canada. We also have defined
contribution plans in the United States and the United Kingdom.
Finally, we have certain other benefit plans including
government mandated postretirement programs.
We adopted the provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements 87,
88, 106, and 132(R), on December 29, 2006, the last
day of fiscal year 2006. SFAS No. 158 requires us to
recognize the funded status of each of our defined benefit
pension and other postretirement benefit plans on our
consolidated balance sheet. SFAS No. 158 also requires
us to recognize any gains or losses, which are not recognized as
a component of annual service cost, as a component of other
comprehensive income/(loss), net of tax. Upon adoption of
SFAS No. 158, we recorded net actuarial losses, prior
service cost/(credits) and a net transition asset as a net
change to accumulated other comprehensive loss on the
consolidated balance sheet.
Defined Benefit Pension Plans
Our defined
benefit pension plans cover certain full-time employees. Under
the plans, retirement benefits are primarily a function of both
years of service and level of compensation. 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, is contributory.
84
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Defined
benefit pension obligations and funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 28, 2007
|
|
|
For the Year Ended December 29, 2006
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
States
|
|
|
Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at beginning of year
|
|
$
|
336,496
|
|
|
$
|
876,686
|
|
|
$
|
34,175
|
|
|
$
|
1,247,357
|
|
|
$
|
349,993
|
|
|
$
|
710,877
|
|
|
$
|
35,350
|
|
|
$
|
1,096,220
|
|
Service cost
|
|
|
|
|
|
|
14,073
|
|
|
|
620
|
|
|
|
14,693
|
|
|
|
|
|
|
|
15,590
|
|
|
|
951
|
|
|
|
16,541
|
|
Interest cost
|
|
|
19,031
|
|
|
|
45,348
|
|
|
|
1,671
|
|
|
|
66,050
|
|
|
|
18,578
|
|
|
|
36,079
|
|
|
|
1,684
|
|
|
|
56,341
|
|
Plan participants contributions
|
|
|
|
|
|
|
8,123
|
|
|
|
|
|
|
|
8,123
|
|
|
|
|
|
|
|
7,518
|
|
|
|
|
|
|
|
7,518
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
33,600
|
|
Actuarial loss/(gain)
|
|
|
(5,690
|
)
|
|
|
(19,912
|
)
|
|
|
344
|
|
|
|
(25,258
|
)
|
|
|
(9,697
|
)
|
|
|
504
|
|
|
|
(1,621
|
)
|
|
|
(10,814
|
)
|
Benefits paid
|
|
|
(23,026
|
)
|
|
|
(36,507
|
)
|
|
|
(3,307
|
)
|
|
|
(62,840
|
)
|
|
|
(22,378
|
)
|
|
|
(26,805
|
)
|
|
|
(2,916
|
)
|
|
|
(52,099
|
)
|
Special termination benefits/other
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
(1,213
|
)
|
|
|
|
|
|
|
(2,147
|
)
|
|
|
(52
|
)
|
|
|
(2,199
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
16,937
|
|
|
|
5,777
|
|
|
|
22,714
|
|
|
|
|
|
|
|
101,470
|
|
|
|
779
|
|
|
|
102,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at end of year
|
|
|
326,811
|
|
|
|
903,535
|
|
|
|
39,280
|
|
|
|
1,269,626
|
|
|
|
336,496
|
|
|
|
876,686
|
|
|
|
34,175
|
|
|
|
1,247,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
283,857
|
|
|
|
673,131
|
|
|
|
22,061
|
|
|
|
979,049
|
|
|
|
246,490
|
|
|
|
544,761
|
|
|
|
20,921
|
|
|
|
812,172
|
|
Actual return on plan assets
|
|
|
24,384
|
|
|
|
47,760
|
|
|
|
(20
|
)
|
|
|
72,124
|
|
|
|
32,250
|
|
|
|
47,751
|
|
|
|
2,326
|
|
|
|
82,327
|
|
Employer contributions
|
|
|
45,023
|
|
|
|
32,404
|
|
|
|
2,857
|
|
|
|
80,284
|
|
|
|
27,495
|
|
|
|
25,699
|
|
|
|
1,833
|
|
|
|
55,027
|
|
Plan participants contributions
|
|
|
|
|
|
|
8,123
|
|
|
|
|
|
|
|
8,123
|
|
|
|
|
|
|
|
7,518
|
|
|
|
|
|
|
|
7,518
|
|
Benefits paid
|
|
|
(23,026
|
)
|
|
|
(36,507
|
)
|
|
|
(3,307
|
)
|
|
|
(62,840
|
)
|
|
|
(22,378
|
)
|
|
|
(26,805
|
)
|
|
|
(2,916
|
)
|
|
|
(52,099
|
)
|
Other
|
|
|
|
|
|
|
(1,212
|
)
|
|
|
|
|
|
|
(1,212
|
)
|
|
|
|
|
|
|
(3,631
|
)
|
|
|
|
|
|
|
(3,631
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
12,929
|
|
|
|
4,096
|
|
|
|
17,025
|
|
|
|
|
|
|
|
77,838
|
|
|
|
(103
|
)
|
|
|
77,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
330,238
|
|
|
|
736,628
|
|
|
|
25,687
|
|
|
|
1,092,553
|
|
|
|
283,857
|
|
|
|
673,131
|
|
|
|
22,061
|
|
|
|
979,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
3,427
|
|
|
$
|
(166,907
|
)
|
|
$
|
(13,593
|
)
|
|
$
|
(177,073
|
)
|
|
$
|
(52,639
|
)
|
|
$
|
(203,555
|
)
|
|
$
|
(12,114
|
)
|
|
$
|
(268,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized the funded status of our defined benefit pension
plans on our consolidated balance sheet as part of:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
3,839
|
|
|
$
|
|
|
Current liabilities
|
|
|
(730
|
)
|
|
|
(764
|
)
|
Non-current liabilities
|
|
|
(180,182
|
)
|
|
|
(267,544
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(177,073
|
)
|
|
$
|
(268,308
|
)
|
|
|
|
|
|
|
|
|
|
We recognized the following amounts in accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net actuarial loss
|
|
$
|
347,580
|
|
|
$
|
394,390
|
|
Prior service cost
|
|
|
33,417
|
|
|
|
38,631
|
|
Net transition asset
|
|
|
(112
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
380,885
|
|
|
$
|
432,936
|
|
|
|
|
|
|
|
|
|
|
85
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
The estimated net actuarial loss, prior service cost and net
transition asset that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost over the next
fiscal year is $20,423, $1,890 and $37, respectively.
Accumulated
benefit obligation:
The aggregated accumulated benefit obligation of our defined
benefit pension plans was $1,093,005 and $1,134,254 at
December 28, 2007 and December 29, 2006, respectively.
Information
for defined benefit pension plans with an accumulated benefit
obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
934,211
|
|
|
$
|
1,238,840
|
|
Accumulated benefit obligation
|
|
|
761,967
|
|
|
|
1,130,135
|
|
Fair value of plan assets
|
|
|
749,912
|
|
|
|
968,524
|
|
|
|
|
(1)
|
|
Information for the U.S. plans as of December 28, 2007 has
not been included since plan assets exceed the accumulated
benefit obligation.
|
Components
of net periodic benefit cost and other changes recognized in
other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
United States
|
|
|
United Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
United States
|
|
|
United Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
United States
|
|
|
United Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
14,073
|
|
|
$
|
620
|
|
|
$
|
14,693
|
|
|
$
|
|
|
|
$
|
15,590
|
|
|
$
|
951
|
|
|
$
|
16,541
|
|
|
$
|
|
|
|
$
|
16,274
|
|
|
$
|
1,040
|
|
|
$
|
17,314
|
|
Interest cost
|
|
|
19,031
|
|
|
|
45,348
|
|
|
|
1,671
|
|
|
|
66,050
|
|
|
|
18,578
|
|
|
|
36,079
|
|
|
|
1,684
|
|
|
|
56,341
|
|
|
|
18,579
|
|
|
|
31,953
|
|
|
|
1,856
|
|
|
|
52,388
|
|
Expected return on plan assets
|
|
|
(22,064
|
)
|
|
|
(48,200
|
)
|
|
|
(1,762
|
)
|
|
|
(72,026
|
)
|
|
|
(18,125
|
)
|
|
|
(40,100
|
)
|
|
|
(1,563
|
)
|
|
|
(59,788
|
)
|
|
|
(16,920
|
)
|
|
|
(35,269
|
)
|
|
|
(1,412
|
)
|
|
|
(53,601
|
)
|
Amortization of transition (asset)/ obligation
|
|
|
|
|
|
|
(66
|
)
|
|
|
93
|
|
|
|
27
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
87
|
|
|
|
23
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
82
|
|
|
|
13
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
5,195
|
|
|
|
19
|
|
|
|
5,214
|
|
|
|
|
|
|
|
4,941
|
|
|
|
17
|
|
|
|
4,958
|
|
|
|
|
|
|
|
1,677
|
|
|
|
16
|
|
|
|
1,693
|
|
Amortization of net actuarial loss
|
|
|
3,285
|
|
|
|
17,530
|
|
|
|
479
|
|
|
|
21,294
|
|
|
|
4,262
|
|
|
|
17,239
|
|
|
|
912
|
|
|
|
22,413
|
|
|
|
4,191
|
|
|
|
14,522
|
|
|
|
538
|
|
|
|
19,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 87 net periodic benefit cost
|
|
|
252
|
|
|
|
33,880
|
|
|
|
1,120
|
|
|
|
35,252
|
|
|
|
4,715
|
|
|
|
33,685
|
|
|
|
2,088
|
|
|
|
40,488
|
|
|
|
5,850
|
|
|
|
29,088
|
|
|
|
2,120
|
|
|
|
37,058
|
|
SFAS No. 88 cost*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
21
|
|
|
|
297
|
|
|
|
56
|
|
|
|
|
|
|
|
(346
|
)
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost
|
|
$
|
252
|
|
|
$
|
33,880
|
|
|
$
|
1,120
|
|
|
$
|
35,252
|
|
|
$
|
4,715
|
|
|
$
|
33,961
|
|
|
$
|
2,109
|
|
|
$
|
40,785
|
|
|
$
|
5,906
|
|
|
$
|
29,088
|
|
|
$
|
1,774
|
|
|
$
|
36,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes recognized in other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain)/loss
|
|
$
|
(8,008
|
)
|
|
$
|
(19,435
|
)
|
|
$
|
1,927
|
|
|
$
|
(25,516
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Amortization of transition asset/ (obligation)
|
|
|
|
|
|
|
66
|
|
|
|
(93
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
(5,195
|
)
|
|
|
(19
|
)
|
|
|
(5,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
(3,285
|
)
|
|
|
(17,530
|
)
|
|
|
(479
|
)
|
|
|
(21,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income recognized in other comprehensive income/(loss)
|
|
$
|
(11,293
|
)
|
|
$
|
(42,094
|
)
|
|
$
|
1,336
|
|
|
$
|
(52,051
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.81
|
%
|
|
|
5.14
|
%
|
|
|
4.50
|
%
|
|
|
|
|
|
|
5.45
|
%
|
|
|
4.86
|
%
|
|
|
4.60
|
%
|
|
|
|
|
|
|
5.48
|
%
|
|
|
5.44
|
%
|
|
|
5.03
|
%
|
|
|
|
|
Long-term rate of return
|
|
|
8.00
|
%
|
|
|
6.94
|
%
|
|
|
7.50
|
%
|
|
|
|
|
|
|
8.00
|
%
|
|
|
6.84
|
%
|
|
|
7.50
|
%
|
|
|
|
|
|
|
8.00
|
%
|
|
|
7.32
|
%
|
|
|
7.50
|
%
|
|
|
|
|
Salary growth
|
|
|
N/A
|
|
|
|
3.83
|
%
|
|
|
2.35
|
%
|
|
|
|
|
|
|
N/A
|
|
|
|
3.84
|
%
|
|
|
3.21
|
%
|
|
|
|
|
|
|
N/A
|
|
|
|
3.33
|
%
|
|
|
2.95
|
%
|
|
|
|
|
Weighted-average assumptions-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.31
|
%
|
|
|
5.72
|
%
|
|
|
5.30
|
%
|
|
|
|
|
|
|
5.80
|
%
|
|
|
5.13
|
%
|
|
|
4.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary growth
|
|
|
N/A
|
|
|
|
4.12
|
%
|
|
|
3.47
|
%
|
|
|
|
|
|
|
N/A
|
|
|
|
3.82
|
%
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Charges were recorded in accordance
with the provisions of SFAS No. 88, Accounting
for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits, related to the
settlement of obligations to former employees in the United
Kingdom and Canada of $297 in 2006; and the settlement of
obligations to former employees in Finland and to former
executives under the Supplemental Executive Retirement Plan
(SERP) of $(290) in 2005.
|
86
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Investment
policy:
Each of our defined benefit pension plans in the United States,
United Kingdom and Canada is governed by a written investment
policy. The pension plans in Finland and France have no plan
assets.
The investment policy of the U.S. plans allocates assets in
accordance with the policy guidelines. These guidelines identify
target, maximum and minimum allocations by asset class. The
target allocation is 72.5% equities and 27.5% fixed-income
securities. The minimum and maximum allocations are: 62.5% to
77.5% equities, 22.5% to 32.5% bonds and 0% to 5% cash. We are
continually reviewing the investment policy to ensure that the
investment strategy is aligned with plan liabilities and
projected plan benefit payments.
The investment policy of the U.K. plans is designed to respond
to changes in funding levels. The bond and equity allocations
currently range from 40% bonds and 60% equities to 50% bonds and
50% equities, depending on the funding level.
The investment policy of the Canadian plan uses a balanced
approach and allocates investments in pooled funds in accordance
with the policys asset mix guidelines. These guidelines
identify target, maximum and minimum allocations by asset class.
The target allocation is 45% bonds, 50% equities and 5% cash.
The minimum and maximum allocations are: 42.5% to 57.5%
equities, 40% to 50% bonds and 2.5% to 7.5% cash.
Long-term
rate of return assumptions:
The expected long-term rate of return on plan assets is
developed using a weighted-average methodology, blending the
expected returns on each class of investment in the plans
portfolio. The expected returns by asset class are developed
considering both past performance and future considerations. We
annually review and adjust, as required, the long-term rate of
return for our pension plans. The weighted-average expected
long-term rate of return on plan assets has declined from 7.5%
to 7.3% over the past three years.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Asset allocation by plan:
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
Equities
|
|
|
70
|
%
|
|
|
71
|
%
|
Fixed-income securities
|
|
|
30
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
United Kingdom:
|
|
|
|
|
|
|
|
|
Equities
|
|
|
59
|
%
|
|
|
61
|
%
|
Fixed-income securities
|
|
|
41
|
%
|
|
|
36
|
%
|
Other
|
|
|
0
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Canada:
|
|
|
|
|
|
|
|
|
Equities
|
|
|
49
|
%
|
|
|
51
|
%
|
Fixed-income securities
|
|
|
44
|
%
|
|
|
43
|
%
|
Other
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
87
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Contributions:
We do not expect to be required to make any mandatory
contributions to our U.S. pension plans in fiscal year
2008. We expect to contribute a total of approximately $33,400
to our foreign pension plans in fiscal year 2008.
Estimated
future benefit payments:
We expect to make the following benefit payments from our
defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Other
|
|
|
Total
|
|
|
2008
|
|
$
|
22,851
|
|
|
$
|
30,502
|
|
|
$
|
3,583
|
|
|
$
|
56,936
|
|
2009
|
|
|
23,003
|
|
|
|
32,423
|
|
|
|
3,358
|
|
|
|
58,784
|
|
2010
|
|
|
23,149
|
|
|
|
33,016
|
|
|
|
3,971
|
|
|
|
60,136
|
|
2011
|
|
|
23,308
|
|
|
|
34,998
|
|
|
|
3,959
|
|
|
|
62,265
|
|
2012
|
|
|
23,703
|
|
|
|
40,577
|
|
|
|
3,083
|
|
|
|
67,363
|
|
2013-2017
|
|
|
121,581
|
|
|
|
208,229
|
|
|
|
17,898
|
|
|
|
347,708
|
|
Other Postretirement Benefit Plans
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 plan while working for us. Certain
benefits are provided through insurance companies.
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
employees beneficiary upon the death of the employee. This
plan, which is accounted for under SFAS No. 112,
Employers Accounting for Postemployment
Benefits, has been closed to new entrants since 1988.
Total liabilities under the SIP, which were $14,948 and $16,383
as of December 28, 2007 and December 29, 2006,
respectively, are reflected in the other postretirement benefit
obligation and funded status information below because the
obligation is measured using the provisions of
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions, as amended by
SFAS No. 158. The benefit assets of the SIP, which
reflect the cash surrender value of insurance polices purchased
to cover obligations under the SIP, totaled $5,302 and $5,135 as
of December 28, 2007 and December 29, 2006,
respectively. The benefit assets are recorded in other assets on
the consolidated balance sheet and are not reflected in the
other postretirement benefit obligation and funded status
information below.
