UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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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
August 31,
2009
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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: 1-12227
THE SHAW GROUP INC.
(Exact name of registrant as
specified in its charter)
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LOUISIANA
(State or other jurisdiction
of
incorporation or organization)
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72-1106167
(I.R.S. Employer
Identification No.)
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4171 Essen Lane
Baton Rouge, Louisiana 70809
(Address of principal executive
offices) (Zip Code)
(225) 932-2500
(Registrants telephone number, including area code)
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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Common Stock no par value
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New York Stock Exchange
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Preferred Stock Purchase Rights
with respect to Common Stock no par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 229.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) 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. o
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. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant was approximately
$1.9 billion (computed by reference to the closing sale
price of the registrants common stock on the New York
Stock Exchange on February 27, 2009, the last business day
of the registrants most recently completed second fiscal
quarter). Common stock held as of such date by each officer and
director and by each person who owns 5% or more of the
outstanding common stock 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.
The number of shares of the registrants common stock
outstanding at October 26, 2009 was 83,678,965.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2010 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission (the SEC) within
120 days of August 31, 2009, are incorporated by
reference into Part III of this Annual Report on
Form 10-K
for the fiscal year ended August 31, 2009
(Form 10-K).
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this
Form 10-K
may constitute forward-looking statements within the
meaning of the Private Securities Litigation Act of 1995. The
words believe, expect,
anticipate, plan, intend,
foresee, should, would,
could or other similar expressions are intended to
identify forward-looking statements, which are generally not
historical in nature. These forward-looking statements are based
on our current expectations and beliefs concerning future
developments and their potential effect on us. While management
believes that these forward-looking statements are reasonable as
and when made, there can be no assurance that future
developments affecting us will be those that we anticipate. All
comments concerning our expectations for future revenues and
operating results are based on our forecasts for our existing
operations and do not include the potential impact of any future
acquisitions. Our forward-looking statements involve significant
risks and uncertainties (some of which are beyond our control)
and assumptions that could cause actual results to differ
materially from our historical experience and our present
expectations or projections. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include, but are not limited to,
those described in (1) Part I, Item 1A
Risk Factors and elsewhere in this
Form 10-K,
(2) our reports and registration statements filed from time
to time with the Securities and Exchange Commission (SEC) and
(3) other announcements we make from time to time.
Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly update or revise
any forward-looking statements after the date they are made,
whether as a result of new information, future events or
otherwise.
PART I
General
The Shaw Group Inc. (Shaw, we, us, and our) is a leading global
provider of technology, engineering, procurement, construction,
maintenance, fabrication, manufacturing, consulting, remediation
and facilities management services to a diverse client base that
includes multinational and national oil companies and industrial
corporations, regulated electric utilities, independent and
merchant power producers, government agencies and equipment
manufacturers. We have developed and acquired significant
intellectual property, including downstream petrochemical
technologies, induction pipe bending technology and
environmental decontamination technologies. Through our
investment in the Westinghouse Group, we have exclusive
opportunities to bid on engineering, procurement and
construction (EPC) services on future Westinghouse advanced
passive
AP1000tm
nuclear power technology units to be built in the United States
(U.S.) and other locations. Our proprietary olefin and refinery
technologies, coupled with ethyl benzene, styrene, cumene and
Bisphenol A technologies, allow us to offer clients integrated
oil refinery and petrochemicals solutions. We believe our
technologies provide a competitive advantage in the market place
and will help us to compete on a longer-term basis with lower
cost competitors from developing countries that are likely to
emerge.
Shaw has significant experience in effectively managing
subcontractors, craft labor and materials procurement associated
with the construction of oil refineries, petrochemical plants,
electric power generation plants and other industrial
facilities. We have the versatility to function on any given
project as the primary contractor, subcontractor or quality
assurance construction manager. We provide technical and
economic analysis to a global client base primarily in the
fossil, nuclear power, energy and chemicals industries.
We report our financial results using
August 31st as
our fiscal year end. Accordingly, our fiscal quarter end dates
are as follows:
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First Quarter
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November
30th
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Second Quarter
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February
28th
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Third Quarter
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May 31st
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Fourth Quarter
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August
31st
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Our stock trades on the New York Stock Exchange (NYSE) under the
ticker symbol SHAW. Prior to August 21, 2009,
our stock traded on NYSE under the ticker symbol
SGR. We are a Louisiana corporation with our
executive offices located at 4171 Essen Lane, Baton Rouge,
Louisiana 70809, and our telephone number is
(225) 932-2500.
History
In 1987, J. M. Bernhard, Jr., our Chairman, President and
Chief Executive Officer, and two colleagues, founded Shaw as a
pipe fabrication shop in Baton Rouge, Louisiana. Since then we
have significantly expanded our expertise and the breadth of our
services through organic growth and strategic acquisitions.
In July 2000, we acquired certain assets of Stone &
Webster, Inc. (Stone & Webster), a leading global
provider of EPC, construction management and consulting services
to the energy, chemical, nuclear, environmental and
infrastructure industries. Combined with our existing pipe
fabrication and construction capabilities, the Stone &
Webster acquisition transformed Shaw into a vertically
integrated EPC services company.
Our May 2002 acquisition of the assets of the IT Group, Inc. (IT
Group) significantly increased our position in the environmental
remediation and infrastructure markets, particularly in the
U.S. government services sector. The IT Group acquisition
further diversified our end market, client and contract mix and
provided new opportunities to cross-sell services, such as
environmental remediation services, to our existing EPC clients.
In October 2006, we acquired a 20% interest in two companies
(Investment in Westinghouse) who, together with their
subsidiaries, are collectively referred to as the Westinghouse
Group (Westinghouse). Westinghouse provides advanced nuclear
plant designs and equipment, fuel and a wide range of other
products and services to the owners and operators of nuclear
power plants. We believe our Investment in Westinghouse uniquely
positions us in the domestic and international nuclear electric
power markets through the commercial relationship agreement
(Westinghouse CRA) which provides us certain exclusive
opportunities to bid on projects where we would perform EPC
services for future projects utilizing Westinghouses
nuclear AP1000 technology. For an explanation of this
investment, see Part I, Item 1
Business Investment in Westinghouse Segment, below.
In 2006, we formed Shaw Capital, Inc. (Shaw Capital), a wholly
owned subsidiary. Shaw Capital leverages our global presence,
technical and operational experience and transactional
capabilities to identify and develop targeted energy and
construction project investment opportunities for third party
investors, which might result in management fee revenues. Shaw
Capital may seek to arrange equity, mezzanine and debt
investments in the energy, chemicals, environmental and
infrastructure markets, which might present opportunities for us
to participate with equity ownership in projects where we may be
performing EPC or related services.
Our
Business Segments
Because of the wide variety of Shaws technical services
and our vertical integration, we believe we are uniquely
positioned to provide seamless services to our clients
throughout the lifespan of projects, from the concept, design,
building and construction phases to the maintenance, operations,
decommissioning and decontamination phases. Our segments strive
to support and complement each other, allowing Shaw to rely on
internal resources for much of our work. We believe our direct
hire construction capabilities provide us with a competitive
advantage in many of the markets we serve.
Currently, we are organized under the following seven reportable
segments:
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Fossil, Renewables & Nuclear,
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Maintenance,
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Environmental & Infrastructure (E&I),
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Energy & Chemicals (E&C),
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Fabrication & Manufacturing (F&M),
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Investment in Westinghouse, and
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Corporate
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For detailed financial information and geographical sales
information regarding each segment, see Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and
Note 14 Business Segments included in our
consolidated financial statements beginning on
page F-1.
In addition, see Item 1A Risk Factors for a
discussion of the risks related to our foreign operations.
Fossil,
Renewables & Nuclear Segment
Our Fossil, Renewables & Nuclear segment provides a
range of services, including design, engineering, construction,
procurement, technology and consulting services, primarily to
the fossil, renewables and nuclear power generation industries.
Nuclear Power Generation. Safe and reliable
operation of existing plants, carbon emissions concerns, climate
change and domestic incentives under the Energy Policy Act of
2005 have prompted significant interest in new nuclear plant
construction. As of May 2009, approximately 21.0% of the
electric power generated in the U.S. was from nuclear power
plants. We provide a wide range of technical services to meet
the demands of this growing sector, including engineering,
design, procurement, construction, and project management that
support the domestic and international nuclear power markets. As
part of the Westinghouse CRA, we have been awarded a technical
services contract for four AP1000 nuclear power units in the
Peoples Republic of China (China) and three EPC contracts
to build six domestic AP1000 units two each for
Georgia Power, South Carolina Electric & Gas and
Progress Energy. These projects are among the first new nuclear
power construction projects in the U.S. in more than
30 years. We recently reached several international
milestones including supervising the placement of the first
nuclear concrete and the first major structural module at the
worlds first AP1000 nuclear power plant at the Sanmen
nuclear power plant in Chinas Zhejiang province.
Domestically the Nuclear Energy Institute and the Nuclear
Regulatory Commission (NRC) disclosed that as of July 2009 there
are plans for developing of at least 33 new nuclear units, with
the Westinghouse AP1000 design being considered for at least 14
of them. We believe that our support of existing
U.S. utilities, combined with our Westinghouse CRA, could
result in increased activity in the nuclear sector for us.
Recognized in the power industry for improving the efficiency,
capacity output and reliability of existing domestic nuclear
plants (also known as power uprates), we have added more than
2,111 megawatts (MW) of new nuclear capacity to the
U.S. electric power transmission grid since 1984. In
addition, we serve as architect-engineer for two uranium
enrichment facilities and provide engineering services in
support of new nuclear units in South Korea and China. We
anticipate long-term growth in the global nuclear power sector,
driven in large part by the U.S., United Kingdom (U.K.), China,
India, Brazil, the Czech Republic and Canada. While it is
unclear what impact current economic conditions might have on
the timing or financing of such projects, we expect that our
existing base of nuclear services work, combined with our
collaboration with Westinghouse and its majority owner Toshiba
Corporation (Toshiba) on new nuclear plant work, should position
us to capitalize on the long-term growth within this industry.
Please read our disclosures under Liquidity in
Part II, Item 7 Managements
Discussion and Analysis of Financial Conditions and Results of
Operations with respect to the circumstances in which our
ownership in Westinghouse may be purchased by Toshiba.
Information may also be found in Note 6 Equity
Method Investments and Variable Interest Entities and
Note 8 Debt and Revolving Lines of Credit
contained in our consolidated financial statements beginning on
page F-1.
Clean Coal-Fired Generation. The U.S. has
significant coal reserves and at May 2009, approximately 45.4%
of electric power currently generated in the U.S. comes
from coal-fired power plants. Electric power companies in the
U.S. have historically pursued construction of new
coal-fired power plants, because, although coal-fired capacity
is capital intensive to build, it generally has relatively lower
operating costs as compared to other fossil fuels. Recently,
however, uncertainty surrounding potential regulations targeting
carbon emissions, as well as the global economic downturn and
low natural gas prices, have caused the development of coal and
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other solid fuel-fired power plants to slow significantly.
Nevertheless, we believe that coal will continue to be a
significant component of future domestic energy generation, and
we intend to continue positioning our resources to capture a
significant market share of any new build or expansion projects.
Air Quality Control (AQC). Our AQC business
includes domestic and international markets for flue gas
desulfurization (FGD) retrofits, installation of mercury
emission controls, fine-particle pollution control, carbon
capture and selective catalytic reduction (SCR) processes used
at existing coal-fired electric power plants. We believe we are
the market leader for EPC FGD projects.
Existing U.S. government and state environmental AQC
regulations have driven the need to retrofit existing coal-fired
power plants with modern pollution-control equipment. In July
2008, the D.C. Circuit Court of Appeals issued an opinion in
North Carolina v. EPA, vacating and remanding the
Clean Air Interstate Rule (CAIR), a pollution reduction program
designed to reduce power plant emissions through various air
quality standards. As a result of the Courts decision, the
current CAIR standards remain in place until the Environmental
Protection Agency (EPA) makes modifications. These rulings
provide some temporary stability to the emission standards.
Although the EPA is required to revise the current CAIR rule and
the status of any new emissions legislation remains undecided,
we anticipate that the revised CAIR rule and any future
CAIR-related legislation will continue to impose stringent
requirements on air emissions, which is expected to have a
positive effect on future demand for our AQC services.
Mercury emission controls and the SCR process for nitrogen oxide
emission controls and AQC services are in continued demand. We
believe the domestic market for both these services could
increase if the current federal and state government trends
toward increased regulation continue, and we believe there will
be select international markets for pursuing the SCR and fine
particle control work.
Gas-Fired Generation. At May 2009,
approximately 20.8% of the electric power generated in the
U.S. was generated by natural gas-fired power plants. We
continue to observe renewed interest in gas-fired electric
generation as electric utilities and independent power producers
look to diversify their options. In many states, recent
initiatives to reduce carbon dioxide and other greenhouse gas
emissions and immediate demand for additional electric power
generation capacity seem to be stimulating renewed demand for
gas-fired power plants. Gas-fired plants generally are less
expensive to construct than coal-fired and nuclear power plants
but tend to have comparatively higher and potentially more
volatile operating costs. We expect power producers to increase
capital spending on gas-fired power plants to take advantage of
recent lower natural gas prices and the prospect that these
prices may remain low for some time because of gas field
development projects in the U.S. as well as potential
liquefied natural gas (LNG) imports. Although the effect of
current economic conditions on the timing or financing of such
projects is unclear, we expect that gas-fired power plants will
continue to be an important component in the development of
long-term power generation in the U.S. and internationally.
We believe our capabilities and expertise position us well to
capitalize on opportunities in this market.
Renewable Energy Generation. At May 2009,
approximately 4.2% of the electric power generated in the
U.S. was from renewable sources such as biomass,
geothermal, solar, wind and other energy sources. We are
actively pursuing international and domestic projects using a
variety of renewable energy technologies, including geothermal,
biomass and concentrating solar. Although the current economic
climate and uncertainty of climate-control legislation have
slowed development of many of these projects, we believe
renewable energy projects will likely be a significant part of
the energy market in the near future.
Maintenance
Segment
Our Maintenance segment is a market leader, providing a full
range of client-tailored technical services to complement our
EPC services for the electric power generation, refining and
petrochemical/chemical industries. Our comprehensive range of
services helps clients increase capacity, reduce expenditures
and optimize costs, improving a clients return on critical
production in each facility. We provide clients with turnaround
maintenance, refueling outage maintenance, routine plant
maintenance, capital construction, reliability engineering,
plant engineering, off-site modularization and other specialty
services. We restore,
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rebuild, repair, renovate and modify industrial structure, and
offer routine and preventive maintenance services. Our services
are provided at client work sites throughout North America.
Nuclear Plant Maintenance and
Modifications. Currently, there are 104 operating
nuclear reactors in the U.S., each of which requires engineering
and maintenance services to support operations, planned outages,
extend equipment life and licenses, upgrade materials, increase
capacity and improve performance. We provide systemwide
maintenance, modification and capital construction services to
40 of these domestic nuclear reactors. We believe we are a
significant contributor to the nuclear industrys success
in reducing refueling outage durations and costs by bringing
plants online significantly faster than industry average since
2000. In addition to supporting operations and improving
performance, we believe we can further expand in-plant restarts,
uprate-related modifications and in-plant support services.
Fossil Plant Maintenance and Modifications. We
offer fossil plant maintenance services for energy generation
facilities throughout North America. Our expertise, developed in
the nuclear industry through our refueling outages and
construction planning/execution, is similarly valuable in the
fossil power sector. We believe significant opportunities exist
to expand in this market as energy demand continues to increase
and clients seek longer run times, higher reliability and
improved outage performance.
Industrial Plant Maintenance and
Modifications. We have a continuous presence in
approximately 90 U.S. field locations serving
petrochemical, specialty chemical, oil and gas, manufacturing
and refining markets. We believe there are opportunities to
expand this business as we help clients reduce cost through
efficiency initiatives.
Capital Construction Services. Our Maintenance
segment includes a capital construction component serving
existing and new clients. Capital construction projects include
renovations and green-field projects. Our scope includes
constructability reviews, civil and concrete work, structural
steel erection, electrical and instrumentation, mechanical and
piping system erection.
Recovery and Rebuild Services. We successfully
execute large projects related to natural disasters and
catastrophes, meeting client deadlines to rebuild and restore
facilities to pre-damage capacity. Recent successfully completed
projects include major petrochemical, natural gas processing,
refining and nuclear power facilities in Texas and Louisiana. We
also coordinate emergency response projects, partnering with
U.S. government, state and local governments to provide
program planning and management.
E&I
Segment
Our E&I segment provides engineering, design and
construction, construction management, regulatory, scientific,
logistics support, operations and maintenance and program
management services to both commercial clients and federal,
state and local government clients worldwide. Our staff is
strategically positioned throughout the U.S. and abroad to
provide full-service solutions to clients facing complex
environmental and infrastructure challenges.
Program Management. We oversee large
U.S. federal, state and local government programs including
capital improvement, emergency response and disaster recovery
projects and programs, as well as private sector commercial
programs. In doing so, we implement the necessary planning,
management and organizational activities and technical services,
with quality and safety in mind. We typically staff projects
with a full complement of experienced professionals, provide our
clients with a single point of contact and manage all
administrative duties required for each job. Our integrated
business teams work together to provide expertise across all
business lines and consistency throughout each program.
Design-Build. We execute all design-build
phases using our proficiencies in engineering, design,
operations, construction and construction management for large
infrastructure projects. Our current hurricane protection
project in New Orleans, Louisiana, is the largest design-build
domestic civil works project ever undertaken by the
U.S. Army Corps of Engineers (USACE). Also, the
U.S. Department of Energy (DOE) contracted us, through our
joint venture Shaw Areva Mox Services, LLC to design, license
and construct the Mixed Oxide (MOX) Fuel Fabrication Facility in
Aiken, South Carolina, a
first-of-a-kind
facility in the U.S. to process weapons-grade plutonium
into nuclear fuel. As part of our sustainability efforts, we
help our clients
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achieve Leadership in Energy and Environmental Design (LEED)
certification for facilities by using green building practices.
We continue to develop engineering, design and construction
strategies to promote the use of sustainable development
techniques. Some of those strategies include retrofitting
buildings for energy efficiency and weatherizing structures,
with the goal of providing a return on investment for our
clients.
Environmental Remediation. We have extensive
experience in environmental remediation for both government and
private-sector clients, including those in the chemical, energy,
real estate, manufacturing and transportation fields. We have
executed many complex remediation and restoration projects for
the U.S. government, including remediating military bases
with unexploded ordnance exposure and residual fuel and chemical
contamination, as well as former nuclear weapons production and
atomic testing sites. Our technological capabilities, such as
laboratory assessments, field testing and analysis, support a
wide range of client needs, including but not limited to
groundwater modeling, contaminant transport and soil washing. We
hold patented technologies in the bioaugmentation field,
implementing microbial culture techniques to remediate
groundwater contaminants, and spearheading the use of ozone, a
common element in the earths atmosphere, to eliminate
organic contaminants.
Coastal, Maritime and Natural Resource Design and
Restoration. We provide engineering and design
services, including navigation, sediment management, port and
waterway development, coastal engineering, environmental
services, levee development and construction, shoreline
protection and restoration and marine security. We perform
wetland construction, mitigation, restoration and related work
for clients around the world. We are involved in projects
generated by the Coastal Wetlands Planning Protection and
Restoration Act, which provides federal funds to restore and
conserve coastal wetlands and barrier islands.
Transportation and General Infrastructure. We
offer program management for infrastructure projects related to
transportation, water and wastewater systems. We offer a full
range of technical and management services to design, plan,
engineer, construct, renovate, operate and maintain highways,
railways, transit systems, waterways and airports. We provide
airport-related services for runways, taxiways, aprons,
terminals and concourses. Bridge and roadwork, transit and
highway tunnels, parking structures and vehicle maintenance
facilities are also included in our broad scope of services.
Large U.S. municipal agencies, such as the New York City
Department of Environmental Protection and the
San Francisco Public Utilities Commission, have engaged us
for major water infrastructure needs, which include water system
improvements and wastewater services such as planning,
collection and treatment, as well as plant construction
services. Additionally, we execute urban planning projects and
provide clients with a long-term vision that supports viable
growth opportunities for their region.
Other Federal Services. We offer program
management, operations, engineering, design, construction,
consulting and technology-based solutions to help various
U.S. government clients including DOE, USACE, the
Department of Defense (DoD), the EPA, Federal Transit
Administration (FTA) and Federal Emergency Management Agency
(FEMA) meet goals and manage challenges associated with the
operation of large federal facilities and programs. Our core
services include environmental remediation and restoration,
regulatory compliance, facilities management and operations and
emergency response services. Environmental restoration
activities support client compliance with government
requirements such as the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA), also known as the
Superfund law, and the Resource Conservation and Recovery Act
(RCRA). Additionally, we support our clients efforts to
comply with Clean Water Act, Clean Air Act and Toxic Substances
Control Act requirements. We are a significant service provider
for U.S. government operations at the EPA Test and
Evaluation facility and other National Risk Management Research
Laboratory facilities, where we provide operational support and
research services.
E&C
Segment
Our E&C segment provides a full range of project-related
services including proprietary technology, project management,
engineering, procurement, construction, commissioning/start-up
and consulting to the oil and gas, refining, and petrochemical
industries globally. Our ability to develop, design,
commercialize and integrate a wide range of process technologies
and perform projects that range from small consulting studies to
large EPC projects differentiate us from many of our
competitors. From our main offices in Houston, Texas;
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Baton Rouge, Louisiana; Cambridge, Massachusetts; Toronto,
Canada; Mumbai, India and Milton Keynes, England, we deliver
services through five major business lines: ethylene,
petrochemicals, refining, upstream and consulting.
While the current global economic climate has impacted E&C
segments prospects in the short-term, as the economy
recovers, we anticipate that expenditures by our major oil and
petrochemical clients will revert to prior levels.
Ethylene. One of Shaws core proprietary
technologies is ethylene process technology. Ethylene is an
olefin that serves as a base chemical of the petrochemical
industry. Since our first ethylene plant was built in 1941, we
have designed
and/or built
more than 120 grassroots units, which provide a significant
portion of the worlds ethylene supply. Produced by the
steam cracking of hydrocarbon feedstocks, ethylene and its
co-product, propylene, are key building blocks for other
petrochemicals and polymers. The economic slowdown and the large
amount of ethylene currently entering the market from recently
completed projects have contributed to reduced demand and the
delay of many planned projects. Exceptions are in the Middle
East, where projects are generally proceeding because of the
availability of low-cost feedstock, and China, which seems to be
affected less by the slowdown than other regions.
We believe the delay in new, grassroots project activity will be
somewhat offset by opportunities to revamp existing facilities,
as owners seek to maximize productivity. We anticipate that
debottleneck and revamp projects and technology upgrades might
bring additional opportunities in the next one to two years.
Petrochemicals. The economic downturn has
resulted in a decrease in global demand for durable goods made
from petrochemicals and a corresponding decline in production
and new construction. However, we expect Middle East and Chinese
clients may continue to focus on strategic plans and
investments. In the rest of Asia, we anticipate that investments
may ramp up as the economy recovers. We also expect that the
Middle Easts demand for polymers may increase, especially
for specialty commodities and engineering plastics. With our
portfolio of technologies in polystyrene, acrylonitrile
butadiene styrene (ABS), intermediate polycarbonates and others,
Shaw is well positioned to participate in the expected economic
upturn.
Additional opportunities may arise as major oil and
petrochemical companies look for ways to integrate their
refining and petrochemical facilities to improve profitability.
We have extensive expertise in the design and construction of
ethylene and downstream derivative plants, which provide the
source of many higher value chemical products used to produce
packaging, pipe, polyester, antifreeze, electronics and
tires all vital products in todays market.
Refining. Demand for technology and services
in the petroleum refining industry has been driven primarily by
our clients requirements to process heavier, poorer
quality feedstocks into a variety of lighter, cleaner products.
Adaptability and increased flexibility are key as refiners
around the world consider expanding beyond their traditional
fuels market by integrating their facilities with petrochemical
operations.
This year the refining sector slowed with the economic downturn
and shrinking margins led to reduced investments. The Middle
East appears to be the strongest region for future growth, where
oil producers are striving to own more of the supply chain by
also exporting finished oil products and even petrochemicals. In
the U.S., refinery utilization is decreasing, but
reconfiguration of refineries to produce cleaner fuels and meet
environmental legislation create new opportunities. In Europe,
we expect strong diesel demand to drive investment decisions.
Shaws fluid catalytic cracking (FCC) technology, jointly
licensed with our international partner, remains a key
technology in new refineries being built around the world,
primarily due to the FCCs ability to boost production of
gasoline and polymer-grade propylene. This same technology is
being used to enhance the performance of existing assets through
its ability to process poorer quality feedstocks, increase
capacity and improve product yields, quality and energy
efficiency. Modifications, or revamps, of existing FCCs to
increase refinery profit margins may result in opportunities in
the U.S. and Europe, where most of the worlds
catalytic crackers are located.
8
In addition to FCC, Shaw offers related technologies including
deep catalytic cracking (DCC) and catalytic pyrolysis
process (CPP), which boost production of ethylene and propylene.
The recent popularity of these technologies is driven by the
growing global trend toward integrating refineries and
petrochemical facilities.
Upstream. Upstream has been successful in
winning project management consultancy (PMC) work in the
offshore sector and is currently pursuing additional onshore
opportunities in the Middle East. In response to the global
rising demand for liquefied petroleum gas (LPG), production is
forecast to increase dramatically by 2012, mainly in the Middle
East and North Africa. We are active in this market, with recent
awards for front-end engineering design (FEED) and detailed
engineering services for an LPG project in Algeria.
Syngas (short for synthesis gas), a clean gas that can be used
for power generation or converted to substitute natural gas
(SNG) or high value clean fuels, may play a role. Syngas (short
for synthesis gas), a clean gas that can be used for power
generation or converted to substitute natural gas (SNG) or high
value clean fuels. Syngas can be produced through a number of
processes including coal gasification and steam reforming of
natural gas or liquid hydrocarbons. This area may grow with
rising demand for electricity and the push for reductions in
greenhouse gas emissions, especially carbon dioxide and we are
pursuing opportunities in this growing business.
Consulting. We offer consulting services to
the energy, power, process, petrochemical, refining, and
government market segments, as well as to the broader investment
and financial community. Previously known as Stone &
Webster Management Consultants, the business name was changed to
Shaw Consultants International in 2009. It originally was
founded in Boston more than 100 years ago.
The global economic downturn has slowed the pace of new
consulting engagements, as operating companies and the financial
community experienced uncertainty regarding project finance
availability and hydrocarbon and energy pricing. However, we
expect consulting activity to increase during the early stages
of the expected economic recovery in 2010.
F&M
Segment
We believe our F&M segment is among the largest worldwide
suppliers of fabricated piping systems. Demand for our F&M
segments products is typically driven by capital projects
in the electric power, chemical and refinery industries.
We provide support and work for both external clients and for
other business units within our company. F&M provides pipe
and structural steel fabrication for projects such as the
E&I segments DOE work and several Fossil,
Renewables & Nuclear segments power projects, as
well as the E&C segments largest current project. Our
F&M segment is nearing completion on a new facility that
will assemble modules for the construction of nuclear power
plants.
Pipe Fabrication. We fabricate fully
integrated piping systems for heavy industrial clients around
the world. We believe our expertise and proven capabilities in
furnishing complete piping systems to a global market have
positioned us among the largest suppliers of fabricated piping
systems for power generation facilities in the U.S. and
worldwide. Piping systems are normally a critical path for heavy
industrial plants that convert raw or feedstock materials to
products and piping system integration accounts for a
significant portion of the total man hours associated with
constructing power generation, chemical and other processing
facilities.
We fabricate complex piping systems using carbon steel,
stainless, nickel, titanium and aluminum pipe. We fabricate the
pipe by cutting it to specified lengths, welding fittings,
flanges or other components on the pipe and/or bending the pipe
to precise client specifications using our unique pipe-bending
technology. We believe our Shaw Cojafex induction pipe-bending
technology is the most advanced, sophisticated and efficient
pipe bending technologies of its kind. We utilize the Cojafex
technology and related equipment to bend carbon steel and alloy
pipe for industrial, commercial and architectural applications.
Delivering pipe bent to client specifications can provide
significant savings in labor, time and material costs compared
to field fabrication and greater strength than pipes and
fittings welded together.
9
Additionally, we implemented a robotics program that we believe
results in increased productivity and quality levels. By
utilizing robotics, as well as automated and semi-automated
welding processes and production technology, we are able to
provide our clients a complete range of fabrication services.
We operate pipe fabrication facilities in Louisiana, Arkansas,
South Carolina, Utah, Mexico and Venezuela and through a joint
venture in Bahrain. Our South Carolina facility is authorized to
fabricate piping for nuclear energy plants and maintains a
nuclear piping American Society of Mechanical Engineers
certification.
Through structural steel fabrication, we produce custom
fabricated steel components and structures used in the
architectural and industrial markets. These steel fabrications
are used for supporting piping and equipment in buildings,
chemical plants, refineries and power generation facilities. Our
fabrication lines utilize standard mill-produced steel shapes
that are cut, drilled, punched and welded into the
specifications requested by our clients. We have structural
steel fabrication facilities in Louisiana and Mexico, which is
our newest facility offering the latest in advanced technology
and efficiency for structural steel fabrication.
Manufacturing and Distribution. We operate
pipe fitting manufacturing facilities in Louisiana and New
Jersey. Products from these facilities ultimately are sold to
third-party operating plants, engineering and construction
firms, as well as to our other business segments within the
company. We maintain an inventory of pipe and pipe fittings
enabling us to realize greater efficiencies in the purchase of
raw materials, reduces overall lead times and lowers total costs.
We operate distribution centers in Louisiana, Texas, Georgia and
New Jersey that distribute our products and products
manufactured by third parties.
Module Facility. We are constructing and
expect to begin operations of a modular facility in Lake
Charles, Louisiana in early fiscal year 2010. The Shaw Modular
Solutions facility is believed to be the first of its kind in
the U.S. and will build modules for the construction of
domestic AP1000 nuclear power plants. The new facility will
utilize our industry-leading technologies and our proprietary
operations management systems, which are in use at our other
facilities. We have received orders for the first six nuclear
reactors to be built domestically in more than 30 years,
all of which are designed to use AP1000 technology and all will
have modular components fabricated in our Lake Charles facility.
Our F&M segment typically contemporaneously invoices our
clients when we purchase our pipe, steel and materials for
modular fabrication contracts. Our invoices generally do not
include extended payment terms, nor do we offer significant
rights of return. These contracts typically represent the
majority of the business volume of our F&M segment. We
maintain limited amounts of stock inventory primarily relating
to our manufacturing and distribution businesses.
Investment
in Westinghouse Segment
Our Investment in Westinghouse includes a 20% equity interest
(Westinghouse Equity) in Westinghouse. We financed our
Westinghouse Equity purchase from Toshiba partially through our
subsidiary Nuclear Energy Holdings, LLC (NEH), issuing limited
recourse to us (except NEH) Japanese Yen (JPY)-denominated bonds
(Westinghouse Bonds). Westinghouse serves the domestic and
international nuclear electric power industry by supplying
advanced nuclear plant designs, licensing, engineering services,
equipment, fuel and a wide range of other products and services
to owners and operators of nuclear power. We believe that
Westinghouse products and services are being used in
approximately half of the worlds operating nuclear plants,
including 60% of those in the U.S. Internationally,
Westinghouse technology is being used for six reactors under
construction in South Korea, and four reactors under
construction in China and is under consideration for numerous
new nuclear reactors in multiple countries. Please see our
disclosures under Note 6 Equity Method
Investments and Variable Interest Entities and
Note 8 Debt and Revolving Lines of Credit
included in Part I, Item 1 Financial
Statements and Liquidity below with respect to
circumstances in which our Westinghouse Equity may be
re-purchased by Toshiba.
10
In connection with our Investment in Westinghouse, we entered
into JPY-denominated Put Option Agreements with Toshiba (Put
Option), providing us the option to sell all or part of our
Westinghouse Equity to Toshiba during a defined Exercise
Period. The Exercise Period commences upon the earlier of
March 31, 2010, or the occurrence of a Toshiba
Event which is caused by, among other things, Toshiba
failing to maintain certain financial metrics.
Toshiba notified us on May 11, 2009, that it experienced a
Toshiba Event as of May 8, 2009, because it failed to
maintain a minimum consolidated net worth of JPY
800 billion. Because of the Toshiba Event, the Westinghouse
Bond holders who funded our Investment in Westinghouse currently
have the opportunity, under certain circumstances, to direct us
to exercise the Put Option.
In the third quarter of fiscal 2009, we reclassified our
Investment in Westinghouse and the corresponding outstanding
bonds from long-term to current. Because of the
reclassification, we were required to expense the unamortized
original issuance bond discount of $22.8 million pre-tax,
or $13.9 million after tax, as well as the remaining
deferred financing costs of $6.6 million pre-tax, or
$4.0 million after tax, in that period. Those non-cash
charges are included as interest expense in the financial
statements.
As of the date of this report, the bondholders have not directed
us to exercise the Put Option, and the company has no knowledge
of any intent to do so in the future. The bondholders
direction to exercise the Put Option would not affect
Toshibas or our obligations under the Westinghouse CRA,
which provides us with certain exclusive opportunities to bid on
projects where the company would provide EPC services on future
Westinghouse AP1000 nuclear power plants and other commercial
opportunities such as supplying piping for those units. In June
2009, Toshiba reported that it raised approximately
$3.0 billion in equity, and thus may no longer fail to meet
the minimum financial metrics.
Westinghouse maintains its accounting records for reporting to
its majority owner, Toshiba, on a calendar quarter basis with a
March 31 fiscal year end. Financial information about
Westinghouses operations is available to us for
Westinghouses calendar quarter periods. The financial
results of the Westinghouse segment continue to experience
significant volatility from non-operating foreign exchange
translation losses that result when the JPY strengthens versus
the U.S. Dollar. We revalue the U.S. Dollar equivalent
of the JPY denominated Westinghouse Bonds at each fiscal quarter
end and as the JPY strengthens, the U.S. Dollar equivalent
of these JPY bonds increases which also generates translation
losses in our Consolidated Statement of Operations. Offsetting
the increase in the dollar equivalent of the Westinghouse Bonds,
the underlying value of the Put Option also increases. However,
the Put Option is not revalued each quarter for financial
reporting purposes. At August 31, 2009, the JPY to dollar
exchange rate was 92.9. Currency translation losses for fiscal
2009 resulting from the increase in the JPY to U.S. Dollar
exchange rate amounted to $198.1 million pre-tax, or
$121.6 million after-tax.
For additional information, see Note 6 Equity
Method Investments and Variable Interest Entities and
Note 8 Debt and Revolving Lines of Credit
included in Part I, Item 1 Financial
Statements and in Liquidity below.
Corporate
Segment
Our Corporate segment includes our corporate management and
expenses associated with managing our company as a whole. These
expenses include compensation and benefits of corporate
management and staff, legal and professional fees and
administrative and general expenses that are not allocated to
other segments. Our Corporate segments assets primarily
include cash and cash equivalents held by the corporate
entities, property and equipment related to our corporate
headquarters and certain information technology costs.
Clients,
Marketing and Seasonality
Our clients are principally regulated utilities, independent and
merchant power producers, multinational oil companies and
industrial corporations, government agencies and other equipment
manufacturers. See Note 14 Business Segments
included in Part II, Item 8 Financial
Statements and Supplementary Data for information regarding our
client concentrations. Additionally, see in Part II,
Item 7 Managements
11
Discussion and Analysis of Financial Condition and Results of
Operations Backlog for information regarding our
backlog concentrations as of August 31, 2009.
We conduct our marketing efforts principally with an in-house
sales force. In addition, we engage independent contractors to
market to certain clients and geographic areas. We pay our sales
force a base salary plus, when appropriate, an annual bonus that
may consist of cash, stock options, restricted stock awards, or
stock or any combination thereof. We pay our independent
contractors on a commission basis that may also include a
monthly retainer.
A portion of our business, primarily our nuclear and fossil
power plant maintenance business, is seasonal, resulting in
fluctuations in revenues and gross profit in our Maintenance
segment during our fiscal year. Generally, the spring and autumn
are the peak periods for our Maintenance segment.
Competition
The markets we serve are highly competitive and for the most
part require substantial resources and highly-skilled and
experienced technical personnel. A large number of regional,
national and international engineering & construction
companies are competing in these markets, and certain of these
competitors may have greater financial and other resources and
more experience, market knowledge and client relationships.