88
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Other
postretirement benefit obligation and funded status:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in accumulated postretirement benefit obligation:
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation at beginning of
year
|
|
$
|
96,847
|
|
|
$
|
101,215
|
|
Service cost
|
|
|
139
|
|
|
|
157
|
|
Interest cost
|
|
|
4,765
|
|
|
|
5,334
|
|
Plan participants contributions
|
|
|
2,727
|
|
|
|
2,868
|
|
Actuarial (gain)/loss
|
|
|
(13,354
|
)
|
|
|
(1,943
|
)
|
Benefits paid
|
|
|
(12,176
|
)
|
|
|
(11,755
|
)
|
Medicare Part D reimbursement
|
|
|
1,052
|
|
|
|
993
|
|
Other
|
|
|
|
|
|
|
(24
|
)
|
Foreign currency exchange rate changes
|
|
|
160
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation at end of year
|
|
|
80,160
|
|
|
|
96,847
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
|
|
|
|
|
|
Plan participants contributions
|
|
|
2,727
|
|
|
|
2,868
|
|
Employer contributions
|
|
|
8,397
|
|
|
|
7,894
|
|
Medicare Part D reimbursement
|
|
|
1,052
|
|
|
|
993
|
|
Benefits paid
|
|
|
(12,176
|
)
|
|
|
(11,755
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(80,160
|
)
|
|
$
|
(96,847
|
)
|
|
|
|
|
|
|
|
|
|
We recognized the funded status of our other postretirement
benefit plans on our consolidated balance sheet as part of:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Current liabilities
|
|
$
|
(7,412
|
)
|
|
$
|
(8,416
|
)
|
Non-current liabilities
|
|
|
(72,748
|
)
|
|
|
(88,431
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(80,160
|
)
|
|
$
|
(96,847
|
)
|
|
|
|
|
|
|
|
|
|
We recognized the following amounts in accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net actuarial loss
|
|
$
|
10,949
|
|
|
$
|
25,253
|
|
Prior service credit
|
|
|
(43,547
|
)
|
|
|
(48,309
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(32,598
|
)
|
|
$
|
(23,056
|
)
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service credit that
will be amortized from accumulated other comprehensive loss into
net periodic postretirement benefit cost over the next fiscal
year are $792 and $(4,762), respectively.
89
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Components
of net periodic postretirement benefit cost and other changes
recognized in other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net periodic postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
139
|
|
|
$
|
157
|
|
|
$
|
205
|
|
Interest cost
|
|
|
4,765
|
|
|
|
5,334
|
|
|
|
5,341
|
|
Amortization of prior service credit
|
|
|
(4,762
|
)
|
|
|
(4,761
|
)
|
|
|
(4,760
|
)
|
Amortization of net actuarial loss
|
|
|
952
|
|
|
|
2,049
|
|
|
|
1,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost
|
|
$
|
1,094
|
|
|
$
|
2,779
|
|
|
$
|
2,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes recognized in other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
$
|
(13,352
|
)
|
|
$
|
|
|
|
$
|
|
|
Amortization of prior service credit
|
|
|
4,762
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
(952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss recognized in other comprehensive income/(loss)
|
|
$
|
(9,542
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions-
|
|
|
|
|
|
|
|
|
|
|
|
|
net periodic postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.73
|
%
|
|
|
5.39
|
%
|
|
|
5.35
|
%
|
Weighted-average assumptions-accumulated postretirement
benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.20
|
%
|
|
|
5.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Medicare
|
|
|
Medicare
|
|
|
|
Eligible
|
|
|
Eligible
|
|
|
Health-care cost trend:
|
|
|
|
|
|
|
|
|
2007
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
2008
|
|
|
7.50
|
%
|
|
|
9.00
|
%
|
Decline to 2016
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Assumed health-care cost trend rates have a significant effect
on the amounts reported for the other postretirement benefit
plans. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One-Percentage
|
|
One-Percentage
|
|
|
Point Increase
|
|
Point Decrease
|
|
Effect on total of service and interest cost components
|
|
$
|
201
|
|
|
$
|
(174
|
)
|
Effect on accumulated postretirement benefit obligation
|
|
$
|
3,379
|
|
|
$
|
(2,918
|
)
|
Contributions:
We expect to contribute a total of approximately $7,611 to our
other postretirement benefit plans in fiscal year 2008, net of a
health care cost subsidy.
90
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
8. Pensions
and Other Postretirement
Benefits
(Continued)
Estimated
future other postretirement benefit payments:
We expect to make the following other postretirement benefit
payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Postretirement
|
|
|
Health Care
|
|
|
Benefits,
|
|
|
|
Benefits
|
|
|
Subsidy
|
|
|
Net of Subsidy
|
|
|
2008
|
|
$
|
9,022
|
|
|
$
|
1,411
|
|
|
$
|
7,611
|
|
2009
|
|
|
9,074
|
|
|
|
1,523
|
|
|
|
7,551
|
|
2010
|
|
|
9,001
|
|
|
|
1,633
|
|
|
|
7,368
|
|
2011
|
|
|
8,868
|
|
|
|
1,749
|
|
|
|
7,119
|
|
2012
|
|
|
8,641
|
|
|
|
1,870
|
|
|
|
6,771
|
|
2013-2017
|
|
|
40,480
|
|
|
|
10,359
|
|
|
|
30,121
|
|
Defined Contribution Plans
Our
U.S. subsidiaries have a 401(k) plan for salaried
employees. We contribute a 100% match of the first 3% and a 50%
match of the next 3% of base pay of employee contributions,
subject to the annual Internal Revenue Code limit. The 401(k)
plan also has a provision for a discretionary employer
contribution, equal to 50% of the second 3% of an
employees contribution or a maximum of 1.5% of base
salary. This discretionary employer contribution is tied to
meeting our performance targets for an entire calendar year and
having the contribution approved by our Board of Directors. In
fiscal years 2007 and 2006, our U.S. subsidiaries paid the
discretionary employer contribution to the 401(k) plan. In
total, our U.S. subsidiaries contributed $5,570, $4,325 and
$2,813 to the 401(k) plan in fiscal years 2007, 2006 and 2005,
respectively. In fiscal year 2008, our U.S. subsidiaries
will also have a Roth 401(k) plan for salaried employees. Also
in fiscal year 2008, we will change our employer contribution
match. We will contribute a 100% match of employee contributions
on the first 6% of eligible base pay, subject to the annual
limit on eligible earnings under the Internal Revenue Code. The
discretionary match that had been in place, which depended on
meeting our performance targets and required annual approval by
our Board of Directors, will be discontinued.
Effective April 1, 2003, our U.K. subsidiaries commenced a
defined contribution plan for salaried employees. Under the
defined contribution plan, amounts are credited as a percentage
of earnings which percentage can be increased within prescribed
limits after five years of membership in the fund if matched by
the employee. At termination (up to two years service
only), an employee may receive the balance in the account.
Otherwise at termination or at retirement, an employee receives
an annuity or a combination of lump-sum and annuity. Our U.K.
subsidiaries contributed $2,561, $1,179 and $479 in fiscal years
2007, 2006 and 2005, respectively, to the defined contribution
plan.
Other Benefits
Certain of our foreign
subsidiaries participate in government-mandated indemnity and
postretirement programs for their employees. Liabilities of
$37,811 and $30,001 were recorded within pension, postretirement
and other employee benefits on the consolidated balance sheet at
December 28, 2007 and December 29, 2006, respectively,
related to such benefits.
9. Guarantees
and Warranties
We have agreed to indemnify certain third-parties relating to
businesses
and/or
assets that we previously owned and sold to such third-parties.
Such indemnifications relate primarily to potential
environmental and tax exposures for activities conducted by us
prior to the sale of such businesses
and/or
assets. It is not possible to predict the maximum potential
amount of future payments under these or similar
indemnifications due to the conditional nature of the
obligations and the unique facts and circumstances involved in
each particular indemnification.
91
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
9. Guarantees
and Warranties
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Carrying Amount of Liability
|
|
|
Potential
|
|
December 28,
|
|
December 29,
|
|
|
Payment
|
|
2007
|
|
2006
|
|
Environmental indemnifications
|
|
|
No limit
|
|
|
$
|
6,900
|
|
|
$
|
7,300
|
|
Tax indemnifications
|
|
|
No limit
|
|
|
$
|
|
|
|
$
|
|
|
We also maintain contingencies for warranty expenses on certain
of our long-term contracts. Generally, warranty contingencies
are accrued over the life of the contract so that a sufficient
balance is maintained to cover our aggregate exposure at the
conclusion of the project.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
69,900
|
|
|
$
|
63,200
|
|
|
$
|
94,500
|
|
Accruals
|
|
|
35,800
|
|
|
|
27,600
|
|
|
|
24,800
|
|
Settlements
|
|
|
(5,700
|
)
|
|
|
(18,600
|
)
|
|
|
(12,600
|
)
|
Adjustments to provisions
|
|
|
(12,200
|
)
|
|
|
(2,300
|
)
|
|
|
(43,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
87,800
|
|
|
$
|
69,900
|
|
|
$
|
63,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are contingently liable for performance under standby letters
of credit, bank guarantees and surety bonds totaling $818,600
and $646,700 as of December 28, 2007 and December 29,
2006, respectively. These balances include the standby letters
of credit issued under the domestic senior credit agreement
discussed in Note 7 and from other facilities worldwide.
Based upon past experience, no material claims have been made
against these financial guarantees.
We have also guaranteed certain performance obligations in a
Chilean refinery/electric power generation project in which we
hold a noncontrolling equity interest. See Note 5 for
further information.
10. Financial
Instruments and Risk Management
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate fair value:
Cash, Cash Equivalents and Restricted Cash
The carrying value of our cash, cash equivalents and restricted
cash approximates fair value because of the short-term maturity
of these instruments.
Long-term Debt
We estimate the fair value of
our long-term debt (including current installments) based on the
quoted market prices for the same or similar issues or on the
current rates offered for debt of the same remaining maturities.
Foreign Currency Forward Contracts
We
estimate the fair value of foreign currency forward contracts
(which are used solely for hedging purposes) by obtaining quotes
from financial institutions.
Interest Rate Swaps
We estimate the fair
value of our interest rate swaps based on quotes obtained from
financial institutions.
92
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
10. Financial
Instruments and Risk
Management
(Continued)
Carrying Amounts and Fair Values
The
estimated fair values of our financial instruments are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,048,544
|
|
|
$
|
1,048,544
|
|
|
$
|
610,887
|
|
|
$
|
610,887
|
|
Restricted cash
|
|
|
20,937
|
|
|
|
20,937
|
|
|
|
19,080
|
|
|
|
19,080
|
|
Long-term debt
|
|
|
(205,346
|
)
|
|
|
(224,416
|
)
|
|
|
(202,969
|
)
|
|
|
(220,529
|
)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
4,419
|
|
|
|
4,419
|
|
|
|
4,095
|
|
|
|
4,095
|
|
Interest rate swaps
|
|
|
2,308
|
|
|
|
2,308
|
|
|
|
545
|
|
|
|
545
|
|
As of December 28, 2007, we had $274,316 of foreign
currency forward exchange contracts outstanding. These foreign
currency forward exchange contracts mature between 2008 and
2010. The contracts have been established by our various
international subsidiaries to sell a variety of currencies and
receive their respective functional currencies or other
currencies for which they have payment obligations to
third-parties.
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of cash
equivalents and trade receivables. We place our cash equivalents
with financial institutions and we limit the amount of credit
exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to
the large number of customers comprising our customer base and
their dispersion across different business and geographic areas.
As of December 28, 2007 and December 29, 2006, we had
no significant concentrations of credit risk.
11. Preferred
Shares
We issued 599,944 preferred shares in connection with our 2004
equity-for-debt exchange. There were 1,887 preferred shares
outstanding as of December 28, 2007. Each preferred share
is convertible at the holders option into 130 common
shares or up to approximately 246,310 additional common shares
if all outstanding preferred shares were converted.
The preferred shareholders have no voting rights except in
certain limited circumstances. The preferred shares have the
right to receive dividends and other distributions, including
liquidating distributions, on an as-converted basis when and if
declared and paid on the common shares. The preferred shares
have a $0.01 liquidation preference per share.
12. Share-Based
Compensation Plans
Our share-based compensation plans include both restricted
awards and stock option awards. Compensation cost for our
share-based plans of $7,095, $16,474, and $8,919 was charged
against income for fiscal years 2007, 2006 and 2005,
respectively. The related income tax benefit recognized in the
consolidated statement of operations was $246, $323, and $348
for fiscal years 2007, 2006 and 2005, respectively. We received
$18,076, $17,595 and $1,200 in cash from option exercises under
our share-based compensation plans for fiscal years 2007, 2006
and 2005, respectively.
Omnibus
Incentive Plan:
On May 9, 2006, our shareholders approved the Omnibus
Incentive Plan (the Omnibus Plan). The Omnibus Plan
allows for the granting of stock options, stock appreciation
rights, restricted stock, restricted stock units,
performance-contingent shares, performance-contingent units,
cash-based awards and other equity-
93
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
12. Share-Based
Compensation Plans
(Continued)
based awards to our employees, non-employee directors and
third-party service providers. The Omnibus Plan effectively
replaces our prior share-based compensation plans, and no
further options or equity-based awards will be granted under any
of the prior share-based compensation plans. The maximum number
of shares as to which stock options and restricted stock awards
may be granted under the Omnibus Plan is 9,560,000 shares,
plus shares that become available for issuance pursuant to the
terms of the awards previously granted under the prior
compensation plans and outstanding as of May 9, 2006 and
only if those awards expire, terminate or are otherwise
forfeited before being exercised or settled in full (but not to
exceed 10,000,000 shares). Shares awarded pursuant to the
Omnibus Plan will be issued out of our authorized but unissued
common shares.
The Omnibus Plan includes a change in control
provision, which provides for cash redemption of equity awards
issued under the Omnibus Plan in certain limited circumstances.
In accordance with Securities and Exchange Commission Accounting
Series Release No. 268, Presentation in
Financial Statements of Redeemable Preferred Stocks, we
present the redemption amount of these equity awards issued
under the Omnibus Plan as temporary equity on the consolidated
balance sheet as the equity award is amortized during the
vesting period. The redemption amount represents the intrinsic
value of the equity award on the grant date. In accordance with
FASB Emerging Issues Task Force Topic D-98, Classification
and Measurement of Redeemable Securities, we do not adjust
the redemption amount each reporting period unless and until it
becomes probable that the equity awards will become redeemable
(upon a change in control event). Upon vesting of the equity
awards, we reclassify the intrinsic value of the equity awards,
as determined on the grant date, to permanent equity.
Prior
Share-Based Compensation Plans:
In September 2004, our Board of Directors adopted the 2004 Stock
Option Plan (the 2004 Plan), which reserved
7,334,730 common shares for issuance. The 2004 Plan provided
that shares issued come from our authorized but unissued common
shares. The Board of Directors determined the price of the
options granted pursuant to the 2004 Plan. The options granted
under the 2004 Plan expire up to a maximum of three years from
the date granted. As noted above, no further awards will be
granted under the 2004 Plan.
In October 2001, we granted 130,000 inducement options at an
exercise price of $49.85 per share to our chief executive
officer in connection with his employment agreement. The options
vested 20% each year over the term of his agreement. The price
of the options granted pursuant to these agreements was the fair
market value on the date of the grant. The options granted under
this agreement expire ten years from the date granted.
In April 1995, our shareholders approved the 1995 Stock Option
Plan (the 1995 Plan). The 1995 Plan, as amended in
April 1999 and May 2002, reserved 530,000 common shares for
issuance. The 1995 Plan provided that shares issued come from
our authorized but unissued or reacquired common stock. The
price of the options granted pursuant to this plan could not be
less than 100% of the fair market value of the shares on the
date of grant. The options granted pursuant to the 1995 Plan
could not be exercised within one year from the date of grant
and no option can be exercised after ten years from the date
granted. As noted above, no further awards will be granted under
the 1995 Plan.
In April 1990, our shareholders approved a Stock Option Plan for
Directors of Foster Wheeler (the Directors Plan). On
April 29, 1997, our shareholders approved an amendment of
the Directors Plan, which authorized the granting of options to
purchase 40,000 shares of common stock to non-employee
directors of Foster Wheeler. The Directors Plan provided that
shares issued come from our authorized but unissued or
reacquired common stock. The price of the options granted
pursuant to this plan could not be less than 100% of the fair
market value of the shares on the date of grant. The options
granted pursuant to the Directors Plan could not be exercised
within one year from the date of grant and no option can be
exercised after ten years from the date granted. As noted above,
no further awards will be granted under the Directors Plan.
94
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
12. Share-Based
Compensation Plans
(Continued)
Stock
Option Awards:
A summary of stock option activity for fiscal years 2007, 2006
and 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Options outstanding at beginning of year
|
|
|
4,411,930
|
|
|
$
|
20.19
|
|
|
|
6,568,020
|
|
|
$
|
14.50
|
|
|
|
6,442,252
|
|
|
$
|
15.93
|
|
Options exercised
|
|
|
(2,976,020
|
)
|
|
$
|
6.07
|
|
|
|
(3,046,430
|
)
|
|
$
|
5.78
|
|
|
|
(255,890
|
)
|
|
$
|
4.69
|
|
Options granted
|
|
|
193,326
|
|
|
$
|
62.98
|
|
|
|
991,492
|
|
|
$
|
23.17
|
|
|
|
457,016
|
|
|
$
|
12.48
|
|
Options canceled or expired
|
|
|
(126,760
|
)
|
|
$
|
129.20
|
|
|
|
(101,152
|
)
|
|
$
|
113.98
|
|
|
|
(75,358
|
)
|
|
$
|
157.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
1,502,476
|
|
|
$
|
44.45
|
|
|
|
4,411,930
|
|
|
$
|
20.19
|
|
|
|
6,568,020
|
|
|
$
|
14.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant at end of year
|
|
|
8,066,938
|
|
|
|
|
|
|
|
8,178,784
|
|
|
|
|
|
|
|
1,336,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant date fair value of options granted during
the year
|
|
$
|
23.03
|
|
|
|
|
|
|
$
|
9.28
|
|
|
|
|
|
|
$
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our outstanding stock options as
of December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Intrinsic
|
|
Range of Exercise Prices
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Value
|
|
|
$
|
11.60
|
|
|
to
|
|
$
|
16.50
|
|
|
|
90,522
|
|
|
|
1.63 years
|
|
|
$
|
13.76
|
|
|
$
|
5,827
|
|
|
19.92
|
|
|
to
|
|
|
21.74
|
|
|
|
563,040
|
|
|
|
3.62 years
|
|
|
|
21.73
|
|
|
|
31,758
|
|
|
25.05
|
|
|
to
|
|
|
28.50
|
|
|
|
368,406
|
|
|
|
4.01 years
|
|
|
|
25.33
|
|
|
|
19,454
|
|
|
46.90
|
|
|
to
|
|
|
56.88
|
|
|
|
179,176
|
|
|
|
3.66 years
|
|
|
|
51.30
|
|
|
|
4,808
|
|
|
67.55
|
|
|
to
|
|
|
81.57
|
|
|
|
158,050
|
|
|
|
4.93 years
|
|
|
|
70.99
|
|
|
|
1,148
|
|
|
90.00
|
|
|
to
|
|
|
116.00
|
|
|
|
44,500
|
|
|
|
2.23 years
|
|
|
|
95.64
|
|
|
|
|
|
|
135.00
|
|
|
to
|
|
|
150.63
|
|
|
|
59,182
|
|
|
|
1.15 years
|
|
|
|
141.36
|
|
|
|
|
|
|
275.00
|
|
|
to
|
|
|
276.25
|
|
|
|
39,600
|
|
|
|
0.05 years
|
|
|
|
276.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.60
|
|
|
to
|
|
$
|
276.25
|
|
|
|
1,502,476
|
|
|
|
3.51 years
|
|
|
$
|
44.45
|
|
|
$
|
62,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
12. Share-Based
Compensation Plans
(Continued)
The following table summarizes our exercisable stock options as
of December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Intrinsic
|
|
Range of Exercise Prices
|
|
|
Exercisable
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Value
|
|
|
$
|
11.60
|
|
|
to
|
|
$
|
16.50
|
|
|
|
90,522
|
|
|
|
1.63 years
|
|
|
$
|
13.76
|
|
|
$
|
5,827
|
|
|
19.92
|
|
|
to
|
|
|
21.74
|
|
|
|
189,654
|
|
|
|
3.63 years
|
|
|
|
21.72
|
|
|
|
10,699
|
|
|
25.05
|
|
|
to
|
|
|
28.50
|
|
|
|
11,702
|
|
|
|
4.01 years
|
|
|
|
25.05
|
|
|
|
621
|
|
|
46.90
|
|
|
to
|
|
|
56.88
|
|
|
|
168,600
|
|
|
|
3.63 years
|
|
|
|
51.46
|
|
|
|
4,498
|
|
|
67.55
|
|
|
to
|
|
|
81.57
|
|
|
|
5,000
|
|
|
|
2.57 years
|
|
|
|
81.57
|
|
|
|
|
|
|
90.00
|
|
|
to
|
|
|
116.00
|
|
|
|
32,500
|
|
|
|
2.25 years
|
|
|
|
94.03
|
|
|
|
|
|
|
135.00
|
|
|
to
|
|
|
150.63
|
|
|
|
59,182
|
|
|
|
1.15 years
|
|
|
|
141.36
|
|
|
|
|
|
|
275.00
|
|
|
to
|
|
|
276.25
|
|
|
|
39,600
|
|
|
|
0.05 years
|
|
|
|
276.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.60
|
|
|
to
|
|
$
|
276.25
|
|
|
|
596,760
|
|
|
|
2.77 years
|
|
|
$
|
62.17
|
|
|
$
|
21,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We calculated intrinsic value for those options that had an
exercise price lower than the market price of our common shares
as of December 28, 2007. The aggregate intrinsic value of
outstanding options and exercisable options as of
December 28, 2007 was calculated as the difference between
the market price of our common shares and the exercise price of
the underlying options for the options that had an exercise
price lower than the market price of our common shares at that
date. The total intrinsic value of the options exercised during
fiscal years 2007, 2006 and 2005 was $88,828, $49,601 and $2,793
determined as of the date of exercise.
As of December 28, 2007, there was $8,626 of total
unrecognized compensation cost related to stock options. That
cost is expected to be recognized as expense over a
weighted-average period of approximately 27 months.
Restricted
Awards:
A summary of restricted share activity for fiscal years 2007,
2006 and 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Non-vested at beginning of year
|
|
|
659,262
|
|
|
$
|
11.32
|
|
|
|
2,222,362
|
|
|
$
|
4.76
|
|
|
|
2,703,678
|
|
|
$
|
4.60
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
248,940
|
|
|
$
|
21.47
|
|
|
|
34,832
|
|
|
$
|
14.65
|
|
Vested
|
|
|
(493,302
|
)
|
|
$
|
7.91
|
|
|
|
(1,807,088
|
)
|
|
$
|
4.67
|
|
|
|
(516,148
|
)
|
|
$
|
4.60
|
|
Canceled or forfeited
|
|
|
|
|
|
$
|
|
|
|
|
(4,952
|
)
|
|
$
|
4.60
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year
|
|
|
165,960
|
|
|
$
|
21.47
|
|
|
|
659,262
|
|
|
$
|
11.32
|
|
|
|
2,222,362
|
|
|
$
|
4.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
12. Share-Based
Compensation Plans
(Continued)
A summary of restricted share unit activity for fiscal years
2007, 2006 and 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28, 2007
|
|
|
December 29, 2006
|
|
|
December 30, 2005
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
Units
|
|
|
Price
|
|
|
Units
|
|
|
Price
|
|
|
Units
|
|
|
Price
|
|
|
Non-vested at beginning of year
|
|
|
868,968
|
|
|
$
|
9.30
|
|
|
|
1,157,096
|
|
|
$
|
5.09
|
|
|
|
1,099,890
|
|
|
$
|
4.70
|
|
Granted
|
|
|
82,258
|
|
|
$
|
62.94
|
|
|
|
193,412
|
|
|
$
|
25.00
|
|
|
|
57,206
|
|
|
$
|
12.58
|
|
Vested
|
|
|
(686,818
|
)
|
|
$
|
5.12
|
|
|
|
(452,674
|
)
|
|
$
|
5.48
|
|
|
|
|
|
|
$
|
|
|
Canceled or forfeited
|
|
|
(36,978
|
)
|
|
$
|
25.05
|
|
|
|
(28,866
|
)
|
|
$
|
5.62
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year
|
|
|
227,430
|
|
|
$
|
38.79
|
|
|
|
868,968
|
|
|
$
|
9.30
|
|
|
|
1,157,096
|
|
|
$
|
5.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 28, 2007, there was $9,661 of total
unrecognized compensation cost related to the restricted awards.
That cost is expected to be recognized over a weighted-average
period of approximately 27 months. The total fair value of
restricted awards vested during fiscal years 2007, 2006 and 2005
was $33,408, $47,085 and $7,309, respectively.
13. Common
Share Purchase Warrants
In connection with the equity-for-debt exchange consummated in
2004, we issued 4,152,914 Class A common share purchase
warrants and 40,771,560 Class B common share purchase
warrants. Each Class A warrant entitles its owner to
purchase 3.3682 common shares at an exercise price of $4.689 per
common share thereunder, subject to the terms of the warrant
agreement between the warrant agent and us. The Class A
warrants are exercisable on or before September 24, 2009.
Each Class B warrant entitled its owner to purchase 0.1446
common shares at an exercise price of $4.689 per common share
thereunder, subject to the terms and conditions of the warrant
agreement between the warrant agent and us. The Class B
warrants were exercisable on or before September 24, 2007.
In January 2006, we completed transactions that increased the
number of common shares to be delivered upon the exercise of our
Class A and Class B common share purchase warrants
during the offer period and raised $75,336 in net proceeds. The
exercise price per warrant was not increased in the offers.
Holders of approximately 95% of the Class A warrants and
57% of the Class B warrants participated in the offers
resulting in the aggregate issuance of approximately 16,807,000
common shares.
Cumulatively through December 28, 2007, 3,945,306
Class A warrants and 38,736,956 Class B warrants have
been exercised for 19,639,572 common shares. The number of
common shares issuable upon the exercise of the remaining
outstanding Class A warrants is approximately 699,265 as of
December 28, 2007. The remaining outstanding Class B
warrants expired on September 24, 2007.
The holders of the Class A warrants are not entitled to
vote, to receive dividends or to exercise any of the rights of
common shareholders for any purpose until such warrants have
been duly exercised. We currently maintain and intend to
continue to maintain at all times during which the warrants are
exercisable, a shelf registration statement relating
to the issuance of common shares underlying the warrants for the
benefit of the warrant holders, subject to the terms of the
registration rights agreement. The registration statement became
effective on December 28, 2005.
Also in connection with the equity-for-debt exchange consummated
in 2004, we entered into a registration rights agreement with
certain selling security holders in which we agreed to file a
registration statement to cover resales of our securities held
by them immediately following the exchange offer. We filed a
registration statement in accordance with this agreement on
October 29, 2004. The registration statement, which became
97
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
13. Common
Share Purchase
Warrants
(Continued)
effective on December 23, 2004, must remain in effect until
December 23, 2009 unless certain events occur to terminate
our obligations under the registration rights agreement prior to
that date. If we fail to maintain the registration statement as
required or it becomes unavailable for more than two
45-day
periods in any consecutive
12-month
period, we are required to pay damages at a rate of $13.7 per
day for each day that the registration statement is not
effective. As of December 28, 2007, the maximum exposure
under this provision is approximately $8,700. We have not, and
do not, expect to incur any damages under the related
registration rights agreement.
14. Accumulated
Other Comprehensive Loss
Below are the components of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Pension and Other
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Minimum
|
|
|
Postretirement
|
|
|
Net Gains on
|
|
|
|
|
|
|
Currency
|
|
|
Pension Liability
|
|
|
Benefit Plan
|
|
|
Derivatives Designated
|
|
|
|
|
|
|
Translation
|
|
|
Adjustments, Net
|
|
|
Adjustments, Net of
|
|
|
as Cash Flow Hedges,
|
|
|
Accumulated Other
|
|
|
|
Adjustments
|
|
|
of Tax
|
|
|
Tax
|
|
|
Net of Tax
|
|
|
Comprehensive Loss
|
|
|
Balance as of December 31, 2004
|
|
$
|
(51,240
|
)
|
|
$
|
(245,503
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(296,743
|
)
|
Other comprehensive income/(loss)
|
|
|
(22,928
|
)
|
|
|
4,875
|
|
|
|
|
|
|
|
|
|
|
|
(18,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 30, 2005
|
|
|
(74,168
|
)
|
|
|
(240,628
|
)
|
|
|
|
|
|
|
|
|
|
|
(314,796
|
)
|
Other comprehensive income
|
|
|
31,612
|
|
|
|
40,087
|
|
|
|
|
|
|
|
342
|
|
|
|
72,041
|
|
Adoption of SFAS No. 158
|
|
|
|
|
|
|
200,541
|
|
|
|
(301,128
|
)
|
|
|
|
|
|
|
(100,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 29, 2006
|
|
|
(42,556
|
)
|
|
|
|
|
|
|
(301,128
|
)
|
|
|
342
|
|
|
|
(343,342
|
)
|
Other comprehensive income
|
|
|
31,939
|
|
|
|
|
|
|
|
48,958
|
|
|
|
1,331
|
|
|
|
82,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 28, 2007
|
|
$
|
(10,617
|
)
|
|
$
|
|
|
|
$
|
(252,170
|
)
|
|
$
|
1,673
|
|
|
$
|
(261,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effect related to pension and other postretirement
benefit plan adjustments was a benefit of $96,117 and $108,752
as of December 28, 2007 and December 29, 2006,
respectively. The tax effect related to minimum pension
liability adjustments was a benefit of $59,062 as of
December 30, 2005. The tax effect related to gains on
derivatives designated as cash flow hedges was $635 and $203, as
of December 28, 2007 and December 29, 2006,
respectively.
The accumulated foreign currency translation adjustments are not
currently adjusted for income taxes as they relate to permanent
investments in international subsidiaries.
98
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
15. Income
Taxes
Below are the components of income/(loss) before income taxes
for fiscal years 2007, 2006 and 2005 under the following tax
jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
$
|
23,727
|
|
|
$
|
68,897
|
|
|
$
|
(229,379
|
)
|
Foreign
|
|
|
506,567
|
|
|
|
274,796
|
|
|
|
159,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
530,294
|
|
|
$
|
343,693
|
|
|
$
|
(70,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(2,831
|
)
|
|
$
|
(4,084
|
)
|
|
$
|
(5,266
|
)
|
Foreign
|
|
|
(114,938
|
)
|
|
|
(55,260
|
)
|
|
|
(28,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(117,769
|
)
|
|
|
(59,344
|
)
|
|
|
(34,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(2,248
|
)
|
|
|
(3,540
|
)
|
|
|
(2,845
|
)
|
Foreign
|
|
|
(16,403
|
)
|
|
|
(18,825
|
)
|
|
|
(2,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(18,651
|
)
|
|
|
(22,365
|
)
|
|
|
(5,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
(136,420
|
)
|
|
$
|
(81,709
|
)
|
|
$
|
(39,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
15. Income
Taxes
(Continued)
Deferred tax assets/(liabilities) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Pensions
|
|
$
|
46,484
|
|
|
$
|
86,219
|
|
Accrued costs on long-term contracts
|
|
|
22,919
|
|
|
|
27,631
|
|
Deferred income
|
|
|
25,392
|
|
|
|
22,713
|
|
Accrued expenses
|
|
|
43,546
|
|
|
|
46,364
|
|
Postretirement benefits other than pensions
|
|
|
27,318
|
|
|
|
33,807
|
|
Asbestos claims
|
|
|
32,790
|
|
|
|
43,493
|
|
Net operating loss carryforwards and other tax attributes
|
|
|
224,457
|
|
|
|
160,905
|
|
Asset impairments and other reserves
|
|
|
2,079
|
|
|
|
2,247
|
|
Other
|
|
|
5,159
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
430,144
|
|
|
|
426,301
|
|
Valuation allowance
|
|
|
(294,286
|
)
|
|
|
(282,104
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
135,858
|
|
|
|
144,197
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(27,372
|
)
|
|
|
(24,038
|
)
|
Goodwill and other intangible assets
|
|
|
(19,791
|
)
|
|
|
(15,739
|
)
|
Investments
|
|
|
(25,845
|
)
|
|
|
(18,180
|
)
|
Unremitted earnings of foreign subsidiaries
|
|
|
(8,000
|
)
|
|
|
(8,091
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(81,008
|
)
|
|
|
(66,048
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
54,850
|
|
|
$
|
78,149
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent on generating
sufficient taxable income prior to the expiration of the various
attributes. We believe that it is more likely than not that the
remaining net deferred tax assets (after consideration of the
valuation allowance) will be realized through future earnings
and/or
tax
planning strategies. The amount of the deferred tax assets
considered realizable, however, could change in the near future
if estimates of future taxable income during the carryforward
period are changed. We have reduced our domestic and certain
foreign tax benefits by a valuation allowance based upon
available evidence that it was more likely than not that some or
all of the deferred tax assets would not be realized. During
fiscal year 2007, we reversed the valuation allowance that we
had previously established for one of our foreign operating
units due to improved operational performance and positive
evidence that deferred tax assets will be realized. However,
this reduction was offset by the need to increase the valuation
allowance in the U.S. and certain other foreign
jurisdictions. As a result, the valuation allowance increased by
$12,182 in fiscal year 2007. A valuation allowance is required
under SFAS No. 109, Accounting for Income
Taxes, when there is evidence of losses from operations in
the three most recent fiscal years. For statutory purposes, the
majority of deferred tax assets for which a valuation allowance
is provided do not begin expiring until fiscal year 2024 or
later, based on the current tax laws.
Our subsidiaries file income tax returns in numerous tax
jurisdictions, including the United States, several
U.S. states and numerous
non-U.S. jurisdictions
around the world. Tax returns are also filed in jurisdictions
where our subsidiaries execute project-related work. The statute
of limitations varies by the various
100
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
15. Income
Taxes
(Continued)
jurisdictions in which we operate. Because of the number of
jurisdictions in which we file tax returns, in any given year
the statute of limitations in certain jurisdictions may expire
without examination within the
12-month
period from the balance sheet date. As a result, we expect
recurring changes in unrecognized tax benefits due to the
expiration of the statute of limitations, none of which are
expected to be individually significant. With few exceptions, we
are no longer subject to U.S. (including federal, state and
local), or
non-U.S. income
tax examinations by tax authorities for years before fiscal year
2002.