Companies that we compete with in our Fossil,
Renewables & Nuclear segment include Bechtel, Fluor
Corporation, URS Corporation, Black & Veatch and
Zachary. Companies that we compete with in our E&C segment
include Chicago Bridge & Iron Company, KBR Inc.,
Jacobs Engineering Group, Inc., TECHNIP and JGC Corporation.
Companies that we compete with in our E&I segment include
CH2M Hill, URS Corporation, TetraTech, Inc. and KBR, Inc.
Companies that we compete with in our Maintenance segment
include Fluor Corporation, Day & Zimmerman/The
Atlantic Group, Turner Industries, KBR, Inc. and Jacobs
Engineering Group, Inc. Companies that we compete with in our
F&M segment consist of a number of smaller pipe fabricators
in the U.S. while internationally our principal competitors
are divisions of large industrial firms. Companies that compete
with our Investment in Westinghouse segment include Areva,
General Electric (GE), Mitsubishi, Hitachi and AtomStroyExport.
In addition, see Part I, Item 1A Risk
Factors for a discussion of the risks related to competition we
face in each of our business segments.
Backlog
of Unfilled Orders
Our backlog represents managements estimate of the amount
of awards that we expect will result in future revenues. Backlog
is based on legally binding agreements for projects that
management believes are probable to proceed. Awards are
evaluated by our management on a
project-by-project
basis and are reported for each period shown based upon the
nature of the underlying contract, commitment and other factors,
including the economic, financial and regulatory viability of
the project and the likelihood of the contract proceeding.
Projects in backlog may be altered (increased or decreased) for
scope changes
and/or may
be suspended or cancelled at any time by our clients.
The following table sets forth the consolidated backlog at
August 31, 2009 and 2008 (in millions).
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
By Segment
|
|
2009
|
|
|
2008
|
|
|
Fossil, Renewables & Nuclear
|
|
$
|
12,795.1
|
|
|
$
|
6,109.7
|
|
E&I
|
|
|
5,439.0
|
|
|
|
5,155.4
|
|
E&C
|
|
|
1,298.6
|
|
|
|
2,175.5
|
|
Maintenance
|
|
|
1,808.1
|
|
|
|
1,423.3
|
|
F&M
|
|
|
1,374.8
|
|
|
|
763.1
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
22,715.6
|
|
|
$
|
15,627.0
|
|
|
|
|
|
|
|
|
|
|
12
For additional information with respect to our backlog as of
August 31, 2009 and 2008, see Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations. In
addition, see Part I, Item 1A Risk
Factors for a discussion of risks related to our backlog.
Types of
Contracts
Our work is performed under two general types of contracts,
cost-reimbursable contracts and fixed-price contracts. Both
types of contracts may be modified by cost escalation provisions
or other risk sharing mechanisms and both may include incentive
and penalty provisions. Each of our contracts may contain
components of more than one of the contract types discussed
below. For example, some of our contracts have elements of
reimbursable with a maximum target price, fixed-price subject to
certain adjustments, and fixed price and cost-reimbursable
provisions encompassed within one contract. During the term of a
project, the contract or components of the contract may be
renegotiated to include characteristics of a different contract
type. We attempt to focus our EPC activities on a
cost-reimbursable plus a fee or
mark-up and
negotiated fixed-price work, each as described in more detail
below. We believe these types of contracts may help reduce our
exposure to unanticipated and unrecoverable cost overruns. When
we negotiate any type of contract, we frequently are required to
accomplish the scope of work and meet certain performance
criteria within a specified timeframe; otherwise, we could be
assessed damages, which in many cases are pre-agreed-upon
liquidated damages. All contract types are subject to
client-authorized amendment.
At August 31, 2009, approximately 55% of our backlog was
comprised of cost-reimbursable contracts and 45% was comprised
of fixed-price contracts. See Note 1
Description of Business and Summary of Significant Accounting
Policies for a discussion of the nature of our operations and
types of contracts.
U.S. government contracts are typically awarded through
competitive bidding or negotiations pursuant to federal
acquisition regulations and may involve several bidders or
offerors. Government contracts also typically have annual
funding limitations, are limited by public sector budgeting
constraints and may be terminated at the discretion of the
government agency with payment only for work performed and
commitments made at the time of termination. In the event of
termination, we generally receive some allowance for profit on
the work performed. Many of these contracts are multi-year
indefinite delivery, indefinite quantity (IDIQ) agreements.
These programs provide estimates of a maximum amount the agency
expects to spend. Our program management and technical staffs
work closely with the government agency to define the scope and
amount of work required. Although these contracts do not
initially provide us with any specific amount of work, as
projects are defined, the work may be awarded to us without
further competitive bidding. We generally include in our backlog
an estimate of the work we expect to receive under these
specific agreements.
Although we generally serve as the prime contractor on our
federal government contracts, or as part of a joint venture
acting as the prime contractor, we may also serve as a
subcontractor to other prime contractors. With respect to
bidding on large, complex environmental contracts, we have
entered into, and expect to continue to enter into, joint
venture or teaming arrangements with competitors.
U.S. government contracts are subject to oversight audits
by government representatives, profit and cost controls and
limitations and provisions permitting modification or
termination, in whole or in part, without prior notice, at the
governments discretion. Government contracts are subject
to specific procurement regulations and a variety of
socio-economic and other requirements. Failure to comply with
such regulations and requirements could lead to suspension or
debarment, for cause, from future government contracting or
subcontracting for a period of time. Some of the causes for
debarment are violations of various statutes, including those
related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs.
Our continuing service agreements with clients expedite
individual project contract negotiations through means other
than the formal bidding process. These agreements typically
contain a standardized set of purchasing terms and
pre-negotiated pricing provisions and often provide for periodic
price adjustments. Service agreements allow our clients to
achieve greater cost efficiencies and reduced cycle times in the
design and fabrication of complex piping systems for power
generation, chemical and refinery projects. Additionally, while
these agreements do not typically contain committed volumes, we
believe that these agreements provide
13
us with a steady source of new projects and help minimize the
impact of short-term pricing volatility and reduce our sales
pursuit costs.
See Part I, Item 1A Risk Factors
for additional discussion of the risks related to contractual
arrangements, including our contracts with the
U.S. government.
Raw
Materials and Suppliers
For our EPC services, we often rely on third party equipment and
raw materials manufacturers and subcontractors to complete our
projects. We are not substantially dependent on any individual
third party to support these operations; however, we are subject
to possible cost escalations based on inflation, currency and
other market price fluctuations resulting from supply and demand
imbalances. In the future, our mix of third party suppliers will
increase as our construction phase progresses on our major
nuclear EPC contracts and we may experience increased dependence
on particular suppliers as a result. We expect the current
market for these inputs to continue to remain competitive
throughout our fiscal year 2010.
Our principal raw materials for our pipe fabrication operations
are carbon steel, stainless and other alloy piping, which we
obtain from a number of domestic and foreign steel producers.
The market for most raw materials is extremely competitive, and
certain types of raw materials are available from only one or a
few specialized suppliers.
In addition to manufacturing our own pipe fittings, we purchase
some of our pipe fittings from other manufacturers. These
arrangements generally lower our pipe fabrication costs because
we are often able to negotiate advantageous purchase prices as a
result of the volume of our purchases. If a manufacturer is
unable to deliver the materials according to the negotiated
terms, we may be required to purchase the materials from another
source (or manufacture our own the pipe fittings) at a higher
price. We keep certain items in stock at each of our facilities
and transport items between our facilities as required. We
obtain materials that are more specialized from suppliers when
required for a project.
In addition, see Part I, Item 1A Risk
Factors for a discussion of our dependence on joint venture or
consortium partners, subcontractors and equipment manufacturers.
Safety
We actively promote a positive and proactive attitude toward
safety in accordance with all applicable and related laws. Our
mission is to be the industry leader in environmental, health
and safety performance and is evidenced by our achievements in
reaching safety milestones, winning safety awards and
maintaining a low Occupational Safety and Health Administration
(OSHA) case rate. We marked a significant safety milestone in
which our Eastern Petrochemical Company (SHARQ) project team
completed 56 million man hours without a lost time
incident, marking a record for us. We strive for zero injuries,
illnesses and environmental incidents.
Industry
Certifications
In order to perform certain aspects of nuclear power plant
construction, fabrication and installation activities of ASME
III Code items such as vessels, piping systems, supports and
spent fuel canister/storage containments at nuclear plant sites,
our domestic subsidiary engineering and construction operations
maintain the required ASME certifications (N, N3, NPT, and NA
stamps) (NS Cert). These ASME certifications also authorize us
to serve as a material organization for the supply of ferrous
and nonferrous material. We also maintain the National Board
nuclear repair certification (NR stamp) and National Board
registration certification (NB stamp) for N and N3 stamped
nuclear components.
In order to perform fabrication and repairs of coded piping
systems, our domestic construction operations and fabrication
facilities, as well as our subsidiaries in Derby, U.K., and
Maracaibo, Venezuela, maintain the ASME certification (U and PP
stamps). The majority of our fabrication facilities, as well as
our subsidiaries in Derby, U.K., and Maracaibo, Venezuela have
also obtained the required ASME certification (S stamp) and the
National Board certification (R stamp).
14
Our domestic subsidiary engineering and construction operations
also maintain the required ASME certification (S stamp) and the
National Board repair certification (R stamp), in addition to
the ASME certifications (A, PP and U stamps) and the National
Board registration certification (NB stamp) for S, A, PP and U
stamped items.
Our Laurens, South Carolina, facility also maintains a nuclear
piping ASME certification (NPT stamp) and is authorized to
fabricate piping for nuclear power plants and to serve as a
material organization to manufacture and supply ferrous and
nonferrous material. This facility is also registered by the
International Organization of Standards (ISO 9002).
Substantially all of our North American engineering operations,
as well as our U.K. operations, are also registered by the
International Organization of Standards (ISO 9001). This
registration provides assurance to our clients that we have
procedures to control quality in our fabrication processes.
Patents,
Tradenames and Licenses and Other Intellectual
Property
We consider our computerized project control system,
SHAW-MANtm,
and our web-based earned value application,
SHAWTRACtm,
to be proprietary assets. We believe that our E&C segment
subsidiary has a leading position in technology associated with
the design and construction of plants that produce ethylene,
which we protect and develop with license restrictions and a
research and development program.
Through Badger Licensing, LLC (Badger) our joint venture with
ExxonMobil Chemical, we expanded our proprietary technology
licensing business through the acquisition of the Shell Heritage
Bisphenol A (BPA) technology from Resolution Performance
Products. Badger is in a leading position to supply proprietary
ethyl benzene, styrene monomer, cumene and BPA technologies to
the petrochemical industry. In other technology partnerships, we
are the exclusive provider of front-end basic engineering for
Sasols Fischer-Tropsch technology in the areas of both
gas-to-liquids
and
coal-to-liquids.
Through our IT Group acquisition in 2002, we acquired certain
patents that are useful in environmental remediation and related
technologies. The technologies include the
Biofast®
in-situ remediation method, a vacuum extraction method for
treating contaminated formations and a method for soil treatment
that uses ozone. The IT Group acquisition also included
proprietary software programs that are used in the management
and control of hazardous wastes and the management and oversight
of remediation projects.
In addition, see Part I, Item 1A Risk
Factors for the impact of changes in technology or new
technology developments by our competitors could have on us.
Environmental
Matters
Our U.S. operations are subject to numerous laws and
regulations at the federal, state and local level relating to
the environmental protection and the safety and health of
personnel and the public. These laws and regulations relate to a
broad range of our activities, including those concerning
emissions, discharges into waterways and generation, storage,
handling, treatment and disposal of hazardous materials and
wastes. Environmental protection laws and regulations generally
require us to obtain and comply with a wide variety of
environmental registrations, licenses, permits and other
approvals. Failure to comply with these laws and regulations may
result in the assessment of administrative, civil
and/or
criminal penalties, the imposition of remedial requirements and
the issuance of orders limiting or enjoining some or all of our
future operations.
Under CERCLA and comparable state laws applicable to our
domestic operations, we may be required to investigate and
remediate hazardous substances and other regulated materials
that have been released into the environment. CERCLA and
comparable state laws impose strict and, under certain
circumstances, joint and several liability for costs required to
clean up and restore sites where hazardous substances have been
disposed or otherwise released regardless of whether a company
knew of or caused the release of the substances. Our domestic
operations generate solid wastes, including hazardous wastes
that are subject to the requirements of the Resources
Conservation and Recovery Act (RCRA) and comparable state laws.
Failure by us to handle and dispose of solid and hazardous
wastes in compliance with RCRA may result in the imposition of
liability, including remedial obligations. We could also incur
environmental liability at sites where we have been
15
contractually hired by potentially responsible parties (PRPs) to
remediate contamination of the site. Some PRPs have from time to
time sought to expand the reach of CERCLA, RCRA and similar
state statutes to make the remediation contractor responsible
for site cleanup costs in certain circumstances. These PRPs have
asserted that environmental contractors are owners or operators
of hazardous waste facilities or that the contractors arranged
for treatment, transportation or disposal of solid or hazardous
wastes or hazardous substances. If we are held responsible under
CERCLA or RCRA for damages caused while performing services or
otherwise, we may be forced to incur cleanup costs directly,
notwithstanding the potential availability of contribution or
indemnification from other parties. Over the past several years,
the EPA and other federal agencies have significantly
constricted the circumstances under which they will indemnify
their contractors against liabilities incurred in connection
with the investigation and remediation of contaminated
properties.
In response to recent scientific studies suggesting that
emissions of carbon dioxide and other greenhouse gases may be
contributing to global warming, the U.S. Congress is
actively considering legislation to reduce emissions of
greenhouse gases, with the U.S. House of Representatives
having already passed legislation in June 2009 known as the
American Clean Energy and Security Act of 2009, also
known as the Waxman-Markey
cap-and-trade
legislation or ACESA which would establish an
economy-wide
cap-and-trade
program to reduce U.S. emissions of carbon dioxide and
other greenhouse gases by 17 percent from 2005 levels by
2020, and just over 80 percent by 2050. Also, more than
one-third of the states have pursued legal measures to reduce
emissions of greenhouse gases, primarily through the planned
development of gas emission inventories or regional greenhouse
gas cap and trade programs. In addition, following publication
in April 2009 of its proposed notice of finding and
determination that emissions of carbon dioxide and other
greenhouse gases present an endangerment to human health and the
environment, the EPA is considering adopting regulations under
existing provisions of the federal Clean Air Act to control
emissions of carbon dioxide in response to the U.S. Supreme
Courts 2007 decision in Massachusetts, et al. v.
EPA, and further, has proposed a rulemaking in April 2009
requiring mandatory reporting of greenhouse gas emissions by
major source in the U.S. Any legislation or regulation
restricting emissions of greenhouse gases could have a
significant impact on our business. One potential negative
impact is a reduction in demand for construction of new
coal-fired power plants, but this impact could be offset by an
increase in demand for construction of new nuclear power plants.
It is not possible to predict at this time whether any such
legislation or regulation would have an overall negative or
positive impact on our business.
Our operations outside of the U.S. are subject to similar
foreign governmental controls and restrictions pertaining to
protection of the environment and the safety and health of
personnel and the public. For example, with respect to climate
change, many foreign nations (but not the U.S.) have agreed to
limit emissions for greenhouse gases pursuant to the United
Nations Framework Convention on Climate Change, also known as
the Kyoto Protocol. Failure to comply with foreign
requirements, including the Kyoto Protocol, in areas outside of
the U.S. where we conduct operations may lead to government
sanctions resulting in penalties, remedial obligations and
injunctive relief against future activities.
The environmental, health and safety laws and regulations to
which we are subject are constantly changing, and it is
impossible to predict the effect of such laws and regulations on
us in the future. We believe we are in substantial compliance
with all applicable environmental, health and safety laws and
regulations. To date, our costs net of any insurance proceeds
with respect to environmental compliance have not been material,
and to our knowledge, we have not incurred any material net
environmental liability. However, we can provide no assurance
that we will not incur material environmental costs or
liabilities in the future. For additional information on how
environmental matters may impact our business, see Part I,
Item 1A Risk Factors.
Employees
We employ approximately 28,000 people, including part-time
and temporary workers. This total includes approximately 15,000
craft employees, 8,000 technical employees and 5,000
nontechnical overhead employees. Approximately
5,000 employees were represented by labor unions pursuant
to collective bargaining agreements. We often employ union
workers on a project-specific basis. We believe that current
relationships with
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our employees (including those represented by unions) are
satisfactory. We are not aware of any circumstances that are
likely to result in a work stoppage at any of our facilities.
See Part I, Item 1A Risk Factors for a
discussion of the risks related to work stoppages and other
labor issues.
Available
Information
All of our periodic report filings with the SEC pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (Exchange Act), are made available, free of
charge, through our website located at
http://www.shawgrp.com,
including our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and any amendments to these reports. These reports are available
through our website as soon as reasonably practicable after we
electronically file with or furnish the reports to the SEC.
Information on our website is not incorporated into this 2009
Form 10-K
or our other securities filings. You may also request an
electronic or paper copy of these filings at no cost by writing
or telephoning us at the following: The Shaw Group Inc.,
Attention: Investor Relations Office, 4171 Essen Lane, Baton
Rouge, Louisiana, 70809,
(225) 932-2500.
In addition, the public may read and copy any materials we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, D.C. 20549, or on
the SECs Internet website located at
http://www.sec.gov.
The public may obtain information on the operation of the Public
Reference Room and the SECs Internet website by calling
the SEC at
1-800-SEC-0330.
Certifications
We will timely provide the annual certification of our Chief
Executive Officer to the NYSE. We filed last years
certification on February 19, 2009. In addition, our Chief
Executive Officer and Chief Financial Officer each have signed
and filed the certifications under Section 302 of the
Sarbanes-Oxley Act of 2002 with this
Form 10-K.
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The risks described below could materially and adversely
affect our stock price, business, financial condition and
results of operations and the actual outcome of matters as to
which forward-looking statements are made in this
Form 10-K
The risk factors described below are not the only ones we face.
Our stock price, business, financial condition and results of
operations may also be affected by additional factors that are
not currently known to us or that we currently consider
immaterial or that are not specific to us, such as general
economic conditions.
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.
You should refer to the explanation of the qualifications and
limitations on forward-looking statements under Cautionary
Statement Regarding Forward-Looking Statements. All
forward-looking statements made by us are qualified by the risk
factors described below.
Risks
Related to Our Operations
Our
backlog of unfilled orders is subject to unexpected adjustments
and cancellations and is, therefore, not a reliable indicator of
our future revenues or earnings.
At August 31, 2009, our backlog was approximately
$22.7 billion. Our backlog consists of projects for which
we have signed contracts or commitments from clients, including
those based on legally binding agreements without the scope
being defined. Commitments may be in the form of written
contracts for specific projects, purchase orders or indications
of the amounts of time and materials we need to make available
for clients anticipated projects. Our backlog includes
expected revenue based on engineering and design specifications
that may not be final and could be revised over time and also
includes expected revenues for government and maintenance
contracts that may not specify actual dollar amounts for the
work to be performed. For these contracts, our backlog is based
on an estimate of work to be performed, which is based on our
knowledge of our clients stated intentions or our historic
experience.
There can be no assurance that the revenues projected in our
backlog will be realized or, if realized, will result in
profits. Because of project terminations or suspensions and
changes in project scope and schedule, we cannot predict with
certainty when or if our backlog will be performed. For example,
one new build coal/petroleum coke fired generation facility was
canceled and removed from backlog in the second quarter of
fiscal 2009. We can provide no assurance that we will not
receive additional cancellations as a result of global economic
conditions. Even where a project proceeds as scheduled, it is
possible that the client may default and fail to pay amounts
owed to us. Material delays, cancellations or payment defaults
could materially affect our financial condition, results of
operations and cash flow and may reduce the value of our stock.
Client cancellations could reduce our backlog, which, among
other things, could materially impact the revenues and earnings.
Many of the contracts in our backlog provide for cancellation
fees in the event clients cancel projects. These cancellation
fees usually provide for reimbursement of our
out-of-pocket
costs, revenues for work performed prior to cancellation and a
varying percentage of the profits we would have realized had the
contract been completed. However, we typically have no
contractual right upon cancellation to the total revenues
reflected in our backlog. Projects may remain in our backlog for
extended periods of time.
Our
results of operations depend on new contract awards; however,
the selection process and timing for performing these contracts
are not within our control.
A substantial portion of our revenues is directly or indirectly
derived from new contract awards. We operate in highly
competitive markets and it is difficult to predict whether and
when we will receive such awards due to the lengthy and complex
bidding and selection process. Client investment decisions are
affected by a number of factors, such as market conditions,
financing arrangements, government approvals and environmental
matters. Because a significant portion of our revenues is
generated from large projects, our
18
results of operations and cash flows can fluctuate from quarter
to quarter depending on the timing of our contract awards.
Consequently, we are subject to the risk of losing new awards to
competitors and the risk a project may experience significant
delay or cancellation.
Many
of our clients as well as state and local
governments activity levels and spending for our products
and services and their ability to meet their payment commitments
to us may be impacted by the current deterioration in the credit
markets and we may be unable to recover all
expenditures
Due to the current economic downturn, many of our clients may
face budget shortfalls or may delay capital spending that may
decrease the overall demand for our services. In addition, a
decrease in state tax revenue as well as other economic declines
may result in lower state and local government spending. Our
clients may find it more difficult to raise capital in the
future due to limitations on the availability of credit and
other uncertainties in the municipal and global credit markets.
This reduction in spending could have a material adverse effect
on our operations.
In many instances during the course of a project, we commit
and/or pay
for products or expenses attributable to our clients with an
understanding that the client will pay us per the terms of our
commercial contract with them. Due to the deterioration of the
credit markets, our clients may not be able to make such
payments to us in a timely manner, or at all, in which case we
could be forced to absorb these costs requiring that we commit
our financial resources to projects prior to receiving payments
from the client. If a client defaults in making its payments on
a project in which we have devoted significant financial
resources, it could have a material adverse effect on our
business or results of operations.
The
nature of our contracts, particularly our fixed-price contracts,
could adversely affect us.
Approximately 55% of our backlog at August 31, 2009, was
from cost-reimbursable contracts and the remaining 45% was from
contracts that are primarily fixed-price. Revenues and gross
profit from both cost-reimbursable and fixed price contracts can
be significantly affected by contract incentives/penalties that
may not be known or finalized until the later stages of the
contract term. Under fixed-price contracts, we agree to the
contract price of the project at the time we enter into the
contract. While we benefit from costs savings and earnings from
approved change orders under fixed-priced contracts, we are
generally unable to recover cost overruns to the approved
contract price. Under certain fixed-price contracts, we share
with the client any savings up to a negotiated or target
ceiling. When costs exceed the negotiated ceiling price in a
fixed-price contract, we may be required to reduce our fee or to
absorb some or all of the cost overruns.
We also assume the risks related to revenue, cost and gross
profit realized on fixed-priced contracts that can vary,
sometimes substantially, from the original projections due to
changes in a variety of other factors that include, 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 cost of equipment, commodities, materials or
labor;
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difficulties in obtaining required permits or approvals;
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changes in laws and regulations;
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changes in labor conditions, including the availability and
productivity of labor;
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project modifications creating unanticipated costs;
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delays caused by local weather conditions;
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failure to perform by our project owners, suppliers or
subcontractors; and
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general economic conditions.
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These risks may be exacerbated by the length of time between
signing a contract and completing the project because most
fixed-price contracts are long-term. The term of our contracts
can be as long as approximately seven years. Long-term,
fixed-price contracts 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 basis.
These losses may be material, 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 enter into contractual agreements with clients for some of
our EPC services to be performed based on
agreed-upon
reimbursable costs and labor rates. Some of these contracts
provide for the clients review of our accounting and cost
control systems to verify the completeness and accuracy of the
reimbursable costs invoiced. These reviews could result in
reductions in reimbursable costs and labor rates previously
billed to the client.
Many of our client contracts require us to satisfy specified
design or EPC milestones in order to receive payment for the
work completed or equipment or supplies procured prior to
achievement of the applicable milestone. As a result, under
these types of arrangements, we may incur significant costs or
perform significant amounts of services prior to receipt of
payment. If the client determines not to proceed with the
completion of the project or if the client defaults on its
payment obligations, we may face difficulties in collecting
payment of amounts due to us for the costs previously incurred
or for the amounts previously expended to purchase equipment or
supplies. In addition, many of our clients for large EPC
projects are project-specific entities that do not have
significant assets other than their interests in the EPC
project. It may be difficult for us to collect amounts owed to
us by these clients. If we are unable to collect amounts owed to
us for these matters, we may be required to record a charge
against earnings related to the project, which could result in a
material loss.
The
ability of our clients to receive the applicable regulatory and
environmental approvals for our projects and the timeliness of
those approvals could adversely affect us.
The regulatory permitting process for many of the projects
performed by our Fossil, Renewables & Nuclear segment
requires significant investments of time and money by our
clients. There are no assurances that our clients will obtain
the necessary permits for these projects. Applications for
permits to operate these fossil and nuclear-fueled facilities,
including air emissions permits, may be opposed by individuals
or environmental groups, resulting in delays and possible
non-issuance of the permits. For example, the NRC recently
notified Westinghouse that the proposed AP1000 shield building
design will require modification. While we believe Westinghouse
will be able to satisfy the NRCs concerns and receive
design certification, this or similar certification actions
could affect or delay our ability to complete our projects.
We
continue to expand our business in areas where surety bonding is
required, but bonding capacity is limited.
We continue to expand our business in areas where the underlying
contract must be bonded, especially in government services in
which bonding is predominately provided by insurance sureties.
These surety bonds indemnify the client if we fail to perform
our obligations under the contract. Failure to provide a bond on
terms required by a client may result in an inability to compete
for or win a project. Historically, we have had a strong surety
bonding capacity but, as is typically the case, bonding is at
the suretys sole discretion. In addition, because of a
reduction in overall worldwide bonding capacity, we may find it
difficult to find sureties who will provide the
contract-required bonding. Moreover, these contracts are often
very large and extremely complex, which often necessitates the
use of a joint venture, often with a competitor, to bid on and
perform these types of contracts, especially since it may be
easier to jointly pursue the necessary bonding. However,
entering into these types of joint ventures or partnerships
exposes us to the credit and performance risks of third parties,
many of whom are not as financially strong as us. If our joint
ventures or partners fail to perform, we could suffer negative
results.
20
Our
use of the
percentage-of-completion
accounting method could result in a reduction or elimination of
previously reported profits.
Under our accounting policies, we measure and recognize a large
portion of our profits and revenue under the
percentage-of-completion
accounting methodology. This methodology allows us to recognize
revenue and profits ratably over the life of a contract by
comparing the amount of the cost incurred to date against the
total amount of cost expected to be incurred. The effect of
revisions to revenue and estimated cost is recorded when the
amounts are known and can be reasonably estimated. For example,
our Fossil, Renewables & Nuclear segments gross
profit for fiscal year 2009 was significantly reduced by
substantially increased estimated costs to complete two
coal-fired power plant projects. Additional revisions can occur
at any time and could be material. Given the uncertainties
associated with these types of contracts, it is possible for
actual cost to vary from estimates previously made, which may
result in reductions or reversals of previously recorded revenue
and profits.
The
nature of our projects exposes us to potential professional
liability, product liability, warranty and other claims, which
may reduce our profits.
We engineer, construct and perform services in large industrial
facilities where accidents or system failures can have
significant consequences. Any such accident or failure at a site
where we provided EPC or similar services could result in
significant professional liability, product liability, warranty
and other claims against us, regardless of whether our products
or services caused the incident. Further, the engineering and
construction projects we perform expose us to additional risks
including, but not limited to, equipment failures, personal
injuries, property damage, shortages of materials and labor,
permitting delays, work stoppages, labor disputes, weather
problems and unforeseen engineering, architectural,
environmental and geological problems, each of which could
significantly impact our performance and materially impact our
financial statements.
Additionally, once our construction is complete, we may face
claims relating to our job performance, which could materially
impact our financial statements. Under some of our contracts, we
must use client specified metals or processes for producing or
fabricating pipe for our clients. The failure of any of these
metals or processes could result in warranty claims against us
for significant replacement or reworking costs, which could
materially impact our financial statements.
We have been and may in the future be named as a defendant in
legal proceedings where parties may make a claim for damages or
other remedies with respect to our projects or other matters.
Should we be determined liable, we may not be covered by
insurance or, if covered, the dollar amount of these liabilities
may exceed our policy limits. Our professional liability
coverage is on a claims-made basis covering only
claims actually made during the policy period currently in
effect. Even where insurance is maintained for such exposures,
the policies have deductibles resulting in our assuming exposure
for a layer of coverage with respect to any such claims. Any
damages not covered by our insurance, in excess of our insurance
limits or, if covered by insurance subject to a high deductible,
could result in a significant loss for us, which may reduce our
profits and cash available for operations.
We
will be exposed to additional risks in our Fossil,
Renewables & Nuclear segment, as we begin to execute
our significant nuclear backlog. These risks include greater
backlog concentration in fewer projects, significantly increased
requirements for letters of credit and potential cost overruns
which could have a material adverse effect on our future
revenues and liquidity.
We expect to convert a significant part of our backlog for
nuclear projects in the Fossil, Renewables & Nuclear
segment into revenues in the future. Nuclear projects may
utilize larger sums of working capital than projects in our
business segments and are concentrated among a few larger
clients. As we increase our active projects in the nuclear
business, and consequently our reliance in revenues from this
business, we become more dependent on a smaller number of
clients. If we lose clients in our nuclear business and are
unable to replace them, our revenues could be materially
adversely impacted.
Additionally, nuclear projects, due to their size and
complexity, may be subject to significant cost-overruns which
could adversely affect us. The complexity of these projects is
increased by permit, licensing
21
and regulatory approvals that can be even more stringent and
time consuming than similar processes for more conventional
construction projects. These approvals include additional NRC
certification requirements for our nuclear design as well as our
clients receipt from the NRC of the license necessary to
construct and operate a particular facility. Delays in receipt
of such permits or licenses or other problems encountered during
construction could cause our actual results of operations to
significantly differ from anticipated results.
As we convert our nuclear projects from backlog into active
construction we may face significantly greater requirements for
the provision of letters of credit or other forms of credit
enhancements. Together with the initial fixed construction costs
for nuclear plants, which are significantly higher than those
for coal- or gas-fired plants, we may be required to
significantly expand our access to capital and credit. We can
provide no assurance that we will be able to access such capital
and credit as needed or that we would be able to do so on
economically attractive terms.
If the
U.S. were to change its support of nuclear power or revoke or
limit DOEs Loan Guarantee Program (LGP) it could have a
material adverse effect on our operations.
The U.S. government has been supportive of increased
investment in nuclear power. However, if the federal government
changed its policy or public acceptance of nuclear technology as
a means of generating electricity significantly wanes, demand
for nuclear power could be negatively affected and potentially
increase the regulation of the nuclear power industry. Because
several of our segments deal with nuclear power either directly
or indirectly this could have a material adverse effect on our
operations.
Some of our clients may rely on DOE LGP under which DOE issues
loan guarantees to eligible projects that avoid, reduce,
or sequester air pollutants or anthropogenic emissions of
greenhouse gases and employ new or significantly
improved technologies as compared to technologies in service in
the U.S. at the time the guarantee is issued. If the
current administration were to revoke or limit DOEs LGP it
could make obtaining funding more difficult for many of our
clients which could inhibit their ability to take on new
projects resulting in a negative impact on our operations.
Our
failure to meet contractual schedule or performance requirements
could adversely affect our revenue and
profitability.
In certain circumstances, we guarantee project completion by a
scheduled date or certain performance testing levels. Failure to
meet these schedule or performance requirements could result in
a reduction of revenues
and/or
additional costs, and these adjustments could exceed projected
profits. A projects revenues could also be reduced by
liquidated damages withheld by clients under contractual penalty
provisions, which can be substantial and can accrue on a daily
basis. Our costs generally increase from schedule delays
and/or could
exceed our projections for a particular project. Performance
problems for existing and future contracts could cause actual
results of operations to differ materially from those
anticipated by us and could cause us to suffer damage to our
reputation within our industry and our client base. For examples
of the kinds of claims that may result from liquidated damages
provisions and cost overruns, see Note 19
Long-Term Construction Accounting for Revenue and Profit/Loss
Recognition Including Claims, Unapproved Change Orders and
Incentives included in Part II, Item 8
Financial Statements and Supplementary Data.
If our
joint venture or consortium partners, subcontractors or
equipment manufacturers fail to perform their contractual
obligations on a project, we could be exposed to the risk of
loss, and in some cases, joint and several liability to our
clients, loss of reputation and additional financial performance
obligations that could result in reduced profits or, in some
cases, significant losses.
We often enter into consortium arrangements and joint ventures
as part of our Fossil, Renewables & Nuclear segment,
E&C segment and E&I segment contracts in order to
jointly bid and perform a particular project. The success of
these consortium agreements and joint ventures depends, in large
part, on the satisfactory performance of the contractual
obligations by our partners. If our partners do not meet their
obligations, the consortium or joint venture may be unable to
adequately perform and deliver its contracted services. Under
these circumstances, we may be required to incur additional
costs, make additional investments
22
and provide additional services to ensure the adequate
performance and delivery of the contracted services
and/or to
pay liquidated damages. Under agreements with joint and several
liabilities, we could be liable for both our obligations and
those of our partners. These additional obligations could result
in reduced profits or, in some cases, significant losses for us
with respect to the joint venture, which could also negatively
affect our reputation in the industries we serve. Additionally,
we rely on third party partners, equipment manufacturers and
third party subcontractors to complete our projects. To the
extent our partners cannot execute their portion of the work,
are unable to deliver their services, equipment or materials
according to the negotiated terms
and/or we
cannot engage subcontractors or acquire equipment or materials,
our ability to complete a project in a timely fashion or at a
profit may be impaired. If the amount we are required to pay for
these goods and services exceeds the amount we have estimated in
bidding for fixed-price work, we could experience losses in the
performance of these contracts.
Demand
for our products and services is cyclical and vulnerable to
sudden economic downturns and reductions in private industry and
government spending. If general economic conditions continue to
weaken, then our revenues, profits and our financial condition
may rapidly deteriorate.
The industries we serve historically have been, and will likely
continue to be, cyclical in nature and vulnerable to general
downturns in the domestic and international economies.
Consequently, our results of operations have fluctuated and may
continue to fluctuate depending on the demand for products and
services from these industries.
Due to the current economic downturn, many of our clients may
face budget shortfalls or may delay capital spending that may
decrease the overall demand for our services. A decrease in
state tax revenue as well as other economic declines may result
in lower state and local government spending. Our clients may
find it more difficult to raise capital in the future due to
limitations on the availability of credit and other
uncertainties in the municipal and global credit markets.
In addition, our clients may demand better pricing terms and
their ability to timely pay our invoices may be affected by an
increasingly weakened economy. Our business traditionally lags
any recovery in the economy; therefore, our business may not
recover immediately upon any economic improvement. If the
economy weakens further or government spending is reduced, then
our revenues, net income and overall financial condition may
deteriorate.
Our
government contracts may present risks to us.
We are a major provider of services to U.S. government
agencies and therefore are exposed to risks associated with
government contracting. Government clients typically can
terminate or modify contracts with us at their convenience. As a
result, our backlog may be reduced or we may incur a loss if a
government agency decides to terminate or modify a contract with
us. We are also subject to audits, cost reviews and
investigations by government contracting oversight agencies.
During the course of an audit, the oversight agency may disallow
costs. Cost disallowances may result in adjustments to
previously reported revenues and may require refunding
previously collected cash proceeds. In addition, our failure to
comply with the terms of one or more of our government contracts
or government regulations and statutes could result in our being
suspended or barred from future government projects for a
significant period of time, possible civil or criminal fines and
penalties and the risk of public scrutiny of our performance,
each of which could have a material adverse effect on our
business. Other remedies that our government clients may seek
for improper activities or performance issues include sanctions
such as forfeiture of profits and suspension of payments.
Our government contracts present us with other risks as well.
Legislatures typically appropriate funds on a
year-by-year
basis, while contract performance may take more than one year.
As a result, our contracts with government agencies may be only
partially funded or may be terminated, and we may not realize
all of our potential revenues and profits from those contracts.
Appropriations and the timing of payment may be influenced by,
among other things, the state of the economy, competing
political priorities, curtailments in the use of government
contracting firms, budget constraints, the timing and amount of
tax receipts and the overall level of government expenditures.
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For the fiscal year ended August 31, 2009, 93.4% of our
E&I segments backlog was with U.S. government
agencies.
Actual
results could differ from the estimates and assumptions that we
use to prepare our financial statements.