A number of tax years are under audit by the relevant state and
foreign tax authorities. We anticipate that several of these
audits may be concluded in the foreseeable future, including in
fiscal year 2008. Based on the status of these audits, it is
reasonably possible that the conclusion of the audits may result
in a reduction of unrecognized tax benefits. However, it is not
possible to estimate the impact of this change at this time.
We adopted the provisions of FIN 48 on December 30,
2006, the first day of fiscal year 2007. As a result of the
adoption of FIN 48, we recognized a $4,356 reduction in the
opening balance of our shareholders equity. This resulted
from changes in the amount of tax benefits recognized related to
uncertain tax positions and the accrual of interest and
penalties.
A reconciliation of the beginning and ending amount of our
unrecognized tax benefit is as follows:
|
|
|
|
|
Balance at beginning of year
|
|
$
|
44,786
|
|
Additions based on tax positions related to the current year
|
|
|
6,218
|
|
Additions for tax positions of prior years
|
|
|
8,910
|
|
Reductions for tax provisions for prior years
|
|
|
(1,663
|
)
|
Settlements
|
|
|
(2,744
|
)
|
Reductions for lapse of statute of limitations
|
|
|
(3,332
|
)
|
|
|
|
|
|
Balance at end of year
|
|
$
|
52,175
|
|
|
|
|
|
|
As of December 28, 2007, we had $52,175 of unrecognized tax
benefits, of which $51,763 would, if recognized, affect our
effective tax rate before existing valuation allowance
considerations.
We recognize interest accrued on the unrecognized tax benefits
in interest expense and penalties on the unrecognized tax
benefits in other deductions on our consolidated statement of
operations. We recorded $2,737 in interest expense and penalties
in fiscal year 2007. We had $24,251 accrued for the payment of
interest and penalties as of December 28, 2007.
101
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
15. Income
Taxes
(Continued)
The provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory
rate to income/(loss) before income taxes, as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax provision/(benefit) at U.S. statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
State income taxes, net of Federal income tax benefit
|
|
|
0.1
|
%
|
|
|
0.3
|
%
|
|
|
5.1
|
%
|
U.S. tax on foreign earnings
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
32.8
|
%
|
Valuation allowance
|
|
|
(1.8
|
)%
|
|
|
(3.9
|
)%
|
|
|
30.3
|
%
|
Foreign tax rates different than the statutory rate
|
|
|
(10.4
|
)%
|
|
|
(9.3
|
)%
|
|
|
(7.6
|
)%
|
Impact of changes in tax rate on deferred tax
|
|
|
1.3
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Nondeductible loss
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
|
|
30.6
|
%
|
Other
|
|
|
(0.1
|
)%
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25.7
|
%
|
|
|
23.8
|
%
|
|
|
56.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. Derivative
Financial Instruments
We maintain a foreign currency risk-management strategy that
uses foreign currency forward exchange 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. During fiscal
years 2007, 2006 and 2005, none of the contracts met the
requirements for hedge accounting under SFAS No. 133.
Accordingly, we recorded a pretax foreign exchange gain/(loss)
of $324, $7,610, and $(3,933) in fiscal years 2007, 2006 and
2005, respectively. These amounts were recorded in the following
line items on the consolidated statement of operations for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Decrease/(increase) in cost of operating revenues
|
|
$
|
465
|
|
|
$
|
7,662
|
|
|
$
|
(3,711
|
)
|
Other deductions
|
|
|
(141
|
)
|
|
|
(52
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax gain/(loss)
|
|
$
|
324
|
|
|
$
|
7,610
|
|
|
$
|
(3,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The mark-to-market adjustments on foreign currency forward
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 the
consolidated balance sheet.
In fiscal years 2007, 2006 and 2005, we included cash inflows on
the settlement of derivatives of $5,253, $2,035 and $707,
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 the
consolidated statement of cash flows.
We are exposed to credit loss in the event of non-performance by
the counterparties. All of these counterparties are significant
financial institutions that are primarily rated BBB+
or better by Standard & Poors (or the equivalent
by other recognized credit rating agencies). As of
December 28, 2007, $116,535 was owed to us by
counterparties and $157,781 was owed by us to counterparties.
102
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
16. Derivative
Financial
Instruments
(Continued)
The maximum term over which we are hedging exposure to the
variability of cash flows is approximately 42 months.
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. See Notes 1 and 7 for
further information regarding interest rate swap contracts.
17. Business
Segments
We operate through two business groups: our
Global
Engineering and Construction Group
(Global E&C
Group) and our
Global Power Group
.
Our Global E&C Group, which operates worldwide, designs,
engineers and constructs onshore and offshore upstream oil and
gas processing facilities, natural gas liquefaction facilities
and receiving terminals, gas-to-liquids facilities, oil
refining, chemical and petrochemical, pharmaceutical and
biotechnology facilities and related infrastructure, including
power generation and distribution facilities, and gasification
facilities. Our Global E&C Group provides engineering,
project management and construction management services, and
purchases equipment, materials and services from third-party
suppliers and contractors. Our Global E&C Group is also
involved in the design of facilities in new or developing market
sectors, including carbon capture and storage, solid fuel-fired
integrated gasification combined-cycle power plants,
coal-to-liquids and biofuels. Our Global E&C Group owns one
of the leading refinery residue upgrading technologies and a
hydrogen production process used in oil refineries and
petrochemical plants. Additionally, our Global E&C Group
has experience with, and is able to work with, a wide range of
processes owned by others. Our Global E&C Group performs
environmental remediation services, together with related
technical, engineering, design and regulatory services. Our
Global E&C Group is also involved in the development,
engineering, construction, ownership and operation of power
generation facilities, from conventional and renewable sources,
and of waste-to-energy facilities in Europe. Our Global E&C
Group generates revenues from engineering and construction
activities pursuant to contracts spanning up to approximately
four years in duration and from returns on its equity
investments in various production facilities.
Our Global Power Group designs, manufactures and erects steam
generating and auxiliary equipment for electric power generating
stations and industrial facilities worldwide. Our steam
generating equipment includes a full range of technologies,
offering independent power producer, utility and industrial
clients high-value technology solutions for economically
converting a wide range of fuels, including coal, petroleum
coke, oil, gas, biomass and municipal solid waste, into steam
and power. Our circulating fluidized-bed boiler technology
(CFB) is ideally suited to burning a very wide range
of fuels, including low-quality fuels, fuels with high moisture
content and waste-type fuels, and we believe is
generally recognized as one of the environmentally cleanest
solid-fuel steam generating technologies available in the world
today. For both our CFB and pulverized coal (PC)
boilers, we offer supercritical once-through-unit designs to
further improve the energy efficiency and, therefore, the
environmental performance of these units. Once-through
supercritical boilers operate at higher steam pressures than
traditional plants, which results in higher efficiencies and
lower emissions, including emissions of carbon dioxide
(CO
2
),
which is considered a greenhouse gas. Further, for the longer
term, we are actively developing oxy-combustion technology for
both our CFB and PC boilers. We believe that oxy-combustion is
one part of a practical solution for capturing and storing the
majority of the
CO
2
from coal power plants. This technology produces a concentrated
stream of
CO
2
as part of the boiler combustion process, avoiding the need for
large and expensive post-combustion
CO
2
separation equipment. We also design, manufacture and install
auxiliary equipment, which includes feedwater heaters, steam
condensers and heat-recovery equipment. Our Global Power Group
also offers a full line of new and retrofit nitrogen-oxide
(NOx) reduction systems such as selective
non-catalytic and catalytic NOx reduction systems
103
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
17. Business
Segments
(Continued)
as well as complete low-NOx combustion systems. We provide a
broad range of site services relating to these products,
including construction and erection services, maintenance
engineering, plant upgrading and life extensions. Our Global
Power Group also provides research analysis and experimental
work in fluid dynamics, heat transfer, combustion and fuel
technology, materials engineering and solid mechanics. In
addition, our Global Power Group owns and operates cogeneration,
independent power production and waste-to-energy facilities, as
well as power generation facilities for the process and
petrochemical industries. Our Global Power Group generates
revenues from engineering activities, equipment supply and
construction contracts, operating activities pursuant to the
long-term sale of project outputs, such as electricity and
steam, operating and maintenance agreements, royalties from
licensing our technology, and from returns on its equity
investments in various power production facilities.
In addition to these two business groups, which also represent
operating segments for financial reporting purposes, we report
corporate center expenses and expenses related to certain legacy
liabilities, such as asbestos, in the Corporate and Finance
Group (C&F Group), which we also treat as an
operating segment for financial reporting purposes.
We conduct our business on a global basis. Our Global E&C
Group has accounted for the largest portion of our operating
revenues over the last ten years. In fiscal year 2007, our
Global E&C Group accounted for 72% of our total operating
revenues, while our Global Power Group accounted for 28% of our
total operating revenues.
The geographic dispersion of our third-party revenues for fiscal
year 2007, based upon where the project is being executed, was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global E&C Group
|
|
|
Global Power Group
|
|
|
Total
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Third-Party
|
|
|
Third-Party
|
|
|
Third-Party
|
|
|
Third-Party
|
|
|
Third-Party
|
|
|
Third-Party
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
North America
|
|
$
|
253,952
|
|
|
|
6.9
|
%
|
|
$
|
703,342
|
|
|
|
49.3
|
%
|
|
$
|
957,294
|
|
|
|
18.7
|
%
|
South America
|
|
|
69,922
|
|
|
|
2.0
|
%
|
|
|
70,690
|
|
|
|
5.0
|
%
|
|
|
140,612
|
|
|
|
2.8
|
%
|
Europe
|
|
|
851,961
|
|
|
|
23.1
|
%
|
|
|
478,010
|
|
|
|
33.5
|
%
|
|
|
1,329,971
|
|
|
|
26.0
|
%
|
Asia
|
|
|
800,110
|
|
|
|
21.7
|
%
|
|
|
163,896
|
|
|
|
11.5
|
%
|
|
|
964,006
|
|
|
|
18.9
|
%
|
Middle East
|
|
|
1,001,193
|
|
|
|
27.2
|
%
|
|
|
5,094
|
|
|
|
0.4
|
%
|
|
|
1,006,287
|
|
|
|
19.7
|
%
|
Other
|
|
|
704,121
|
|
|
|
19.1
|
%
|
|
|
4,952
|
|
|
|
0.3
|
%
|
|
|
709,073
|
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,681,259
|
|
|
|
100.0
|
%
|
|
$
|
1,425,984
|
|
|
|
100.0
|
%
|
|
$
|
5,107,243
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We use several financial metrics to measure the performance of
our business segments. In addition to the other metrics included
on our consolidated financial statements, EBITDA is the primary
earnings measure used by our chief operating decision maker.
Except for one client that accounted for approximately 12% and
13% of our consolidated revenues (inclusive of flow-through
revenues) in fiscal years 2007 and 2006, respectively, no other
single client accounted for ten percent or more of our
consolidated revenues in fiscal years 2007, 2006 or 2005.
104
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
17. Business
Segments
(Continued)
Identifiable assets by group are those assets that are directly
related to and support the operations of each group. Corporate
assets are principally cash, investments, real estate and
insurance receivables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
C&F
|
|
|
|
Total
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Group(1)
|
|
|
For the Year Ended December 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues
|
|
$
|
5,107,243
|
|
|
$
|
3,681,259
|
|
|
$
|
1,425,984
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
591,840
|
|
|
$
|
505,647
|
|
|
$
|
139,177
|
|
|
$
|
(52,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(19,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(41,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
530,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(136,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
393,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,248,988
|
|
|
$
|
1,799,231
|
|
|
$
|
1,243,696
|
|
|
$
|
206,061
|
|
Capital expenditures
|
|
$
|
51,295
|
|
|
$
|
42,965
|
|
|
$
|
8,055
|
|
|
$
|
275
|
|
For the Year Ended December 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues
|
|
$
|
3,495,048
|
|
|
$
|
2,219,104
|
|
|
$
|
1,275,944
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
$
|
399,514
|
|
|
$
|
323,297
|
|
|
$
|
95,039
|
|
|
$
|
(18,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(24,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(30,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
343,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(81,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
261,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,565,549
|
|
|
$
|
1,397,428
|
|
|
$
|
980,756
|
|
|
$
|
187,365
|
|
Capital expenditures
|
|
$
|
30,293
|
|
|
$
|
22,784
|
|
|
$
|
7,464
|
|
|
$
|
45
|
|
For the Year Ended December 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues
|
|
$
|
2,199,955
|
|
|
$
|
1,471,948
|
|
|
$
|
728,024
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(4)
|
|
$
|
8,652
|
|
|
$
|
165,629
|
|
|
$
|
107,266
|
|
|
$
|
(264,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
(50,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
(28,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(70,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(39,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(109,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
10,809
|
|
|
$
|
6,856
|
|
|
$
|
3,642
|
|
|
$
|
311
|
|
|
|
|
(1)
|
|
Includes general corporate income and expense, our captive
insurance operation and eliminations.
|
|
(2)
|
|
Includes in fiscal year 2007: increased/(decreased) contract
profit of $35,150 from the regular re-evaluation of contract
profit estimates: $54,520 in our Global E&C Group and
$(19,370) in our Global Power Group;
|
105
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
17. Business
Segments
(Continued)
|
|
|
|
|
a charge of $(7,374) in our C&F Group reflecting the
revaluation of our asbestos liability and related asset
resulting primarily from increased asbestos defense costs
projected through year-end 2022 and for the addition of another
year to our rolling
15-year
asbestos liability estimate; and gains of $13,519 on the
settlement of coverage litigation with certain asbestos
insurance carriers recorded in our C&F Group.
|
|
(3)
|
|
Includes in fiscal year 2006: increased/(decreased) contract
profit of $(5,670) from the regular re-evaluation of contract
profit estimates: $14,720 in our Global E&C Group and
$(20,390) in our Global Power Group; a charge of $(15,533) in
our C&F Group reflecting the revaluation of our asbestos
liability and related asset; net asbestos-related gains of
$115,664 recorded in our C&F Group primarily from
settlement of coverage litigation with certain asbestos
insurance carriers; an aggregate charge of $(14,955) recorded in
our C&F Group in conjunction with the voluntary termination
of our prior domestic senior credit agreement; and a net charge
of $(12,483) recorded in our C&F Group in conjunction with
the debt reduction initiatives completed in April and May 2006.
|
|
(4)
|
|
Includes in fiscal year 2005: increased contract profit of
$99,555 from the regular re-evaluation of contract profit
estimates: $66,274 in our Global E&C Group and $33,281 in
our Global Power Group; a charge of $(113,680) in our C&F
Group on the revaluation of our estimated asbestos liability and
asbestos insurance receivable; credit agreement costs in our
C&F Group associated with the prior senior credit facility
of $(3,500); and an aggregate charge of $(58,346) in our
C&F Group recorded in conjunction with the exchange offers
for the trust preferred securities and the 2011 senior notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
Equity in Earnings of Unconsolidated Subsidiaries:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Global E&C Group
|
|
$
|
19,720
|
|
|
$
|
19,056
|
|
|
$
|
24,527
|
|
Global Power Group
|
|
|
17,579
|
|
|
|
10,551
|
|
|
|
5,409
|
|
C&F Group
|
|
|
|
|
|
|
(328
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,299
|
|
|
$
|
29,279
|
|
|
$
|
29,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
Investments In and Advances to Unconsolidated
Subsidiaries:
|
|
2007
|
|
|
2006
|
|
|
Global E&C Group
|
|
$
|
130,240
|
|
|
$
|
105,773
|
|
Global Power Group
|
|
|
68,092
|
|
|
|
61,405
|
|
C&F Group
|
|
|
14
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
198,346
|
|
|
$
|
167,186
|
|
|
|
|
|
|
|
|
|
|
106
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
17. Business
Segments
(Continued)
Third-party revenues as presented below are based on the
geographic region in which the contracting subsidiary is located
and not the location of the client or job site.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
Geographic Concentration of Third-Party Revenues:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
$
|
1,091,584
|
|
|
$
|
931,701
|
|
|
$
|
451,532
|
|
Europe
|
|
|
3,412,606
|
|
|
|
2,286,205
|
|
|
|
1,557,965
|
|
Canada
|
|
|
21,220
|
|
|
|
11,588
|
|
|
|
13,508
|
|
Asia
|
|
|
568,164
|
|
|
|
253,457
|
|
|
|
164,705
|
|
South America
|
|
|
13,669
|
|
|
|
12,097
|
|
|
|
12,262
|
|
Other, net of eliminations
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,107,243
|
|
|
$
|
3,495,048
|
|
|
$
|
2,199,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets as presented below are based on the geographic
region in which the contracting subsidiary is located.
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
Long-Lived Assets:
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
213,901
|
|
|
$
|
225,373
|
|
Europe
|
|
|
306,631
|
|
|
|
235,781
|
|
Canada
|
|
|
25
|
|
|
|
433
|
|
Asia
|
|
|
30,945
|
|
|
|
28,141
|
|
South America
|
|
|
66,673
|
|
|
|
60,242
|
|
Other, net of eliminations
|
|
|
32,191
|
|
|
|
33,281
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
650,366
|
|
|
$
|
583,251
|
|
|
|
|
|
|
|
|
|
|
Third-party revenues by industry were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
Third-Party Revenues by Industry:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Power generation
|
|
$
|
1,437,078
|
|
|
$
|
1,326,896
|
|
|
$
|
915,786
|
|
Oil refining
|
|
|
1,431,810
|
|
|
|
716,053
|
|
|
|
444,830
|
|
Pharmaceutical
|
|
|
155,266
|
|
|
|
128,510
|
|
|
|
149,867
|
|
Oil and gas
|
|
|
898,623
|
|
|
|
680,041
|
|
|
|
327,058
|
|
Chemical/petrochemical
|
|
|
1,003,136
|
|
|
|
383,092
|
|
|
|
228,971
|
|
Power plant operation and maintenance
|
|
|
120,474
|
|
|
|
111,154
|
|
|
|
116,303
|
|
Environmental
|
|
|
54,878
|
|
|
|
68,847
|
|
|
|
43,346
|
|
Other, net of eliminations
|
|
|
5,978
|
|
|
|
80,455
|
|
|
|
(26,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,107,243
|
|
|
$
|
3,495,048
|
|
|
$
|
2,199,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. Operating
Leases
Certain of our subsidiaries are obligated under operating lease
agreements, primarily for office space. In many instances, our
subsidiaries retain the right to sub-lease the office space.
Rental expense for these leases
107
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
18. Operating
Leases
(Continued)
was $54,293, $37,634 and $32,601 in fiscal years 2007, 2006 and
2005, respectively. Future minimum rental commitments on
non-cancelable leases are as follows:
|
|
|
|
|
Fiscal year:
|
|
|
|
|
2008
|
|
$
|
52,802
|
|
2009
|
|
|
44,701
|
|
2010
|
|
|
40,591
|
|
2011
|
|
|
35,810
|
|
2012
|
|
|
30,824
|
|
Thereafter
|
|
|
229,093
|
|
|
|
|
|
|
Total
|
|
$
|
433,821
|
|
|
|
|
|
|
We entered into sale/leaseback transactions for an office
building in Spain in 2000 and an office building in the United
Kingdom in 1999. In connection with these transactions, we
recorded deferred gains, which are being amortized to income
over the term of the respective leases. The amortization was
$4,602, $4,168 and $4,124 for fiscal years 2007, 2006 and 2005,
respectively. As of December 28, 2007 and December 29,
2006, the balance of the deferred gains was $66,226 and $68,331,
respectively, and is included in other long-term liabilities on
the consolidated balance sheet. The year-over-year change in the
deferred gain balance includes the impact of changes in foreign
currency exchange rates.
19. Litigation
and Uncertainties
Asbestos
Some of our U.S. and U.K. subsidiaries are defendants in
numerous asbestos-related lawsuits and out-of-court informal
claims pending in the United States and the United Kingdom.
Plaintiffs claim damages for personal injury alleged to have
arisen from exposure to or use of asbestos in connection with
work allegedly performed by our subsidiaries during the 1970s
and earlier.
United
States
A summary of our U.S. claim activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Claims
|
|
|
|
For the Year Ended
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Open claims at beginning of year
|
|
|
135,890
|
|
|
|
164,820
|
|
|
|
167,760
|
|
New claims
|
|
|
5,140
|
|
|
|
8,250
|
|
|
|
14,340
|
|
Claims resolved(1)
|
|
|
(9,690
|
)
|
|
|
(37,180
|
)
|
|
|
(17,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open claims at end of year
|
|
|
131,340
|
|
|
|
135,890
|
|
|
|
164,820
|
|
Claims not valued in the liability(2)
|
|
|
(66,040
|
)
|
|
|
(47,820
|
)
|
|
|
(62,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open claims valued in the liability at end of year
|
|
|
65,300
|
|
|
|
88,070
|
|
|
|
102,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Claims resolved in fiscal year 2006
include court dismissals without payment of mass claim filings
approximating 22,900 claims.
|
|
(2)
|
|
Claims not valued in the liability
include claims on certain inactive court dockets, claims over
six years old that are considered abandoned and certain other
items.
|
108
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
Of the approximately 131,000 open claims, our subsidiaries are
respondents in approximately 31,000 open claims wherein we have
administrative agreements and are named defendants in lawsuits
involving approximately 100,000 plaintiffs.
All of the open administrative claims have been filed under
blanket administrative agreements that we have with various law
firms representing claimants and do not specify monetary damages
sought. Based on our analysis of lawsuits, approximately 65% do
not specify the monetary damages sought or merely recite that
the amount of monetary damages sought meets or exceeds the
required jurisdictional minimum in the jurisdiction in which
suit is filed. Approximately 11% request damages ranging from
$10 to $50; approximately 11% request damages ranging from $51
to $1,000; approximately 10% request damages ranging from $1,001
to $10,000; and the remaining 3% request damages ranging from
$10,001 to, in a very small number of cases, $50,000.
The majority of requests for monetary damages are asserted
against multiple named defendants in a single complaint.
We had the following U.S. asbestos-related assets and
liabilities recorded on our consolidated balance sheet as of the
dates set forth below. Total U.S. asbestos-related
liabilities are estimated through year-end 2022. Although it is
likely that claims will continue to be filed after that date,
the uncertainties inherent in any long-term forecast prevent us
from making reliable estimates of the indemnity and defense
costs that might be incurred after that date.
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Asbestos-related assets recorded within:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable-other
|
|
$
|
47,100
|
|
|
$
|
47,000
|
|
Asbestos-related insurance recovery receivable
|
|
|
279,100
|
|
|
|
316,700
|
|
|
|
|
|
|
|
|
|
|
Total asbestos-related assets
|
|
$
|
326,200
|
|
|
$
|
363,700
|
|
|
|
|
|
|
|
|
|
|
Asbestos-related liabilities recorded within:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
72,000
|
|
|
$
|
75,000
|
|
Asbestos-related liability
|
|
|
331,300
|
|
|
|
391,000
|
|
|
|
|
|
|
|
|
|
|
Total asbestos-related liabilities
|
|
$
|
403,300
|
|
|
$
|
466,000
|
|
|
|
|
|
|
|
|
|
|
Since year-end 2004, we have worked with Analysis Research
Planning Corporation (ARPC), nationally recognized
consultants in projecting asbestos liabilities, to estimate the
amount of asbestos-related indemnity and defense costs at
year-end for the next 15 years. Based on its review of
fiscal year 2007 activity, ARPC recommended that the assumptions
used to estimate our future asbestos liability be updated as of
year-end 2007. Accordingly, we developed a revised estimate of
our aggregate indemnity and defense costs through year-end 2022
considering the advice of ARPC. In the fourth quarter of 2007,
we increased our liability for asbestos indemnity and defense
costs through year-end 2022 to $403,300, which brought our
liability to a level consistent with ARPCs reasonable best
estimate. In connection with updating our estimated asbestos
liability and related asset, we recorded a charge of $7,400 in
the fourth quarter of 2007.
The amount paid on asbestos litigation, defense, and case
resolution was $86,700, $83,300 and $83,800 in fiscal years
2007, 2006 and 2005, respectively. Through December 28,
2007, total cumulative indemnity costs paid were approximately
$625,300 and total cumulative defense costs paid were
approximately $248,400.
109
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
As of December 28, 2007, total asbestos-related liabilities
were comprised of an estimated liability of $165,100 relating to
open (outstanding) claims being valued and an estimated
liability of $238,200 relating to future unasserted claims
through year-end 2022.
Our liability estimate is based upon the following information
and/or
assumptions: number of open claims, forecasted number of future
claims, estimated average cost per claim by disease
type mesothelioma, lung cancer and
non-malignancies and the breakdown of known and
future claims into disease type mesothelioma, lung
cancer or non-malignancies. The total estimated liability, which
has not been discounted for the time value of money, includes
both the estimate of forecasted indemnity amounts and forecasted
defense costs. Total defense costs and indemnity liability
payments are estimated to be incurred through year-end 2022,
during which period the incidence of new claims is forecasted to
decrease each year. We believe that it is likely that there will
be new claims filed after 2022, but in light of uncertainties
inherent in long-term forecasts, we do not believe that we can
reasonably estimate the indemnity and defense costs that might
be incurred after 2022. Historically, defense costs have
represented approximately 28% of total defense and indemnity
costs.
The overall historic average combined indemnity and defense cost
per resolved claim through December 28, 2007 has been
approximately $2.6. The average cost per resolved claim is
increasing and we believe will continue to increase in the
future.
The asbestos-related asset recorded within accounts and notes
receivable-other as of December 28, 2007 reflects amounts
due in the next 12 months under executed settlement
agreements with insurers and does not include any estimate for
future settlements. The recorded asbestos-related insurance
recovery receivable includes an estimate of recoveries from
insurers in the unsettled insurance coverage litigation referred
to below based upon the application of New Jersey law to certain
insurance coverage issues and assumptions relating to cost
allocation and other factors as well as an estimate of the
amount of recoveries under existing settlements with other
insurers. Such amounts have not been discounted for the time
value of money.
Since year-end 2005, we have worked with Peterson Risk
Consulting, nationally recognized experts in the estimation of
insurance recoveries, to review our estimate of the value of the
settled insurance asset and assist in the estimation of our
unsettled asbestos insurance asset. Based on insurance policy
data, historical claim data, future liability estimates
including the expected timing of payments and allocation
methodology assumptions we provided them, Peterson Risk
Consulting provided an analysis of the unsettled insurance asset
as of December 28, 2007. We utilized that analysis to
determine our estimate of the value of the unsettled insurance
asset as of December 28, 2007.
As of December 28, 2007, we estimated the value of our
unsettled asbestos insurance asset related to ongoing litigation
in New York state court with our subsidiaries insurers at
$27,600. The litigation relates to the amounts of insurance
coverage available for asbestos-related claims and the proper
allocation of the coverage among our subsidiaries various
insurers and our subsidiaries as self-insurers. We believe that
any amounts that our subsidiaries might be allocated as
self-insurer would be immaterial.
An adverse outcome in the pending insurance litigation described
above could limit our remaining insurance recoveries and result
in a reduction in our insurance asset. However, a favorable
outcome in all or part of the litigation could increase
remaining insurance recoveries above our current estimate. If we
prevail in whole or in part in the litigation, we will re-value
our asset relating to remaining available insurance recoveries
based on the asbestos liability estimated at that time.
Over the last several years, certain of our subsidiaries have
entered into settlement agreements calling for insurers to make
lump-sum payments, as well as payments over time, for use by our
subsidiaries to fund asbestos-related indemnity and defense
costs and, in certain cases, for reimbursement for portions of
out-of-pocket costs previously incurred. In fiscal year 2006,
our subsidiaries reached agreements to settle their
110
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
disputed asbestos-related insurance coverage with four of their
insurers. Primarily as a result of these insurance settlements,
we increased our asbestos-related insurance asset and recorded a
gain of $96,200 in fiscal year 2006.
In fiscal year 2007, our subsidiaries reached an agreement to
settle their disputed asbestos-related insurance coverage with
four additional insurers, including two in the fourth quarter.
As a result of these settlements, we increased our
asbestos-related insurance asset and recorded a gain of $4,900
in the fourth quarter and $13,500 in fiscal year 2007.
We intend to continue to attempt to negotiate additional
settlements with insurers where achievable on a reasonable basis
in order to minimize the amount of future costs that we would be
required to fund out of the cash flows generated from our
operations. Unless we settle with the remaining insurers at
recovery amounts significantly in excess of our current
estimate, it is likely that the amount of our insurance
settlements will not cover all future asbestos-related costs and
we will be required to fund a portion of such future costs,
which will reduce our cash flows and working capital.
Also in fiscal year 2006, we were successful in our appeal of a
New York state trial court decision that previously had held
that New York, rather than New Jersey, law applies in the above
coverage litigation with our subsidiaries insurers, and as
a result, we increased our insurance asset and recorded a gain
of $19,500. On February 13, 2007, our subsidiaries
insurers were granted permission by the appellate court to
appeal the decision to the New York Court of Appeals, the
states highest court. On October 11, 2007, the New
York Court of Appeals upheld the appellate court decision in our
favor.
Even if the coverage litigation is resolved in a manner
favorable to us, our insurance recoveries (both from the
litigation and from settlements) may be limited by insolvencies
among our insurers. We have not assumed recovery in the estimate
of our asbestos insurance asset from any of our currently
insolvent insurers. Other insurers may become insolvent in the
future and our insurers may fail to reimburse amounts owed to us
on a timely basis. Failure to realize the expected insurance
recoveries, or delays in receiving material amounts from our
insurers could have a material adverse effect on our financial
condition and our cash flows.
Based on the year-end 2007 liability estimate, an increase of
25% in the average per claim indemnity settlement amount would
increase the liability by $70,400 and the impact on expense
would be dependent upon available additional insurance
recoveries. Assuming no change to the assumptions currently used
to estimate our insurance asset, this increase would result in a
charge in the statement of operations in the range of
approximately 70% to 80% of the increase in the liability.
Long-term cash flows would ultimately change by the same amount.
Should there be an increase in the estimated liability in excess
of this 25%, the percentage of that increase that would be
expected to be funded by additional insurance recoveries will
decline.
We funded $19,000 of the asbestos liability indemnity payments
and defense costs from our cash flows in fiscal year 2007, net
of the cash received from insurance settlements. We expect to
fund a total of $25,000 of the asbestos liability indemnity and
defense costs from our cash flows in fiscal year 2008, net of
the cash expected to be received from existing insurance
settlements. As we continue to collect cash from insurance
settlements and assuming no increase in our asbestos-related
insurance liability or any future insurance settlements, the
asbestos-related insurance receivable recorded on our
consolidated balance sheet will continue to decrease.
The estimate of the liabilities and assets related to asbestos
claims and recoveries is subject to a number of uncertainties
that may result in significant changes in the current estimates.
Among these are uncertainties as to the ultimate number and type
of claims filed, the amounts of claim costs, the impact of
bankruptcies of other companies with asbestos claims,
uncertainties surrounding the litigation process from
jurisdiction to jurisdiction and from case to case, as well as
potential legislative changes. Increases in the number of claims
111
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
filed or costs to resolve those claims could cause us to
increase further the estimates of the costs associated with
asbestos claims and could have a material adverse effect on our
financial condition, results of operations and cash flows.
United
Kingdom
Some of our subsidiaries in the United Kingdom have also
received claims alleging personal injury arising from exposure
to asbestos. To date, 866 claims have been brought against our
U.K. subsidiaries of which 342 remained open as of
December 28, 2007. None of the settled claims has resulted
in material costs to us.
As of December 28, 2007, we had recorded total liabilities
of $48,500 comprised of an estimated liability relating to open
(outstanding) claims of $9,000 and an estimated liability
relating to future unasserted claims through year-end 2022 of
$39,500. Of the total, $3,000 was recorded in accrued expenses
and $45,500 was recorded in asbestos-related liability on the
consolidated balance sheet. An asset in an equal amount was
recorded for the expected U.K. asbestos-related insurance
recoveries, of which $3,000 was recorded in accounts and notes
receivable-other and $45,500 was recorded as asbestos-related
insurance recovery receivable on the consolidated balance sheet.
The liability estimates are based on a U.K. House of Lords
judgment that pleural plaque claims do not amount to a
compensable injury and accordingly, we have reduced our
liability assessment. Should this ruling be reversed by
legislation, the asbestos liability and related asset recorded
in the U.K. would be approximately $66,100.
Project
Claims
In the ordinary course of business, we are parties to litigation
involving clients and subcontractors arising out of project
contracts. Such litigation includes claims and counterclaims by
and against us for canceled contracts, for additional costs
incurred in excess of current contract provisions, as well as
for back charges for alleged breaches of warranty and other
contract commitments. If we were found to be liable for any of
the claims/counterclaims against us, we would incur a charge
against earnings to the extent a reserve had not been
established for the matter in our accounts or if the liability
exceeds established reserves.
Compact
CFB Boiler Arbitration Asia
Arbitration was commenced against us in March 2004 arising out
of a compact CFB boiler that we engineered, supplied and erected
for a client in Asia. In addition to claims for damages for
breach of contract, the client was seeking to rescind the
contract based upon alleged material misrepresentations by us.
If such relief had been granted, we could have been compelled to
reimburse the client for the purchase price paid ($25,700), in
addition to other unquantified damages. We vigorously defended
the case and counterclaimed for unpaid receivables ($5,200),
plus interest, for various breaches and non-performance by the
client. Due to its age and the ongoing dispute, a reserve for
the full amount of the receivable had previously been taken.
Procedurally, the liability and damages portions of the case
were separated. The hearing on the liability portion concluded
in June 2006 and a decision on the liability portion was
rendered in May 2007. The clients claim for rescission was
denied and we were awarded our unpaid receivable, plus interest.
We were also awarded delay damages, arbitration costs and
counsel fees, subject to proof of the amounts during the damages
phase of the arbitration. Discussions with the client ensued
following the award and as a result of an agreement reached in
September 2007, we re-established the receivable and recognized
the award for delay damages, arbitration costs and counsel fees
in our fiscal year 2007 results. All amounts due under the
agreement were collected in October 2007.