To prepare financial statements in conformity with
U.S. generally accepted accounting principles (GAAP), our
management is required to make estimates and assumptions, as of
the date of the financial statements, that affect the reported
values of assets and liabilities and revenues and expenses and
disclosures of contingent assets and liabilities. Areas
requiring significant estimates by our management include, among
other things:
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contract costs and profits and application of the
percentage-of-completion
method of accounting; revenues recognized, and reduction of
costs recognized, as a result of contract claims and unapproved
change orders;
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recoverability of inventory and application of lower of cost or
market accounting;
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provisions for uncollectible receivables and client claims and
recoveries of costs from subcontractors, vendors and others;
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provisions for income taxes and related valuation allowances;
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recoverability of goodwill;
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recoverability of other intangibles and related estimated lives;
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valuation of assets acquired and liabilities assumed in
connection with business combinations;
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valuation of defined benefit pension plans; and
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accruals for estimated assets and liabilities, including
litigation and insurance recoveries/reserves.
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Our actual results could differ materially from our estimates.
Changes in reported amounts may be recorded in future periods.
Risks
related to our Investment in Westinghouse could have an adverse
effect on us.
We incur significant interest cost on the Westinghouse Bonds
issued to finance our Investment in Westinghouse, and we can
provide no assurance that we will receive dividends sufficient
to cover these costs.
While we have significant influence as a member on the board of
the Westinghouse companies, we do not have any rights to control
the outcome of material decisions and activities related to the
Westinghouse business. We have limited access to, and ability to
disclose, the details of the Westinghouse business and its
operations. Further, we are subject to limitations on our
ability to sell our Westinghouse Equity without the approval of
the other shareholders. Although we have obtained certain rights
to bid on Westinghouse AP1000 nuclear plant projects and
preferred rights to provide other services, we can provide no
assurance that we will obtain significant future business from
this arrangement.
In connection with our Investment in Westinghouse and issuing
the Westinghouse Bonds, we entered into the Put Option with
Toshiba providing us the option to sell all or part of our
Westinghouse Equity to Toshiba during a defined Exercise Period.
Per the Put Option, the Exercise Period commences upon the
earlier of March 31, 2010, or a Toshiba Event,
which is caused by, among other things, certain Toshiba
financial metrics. Toshiba notified us on May 11, 2009,
that it experienced a Toshiba Event as of May 8, 2009
because it failed to maintain a minimum consolidated net worth
of JPY 800 billion. Toshiba reported that it raised
approximately $3 billion in equity capital in June 2009,
and thus may no longer fail to meet the required financial
metrics under the Put Option.
The Toshiba Event is not an event of default or
other violation of the Bond Trust Deed or the Put Option,
but due to the Toshiba Event, the Westinghouse Bond holders now
have an opportunity to direct us to exercise the Put Option. To
do so, a supermajority of the bondholders
representing a majority of not less
24
than an aggregate 75% of the principal amount outstanding, must
pass a resolution instructing the bond trustee to direct us to
exercise the Put Option. Specifically, in order for the bond
trustee to direct us to exercise the Put Option, the
Westinghouse Bond holders must convene a meeting with a quorum
of bondholders representing no less than 75% of the Westinghouse
Bonds principal amount outstanding during which a 75% majority
of the required quorum approve a resolution instructing the bond
trustee to take such action. Alternatively, a written resolution
instructing the bond trustee to direct us to exercise the Put
Option and signed by bondholders representing no less than 75%
of the Westinghouse Bond principal amount outstanding shall have
the same effect (collectively an Extraordinary
Resolution).
To our knowledge, the Westinghouse Bond holders have not taken
any action toward an Extraordinary Resolution. However, the
bondholders decision is beyond our control, and we can
provide no assurances that the holders will not issue an
Extraordinary Resolution in the future.
In the event we exercise the Put Option at the direction of an
Extraordinary Resolution or following a Toshiba Event, Toshiba
is required to pay us approximately JPY 129.0 billion
(equal to 100% of the face value of the Westinghouse Bonds
currently outstanding). However, if we exercise the Put Option
under other provisions of the Put Option, we would be required
to fund the estimated 3% difference (equal to JPY
4.3 billion, or approximately $45.8 million using
exchange rates at August 31, 2009) between the
anticipated Put Option proceeds and the principal amount owed on
the Westinghouse Bonds. Because the Put Option requires Toshiba
to repurchase the Westinghouse Equity from us and the proceeds
from the repurchase of the Westinghouse Equity will be used to
repay the Westinghouse Bonds, the Bond holders decision to
issue an Extraordinary Resolution may be significantly
influenced by Toshibas financial condition as well as
conditions in the general credit markets.
If the Westinghouse Bond holders issue an Extraordinary
Resolution, we may consider a variety of alternatives including
seeking a consent solicitation to modify or waive the terms of
the Bond Trust Deed, refinancing some or all of our
Investment in Westinghouse or negotiating for the purchase of
all or part of the equity subject to the Put Option. If we
decide to repay or refinance the Westinghouse Bonds, we may use
some of our existing cash
and/or seek
to raise capital from the debt
and/or
equity markets. There can be no assurance that should we wish to
repay or refinance the Westinghouse Bonds, we will be able to
access sufficient capital on terms acceptable to us, and
ultimately, we may be forced to put the Westinghouse Equity to
Toshiba.
Sale of our Westinghouse Equity may affect our ability to extend
the Westinghouse CRA beyond its original term which expires in
2013.
If we
were required to write down all or part of our goodwill and/or
our intangible assets, our net earnings and net worth could be
materially adversely affected.
We had $501.3 million of goodwill and $21.0 million of
intangible assets recorded on our consolidated balance sheet at
August 31, 2009. Goodwill represents the excess of cost
over the fair market value of net assets acquired in business
combinations. If our market capitalization drops significantly
below the amount of net equity recorded on our balance sheet, it
might indicate a decline in our fair value and would require us
to further evaluate whether our goodwill has been impaired. We
also perform an annual review of our goodwill and intangible
assets to determine if it has become impaired which would
require us to write down the impaired portion of these assets.
If we were required to write down all or a significant part of
our goodwill and/or intangible assets, our net earnings and net
worth could be materially adversely affected.
Foreign
exchange risks may affect our ability to realize a profit from
certain projects or to obtain projects.
We generally attempt to denominate our contracts in
U.S. Dollars or in the currencies of our expenditures.
However, we do enter into contracts that subject us to foreign
exchange risks, particularly to the extent contract revenues are
denominated in a currency different than the contract costs. We
attempt to minimize our exposure from foreign exchange risks by
obtaining escalation provisions for projects in inflationary
economies,
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or entering into hedge contracts when there are different
currencies for contract revenues and costs. However, these
actions may not always eliminate all foreign exchange risks.
Our Westinghouse Bonds are JPY denominated. As the
U.S. Dollar/JPY exchange rate changes, the amount of
U.S. Dollars required to service this debt will change
The
limitation or the modification of the Price-Anderson Acts
indemnification authority could adversely affect our
business.
The Price-Anderson Act (PAA) partially indemnifies the nuclear
industry against liability arising from nuclear incidents in the
U.S. while still ensuring compensation for the general
public. The PAA comprehensively regulates the manufacture, use
and storage of radioactive materials, while promoting the
nuclear energy industry by offering broad indemnification to
nuclear energy plant operators and DOE contractors. Because we
provide services to the DOE at nuclear weapons facilities and
the nuclear energy industry in the ongoing maintenance and
modification, as well as decontamination and decommissioning, of
its nuclear energy plants, we are entitled to the
indemnification protections under the PAA. Although the
PAAs indemnification provisions are broad, it does not
apply to all liabilities that we might incur while performing
services as a radioactive materials cleanup contractor for DOE
and the nuclear energy industry. If the indemnification
authority does not extend to all of our services, our business
could be adversely affected by either a refusal of new
facilities operations to retain us or our inability to obtain
commercially adequate insurance and indemnification.
Our
environmental and infrastructure operations may subject us to
potential contractual and operational costs and
liabilities.
In our role as an environmental management contractor in
connection with projects performed for clients under the
E&I segment we face potential liabilities to third parties
for property damage or personal injury stemming from exposure to
or a release of toxic, hazardous or radioactive substances.
These liabilities could arise long after completion of a project
due to migration of these substances, could arise off the
project site. We have performed asbestos abatement and anthrax
and other biological agent decontamination work, and although
the risks are similar to those faced in our toxic chemical
emergency response business, the risks posed by attempting to
detect and remediate these agents may include risks to our
employees, subcontractors and others who may become adversely
affected should our detection and remediation activities prove
less effective than anticipated.
Because biological contamination and exposure to asbestos is
difficult to evaluate and highly variable, there may be unknown
risks involved, and in some circumstances, there may be no
standard protocols for dealing with these risks. The risks we
face with respect to biological agents may also include the
potential ineffectiveness of developing technologies to detect
and remediate the contamination, claims for infringement of
these technologies, difficulties in working with the smaller,
specialized firms that may own these technologies and have
detection and remediation capabilities, our ability to attract
and retain qualified employees and subcontractors in light of
these risks, the high profile nature of the work and the
potential unavailability of insurance and indemnification.
We are
exposed to certain risks associated with our integrated
environmental solutions businesses.
Certain subsidiaries within our E&I segment are engaged in
two similar programs that may involve assumption of a
clients environmental remediation obligations and
potential claim obligations. One of our subsidiaries, The
LandBank Group, Inc. (LandBank), purchases and then remediates
and/or takes
other steps as landowner to improve environmentally impaired
properties, with a goal of selling the improved property at a
price greater than the combined cost of acquisition and
remediation. The second program is operated by our subsidiary,
Shaw Environmental Liability Solutions, LLC (SELS), which
contractually assumes responsibility for environmental matters
at a particular site or sites owned by third parties and
provides indemnifications for defined cleanup costs and
post-closing third party claims in return for compensation by
the client. These subsidiaries may operate
and/or
purchase and redevelop environmentally impaired property. As the
owner or
26
operator of these properties, we may be required to clean up all
contamination at these sites even if we did not place the
contamination there. While we attempt to reduce our exposure to
unplanned risks through the performance of environmental due
diligence, the use of liability protection provisions of federal
laws like the Brownfields Revitalization Act and similar state
laws and the purchase of environmental legal liability and
remediation cost cap insurance coverage or other risk management
products, we can provide no assurance that our risk management
strategies and these products and laws will adequately protect
us in all circumstances or that no material adverse impact will
occur.
Our ability to be profitable in this type of business also
depends on our ability to accurately estimate cleanup costs. If
we materially underestimate the required cost of cleanup at a
particular project, our underestimation could materially
adversely affect us. This type of business is dependent upon the
availability of environmental legal liability and remediation
cost cap insurance or other risk management products. We can
provide no assurance that these products will continue to be
available to us in the future or, if available, at commercially
reasonable terms and whether the insurance carriers will have
the ability to satisfy future claims. Moreover, environmental
laws and regulations governing the cleanup of contaminated sites
are subject to change and enforcement policies are subject to
reinterpretation. We cannot predict the effect of future changes
to these laws, regulations or policies on our LandBank and SELS
businesses. Additionally, when we purchase real estate in this
business, we are subject to real estate development risks such
as the timely receipt of building, zoning and construction
permits, construction delays, and the ability of markets to
absorb new development projects.
Environmental
factors and changes in laws and regulations could increase our
costs and liabilities and affect the demand for our
services.
In addition to the environmental risks described above and our
environmental remediation business, our operations are subject
to environmental laws and regulations, including those
concerning:
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emissions into the air;
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discharges into waterways;
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generation, storage, handling, treatment, transport and disposal
of waste materials and hazardous substances; and
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health and safety.
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Our projects often involve highly regulated materials, including
hazardous and nuclear materials and wastes. Environmental laws
and regulations generally impose limitations and standards
relating to the use, handling, transport, discharge or disposal
of regulated materials and require us to obtain a permit and
comply with various other requirements. The improper
characterization, use, handling, discharge or disposal of
regulated materials or any other failure to comply with federal,
state and local environmental laws and regulations or associated
environmental permits may result in the assessment of
administrative, civil and criminal penalties, the imposition of
investigatory or remedial obligations or the issuance of
injunctions that could restrict or prevent our ability to
perform some or all of our activities under existing contracts.
The environmental, health and safety laws and regulations
applicable to our operations are subject to change, and it is
impossible to predict the effect of any future changes to these
laws and regulations on us. We do not yet know the full extent,
if any, of environmental liabilities associated with many of the
properties undergoing or scheduled to undergo site restoration
for which we are legally or contractually responsible, as well
as any liabilities associated with the assets we previously
acquired from Stone & Webster and IT Group. We can
provide no assurance that our operations will continue to comply
with future laws and regulations and that any such noncompliance
would not materially adversely affect us.
The level of enforcement of environmental laws and regulations
also affects the demand for many of our services, since greater
or more vigorous enforcement of environmental requirements by
government agencies creates greater demand for our environmental
services. Any perception among our clients that enforcement of
current environmental laws and regulations has been or will be
reduced decreases the demand for some
27
services. Future changes to environmental, health and safety
laws and regulations or to enforcement of those laws and
regulations could result in increased or decreased demand for
certain of our services. The ultimate impact of the proposed
changes will depend upon a number of factors, including the
overall strength of the economy and clients views on the
cost-effectiveness of remedies available under the changed laws
and regulations. If proposed or enacted changes materially
reduce demand for our environmental services, our results of
operations could be adversely affected.
For additional information, see Part I,
Item 1 Business Environmental
Matters.
We
face substantial competition in each of our business
segments.
We face competition from numerous regional, national and
international competitors, some of which have greater financial
and other resources than we do. Our competitors include
well-established, well-financed businesses, both privately and
publicly held, including many major energy equipment
manufacturers and engineering and construction companies, some
engineering companies, internal engineering departments at
utilities and some of our clients.
In our F&M segment, we face substantial competition on a
domestic and international level. In the U.S., there are a
number of smaller pipe fabricators. Internationally, our
principal competitors are divisions of large industrial firms
who may have greater financial and other resources than we do.
As a result, they may be able to exercise influence with
suppliers and negatively impact our ability to obtain raw
materials.
In our E&I segment, we compete with small and large
organizations, including national and regional environmental
management firms, architectural, engineering and construction
firms, environmental management divisions or subsidiaries of
international engineering and construction companies. Increased
competition and changing client procurement procedures within
our industry may require us to accept more contractual and
performance risk.
There can be no assurance that our segments will be able to
compete successfully.
Political
and economic conditions in foreign countries in which we operate
could adversely affect us.
Approximately 22% of our fiscal year 2009 revenues were
attributable to projects in international markets, some of which
are subject to political unrest and uncertainty. In addition to
the specific challenges we face internationally, international
contracts, operations and expansion expose us to risks inherent
in doing business outside the U.S., including:
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uncertain economic conditions in the foreign countries in which
we make capital investments, operate and sell products and
services;
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the lack of well-developed legal systems and less established or
traditional business practices in some countries in which we
operate and sell products and services, which could make it
difficult for us to enforce our contractual rights;
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security and safety of employees and subcontractors;
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expropriation of property;
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restrictions on the right to convert or repatriate currency;
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political risks, including risks of loss due to civil strife,
acts of war, guerrilla activities and insurrection;
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risk of uncollectible accounts and longer collection cycles;
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currency fluctuations;
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logistical and communications challenges;
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potential adverse changes in laws and regulatory practices,
including embargoes, export license requirements, trade
barriers, increased tariffs and taxes;
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changes in labor conditions;
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changing general economic and political conditions in foreign
markets;
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terrorist attacks;
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commodity prices and availability;
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potential incompatibility with foreign joint venture
partners; and
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interruptions or delays in international shipping.
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We
could be adversely affected by violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti-bribery
laws.
The U.S. Foreign Corrupt Practices Act (FCPA) and similar
anti-bribery laws in other jurisdictions generally prohibit
U.S. based companies and their intermediaries from making
improper payments to
non-U.S. officials
for the purpose of obtaining or retaining business. Our policies
mandate compliance with these anti-bribery laws. We operate in
many parts of the world that experience government corruption to
some degree, and, in certain circumstances, compliance with
anti-bribery laws may conflict with those local customs and
practices. Our FCPA policy and training provide our employees
with procedures, guidelines and information about FCPA
obligations and compliance. Further, we advise our partners,
subcontractors, agents and others who work for us or on our
behalf that they are obligated to comply with the FCPA. We have
procedures and controls in place designed to ensure internal and
external compliance. However, such internal controls and
procedures will not always protect us from reckless or criminal
acts committed by our employees or agents. If we are found to be
liable for FCPA violations (either due to our own acts or our
inadvertence, or due to the acts or inadvertence of others), we
could suffer from criminal or civil penalties or other
sanctions, which could have a material adverse effect on our
business.
Work
stoppages and other labor problems could adversely
affect us.
At August 31, 2009, approximately 18% of our employees were
represented by labor unions. A lengthy strike or other work
stoppage at any of our facilities could have a material adverse
effect on us. From time to time, we have also experienced
attempts to unionize our non-union shops. While these efforts
have achieved limited success to date, we cannot provide any
assurance that we will not experience additional union activity
in the future.
Our
failure to attract and retain qualified personnel, including key
officers, could have an adverse effect on us.
Our ability to attract and retain qualified professional
personnel in accordance with our needs, either through direct
hiring or acquisition of other firms employing such
professionals, is an important factor in determining our future
success. The market for these professionals is competitive, and
there can be no assurance that we will be successful in our
efforts to attract and retain needed professionals. Our ability
to successfully execute our business strategy depends, in part,
on our ability to attract and retain skilled laborers and
craftsmen in our pipe fabrication and construction businesses.
Demand for these workers can at times be high and the supply
extremely limited. Our success is also highly dependent upon the
continued services of our key officers, and we do not maintain
key employee insurance on any of our executive officers.
If we are unable to retain qualified personnel, the roles and
responsibilities of those employees will need to be filled,
which may require that we devote time and resources to
identifying, hiring and integrating new employees. In addition,
the failure to attract and retain key employees, including
officers, could impair our ability to provide services to our
clients and conduct our business effectively.
29
Risks
Related to Our Liquidity and Capital Resources
We may
not be able to raise additional capital or obtain additional
financing if needed.
The recent downturn in the equity and debt markets, tightening
of the credit markets and general economic slowdown could make
it more difficult for us to raise additional capital or obtain
additional financing. We cannot be certain that additional funds
will be available if needed and to the extent required or, if
available, on acceptable terms. If we cannot raise necessary
additional funds on acceptable terms, there could be a material
adverse impact on our business and operations. We also may not
be able to fund expansion, take advantage of future
opportunities, meet our existing debt obligations or respond to
competitive pressures or unanticipated requirements.
Non-compliance
with covenants in our Credit Facility, without waiver or
amendment from the lenders, could require us to post cash
collateral for outstanding letters of credit and could adversely
affect our ability to borrow under the Facility.
Our Credit Facility (Facility) contains certain financial
covenants, including a leverage ratio, a minimum debt service
coverage ratio and a defined minimum consolidated net worth. In
addition, we are required to file our quarterly and annual
reports with the SEC on a timely basis. The defined terms used
in calculating the financial covenants require us to follow
GAAP, which requires the use of judgments and estimates. We may
not be able to satisfy these ratios, especially if our operating
results deteriorate as a result of, but not limited to, the
impact of other risk factors that may have a negative impact on
our future earnings. Additionally, we may not be able to file
our SEC reports on a timely basis. See Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources for a
discussion of our Facility.
A breach of any covenant or our inability to comply with the
required financial ratios could result in a default under our
Facility, and we can provide no assurance that we will be able
to obtain the necessary waivers or amendments from our lenders
to remedy a default. In the event of any default not waived, the
lenders under our Facility are not required to lend any
additional amounts or issue letters of credit and could elect to
require us to apply all of our available cash to collateralize
any outstanding letters of credit, declare any outstanding
borrowings, together with accrued interest and other fees, to be
immediately due and payable or require us to apply all of our
available cash to repay any borrowings then outstanding at the
time of default. If we are unable to collateralize our letters
of credit or repay borrowings with respect to our Facility when
due, our lenders could proceed against their collateral, which
consists of substantially all of our assets. If any future
indebtedness under our Facility is accelerated, we can provide
no assurance that our assets would be sufficient to repay such
indebtedness in full. At August 31, 2009, we had no
outstanding borrowings under the Facility with outstanding
letters of credit inclusive of both domestic financial and
domestic performance of approximately $597.7 million. Our
borrowing capacity under the Facility is reduced by the
aggregate amount of letters of credit we have outstanding.
Further, we have entered into indemnity agreements with our
sureties that contain cross-default provisions. Accordingly, in
the event of a default under our Facility, we would need to
obtain a waiver from our sureties or an amendment to our
indemnity agreements. We can provide no assurance that we would
be successful in obtaining an amendment or waiver.
Restrictive
covenants in our Facility may restrict our ability to pursue our
business strategies.
Our Facility limits our ability to, among other things:
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incur indebtedness or contingent obligations;
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issue preferred stock;
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pay dividends or make distributions to our shareholders;
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repurchase or redeem our capital stock or subordinated
indebtedness;
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make investments;
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create liens;
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enter into sale/leaseback transactions;
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incur restrictions on the ability of our subsidiaries to pay
dividends or to make other payments to us;
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make capital expenditures;
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enter into transactions with our shareholders and affiliates;
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sell and pledge assets; and
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acquire the assets of, or merge or consolidate with, other
companies or transfer all or substantially all of our assets.
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These covenants may also impair our ability to engage in
favorable business activities and our ability to finance future
operations or capital needs in furtherance of our business
strategies.
A breach of any of these covenants could result in an event of
default under our Facility. For additional information, see
Non-compliance with covenants in our Facility, without
waiver or amendment from the lenders, could adversely affect our
ability to borrow under the Facility above.
Inability
to obtain adequate surety bonding or letters of credit could
reduce our ability to bid on new work which could have a
material adverse effect on our future revenues and business
prospects.
In certain circumstances, clients may require us to provide
credit enhancements, including bonds or letters of credit. In
line with industry practice, we are often required to provide
performance and surety bonds to clients. These bonds and letters
of credit provide credit support for the client if we fail to
perform our obligations under the contract. If security is
required for a particular project and we are unable to obtain a
bond or letter of credit on terms commercially acceptable to us,
we cannot pursue that project. We have letter of credit and
bonding facilities but, as is typically the case, the issuance
of bonds under our surety facilities is at the suretys
sole discretion. Moreover, due to events that affect the
insurance and bonding markets generally, bonding may be more
difficult to obtain in the future or may only be available at
significant additional cost. There can be no assurance that
surety bonds or letters of credit will continue to be available
to us on commercially reasonable terms.
Downgrades
by rating agencies may require us to modify existing bonding
facilities or obtain new bonding facilities.
In the event our debt ratings are lowered by independent rating
agencies such as Moodys Investors Service or
Standard & Poors (S&P), it could be more
difficult for us to obtain surety bonding for new projects in
the future, and we may be required to increase or provide
additional cash collateral to obtain these surety bonds, which
would reduce our available cash and could impact our ability to
renew or increase availability under our Facility. Any new or
modified bonding facilities might not be on terms as favorable
as those we have currently, and we could also be subject to
increased costs of capital and interest rates.
Because
of the capital-intensive nature of our business, we are
vulnerable to reductions in our liquidity.
Our operations could require us to utilize large sums of working
capital, sometimes on short notice and sometimes without
assurance of recovery of the expenditures. Circumstances or
events that could create large cash outflows include losses
resulting from fixed-price contracts, environmental liabilities,
litigation risks, unexpected costs or losses resulting from
acquisitions, contract initiation or completion delays,
political conditions, client payment problems, foreign exchange
risks and professional and product liability claims. We cannot
provide assurance that we will have sufficient liquidity or the
credit capacity to meet all of our cash needs if we encounter
significant working capital requirements as a result of these or
other factors.
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Insufficient liquidity could have important consequences to us,
such as:
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less operating flexibility due to restrictions that could be
imposed by our creditors, including restrictions on incurring
additional debt, creating liens on our properties and paying
dividends;
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less success in obtaining new contracts if our sureties or our
lenders limited our ability to provide new performance bonds or
letters of credit for our projects;
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be required to dedicate a substantial portion of our cash flows
from operations to the repayment of debt and the interest
associated with that debt;
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increased lending fees, costs and interest rates; and
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difficulty in financing future acquisitions
and/or
continuing operations.
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Our
borrowing levels and debt service obligations could adversely
affect our financial condition and impair our ability to fulfill
our obligations under our Facility.
At August 31, 2009, we had total outstanding indebtedness
of approximately $1,411.0 million, approximately
$1,388.0 million of which relates to our Westinghouse Bonds
and is of limited recourse to us. In addition, at
August 31, 2009, letters of credit, domestic and foreign,
issued for our account in an aggregate amount of
$790.3 million were outstanding and we had no borrowings
under our Facility. Our indebtedness could have important
consequences, including the following:
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requiring us to dedicate a substantial portion of our cash flows
from operations to the repayment of debt, which reduces the cash
available for other business purposes;
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limiting our ability to obtain additional financing and creating
additional liens on our assets;
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limiting our flexibility in planning for, and reacting to,
changes in our business;
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placing us at a competitive disadvantage if we are more
leveraged than our competitors;
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making us more vulnerable to adverse economic and industry
conditions; and
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restricting us from making additional investments or
acquisitions.
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To the extent that new debt is incurred in addition to our
current debt levels, the leverage risks described above would
increase.
Risks
Related to Our Financial Reporting and Corporate
Governance
If we
fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results or
prevent fraud. As a result, investors could lose confidence in
our financial reporting, which would harm our business and the
trading price of our stock.
Effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, our
operating results could be harmed. We devote significant
attention to establishing and maintaining effective internal
controls. Implementing changes to our internal controls has
required compliance training of our directors, officers and
employees and has entailed substantial costs in order to modify
our existing accounting systems. Although these measures are
designed to do so, we cannot be certain that such measures and
future measures will guarantee that we will successfully
implement and maintain adequate controls over our financial
reporting processes and related reporting requirements. For
example, in the past we have discovered a material weakness
relating to project reporting on EPC fixed-price contracts and
in income tax accounting, each of which we have taken steps to
remediate. However, any failure to implement required new or
improved controls or difficulties encountered in their
implementation could affect our operating results or cause us to
fail to meet our reporting obligations and could result in a
breach of a covenant in our Facility in future periods.
Ineffective internal controls could also cause investors to lose
confidence in our reported financial information, which could
have a negative effect on the market price of our stock.
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We
rely on our information systems to conduct our business, and
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. We rely on industry accepted security measures and
technology to securely maintain confidential and proprietary
information maintained on our information systems. However,
these measures and technology may not adequately prevent
security breaches. In addition, the unavailability of the
information systems or the failure of these systems to perform
as anticipated for any reason could disrupt our business and
could result in decreased performance and increased overhead
costs, causing our business and results of operations to suffer.
Any significant interruption or failure of our information
systems or any significant breach of security could adversely
affect our business and results of operations.
We
have in place a shareholder rights plan, and provisions in our
articles of incorporation by-laws that may discourage a change
of control of our company.
Certain of our corporate governing documents contain provisions
that could make it more difficult for a third-party to acquire
us without the consent of our board of directors. For example,
certain provisions in our articles of incorporation authorize
the board of directors to determine the powers, preferences and
rights of preference shares and to issue preference shares
without shareholder approval. 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. In addition, we have a shareholder rights plan
that allows our shareholders to purchase preferred stock at a
reduced price if certain parties attempt to acquire a
substantial interest in us without the approval of our board of
directors.
Any one of the provisions discussed above could discourage third
parties from obtaining control of us. These provisions may also
impede a transaction in which our shareholders could receive a
premium over then-current market price and our
shareholders ability to approve transactions that they
consider in their best interests.
Other
Risk Factors
Lawsuits
and regulatory proceedings could adversely affect our
business.
From time to time, we, our directors
and/or
certain of our current and former officers are named as a party
to lawsuits and regulatory proceedings. A discussion of our
material lawsuits appears in Note 13
Contingencies and Commitments included in Part II,
Item 8 Financial Statements and Supplementary
Data. Although it is not possible at this time to predict the
likely outcome of these actions, an adverse result in any of
these lawsuits could have a material adverse effect on us.
Litigation can involve complex factual and legal questions and
its outcome is uncertain. Any claim that is successfully
asserted against us could result in significant damage claims
and other losses. Even if we were to prevail, any litigation
could be costly and time-consuming and would divert the
attention of our management and key personnel from our business
operations, which could adversely affect our financial
condition, results of operations or cash flows. For additional
information, see Note 13 Contingencies and
Commitments and Note 19 Long-Term Construction
Accounting for Revenue and Profit/Loss Recognition Including
Claims, Unapproved Change Orders and Incentives included in
Part II, Item 8 Financial Statements and
Supplementary Data.
If we
are unable to enforce our intellectual property rights or if our
technology becomes obsolete, our competitive position could be
adversely impacted.
We believe that we are an industry leader by owning or having
access to our technologies. We protect our technology positions
through patent registrations, license restrictions and a
research and development program. We may not be able to
successfully preserve our intellectual property rights in the
future, and these rights could be invalidated, circumvented or
challenged. In addition, the laws of some foreign countries in
which our
33
services may be sold do not protect intellectual property rights
to the same extent as U.S. law. Because we license
technologies from third parties, there is a risk that our
relationships with licensors may terminate or expire or may be
interrupted or harmed. If we are unable to protect and maintain
our intellectual property rights, or if there are any successful
intellectual property challenges or infringement proceedings
against us, our ability to differentiate our service offerings
could be reduced.
Additionally, if our technologies become obsolete, we may not be
able to differentiate our service offerings, and some of our
competitors may be able to offer more attractive services to our
clients. For example, we believe that Westinghouses AP1000
technology is a leading technology for nuclear power generation
plants. However, there are competing technologies, and it is
likely that new technologies will be developed in the future. We
also believe that our induction pipe bending technology, know
how and capabilities favorably influence our ability to compete
successfully. Currently, this technology and our proprietary
software are not patented. Even though we have some legal
protections against the dissemination of this technology,
including non-disclosure and confidentiality agreements, our
efforts to prevent others from using our technology could be
time-consuming, expensive and ultimately may be unsuccessful or
only partially successful.
Finally, there is nothing to prevent our competitors from
independently attempting to develop or obtain access to
technologies that are similar or superior to our technology.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
34
At August 31, 2009, our principal properties (those where
we occupy over 35,000 square feet) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
Location
|
|
Description
|
|
Segment Using Property
|
|
Leased
|
|
Baton Rouge, LA
|
|
Corporate Headquarters
|
|
Corporate
|
|
Leased
|
Addis, LA
|
|
Fabrication Facility
|
|
F&M
|
|
Owned
|
Askar, Bahrain
|
|
Office Building and Pipe
Fabrication Facility
|
|
F&M
|
|
Leased
|
Baton Rouge, LA
|
|
Office Building
|
|
Corporate
|
|
Leased
|
Baton Rouge, LA
|
|
Office Building
|
|
E&C
|
|
Leased
|
Cambridge, MA
|
|
Office Building
|
|
E&C
|
|
Leased
|
Centennial, CO
|
|
Office Building
|
|
E&I/Fossil, Renewables & Nuclear
|
|
Leased
|
Charlotte, NC
|
|
Office Building
|
|
Fossil, Renewables & Nuclear
|
|
Leased
|
Charlotte, NC
|
|
Office Building
|
|
Fossil, Renewables & Nuclear
|
|
Leased
|
Cherry Hill, NJ
|
|
Office Building
|
|
E&I/Fossil, Renewables & Nuclear
|
|
Leased
|
Clearfield, UT
|
|
Fabrication and Manufacturing
|
|
F&M
|
|
Leased
|
Concord, CA
|
|
Office Building
|
|
E&I
|
|
Leased
|
Decatur, GA
|
|
Warehouse
|
|
F&M
|
|
Leased
|
Delcambre, LA
|
|
Manufacturing Facility
|
|
Maintenance
|
|
Owned
|
Derby, United Kingdom
|
|
Manufacturing Facility
|
|
Fossil, Renewables & Nuclear
|
|
Owned
|
El Dorado, AR
|
|
Manufacturing Facility
|
|
F&M
|
|
Owned
|
Findlay, OH
|
|
Office Building & Storage
|
|
E&I
|
|
Leased
|
Greenwood Village, CO
|
|
Office Building
|
|
E&I
|
|
Leased
|
Houston, TX
|
|
Office Building
|
|
E&C
|
|
Leased
|
Houston, TX
|
|
Pipe Fittings Distribution Facility
|
|
F&M
|
|
Leased
|
Irvine, CA
|
|
Office Building
|
|
E&I
|
|
Leased
|
Knoxville, TN
|
|
Office Building & Laboratory
|
|
E&I
|
|
Leased
|
Knoxville, TN
|
|
Warehouse
|
|
E&I
|
|
Leased
|
Lake Charles, LA
|
|
Module Assembly Facility
|
|
F&M
|
|
Leased
|
LaPorte, TX
|
|
Manufacturing Facility
|
|
Maintenance
|
|
Owned
|
Laurens, SC
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
Maracaibo, Venezuela
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
Matamoros, Mexico
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
Milton Keynes, United Kingdom
|
|
Office Building
|
|
E&C
|
|
Leased
|
Monroeville, PA
|
|
Office Building & Storage
|
|
E&I
|
|
Leased
|
Moorestown, NJ
|
|
Office Building
|
|
Fossil, Renewables & Nuclear
|
|
Leased
|
New Brunswick, NJ
|
|
Manufacturing Facility
|
|
F&M
|
|
Leased
|
Norwood, OH
|
|
Office Building
|
|
E&I
|
|
Owned
|
Prairieville, LA
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
St. Paul, VA
|
|
Warehouse
|
|
Fossil, Renewables & Nuclear
|
|
Leased
|
Shreveport, LA
|
|
Manufacturing Facility
|
|
F&M
|
|
Owned
|
Shreveport, LA
|
|
Piping Components & Manufacturing Facility
|
|
F&M
|
|
Owned
|
Stoughton, MA
|
|
Office Building
|
|
E&C/Fossil, Renewables & Nuclear
|
|
Leased
|
Toronto, Canada
|
|
Office Building
|
|
E&C
|
|
Leased
|
Trenton, NJ
|
|
Office Building
|
|
E&I/Fossil, Renewables & Nuclear
|
|
Leased
|
Tulsa, OK
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
Walker, LA
|
|
Office Building & Warehouse
|
|
F&M
|
|
Owned
|
Walker, LA
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
West Monroe, LA
|
|
Pipe Fabrication Facility
|
|
F&M
|
|
Owned
|
35
In addition to these locations, we occupy other owned and leased
facilities in various cities that are not considered principal
properties. Portions of certain office buildings described above
are currently being subleased for various terms. We consider
each of our current facilities to be in good operating condition
and adequate for its present use. We believe that our leases are
at competitive market rates and do not anticipate any difficulty
in leasing suitable additional space upon expiration of any
lease.
|
|
Item 3.
|
Legal
Proceedings
|
For a description of our material pending legal and regulatory
proceedings and settlements, see Part II
Item 8 Financial Statements and Supplementary
Data Note 13 Contingencies and Commitments.
|
|
Item 4.
|
Submission
of Matters to Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock, no par value, is traded on the NYSE under the
symbol SHAW. Prior to August 21, 2009, our
common stock traded under the symbol SGR. The
following table sets forth, for the quarterly periods indicated,
the high and low sale prices per share for the common stock as
reported by the NYSE for our two most recent fiscal years and
for the current fiscal year to date.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year ended August 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
49.50
|
|
|
|
11.47
|
|
Second Quarter
|
|
|
31.18
|
|
|
|
14.54
|
|
Third Quarter
|
|
|
34.70
|
|
|
|
20.14
|
|
Fourth Quarter
|
|
|
35.14
|
|
|
|
23.23
|
|
Fiscal Year ended August 31, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
77.30
|
|
|
|
48.33
|
|
Second Quarter
|
|
|
69.25
|
|
|
|
45.00
|
|
Third Quarter
|
|
|
65.33
|
|
|
|
46.80
|
|
Fourth Quarter
|
|
|
66.61
|
|
|
|
47.20
|
|
The closing sales price of our common stock on October 26,
2009, as reported on the NYSE, was $28.93 per share. On
October 26, 2009, we had 287 shareholders of record.
We have not paid any cash dividends on the common stock and
currently anticipate that, for the foreseeable future, any
earnings will be retained for the development of our business.