112
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
Thermal
Electric Power Plant Arbitration South
America
Arbitration was also commenced against us in July 2005 with
respect to a thermal electric power plant in South America that
we designed, supplied and erected as a member of a consortium
with other parties. The plants concrete foundations
experienced cracking, allegedly due to out-of-specification
materials used in the concrete poured by the consortiums
subcontractor. The client had adopted an extensive plan to
repair the foundations and was seeking reimbursement of its
repair costs ($9,500). Alleging that this extensive repair
effort was in the nature of emergency mitigation only, the
client was also claiming its estimated cost to totally demolish
and reconstruct the foundations at some point in the future
($14,300) plus lost profits during this demolition and
reconstruction period ($9,400). The arbitration hearing has
concluded and the arbitrator has dismissed the clients
claims against us. The arbitrators favorable decision has
been confirmed in civil court.
Power
Plant Arbitration Eastern Europe
In June 2006, we commenced arbitration against a client seeking
final payment for our services in connection with two power
plants that we designed and built in Eastern Europe. The dispute
primarily concerns whether we are liable to the client for
liquidated damages (LDs) under the contract for
delayed completion of the projects. The client contends that it
is owed LDs, limited under the contract at approximately
37,600 (approximately $55,400 at the exchange rate in
effect as of December 28, 2007), and is retaining as
security for these LDs approximately 22,000 (approximately
$32,400 at the exchange rate in effect as of December 28,
2007) in contract payments otherwise due to us for work
performed. The client contends that it is owed an additional
6,900 (approximately $10,200 at the exchange rate in
effect as of December 28, 2007) for the cost of
consumable materials it had to incur due to the extended
commissioning period on both projects, the cost to relocate a
piece of equipment on one of the projects and the cost of
various warranty repairs and punch list work. We are seeking
payment of the 22,000 (approximately $32,400 at the
exchange rate in effect as of December 28, 2007 and which
is recorded within contracts in process on the consolidated
balance sheet) in retention that is being held by the client for
LDs, plus approximately 4,900 (approximately $7,200 at the
exchange rate in effect as of December 28, 2007) in
interest on the retained funds, as well as approximately
9,100 (approximately $13,400 at the exchange rate in
effect as of December 28, 2007) in additional
compensation for extra work performed beyond the original scope
of the contracts and the clients failure to procure the
required property insurance for the project, which should have
provided coverage for some of the damages we incurred on the
project related to turbine repairs. The arbitration hearing on
liability is currently underway. Accordingly, it is premature to
predict the outcome of this matter.
Power
Plant Dispute Ireland
In 2006, a dispute arose with a client because of material
corrosion that is occurring at two power plants we designed and
built in Ireland, which began operation in December 2005 and
June 2006. The boilers at both plants are designed to burn
milled peat as the primary fuel, supplied from different local
sources. The peat being supplied is out of the range specified
by our contract and, while the matter is still under
investigation, we believe this variation from the agreed
specifications is the cause of alkali halides corrosion that is
affecting the boiler tubes. We have identified a technical
solution to ameliorate the boiler tube corrosion, and the client
is in the process of evaluating the proposed solution for the
boiler tube corrosion. Disavowing responsibility for the fuel
specification, the client has refused to pay for the cost of the
corrective work and has reserved its rights against us under the
contract, which could include repairing or rejecting the plants
and recovering consequential damages in the event we are
determined to be grossly negligent. We have advised the client
that we are not responsible for the cost of corrective work to
address corrosion resulting from out-of-specification fuel and
we anticipate having discussions with the client in the near
future regarding our claim.
113
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
There is also corrosion occurring to subcontractor-provided
emissions control equipment and induction fans at the back-end
of the power plants. The cause of this back-end corrosion, which
we discovered during the second quarter of 2007 to be more
extensive than previously assessed, is under investigation.
Based upon the information gathered to date, we believe the
corrosion is due principally to the low set point temperature
design of the emissions control equipment that was set by our
subcontractor. If this proves to be the case, we believe the
subcontractor would be responsible for the cost to remedy this
problem under our agreement with them, although we may have
direct responsibility for this cost to the client under our
agreement with them. To date, the subcontractor has denied
responsibility for the corrosion, contending it is the result of
out-of-specification fuel supplied by the client. We have
reserved our rights against the client if this proves to be the
case. To the extent that we incur costs for correcting this
problem, we intend to pursue claims against our subcontractor
and/or
our
client, depending upon the cause of the corrosion. Due to the
potential magnitude of the amounts involved, there can be no
assurance that we will collect amounts for which our
subcontractor may be determined to be liable. From a plant
rejection standpoint, we do not believe that the back-end
corrective work will materially impact our availability guaranty
to the client described below.
The contract for these plants contains an availability guaranty
requiring the plants to meet specified energy generation levels
over a three year period. The availability guaranty is expressly
conditioned upon the use of the contract-specified fuel. The
availability guaranty provides for liquidated damages which
could reach the contract cap for liquidated damages of
17,500 (approximately $25,800 at the exchange rate in
effect as of December 28, 2007). In addition to liquidated
damages, in the event that availability of either of the plants
as an average of the best two out of the first three years of
operation is 80% or below, the client may be entitled to certain
remedies, the most significant of which would be the right to
reject both plants and seek reimbursement of the 351,000
contract price paid for the plants (approximately $516,800 at
the exchange rate in effect as of December 28,
2007) plus restoration costs at the sites. The client has
alleged that at least one of the plants has failed to meet the
availability guaranty which we have disputed. We have advised
the client that we do not believe we are responsible under our
availability guaranty (which is expressly subject to the
clients provision of specified fuel).
In the event that the parties are not able to resolve the
dispute, the contract provides for arbitration conducted under
The Institution of Engineers of Ireland Arbitration Procedure.
In such a proceeding, damages that the client may seek could
include, but may not be limited to, the cost to correct the
corrosion in the boiler tubes and emissions control equipment,
liquidated damages under the availability guaranty,
consequential damages, including but not limited to lost
profits, in the event gross negligence is proven and, in the
event of rejection, the total amount paid in respect of the
plants, under the contract or otherwise, plus the cost to
dismantle the plants. As such, the costs claimed could exceed
the above-stated contract price paid for the plants and
liquidated damages. We would vigorously oppose such claims in
any such arbitration.
We have completed the necessary corrective actions for certain
defects in the conveyor equipment at the plants. While we
believe that the subcontractor that provided the equipment is
responsible for the defects, our investigation is continuing.
During the fourth quarter of 2006, we established a contingency
of $25,000 in relation to this project. Primarily as a result of
the second quarter of 2007 discovery of the more extensive
back-end corrosion, the contingency was increased by $30,000
during the second quarter of 2007.
The performance of our subsidiary executing the foregoing
contract in Ireland is guaranteed by Foster Wheeler Ltd. In
addition, there are 16,700 (approximately $24,600 at the
exchange rate in effect as of December 28, 2007) of
outstanding retention bonds that have been issued in favor of
the client.
Due to the inherent commercial, legal and technical
uncertainties underlying the estimation of all of the project
claims described above, the amounts ultimately realized or paid
by us could differ materially from the
114
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
balances, if any, included in our financial statements, which
could result in additional material charges against earnings,
and which could also materially adversely impact our financial
condition and cash flows.
Camden
County Waste-to-Energy Project
One of our project subsidiaries, Camden County Energy Recovery
Associates, LP (CCERA) owns and operates a
waste-to-energy facility in Camden County, New Jersey (the
Project). The Pollution Control Finance Authority of
Camden County (PCFA) issued bonds to finance the
construction of the Project and to acquire a landfill for Camden
Countys use. Pursuant to a loan agreement between the PCFA
and CCERA, proceeds from the bonds were loaned by the PCFA to
CCERA and used by CCERA to finance the construction of the
facility. Accordingly, the proceeds of this loan were recorded
as debt on CCERAs balance sheet and, therefore, are
included in our consolidated balance sheet. CCERAs
obligation to service the debt incurred pursuant to the loan
agreement is limited to depositing all tipping fees and electric
revenues received with the trustee of the PCFA bonds. The
trustee is required to pay CCERA its service fees prior to
servicing the PCFA bonds. CCERA has no other debt repayment
obligations under the loan agreement with the PCFA.
In 1997, the United States Supreme Court effectively invalidated
New Jerseys long-standing municipal solid waste flow rules
and regulations, eliminating the guaranteed supply of municipal
solid waste to the Project with its corresponding tipping fee
revenue. As a result, tipping fees have been reduced to market
rate in order to provide a steady supply of fuel to the Project.
Since the ruling, those market-based revenues have not been, and
are not expected to be, sufficient to service the debt on
outstanding bonds issued by the PCFA to finance the construction
of the Project.
In 1998, CCERA filed suit against the PCFA and other parties
seeking, among other things, to void the applicable contracts
and agreements governing the Project (Camden County Energy
Recovery Assoc. v. N.J. Department of Environmental
Protection, et al., Superior Court of New Jersey, Mercer County,
L-268-98). Since 1999, the State of New Jersey has provided
subsidies sufficient to ensure the payment of each of the
PCFAs debt service payments as they became due. The bonds
outstanding in connection with the Project were issued by the
PCFA, not by us or CCERA, and the bonds are not guaranteed by
either us or CCERA. In the litigation, the defendants have
asserted, among other things, that an equitable portion of the
outstanding debt on the Project should be allocated to CCERA
even though CCERA did not guarantee the bonds.
At this time, we cannot determine the ultimate outcome of the
foregoing and the potential effects on CCERA and the Project. If
the State of New Jersey were to fail to subsidize the debt
service, and there were to be a default on a debt service
payment, the bondholders might proceed to attempt to exercise
their remedies, by among other things, seizing the collateral
securing the bonds. We do not believe this collateral includes
CCERAs plant.
Environmental
Matters
CERCLA
and Other Remedial Matters
Under U.S. federal statutes, such as the Resource
Conservation and Recovery Act, Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(CERCLA), the Clean Water Act and the Clean Air Act,
and similar state laws, the current owner or operator of real
property and the past owners or operators of real property (if
disposal of toxic or hazardous substances 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,
115
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
which we refer to as an off-site facility. Liability at such
off-site facilities is typically allocated among all of the
financially 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.
We currently own and operate industrial facilities and we have
also transferred our interests in industrial facilities that we
formerly owned or operated. It is likely that as a result of our
current or former operations, hazardous substances have affected
the facilities or the real property on which they are or were
situated. We also have received and may continue to receive
claims pursuant to indemnity obligations from the present owners
of facilities we have transferred, which claims may require us
to incur costs for investigation
and/or
remediation.
We are currently engaged in the investigation
and/or
remediation under the supervision of the applicable regulatory
authorities at four of our or our subsidiaries former
facilities. In addition, we sometimes engage in investigation
and/or
remediation without the supervision of a regulatory authority.
Although we do not expect the environmental conditions at our
present or former facilities to cause us to incur material costs
in excess of those for which reserves have been established, it
is possible that various events could cause us to incur costs
materially in excess of our present reserves in order to fully
resolve any issues surrounding those conditions. Further, no
assurance can be provided that we will not discover additional
environmental conditions at our currently or formerly owned or
operated properties, or that additional claims will not be made
with respect to formerly owned properties, requiring us to incur
material expenditures to investigate
and/or
remediate such conditions.
We have been notified that we are a potentially responsible
party (PRP) under CERCLA or similar state laws at
three off-site facilities. At each of these sites, our liability
should be substantially less than the total site remediation
costs because the percentage of waste attributable to us
compared to that attributable to all other PRPs is low. We do
not believe that our share of cleanup obligations at any of the
off-site facilities as to which we have received a notice of
potential liability will exceed $500 in the aggregate. We have
also received and responded to a request for information from
the United States Environmental Protection Agency
(USEPA) regarding a fourth off-site facility. We do
not know what, if any, further actions USEPA may take regarding
this fourth off-site facility.
Mountain
Top
In February 1988, one of our subsidiaries, Foster Wheeler Energy
Corporation (FWEC), entered into a Consent Agreement
and Order with the USEPA and the Pennsylvania Department of
Environmental Protection (PADEP) regarding its
former manufacturing facility in Mountain Top, Pennsylvania. The
order essentially required FWEC to investigate and remediate as
necessary contaminants, including trichloroethylene
(TCE), in the soil and groundwater at the facility.
Pursuant to the order, in 1993 FWEC installed a pump and
treat system to remove TCE from the groundwater. It is not
possible at the present time to predict how long FWEC will be
required to operate and maintain this system.
In the fall of 2004, FWEC sampled the private domestic water
supply wells of certain residences in Mountain Top and
identified approximately 30 residences whose water supply
contained TCE at levels in excess of Safe Drinking Water Act
standards. The subject residences are located approximately one
mile to the southwest of where the TCE previously was discovered
in the soils at the former FWEC facility.
Since that time, FWEC, USEPA and PADEP have cooperated in an
investigation to, among other things, attempt to identify the
source(s) of the TCE in the residential wells. Although FWEC
believed the evidence available at that time was not sufficient
to support a determination by a governmental entity that FWEC
was a PRP as to the TCE in the residential wells, FWEC in
October 2004 began providing the potentially affected
116
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
residences with bottled water. It thereafter arranged for the
installation, maintenance and testing of filters to remove the
TCE from the water being drawn from the wells. In August 2005,
FWEC entered into a settlement agreement with USEPA whereby FWEC
agreed to arrange and pay for the hookup of public water to the
affected residences, which involved the extension of a water
main and the installation of laterals from the main to the
affected residences. The foregoing hookups have been completed.
As residences were hooked up, FWEC ceased providing bottled
water and filters to them. FWEC is incurring costs related to
public outreach and communications in the affected area. FWEC
may be required to pay the agencies costs in overseeing
and responding to the situation. There is also a possibility
that FWEC would incur further costs if it were to conduct
further investigation regarding the TCE. We have accrued our
best estimate of the cost related to the foregoing and review
this estimate on a quarterly basis.
Other costs to which FWEC could be exposed could include, among
other things, FWECs counsel and consulting fees, further
agency oversight
and/or
response costs, costs
and/or
exposure related to the litigation described below beyond those
for which accruals have been made and other costs related to
possible further investigation
and/or
remediation. At present, it is not possible to determine whether
FWEC will be determined to be liable for some or all of the
items described in this paragraph, nor is it possible to
reliably estimate the potential liability associated with the
items.
If one or more third-parties are determined to be a source of
the TCE, FWEC will evaluate its options regarding the potential
recovery of the costs FWEC has incurred, which options could
include seeking to recover those costs from those determined to
be a source.
In March 2006, a complaint was filed in an action entitled
Sarah Martin and Jeffrey Martin v. Foster Wheeler Energy
Corporation
, Case
No. 3376-06,
Court of Common Pleas, Luzerne County, Pennsylvania
(subsequently removed to the United States District Court,
Middle District of Pennsylvania). The complaint alleged that it
was filed on behalf of the Martins and more than 25 others
similarly situated owning or residing on property impacted or
threatened with impacts of the TCE released from the former FWEC
facility. The complaint sought to recover costs of environmental
remediation and continued environmental monitoring of alleged
class members property, diminution in property value,
costs associated with obtaining healthy water, the establishment
of a medical monitoring trust fund, statutory, treble and
punitive damages and interest and the costs of the suit.
In April 2007, the court in the
Martin
case preliminarily
approved a class action settlement that had been jointly filed
by the plaintiffs and FWEC. The preliminary settlement was
subject to the class members opt-in/opt-out process and
the holding of a fairness hearing before the court. A number of
the class members opted-out of the preliminary settlement, and a
number of them objected that the preliminary settlement was not
fair. After the fairness hearing the court, in December 2007,
entered an order finally approving the settlement.
Under the terms of the settlement, FWEC will pay the class and
its counsel a total of approximately $1,600 in exchange for a
release by class members of all claims with respect to the
matters that are the subject of the litigation. The release will
not extend to the claims of those who opt-out of the settlement.
The class, which was agreed upon only for the purposes of the
settlement, consists of three categories of persons who own or
live on property in, or within approximately 150 feet of,
the area in which TCE is inferred to exist in the groundwater.
One of the three categories of the class includes those persons
who live in residences at which TCE was detected in private
wells in 2004. We have accrued a provision sufficient to cover
the settlement.
In April 2006, a complaint was filed in an action entitled
Donna Rose Cunningham and Michael A. Cunningham v.
Foster Wheeler Energy Corporation
, United States District
Court, Middle District of Pennsylvania. The complaints
allegations are generally similar to those in the
Martin
case, except that the complaint is on behalf of the
Cunninghams only, not an alleged class, and except that the
Cunninghams have included a
117
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
19. Litigation
and Uncertainties
(Continued)
claim for embarrassment, humiliation and emotional distress. We
have accrued a provision that we believe is appropriate for this
matter. Based upon its investigation and the proceedings to
date, FWEC will vigorously defend itself in these proceedings;
however, it is premature to predict the ultimate outcome of the
proceedings.
In May 2006, a complaint was filed in an action entitled
Gary
Prezkop, Personal Representative of the Estate of Mary Prezkop,
Deceased, and Gary Prezkop, in his own right, v. Foster
Wheeler Energy Corporation and Leonard M. Lulis.
Case
No. 000545
,
Court of Common Pleas, Philadelphia
County, Pennsylvania. The complaints allegations were
generally similar to those in the
Martin
and
Cunningham
cases, but they also included claims for Mary
Prezkops alleged wrongful death. During fiscal year 2007,
the matter was settled for an amount that did not have a
material impact on us.
Other
Environmental Matters
Our operations, especially our manufacturing and power plants,
are subject to comprehensive laws adopted for the protection of
the environment and to regulate land use. The laws of primary
relevance to our operations regulate the discharge of emissions
into the water and air, but can also include hazardous materials
handling and disposal, waste disposal and other types of
environmental regulation. These laws and regulations in many
cases require a lengthy and complex process of obtaining
licenses, permits and approvals from the applicable regulatory
agencies. Noncompliance with these laws can result in the
imposition of material civil or criminal fines or penalties. We
believe that we are in substantial compliance with existing
environmental laws. However, no assurance can be provided that
we will not become the subject of enforcement proceedings that
could cause us to incur material expenditures. Further, no
assurance can be provided that we will not need to incur
material expenditures beyond our existing reserves to make
capital improvements or operational changes necessary to allow
us to comply with future environmental laws.
With regard to the foregoing, the waste-to-energy facility
operated by our CCERA project subsidiary is subject to certain
revisions to New Jerseys mercury air emission regulations.
The revisions make CCERAs mercury control requirements
more stringent, especially when the last phase of the revisions
becomes effective in 2012. CCERAs management believes that
the data generated during recent stack testing tends to indicate
that the facility will be able to comply with even the most
stringent of the regulatory revisions without installing
additional control equipment. Even if the equipment had to be
installed, CCERA believes that the projects sponsor would
be responsible to pay for the equipment. However, the sponsor
may not have sufficient funds to do so or may assert that it is
not so responsible. Budgetary estimates of the cost of
installing the additional control equipment are approximately
$30,000 based on our last assessment.
118
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
20. Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 28,
|
|
|
September 28,
|
|
|
June 29,
|
|
|
March 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Operating revenues
|
|
$
|
1,465,483
|
|
|
$
|
1,299,872
|
|
|
$
|
1,189,766
|
|
|
$
|
1,152,122
|
|
Contract profit
|
|
|
170,003
|
|
|
|
197,960
|
|
|
|
168,846
|
|
|
|
207,512
|
|
Net income
|
|
|
78,098
|
(1)
|
|
|
129,101
|
|
|
|
71,850
|
|
|
|
114,825
|
|
Net income attributable to common shareholders
|
|
|
78,098
|
|
|
|
129,101
|
|
|
|
71,850
|
|
|
|
114,825
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.54
|
|
|
$
|
0.91
|
|
|
$
|
0.51
|
|
|
$
|
0.82
|
|
Diluted
|
|
$
|
0.54
|
|
|
$
|
0.89
|
|
|
$
|
0.50
|
|
|
$
|
0.80
|
|
Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for basic
earnings per common share
|
|
|
143,540,329
|
|
|
|
142,517,528
|
|
|
|
141,078,576
|
|
|
|
139,507,752
|
|
Effect of dilutive securities
|
|
|
1,615,072
|
|
|
|
2,574,936
|
|
|
|
3,543,466
|
|
|
|
4,023,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for diluted
earnings per common share
|
|
|
145,155,401
|
|
|
|
145,092,464
|
|
|
|
144,622,042
|
|
|
|
143,531,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 29,
|
|
|
September 29,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Operating revenues
|
|
$
|
1,193,319
|
|
|
$
|
910,580
|
|
|
$
|
745,307
|
|
|
$
|
645,842
|
|
Contract profit
|
|
|
170,338
|
|
|
|
129,189
|
|
|
|
127,942
|
|
|
|
80,318
|
|
Net income
|
|
|
63,108
|
|
|
|
75,827
|
|
|
|
108,418
|
|
|
|
14,631
|
|
Net income/(loss) attributable to common shareholders
|
|
|
63,108
|
|
|
|
75,827
|
|
|
|
108,418
|
|
|
|
(4,814
|
)
(2)
|
Earnings/(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.56
|
|
|
$
|
0.81
|
|
|
$
|
(0.04
|
)
(2)
|
Diluted
|
|
$
|
0.44
|
|
|
$
|
0.53
|
|
|
$
|
0.77
|
|
|
$
|
(0.04
|
)
(2)
|
Shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for basic
earnings/(loss) per common share
|
|
|
136,755,348
|
|
|
|
135,421,456
|
|
|
|
133,669,862
|
|
|
|
126,138,872
|
|
Effect of dilutive securities
|
|
|
6,139,370
|
|
|
|
6,821,720
|
|
|
|
7,698,976
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding for diluted
earnings/(loss) per common share
|
|
|
142,894,718
|
|
|
|
142,243,176
|
|
|
|
141,368,838
|
|
|
|
126,138,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The impact of potentially dilutive securities such as options to
purchase common shares, warrants to purchase common shares and
the non-vested portion of restricted awards were not included in
the calculation of diluted loss per common share in loss periods
due to their antidilutive effect.
|
119
FOSTER
WHEELER LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands of dollars, except share data and per share
amounts)
20. Quarterly
Financial Data
(Unaudited)
(Continued)
|
|
|
(1)
|
|
Net income for the quarter ended December 28, 2007 includes
a charge of $7,374 reflecting the revaluation of our asbestos
liability and related asset resulting primarily from increased
asbestos defense costs projected through year-end 2022 and for
the addition of another year to our rolling
15-year
asbestos liability estimate and a net gain of $4,886 on the
settlement of coverage litigation with certain asbestos
insurance carriers.
|
|
(2)
|
|
As discussed in the Earnings per Common Share
section of Note 1, the fair value of the additional shares
issued as part of the warrant offer transactions, which were
consummated in January 2006, reduced net income attributable to
the common shareholders when calculating earnings/(loss) per
common share. The fair value of the additional shares issued was
$19,445.
|
120
Foster
Wheeler Ltd.
Schedule II:
Valuation and Qualifying Accounts
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 28, 2007
|
|
|
|
|
|
|
Additions
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at the
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of the
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Year
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
7,848
|
|
|
$
|
6,109
|
|
|
$
|
|
|
|
$
|
(1,559
|
)
|
|
$
|
12,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
282,104
|
|
|
$
|
1,186
|
|
|
$
|
24,255
|
|
|
$
|
(13,259
|
)
|
|
$
|
294,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 29, 2006
|
|
|
|
|
|
|
Additions
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at the
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of the
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Year
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
10,379
|
|
|
$
|
2,317
|
|
|
$
|
|
|
|
$
|
(4,848
|
)
|
|
$
|
7,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
260,101
|
|
|
$
|
82,136
|
|
|
$
|
3,176
|
|
|
$
|
(63,309
|
)
|
|
$
|
282,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 30, 2005
|
|
|
|
|
|
|
Additions
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at the
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of the
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Year
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
23,199
|
|
|
$
|
3,006
|
|
|
$
|
157
|
|
|
$
|
(15,983
|
)
|
|
$
|
10,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
234,432
|
|
|
$
|
71,838
|
|
|
$
|
11,474
|
|
|
$
|
(57,643
|
)
|
|
$
|
260,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures designed to
ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported, within the time periods
specified in the SECs rules and forms. Disclosure controls
and procedures include, without limitation, controls and
procedures designed to ensure that the information required to
be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal
financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, we recognize that any controls and procedures,
no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives
and we necessarily are required to apply our judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As of the end of the period covered by this report, our chief
executive officer and our chief financial officer carried out an
evaluation, with the participation of our Disclosure Committee
and management, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) pursuant to Exchange Act
Rule 13a-15.
Based on this evaluation, our chief executive officer and our
chief financial officer concluded, at the reasonable assurance
level, that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
Managements
Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including the chief executive officer and the chief
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in
Internal
Control Integrated Framework
, our management
concluded that our internal control over financial reporting was
effective as of December 28, 2007.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues within a company are detected. Also, projections
of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, the independent registered public
accounting firm that audited the consolidated financial
statements included in this annual report on
Form 10-K,
has also audited the effectiveness of our internal control over
financial reporting as of December 28, 2007, as stated in
their report, which appears within Item 8.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting in the quarter ended December 28, 2007
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
122
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10 incorporates information by reference to our
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of our
fiscal year ended December 28, 2007.
Code of
Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, which
applies to all of our directors, officers and employees
including the chief executive officer, chief financial officer,
controller and all other senior finance organization employees.
The Code of Business Conduct and Ethics is publicly available on
our website at
www.fwc.com/corpgov
. Any waiver of this
Code of Business Conduct and Ethics for executive officers or
directors may be made only by the Board of Directors or a
committee of the Board of Directors and will be promptly
disclosed to shareholders. If we make any substantive amendments
to this Code of Business Conduct and Ethics or grant any waiver,
including an implicit waiver, from a provision of the Code of
Business Conduct and Ethics to the chief executive officer,
chief financial officer, controller or any person performing
similar functions, we will disclose the nature of such amendment
or waiver on our website at
www.fwc.com/corpgov
and/or in
a current report on
Form 8-K,
as required by law and the rules of any exchange on which our
securities are publicly traded.
A copy of our Code of Business Conduct and Ethics can be
obtained upon request, without charge, by writing to the Office
of the Secretary, Foster Wheeler Ltd., Perryville Corporate
Park, Clinton, New Jersey
08809-4000.
ITEM 11. EXECUTIVE
COMPENSATION
Item 11 incorporates information by reference to our
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of our
fiscal year ended December 28, 2007.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Item 12 incorporates information by reference to our
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of our
fiscal year ended December 28, 2007.
Equity
Compensation Plan Information
The following table sets forth, as of December 28, 2007,
the number of securities outstanding under each of our stock
option plans, the weighted-average exercise price of such
options and the number of options
123
available for grant under such plans. The following table also
sets forth, as of December 28, 2007, the number of
restricted share units and restricted stock granted pursuant to
our Omnibus Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Number of Securities Remaining
|
|
|
|
Number of Securities to
|
|
|
Exercise Price of
|
|
|
Available for Future Issuance
|
|
|
|
be Issued Upon Exercise
|
|
|
Outstanding
|
|
|
Under Equity Compensation Plans
|
|
|
|
of Outstanding Options,
|
|
|
Options, Warrants
|
|
|
(excluding securities reflected
|
|
|
|
Warrants and Rights
|
|
|
and Rights ($)
|
|
|
in column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by Security Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Omnibus Incentive Plan
|
|
|
1,486,962
|
|
|
$
|
30.43
|
|
|
|
8,066,938
|
|
1995 Stock Option Plan
|
|
|
192,428
|
|
|
$
|
128.89
|
|
|
|
|
|
Directors Stock Option Plan
|
|
|
14,100
|
|
|
$
|
119.93
|
|
|
|
|
|
Directors Deferred Compensation Program
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
Equity Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Approved by Security Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond J. Milchovich
(1)
|
|
|
130,000
|
|
|
$
|
49.85
|
|
|
|
|
|
M.J. Rosenthal & Associates, Inc.
(2)
|
|
|
25,000
|
|
|
$
|
18.80
|
|
|
|
|
|
2004 Stock Option Plan
(3)
|
|
|
72,376
|
|
|
$
|
13.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,920,866
|
|
|
$
|
41.46
|
|
|
|
8,066,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Under the terms of his employment agreement, dated
October 22, 2001, Mr. Milchovich received an option to
purchase 130,000 of our common shares on October 22, 2001.
This option was granted at an exercise price of $49.85 and
vested 20% each year over the five-year term of the agreement.
The option exercise price is equal to the median of the high and
low price of our common shares on the grant date. The option has
a term of 10 years from the date of grant.
|
|
(2)
|
|
Under the terms of the consulting agreement with M.J.
Rosenthal & Associates, Inc. on May 7, 2002, we
granted a nonqualified stock option to purchase 25,000 of our
common shares at a price of $18.80 with a term of 10 years
from the date of grant. The exercise price is equal to the mean
of the high and low price of our common shares on the date of
grant. The option is exercisable on or after March 31,
2003. The option, to the extent not then exercised, shall
terminate upon any breach of certain covenants contained in the
consulting agreement.
|
|
(3)
|
|
Under the terms of the 2004 Stock Option Plan, adopted by the
Board of Directors in September 2004, one of our senior
executives was granted options to purchase 338,000 common shares
at an exercise price of $11.60 per common share on
August 8, 2005. Such options expire on August 7, 2008.
One-third of the options vested in the fourth quarter of 2005
and the balance vested during the fourth quarter of 2006. As of
December 28, 2007, options to purchase 40,000 common shares
at an exercise price of $11.60 per common share remained
outstanding.
|
|
|
|
On October 10, 2005, one of our senior executives was
granted options under the 2004 Stock Option Plan to purchase
104,330 common shares at an exercise price of $14.975 per common
share. Such options expire on October 9, 2008. One-third of
the options vested in the fourth quarter of 2005 and the balance
vested during the fourth quarter of 2006. As of
December 28, 2007, options to purchase 26,082 common shares
at an exercise price of $14.975 per common share remained
outstanding.
|
124
|
|
|
|
|
On November 8, 2005, our non-employee directors were issued
options under the 2004 Stock Option Plan to purchase 14,686
common shares at an exercise price of $14.838 per common share.
Such options expire on September 30, 2010. The non-employee
director options vested in one-twelfth increments until fully
vested on September 30, 2006. As of December 28, 2007,
options to purchase 6,294 common shares at an exercise price of
$14.838 per common share remained outstanding.
|
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Item 13 incorporates information by reference to our
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of our
fiscal year ended December 28, 2007.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Item 14 incorporates information by reference to our
definitive proxy statement for the Annual General Meeting of
Shareholders, which is expected to be filed with the Securities
and Exchange Commission within 120 days of the close of our
fiscal year ended December 28, 2007.
125
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Report:
|
|
|
|
(1)
|
Financial Statements
Financial Statements See Item 8 of this
Report.
|
|
|
(2)
|
Financial Statement Schedules
Schedule II: Valuation and Qualifying
Accounts See Item 8 of this Report.
|
All schedules and financial statements other than those
indicated above have been omitted because of the absence of
conditions requiring them or because the required information is
shown in the financial statements or the notes thereto.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibits
|
|
|
3
|
.1
|
|
Memorandum of Association of Foster Wheeler Ltd. (Filed as
Annex II to Foster Wheeler Ltd.s
Form S-4/A
(File
No. 333-52468),
filed on March 9, 2001, and incorporated herein by
reference.)
|
|
3
|
.2
|
|
Memoranda of Reduction of Share Capital and Memorandum of
Increase in Share Capital each dated December 1, 2004.
(Filed as Exhibit 99.2 to Foster Wheeler Ltd.s
Form 8-K,
dated November 29, 2004 and filed on December 2, 2004,
and incorporated herein by reference.)
|
|
3
|
.3
|
|
Certificate of Designation relating to Foster Wheeler
Ltd.s Series B Convertible Preferred Shares, adopted
on September 24, 2004. (Filed as Exhibit 3.1 to Foster
Wheeler Ltd.s
Form 10-Q
for the quarter ended September 24, 2004, and incorporated
herein by reference.)
|
|
3
|
.4
|
|
Bye-Laws of Foster Wheeler Ltd., amended May 9, 2006.
(Filed as Exhibit 3.2 to Foster Wheeler Ltd.s
Form 8-K,
dated May 9, 2006 and filed on May 12, 2006, and
incorporated herein by reference.)
|
|
3
|
.5
|
|
Memorandum of Increase of Share Capital dated February 7,
2008.
|
|
4
|
.0
|
|
Foster Wheeler Ltd. hereby agrees to furnish copies of
instruments defining the rights of holders of long-term debt of
Foster Wheeler Ltd. and its consolidated subsidiaries to the
Commission upon request.
|
|
10
|
.1
|
|
Registration Rights Agreement, dated as of September 24,
2004, by and among Foster Wheeler Ltd., Foster Wheeler LLC, the
guarantors listed therein and each of the purchasers signatory
thereto. (Filed as Exhibit 4.5 to Foster Wheeler
Ltd.s registration statement on
Form S-4
(File No. 119841), filed on October 20, 2004, and
incorporated by reference herein.)
|
|
10
|
.2
|
|
Waiver of the Registration Rights Agreement, dated as of
February 2, 2006, by and among Foster Wheeler Ltd., Foster
Wheeler LLC, on behalf of themselves and the subsidiary
guarantors and Citigroup Global Capital Markets Inc. (Filed as
Exhibit 10.13 to Foster Wheeler Ltd.s
Form 10-K
for the fiscal year ended December 30, 2005, and
incorporated herein by reference.)
|
|
10
|
.3
|
|
Waiver of the Registration Rights Agreement, dated as of
February 2, 2006, by and among Foster Wheeler Ltd., Foster
Wheeler LLC, on behalf of themselves and the subsidiary
guarantors and Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch International Investment Fund-MLIIF Global
Allocation Fund, Merrill Lynch Variable Series Fund,
Inc.-Merrill Lynch Global Allocation V.I. Fund, and Merrill
Lynch Series Funds, Inc.-Global Allocation Strategy
Portfolio. (Filed as Exhibit 10.14 to Foster Wheeler
Ltd.s
Form 10-K
for the fiscal year ended December 30, 2005, and
incorporated herein by reference.)
|
|
10
|
.4
|
|
Credit Agreement, dated September 13, 2006, among Foster
Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler
North America Corp., Foster Wheeler Energy Corporation, Foster
Wheeler International Corporation, and Foster Wheeler Inc., as
Borrowers, the guarantors party thereto, the lenders party
thereto, BNP Paribas as Administrative Agent, BNP Paribas
Securities Corp. as Sole Bookrunner and Sole Lead Arranger, and
Calyon New York Branch as Syndication Agent. (Filed as
Exhibit 99.1 to Foster Wheeler Ltd.s
Form 8-K,
dated September 13, 2006 and filed on September 14,
2006, and incorporated herein by reference.)
|
126
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibits
|
|
|
10
|
.5
|
|
Amendment No. 1, dated May 4, 2007, to the Credit
Agreement, dated September 13, 2006, between Foster Wheeler
LLC, Foster Wheeler USA Corporation, Foster Wheeler North
America Corp., Foster Wheeler Energy Corporation, Foster Wheeler
International Corporation, Foster Wheeler Inc., Foster Wheeler
Ltd., Foster Wheeler Holdings Ltd., the subsidiary guarantors
party thereto, the lenders party thereto, and BNP Paribas.