Accordingly, no dividends are expected to be declared or paid on
the common stock at the present. The declaration of dividends is
at the discretion of our Board of Directors. Our dividend policy
will be reviewed by the Board of Directors as may be appropriate
in light of relevant factors at the time. We are, however,
subject to certain limitations on the payment of dividends under
the terms of existing Credit Facilities. For additional
information on these prohibitions, see Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
36
Stock
Performance Graph
The graph below depicts the cumulative five-year total return
attained by our shareholders on our common stock, a customized
peer group of four companies that includes: Fluor Corp., Jacobs
Engineering Group Inc, URS Corporation and us, the S&P
600 SmallCap index, S&P 500 Composite Index (S&P
500) and the Dow Jones US Heavy Construction Industry Index
(DJ Heavy). We will discontinue the use of the S&P 600
SmallCap index and the customized peer group in our future SEC
filings because our customized peer group is included in the DJ
Heavy index, and we believe the S&P 500 is a more
meaningful index than the S&P 600 SmallCap index when
comparing returns of our shareholders. We continue to show a
customized peer group and the S&P 600 SmallCap index
because applicable regulations require that the new and old
indices be shown if the graph uses a different index from that
used the previous year. We believe that using the S&P 500
and the DJ Heavy provides a meaningful comparison of our stock
performance to investors, and we plan to use these indices in
future filings with the SEC. The graph compares the performance
of a $100 investment in our common stock, a customized peer
group, the S&P 600 SmallCap index, the S&P 500
Composite Index, and the DJ Heavy index (with the reinvestment
of all dividends) from August 31, 2004 to August 31,
2009.
This stock performance information is furnished and
shall not be deemed to be soliciting material or
subject to Rule 14A, shall not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liabilities of that section, and shall not be
deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act, whether
made before or after the date of this report and irrespective of
any general incorporation by reference language in any such
filing, except to the extent that we specifically incorporate
the information by reference.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/04
|
|
|
8/05
|
|
|
8/06
|
|
|
8/07
|
|
|
8/08
|
|
|
8/09
|
The Shaw Group Inc.
|
|
|
|
100.00
|
|
|
|
|
205.05
|
|
|
|
|
244.51
|
|
|
|
|
486.39
|
|
|
|
|
481.44
|
|
|
|
|
285.03
|
|
S&P SmallCap 600
|
|
|
|
100.00
|
|
|
|
|
126.49
|
|
|
|
|
135.51
|
|
|
|
|
154.85
|
|
|
|
|
145.24
|
|
|
|
|
115.13
|
|
Peer Group
|
|
|
|
100.00
|
|
|
|
|
156.37
|
|
|
|
|
207.52
|
|
|
|
|
318.41
|
|
|
|
|
362.46
|
|
|
|
|
241.78
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
110.51
|
|
|
|
|
118.07
|
|
|
|
|
133.48
|
|
|
|
|
116.17
|
|
|
|
|
92.43
|
|
DJ Heavy
|
|
|
|
100.00
|
|
|
|
|
155.19
|
|
|
|
|
223.78
|
|
|
|
|
361.54
|
|
|
|
|
352.18
|
|
|
|
|
241.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
THE
FOREGOING GRAPH REPRESENTS HISTORICAL STOCK PRICE PERFORMANCE
AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.
See Part III, Item 12 Security Ownership
of Certain Beneficial Owners and Management and Related
Stockholder Matters with respect to information to be
incorporated by reference regarding our equity compensation
plans.
|
|
Item 6.
|
Selected
Financial Data
|
The following table presents selected statements of operations
and balance sheet data on a consolidated basis as of and for the
periods the dates indicated. The selected historical
consolidated financial data for each of the five fiscal years
ended August 31 presented below has been derived from our
audited consolidated financial statements. KPMG LLP (KPMG),
independent registered public accounting firm, audited our
consolidated financial statements for the fiscal years ended
August 31, 2007, 2008 and 2009. Ernst & Young
LLP, independent registered public accounting firm, audited our
consolidated financial statements for each of the fiscal years
ended August 31, 2005 to August 31, 2006. Such data
should be read in conjunction with our Consolidated Financial
Statements and related notes thereto included in Part II,
Item 8 Financial Statements and Supplementary
Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
(In millions, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
$
|
5,723.7
|
|
|
$
|
4,775.6
|
|
|
$
|
3,267.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
15.0
|
|
|
$
|
140.7
|
|
|
$
|
(19.0
|
)
|
|
$
|
50.2
|
|
|
$
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share from continuing operations
|
|
$
|
0.18
|
|
|
$
|
1.67
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.63
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,557.2
|
|
|
$
|
4,587.3
|
|
|
$
|
3,894.4
|
|
|
$
|
2,537.1
|
|
|
$
|
2,096.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westinghouse bonds, short-term
|
|
$
|
1,388.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current
maturities
|
|
$
|
7.6
|
|
|
$
|
1,165.6
|
|
|
$
|
1,096.8
|
|
|
$
|
173.5
|
|
|
$
|
65.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following analysis of our financial condition and results of
operations should be read in conjunction with Part I of
this
Form 10-K
as well as our Consolidated Financial Statements and the notes
thereto. The following analysis contains forward-looking
statements about our future revenues, operating results and
expectations. See Cautionary Statement Regarding
Forward-Looking Statements for a discussion of the risks,
assumptions and uncertainties affecting these statements as well
as Part I, Item 1A Risk Factors.
Overview
Fiscal year 2009 was a milestone year for us as we were released
to execute two of our domestic EPC AP1000 nuclear power projects
and received a partial release on our third domestic EPC AP1000
nuclear power project. Additionally, work continued to progress
well in China on the first four AP1000 nuclear reactors to ever
be constructed. Our financial results were mixed as we generated
record revenues, record operating cash flow, record new awards,
cash and a substantially increased backlog of unfilled orders.
Earnings
38
were strong across the majority of our segments. However, we
experienced cost overruns on two coal-fired power plant projects
in our Fossil, Renewables & Nuclear segment and
experienced significant non-operating and non-cash foreign
exchange translation losses in our Investment in Westinghouse
segment that substantially decreased our reported earnings.
Finally, the global economic slowdown negatively impacted the
number and value of new awards received by our E&C and
F&M segments that may adversely affect the comparative
financial results for those businesses in the first half of
fiscal year 2010.
Our E&I segment generated strong revenue and earnings,
primarily driven by increased volume in our federal sector and
improved execution. Construction activity on a hurricane
protection project for the USACE in southeast Louisiana and our
MOX project for the DOE in South Carolina continue to drive
E&Is earnings. U.S. government spending remained
strong during 2009 and the E&I segment is well positioned
to benefit from an expected increase in government spending in
2010 under the American Recovery and Reinvestment Act of 2009
(ARRA).
Our F&M segment had record revenues in fiscal year 2009,
primarily driven by the execution of several large projects
already in our backlog, as well as sales from our fabrication
facility in Mexico which commenced operations during the latter
part of fiscal year 2008. While earnings were strong in our
F&M segment, we believe the global economic slowdown
resulted in increased market pricing pressure and reduced our
profit margins. Our bookings of new orders (excluding the
transfer of nuclear scope from our Fossil,
Renewables & Nuclear segment) declined throughout the
year, as many of our clients delayed capital commitments. The
decline in new orders is likely to result in comparatively
reduced revenues and profits during the first half of fiscal
year 2010. Finally, progress continued on our new
state-of-the-art
module facility that we are constructing in Lake Charles,
Louisiana.
Our E&C segment had record revenues and earnings in fiscal
year 2009 resulting from strong operational execution on several
high-margin engineering services contracts executed from their
backlog of unfilled orders. However, as with our F&M
segment, global economic conditions and the decline in the value
of crude oil contributed to a decline in new awards during 2009,
and this decline is likely to result in comparatively reduced
revenues and profits during the first half of fiscal year 2010.
Our Maintenance segment had comparatively reduced revenues and
profits in fiscal year 2009 as clients delayed major capital
commitments as a result of global economic conditions. The year
over year comparative results were adversely impacted as we
completed a large capital construction project in fiscal year
2008, which generated margins greater than the routine
maintenance services which dominated the 2009 financial results.
Our Fossil, Renewables & Nuclear segments
financial results reflect the continued execution of a number of
EPC projects for new coal- and gas-fired power plants, a number
of projects targeting emission reductions at existing coal-fired
power plants, and a services contract for four new AP1000
reactors in China. We experienced increased field construction
labor costs during 2009 on two coal-fired power plant projects
which contributed to lower than expected earnings for this
segment. During fiscal year 2009, we received notices to proceed
with two of our domestic EPC AP1000 nuclear power projects and a
partial release on our third domestic EPC AP1000 nuclear power
project. All three projects received state public service
commission approval during fiscal year 2009. Additionally, one
of these projects received an Early Site Permit from the NRC.
Our consolidated financial results continue to be negatively
impacted by significant non-operating foreign exchange
translation losses resulting from an appreciation of the JPY
against the U.S. Dollar and from certain non-cash expenses
resulting from the Toshiba Event, as more fully described in
Item 1. We recorded pre-tax charges of $198.1 million
and $69.7 million related to foreign currency translation
losses on our JPY-denominated bonds for fiscal years 2009 and
2008, respectively. The exchange rate of the JPY to the
U.S. Dollar at August 31, 2009 was 92.9 as compared to
108.8 as of August 31, 2008.
As a result of the Toshiba Event, we reclassified our Investment
in Westinghouse and the corresponding outstanding bonds from
long-term to current during the third quarter of fiscal year
2009. Due to the Toshiba Event, we were required to expense the
unamortized original issuance bond discount of
$22.8 million pre-tax, or $13.9 million after tax, as
well as the remaining deferred financing costs of
$6.6 million pre-tax, or
39
$4.0 million after tax, during the third quarter of fiscal
year 2009. These non-cash charges are included as interest
expense in the financial statements. See Investment in
Westinghouse segment for additional details regarding the
Toshiba Event.
During our fiscal year 2009, we entered into Amendment
No. 6 to our Facility to, among other things, extend the
maturity from April 25, 2010 to April 25, 2011, and
pursuant to such amendment, existing lenders with commitments
totaling $874.0 million agreed to the one-year extension.
Subsequent to the close of our fiscal year 2009, we entered into
an Amended and Restated Credit Agreement (Restated Credit
Agreement) which provides new and extended lender commitments of
$1,214.0 million, all of which is available for the
issuance of performance and financial letters of credit
and/or
borrowings for working capital needs and general corporate
purposes. Specifically, the Restated Credit Agreement makes
available $1,214.0 million through April 25, 2010,
$1,095.0 million from April 26, 2010 to April 25,
2011 and $1,000.0 million from April 26, 2011 through
October 25, 2012. See Note 8 Debt and
Revolving Lines of Credit to our consolidated financial
statements beginning on
page F-1
and Liquidity and Capital Resources below for additional
information regarding our Facility.
We generated record consolidated operating cash flow during
fiscal year 2009 driven by all operating segments other than
Corporate and Investment in Westinghouse. Cash flow was
generated from a combination of operating earnings and favorable
changes in working capital.
Consolidated
Results of Operations
Consolidated
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
$
|
5,723.7
|
|
$ Change from prior period
|
|
|
281.7
|
|
|
|
1,274.3
|
|
|
|
|
|
% Change from prior period
|
|
|
4.0
|
%
|
|
|
22.3
|
%
|
|
|
|
|
Consolidated revenues increased during fiscal year 2009 as
compared to fiscal year 2008 primarily due to an increase in
revenues in our E&I segment, primarily attributable to a
hurricane protection project for the USACE in southeast
Louisiana. Also contributing to the increase in revenues were
higher volumes in our F&M and E&C segments. Included
in E&C revenues are client furnished materials for which we
recognize no gross profit or loss ($425.1 million in fiscal
year 2009 compared to $527.6 million in fiscal year 2008).
Consolidated
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
607.4
|
|
|
$
|
586.0
|
|
|
$
|
375.4
|
|
$ Change from prior period
|
|
|
21.4
|
|
|
|
210.6
|
|
|
|
|
|
% Change from prior period
|
|
|
3.7
|
%
|
|
|
56.1
|
%
|
|
|
|
|
Consolidated gross profit increased during fiscal year 2009 as
compared to fiscal year 2008 primarily due to performance in our
E&C and E&I segments. E&Cs gross profit
increased in fiscal year 2009 as compared to fiscal year 2008
due to an increase in volume of high-margin engineering services
projects; and E&Is increase is primarily related to
increased construction activity on a hurricane protection
project for the USACE in southeast Louisiana. Additionally, both
segments benefitted from an overall improvement in execution.
40
Consolidated
General & Administrative Expenses
(G&A):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
308.7
|
|
|
$
|
276.3
|
|
|
$
|
274.5
|
|
$ Change from prior period
|
|
|
32.4
|
|
|
|
1.8
|
|
|
|
|
|
% Change from prior period
|
|
|
11.7
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Consolidated G&A increased during fiscal year 2009 as
compared to fiscal year 2008 in order to support our increasing
business activity levels in most areas of the company. Specific
areas that contributed to the increase in general and
administrative expenses during fiscal year 2009 include higher
business development expenses in our E&C segment and the
overall expansion of our Nuclear business.
Consolidated
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
73.6
|
|
|
$
|
45.9
|
|
|
$
|
43.4
|
|
$ Change from prior period
|
|
|
27.7
|
|
|
|
2.5
|
|
|
|
|
|
% Change from prior period
|
|
|
60.3
|
%
|
|
|
5.8
|
%
|
|
|
|
|
Consolidated interest expense increased in fiscal year 2009 as
compared to fiscal year 2008 primarily due to increased interest
expense associated with the JPY denominated bonds. The fiscal
year 2009 amount includes the expensing of the original issuance
bond discount of $22.8 million pre-tax and the remaining
deferred financing cost of $6.6 million pre-tax due to the
occurrence of a Toshiba Event.
Consolidated
Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
11.9
|
|
|
$
|
71.4
|
|
|
$
|
10.7
|
|
$ Change from prior period
|
|
|
(59.5
|
)
|
|
|
60.7
|
|
|
|
|
|
% Change from prior period
|
|
|
(83.3
|
)%
|
|
|
567.3
|
%
|
|
|
|
|
Consolidated effective tax rate for fiscal year 2009 was 37% as
compared to 32% for fiscal year 2008. The increase in our
effective tax rate was primarily due to the mix of earnings
between our domestic and foreign operations, the reduction in
certain valuation allowances in fiscal year 2008 and an
increased provision for uncertain tax positions in fiscal year
2009.
Consolidated
Earnings (Losses) from Unconsolidated Entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
11.0
|
|
|
$
|
17.7
|
|
|
$
|
(23.7
|
)
|
$ Change from prior period
|
|
|
(6.7
|
)
|
|
|
41.4
|
|
|
|
|
|
% Change from prior period
|
|
|
(37.9
|
)%
|
|
|
NM
|
|
|
|
|
|
NM Not meaningful.
Earnings from unconsolidated entities decreased in fiscal year
2009 as compared to fiscal year 2008 primarily due to a
$5.8 million net of tax reduction in earnings related to
our Westinghouse Equity.
41
Consolidated
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
$
|
15.0
|
|
|
$
|
140.7
|
|
|
$
|
(19.0
|
)
|
$ Change from prior period
|
|
|
(125.7
|
)
|
|
|
159.7
|
|
|
|
|
|
% Change from prior period
|
|
|
(89.3
|
)%
|
|
|
NM
|
|
|
|
|
|
NM Not meaningful.
Consolidated net income decreased in fiscal year 2009 as
compared to fiscal year 2008 primarily due to changes in
estimated costs to complete two coal-fired power plant projects
in our Fossil, Renewables & Nuclear segment, as well
as increased non-cash foreign currency translation losses in our
Investment in Westinghouse segment, as the JPY continued to
appreciate against the U.S. Dollar throughout fiscal year
2009. These decreases were partially offset by higher earnings
in our E&I and E&C segments in fiscal year 2009 as
compared to fiscal year 2008.
Segment
Results of Operations
The comments and tables that follow compare revenues, gross
profit and gross profit percentages by operating segment and a
discussion of other items, including G&A, interest expense
and income, income from unconsolidated subsidiaries and income
taxes at the consolidated level for the fiscal years ended
August 31, 2009, 2008 and 2007.
42
Selected summary financial information for our operating
segments is as follows (in millions, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil, Renewables & Nuclear
|
|
$
|
2,581.2
|
|
|
$
|
2,655.1
|
|
|
$
|
1,635.6
|
|
E&I
|
|
|
1,835.5
|
|
|
|
1,462.1
|
|
|
|
1,469.3
|
|
E&C
|
|
|
1,371.5
|
|
|
|
1,283.3
|
|
|
|
1,063.9
|
|
Maintenance
|
|
|
864.1
|
|
|
|
1,018.2
|
|
|
|
1,081.5
|
|
F&M
|
|
|
623.4
|
|
|
|
576.6
|
|
|
|
472.8
|
|
Corporate
|
|
|
4.0
|
|
|
|
2.7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
$
|
5,723.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil, Renewables & Nuclear
|
|
$
|
87.0
|
|
|
$
|
153.1
|
|
|
$
|
75.0
|
|
E&I
|
|
|
161.7
|
|
|
|
105.9
|
|
|
|
94.7
|
|
E&C
|
|
|
198.7
|
|
|
|
124.3
|
|
|
|
70.2
|
|
Maintenance
|
|
|
17.8
|
|
|
|
49.4
|
|
|
|
19.9
|
|
F&M
|
|
|
138.0
|
|
|
|
150.0
|
|
|
|
115.0
|
|
Corporate
|
|
|
4.2
|
|
|
|
3.3
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
607.4
|
|
|
$
|
586.0
|
|
|
$
|
375.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil, Renewables & Nuclear
|
|
|
3.4
|
%
|
|
|
5.8
|
%
|
|
|
4.6
|
%
|
E&I
|
|
|
8.8
|
|
|
|
7.2
|
|
|
|
6.5
|
|
E&C
|
|
|
14.5
|
|
|
|
9.7
|
|
|
|
6.6
|
|
Maintenance
|
|
|
2.1
|
|
|
|
4.9
|
|
|
|
1.8
|
|
F&M
|
|
|
22.1
|
|
|
|
26.0
|
|
|
|
24.3
|
|
Corporate
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
8.3
|
%
|
|
|
8.4
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and
earnings (losses) from unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil, Renewables & Nuclear
|
|
$
|
29.3
|
|
|
$
|
112.7
|
|
|
$
|
42.3
|
|
E&I
|
|
|
91.0
|
|
|
|
39.3
|
|
|
|
18.3
|
|
E&C
|
|
|
153.0
|
|
|
|
97.4
|
|
|
|
35.2
|
|
Maintenance
|
|
|
6.7
|
|
|
|
33.8
|
|
|
|
9.3
|
|
F&M
|
|
|
106.6
|
|
|
|
126.8
|
|
|
|
91.2
|
|
Investment in Westinghouse
|
|
|
(267.0
|
)
|
|
|
(107.9
|
)
|
|
|
(66.7
|
)
|
Corporate
|
|
|
(87.0
|
)
|
|
|
(81.6
|
)
|
|
|
(96.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes, minority interest and
earnings (losses) from unconsolidated entities
|
|
$
|
32.6
|
|
|
$
|
220.5
|
|
|
$
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM Not meaningful.
43
Our revenues by industry were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Industry
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
Environmental and Infrastructure
|
|
$
|
1,835.5
|
|
|
|
25
|
|
|
$
|
1,462.1
|
|
|
|
21
|
|
|
$
|
1,469.3
|
|
|
|
26
|
|
Power Generation
|
|
|
3,168.5
|
|
|
|
44
|
|
|
|
3,258.7
|
|
|
|
47
|
|
|
|
2,336.2
|
|
|
|
41
|
|
Chemicals
|
|
|
2,120.0
|
|
|
|
29
|
|
|
|
2,096.9
|
|
|
|
29
|
|
|
|
1,758.0
|
|
|
|
31
|
|
Other
|
|
|
155.7
|
|
|
|
2
|
|
|
|
180.3
|
|
|
|
3
|
|
|
|
160.2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,279.7
|
|
|
|
100
|
%
|
|
$
|
6,998.0
|
|
|
|
100
|
%
|
|
$
|
5,723.7
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues by geographic region were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Geographic Region
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
United States
|
|
$
|
5,669.7
|
|
|
|
78
|
|
|
$
|
5,422.2
|
|
|
|
78
|
|
|
$
|
4,525.1
|
|
|
|
79
|
|
Asia/Pacific Rim countries
|
|
|
978.4
|
|
|
|
13
|
|
|
|
573.0
|
|
|
|
8
|
|
|
|
224.3
|
|
|
|
4
|
|
Middle East
|
|
|
386.3
|
|
|
|
5
|
|
|
|
719.5
|
|
|
|
10
|
|
|
|
789.4
|
|
|
|
14
|
|
United Kingdom and other European Countries
|
|
|
127.9
|
|
|
|
2
|
|
|
|
193.9
|
|
|
|
3
|
|
|
|
133.8
|
|
|
|
2
|
|
South America and Mexico
|
|
|
51.8
|
|
|
|
1
|
|
|
|
33.6
|
|
|
|
1
|
|
|
|
22.4
|
|
|
|
1
|
|
Canada
|
|
|
37.7
|
|
|
|
1
|
|
|
|
25.4
|
|
|
|
|
|
|
|
15.2
|
|
|
|
|
|
Other
|
|
|
27.9
|
|
|
|
|
|
|
|
30.4
|
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,279.7
|
|
|
|
100
|
%
|
|
$
|
6,998.0
|
|
|
|
100
|
%
|
|
$
|
5,723.7
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Analysis Fiscal Year 2009 Compared to Fiscal Year
2008
Fossil,
Renewables & Nuclear Segment
During 2009, our Fossil, Renewables & Nuclear segment
continued to execute major electric power generation and air
emission reduction projects across the globe. Reduced demand for
electricity in the U.S. and the decline in the stock prices
for electric utilities during 2009 likely adversely impacted
electric utilities investment decisions during 2009.
However, the segments EPC work on three contracts for six
new AP1000 nuclear power reactors in the U.S. were either
fully or partially released in 2009 while work continued on our
services contract for four new AP1000 nuclear power reactors in
China. The domestic nuclear EPC contracts significantly
increased this segments backlog of unfilled orders while
new awards for air quality control system contracts and new
build coal projects significantly declined. One new build
coal / petroleum coke fired generation facility was
canceled and removed from backlog in the second quarter of
fiscal year 2009. Notwithstanding these changes to the power
generation markets, the 2009 results for this segment were
driven by EPC projects for new coal-fired, gas and nuclear power
plants in the U.S. as well as from air emission reduction
projects at existing power plants.
Revenues
Revenues decreased $73.9 million, or 2.8%, to
$2,581.2 million in fiscal year 2009 from
$2,655.1 million in fiscal year 2008 primarily due to the
completion or near completion of several air quality control
system projects in the U.S. However, this decrease is
partially offset by increased volume on new coal and gas
construction projects, as well as the initial work on the three
new nuclear construction projects in the U.S.
Gross
Profit and Gross Profit Percentage
Gross profit decreased $66.1 million, or 43.2%, to
$87.0 million in fiscal year 2009 from $153.1 million
in fiscal year 2008 and gross profit percentage decreased to
3.4% in fiscal year 2009 from 5.8% in fiscal year
44
2008. These decreases were primarily due to significantly
increased estimated costs to complete two coal-fired power plant
projects, one of which amounted to $73.9 million that was
recorded in the second quarter of fiscal year 2009.
Additionally, the decline in the volume of air quality control
system projects in fiscal year 2009 versus fiscal year 2008
contributed to the comparative decline in annual gross profit.
Income
(loss) before income taxes, minority interest, and earnings
(losses) from unconsolidated entities
Income before income taxes, minority interest, and earnings from
unconsolidated entities decreased $83.4 million, or 74.0%,
to $29.3 million in fiscal year 2009 from
$112.7 million in fiscal year 2008. This decrease was
primarily due to the factors affecting gross profit discussed
above, as well as an increase in general and administrative
expenses as our domestic nuclear work continues to advance.
E&I
Segment
The financial results of our E&I segment significantly
improved during fiscal year 2009 as compared to fiscal year
2008, driven primarily by our hurricane protection project for
the USACE in southeast Louisiana. The E&I segment benefited
from increased U.S. government spending during fiscal 2009
and is well positioned to compete for projects that may be
funded under the ARRA in fiscal year 2010.
Revenues
Revenues increased $373.4 million, or 25.5%, to
$1,835.5 million in fiscal year 2009 from
$1,462.1 million in fiscal year 2008 primarily due to
increased volumes of services provided to the
U.S. Government, led by increased construction activity on
the hurricane protection project for the USACE in southeast
Louisiana and our MOX project.
Gross
Profit and Gross Profit Percentage
Gross profit increased $55.8 million, or 52.7%, to
$161.7 million in fiscal year 2009 from $105.9 million
in fiscal year 2008 while gross profit percentage increased to
8.8% in fiscal year 2009 from 7.2% in fiscal year 2008. The
increase in gross profit is primarily due to increased
construction activity on a hurricane protection project noted
above. Gross profit and gross profit percentage also increased
due to overall improved project execution and increased amounts
of overhead chargeable to contracts that results when the volume
of project activity increases.
Income
(loss) before income taxes, minority interest and earnings
(losses) from unconsolidated entities
Income before income taxes, minority interest, and earnings from
unconsolidated entities increased $51.7 million, or 131.6%,
to $91.0 million in fiscal year 2009 from
$39.3 million in fiscal year 2008. This increase was
primarily due to the factors affecting gross profit discussed
above
E&C
Segment
E&C experienced record revenues and earnings during fiscal
year 2009 as we worked off a number of high-margin engineering
projects in backlog. However, E&Cs record performance
on existing projects was coupled with an increasingly
challenging marketplace, as the global recession had a
substantial and negative impact on the investment decisions of
clients in the oil and petrochemical markets. Many of our
clients delayed large capital investments during fiscal year
2009, and E&Cs bookings of new contracts declined as
compared to 2008. The decline in bookings, combined with the
work-off of many high-margin engineering services projects
throughout fiscal year 2009, led to a gradual decline in volume
and profits in the second half of fiscal year 2009 and we expect
this trend to continue into fiscal year 2010. However, we are
seeing signs of renewed client interest in the early phases of
major capital investments such as studies and front end
engineering and design contracts which precede the engineering,
procurement and construction phase of major projects. We remain
optimistic that bookings in the E&C segment may increase if
and to the extent that global economic conditions improve.
45
Revenues
Revenues increased $88.2 million, or 6.9%, to
$1,371.5 million in fiscal year 2009 from
$1,283.3 million in fiscal year 2008 due primarily to an
overall increase in the volume of engineering services projects
in general and on a major international petrochemical project in
Asia. Included in E&Cs revenues were
$425.1 million and $527.6 million in fiscal years 2009
and 2008, respectively, of reimbursable client furnished
materials for which we recognize no gross profit or loss.
Gross
Profit and Gross Profit Percentage
Gross profit increased $74.4 million, or 59.9%, to
$198.7 million in fiscal year 2009 from $124.3 million
in fiscal year 2008 while gross profit percentage increased to
14.5% in fiscal year 2009 from 9.7% in fiscal year 2008. The
increase in gross profit and gross profit percentage is
primarily due to increased engineering service activity,
increased activity on the major international petrochemical
project noted above, strong project execution, and reduced
estimated costs at completion related to foreign withholding
taxes. Our fiscal year 2008 results included an increase in
gross profit of $13.0 million due to the release of
performance guarantees at a consolidated joint venture.
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income before income taxes, minority interest, and earnings from
unconsolidated entities increased $55.6 million, or 57.1%,
to $153.0 million in fiscal year 2009 from
$97.4 million in fiscal year 2008. This increase was
primarily due to the factors affecting gross profit discussed
above. However, the increase was partially offset by increased
general and administrative expenses, primarily related to
business development and proposal activities.
Maintenance
Segment
Our Maintenance segment experienced reduced activity in fiscal
year 2009 versus fiscal year 2008, as the global recession
adversely impacted the primary markets this segment serves. We
performed fewer refueling outages for our nuclear electric
utility clients in fiscal year 2009 as compared to fiscal year
2008, and we also performed fewer projects for our refining,
chemical, and petrochemical clients who we believe delayed
capital commitments because of economic conditions.
Revenues
Revenues decreased $154.1 million, or 15.1%, to
$864.1 million in fiscal year 2009 from
$1,018.2 million in fiscal year 2008. This decrease in
revenues is primarily due to lower volume of activity in both
our power and process business lines. Additionally, we completed
a major capital construction project in fiscal year 2008 that
was not replaced in 2009.
Gross
Profit and Gross Profit Percentage
Gross profit decreased $31.6 million, or 64.0%, to
$17.8 million in fiscal year 2009 from $49.4 million
in fiscal year 2008 and gross profit percentage decreased to
2.1% in fiscal year 2009 from 4.9% in fiscal year 2008. The
decreases in gross profit and gross profit percentage were
primarily due to lower overall business volume as well as
reduced margin resulting from the impact of a dispute resolution
reached in the second quarter of fiscal 2009 with the owner of a
major domestic power project. Also contributing to the
comparative decline in annual gross profit and gross profit
percentage was the fact that we completed a major capital
construction project in fiscal year 2008, which produced higher
gross profits when compared to the maintenance services provided
in fiscal year 2009.
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income before income taxes, minority interest, and earnings from
unconsolidated entities decreased $27.1 million, or 80.2%,
to $6.7 million in fiscal year 2009 from $33.8 million
in fiscal year 2008. This
46
decrease was primarily due to the factors affecting gross profit
discussed above, partially offset by lower general and
administrative expenses resulting from various cost-savings
initiatives.
F&M
Segment
Our F&M segment achieved record business volume levels in
fiscal year 2009, as we continued to service global demand for
our industry-leading pipe and steel fabrication services, as
well as for our manufacturing and distribution products.
However, toward the end of fiscal year 2009, the global economic
downturn began to negatively impact our end markets,
particularly clients in the oil refining and
chemical/petrochemical industries. As a result, our non-nuclear
bookings and profits declined in the second half of fiscal 2009.
We expect the recent downturn in volume and profits to continue
into the first half of fiscal year 2010 but subsequently to
improve to the extent that the modular assembly and pipe
fabrication work associated with the AP1000 work subcontracted
from our Fossil, Renewables & Nuclear segment
commences.
Revenues
Revenues increased $46.8 million, or 8.1%, to
$623.4 million in fiscal year 2009 from $576.6 million
in fiscal year 2008. The increase in revenues is primarily due
to the execution of several large projects in our backlog as
well as sales from our Mexico facility, which commenced
operation in late fiscal year 2008.
Gross
Profit and Gross Profit Percentage
Gross profit decreased $12.0 million, or 8.0%, to
$138.0 million in fiscal year 2009 from $150.0 million
in fiscal year 2008. Gross profit percentage decreased to 22.1%
in fiscal year 2009 from 26.0% in fiscal year 2008. The
decreases in gross profit and gross profit percentage were
primarily due to reduced client demand for pipe fabrication
services which increased available capacity in our
competitors facilities and resulted in a more competitive
pricing environment
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income before income taxes, minority interest, and earnings from
unconsolidated entities decreased $20.2 million, or 15.9%,
to $106.6 million in fiscal year 2009 from
$126.8 million in fiscal year 2008 primarily due to the
factors affecting gross profit discussed above.
Investment
in Westinghouse Segment
The Investment in Westinghouse segment includes the financial
results of our Westinghouse Equity and the corresponding JPY
denominated debt that funded the investment which occurred on
October 16, 2006. The total impact from the Investment in
Westinghouse segment on our income before taxes and other items
for fiscal years 2009 and 2008, were losses of
$267.0 million and $107.9 million, pre-tax, and
$155.3 million and $50.7 million, net of tax,
respectively.
The losses were primarily attributable to increased non-cash
foreign currency translation losses resulting from revaluing the
JPY debt to the U.S. Dollar equivalent at each
quarters end as the JPY appreciated against the
U.S. Dollar in fiscal year 2009. In addition, the losses
include $29.4 million pre-tax interest on the charges
attributable to the expensing of the original issuance bond
discount of $22.8 million pre-tax and the remaining
deferred financing cost of $6.6 million pre-tax during
fiscal year 2009 as a result of the Toshiba Event described in
Item 1. Business above.
Income before tax from our Westinghouse Equity decreased
$13.2 million, or 53.4%, to $11.5 million in fiscal
year 2009 from $24.7 million in fiscal year 2008. This
decrease was related to a decline in Westinghouses profits
associated with Westinghouses nuclear fuel sales and non
EPC related services.
We enter into foreign currency forward contracts from
time-to-time
to hedge the impact of exchange rate changes on our JPY cash
interest payments on the Westinghouse Bonds. We normally focus
our hedge transactions to the JPY interest payments due within
the following twelve months.
47
Westinghouse maintains its accounting records for reporting to
its majority owner, Toshiba, on a calendar quarter basis with a
March 31 fiscal year end. Financial information about
Westinghouses operations is available to us for
Westinghouses calendar quarter periods. As a result, we
record our 20% of Westinghouses earnings (loss) as
reported to us by Westinghouse based upon Westinghouses
calendar quarterly reporting periods, or two months in arrears
of our current reporting periods. Under this policy, the results
of Westinghouses operations from July 1, 2008,
through their calendar quarter ended June 30, 2009, were
included in our financial statements for the twelve months ended
August 31, 2009; and the results of Westinghouses
operations from July 1, 2007, through their calendar
quarter ended June 30, 2008, were included in our financial
statements for the twelve months ended August 31, 2008.
Corporate
General
and Administrative Expenses (G&A)
Corporate G&A increased $3.5 million, or 4.0%, to
$91.3 million in fiscal year 2009 from $87.8 million
in fiscal year 2008. This increase was primarily related to
increased labor and compensation costs, non-income-related tax
expenses and certain employee-related insurance costs. However,
this increase was substantially offset by a significant
reduction in external consulting fees incurred in fiscal year
2008 associated with the remediation of material weaknesses in
internal control over financial reporting that existed at the
time and lower fuel, repairs and maintenance costs associated
with our Corporate aircraft. Additionally, we initiated
cost-savings initiatives throughout fiscal year 2009.
Segment
Analysis Fiscal Year 2008 Compared to Fiscal Year
2007
Fossil,
Renewables & Nuclear Segment
Our Fossil, Renewables & Nuclear segment experienced
growth in demand in the areas of emissions control and new coal
fired power generation facilities for regulated electric power
utilities in the U.S. Additionally, we are performing early
engineering work for six new nuclear power reactors in the
U.S. Our international work in this segment increased due
to a major services project in China.
Revenues
Revenues increased $1,000 million, or 62.3%, in fiscal year
2008 as compared to fiscal year 2007 primarily due to:
|
|
|
|
|
commencing
and/or
continuing EPC work on six new coal fired power plants in the
U.S.;
|
|
|
|
continued progress on emission reduction projects such as FGD
projects at coal fired power plants as full work authorizations
were received and progress accelerated;
|
|
|
|
continued activity on other coal-fired power plant and
ACQS; and
|
|
|
|
an increase in our nuclear activity due primarily to our
services contract (with a limited supply of equipment) for four
AP1000 nuclear reactor units in China and preliminary
engineering work on domestic AP1000 units that were awarded
in fiscal year 2008.
|
The increase in revenues was partially offset by revenue
declines attributable to several AQCS projects nearing
substantial completion in the fiscal year.
Gross
Profit and Gross Profit Percentage
Gross profit increased $78.1 million, or 104.1% for fiscal
year 2008 as compared to fiscal year 2007. Our gross profit
percentage rose to 5.8% in fiscal year 2008 from 4.6% in fiscal
year 2007. The increases in our gross profit and gross profit
percentage were primarily due to:
|
|
|
|
|
commencing and /or continuing EPC work on six new coal fired
power plants plus new work and continuing progress on several
major FGD, AQCS projects at other coal fired power plant
projects; and
|
48
|
|
|
|
|
an increase in our nuclear activity due to continued progress on
our China nuclear project, other engineering design work and
additional authorizations on AP1000 units.
|
The increases in gross profit and gross profit percentage were
partially offset by:
|
|
|
|
|
a $26.0 million net reduction in gross profit for the year
resulting from an increase in the estimated costs at completion
on a fixed-price coal fired project due to increases in
estimated field labor costs, availability of labor and certain
indirect costs;
|
|
|
|
a decrease due to several AQCS projects nearing substantial
completion;
|
|
|
|
increased costs on an international project completed in fiscal
year 2008 where final settlement is in dispute with the main
contractor; and
|
|
|
|
an increase in facilities costs, proposal, and supervisory
management costs incurred in anticipation of the development of
the nuclear power market expected in the U.S. and certain
international markets.
|
The Fossil, Renewables & Nuclear segment has recorded
revenues of $29.0 million related to unapproved change
orders and claims at August 31, 2008, on a
percentage-of-completion
basis. The amounts included in our estimated total revenues at
completion for these projects are estimated to be
$34.5 million at August 31, 2008. These unapproved
change orders and claims relate to delays and costs attributable
to others. If we collect amounts different from the amounts we
have estimated, those differences, which could be material, will
be recognized as income or loss when realized.
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income (loss) before income taxes, minority interest, earnings
(losses) from unconsolidated entities increased
$70.4 million, or 166.4%, to $112.7 million for fiscal
year 2008 as compared to $42.3 million for fiscal year
2007. This increase was primarily due to the factors affecting
gross profit discussed above as the segment has experienced
strong revenue and gross profit growth from both the fossil and
nuclear divisions.
E&I
Segment
Our E&I segments revenues were relatively flat in
fiscal year 2008 as compared to fiscal year 2007. Our federal
services and commercial consulting and engineering services
experienced growth in fiscal year 2008 which were offset by a
decline in our commercial construction services.
Revenues
Our revenues decreased $7.2 million, or 0.5%, to
$1,462.1 million for fiscal year 2008 as compared to
$1,469.3 million in fiscal year 2007. This decrease was due
primarily to:
|
|
|
|
|
a decrease in disaster recovery services in the U.S. Gulf
Coast; and
|
|
|
|
a decrease commercial construction services.
|
The decrease in revenues in fiscal year 2008 was partially
offset by increases in revenues attributed to:
|
|
|
|
|
activity from two consolidated joint ventures providing services
to the DOE; and
|
|
|
|
an increase in services to our commercial consulting and
engineering clients.
|
Gross
Profit and Gross Profit Percentage
Gross profit increased $11.2 million, or 11.8%, in fiscal
year 2008 as compared to 2007. Our gross profit percentage rose
to 7.2% in fiscal year 2008 from 6.5% in fiscal year 2007. The
increases in our gross profit and gross profit percentage were
due primarily to:
|
|
|
|
|
a loss recognized on a fixed price project in the Middle East in
fiscal year 2007 not incurred in 2008; and
|
49
|
|
|
|
|
favorable variance related labor utilization rates and a
reduction in overhead labor and fringe costs.
|
The increases were partially offset by:
|
|
|
|
|
a decrease in disaster recovery services in the U.S. Gulf
Coast; and
|
|
|
|
a decrease in gross profit percentage from recording no gross
profit on a consolidated military housing privatization joint
venture.
|
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income (loss) before income taxes, minority interest, earnings
(losses) from unconsolidated entities increased by
$21.0 million, or 114.8%, to $39.3 million as compared
to $18.3 million in fiscal year 2007 due primarily to the
factors impacting gross profit addressed above as well as a
reduction in general and administrative expenses due to lower
business development costs.
E&C
Segment
Demand for chemical and petrochemical production and refinery
capacity in the Middle East and Asia Pacific regions provided a
continued strong petrochemicals market, resulting in increasing
activity levels for the E&C segment in fiscal year 2008 as
compared to fiscal year 2007.
Revenues
Revenues in our E&C segment increased $219.4 million,
or 20.6%, to $1,283.3 million for fiscal year 2008 from
$1,063.9 million in fiscal year 2007 primarily due to:
|
|
|
|
|
higher revenues related to demand for our engineering and
engineered equipment for the petrochemical and refinery
businesses;
|
|
|
|
an increase in client furnished materials ($527.6 million
and $443.0 million for the fiscal years ended
August 31, 2008 and 2007, respectively) on two major
international petrochemical projects; however, no gross profit
is recognized from client furnished materials; and
|
|
|
|
during FY 2008, we began work on a major petrochemical plant in
Singapore.
|
The increase in revenues for fiscal year 2008 as compared to
fiscal year 2007 was partially offset by:
|
|
|
|
|
a decrease in services revenues from a major international
petrochemical project that was at peak levels in the comparative
prior fiscal year period; and
|
|
|
|
a decrease in revenues from a Gulf Coast petrochemical fire
rebuild project that was at a high services level in the
comparative prior fiscal year period.
|
Gross
Profit and Gross Profit Percentage
Gross profit increased $54.0 million, or 76.9%, in fiscal
year 2008 as compared to fiscal year 2007. Our gross profit
percentage rose to 9.7% in fiscal year 2008 from 6.6% in fiscal
year 2007. The increases in our gross profit and gross profit
percentage were due primarily to:
|
|
|
|
|
increased activity primarily associated with our engineering and
engineered equipment projects.
|
|
|
|
a high level of contract losses recorded in the prior fiscal
year as compared to the current fiscal year; and
|
|
|
|
the release of license performance guarantees related to certain
joint venture technology projects based on current estimates.
|
50
The increase in our gross profit and gross profit percentage for
fiscal year 2008 as compared to fiscal year 2007 was partially
offset by the following:
|
|
|
|
|
lower service activity on two petrochemical projects which were
at peak levels in the prior fiscal year; and
|
|
|
|
higher indirect expenses due to the growth of our business.
|
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income (loss) before income taxes, minority interest, earnings
(losses) from unconsolidated entities increased
$62.2 million, or 176.7%, to $97.4 million in fiscal
year 2008 as compared to $35.2 million in fiscal year 2007.
This increase was due primarily to the changes in gross profit
addressed above as well as foreign exchange transaction gains
related to changes in currency exchange rates due primarily to
the strengthening of the U.S. Dollar against the U.K. Pound
and Euro during fiscal year 2008 and higher net interest income
associated with improved cash flows at our E&C segment
offset by higher general and administrative expenses.
Maintenance
Segment
Our Maintenance segment experienced decreased activity during
fiscal year 2008, performing a lower volume of work in the power
maintenance industry offset somewhat by an increase in capital
construction work for our petrochemical clients.
Revenues
Our revenues decreased $63.3 million, or 5.9%, to
$1,018.2 million during fiscal year 2008 compared to
$1,081.5 million for fiscal year 2007 due primarily to:
|
|
|
|
|
completion of a major domestic power construction project in
fiscal year 2007;
|
|
|
|
the decision to no longer pursue maintenance work for an
independent electric power company; and
|
|
|
|
the overall decrease in the number of performed outages in the
power maintenance industry.
|
The decreases noted above offset the increase in activity
associated with the increased market demand for capital
construction services in the petrochemical industry.
Gross
Profit and Gross Profit Percentage
Gross profit increased $29.5 million, or 148.2%, to
$49.4 million for fiscal year 2008 as compared to
$19.9 million in fiscal year 2007. Our gross profit
percentage increased to 4.9% in fiscal year 2008 as compared to
1.8% in fiscal year 2007. The increase in our gross profit and
gross profit percentage is due primarily to an increase in
capital construction revenues which are traditionally executed
at higher gross profit margins than routine maintenance
services. In addition, there were loss provisions recorded
during fiscal year 2007 totaling $15.5 million related to
disputes with an owner over project incentives as well as losses
recorded on two offshore production platform contracts.
Our maintenance segment has recorded revenues to date of
$29.9 million related to our significant estimated, project
incentives and unapproved change orders and claims at
August 31, 2008 on a
percentage-of-completion
basis.
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income (loss) before income taxes, minority interest, earnings
(losses) from unconsolidated entities increased
$24.5 million, or 263.4%, to $33.8 million in fiscal
year 2008 compared $9.3 million in fiscal year 2007. This
increase is primarily attributable to the changes in gross
profit discussed above. These increases were offset primarily by
an increase in indirect expenses attributable partly to an
increase in operations
51
management. Also included in indirect expenses in fiscal year
2008 was a charge associated with the dissolution of a foreign
entity.
F&M
Segment
In fiscal year 2008, we experienced strong demand for our
fabrication and manufacturing services. Strength in the global
piping systems markets for oil refineries, power, petrochemical
and chemical plants also expanded during that fiscal year. We
completed our fabrication facility in Mexico in 2008, and it is
now our largest facility.
Revenues
Our revenues increased $103.8 million, or 22.0%, to
$576.6 million in fiscal year 2008 as compared to
$472.8 million in fiscal year 2007. This increase is due
primarily to significant new awards in both the domestic and
foreign markets and the global increase in demand of our
manufactured and fabricated products. We experienced increases
in the foreign and domestic market as a result of the increasing
demand in the petrochemical, refining and power generation
industries.
Gross
Profit and Gross Profit Percentage
The increase in gross profit of $35.0 million, or 30.4%, to
$150.0 million in fiscal year 2008 as compared to
$115.0 million fiscal year 2007. Our gross profit
percentage increased to 26.0% in fiscal year 2008 as compared to
24.3% in fiscal year 2007. This increase is attributable to the
increase in demand for most of our products resulting in
stronger volume and improved gross profit in both the domestic
and foreign markets as discussed above.
Income
(loss) before income taxes, minority interest, earnings (losses)
from unconsolidated entities
Income (loss) before income taxes, minority interest, earnings
(losses) from unconsolidated entities increased
$35.6 million, or 39.0%, to $126.8 million in fiscal
year 2008 as compared to $91.2 million in fiscal year 2007.
The increase is due primarily to the increases in revenues and
the factors impacting gross profit discussed above. G&A
increased for fiscal year 2008 compared to fiscal year 2007 due
to increased labor costs resulting from increased headcount
levels to support the higher demand in our markets.
Investment
in Westinghouse Segment
The Investment in Westinghouse segment includes our Westinghouse
Equity acquired in October 2006. The total impact from our
Investment in Westinghouse segment on our pre-tax income before
other items for the twelve months ended August 31, 2008 and
2007, respectively, was losses of $107.9 million and
$66.7 million, pre-tax, and $50.7 million and
$38.3 million, net of tax and other items, respectively.
The pre-tax income before other items of the Investment in
Westinghouse segment for the twelve months ended August 31,
2008 and 2007 included the following:
|
|
|
|
|
legal and professional fees including costs incurred during
fiscal 2007 to obtain audited financial statements of
Westinghouse in connection with the acquisition of
$0.9 million and $2.9 million, respectively;
|
|
|
|
interest expense on the Westinghouse Bonds including discount
accretion, letter of credit fees and deferred financing cost
amortization of approximately $37.4 million and
$30.6 million, respectively; and
|
|
|
|
foreign currency translation losses on the Westinghouse Bonds
and the interest payment foreign currency forward contracts,
net, of approximately $69.7 million and $33.2 million,
respectively.
|
Additionally, our net income (loss) for the twelve months ended
August 31, 2008 and 2007 includes income from our
Westinghouse Equity of $15.0 million and $2.2 million,
respectively. The increase in
52
Westinghouses earnings is attributable to strength in
Westinghouses Nuclear Fuel, Nuclear Services and Nuclear
Power Plants segments.
G&A expenses for the Investment in Westinghouse segment
were lower in fiscal year 2008 than for fiscal year 2007 due to
costs incurred in fiscal year 2007 to obtain Westinghouse
audited financial statements in connection with the acquisition.
We enter into foreign currency forward contracts from
time-to-time
to hedge the impact of exchange rate changes on our JPY interest
payments on the Westinghouse Bonds. If we exercise the Put
Option for our Westinghouse Equity, we would expect to recover a
minimum of 97% of our investment that was originally made in JPY.
Westinghouse maintains its accounting records for reporting to
its majority owner, Toshiba, on a calendar quarter basis with a
March 31 fiscal year end. We expect that reliable financial
information about Westinghouses operations will be
available to us for Westinghouses calendar quarter
periods. The results of Westinghouses operations from
July 1, 2007, through their calendar quarter ended
June 30, 2008, were included in our financial statements
for the twelve months ended August 31, 2008. For the twelve
months ended August 31, 2007, Westinghouses results
from the acquisition effective date of October 1, 2006,
through their calendar quarter ended June 30, 2007, a nine
month period, were included in our financial results for the
twelve months ended August 31, 2007.
Corporate
General
and Administrative Expenses
G&A decreased by $2.7 million, or 3.0%, in fiscal year
2008 compared to fiscal year 2007 primarily due to reductions in
certain compensation costs and employee-related insurance costs,
which were charged to our other segments. These cost reductions
were partially offset by increased costs to support the
increasing revenue base and level of business activity as well
as increased consulting fees and audit fees.
Liquidity
and Capital Resources
Overview
of Fiscal Years 2009, 2008 and 2007
We generated record operating cash flow during 2009, and at
August 31, 2009, our cash and cash equivalents, restricted
and escrowed cash and short-term investments increased
$596.6 million, or 63.7%, to a record $1,533.3 million
from $936.7 million at August 31, 2008. In addition to
our cash and cash equivalents, we had $236.8 million of
revolving credit available for borrowings under our Facility at
August 31, 2009. Subsequent to August 31, 2009 and as
described below under Credit Facility we
substantially increased the amount available to us under a new
amended and restated credit facility.
Operating cash flow was generated by all operating segments
during fiscal year 2009 except our Corporate and Investment in
Westinghouse segments. The cash flow was generated by earnings
in each segment as well as from positive working capital
movements primarily in the Fossil,
Renewables & Nuclear segment.
We generated significant positive operating cash flows in fiscal
year 2008 primarily from positive cash flows on projects being
executed in our E&C, Fossil, Renewables & Nuclear
and F&M segments. We generated significant positive
operating cash flows in fiscal year 2007 due primarily to
collections by our E&I segment of accounts receivable
related to fiscal year 2006 disaster relief and emergency
response services work and the positive cash performance on
several EPC projects in our Fossil, Renewables &
Nuclear segment.
As our revenues have grown, so have our requirements to issue
letters of credit to our clients. While markets for our EPC
services continue to be strong, our ability to continue our
revenue growth may be dependent on our ability to increase our
letter of credit and surety bonding capacity, our ability to
achieve timely release of existing letters of credit and surety
bonds,
and/or our
ability to obtain more favorable terms from our clients reducing
letter of credit and surety requirements on new work. Our need
for letter of credit
53
capacity may increase as we begin executing future nuclear
construction projects. Increases in the demand for performance
letters of credit reduce the available borrowing capacity under
our Facility. During the first quarter of fiscal year 2009, we
extended our Facility until April 2011, and in September 2009,
which is subsequent to our 2009 fiscal year-end, we increased
the commitments under our Facility and extended its duration
until October 2012. See additional details below.
Our excess cash is generally invested in either
U.S. Treasury & U.S. Government Agency money
funds, money market funds governed under
rule 2a-7
of the U.S. Investment Company Act of 1940 and rated
AAA/Aaa by S& P
and/or
Moodys Investors Service, respectively, or in interest
bearing deposit accounts with commercial banks rated A/A2 or
better by Standard & Poors
and/or
Moodys Investors Service, respectively. Throughout most of
fiscal 2009 we invested our cash in short-term
U.S. Government treasuries and money market funds that
invest in U.S. Government securities. Toward the latter
part of fiscal year 2009, we shifted the majority of our
investments to money market funds and bank certificate of
deposits with maturities up to eighteen months. Subsequent to
the close of our fiscal year 2009, we broadened our investments
to include more exposure to public company debt rated A or
better by Standard & Poors with maturities up to
two years. We also expect to continue to voluntarily cash
collateralize certain letters of credit in 2010 if the bank fees
avoided on those letters of credit exceed the return on other
investment opportunities. At August 31, 2009 our restricted
cash and short term investments included $138.1 million
related to cash and short term investments used to voluntarily
secure letters of credit.
Approximately $130.7 million of our cash at August 31,
2009, was held in our international operations. We have the
ability to return certain amounts of our overseas funds to the
U.S. but may incur incremental taxes under certain
circumstances.
We expect to fund our operations for the next twelve months
through the use of cash generated from operations and existing
cash balances. However, there can be no assurance that we will
achieve our forecasted cash flow, which could result in new
borrowings under existing or future credit facilities. We expect
to reinvest a portion of our excess cash to support our business
lines growth, including, but not limited to, the purchase
of equipment that we have historically leased as well as the
advanced purchase of materials and equipment on projects to
capture market discounts and provide protection from potential
future price escalation. During fiscal year 2009 we expended
approximately $64.3 million for capital construction costs
related to F&Ms new module assembly facility in Lake
Charles, Louisiana and anticipate expending an additional
$40.0 million to complete this facility during fiscal year
2010. We continue to evaluate the possibility of constructing
additional fabrication facilities outside the U.S. and may
seek partners to share in the ownership and funding of any such
facilities.
The following table sets forth the cash flows for the last three
years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flow provided by (used in) operations
|
|
$
|
716,852
|
|
|
$
|
623,876
|
|
|
$
|
461,026
|
|
Cash flow provided by (used in) investing
|
|
|
(605,027
|
)
|
|
|
(96,815
|
)
|
|
|
(1,142,362
|
)
|
Cash flow provided by (used in) financing
|
|
|
(9,326
|
)
|
|
|
60,263
|
|
|
|
865,725
|
|
Cash (to) from variable interest entities
|
|
|
|
|
|
|
|
|
|
|
(167
|
)
|
Effects of foreign exchange rate changes on cash
|
|
|
(1,117
|
)
|
|
|
(927
|
)
|
|
|
1,725
|
|
Operating
Cash Flow
We generated $716.9 million in operating cash flows during
fiscal year 2009 primarily as the result of the earnings
generated from all our operating segments as well as positive
working capital movements. The largest contributors to this cash
flow were from our Fossil, Renewables & Nuclear and
F&M segments. We forecast our net operating cash flow will
continue to be positive during fiscal year 2010, although we may
elect to advance purchase materials and equipment on major
projects if market discounts are available in order to protect
against future price escalation.
54
Net operating cash flows increased by $162.9 million in
fiscal year 2008 compared to fiscal year 2007. The increase was
generated primarily by our E&C and Fossil,
Renewables & Nuclear segments from increased volumes
of business, increased margins and from positive working capital
movements.
Investing
Cash Flow
Cash used in investing activities in fiscal year 2009 increased
$508.2 million as compared to fiscal year 2008 primarily
due to the $342.2 million used for short-term investments
as well as $152.7 million cash pledged, at our option, to
secure certain outstanding letters of credit issued to support
our project execution activities.
Net investing cash flows increased by $1.0 billion in
fiscal year 2008 compared to fiscal year 2007. The increase was
primarily due to the $1.1 billion used to fund our
Westinghouse Equity during fiscal year 2007. In addition, net
cash received from restricted and escrowed cash in fiscal year
2008 was $11.3 million as compared to $24.1 million
for fiscal year 2007.
Financing
Cash Flow
Net cash flows from financing activities decreased
$69.6 million from fiscal year 2009 to fiscal year 2008
primarily due to a reduction in the issuance of common stock and
the excess tax benefits related to the exercise of stock options
and/or the
vesting of restricted stock awards. See Note 11
Share-Based Compensation in Part II,
Item 8 Financial Statements and Supplementary
Data for additional information about our Stock Compensation
Plans.
Net cash flows from financing activities decreased
$805.5 million from fiscal year 2007 to fiscal year 2008
primarily due to the acquisition of our 20% equity interest in
Westinghouse with proceeds from the Westinghouse Bonds in fiscal
year 2007. In addition, net reductions in our revolving credit
facilities during fiscal year 2008 were $0.2 million
compared to $150.8 million in fiscal year 2007.
See Note 8 Debt and Revolving Lines of Credit
and Note 6 Equity Method Investments and
Variable Interest Entities in Part II,
Item 8 Financial Statements and Supplementary
Data for additional information about our Westinghouse Bonds.
Credit
Facility
On September 24, 2009, we entered into the Restated Credit
Agreement with a group of lenders that provides new and extended
lender commitments of $1,214.0 million, all of which is
available for the issuance of performance and financial letters
of credit and / or borrowings for working capital
needs and general corporate purposes. The Restated Credit
Agreement includes new lenders to the Facility as well as
certain existing lenders who will exit the Facility in 2010 or
2011, following the expiration of their existing commitment.
Accordingly, the Restated Credit Agreement contemplates three
groups of lenders, the 2010 Lenders, the 2011
Lenders and the 2012 Lenders, with the
Facility terminating with respect to such lenders on
April 25, 2010, April 25, 2011 and October 25,
2012, respectively. The Restated Credit Agreement makes
available $1,214.0 million in commitments through
April 25, 2010 (up from $1,053.0 million),
$1,095.0 million from April 26, 2010 through
April 25, 2011 (up from $874.0 million), and
$1,000.0 million from April 26, 2011 through
October 25, 2012, where there had been no previous
commitments.
The Restated Credit Agreement allows the Company to seek new or
increased lender commitments under this Facility subject to the
consent of the Administrative Agent and, in some instances,
those lenders who issue letters of credit under the Facility on
the Companys behalf,
and/or seek
other supplemental credit facilities on a pari passu basis with
the Facility, of up to an aggregate of $400.0 million.
Additionally, the Company may pledge up to $300.0 million
of it unrestricted cash on hand to secure additional letters of
credit incremental to amounts available under the Facility,
provided that the Company and its subsidiaries have unrestricted
cash and cash equivalents of at least $500.0 million
available immediately following the pledge. The borrowing base
restrictions that were set forth in the original credit
agreement are not included in the Restated Credit
55
Agreement. The Restated Credit Agreement contains a revised
pricing schedule with respect to letter of credit fees and
interest rates payable by the Company.
The Restated Credit Agreement contains customary financial
covenants and other restrictions. The covenants set forth in the
Restated Credit Agreement generally conform to the covenants set
forth in the original credit agreement, except that the Restated
Credit Agreement, among other things (1) replaces the
consolidated fixed charge coverage ratio covenant of the
original credit agreement with a debt service coverage ratio
covenant, and (2) increases certain maximum allowable
amounts and certain threshold triggers and adds certain
additional exceptions with respect to the dividend, investment,
indebtedness, lien, asset sale, letter of credit, acquisition,
lease, and additional collateral covenants, thus providing the
company with greater financial flexibility in business decisions
and strategies. The Restated Credit Agreement contains
defaulting lender provisions.
The Restated Credit Agreement limits our ability to declare or
pay dividends or make any distributions of capital stock (other
than stock splits or dividends payable in our own capital stock)
or redeem, repurchase or otherwise acquire or retire any of our
capital stock. If unrestricted cash and cash equivalents after
giving effect to any dividend or stock repurchase is at least
$500.0 million, we are limited to aggregate dividend
payments
and/or stock
repurchases during the life of the Restated Credit Agreement to
$250.0 million. In situations where our unrestricted cash
and cash equivalents is less than $500.0 million, our
ability to pay dividends or repurchase our shares is limited to
$25.0 million per fiscal year.
The Restated Credit Agreement is secured by, among other things:
(1) a first priority security interest in all of the
Companys tangible and intangible assets (including,
without limitation, equipment, real estate and intellectual
property) and a pledge of all of the capital stock of the
Companys material domestic subsidiaries;
(2) guarantees by the Companys material domestic
subsidiaries; and (3) a pledge of 66% of the capital stock
of certain of the Companys foreign subsidiaries. The
Restated Credit Agreement permits the release of such liens if
(a) the Company obtains a corporate credit rating of at
least BBB- from S&P and Baa3 from Moodys Investment
Services, (b) all liens securing any supplemental credit
facilities are released, and (c) other conditions specified
in the Restated Credit Agreement are satisfied.
During fiscal year 2009, no borrowings were made under our
previous credit facility and none have been made through the
date of this filing under the Restated Credit Agreement;
however, we had outstanding letters of credit of approximately
$597.7 million as of August 31, 2009, and those
letters of credit reduce what is otherwise available for
borrowing under our Facility.
At August 31, 2009, we were in compliance with the
covenants contained in our Restated Credit Agreement and would
have been in compliance under our previous credit facility.
See Note 8 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-1
for a description of: (1) the terms and interest rates
related to our Facility and revolving lines of credit;
(2) amounts available and outstanding for performance
letters of credit, financial letters of credit and revolving
loans under our Facility; and (3) a description of our
Facility financial covenants and matters related to our
compliance with those covenants during fiscal year 2008.
Other
Revolving Lines of Credit
Additionally, we have various short-term (committed and
uncommitted) revolving credit facilities from several financial
institutions which are available for letters of credit and, to a
lesser extent, working capital loans. See
Note 8 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-1
for additional information.
Off
Balance Sheet Arrangements
On a limited basis, performance assurances are extended to
clients that guarantee certain performance measurements upon
completion of a project. If performance assurances are extended
to clients, generally our maximum potential exposure is the
remaining cost of the work to be performed under engineering and
construction contracts with potential recovery from third party
vendors and subcontractors for work performed
56
in the ordinary course of contract execution. As a result, the
total costs of the project could exceed our original cost
estimates and we could experience reduced gross profit or
possibly a loss for that project. In some cases, where we fail
to meet certain performance standards, we may be subject to
contractual liquidated damages.
See Note 6 Equity Method Investments and
Variable Interest Entities included in our consolidated
financial statements beginning on
page F-1
for a discussion of guarantees related to our Privatization
entities.
Commercial
Commitments
Our lenders issue letters of credit on our behalf to clients,
sureties and to secure other financial obligations in connection
with our contract performance and in limited circumstances on
certain other obligations of third parties. If drawn, we are
required to reimburse our lenders for payments on these letters
of credit. At August 31, 2009, we had both letter of credit
commitments and surety bonding obligations, which were generally
issued to secure performance and financial obligations on
certain of our construction contracts, which expire as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts of Commitment Expiration by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
Commercial Commitments(1)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
After 5 Years
|
|
|
Letters of Credit -Domestic and Foreign
|
|
$
|
790.3
|
|
|
$
|
263.6
|
|
|
$
|
284.8
|
|
|
$
|
147.6
|
|
|
$
|
94.3
|
|
Surety bonds
|
|
|
729.7
|
|
|
|
586.3
|
|
|
|
103.4
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
1,520.0
|
|
|
$
|
849.9
|
|
|
$
|
388.2
|
|
|
$
|
187.6
|
|
|
$
|
94.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Commercial Commitments exclude any letters of credit or bonding
obligations associated with outstanding bids or proposals or
other work not awarded prior to September 1, 2009. |
Of the amount of outstanding letters of credit at
August 31, 2009, $602.2 million were issued to clients
in connection with contracts (performance letters of credit). Of
the $602.2 million, five clients held $356.7 million
or 59.2% of the outstanding letters of credit. The largest
aggregate amount of letters of credit issued to a single client
on a single project is $117.0 million. Our ability to
borrow under our facility is reduced by the dollar value of the
letters of credit we have outstanding.
At August 31, 2009 and August 31, 2008, we had total
surety bonds of $729.7 million and $762.1 million,
respectively. However, based on our
percentage-of-completion
on contracts covered by these surety bonds, our estimated
potential liability at August 31, 2009 and August 31,
2008 was $282.1 million and $331.0 million,
respectively.
Fees related to these commercial commitments were
$14.9 million for fiscal year 2009 compared to
$15.0 million for fiscal year 2008.
For a discussion of long-term debt and a discussion of
contingencies and commitments, see Note 8 Debt
and Revolving Lines of Credit and Note 13
Contingencies and Commitments, respectively, included in
Part II, Item 8 Financial Statements and
Supplementary Data.
57
Aggregate
Contractual Obligations
As of August 31, 2009 we had the following contractual
obligations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt obligations
|
|
$
|
1,408.8
|
|
|
$
|
14.6
|
|
|
$
|
6.2
|
|
|
$
|
1,388.0
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
2.5
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
|
|
Operating lease obligations
|
|
|
422.2
|
|
|
|
80.9
|
|
|
|
131.8
|
|
|
|
94.3
|
|
|
|
115.2
|
|
Purchase obligations(a)
|
|
|
11.9
|
|
|
|
6.5
|
|
|
|
4.2
|
|
|
|
1.2
|
|
|
|
|
|
Pension obligations(b)
|
|
|
69.1
|
|
|
|
7.1
|
|
|
|
19.2
|
|
|
|
6.7
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
1,914.5
|
|
|
$
|
110.0
|
|
|
$
|
162.3
|
|
|
$
|
1,490.9
|
|
|
$
|
151.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Purchase obligations primarily relate to IT technical support
and software maintenance contracts. Commitments pursuant to
subcontracts and other purchase orders related to engineering
and construction contracts are not included since such amounts
are expected to be funded under contract billings. |
|
(b) |
|
Pension obligations, representing amounts expected to be paid
out from plans, noted under the heading After
5 years are presented for the years
2015-2019. |
See Note 8 Debt and Revolving Lines of Credit,
Note 12 Operating Leases,
Note 13 Contingencies and Commitments and
Note 16 Employee Benefit Plans included in
Part II, Item 8 Financial Statements and
Supplementary Data for a discussion of long-term debt, leases
and contingencies.
Backlog
of Unfilled Orders
General. Our backlog represents
managements estimate of the amount of awards that we
expect to result in future revenues. Backlog is based on legally
binding agreements for projects that management believes are
probable to proceed. Awards are evaluated by our management on a
project-by-project
basis and are reported for each period shown based upon the
nature of the underlying contract, commitment and other factors,
including the economic, financial and regulatory viability of
the project and the likelihood of the contract proceeding.
New bookings and ultimately the amount of backlog of unfilled
orders is largely a reflection of the broad global economic
trends. The volume and timing of executing the work in our
backlog is important to us in anticipating our operational
needs. Backlog is not a measure defined in GAAP, and our
methodology for determining backlog may not be comparable to the
methodology used by other companies in determining their
backlog. We cannot assure you that revenues projected in our
backlog will be realized, or if realized, will result in profits.
All contracts contain client termination for convenience clauses
and many of the contracts in backlog provide for cancellation
fees in the event clients cancel projects. These cancellation
fees usually provide for reimbursement of our
out-of-pocket
costs, revenues associated with work performed prior to
cancellation and, to varying degrees, a percentage of the
profits we would have realized had the contract been completed.
The process to add new awards to backlog is generally consistent
among our segments and is based on us receiving a legally
binding agreement with clients plus managements assessment
that the project will likely proceed. Additional details
relating to each segments booking process follows:
Fossil, Renewables & Nuclear and E&C
Segments. We define our backlog in our Fossil,
Renewables & Nuclear and E&C segments to include
projects for which we have received legally binding commitments
from our clients and our pro rata share of projects for which
our consolidated joint venture entities have received legally
binding commitments. These commitments typically take the form
of a written contract for a specific project or a purchase
order, and sometimes require that we estimate anticipated future
revenues, often based on engineering and design specifications
that have not been
58
finalized and may be revised over time. The value of work
subcontracted to our F&M segment is removed from the
backlog of the Fossil, Renewables & Nuclear and
E&C segments and is shown in the backlog of our F&M
segment.
E&I Segment. Our E&I segments
backlog includes the value of awarded contracts including the
estimated value of unfunded work and anticipated revenue of
consolidated joint venture entities. The unfunded backlog
generally represents U.S. government project awards for
which the project funding has been partially authorized or
awarded by the relevant government authorities (e.g.,
authorization or an award has been provided for only the initial
year of a multi-year project). Because of appropriation
limitations in the U.S. Government budget processes, firm
funding is usually made for only one year at a time and, in some
cases, for periods less than one year. Some contracts may
contain a number of one-year options. Amounts included in
backlog are based on the contracts total awarded value and
our estimates regarding the amount of the award that will
ultimately result in the recognition of revenues. These
estimates may be based on indications of future values provided
by our clients, our estimates of the work required to complete
the contract, our experience with similar awards and similar
clients and our knowledge and expectations relating to the given
award. Generally the unfunded component of new contract awards
is added to backlog at 75% of our contract value. The programs
are monitored, estimates are reviewed periodically and
adjustments are made to the amounts included in backlog and in
unexercised contract options to properly reflect our estimate of
total contract revenue in the E&I segment backlog. Our
E&I segment backlog does not generally include any awards
(funded or unfunded) for work expected to be performed more than
five years after the date of our financial statements. The
executed amendment to the MOX contract signed in the third
quarter of fiscal 2008 extends beyond five years but has defined
contract values which differ from many other contracts with
government agencies. Accordingly, we included the entire value
of the MOX contract not yet executed in our backlog of unfilled
orders. The value of work subcontracted to our F&M segment
is removed from the backlog of our E&I segment and is shown
in the backlog of our F&M segment.
Maintenance Segment. We define our backlog in
the Maintenance segment to include projects which are based on
legally binding contracts from our clients and our pro rata
share of consolidated joint venture entities. These commitments
typically take the form of a written contract or a specific
project purchase order and can cover periods ranging from three
to five years. Many of these contracts cover reimbursable work
to be designated and executed over the term of the agreement.
Accordingly, certain of the backlog amounts are based on the
underlying contracts/purchase orders, our clients historic
maintenance requirements, as well as our future cost estimates
based on the clients indications of future plant outages.
Our Maintenance segment backlog does not include any awards for
work expected to be performed more than five years after the
date of our financial statements.
F&M Segment. We define our backlog in the
F&M segment to include projects for which we have received
a legally binding commitment from our clients. These commitments
typically take the form of a written contract for a specific
project, a purchase order, or a specific indication of the
amount of time or material we need to make available for
clients anticipated projects under alliance type
agreements. A significant amount of our F&M segments
backlog results from inter-company awards received from our
Fossil, Renewables & Nuclear, E&I and E&C
segments. In such cases, we include the value of the
subcontracted work our F&M segments backlog and
exclude it from the corresponding affiliate segment.
59
At August 31, 2009, our backlog was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
Segment
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Fossil, Renewables & Nuclear
|
|
$
|
12,795.1
|
|
|
|
56
|
|
|
$
|
6,109.7
|
|
|
|
39
|
|
E&I
|
|
|
5,439.0
|
|
|
|
24
|
|
|
|
5,155.4
|
|
|
|
33
|
|
E&C
|
|
|
1,298.6
|
|
|
|
6
|
|
|
|
2,175.5
|
|
|
|
14
|
|
Maintenance
|
|
|
1,808.1
|
|
|
|
8
|
|
|
|
1,423.3
|
|
|
|
9
|
|
F&M
|
|
|
1,374.8
|
|
|
|
6
|
|
|
|
763.1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
Industry
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Environmental and Infrastructure
|
|
$
|
5,439.0
|
|
|
|
24
|
|
|
$
|
5,155.4
|
|
|
|
33
|
|
Energy
|
|
|
15,478.1
|
|
|
|
68
|
|
|
|
7,570.2
|
|
|
|
48
|
|
Chemical
|
|
|
1,761.1
|
|
|
|
7
|
|
|
|
2,751.9
|
|
|
|
18
|
|
Other
|
|
|
37.4
|
|
|
|
1
|
|
|
|
149.5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
Geographic Region
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Domestic
|
|
$
|
20,978.2
|
|
|
|
92
|
|
|
$
|
12,867.4
|
|
|
|
82
|
|
International
|
|
|
1,737.4
|
|
|
|
8
|
|
|
|
2,759.6
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in backlog as compared to 2008 was driven primarily
by new bookings of three EPC contracts for six new AP1000
nuclear reactors in the U.S. Our E&I segment is
benefiting from increased U.S. Government spending, and
F&M experienced an increase in backlog as a result of
subcontracted work on the domestic EPC AP1000 projects awarded
to the Fossil, Renewables & Nuclear segment. Backlog
in our Maintenance segment increased primarily as a result of
the renewal of a fleet-wide nuclear maintenance contract. Our
E&C segment, however, experienced a decline in backlog as a
result of the 2009 economic downturn.
Included in backlog during 2009 is our share of the full EPC
contracts for two new AP1000 nuclear reactors to be located in
Georgia and two new AP1000 nuclear reactors to be located in
Florida. Not included in our backlog is the majority of the work
to be performed on an EPC contract for two new AP1000 nuclear
reactors to be located in South Carolina for which the contract
has been awarded, but for which certain client authorizations
had not been received at August 31, 2009. During the fiscal
quarter ending May 31, 2009, we received notice from our
client of an adjustment in the construction schedule for the
aforementioned two new AP1000 nuclear reactors to be located in
Florida relating to early construction activities. Under the
revised schedule, these activities will not be performed for
these units until the combined operating license (COL) is issued
by the Nuclear Regulatory Commission for the plant. While the
commercial operation dates for the two units have been extended
by a minimum of 20 months, our client continues to consider
his options regarding the schedule for this project. During
fiscal year 2010, we expect to continue to perform certain
engineering and field support services and have not removed or
altered the corresponding contract value from our backlog.
However, the amount of revenues and contract profit expected to
be generated from this project in fiscal year 2010 is likely to
be immaterial when considered in relation to our consolidated
operations. We expect that any adverse cost impacts associated
with the schedule delay will be recovered from the client.
60
The majority of our consolidated backlog is comprised of
contracts with regulated electric utility companies, national or
international oil companies and the U.S. Government (which
alone comprises 94% of our Environmental &
Infrastructure segments backlog). We believe these clients
provide us with a stable book of business and possess the
financial strength to endure the economic challenges that may
persist from the downturn experienced during fiscal year 2009.