(Filed as Exhibit 10.4 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended March 30, 2007, and incorporated
herein by reference.)
|
|
10
|
.6
|
|
Guarantee Facility, dated July 22, 2005, among Foster
Wheeler Limited, Foster Wheeler Energy Limited, Foster Wheeler
World Services Limited, Foster Wheeler (G.B.) Limited and The
Bank of Scotland regarding, among other things, a
£50,000,000 guarantee facility and a £150,000,000
forward foreign exchange facility. (Filed as Exhibit 99.1
to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.7
|
|
Corporate Guarantee, dated July 25, 2005, among Foster
Wheeler Limited, Foster Wheeler Energy Limited, Foster Wheeler
World Services Limited, Foster Wheeler (G.B.) Limited and The
Bank of Scotland. (Filed as Exhibit 99.2 to Foster Wheeler
Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.8
|
|
Form of Debenture, dated July 25, 2005, issued in favor of
The Bank of Scotland as Security Trustee. (Filed as
Exhibit 99.3 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.9
|
|
Lease Agreement, dated as of August 16, 2002, by and among
Energy (NJ) QRS
15-10,
Inc.
and Foster Wheeler Realty Services, Inc. (Filed as
Exhibit 10.15 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended June 28, 2002, and incorporated
herein by reference.)
|
|
10
|
.10
|
|
Amendment to the Lease Agreement, dated as of January 6,
2003, between Energy (NJ) QRS
15-10,
Inc.
and Foster Wheeler Realty Services, Inc. (Filed as
Exhibit 10.30 to Foster Wheeler Ltd.s
Form 10-K
for the fiscal year ended December 27, 2002, and
incorporated herein by reference.)
|
|
10
|
.11
|
|
Amendment No. 2, dated as of April 21, 2003, to the
Lease Agreement between Energy (NJ) QRS
15-10,
Inc.
and Foster Wheeler Realty Services, Inc. (Filed as
Exhibit 10.7 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended March 28, 2003, and incorporated
herein by reference.)
|
|
10
|
.12
|
|
Amendment No. 3, dated as of July 14, 2003, to the
Lease Agreement dated August 16, 2002, between Energy (NJ)
QRS
15-10,
Inc. and Foster Wheeler Realty Services, Inc. (Filed as
Exhibit 10.6 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended June 27, 2003, and incorporated
herein by reference.)
|
|
10
|
.13
|
|
Guaranty and Suretyship Agreement, dated as of August 16,
2002, made by Foster Wheeler LLC, Foster Wheeler Ltd., Foster
Wheeler Inc., Foster Wheeler International Holdings, Inc. and
Energy (NJ) QRS
15-10,
Inc.
(Filed as Exhibit 10.14 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended June 28, 2002 and incorporated herein
by reference.)
|
|
10
|
.14
|
|
Deed between Foster Wheeler LLC and Foster Wheeler Realty
Services, Inc. and CIT Group Inc. (NJ), dated as of
March 31, 2003. (Filed as Exhibit 10.3 to Foster
Wheeler Ltd.s
Form 10-Q
for the quarter ended March 28, 2003 and incorporated
herein by reference.)
|
|
10
|
.15
|
|
Preliminary Agreement for the Sale of Quotas, dated
January 31, 2006, between Foster Wheeler Italiana S.p.A.,
Fineldo S.p.A. and MPE S.p.A. (Filed as Exhibit 10.29 to
Foster Wheeler Ltd.s
Form 10-K
for the fiscal year ended December 30, 2005, and
incorporated herein by reference.)
|
|
10
|
.16
|
|
Foster Wheeler Inc. Directors Stock Option Plan. (Filed as
Exhibit 99.1 to Foster Wheeler Ltd.s post effective
amendment to
Form S-8
(Registration
No. 333-25945-99),
filed on June 27, 2001, and incorporated herein by
reference.)
|
|
10
|
.17
|
|
1995 Stock Option Plan of Foster Wheeler Inc. (as Amended and
Restated as of September 24, 2002). (Filed as
Exhibit 10.1 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 27, 2002, and incorporated
herein by reference.)
|
|
10
|
.18
|
|
Foster Wheeler Annual Executive Short-term Incentive Plan, as
amended and restated effective January 1, 2006. (Filed as
Exhibit 10.20 to Foster Wheeler Ltd.s
Form 10-K
for the fiscal year ended December 29, 2006, and
incorporated herein by reference.)
|
|
10
|
.19
|
|
Foster Wheeler Ltd. 2004 Stock Option Plan. (Filed as
Exhibit 10.2 to Foster Wheeler Ltd.s
Form 8-K,
dated September 29, 2004 and filed on October 1, 2004,
and incorporated herein by reference.)
|
127
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibits
|
|
|
10
|
.20
|
|
First Amendment to the Foster Wheeler Ltd. 2004 Stock Option
Plan. (Filed as Exhibit 99.1 to Foster Wheeler Ltd.s
Form 8-K,
dated May 13, 2005 and filed on May 16, 2005, and
incorporated herein by reference.)
|
|
10
|
.21
|
|
Form of First Amendment to the Foster Wheeler Ltd. 2004 Stock
Option Plan with respect to non-employee directors. (Filed as
Exhibit 99.2 to Foster Wheeler Ltd.s
Form 8-K,
dated May 13, 2005 and filed on May 16, 2005, and
incorporated herein by reference.)
|
|
10
|
.22
|
|
Form of Amended and Restated Notice of Stock Option Grant with
respect to executive officers, officers and key employees.
(Filed as Exhibit 99.3 to Foster Wheeler Ltd.s
Form 8-K,
dated May 13, 2005 and filed on May 16, 2005, and
incorporated herein by reference.)
|
|
10
|
.23
|
|
Foster Wheeler Ltd. Omnibus Incentive Plan. (Filed as
Exhibit 10.1 to Foster Wheeler Ltd.s
Form 8-K,
dated May 9, 2006 and filed on May 12, 2006, and
incorporated herein by reference.)
|
|
10
|
.24
|
|
Form of Directors Stock Option Agreement effective
June 16, 2006 by and between Foster Wheeler Ltd. and each
of Ralph Alexander, Eugene Atkinson, Diane C. Creel, Robert C.
Flexon, Stephanie Hanbury-Brown, Joseph J. Melone and James D.
Woods. (Filed as Exhibit 10.2 to Foster Wheeler Ltd.s
Form 8-K,
dated June 14, 2006 and filed on June 16, 2006, and
incorporated herein by reference.)
|
|
10
|
.25
|
|
Form of Employee Nonqualified Stock Option Agreement effective
November 15, 2006 with respect to certain employees and
executive officers. (Filed as Exhibit 10.1 to Foster
Wheeler Ltd.s
Form 8-K,
dated November 15, 2006 and filed on November 17,
2006, and incorporated herein by reference.)
|
|
10
|
.26
|
|
Form of Employee Restricted Stock Unit Award Agreement effective
November 15, 2006 with respect to certain employees and
executive officers. (Filed as Exhibit 10.2 to Foster
Wheeler Ltd.s
Form 8-K,
dated November 15, 2006 and filed on November 17,
2006, and incorporated herein by reference.)
|
|
10
|
.27
|
|
Form of Director Nonqualified Stock Option Agreement effective
November 15, 2006 with respect to non-employee directors.
(Filed as Exhibit 10.3 to Foster Wheeler Ltd.s
Form 8-K,
dated November 15, 2006 and filed on November 17,
2006, and incorporated herein by reference.)
|
|
10
|
.28
|
|
Form of Director Restricted Stock Unit Agreement effective
November 15, 2006 with respect to non-employee directors.
(Filed as Exhibit 10.4 to Foster Wheeler Ltd.s
Form 8-K,
dated November 15, 2006 and filed on November 17,
2006, and incorporated herein by reference.)
|
|
10
|
.29
|
|
Warrant Agreement between Foster Wheeler Ltd. and Mellon
Investor Services LLC, including forms of warrant certificates.
(Filed as Exhibit 4.10 to Foster Wheeler Ltd.s
registration statement on
Form S-3
(File
No. 333-120076),
filed on October 29, 2004 and incorporated herein by
reference.)
|
|
10
|
.30
|
|
Master Guarantee Agreement, dated as of May 25, 2001, by
and among Foster Wheeler LLC, Foster Wheeler International
Holdings, Inc. and Foster Wheeler Ltd. (Filed as
Exhibit 10.9 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended June 29, 2001, and incorporated
herein by reference.)
|
|
10
|
.31
|
|
Form of Change of Control Agreement, dated as of May 25,
2001, and entered into by the Company with executive officers.
(Filed as Exhibit 10.5 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended June 29, 2001, and incorporated
herein by reference.)
|
|
10
|
.32
|
|
Form of Indemnification Agreement for directors and officers of
the Company and Foster Wheeler Inc., dated as of
November 3, 2004. (Filed as Exhibit 99.1 to Foster
Wheeler Ltd.s
Form 8-K,
dated November 3, 2004 and filed on November 8, 2004,
and incorporated herein by reference.)
|
|
10
|
.33
|
|
Employment Agreement between Foster Wheeler Ltd. and Raymond J.
Milchovich, dated as of August 11, 2006. (Filed as
Exhibit 10.1 to Foster Wheeler Ltd.s
Form 8-K,
dated August 7, 2006 and filed on August 11, 2006, and
incorporated herein by reference.)
|
|
10
|
.34
|
|
First Amendment to the Employment Agreement, dated
January 30, 2007, between Foster Wheeler Ltd. and Raymond
J. Milchovich. (Filed as Exhibit 10.2 to Foster Wheeler
Ltd.s
Form 8-K,
dated January 30, 2007 and filed on February 2, 2007,
and incorporated herein by reference.)
|
|
10
|
.35
|
|
Second Amendment to the Employment Agreement, dated
February 27, 2007, between Foster Wheeler Ltd. and Raymond
J. Milchovich. (Filed as Exhibit 10.1 to Foster Wheeler
Ltd.s
Form 8-K,
dated February 27, 2007 and filed on March 2, 2007,
and incorporated herein by reference.)
|
|
10
|
.36
|
|
Stock Option Agreement of Raymond J. Milchovich, dated as of
October 22, 2001. (Filed as Exhibit 10.13 to Foster
Wheeler Ltd.s
Form 10-K
for the fiscal year ended December 28, 2001, and
incorporated herein by reference.)
|
128
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibits
|
|
|
10
|
.37
|
|
Employees Restricted Stock Award Agreement of Raymond J.
Milchovich, dated as of August 11, 2006. (Filed as
Exhibit 10.2 to Foster Wheeler Ltd.s
Form 8-K,
dated August 7, 2006 and filed on August 11, 2006, and
incorporated herein by reference.)
|
|
10
|
.38
|
|
Employee Nonqualified Stock Option Agreement of Raymond J.
Milchovich, dated as of August 11, 2006. (Filed as
Exhibit 10.3 to Foster Wheeler Ltd.s
Form 8-K,
dated August 7, 2006 and filed on August 11, 2006, and
incorporated herein by reference.)
|
|
10
|
.39
|
|
Employment Agreement between Foster Wheeler Ltd. and John T.
La Duc, dated as of April 14, 2004. (Filed as
Exhibit 99.2 to Foster Wheeler Ltd.s
Form 8-K,
dated April 14, 2004 and filed on April 15, 2004, and
incorporated herein by reference.)
|
|
10
|
.40
|
|
First Amendment to the Employment Agreement, dated as of
October 6, 2006, between Foster Wheeler Ltd. and John T.
La Duc. (Filed as Exhibit 99.1 to Foster Wheeler
Ltd.s
Form 8-K,
dated October 5, 2006 and filed on October 10, 2006,
and incorporated herein by reference.)
|
|
10
|
.41
|
|
Second Amendment to the Employment Agreement, dated as of
January 30, 2007, between Foster Wheeler Ltd. and John T.
La Duc. (Filed as Exhibit 10.1 to Foster Wheeler
Ltd.s
Form 8-K,
dated January 30, 2007 and filed on February 2, 2007,
and incorporated herein by reference.)
|
|
10
|
.42
|
|
Change of Control Employment Agreement between Foster Wheeler
Inc. and John T. La Duc, dated as of April 14, 2004.
(Filed as Exhibit 99.3 to Foster Wheeler Ltd.s
Form 8-K,
dated April 14, 2004 and filed on April 15, 2004, and
incorporated herein by reference.)
|
|
10
|
.43
|
|
Consulting Agreement, dated as of September 1, 2007,
between Foster Wheeler Inc. and John T. La Duc (Filed as
Exhibit 10.1 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 28, 2007, and incorporated
herein by reference.)
|
|
10
|
.44
|
|
Employment Agreement between Foster Wheeler Ltd. and Peter J.
Ganz, dated as of October 10, 2005. (Filed as
Exhibit 10.1 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.45
|
|
First Amendment to the Employment Agreement, dated as of
October 6, 2006, between Foster Wheeler Ltd. and Peter J.
Ganz. (Filed as Exhibit 99.3 to Foster Wheeler Ltd.s
Form 8-K,
dated October 5, 2006 and filed on October 10, 2006,
and incorporated herein by reference.)
|
|
10
|
.46
|
|
Change of Control Employment Agreement between Foster Wheeler
Inc. and Peter J. Ganz, dated as of October 10, 2005.
(Filed as Exhibit 10.2 to Foster Wheeler Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.47
|
|
Restricted Stock Award Agreement of Peter J. Ganz, dated as of
October 24, 2005. (Filed as Exhibit 10.3 to Foster
Wheeler Ltd.s
Form 10-Q
for the quarter ended September 30, 2005, and incorporated
herein by reference.)
|
|
10
|
.48
|
|
English Translation of Supplemental Employment Agreement,
effective as of November 12, 2007, among Foster Wheeler
Continental Europe S.r.L., Foster Wheeler Ltd., and Franco
Baseotto. (Filed as Exhibit 10.1 to Foster Wheeler
Ltd.s
Form 8-K,
dated November 12, 2007 and filed on November 14,
2007, and incorporated herein by reference.)
|
|
10
|
.49
|
|
English Translation of Change of Control Agreement, effective as
of November 12, 2007, among Foster Wheeler Continental
Europe S.r.L., Foster Wheeler Ltd., and Franco Baseotto. (Filed
as Exhibit 10.2 to Foster Wheeler Ltd.s
Form 8-K,
dated November 12, 2007 and filed on November 14,
2007, and incorporated herein by reference.)
|
|
21
|
.0
|
|
Subsidiaries of the Registrant.
|
|
23
|
.0
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of Raymond J. Milchovich.
|
|
31
|
.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of Franco Baseotto.
|
|
32
|
.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 of Raymond J. Milchovich.
|
|
32
|
.2
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 of Franco Baseotto.
|
129
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FOSTER WHEELER LTD.
(Registrant)
Franco Baseotto
Executive Vice President, Chief Financial
Officer and Treasurer
Date: February 26, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed, as of February 26, 2008,
by the following persons on behalf of the Registrant, in the
capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
/s/
Raymond
J. Milchovich
Raymond
J. Milchovich
(Principal Executive Officer)
|
|
Director, Chairman of the Board and Chief Executive Officer
|
|
|
|
/s/
Franco
Baseotto
Franco
Baseotto
(Principal Financial Officer)
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
|
|
|
/s/
Lisa
Z. Wood
Lisa
Z. Wood
(Principal Accounting Officer)
|
|
Vice President and Controller
|
|
|
|
/s/
Eugene
D. Atkinson
Eugene
D. Atkinson
|
|
Director
|
|
|
|
/s/
Diane
C. Creel
Diane
C. Creel
|
|
Director
|
|
|
|
/s/
Steven
J. Demetriou
Steven
J. Demetriou
|
|
Director
|
|
|
|
/s/
Jack
A. Fusco
Jack
A. Fusco
|
|
Director
|
|
|
|
/s/
Robert
C. Flexon
Robert
C. Flexon
|
|
Director
|
|
|
|
/s/
Edward
G. Galante
Edward
G. Galante
|
|
Director
|
|
|
|
/s/
Stephanie
Hanbury-Brown
Stephanie
Hanbury-Brown
|
|
Director
|
|
|
|
/s/
James
D. Woods
James
D. Woods
|
|
Director
|
130
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