Inflation
and Changing Prices
Historically, overall inflation and changing prices in the
economies in which we perform our services have a minimal effect
on our gross profit and our income from continuing operations.
Generally, for our long-term contract pricing and related cost
to complete estimates, we attempt to consider the impact of
potential price changes on deliveries of materials and equipment
expected to occur in the future. In addition, for our projects
that are reimbursable at cost plus a fee, we generally are
reimbursed for all contractual costs including rising costs in
an inflationary environment. Certain of our fixed price
contracts in our Fossil, Renewables & Nuclear and
E&C segments frequently may provide for commodity price
adjustments tied to various indices. However, to the extent we
receive cash collections from clients in advance of payments due
vendors and subcontractors, we could be exposed to the risks of
inflation. Additionally, we may advance purchase materials and
equipment to minimize the impacts of potential future inflation.
While these actions are attempts to mitigate inflation risks,
there can be no assurance that such actions will be successful.
The EPC nuclear contracts currently being executed tend to have
longer execution periods than projects we previously executed.
Accordingly there can be no assurance that our efforts to
mitigate inflation risks will be successful. See Part I,
Item 1 Business Types of Contracts
and Part I, Item 1A Risk Factors for
additional information about the nature of our contracts.
Additionally, Item 7A Quantitative and
Qualitative Disclosures about Market Risk addresses the impact
of changes in interest rates on our earnings.
Critical
Accounting Policies and Estimates
The preparation of consolidated financial statements in
conformity with GAAP requires us to make estimates and
assumptions in the application of certain accounting policies
that affect amounts reported in our consolidated financial
statements and related footnotes included contained in this
Form 10-K.
In order to understand better the changes that may occur to key
elements of our financial condition and operating results, a
reader should be aware of the critical accounting policies we
apply and estimates we use in preparing our consolidated
financial statements.
We consider an accounting estimate to be critical if:
(1) the accounting estimate requires us to make assumptions
about matters that were highly uncertain at the time the
estimate was made; and (2) changes in the estimate that are
reasonably likely to occur from period to period, or use
different estimates that we reasonably could have used in the
current period, could have a material impact on our financial
condition or results of operations. Changes in estimates used in
these and other items could have a material impact on our
financial statements. Information regarding our other accounting
policies is included in Note 1 Description of
Business and Summary of Significant Accounting Policies in our
consolidated financial statements.
Management has discussed the development and selection of these
critical accounting estimates with the Audit Committee of our
Board of Directors, and the Audit Committee has reviewed the
following disclosure.
Revenue
and Profit/Loss Recognition on Long-Term Construction Accounting
Including Claims, Unapproved Change Orders and
Incentives
A substantial portion of our revenues are derived from long-term
contracts that are accounted for using accounting principles set
forth in American Institute of Certified Public Accountants
(AICPA) Statement of Position
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1)
and other applicable accounting standards to account for these
contracts.
Percentage of Completion. We recognize
revenues for long-term contracts on the
percentage-of-completion
method, primarily based on costs incurred to date compared with
total estimated contract costs. Performance incentives are
included in our estimates of revenues using the
percentage-of-completion
method when their
61
realization is reasonably assured. Cancellation fees are
included in our estimates of revenue using the
percentage-of-completion
method when the cancellation notice is received from the client.
Provisions for estimated losses on uncompleted contracts are
made in the period in which the losses are identified. The
cumulative effect of changes to estimated contract profit and
loss, including those arising from contract penalty provisions
such as liquidated damages, final contract settlements, warranty
claims and reviews of our costs performed by clients, are
recognized in the period in which the revisions are identified.
To the extent that these adjustments result in a reduction or
elimination of previously reported profits, we report such a
change by recognizing a charge against current earnings, which
might be significant depending on the size of the project or the
adjustment. For example, our Fossil, Renewables &
Nuclear segments gross profit for fiscal year 2009 was
significantly reduced by substantially increased estimated costs
to complete two coal-fired power plant projects.
Unapproved Change Orders and
Claims. Revenues and gross profit on
contracts can be significantly affected by change orders and
claims that may not be ultimately negotiated until the later
stages of a contract or subsequent to the date a contract is
completed. We account for unapproved change orders depending on
the circumstances. If it is not probable that the costs will be
recovered through a change in contract price, the costs
attributable to change orders are treated as contract costs
without incremental revenue. If it is probable that the costs
will be recovered through a change order, the costs are treated
as contract costs and contract revenue is recognized to the
extent of the costs expected to be incurred. If it is probable
that the contract price will be adjusted by an amount that
exceeds the costs attributable to the change order and the
amount of the excess can be reliably estimated and realization
is assured beyond a reasonable doubt, the contract profit is
adjusted by the amount of the excess.
When estimating the amount of total gross profit or loss on a
contract, we include claims related to our clients as
adjustments to revenues and claims related to vendors,
subcontractors and others as adjustments to cost of revenues.
Including claims in this calculation ultimately increases the
gross profit (or reduces the loss) that would otherwise be
recorded without consideration of the claims. Our claims against
others are recorded up to costs incurred and include no profit
until such time as they are finalized and approved. The claims
included in determining contract gross profit are less than the
actual claim that will be or has been presented. Claims are
included in costs and estimated earnings in excess of billings
on our consolidated balance sheet. The costs attributable to
change orders and claims being negotiated or disputed with
clients, vendors or subcontractors or subject to litigation are
included in our estimates of revenues when it is probable they
will result in additional contract revenues and the amount can
be reasonably estimated. Profit from such unapproved change
orders and claims is recorded in the period such amounts are
settled or approved. Back charges and claims against and from
our vendors, subcontractors and others are included in our cost
estimates as a reduction or increase in total estimated costs
when recovery or payment of the amounts are probable and the
costs can be reasonably estimated.
Revenue
Recognition Contract Segmenting
Certain of our long-term contracts include services performed by
more than one operating segment, particularly EPC contracts
which include pipe, steel, and module fabrication services
performed by our F&M segment. We segment revenues, costs
and gross profit related to our significant F&M
subcontracts if they meet the contract segmenting criteria in
SOP 81-1.
Revenues recorded in our F&M segment under this policy are
based on our prices and terms for such similar services to third
party clients. This policy may result in different interim rates
of profitability for each segment of the affected EPC contract
than if we had recognized revenues on a
percentage-of-completion
for the entire project based on the combined estimated total
costs of all EPC and pipe fabrication and steel erection
services.
Other
Revenue Recognition and Profit and Loss Estimates
For unit-priced pipe fabrication contracts, a unit (spool)
consists of piping materials and associated shop labor to form a
prefabricated unit according to contract specifications. Spools
are generally shipped to job site locations when complete. We
recognize revenues upon shipment of the fabricated spools for a
particular unit-
62
price fabrication contract. For fixed-price fabrication
contracts, we recognize revenues based on the
percentage-of-completion
method, measured primarily by the cost of materials for which
production is substantially complete to the total estimated
material costs of the contract. During the fabrication process,
all direct and indirect costs related to the fabrication process
are capitalized as work in progress inventory. We recognize
revenues for pipe fittings, manufacturing operations and other
services at the time of shipment or as services are performed.
Revenue is recognized from consulting services as the work is
performed. Consulting service work is primarily performed on a
cost-reimbursable basis. Revenues related to royalty use of our
performance enhancements derived from our chemical technologies
are recorded in the period earned based on the performance
criteria defined in the related contracts. For running royalty
agreements, we recognize revenues based on client production
volumes at the contract specified unit rates. Sales of
paid-up
license agreements are coupled with the sale of engineering
services for the integration of the technology into the
clients processes. For
paid-up
license agreements, revenue is recognized using the
percentage-of-completion
method, measured primarily by the percentage of costs incurred
to date on engineering services to total estimated engineering
costs. Under such agreements, revenues available for recognition
on a
percentage-of-completion
basis are limited to the agreement value less a liability
provision for contractually specified process performance
guarantees. The liability provision is recorded in gross profit
when, and if, the related performance testing is successfully
completed or an assessment indicates a reduction of the
liability provision is appropriate.
Our approach to estimating liability provisions related to
contractual performance guarantees on sales of our technology
paid-up
license agreements requires that we make estimates on the
performance of technology on our projects. Our historical
experience with performance guarantees on these types of
agreements supports estimated liability provisions that vary
based on our experience with the different types of technologies
for which we license and provide engineering (for example,
ethylbenzene, styrene, cumene, Bisphenol A). Our liability
provisions range from nominal amounts up to 100% of the
contractual performance guarantee. If our actual obligations
under performance guarantees differ from our estimated liability
provisions at the completion of these projects, we will record
an increase or decrease in revenues (or an increase in costs
where we are required to incur costs to remediate a performance
deficiency) for the difference. Our total estimated performance
liability remaining at August 31, 2009 and 2008 was
$13.0 million and $16.1 million, respectively. The
estimated liability provisions generally are more significant as
a percentage of the total contract value for these contracts
when compared to contracts where we have full EPC
responsibility, and, as a result, these differences could be
material.
For contracts containing multiple deliverables entered into
subsequent to June 30, 2003, we analyze each activity
within the contract to ensure that we adhere to the separation
guidelines of Emerging Issues Task Force Issue
(EITF)
No. 00-21,
Revenue Arrangements with Multiple Deliverables, and
the revenue recognition guidelines of SAB No. 104,
Revenue Recognition. For service-only contracts, and
service elements of multiple deliverable arrangements, award
fees are recognized only when definitized and awarded by the
client. Award fees on construction contracts are recognized
during the term of the contract based on our estimate of the
amount of fees to be awarded.
Accounting
for Governmental Contracts
Most of the services provided to the U.S. government are
governed by cost-reimbursable contracts. Generally, these
contracts contain both a base fee (a fixed amount applied to our
actual costs to complete the work) and an award fee (a variable
profit percentage applied to definitized costs, which is subject
to our clients discretion and tied to the specific
performance measures defined in the contract, such as adherence
to schedule, health and safety, quality of work, responsiveness,
cost performance and business management).
Revenue is recorded at the time services are performed, and such
revenues include base fees, actual direct project costs incurred
and an allocation of indirect costs. Indirect costs are applied
using rates approved by our government clients. The general,
administrative and overhead cost reimbursement rates are
estimated periodically in accordance with government contract
accounting regulations and may change based on actual costs
incurred or based upon the volume of work performed. Revenue is
reduced for our estimate of costs that either
63
are in dispute with our client or have been identified as
potentially unallowable per the terms of the contract or the
federal acquisition regulations.
Litigation,
Commitments and Contingencies
We are subject to various claims, lawsuits, environmental
matters and administrative proceedings that arise in the
ordinary course of business. Estimating liabilities and costs
associated with these matters requires judgment and assessment
based on professional knowledge and experience of our management
and legal counsel. The ultimate resolution of any such exposure
may vary from earlier estimates as further facts and
circumstances become known.
In accordance with SFAS No. 5, Accounting for
Contingencies, amounts are recorded as charges to earnings
when we determine that it is probable that a liability has been
incurred and the amount of loss can be reasonably estimated.
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 basis and the income
tax basis of assets and liabilities, as well as operating loss
and tax credit carryforwards and other tax credits. Deferred tax
assets are reduced by a valuation allowance when, in our
opinion, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the period in which
those temporary differences become deductible. We also consider
the reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment of such realization. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment. At August 31, 2009, we
had deferred tax assets of $244.7 million, net of valuation
allowance and deferred tax liabilities, including
$54.5 million related to net operating losses and tax
credit carryforwards. At August 31, 2009, we had a deferred
tax asset valuation allowance of $22.0 million (see
Note 9 Income Taxes included in consolidated
financial statements beginning on
page F-1).
Goodwill
Impairment
We operate our business through our reportable segments as
defined by FASB No. 131 Disclosures about Segments of an
Enterprise and Related Information. These operating segments
form the basis for our reporting units used in our goodwill
impairment testing.
We test the reporting unit goodwill for impairment on an annual
basis, and more frequently when an event occurs or circumstances
change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. The annual
impairment test for goodwill is a two-step process involving the
comparison of the estimated fair value of each reporting unit to
the reporting units carrying value, including goodwill. If
the fair value of a reporting unit exceeds its carrying amount,
the goodwill of the reporting unit is not considered impaired;
therefore, the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, we perform the second step of the goodwill
impairment test to measure the amount of impairment loss to be
recorded, as necessary.
The fair values of our reporting units in 2009 were determined
averaging two methods, one based on market earnings multiples of
comparable companies for each reporting unit, and the other
based on discounted cash flow models with estimated cash flows
based on internal forecasts of revenues and expenses. We believe
these two approaches are appropriate valuation techniques and we
generally weight the two values equally as an estimate of
reporting unit fair value for the purposes of our impairment
testing. The earnings multiples for the market earnings method
ranged between 4 times and 6 times. The discount rates ranging
from 12.0% to 14.0% in our discounted cash flow models. The fair
value derived from the weighting of these two methods provided
appropriate valuations that, in aggregate, reasonably reconciled
to our market capitalization, taking into account observable
control premiums. Therefore, we used the valuations in
evaluating goodwill for possible impairment and noted that none
of our goodwill was impaired.
64
Pension
Plans
Our pension benefit obligations and expenses are calculated
using actuarial models and methods, in accordance with Statement
of Financial Accounting Standards No. 158
(SFAS No. 158), Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 123(R). Two of
the more critical assumptions and estimates used in the
actuarial calculations are the discount rate for determining the
current value of plan benefits and the expected rate of return
on plan assets. Other critical assumptions and estimates used in
determining benefit obligations and plan expenses, including
demographic factors such as retirement age, mortality, and
turnover, are also evaluated periodically and updated
accordingly to reflect our actual experience.
Discount rates are determined annually and are based on rates of
return of high-quality corporate bonds. Expected long-term rates
of return on plan assets are determined annually and are based
on an evaluation of our plan assets, historical trends and
experience, taking into account current and expected market
conditions. Plan assets are comprised primarily of equity and
debt securities.
The discount rate utilized to determine the projected benefit
obligation at the measurement date for our pension plans
decreased to 5.75% at August 31, 2009, compared to 6.20% at
August 31, 2008, reflecting lower interest rates
experienced during the fiscal year. A 25 basis point
reduction in the discount rates would increase the benefit
obligations on our foreign pension plans by approximately
$6.0 million.
The rate of return expected on our plan assets was 7.0% at
August 31, 2009 compared to 7.25% at August 31, 2008.
To determine the rates of return, we consider the historical
experience and expected future performance of the plan assets,
as well as the current and expected allocation of the plan
assets.
The actuarial assumptions used in determining our pension
benefits may differ materially from actual results due to
changing market and economic conditions, higher or lower
withdrawal rates and longer or shorter life spans of
participants. While we believe that the assumptions used are
appropriate, differences in actual experience or changes in
assumptions may materially affect our financial position or
results of operations.
Recent
Accounting Pronouncements
For a discussion of other recent accounting pronouncements and
the effect they could have on our consolidated financial
statements, see Note 22 New Accounting
Pronouncements included in Part II, Item 8
Financial Statements and Supplementary Data.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We do not enter into derivative financial instruments for
trading, speculation or other purposes that would expose us to
market risk. In the normal course of business, we have exposure
to both interest rate risk and foreign currency exchange rate
risk.
Interest
Rate Risk
We are exposed to interest rate risk due to changes in interest
rates, primarily in the U.S. and Japan. Our policy is to
manage interest rate risk through the use of a combination of
fixed and floating rate debt and short-term fixed rate
investments.
Our Facility provides that both revolving credit loans and
letters of credit may be issued within the $1,214.0 million
limit of the Restated Credit Agreement. Although there were no
borrowings as of August 31, 2009, the interest rate that
would have applied to any borrowings under the Facility was
3.5%. For further discussion, see Note 8 Debt
and Revolving Lines of Credit included in consolidated financial
statements beginning on
page F-1.
65
At August 31, 2009, excluding Westinghouse, we have no
variable rate debt. Including Westinghouse, we have outstanding
$653.1 million of variable rate Westinghouse bonds (face
value billion JPY) with a coupon rate of 0.70% above the
sixth-month JPY LIBOR rate (0.60% as of August 31, 2009).
We have entered into an interest rate swap agreement with Morgan
Stanley through March 15, 2013, which fixes our interest
payments at 2.398%. The effectiveness of this swap is dependent
on our counterpartys continued performance.
The table below provides information about our outstanding debt
instruments (including capital leases) that are sensitive to
changes in interest rates. The table presents principal cash
flows and related weighted average interest rates by expected
maturity dates. The information is presented in U.S. Dollar
equivalents, which is our reporting currency. The
instruments actual cash flows are denominated in millions
of U.S. Dollars ($US) and the table is accurate as of
August 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Dates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
15.5
|
|
|
$
|
5.8
|
|
|
$
|
1.2
|
|
|
$
|
427.2
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
449.9
|
|
|
$
|
575.5
|
|
Average interest rate
|
|
|
6.1
|
%
|
|
|
6.6
|
%
|
|
|
5.6
|
%
|
|
|
2.2
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
653.1
|
|
|
|
|
|
|
$
|
653.1
|
|
|
$
|
835.5
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.398
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculated fair value of long-term debt (including capital
leases) incorporates the face value of the Westinghouse Bonds
and related foreign currency translation adjustments recognized
at August 31, 2009.
Foreign
Currency Exchange Rate Risk
During fiscal year 2007, we issued bonds denominated in JPY in
connection with our Investment in Westinghouse. These bonds,
which have an aggregate face value of JPY128.98 billion (or
$1.39 billion as of August 31, 2009), are revalued at
the end of each accounting period using period-end exchange
rates. Although the Put Option associated with our investment in
Westinghouse, if exercised, could mitigate the amount of foreign
exchange loss incurred with respect to these bonds, a
significant and sustained appreciation in the value of the JPY
versus the U.S. Dollar could significantly reduce our
returns on our investment in Westinghouse. See
Note 6 Equity Method Investments and Variable
Interest Entities and Note 8 Debt and Revolving
Lines of Credit included in Part II,
Item 8 Financial Statements and Supplementary
Data for more information regarding these JPY-denominated bonds
and our Investment in Westinghouse.
The majority of our transactions are in U.S. Dollars;
however, some of our subsidiaries conduct their operations in
various foreign currencies. Currently, when considered
appropriate, we use hedging instruments to manage the risk
associated with our subsidiaries operating activities when
they enter into a transaction in a currency that is different
than their local currency. In these circumstances, we will
frequently utilize forward exchange contracts to hedge the
anticipated purchases
and/or
revenues. We attempt to minimize our exposure to foreign
currency fluctuations by matching revenues and expenses in the
same currency as our contracts. At August 31, 2009, we had
a minimal number of forward exchange contracts outstanding that
were hedges of interest payments on the Westinghouse Bonds.
66
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The response to this item is incorporated by reference from our
consolidated financial statements and notes thereto which are
included in this report beginning on
page F-2.
Certain selected quarterly financial data is included under
Item 7 of this
Form 10-K
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
There have been no changes in or disagreements with accountants
on accounting or financial disclosure matters during the periods
covered by this
Form 10-K.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
a)
|
Managements
Quarterly Evaluation of Disclosure Controls and
Procedures
|
Disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) are designed to ensure that information
required to be disclosed in our reports filed under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. This
information is also accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Our management, under the
supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and
procedures as of the end of the most recent fiscal quarter
reported on herein. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
August 31, 2009.
|
|
b)
|
Managements
Annual Report on Internal Control Over Financial
Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act). Our internal control over financial
reporting is a process designed by management, under the
supervision of our Chief Executive Officer and Chief Financial
Officer, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States (GAAP). Our 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 our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only
in accordance with authorizations of management and our
directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect
on our consolidated 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.
Accordingly, even effective internal control over financial
reporting can only provide reasonable assurance of achieving
their control objectives.
In connection with our annual evaluation of internal control
over financial reporting, our management, under the supervision
and with the participation of our Chief Executive Officer and
Chief Financial Officer, assessed of the effectiveness as of
August 31, 2009 of our internal control over financial
reporting based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, management has concluded our
internal control over financial reporting was effective as of
August 31, 2009 based upon the criteria issued by COSO.
67
KPMG LLP, the independent registered public accounting firm who
audited the consolidated financial statements included in this
form 10-K,
has issued a report on our internal control over financial
reporting. This report, dated October 29, 2009, appears on
page F-2
of this
Form 10-K.
|
|
c)
|
Changes
in Internal Control over Financial Reporting
|
There were no changes in our system of internal control over
financial reporting during the three months ended
August 31, 2009 that have materially affected, or are
reasonable likely to materially affect, our internal control
over financial reporting, except for the remediation efforts
with regard to material weaknesses that existed as of
August 31, 2008 that are described below.
Remediation
of Material Weakness that Existed as of August 31,
2008
During the three months ended August 31, 2009, we completed
testing of the control improvements that were implemented in
fiscal 2009 to remediate our material weaknesses that existed as
of August 31, 2008. Based on the results of our testing of
the remedial actions taken during fiscal 2009, we believe the
following material weaknesses no longer existed as of
August 31, 2009:
|
|
1)
|
Project
Reporting of Estimates of Cost at Completion on EPC Complex
Fixed-Price Contracts
|
As previously reported, we did not maintain effective control
over our project reporting of estimates of cost at completion
(EAC) on engineering, procurement and construction (EPC) complex
fixed price-contracts as of August 31, 2008. During the
fourth quarter of fiscal 2009, we completed training of project
teams in our new policies, procedures and controls. Based upon
the remediation actions we took during the first, second and
third quarters of fiscal 2009 and testing completed in the
fourth quarter of fiscal 2009 on the control improvements
implemented during the year, we believe that the material
weakness no longer existed as of August 31, 2009.
|
|
2)
|
Accounting
for Income Taxes
|
As previously reported, we did not maintain a sufficient number
for tax professionals with adequate experience in the
application of Financial Accounting Standards Board
No. 109, Accounting for Income Taxes
(FAS 109) as of August 31, 2008. As a result, our
policies and procedures for the identification and analysis of
the appropriate accounting treatment of routine and non-routine
income tax matters were not effective to ensure that our income
tax accounting was consistent with generally accepted accounting
principles. Based upon the remediation actions we took during
the first, second and third quarters of fiscal 2009 and our
testing that was completed in the fourth quarter of fiscal 2009
on the control improvements implemented during the year, we
believe this material weakness no longer existed as of
August 31, 2009.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Directors
J. M. Bernhard, Jr., age 55, our founder,
has been our Chief Executive Officer and a director since our
inception in August 1987. Mr. Bernhard served as our
President from our inception until September 2003 and was
re-elected as President in November 2006. He has been Chairman
of our Board since August 1990. Prior to founding Shaw,
Mr. Bernhard was Vice President and General Manager of
Sunland Services, a pipe fabrication company, which was later
acquired by Shaw. He is also a member of numerous trade and
civic organizations. He graduated from Louisiana State
University in 1976 with a degree in Construction Management.
68
James F. Barker, age 62, has served as a director
since January 2004. Mr. Barker has served as president of
Clemson University since October 1999. He earned his bachelor of
architecture degree from Clemson in 1970 and his master of
architecture and urban design degree from Washington University
in St. Louis in 1973. Before returning to Clemson in 1986
to serve as dean of the College of Architecture, he was dean of
the School of Architecture at Mississippi State University.
Thos. E. Capps, age 72, has served as a director
since July 2007. Mr. Capps is the retired Chairman of the
board of directors, President and Chief Executive Officer of
Dominion Resources, Inc. (NYSE: D), a power and energy company
that supplies electricity, natural gas and other energy sources
and operates generation facilities, where he served from 1984 to
2007. Mr. Capps is a member of the board of visitors of the
College of William & Mary; the board of trustees of
the University of Richmond; the board of trustees of the
Virginia Foundation for Independent Colleges, and the boards of
directors of Amerigroup Corp. of Virginia Beach, a
managed-health care company, and Associated Electric &
Gas Insurance Services Ltd., which operates as a non-assessable
mutual insurance company in the U.S. offering insurance and
risk management products and services to the utility and related
energy industry.
Daniel A. Hoffler, age 61, has served as a director
since January 2006. Mr. Hoffler is the Chairman of the
board of directors of Armada Hoffler, a premier commercial real
estate development and construction organization located in
Virginia, which he founded over 25 years ago. Before
founding Armada Hoffler, Mr. Hoffler was employed as Vice
President of Marketing for Eastern International, Inc., a
commercial real estate development and construction company
specializing in construction of warehouse and office buildings.
Prior to that, Mr. Hoffler was employed as a Regional
Manager for Dun and Bradstreet, a credit information provider.
From 1992 through 1996, Mr. Hoffler served on the
University of Virginia board of visitors. In 1987, he was chosen
as the Outstanding Citizen of Hampton Roads, Virginia. In 1986,
Mr. Hoffler was appointed to a five-year term to the
Virginia Governors Advisory Board for Industrial
Development for the Commonwealth of Virginia
David W. Hoyle, age 70, has served as a director
since January 1995. For the past 25 years, he has been
self-employed, primarily as a real estate developer. He has been
a Senator in the North Carolina General Assembly since 1992.
Senator Hoyle is the Chairman of the board of directors of
Citizens South Banking Corporation, a bank holding company, and
is the Chairman of the board of directors of its wholly-owned
subsidiary, Citizens South Bank. Senator Hoyle also serves as a
director of several private corporations as well as of several
civic, educational and charitable organizations.
Michael J. Mancuso, age 67, has served as a director
since August 2006. Mr. Mancuso was named Vice President and
Chief Financial Officer of CSC, Inc. (NYSE: CSC), a
publicly-held leading provider of information technology
services to large corporations and governments, on
December 1, 2008. In June 2006, Mr. Mancuso retired
from General Dynamics Corporation, a company engaged in the
field of mission-critical information systems and technologies;
land and expeditionary combat systems, armaments and munitions;
shipbuilding and marine systems and business aviation, where he
was employed since 1993, serving as Senior Vice President and
Chief Financial Officer since 1994. Mr. Mancuso also serves
on the board of directors for SPX Corporation (NYSE: SPW), a
publicly-held industrial manufacturer headquartered in
Charlotte, North Carolina.
Albert D. McAlister, age 58, has served as a
director since April 1990. Since 1975, Mr. McAlister has
been a partner in the law firm of McAlister &
McAlister, P.A. in Laurens, South Carolina.
Stephen R. Tritch, age 60, was appointed to a newly
created eighth director position by our Board on April 22,
2009. Mr. Tritch is a new nominee for director to our
Board. Mr. Tritch is the Chairman of Westinghouse Electric
Company, a group company of Toshiba Corporation, and has served
in that capacity since July 1, 2008. Westinghouse is a
leading supplier of nuclear plant products and technologies
throughout the world. Prior to that time, Mr. Tritch served
as President and Chief Executive Officer of
Westinghouse, a position he assumed in July, 2002.
Mr. Tritch has been employed by Westinghouse since 1971.
Mr. Tritch is a member of the American Nuclear Society and
was appointed by then President Bush to the Presidents
Export Council. Mr. Tritch is also Chairman of the
Engineering Board of Visitors at the University of Pittsburgh
and Chairman of the Board of Trustees for the Senator John Heinz
History Center in Pittsburgh.
69
Executive
Officers
The following table provides information with respect to our
current executive officers. Each executive officer has been
elected to serve until his successor is duly appointed or
elected by the Board of Directors or his earlier removal or
resignation from office.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
J.M. Bernhard, Jr.
|
|
|
55
|
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer
|
George P. Bevan
|
|
|
62
|
|
|
President of the Environmental & Infrastructure (E&I)
Group
|
Frederick W. Buckman
|
|
|
63
|
|
|
President of the Power Group
|
David L. Chapman, Sr.
|
|
|
64
|
|
|
President of the Fabrication & Manufacturing (F&M)
Group
|
John Donofrio
|
|
|
47
|
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Brian K. Ferraioli
|
|
|
54
|
|
|
Executive Vice President and Chief Financial Officer
|
Gary P. Graphia
|
|
|
47
|
|
|
Executive Vice President and Chief Operating Officer
|
Michael J. Kershaw
|
|
|
60
|
|
|
Senior Vice President and Chief Accounting Officer
|
Louis J. Pucher
|
|
|
66
|
|
|
President of the Energy & Chemicals (E&C) Group
|
J.M. Bernhard, Jr. for biographical
information on Mr. Bernhard, see Directors
above.
George P. Bevan currently serves as the President of our
E &I segment, having held this position since June
2008. Mr. Bevan first joined us in September 1994 as Vice
President of Business Development, and held this position until
February 1996, when he was appointed Executive Vice President of
Corporate Development. Mr. Bevan served as Executive Vice
President of Corporate Development until September 2003, when he
was appointed as our Vice President of Government Affairs and
President of one of our subsidiaries in which position he served
until April 2005 and then again from May 2006 through March
2007. From April 2005 through May 2006, Mr. Bevan worked
for us as a consultant on hurricane Katrina and Rita related
matters while he was employed by the Sterling group, a
re-processor of PVC. In March 2007, Mr. Bevan was appointed
President of the Infrastructure Division and then Commercial and
State & Local Government (CSL) Division of
our Environmental & Infrastructure Group. He served as
CSL Division President until his June 2008 appointment as
President of our Environmental & Infrastructure Group.
Frederick W. Buckman, was appointed President of
our Power Group in March 2009. Immediately prior to joining us
and from August 2007, Mr. Buckman served as a Toronto
Managing Partner, Utilities, of Brookfield Asset Management, a
global asset manager focused on property, power and other
infrastructure assets. Prior to that from 1999 through September
2006, Mr. Buckman served as Chairman of Trans-Elect, Inc.,
an independent company engaged in the ownership and management
of electric transmission systems. Mr. Buckman is also
President of Frederick Buckman, Inc. a consulting firm located
in Portland, Oregon, and from 1994 to 1998 served as President,
Chief Executive Officer and director of PacifiCorp, a holding
company of diversified businesses, including an electric
utility, based in Portland, Oregon.
David L. Chapman, Sr. currently serves as President
of our F&M segment. He joined us in April 2002 as President
of our Fabrication & Manufacturing Division, which is
now known as the Fabrication & Manufacturing Group.
Mr. Chapman has over 34 years of experience in the
industrial fabrication business. From 1994 to 2002,
Mr. Chapman was employed by Turner Industries Group, a
large industrial contracting company, where he served as
President of International Piping Systems, Turner International
Piping Systems and International Painting Corporation.
John Donofrio was appointed as our Executive Vice
President, General Counsel and Corporate Secretary in October
2009. Immediately prior to joining us, Mr. Donofrio was the
Senior Vice President, General Counsel and Chief Compliance
Officer of Visteon Corporation since 2005. Previously,
Mr. Donofrio was Vice
70
President and General Counsel of Honeywell Aerospace, a global
manufacturer of aerospace components and systems. Before joining
Honeywell, he was a partner with the law firm of
Kirkland & Ellis in Washington, D.C., and New
York.
Brian K. Ferraioli currently serves as Executive Vice
President and Chief Financial Officer. He joined us in July 2007
as our Executive Vice President, Finance until October 2007,
when he was appointed to his current position. Previously,
Mr. Ferraioli served in various corporate and operating
unit executive financial positions for Foster Wheeler AG, a
diversified engineering and construction company and power
equipment supplier. Most recently, Mr. Ferraioli served as
Vice President and Controller of Foster Wheeler from November
2002 until joining us in 2007.
Gary P. Graphia currently serves as Executive Vice
President and Chief Operating Officer. He joined us in August
1999 as our General Counsel and Corporate Secretary and served
in that role until November 2006 when he was appointed Executive
Vice President, Secretary and Chief Legal Officer.
Mr. Graphia held that position until April 2007, when he
was named Executive Vice President of Corporate Development and
Strategy. He was appointed to his current position in December
2008. Prior to joining Shaw, Mr. Graphia was a partner with
the law firm Kean Miller Hawthorne DArmond
McCowan & Jarman LLP.
Michael J. Kershaw currently serves as our Senior Vice
President and Chief Accounting Officer, having held this
position since December 2007. Mr. Kershaw first joined us
in September 2007 as Senior Vice President and Corporate
Controller, and held this position until appointed to his
current position. Prior to joining Shaw, since 2005,
Mr. Kershaw served as Vice President, Accounting and
Finance, for the E&C segment of KBR, Inc., a global
engineering, construction and services company supporting the
energy, petrochemicals, government services and civil
infrastructure sectors. From 2003 until 2005, Mr. Kershaw
served as Senior Controller for KBR. Prior to his employment by
KBR, from 1997 until 2002, Mr. Kershaw served in several
positions with Koch Industries, Inc.
Louis J. Pucher currently serves as President of our
E&C segment. He joined us in March 2007 as President of
E&C operations, and was promoted to his current position in
July 2007. Prior to joining Shaw, Mr. Pucher served as
Senior Vice President of KBR Inc.s Energy &
Chemicals Division from August 2003 to September 2006. KBR, Inc.
is a global engineering, construction and services company
supporting the energy, petrochemicals, government services and
civil infrastructure sectors. Prior to his position with KBR,
from June 1966 to July 2003, Mr. Pucher held various
management positions with M.W. Kellogg Company, a global
full-service engineering, procurement and construction
contractor.
Corporate
Governance
Pursuant to general instruction G to
Form 10-K,
the remaining information required for this item is incorporated
by reference to the information that will be disclosed in our
definitive proxy statement for our 2010 Annual Meeting of
Shareholders (except for the information set forth under
Code of Corporate Conduct and Ethics immediately
below).
Code
of Corporate Conduct and Ethics
We have adopted a Code of Corporate Conduct applicable to all of
our employees, officers and directors. We also have in place a
Code of Ethics for Chief Executive Officer and Senior Financial
Officers. Copies of the Codes are filed as exhibits to this
Form 10-K,
and they are posted on our web site at www.shawgrp.com.
Any changes to or waivers from these codes will be disclosed as
required by law and the NYSE. Shareholders may request free
copies of the Codes from:
The Shaw Group Inc.
Attention: Investor Relations
4171 Essen Lane
Baton Rouge, Louisiana 70809
(225)932-2500
www.shawgrp.com
71
|
|
Item 11.
|
Executive
Compensation
|
Pursuant to General Instruction G to
Form 10-K,
we incorporate by reference into this Item the information to be
disclosed in our definitive proxy statement for our 2010 Annual
Meeting of Shareholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Pursuant to General Instruction G to
Form 10-K,
we incorporate by reference into this Item the information to be
disclosed in our definitive proxy statement for our 2010 Annual
Meeting of Shareholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Pursuant to General Instruction G to
Form 10-K,
we incorporate by reference into this Item the information to be
disclosed in our definitive proxy statement for our 2010 Annual
Meeting of Shareholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Pursuant to General Instruction G to
Form 10-K,
we incorporate by reference into this Item the information to be
disclosed in our definitive proxy statement for our 2010 Annual
Meeting of Shareholders.
PART V
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents filed as part of this
Form 10-K.
1. Financial Statements.
See Part II, Item 8 Financial Statements
and Supplementary Data.
Additionally, the following financial statements are included in
this
Form 10-K
pursuant to
Rule 3-09
of
Regulation S-X:
|
Combined Financial Statements of Toshiba Nuclear Energy Holdings
(US), Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd.
|
Report of Independent Registered Public Accounting
Firm Ernst & Young LLP
|
Combined Balance Sheet as of March 31, 2009 and 2008
|
Combined Statement of Operations for the fiscal years ended
March 31, 2009 and 2008
|
Combined Statement of Stockholders Equity for the fiscal
years ended March 31, 2009 and 2008
|
Combined Statement of Cash Flows for the fiscal years ended
March 31, 2009 and 2008
|
Notes to Combined Financial Statements
|
2. Financial Statement Schedules.
All schedules have been omitted because the information is not
required or not in amounts sufficient to require submission of
the schedule, or because the information required is included in
the consolidated financial statements and notes thereto.
3. Exhibits.
The exhibits marked with the cross symbol () are filed or
furnished (in the case of Exhibits 32.1 and 32.2) with this
Form 10-K.
The exhibits marked with the asterisk symbol (*) are management
contracts or compensatory plans or arrangements filed pursuant
to Item 601(b)(10)(iii) of
Regulation S-K.
72
THE SHAW GROUP INC.
EXHIBIT INDEX
The exhibits marked with the cross symbol () are filed or furnished (in the case of
Exhibits 32.1 and 32.2) with this Form 10-K. The exhibits marked with the asterisk symbol (*) are
management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii)
of Regulation S-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or |
|
Exhibit |
Exhibit |
|
|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
2.1 |
|
Investment Agreement, dated as of |
|
The Shaw Group Inc. Current Report on |
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1-12227 |
|
2.01 |
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October 4, 2006, by and among |
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Form 8-K filed on October 18, 2006 |
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Toshiba, Toshiba Nuclear Energy |
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Holdings Corporation (US) Inc., a |
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Delaware corporation (the US |
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Company), The Shaw Group Inc. |
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(the Company) and Nuclear Energy |
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Holdings, L.L.C. (NEH) |
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2.2 |
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Investment Agreement, dated as of |
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The Shaw Group Inc. Current Report on |
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1-12227 |
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2.02 |
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October 4, 2006, by and among |
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Form 8-K filed on October 18, 2006 |
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Toshiba, Toshiba Nuclear Energy |
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Holdings (UK) Limited, a company |
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registered in England with |
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registered number 5929672 (the UK |
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Company), the Company and NEH |
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3.1 |
|
Amendment to and Restatement of |
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The Shaw Group Inc. Annual Report on |
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1-12227 |
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3.1 |
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the Articles of Incorporation of |
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Form 10-K/A (Amendment No. 1) for the |
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the Company dated February 23, |
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fiscal year ended August 31, 2006 |
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2007 |
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3.2 |
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Amended and Restated By-Laws of |
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The Shaw Group Inc. Annual Report on |
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1-12227 |
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3.2 |
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the Company dated as of January |
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Form 10-K/A (Amendment No. 1) for the |
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30, 2007 |
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fiscal year ended August 31, 2006 |
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4.1 |
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Specimen Common Stock Certificate |
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The Shaw Group Inc. Annual Report on |
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1-12227 |
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4.1 |
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Form 10-K for the fiscal year ended |
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August 31, 2007 |
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4.2 |
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Rights Agreement, dated as of July |
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The Shaw Group Inc. Registration |
|
1-12227 |
|
99.1 |
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9, 2001, between the Company and |
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Statement on Form 8-A filed on July |
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First Union National Bank, as |
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30, 2001 |
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Rights Agent, including the Form |
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of Articles of Amendment to the |
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Restatement of the Articles of |
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Incorporation of the Company as |
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Exhibit A, the form of Rights |
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Certificate as Exhibit B and the |
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form of the Summary of Rights to |
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Purchase Preferred Shares as |
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Exhibit C (Exhibit A-1 and A-2) |
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*10.1 |
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The Shaw Group Inc. 2001 Employee |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.4 |
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Incentive Compensation Plan, |
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on Form 10-Q for the quarter ended |
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amended and restated through |
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November 30, 2007 |
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November 2, 2007 |
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73
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SEC File or |
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Exhibit |
Exhibit |
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Report or Registration |
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Registration |
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or Other |
Number |
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Document Description |
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Statement |
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Number |
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Reference |
*10.2 |
|
Form of Incentive Stock Option |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.6 |
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|
Agreement under The Shaw Group |
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on Form 10-Q for the quarter ended |
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Inc. 2001 Employee Incentive |
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May 31, 2006 |
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Compensation Plan |
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*10.3 |
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Form of Non-Qualified Stock Option |
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The Shaw Group Inc. Quarterly Report |
|
1-12227 |
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10.5 |
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Agreement under The Shaw Group |
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on Form 10-Q for the quarter ended |
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Inc. 2001 Employee Incentive |
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May 31, 2006 |
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Compensation Plan |
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*10.4 |
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Form of Restricted Stock Agreement |
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The Shaw Group Inc. Current Report on |
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1-12227 |
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10.3 |
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under The Shaw Group Inc. 2001 |
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Form 8-K filed on October 12, 2004 |
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Employee Incentive Compensation |
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Plan |
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*10.5 |
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Form of Restricted Stock Unit |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.6 |
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|
Agreement under the Shaw Group |
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on Form 10-Q for the quarter ended |
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Inc. 2001 Employee Incentive |
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November 30, 2007 |
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Compensation Plan |
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*10.6 |
|
The Shaw Group Inc. Stone & |
|
The Shaw Group Inc. Registration |
|
333-62856 |
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4.6 |
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Webster Acquisition Stock Option |
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Statement on Form S-8 filed on June |
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Plan |
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12, 2001 |
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*10.7 |
|
The Shaw Group Inc. 1993 Employee |
|
The Shaw Group Inc. Annual Report on |
|
1-12227 |
|
10.1 |
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|
Stock Option Plan, amended and |
|
Form 10-K for the fiscal year ended |
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restated through October 8, 2001 |
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August 31, 2001 |
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*10.8 |
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The Shaw Group Inc. 2005 |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.5 |
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|
Non-Employee Director Stock |
|
on Form 10-Q for the quarter ended |
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Incentive Plan, amended and |
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November 30, 2007 |
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restated through November 2, 2007 |
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*10.9 |
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Form of Nonqualified Stock Option |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.2 |
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|
Agreement under the 2005 |
|
Form 8-K filed on January 31, 2006 |
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Non-Employee Director Stock |
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Incentive Plan |
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*10.10 |
|
Form of Phantom Stock Agreement |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.8 |
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|
under the 2005 Non-Employee |
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on Form 10-Q for the quarter ended |
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Director Stock Incentive Plan |
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May 31, 2006 |
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*10.11 |
|
Written description of the |
|
The Shaw Group Inc. Proxy Statement |
|
1-12227 |
|
(Contained at pages |
|
|
Companys compensation policies |
|
for the 2008 Annual Meeting of |
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|
11 to 13 in the |
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and programs for non-employee |
|
Shareholders contained in The Shaw |
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|
2008 Proxy |
|
|
directors |
|
Group Inc.s Schedule 14A filed on |
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Statement) |
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December 26, 2007 |
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*10.12 |
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Flexible Perquisites Program for |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
Description |
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certain executive officers |
|
Form 8-K filed on November 1, 2004 |
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contained under |
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Item 1.01 of the |
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referenced Form 8-K |
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*10.13 |
|
The Shaw Group Inc. 2005 |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
Management Incentive Plan |
|
Form 8-K filed on March 3, 2006 |
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|
74
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SEC File or |
|
Exhibit |
Exhibit |
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Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
*10.14 |
|
Written description of the |
|
The Shaw Group Inc. Proxy Statement |
|
1-12227 |
|
(Contained at pages |
|
|
Companys incentive compensation |
|
for the 2008 Annual Meeting of |
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|
22 to 71 in the |
|
|
policies programs for executive |
|
Shareholders contained in The Shaw |
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|
2008 Proxy |
|
|
officers, including performance |
|
Group Inc.s Schedule 14A filed on |
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Statement) |
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targets for fiscal year end 2008 |
|
December 26, 2007 |
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*10.15 |
|
The Shaw Group Inc. 2008 Omnibus |
|
The Shaw Group Inc. Registration |
|
333-160556 |
|
10.1 |
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|
Incentive Plan |
|
Statement on Form S-8 filed on July |
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13, 2009 |
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*10.16 |
|
The Shaw Group Deferred |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.10 |
|
|
Compensation Plan |
|
on Form 10-Q for the quarterly period |
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ended February 28, 2009. |
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*10.18 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
agreement dated as of December 31, |
|
Form 8-K filed on January 7, 2009. |
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|
2008 by and between the Company |
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and J. M. Bernhard, Jr. |
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*10.19 |
|
Employment Agreement of David L. |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
99.1 |
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|
Chapman, Sr. dated April 6, 2002 |
|
Form 8-K filed December 24, 2003 |
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*10.20 |
|
Amendment to Employment Agreement |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
of David L. Chapman, Sr., dated |
|
Form 8-K filed on January 12, 2005 |
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November 29, 2004 (with an |
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effective date of April 1, 2005) |
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*10.21 |
|
Letter Agreement between the |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
Company and David L. Chapman, Sr. |
|
Form 8-K filed on March 17, 2008 |
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|
dated as of March 12, 2008 |
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*10.22 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.15 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
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|
2008 by and between the Company |
|
ended February 28, 2009. |
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|
and Dorsey Ron McCall |
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*10.23 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.5 |
|
|
agreement dated as of December 31, |
|
Form 8-K filed on January 7, 2009. |
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|
2008 by and between the Company |
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and Dirk J. Wild |
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*10.24 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.13 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
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|
2008 by and between the Company |
|
ended February 28, 2009. |
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and George P. Bevan |
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*10.25 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.14 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
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|
2008 by and between the Company |
|
ended February 28, 2009. |
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|
and Roy Montgomery Glover |
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*10.26 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
agreement dated as of December 22, |
|
Form 8-K filed on December 24, 2008. |
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|
2008 by and between the Company |
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and Gary P. Graphia |
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75
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|
SEC File or |
|
Exhibit |
Exhibit |
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|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
*10.27 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.3 |
|
|
agreement dated as of December 31, |
|
Form 8-K filed on January 7, 2009. |
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|
2008 by and between the Company |
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and David P. Barry |
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*10.28 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.12 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
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|
2008 by and between the Company |
|
ended February 28, 2009. |
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|
and G. Patrick Thompson |
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*10.29 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.4 |
|
|
agreement dated as of December 31, |
|
Form 8-K filed on January 7, 2009. |
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|
2008 by and between the Company |
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and Ronald W. Oakley |
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*10.30 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.17 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
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|
2008 by and between the Company |
|
ended February 28, 2009. |
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and Clifton Scott Rankin |
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*10.31 |
|
Amended and restated employment |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.2 |
|
|
agreement dated as of December 31, |
|
Form 8-K filed on January 7, 2009. |
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|
2008 by and between the Company |
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|
and Brian K. Ferraioli |
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|
*10.32 |
|
Offer Letter dated as of August |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
31, 2007, by and between the |
|
Form 8-K filed on December 21, 2007 |
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|
|
Company and Michael J. Kershaw |
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|
*10.33 |
|
Amended and restated employment |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.16 |
|
|
agreement dated as of December 31, |
|
on Form 10-Q for the quarterly period |
|
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|
|
2008 by and between the Company |
|
ended February 28, 2009. |
|
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|
|
and Lou Pucher |
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|
|
*10.34 |
|
The Shaw Group Inc. 401(k) Plan |
|
The Shaw Group Inc. Registration |
|
333-115155 |
|
4.6 |
|
|
|
|
Statement on Form S-8 filed on May 4, |
|
|
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|
|
|
2004 |
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|
|
|
*10.35 |
|
The Shaw Group Inc. 401(k) Plan |
|
The Shaw Group Inc. Registration |
|
333-160557 |
|
4.6 |
|
|
|
|
Statement on Form S-8 filed on July |
|
|
|
|
|
|
|
|
13, 2009 |
|
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|
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|
|
|
|
|
*10.36 |
|
The Shaw Group Inc. 401(k) Plan |
|
The Shaw Group Inc. Registration |
|
333-115155 |
|
4.6 |
|
|
for Certain Hourly Employees |
|
Statement on Form S-8 filed on May 4, |
|
|
|
|
|
|
|
|
2004 |
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|
|
|
*10.37 |
|
The Shaw Group Inc. 401(k) Plan |
|
The Shaw Group Inc. Registration |
|
333-160557 |
|
4.6 |
|
|
for Certain Hourly Employees |
|
Statement on Form S-8 filed on July |
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|
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|
|
13, 2009 |
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|
|
*10.38 |
|
Trust Agreement, dated as of |
|
The Shaw Group Inc. Quarterly Report |
|
1-12227 |
|
10.6 |
|
|
January 2, 2007 by and between the |
|
on Form 10-Q for the quarter ended |
|
|
|
|
|
|
Company and Fidelity Management |
|
February 28, 2007 |
|
|
|
|
|
|
Trust Company for The Shaw Group |
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|
|
|
Deferred Compensation Plan Trust |
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|
76
|
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|
SEC File or |
|
Exhibit |
Exhibit |
|
|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
10.39 |
|
Asset Purchase Agreement, dated as |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
2.1 |
|
|
of July 14, 2000, among Stone & |
|
Form 8-K filed on July 28, 2000 |
|
|
|
|
|
|
Webster, Incorporated, certain |
|
|
|
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|
|
subsidiaries of Stone & Webster, |
|
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|
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|
|
Incorporated and the Company |
|
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|
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|
10.40 |
|
Composite Asset Purchase |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
2.1 |
|
|
Agreement, dated as of January 23, |
|
Form 8-K filed on May 16, 2002 |
|
|
|
|
|
|
2002, by and among the Company, |
|
|
|
|
|
|
|
|
The IT Group, Inc. and certain |
|
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|
|
subsidiaries of The IT Group, |
|
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|
|
|
Inc., including the following |
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|
|
amendments:(i) Amendment No. 1, |
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|
dated January 24, 2002, to Asset |
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|
Purchase Agreement, (ii) Amendment |
|
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|
No. 2, dated January 29, 2002, to |
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Asset Purchase Agreement, and |
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|
(iii) a letter agreement amending |
|
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|
Section 8.04(a)(ii) of the Asset |
|
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|
|
Purchase Agreement, dated as of |
|
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|
April 30, 2002, between The IT |
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|
Group, Inc. and the Company |
|
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|
10.41 |
|
Amendment No. 3, dated May 2, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
2.2 |
|
|
2002, to Asset Purchase Agreement |
|
Form 8-K filed on May 16, 2002 |
|
|
|
|
|
|
by and among the Company, The IT |
|
|
|
|
|
|
|
|
Group, Inc. and certain |
|
|
|
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|
|
subsidiaries of The IT Group, Inc. |
|
|
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|
10.42 |
|
Amendment No. 4, dated May 3, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
2.3 |
|
|
2002, to Asset Purchase Agreement |
|
Form 8-K filed on May 16, 2002 |
|
|
|
|
|
|
by and among the Company, The IT |
|
|
|
|
|
|
|
|
Group, Inc. and certain |
|
|
|
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|
|
subsidiaries of the IT Group, Inc. |
|
|
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|
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|
10.43 |
|
Waiver dated as of January 18, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
2007, among the Company, as |
|
Form 8-K filed on January 18, 2007 |
|
|
|
|
|
|
borrower, BNP Paribas, as |
|
|
|
|
|
|
|
|
administrative agent, and the |
|
|
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|
|
other lenders signatory to that |
|
|
|
|
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|
|
certain Credit Agreement dated |
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|
April 25, 2005, as amended |
|
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|
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|
10.44 |
|
Waiver dated as of March 19, 2007, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
among the Company, as borrower, |
|
Form 8-K filed on March 19, 2007 |
|
|
|
|
|
|
BNP Paribas, as administrative |
|
|
|
|
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|
|
agent, and the other lenders |
|
|
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|
|
signatory to that certain Credit |
|
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|
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|
|
Agreement dated April 25, 2005 as |
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|
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|
|
amended |
|
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|
|
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|
10.45 |
|
Waiver dated as of April 16, 2007, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
among the Company, as borrower, |
|
Form 8-K filed on April 17, 2007 |
|
|
|
|
|
|
BNP Paribas, as administrative |
|
|
|
|
|
|
|
|
agent, and the other lenders |
|
|
|
|
|
|
|
|
signatory to that certain Credit |
|
|
|
|
|
|
|
|
Agreement dated April 25, 2005 as |
|
|
|
|
|
|
|
|
amended |
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or |
|
Exhibit |
Exhibit |
|
|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
|
|
|
|
|
|
|
|
|
10.46 |
|
Waiver dated as of July 16, 2007, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
among the Company, as borrower, |
|
Form 8-K filed on July 16, 200 |
|
|
|
|
|
|
BNP Paribas, as administrative |
|
|
|
|
|
|
|
|
agent, and the other lenders |
|
|
|
|
|
|
|
|
signatory to that certain Credit |
|
|
|
|
|
|
|
|
Agreement dated April 25, 2005 as |
|
|
|
|
|
|
|
|
amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.47 |
|
Waiver dated as of August 30, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
2007, among the Company, as |
|
Form 8-K filed on September 6, 2007 |
|
|
|
|
|
|
borrower, BNP Paribas, as |
|
|
|
|
|
|
|
|
administrative agent, and the |
|
|
|
|
|
|
|
|
other lenders signatory to that |
|
|
|
|
|
|
|
|
certain Credit Agreement dated |
|
|
|
|
|
|
|
|
April 25, 2005 as amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.48 |
|
Waiver dated as of November 26, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
2007, among the Company, as |
|
Form 8-K filed on November 30, 2007 |
|
|
|
|
|
|
borrower, BNP Paribas, as |
|
|
|
|
|
|
|
|
administrative agent, and the |
|
|
|
|
|
|
|
|
other lenders signatory to that |
|
|
|
|
|
|
|
|
certain Credit Agreement dated |
|
|
|
|
|
|
|
|
April 25, 2005 as amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.49 |
|
Amended and Restated Credit |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.1 |
|
|
Agreement (the Restated Credit |
|
Form 8-K filed on September 25, 2009 |
|
|
|
|
|
|
Agreement), dated September 24, |
|
|
|
|
|
|
|
|
2009, among the Company, as |
|
|
|
|
|
|
|
|
borrower; subsidiaries of the |
|
|
|
|
|
|
|
|
Company signatory to that Credit |
|
|
|
|
|
|
|
|
Agreement dated April 25, 2005, as |
|
|
|
|
|
|
|
|
amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.50 |
|
Put Option Agreement, dated as of |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.2 |
|
|
October 13, 2006, between NEH and |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Toshiba related to shares in the |
|
|
|
|
|
|
|
|
US acquisition company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.51 |
|
Put Option Agreement, dated as of |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.3 |
|
|
October 13, 2006, between NEH and |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Toshiba related to shares in the |
|
|
|
|
|
|
|
|
UK acquisition company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.52 |
|
Shareholders Agreement, dated as |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.4 |
|
|
of October 4, 2006, by and among |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Toshiba, Toshiba Nuclear Energy |
|
|
|
|
|
|
|
|
Holdings (US) Inc. the US Company, |
|
|
|
|
|
|
|
|
NEH, TSB Nuclear Energy Investment |
|
|
|
|
|
|
|
|
US Inc., a Delaware corporation |
|
|
|
|
|
|
|
|
and a wholly owned subsidiary of |
|
|
|
|
|
|
|
|
Toshiba and Ishikawajima-Harima |
|
|
|
|
|
|
|
|
Heavy Industries Co., Ltd., a |
|
|
|
|
|
|
|
|
corporation organized under the |
|
|
|
|
|
|
|
|
laws of Japan (IHI) |
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or |
|
Exhibit |
Exhibit |
|
|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
10.53 |
|
Shareholders Agreement, dated as |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.5 |
|
|
of October 4, 2006, by and among |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Toshiba, Toshiba Nuclear Energy |
|
|
|
|
|
|
|
|
Holdings (UK) Inc., the UK |
|
|
|
|
|
|
|
|
Company, NEH, IHI and TSB Nuclear |
|
|
|
|
|
|
|
|
Energy Investment UK Limited, a |
|
|
|
|
|
|
|
|
company registered in England with |
|
|
|
|
|
|
|
|
registered number 5929658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.54 |
|
Bond Trust Deed, dated October 13, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.6 |
|
|
2006, between NEH and The Bank of |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
New York, as trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.55 |
|
Parent Pledge Agreement, dated |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.7 |
|
|
October 13, 2006, between the |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Company and The Bank of New York |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.56 |
|
Issuer Pledge Agreement, dated |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.8 |
|
|
October 13, 2006, between NEH and |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
The Bank of New York |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.57 |
|
Deed of Charge, dated October 13, |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.9 |
|
|
2006, among NEH, The Bank of New |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
York, as trustee, and Morgan |
|
|
|
|
|
|
|
|
Stanley Capital Services Inc., as |
|
|
|
|
|
|
|
|
swap counterparty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.58 |
|
Transferable Irrevocable Direct |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.10 |
|
|
Pay Letter of Credit (Principal |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Letter of Credit) effective |
|
|
|
|
|
|
|
|
October 13, 2006 of Bank of |
|
|
|
|
|
|
|
|
America in favor of NEH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.59 |
|
Transferable Irrevocable Direct |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.11 |
|
|
Pay Letter of Credit (Interest |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Letter of Credit) effective |
|
|
|
|
|
|
|
|
October 13, 2006 of Bank of |
|
|
|
|
|
|
|
|
America in favor of NEH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.60 |
|
Reimbursement Agreement dated as |
|
The Shaw Group Inc. Current Report on |
|
1-12227 |
|
10.12 |
|
|
of October 13, 2006, between the |
|
Form 8-K filed on October 18, 2006 |
|
|
|
|
|
|
Company and Toshiba |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.1 |
|
The Shaw Group Inc. Code of |
|
The Shaw Group Inc. |
|
1-12227 |
|
14.1 |
|
|
Corporate Conduct dated June 2006 |
|
Annual Report on Form 10-K for the fiscal year ended
August 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2 |
|
The Shaw Group Inc. Code of Ethics |
|
The Shaw Group Inc. |
|
1-12227 |
|
14.2 |
|
|
for Chief Executive Officer and |
|
Annual Report on Form 10-K |
|
|
|
|
|
|
Senior Financial Officers (adopted |
|
for the fiscal year ended |
|
|
|
|
|
|
as of December 16, 2003) |
|
August 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14.3 |
|
The Shaw Group Inc. Insider |
|
The Shaw Group Inc. |
|
1-12227 |
|
14.3 |
|
|
Trading Policy dated June 2006 |
|
Annual Report on Form 10-K for the fiscal year ended
August 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1 |
|
Subsidiaries of The Shaw Group Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
Consent of KPMG LLP, independent |
|
|
|
|
|
|
|
|
registered public accounting firm |
|
|
|
|
|
|
|
|
of The Shaw Group Inc. |
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or |
|
Exhibit |
Exhibit |
|
|
|
Report or Registration |
|
Registration |
|
or Other |
Number |
|
Document Description |
|
Statement |
|
Number |
|
Reference |
23.2 |
|
Consent of Ernst & Young LLP, |
|
|
|
|
|
|
|
|
former independent registered |
|
|
|
|
|
|
|
|
public accounting firm of The Shaw |
|
|
|
|
|
|
|
|
Group Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Certification pursuant to Section |
|
|
|
|
|
|
|
|
302 of the Sarbanes-Oxley Act of |
|
|
|
|
|
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Certification pursuant to Section |
|
|
|
|
|
|
|
|
302 of the Sarbanes-Oxley Act of |
|
|
|
|
|
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
Certification pursuant to 18 |
|
|
|
|
|
|
|
|
U.S.C. Section 1350, as Adopted |
|
|
|
|
|
|
|
|
Pursuant to Section 906 of the |
|
|
|
|
|
|
|
|
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
Certification pursuant to 18 |
|
|
|
|
|
|
|
|
U.S.C. Section 1350, as Adopted |
|
|
|
|
|
|
|
|
Pursuant to Section 906 of the |
|
|
|
|
|
|
|
|
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
80
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.
THE SHAW GROUP INC.
By: J. M. Bernhard, Jr.
Chief Executive Officer
Date: October 29, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below, by the following
persons on behalf of the registrant in the capacities indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ J.
M. Bernhard, Jr.
J.
M. Bernhard, Jr.
|
|
Chairman of the Board, President and Chief Executive Officer and
Director (Principal Executive Officer)
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Brian
K. Ferraioli
Brian
K. Ferraioli
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Michael
J. Kershaw
Michael
J. Kershaw
|
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Albert
D. McAlister
Albert
D. McAlister
|
|
Director
|
|
October 29, 2009
|
|
|
|
|
|
/s/ David
W. Hoyle
David
W. Hoyle
|
|
Director
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Daniel
A. Hoffler
Daniel
A. Hoffler
|
|
Director
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Michael
J. Mancuso
Michael
J. Mancuso
|
|
Director
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Thomas
E. Capps
Thomas
E. Capps
|
|
Director
|
|
October 29, 2009
|
|
|
|
|
|
/s/ Stephen
R. Tritch
Stephen
R. Tritch
|
|
Director
|
|
October 29, 2009
|
81
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
INDEX TO COMBINED FINANCIAL STATEMENTS OF TOSHIBA NUCLEAR
ENERGY HOLDINGS (US), INC. AND TOSHIBA NUCLEAR ENERGY HOLDINGS
(UK) LTD.
|
|
|
|
|
|
|
|
|
F-65
|
|
Combined Financial Statements
|
|
|
|
|
|
|
|
F-66
|
|
|
|
|
F-67
|
|
|
|
|
F-68
|
|
|
|
|
F-69
|
|
|
|
|
F-70
|
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
The Shaw Group Inc.:
We have audited The Shaw Group Inc.s internal control over
financial reporting as of August 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Shaw Group
Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in the accompanying 2009 Annual Report on
Form 10-K.
Our responsibility is to express an opinion on The Shaw Group
Inc.s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit 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 audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
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 (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) 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 (3) 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.
In our opinion The Shaw Group Inc. maintained, in all material
respects, effective internal control over financial reporting as
of August 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of The Shaw Group Inc. and
subsidiaries as of August 31, 2009 and 2008, and the
related consolidated statements of operations,
shareholders equity, and cash flows for each of the years
in the three-year period ended August 31, 2009, and our
report dated October 29, 2009 expressed an unqualified
opinion on those consolidated financial statements.
Baton Rouge, Louisiana
October 29, 2009
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
The Shaw Group Inc.:
We have audited the accompanying consolidated balance sheets of
The Shaw Group Inc. and subsidiaries as of August 31, 2009
and 2008, and the related consolidated statements of operations,
shareholders equity and cash flows for each of the years
in the three-year period ended August 31, 2009. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of The Shaw Group Inc. and subsidiaries as of
August 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended August 31, 2009, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), The
Shaw Group Inc.s internal control over financial reporting
as of August 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated October 29, 2009 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
Baton Rouge, Louisiana
October 29, 2009
F-3
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of August 31, 2009 and 2008
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,029,138
|
|
|
$
|
927,756
|
|
Restricted and escrowed cash
|
|
|
81,925
|
|
|
|
8,901
|
|
Short-term investments
|
|
|
342,219
|
|
|
|
|
|
Restricted short-term investments
|
|
|
80,000
|
|
|
|
|
|
Accounts receivable, including retainage, net
|
|
|
815,862
|
|
|
|
665,870
|
|
Inventories
|
|
|
262,284
|
|
|
|
241,463
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts, including claims
|
|
|
599,741
|
|
|
|
488,321
|
|
Deferred income taxes
|
|
|
270,851
|
|
|
|
93,823
|
|
Prepaid expenses
|
|
|
26,703
|
|
|
|
25,895
|
|
Investment in Westinghouse
|
|
|
1,008,442
|
|
|
|
|
|
Other current assets
|
|
|
36,083
|
|
|
|
37,099
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,553,248
|
|
|
|
2,489,128
|
|
Investments in and advances to unconsolidated entities, joint
ventures and limited partnerships
|
|
|
21,295
|
|
|
|
19,535
|
|
Investment in Westinghouse
|
|
|
|
|
|
|
1,158,660
|
|
Property and equipment, at cost
|
|
|
636,402
|
|
|
|
519,305
|
|
Less accumulated depreciation
|
|
|
(250,796
|
)
|
|
|
(233,755
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
385,606
|
|
|
|
285,550
|
|
Goodwill
|
|
|
501,305
|
|
|
|
507,355
|
|
Intangible assets
|
|
|
20,957
|
|
|
|
24,065
|
|
Deferred income taxes
|
|
|
|
|
|
|
3,245
|
|
Other assets
|
|
|
74,763
|
|
|
|
99,740
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,557,174
|
|
|
$
|
4,587,278
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
859,753
|
|
|
$
|
731,074
|
|
Accrued salaries, wages and benefits
|
|
|
175,750
|
|
|
|
120,038
|
|
Other accrued liabilities
|
|
|
187,020
|
|
|
|
187,045
|
|
Advanced billings and billings in excess of costs and estimated
earnings on uncompleted contracts
|
|
|
1,308,325
|
|
|
|
748,395
|
|
Japanese Yen-denominated bonds secured by Investment in
Westinghouse
|
|
|
1,387,954
|
|
|
|
|
|
Interest rate swap contract on Japanese Yen-denominated bonds
|
|
|
31,369
|
|
|
|
|
|
Short-term debt and current maturities of long-term debt
|
|
|
15,399
|
|
|
|
6,004
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,965,570
|
|
|
|
1,792,556
|
|
Long-term debt, less current maturities
|
|
|
7,627
|
|
|
|
3,579
|
|
Japanese Yen-denominated long-term bonds secured by Investment
in Westinghouse, net
|
|
|
|
|
|
|
1,162,007
|
|
Interest rate swap contract on Japanese Yen-denominated bonds
|
|
|
|
|
|
|
8,802
|
|
Deferred income taxes
|
|
|
26,152
|
|
|
|
|
|
Other liabilities
|
|
|
109,835
|
|
|
|
101,522
|
|
Minority interest
|
|
|
24,691
|
|
|
|
29,082
|
|
Contingencies and commitments (Note 13)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 20,000,000 shares
authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, no par value, 200,000,000 shares authorized;
89,316,057 and 89,195,901 shares issued, respectively; and
83,606,808 and 83,535,441 shares outstanding, respectively
|
|
|
1,237,727
|
|
|
|
1,204,914
|
|
Retained earnings
|
|
|
423,651
|
|
|
|
409,376
|
|
Accumulated other comprehensive loss
|
|
|
(121,966
|
)
|
|
|
(9,609
|
)
|
Treasury stock, 5,709,249 and 5,660,460 shares, respectively
|
|
|
(116,113
|
)
|
|
|
(114,951
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,423,299
|
|
|
|
1,489,730
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,557,174
|
|
|
$
|
4,587,278
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Years Ended August 31, 2009, 2008 and 2007
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
7,279,690
|
|
|
$
|
6,998,011
|
|
|
$
|
5,723,712
|
|
Cost of revenues
|
|
|
6,672,260
|
|
|
|
6,411,978
|
|
|
|
5,348,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
607,430
|
|
|
|
586,033
|
|
|
|
375,417
|
|
General and administrative expenses
|
|
|
308,683
|
|
|
|
276,328
|
|
|
|
274,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
298,747
|
|
|
|
309,705
|
|
|
|
100,927
|
|
Interest expense
|
|
|
(4,919
|
)
|
|
|
(8,595
|
)
|
|
|
(12,811
|
)
|
Interest expense on Japanese Yen-denominated bonds including
accretion and amortization
|
|
|
(68,676
|
)
|
|
|
(37,351
|
)
|
|
|
(30,577
|
)
|
Interest income
|
|
|
10,028
|
|
|
|
20,936
|
|
|
|
13,785
|
|
Foreign currency translation losses on Japanese Yen-denominated
bonds, net
|
|
|
(198,077
|
)
|
|
|
(69,652
|
)
|
|
|
(33,204
|
)
|
Other foreign currency transaction gains (losses), net
|
|
|
1,002
|
|
|
|
6,627
|
|
|
|
(5,275
|
)
|
Other income (expense), net
|
|
|
(5,516
|
)
|
|
|
(1,180
|
)
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest, earnings (losses)
from unconsolidated entities
|
|
|
32,589
|
|
|
|
220,490
|
|
|
|
33,166
|
|
Provision for income taxes
|
|
|
11,880
|
|
|
|
71,384
|
|
|
|
10,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest, earnings (losses) from
unconsolidated entities
|
|
|
20,709
|
|
|
|
149,106
|
|
|
|
22,419
|
|
Minority interest
|
|
|
(16,733
|
)
|
|
|
(26,070
|
)
|
|
|
(17,699
|
)
|
Income from 20% Investment in Westinghouse, net of income taxes
|
|
|
9,240
|
|
|
|
15,026
|
|
|
|
2,176
|
|
Earnings (losses) from unconsolidated entities, net of income
taxes
|
|
|
1,779
|
|
|
|
2,655
|
|
|
|
(25,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14,995
|
|
|
$
|
140,717
|
|
|
$
|
(19,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
0.18
|
|
|
$
|
1.71
|
|
|
$
|
(0.24
|
)
|
Diluted:
|
|
$
|
0.18
|
|
|
$
|
1.67
|
|
|
$
|
(0.24
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
83,244
|
|
|
|
82,063
|
|
|
|
79,857
|
|
Diluted
|
|
|
84,411
|
|
|
|
84,152
|
|
|
|
79,857
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Treasury
|
|
|
Unearned
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
Treasury
|
|
|
Common
|
|
|
Stock
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Stock Shares
|
|
|
Stock Amount
|
|
|
Amount
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance, August 31, 2006
|
|
|
85,866,727
|
|
|
|
(5,390,799
|
)
|
|
$
|
1,072,589
|
|
|
$
|
(101,498
|
)
|
|
$
|
|
|
|
$
|
(25,363
|
)
|
|
$
|
292,602
|
|
|
$
|
1,238,330
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,000
|
)
|
|
|
(19,000
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,404
|
|
|
|
|
|
|
|
1,404
|
|
Change in unrealized net gains (losses) on hedging activities,
net of tax of $2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
(4,000
|
)
|
Recognition of 20% of Westinghouse OCI, net of Shaws tax
of $12,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,593
|
|
|
|
|
|
|
|
19,593
|
|
Decrease in pension liability, not yet recognized in net
periodic pension expense, net of tax expense of $2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,939
|
|
|
|
|
|
|
|
2,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
Adjustment upon initial adoption of SFAS 158, net of tax
benefit of $7,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,646
|
)
|
|
|
|
|
|
|
(11,646
|
)
|
Exercise of options
|
|
|
569,152
|
|
|
|
|
|
|
|
8,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,815
|
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,850
|
|
Stock-based compensation
|
|
|
276,078
|
|
|
|
(123,685
|
)
|
|
|
19,379
|
|
|
|
(3,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2007,
|
|
|
86,711,957
|
|
|
|
(5,514,484
|
)
|
|
$
|
1,104,633
|
|
|
$
|
(105,048
|
)
|
|
$
|
|
|
|
$
|
(17,073
|
)
|
|
$
|
273,602
|
|
|
$
|
1,256,114
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,717
|
|
|
|
140,717
|
|
FIN 48 Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,943
|
)
|
|
|
(4,943
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,837
|
|
|
|
|
|
|
|
6,837
|
|
Change in unrealized net gains (losses) on hedging activities,
net of tax of $775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
(1,360
|
)
|
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax of $4,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,467
|
|
|
|
|
|
|
|
6,467
|
|
Additional pension liability, not yet recognized in net periodic
pension expense, net of tax benefit of $736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,238
|
|
Exercise of options
|
|
|
2,492,602
|
|
|
|
|
|
|
|
41,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,816
|
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
37,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,464
|
|
Stock-based compensation
|
|
|
(8,658
|
)
|
|
|
(145,976
|
)
|
|
|
21,001
|
|
|
|
(9,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2008
|
|
|
89,195,901
|
|
|
|
(5,660,460
|
)
|
|
$
|
1,204,914
|
|
|
$
|
(114,951
|
)
|
|
$
|
|
|
|
$
|
(9,609
|
)
|
|
$
|
409,376
|
|
|
$
|
1,489,730
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,995
|
|
|
|
14,995
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,339
|
)
|
|
|
|
|
|
|
(10,339
|
)
|
Change in unrealized net gains (losses) on hedging activities,
net of tax benefit of $8,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,857
|
)
|
|
|
|
|
|
|
(13,857
|
)
|
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax benefit of $50,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,717
|
)
|
|
|
|
|
|
|
(80,717
|
)
|
Additional pension liability, not yet recognized in net periodic
pension expense, net of tax benefit of $6,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,362
|
)
|
Adjustment for Westinghouses cumulative effect upon
initial adoption of SFAS 158, net of tax benefit of $462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720
|
)
|
|
|
(720
|
)
|
Exercise of options
|
|
|
76,828
|
|
|
|
|
|
|
|
1,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,233
|
|
Shares exchanged for taxes on stock based compensation
|
|
|
(13,106
|
)
|
|
|
(48,789
|
)
|
|
|
(315
|
)
|
|
|
(1,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,477
|
)
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,472
|
)
|
Stock-based compensation
|
|
|
56,434
|
|
|
|
|
|
|
|
33,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2009
|
|
|
89,316,057
|
|
|
|
(5,709,249
|
)
|
|
$
|
1,237,727
|
|
|
$
|
(116,113
|
)
|
|
$
|
|
|
|
$
|
(121,966
|
)
|
|
$
|
423,651
|
|
|
$
|
1,423,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Years Ended August 31, 2009, 2008 and 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14,995
|
|
|
$
|
140,717
|
|
|
$
|
(19,000
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,534
|
|
|
|
47,266
|
|
|
|
41,303
|
|
Benefit from deferred income taxes
|
|
|
(78,906
|
)
|
|
|
(7,231
|
)
|
|
|
(31,030
|
)
|
Stock-based compensation expense
|
|
|
33,367
|
|
|
|
21,001
|
|
|
|
19,379
|
|
Earnings from unconsolidated entities, net of taxes
|
|
|
(11,019
|
)
|
|
|
(18,276
|
)
|
|
|
(4,609
|
)
|
Distributions from unconsolidated entities
|
|
|
29,972
|
|
|
|
16,927
|
|
|
|
3,485
|
|
Foreign currency transaction losses, net
|
|
|
197,075
|
|
|
|
63,025
|
|
|
|
38,479
|
|
Minority interest
|
|
|
16,733
|
|
|
|
26,070
|
|
|
|
17,699
|
|
Impairment of investments in unconsolidated entities
|
|
|
|
|
|
|
1,686
|
|
|
|
47,215
|
|
Impairment of fixed assets and goodwill
|
|
|
5,806
|
|
|
|
3,733
|
|
|
|
8,041
|
|
Amortization of original issue discount and deferred offering
costs on Westinghouse Bonds
|
|
|
34,991
|
|
|
|
6,814
|
|
|
|
5,693
|
|
Other noncash Items
|
|
|
(15,609
|
)
|
|
|
(21,101
|
)
|
|
|
(31,766
|
)
|
Changes in assets and liabilities, net of effects of
acquisitions and consolidation of variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(188,648
|
)
|
|
|
93,740
|
|
|
|
(46,393
|
)
|
(Increase) decrease in costs and estimated earnings in excess of
billings on uncompleted contracts, including claims
|
|
|
(136,090
|
)
|
|
|
(96,647
|
)
|
|
|
75,802
|
|
(Increase) in inventories
|
|
|
(20,996
|
)
|
|
|
(56,986
|
)
|
|
|
(66,895
|
)
|
(Increase) decrease in other current assets
|
|
|
3,113
|
|
|
|
(4,085
|
)
|
|
|
55,505
|
|
Increase in accounts payable
|
|
|
129,446
|
|
|
|
183,462
|
|
|
|
43,475
|
|
Increase in accrued liabilities
|
|
|
54,072
|
|
|
|
8,756
|
|
|
|
89,803
|
|
Increase in advanced billings and billings in excess of costs
and estimated earnings on uncompleted contracts
|
|
|
570,926
|
|
|
|
182,394
|
|
|
|
240,775
|
|
Net change in other assets and liabilities
|
|
|
22,090
|
|
|
|
32,611
|
|
|
|
(25,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
716,852
|
|
|
|
623,876
|
|
|
|
461,026
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(132,216
|
)
|
|
|
(129,166
|
)
|
|
|
(65,184
|
)
|
Proceeds from sale of businesses and assets, net of cash
surrendered
|
|
|
25,816
|
|
|
|
24,022
|
|
|
|
4,314
|
|
Purchases of businesses and acquisition costs, net of cash
received
|
|
|
|
|
|
|
|
|
|
|
(14,114
|
)
|
Investment in, advances to, and return of capital from
unconsolidated entities and joint ventures
|
|
|
(3,670
|
)
|
|
|
(2,927
|
)
|
|
|
(1,091,483
|
)
|
Change in restricted and escrowed cash, net
|
|
|
(72,738
|
)
|
|
|
11,256
|
|
|
|
24,105
|
|
Purchases of short-term investments
|
|
|
(342,219
|
)
|
|
|
|
|
|
|
|
|
Purchases of restricted short-term investments
|
|
|
(80,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(605,027
|
)
|
|
|
(96,815
|
)
|
|
|
(1,142,362
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Japanese Yen-denominated bonds and
other debt
|
|
|
|
|
|
|
|
|
|
|
1,053,538
|
|
Purchase of treasury stock
|
|
|
(1,162
|
)
|
|
|
(9,903
|
)
|
|
|
(3,550
|
)
|
Repayment of debt, deferred financing costs and capital leases
|
|
|
(10,856
|
)
|
|
|
(8,293
|
)
|
|
|
(46,141
|
)
|
Issuance of common stock
|
|
|
1,233
|
|
|
|
41,816
|
|
|
|
8,815
|
|
Excess tax benefits from exercise of stock options and vesting
of restricted stock
|
|
|
1,459
|
|
|
|
36,879
|
|
|
|
3,850
|
|
Proceeds from revolving credit agreements
|
|
|
|
|
|
|
16,596
|
|
|
|
783,865
|
|
Repayments of revolving credit agreements
|
|
|
|
|
|
|
(16,832
|
)
|
|
|
(934,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(9,326
|
)
|
|
|
60,263
|
|
|
|
865,725
|
|
Cash to variable interest entities
|
|
|
|
|
|
|
|
|
|
|
(167
|
)
|
Effects of foreign exchange rate changes on cash
|
|
|
(1,117
|
)
|
|
|
(927
|
)
|
|
|
1,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
101,382
|
|
|
|
586,397
|
|
|
|
185,947
|
|
Cash and cash equivalents beginning of year
|
|
|
927,756
|
|
|
|
341,359
|
|
|
|
155,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
1,029,138
|
|
|
$
|
927,756
|
|
|
$
|
341,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
THE SHAW
GROUP INC. AND SUBSIDIARIES
|
|
Note 1
|
Description
of Business and Summary of Significant Accounting
Policies
|
The Shaw Group Inc. (a Louisiana corporation) and its
wholly-owned and majority-owned subsidiaries (collectively
referred to herein as the Company, we,
us or our) is a leading global provider
of technology, engineering, procurement, construction,
maintenance, fabrication, manufacturing, consulting, remediation
and facilities management services to a diverse client base that
includes multinational oil companies and industrial
corporations, regulated electric utilities, independent and
merchant power producers, government agencies and equipment
manufacturers. We have developed and acquired significant
intellectual property, including downstream petrochemical
technologies, induction pipe bending technology and
environmental decontamination technologies.
The Company evaluated subsequent events and transactions for
potential recognition or disclosure in the financial statements
through October 29, 2009, the day the consolidated
financial statements were issued.
Basis
of Presentation and Preparation
The accompanying consolidated financial statements include the
accounts of The Shaw Group Inc. and its majority owned
subsidiaries. In accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 46R, Consolidation of
Variable Interest Entities (FIN 46R), we also
consolidate any variable interest entities (VIEs) of which
we are the primary beneficiary, as defined. When we do not have
a controlling interest in an entity, but exert a significant
influence over the entity, we apply the equity method of
accounting. All significant intercompany balances and
transactions have been eliminated in consolidation.
The preparation of these Consolidated Financial Statements in
conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in these Consolidated Financial
Statements and accompanying notes. Areas requiring significant
estimates by our management include the following:
|
|
|
|
|
contract revenues, costs and profits and the application of
percentage-of-completion
method of accounting;
|
|
|
|
provisions for uncollectible receivables and client claims and
recoveries of costs from subcontractors, vendors and others;
|
|
|
|
recoverability of inventories and application of lower of cost
or market accounting;
|
|
|
|
provisions for income taxes and related valuation allowances and
tax uncertainties;
|
|
|
|
recoverability of goodwill;
|
|
|
|
recoverability of other intangibles and long-lived assets and
related estimated lives;
|
|
|
|
recoverability of equity method investments;
|
|
|
|
valuation of defined benefit pension plans;
|
|
|
|
accruals for estimated liabilities, including litigation and
insurance accruals;
|
|
|
|
consolidation of variable interest entities; and
|
|
|
|
valuation of stock-based compensation.
|
Actual results could differ materially from those estimates.
Certain prior year amounts in the Consolidated Financial
Statements and notes thereto have been reclassified to conform
to the current year presentation.
F-8
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The length of our contracts varies but is typically longer than
one year in duration. Consistent with industry practice, assets
and liabilities have been classified as current under the
operating cycle concept whereby all contract-related items are
regarded as current regardless of whether cash will be received
or paid within a twelve-month period. Assets and liabilities
classified as current that may not be paid or received in cash
within the next twelve months include restricted cash, retainage
receivable, cost and estimated earnings in excess of billing on
uncompleted contracts (including claims receivable), retainage
payable and advance billings and billings in excess of costs and
estimated earnings on uncompleted contracts.
Nature
of Operations and Types of Contracts
Our work is performed under two general types of contracts:
cost-reimbursable plus a fee or
mark-up
contracts and fixed-price contracts, both of which may be
modified by cost escalation provisions or other risk sharing
mechanisms, and incentive and penalty provisions. Each of our
contracts may contain components of more than one of the
contract types discussed below. During the term of a project,
the contract or components of the contract may be renegotiated
to include characteristics of a different contract type. We
focus our EPC activities on a cost-reimbursable plus a fee or
mark-up and
negotiated fixed-price work, each as defined below. When we
negotiate any type of contract, we frequently are required to
accomplish the scope of work and meet certain performance
criteria within a specified timeframe; otherwise, we could be
assessed damages, which in some cases are
agreed-upon
liquidated damages.
Our cost-reimbursable contracts include the following:
|
|
|
|
|
Cost-plus contract A contract under which we
are reimbursed for allowable or otherwise defined costs incurred
plus a fee or
mark-up. The
contracts may also include incentives for various performance
criteria, including quality, timeliness, ingenuity, safety and
cost-effectiveness. In addition, our costs are generally subject
to review by our clients and regulatory audit agencies, and such
reviews could result in costs being disputed as non-reimbursable
under the terms of the contract.
|
|
|
|
Target-price contract A contract under which
we are reimbursed for costs plus a fee consisting of two parts:
(1) a fixed amount, which does not vary with performance,
but may be at risk when a target price is exceeded; and
(2) an award amount based on the performance and
cost-effectiveness of the project. As a result, we are generally
able to recover cost overruns on these contracts from actual
damages for late delivery or the failure to meet certain
performance criteria. Target-price contracts also generally
provide for sharing of costs in excess of or savings for costs
less than the target. In some contracts, we may agree to share
cost overruns in excess of our fee, which could result in a loss
on the project.
|
Our fixed-price contracts include the following:
|
|
|
|
|
Firm fixed-price contract May include
contracts in which the price is not subject to any cost or
performance adjustments and contracts where certain risks are
shared with clients such as labor costs or commodity pricing
changes. As a result, we may benefit or be penalized for cost
variations from our original estimates. However, these contract
prices may be adjusted for changes in scope of work, new or
changing laws and regulations and other events negotiated.
|
|
|
|
Maximum price contract A contract that
provides at the outset for an initial target cost, an initial
target profit and a price ceiling. The price is subject to cost
adjustments incurred, but the adjustment would generally not
exceed the price ceiling established in the contract. In
addition, these contracts usually include provisions whereby we
share cost savings with our clients.
|
|
|
|
Unit-price contract A contract under which we
are paid a specified amount for every unit of work performed. A
unit-price contract is essentially a firm fixed-price contract
with the only variable being the number of units of work
performed. Variations in unit-price contracts include the same
type of
|
F-9
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
variations as firm fixed-price contracts. We are normally
awarded these contracts on the basis of a total price that is
the sum of the product of the specified units and the unit
prices.
|
Investment
in Westinghouse
On October 16, 2006, we acquired a 20% interest in
Westinghouse (Westinghouse Equity) for approximately
$1.1 billion. See Note 6 Equity Method
Investments and Variable Interest Entities for further
discussion.
Cash
and Cash Equivalents and Short-term Investments
All highly liquid investments with maturities of three months or
less at the date of purchase are classified as cash equivalents.
Highly liquid investments with maturities greater than three
months at the date of purchase are classified as short-term
investments.
Accounts
Receivable
Accounts receivable are recorded at the invoiced amount based on
contracted prices. Amounts collected on accounts receivable are
included in net cash provided by operating activities in the
consolidated statements of cash flows. Our principal clients are
major multi-national industrial corporations, governmental
agencies, regulated utility companies, independent and merchant
energy producers and equipment manufacturers. We believe that in
most cases our exposure to credit risk is mitigated through
client prepayments, collateralization and guarantees.
We establish an allowance for uncollectible accounts based on
the assessment of the clients ability to pay. Accruals
resulting from disputes or other negotiations that are
established to reflect certain project related accounts
receivable or claims at their net realizable values are included
in billings in excess of costs and estimated earnings on
uncompleted contracts. Past due receivable balances are written
off when our internal collection efforts have been unsuccessful
in collecting the amounts due.
Retainage, included in accounts receivable, represents amounts
withheld from progress billings by our clients and may not be
paid to us until the completion of a project and, in some
instances, for even longer periods. Retainage may also be
subject to restrictive conditions such as performance or
fulfillment guarantees.
Costs
and Estimated Earnings in Excess of Billings on Uncompleted
Contracts, Including Claims, and Advanced Billings and Billings
in Excess of Costs and Estimated Earnings on Uncompleted
Contracts
In accordance with normal practice in the construction industry,
we include in current assets and current liabilities amounts
related to construction contracts realizable and payable over a
period in excess of one year. Costs and estimated earnings in
excess of billings on uncompleted contracts represent the excess
of contract costs and profits recognized to date using the
percentage-of-completion
method over billings to date on certain contracts. Billings in
excess of costs and estimated earnings on uncompleted contracts
represents the excess of billings to date over the amount of
contract costs and profits recognized to date using the
percentage-of-completion
method on certain contracts.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
first-in,
first-out (FIFO) or weighted-average cost methods. Cost includes
material, labor and overhead costs. Inventories are reported net
of the allowance for excess or obsolete inventory.
F-10
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are recorded at cost. Additions and
improvements (including interest costs for construction of
certain long-lived assets) are capitalized. We incur maintenance
costs on all of our major equipment. Maintenance and repair
expenses are charged to income as incurred. The cost of property
and equipment sold or otherwise disposed of and the related
accumulated depreciation are eliminated from the property and
related accumulated depreciation accounts, and any gain (loss)
is credited or charged to other income (expense).
The straight-line depreciation method is used for all our
assets. Leasehold improvements are amortized over the shorter of
the useful life of the improvement, the lease term or the life
of the building. Depreciation is generally provided over the
following estimated useful service lives:
|
|
|
|
|
Transportation equipment
|
|
|
3-15 Years
|
|
Furniture, fixtures and software
|
|
|
2-5 Years
|
|
Machinery and equipment
|
|
|
4-18 Years
|
|
Buildings and improvements
|
|
|
2-40 Years
|
|
Investments
We account for non-marketable investments using the equity
method of accounting if the investment gives us the ability to
exercise significant influence over, but not control of, an
investee. Significant influence generally exists if we have an
ownership interest representing between 20% and 50% of the
voting stock of the investee. Under the equity method of
accounting, investments are stated at initial cost and are
adjusted for subsequent additional investments and our
proportionate share of earnings or losses and distributions. We
record our share of the investees earnings or losses in
earnings (losses) from unconsolidated entities, net of income
taxes in the accompanying consolidated statements of operations.
We record our share of the investees other comprehensive
income, net of income taxes, in the accompanying consolidated
statements of shareholders equity. We evaluate our equity
method investments for impairment at least annually and whenever
events or changes in circumstances indicate, in
managements judgment, that the carrying value of an
investment may have experienced an
other-than-temporary
decline in value. When evidence of loss in value has occurred,
management compares the estimated fair value of the investment
to the carrying value of the investment to determine whether an
impairment has occurred. If the estimated fair value is less
than the carrying value and management considers the decline in
value to be other than temporary, the excess of the carrying
value over the estimated fair value is recognized in the
financial statements as an impairment.
Where we are unable to exercise significant influence over the
investee, or when our investment balance is reduced to zero from
our proportionate share of losses, the investments are accounted
for under the cost method. Under the cost method, investments
are carried at cost and adjusted only for
other-than-temporary
declines in fair value, distributions of earnings or additional
investments.
Long-Lived
Assets
In accordance with FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
long-lived assets, such as property and equipment, and purchased
intangible assets subject to amortization, are reviewed for
impairment at least annually and whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable and exceeds its fair value. If circumstances
require a long-lived asset be tested for possible impairment, we
first compare undiscounted cash flows expected to be generated
by an asset to the carrying value of the asset. If the carrying
value of the long-lived asset is not recoverable on an
undiscounted cash flow basis, an impairment is recognized to the
extent that the carrying value exceeds its fair value. Fair
value is determined through various valuation techniques
F-11
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary.
Goodwill
Goodwill represents the excess of the aggregate purchase price
over the fair value of the net assets acquired in a purchase
business combination. Goodwill is reviewed for impairment at
least annually in accordance with the provisions of FASB
Statement No. 142, Goodwill and Other Intangible
Assets. We operate our business using reportable segments
as defined by FASB No. 131 Disclosures about Segments of an
Enterprise and Related Information. These operating segments
form the basis for our reporting units used in our goodwill
impairment testing.
We test the reporting unit goodwill for impairment on an annual
basis, and more frequently when an event occurs or circumstances
change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. The annual
impairment test for goodwill is a two-step process involving the
comparison of the estimated fair value of each reporting unit to
the reporting units carrying value, including goodwill. If
the fair value of a reporting unit exceeds its carrying amount,
the goodwill of the reporting unit is not considered impaired;
therefore, the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, we perform the second step of the goodwill
impairment test to measure the amount of impairment loss to be
recorded, as necessary.
The fair values of reporting units in 2009 were determined by
averaging two methods, one based on market earnings multiples of
peer companies for each reporting unit, and the other based on
discounted cash flow models with estimated cash flows based on
internal forecasts of revenues and expenses. We believe these
two approaches are appropriate valuation techniques and we
generally weight the two values equally as an estimate of
reporting unit fair value for the purposes of our impairment
testing. The earnings multiples for the market earnings method
ranged between four times and six times. The discount rates
ranged from 12% to 14% in our discounted cash flow models. The
fair value derived from the weighting of these two methods
provided appropriate valuations that, in aggregate, reasonably
reconciled to our market capitalization, taking into account
observable control premiums. Therefore, we used the valuations
in evaluating goodwill for possible impairment and noted that
none of our goodwill was impaired.
Intangible
Assets
Our intangible assets are related to various licenses, patents,
technology and related processes. The costs of these assets are
amortized over their estimated useful lives, which range from
three to thirty years. The method of amortization reflects the
expected realization pattern of the economic benefits relevant
to the intangible assets, or if we are unable to determine the
expected realization pattern reliably, they are amortized using
the straight-line method. We also have intangible assets related
to customer relationships acquired with the IT Group
acquisition, which are amortized over a ten-year period on a
straight- line basis. We assess the recoverability of the
unamortized balance of our intangible assets when indicators of
impairment are present based on expected future profitability
and undiscounted expected cash flows and their contribution to
our overall operations. Should the review indicate that the
carrying value is not fully recoverable; the excess of the
carrying value over the fair value of the intangible assets
would be recognized as an impairment loss.
Assets
of Deferred Compensation Plans
We account for the assets of our Deferred Compensation Plans
held in Rabbi Trusts for the benefit of the Chief Executive
Officer pursuant to his employment agreement and separately, for
the benefit of key employees, as trading assets. Our Rabbi Trust
deposits are accounted for in accordance with Emerging Issues
Task Force Issue
No. 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts Earned Are Held in a Rabbi Trust and Invested.
Trading assets are stated at fair value, with gains or losses
resulting
F-12
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
from changes in fair value recognized currently in earnings. The
liability related to the Chief Executive Officer was recognized
in 2007 pursuant to his employment agreement.
Revenue
and Profit/Loss Recognition on Long-Term Construction Accounting
Including Claims, Unapproved Change Orders and
Incentives
A substantial portion of our revenues are derived from long-term
contracts that are accounted for using accounting principles set
forth in American Institute of Certified Public Accountants
(AICPA) Statement of Position
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1)
and other applicable accounting standards to account for these
contracts.
Percentage of Completion. We recognize
revenues for long-term contracts on the
percentage-of-completion
method, primarily based on costs incurred to date compared with
total estimated contract costs. Performance incentives are
included in our estimates of revenues using the
percentage-of-completion
method when their realization is reasonably assured.
Cancellation fees are included in our estimates of revenue using
the
percentage-of-completion
method when the cancellation notice is received from the client.
Provisions for estimated losses on uncompleted contracts are
made in the period in which the losses are identified. The
cumulative effect of changes to estimated contract profit and
loss, including those arising from contract penalty provisions
such as liquidated damages, final contract settlements, warranty
claims and reviews of our costs performed by clients, are
recognized in the period in which the revisions are identified.
To the extent that these adjustments result in a reduction or
elimination of previously reported profits, we report such a
change by recognizing a charge against current earnings, which
might be significant depending on the size of the project or the
adjustment.
Unapproved Change Orders and
Claims. Revenues and gross profit on
contracts can be significantly affected by change orders and
claims that may not be ultimately negotiated until the later
stages of a contract or subsequent to the date a contract is
completed. We account for unapproved change orders depending on
the circumstances. If it is not probable that the costs will be
recovered through a change in contract price, the costs
attributable to change orders are treated as contract costs
without incremental revenue. If it is probable that the costs
will be recovered through a change order, the costs are treated
as contract costs and contract revenue is recognized to the
extent of the costs expected to be incurred. If it is probable
that the contract price will be adjusted by an amount that
exceeds the costs attributable to the change order and the
amount of the excess can be reliably estimated and realization
is assured beyond a reasonable doubt, the contract profit is
adjusted by the amount of the excess.
When estimating the amount of total gross profit or loss on a
contract, we include claims related to our clients as
adjustments to revenues and claims related to vendors,
subcontractors and others as adjustments to cost of revenues.
Including claims in this calculation ultimately increases the
gross profit (or reduces the loss) that would otherwise be
recorded without consideration of the claims. Our claims against
others are recorded up to costs incurred and include no profit
until such time as they are finalized and approved. The claims
included in determining contract gross profit are less than the
actual claim that will be or has been presented. Claims are
included in costs and estimated earnings in excess of billings
on our consolidated balance sheet. The costs attributable to
change orders and claims being negotiated or disputed with
clients, vendors or subcontractors or subject to litigation are
included in our estimates of revenues when it is probable they
will result in additional contract revenues and the amount can
be reasonably estimated. Profit from such unapproved change
orders and claims is recorded in the period such amounts are
settled or approved. Back charges and claims against and from
our vendors, subcontractors and others are included in our cost
estimates as a reduction or increase in total estimated costs
when recovery or payment of the amounts are probable and the
costs can be reasonably estimated.
F-13
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition Contract Segmenting
Certain of our long-term contracts include services performed by
more than one operating segment, particularly EPC contracts
which include pipe and module fabrication and steel erection
services performed by our F&M segment. We segment revenues,
costs and gross profit related to our significant F&M
subcontracts if they meet the contract segmenting criteria in
SOP 81-1.
Revenues recorded in our F&M segment under this policy are
based on our prices and terms for such similar services to third
party clients. This policy may result in different interim rates
of profitability for each segment of the affected EPC contract
than if we had recognized revenues on a
percentage-of-completion
for the entire project based on the combined estimated total
costs of all EPC and pipe fabrication and steel erection
services.
Other
Revenue Recognition and Profit and Loss Estimates
For unit-priced pipe fabrication contracts, a unit (spool)
consists of piping materials and associated shop labor to form a
prefabricated unit according to contract specifications. Spools
are generally shipped to job site locations when complete. We
recognize revenues upon shipment of the fabricated spools for a
particular unit-price fabrication contract. For fixed-price
fabrication contracts, we recognize revenues based on the
percentage-of-completion
method, measured primarily by the cost of materials for which
production is substantially complete to the total estimated
material costs of the contract. During the fabrication process,
all direct and indirect costs related to the fabrication process
are capitalized as work in progress inventory. We recognize
revenues for pipe fittings, manufacturing operations and other
services at the time of shipment or as services are performed.
Revenue is recognized from consulting services as the work is
performed. Consulting service work is primarily performed on a
cost-reimbursable basis. Revenues related to royalty use of our
performance enhancements derived from our chemical technologies
are recorded in the period earned based on the performance
criteria defined in the related contracts. For running royalty
agreements, we recognize revenues based on client production
volumes at the contract specified unit rates. Sales of
paid-up
license agreements are coupled with the sale of engineering
services for the integration of the technology into the
clients processes. For
paid-up
license agreements, revenue is recognized using the
percentage-of-completion
method, measured primarily by the percentage of costs incurred
to date on engineering services to total estimated engineering
costs. Under such agreements, revenues available for recognition
on a
percentage-of-completion
basis are limited to the agreement value less a liability
provision for contractually specified process performance
guarantees. The liability provision is recorded in gross profit
when, and if, the related performance testing is successfully
completed or an assessment indicates a reduction of the
liability provision is appropriate.
Our approach to estimating liability provisions related to
contractual performance guarantees on sales of our technology
paid-up
license agreements requires that we make estimates on the
performance of technology on our projects. Our historical
experience with performance guarantees on these types of
agreements supports estimated liability provisions that vary
based on our experience with the different types of technologies
for which we license and provide engineering (for example,
ethylbenzene, styrene, cumene, Bisphenol A). Our liability
provisions range from nominal amounts up to 100% of the
contractual performance guarantee. If our actual obligations
under performance guarantees differ from our estimated liability
provisions at the completion of these projects, we will record
an increase or decrease in revenues (or an increase in costs
where we are required to incur costs to remediate a performance
deficiency) for the difference. Our total estimated performance
liability remaining at August 31, 2009 and 2008 was
$13.0 million and $16.1 million, respectively. The
estimated liability provisions generally are more significant as
a percentage of the total contract value for these contracts
when compared to contracts where we have full EPC
responsibility, and, as a result, these differences could be
material.
For contracts containing multiple deliverables entered into
subsequent to June 30, 2003, we analyze each activity
within the contract to ensure that we adhere to the separation
guidelines of Emerging Issues Task
F-14
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Force Issue (EITF)
No. 00-21,
Revenue Arrangements with Multiple Deliverables, and
the revenue recognition guidelines of SAB No. 104,
Revenue Recognition. For service-only
contracts, and service elements of multiple deliverable
arrangements, award fees are recognized only when definitized
and awarded by the client. Award fees on construction contracts
are recognized during the term of the contract based on our
estimate of the amount of fees to be awarded.
Accounting
for Governmental Contracts
Most of the services provided to the U.S. government are
governed by cost-reimbursable contracts. Generally, these
contracts contain both a base fee (a fixed amount applied to our
actual costs to complete the work) and an award fee (an amount
applied to definitized costs, which is subject to our
clients discretion and tied to the specific performance
measures defined in the contract, such as adherence to schedule,
health and safety, quality of work, responsiveness, cost
performance and business management). Award fees on construction
contracts are recognized during the term of the contract based
on our estimate of the amount of fees to be awarded.
Revenue is recorded at the time services are performed, and such
revenues include base fees, actual direct project costs incurred
and an allocation of indirect costs. Indirect costs are applied
using rates approved by our government clients. The general,
administrative and overhead cost reimbursement rates are
estimated periodically in accordance with government contract
accounting regulations and may change based on actual costs
incurred or based upon the volume of work performed. Revenue is
reduced for our estimate of costs that either are in dispute
with our client or have been identified as potentially
unallowable per the terms of the contract or the federal
acquisition regulations.
Cost
Estimates
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance. Indirect
costs, included in cost of revenues, include charges for such
items as facilities, engineering, project management, quality
control, bid and proposals and procurement. Pre-contract costs
are generally expensed when incurred. Pre-contract costs
incurred in anticipation of a specific contract award are
deferred when the costs can be directly associated with a
specific anticipated contract and their recoverability from that
contract is probable.
General
and Administrative Expenses
Our general and administrative (G&A) expenses represent
overhead expenses that are not associated with the execution of
the contracts. G&A expenses include charges for such items
as executive management, business development, information
technology, finance and corporate accounting, human resources
and various other corporate functions.
Derivative
Instruments and Hedging Activities
We account for derivative instruments and hedging activities in
accordance with FASB Statement No. 133, Accounting
for Derivative Instruments and Certain Hedging Activities,
as amended (SFAS 133), which requires entities to recognize
all derivative instruments as either assets or liabilities on
the balance sheet at their respective fair values and FASB
Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133 (SFAS 161). If the
derivative instrument is designated as a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative
instrument are either offset against the change in fair value of
the hedged assets, liabilities or firm commitments through
earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. Recognized gains or
losses on derivative instruments entered into to manage foreign
exchange risk are included in foreign currency gains and losses
in the consolidated statements of operations.
F-15
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We do not enter into derivative instruments for speculative or
trading purposes. We utilize forward foreign exchange contracts
to reduce our risk from foreign currency price fluctuations
related to firm or anticipated sales transactions, commitments
to purchase or sell equipment, materials
and/or
services and interest payments denominated in a foreign
currency. The net gain (loss) recognized in earnings from our
hedges was $1.5 million and $(1.5) million at
August 31, 2009 and 2008, respectively.
Other
Comprehensive Income
FASB Statement No. 130, Reporting Comprehensive
Income (SFAS 130), establishes standards for
reporting and displaying comprehensive income and its components
in the consolidated financial statements. We report the
cumulative foreign currency translation adjustments, the net
after-tax effect of unrealized gains and losses on derivative
instruments accounted for as cash flow hedges, changes in the
net pension liability related to our foreign
subsidiaries-sponsored pension plans and our equity in
Westinghouses pre-tax other comprehensive income as
components of other comprehensive income.
Foreign
Currency
Our significant foreign subsidiaries maintain their accounting
records in their local currency (primarily British pounds,
Mexican pesos, Canadian dollars and the Euro). All of the assets
and liabilities of these subsidiaries (including long-term
assets, such as goodwill) are converted to U.S. dollars at
the exchange rate in effect at the balance sheet date, income
and expense accounts are translated at average rates for the
period and shareholders equity accounts are translated at
historical rates. Adjustments resulting from these translations
are reflected in accumulated other comprehensive income
(loss), a component of shareholders equity, in
accordance with FASB Statement No. 52, Foreign
Currency Translation (SFAS 52), and SFAS 130.
See Note 18 Other Comprehensive Income (Loss)
for additional information.
Foreign currency transaction gains or losses are credited or
charged to income as incurred. Transaction gains and losses
reflected in income were a gain of $1.0 million during
fiscal year 2009, a gain of $6.6 million during fiscal year
2008 and a loss of $5.3 million during fiscal year 2007.
Additionally, during fiscal years 2009, 2008 and 2007, we
incurred foreign currency translation losses on the Westinghouse
Bonds associated with our investment in Westinghouse of
$198.1 million, $69.7 million and $33.2 million,
respectively.
Recently
Adopted Accounting Standards
On September 1, 2008, we adopted the provisions of FASB
Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair
value under GAAP and expands disclosures about fair value
measurements. In accordance with FASB Staff Position (FSP)
157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
we elected to defer the adoption of the provisions of
SFAS 157 for our non-financial assets and non-financial
liabilities. Such assets and liabilities, which include our
costs and estimated earnings in excess of billings on
uncompleted contracts, advanced billings and billings in excess
of costs and estimated earnings on uncompleted contracts,
deferred contract costs, property and equipment (net) and
goodwill, will be subject to the provisions of SFAS 157 on
September 1, 2009. For additional information, see
Note 2 Fair Value Measurements.
On September 1, 2008, we adopted and elected not to apply
the provisions of SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to choose to
measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings.
On December 1, 2008, we adopted SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 was intended
to enhance the current disclosure framework in Statement 133.
The Statement requires that objectives of using
F-16
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
derivative instruments be disclosed in terms of underlying risk
and accounting designation. The adoption of SFAS 161 did
not have a material impact on our financial statements.
We adopted SFAS No. 165, Subsequent Events
(SFAS 165) for the fiscal year ending August 31,
2009. In May 2009, the FASB issued SFAS 165 to establish
general standards of accounting and disclosure of events that
occur after the balance sheet date but before financial
statements are issued. SFAS 165 requires an evaluation of
subsequent events through the date the financial statements are
issued and defines the circumstances under which a subsequent
event should be recognized and the circumstances for which a
subsequent event should be disclosed. SFAS 165 also
requires that we disclose the date through which we have
evaluated subsequent events. The adoption of SFAS 165 did
not have a material impact on our financial statements.
Insurance
Programs
Our employee-related health care benefits program is self-funded
up to a maximum amount per claim. Claims in excess of this
maximum are insured through stop-loss insurance policies. Our
workers compensation, automobile and general liability
insurance is provided through a premium plan with a deductible
applied to each occurrence. Claims in excess of our deductible
are paid by the insurer. The liabilities are based on claims
filed and estimates of claims incurred but not reported. As of
August 31, 2009 and August 31, 2008, liabilities for
unpaid and incurred but not reported claims for all insurance
programs totaling $53.0 million and $45.7 million,
respectively, are included in accrued liabilities in the
accompanying consolidated balance sheets.
Deferred
Financing Costs
We defer qualifying debt issuance costs, which are amortized
over the term of the related debt. Unamortized deferred
financing costs are included in non-current other assets on the
consolidated balance sheets and related amortization expense is
included in interest expense in the accompanying consolidated
statements of operations. Deferred financing costs related to
our Westinghouse bonds were fully amortized in our third quarter
of fiscal year 2009. See Note 8 Debt and
Revolving Lines of Credit for additional information.
Share-Based
Compensation
Effective September 1, 2005, we adopted FASB Statement
No. 123(R), Share-Based Payment (Statement
123(R)). This statement replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation (Statement
123) and supersedes APB No. 25. Statement 123(R)
requires that all stock-based compensation be recognized as an
expense in the financial statements and that such cost be
measured at the fair value of the award. This statement was
adopted using the modified prospective method of application,
which requires us to recognize compensation cost on a
prospective basis. Under this method, we recorded stock-based
compensation expense for awards granted prior to, but not yet
vested as of September 1, 2005, using the fair value
amounts determined for pro forma disclosures under Statement
123. For stock-based awards granted after September 1,
2005, we recognize compensation expense based on estimated grant
date fair value using the modified Black-Scholes option-pricing
model. We recognize compensation cost on a straight-line basis
over the requisite service period (generally four years) of the
entire award.
Statement 123(R) also requires that excess tax benefits related
to stock option exercises be reflected as financing cash
inflows. Share-based compensation cost that has been included in
income from continuing operations amounted to
$33.4 million, $21.0 million and $19.4 million
for the years ended August 31, 2009, 2008 and 2007,
respectively. The total income tax benefit recognized in the
statement of operations for share-based compensation
arrangements was $9.5 million, $8.2 million and
$7.6 million for the years ended August 31, 2009, 2008
and 2007, respectively.
F-17
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. We include any estimated interest and penalties
on tax related matters in income taxes payable. Beginning with
the adoption of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48) as of
September 1, 2007, we recognize the effect of income tax
positions only if those position are more likely than not of
being sustained. Recognized income tax positions are measured at
the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are recorded in
the period in which the change in judgment occurs. We record
interest and penalties related to unrecognized tax benefits in
income tax expense
Contingencies
and Commitments
Liabilities for loss contingencies, including environmental
remediation costs not within the scope of FASB Statement
No. 143, Accounting for Asset Retirement
Obligations, arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount of
the assessment
and/or
remediation can be reasonably estimated. Legal costs incurred in
connection with loss contingencies are expensed as incurred.
LandBank
Assets and Liabilities
LandBank, a subsidiary of our E&I segment, acquires and
remediates environmentally impaired real estate. The real estate
is recorded at cost, which typically reflects some degree of
discount due to environmental issues related to the real estate.
We also record an environmental liability for properties held by
LandBank if funds are received from transactions separate from
the original purchase to pay for environmental remediation
costs. We recognize gains and losses on sales of these assets
when the sales transaction is complete.
Fair
Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate their fair values
because of their short-term nature. The fair value of long-term
notes receivable approximates the carrying value based on
estimated discounted future cash flows using the current rates
at which similar loans would be made. The fair value of fixed
rate bonds approximates the carrying value based on estimated
current rates available to us for bonds of the same maturities.
The fair value of our floating rate bonds approximates the
carrying value. Our foreign currency forward contracts and
interest rate swap liability are recorded at their fair values.
See Note 2 Fair Value Measurements for
additional information.
Reclassifications
Certain reclassifications have been made to prior periods
consolidated financial statements in order to conform to the
2009 presentation.
F-18
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Fair
Value Measurements
|
At August 31, 2009, our financial assets and liabilities
measured at fair value on a recurring basis were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
Unobservable
|
|
|
Location on
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
Balance Sheet
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liability
|
|
Current liabilities
|
|
$
|
31,369
|
|
|
$
|
|
|
|
$
|
31,369
|
|
|
$
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward assets
|
|
Other current assets
|
|
$
|
1,461
|
|
|
$
|
|
|
|
$
|
1,461
|
|
|
$
|
|
|
Foreign currency forward liabilities
|
|
Other accrued liabilities
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss)
|
|
|
Recognized in Income on Derivatives
|
|
|
Fiscal Year Ended
|
|
|
August 31, 2009
|
|
Derivatives Designated as Hedging Instruments
|
|
|
Interest rate swap liability
|
|
Other comprehensive income. See Note 18
|
Derivatives Not Designated as Hedging Instruments
|
|
|
Foreign currency forward contracts
|
|
Other foreign currency transaction gains (losses), net
$(2.7) million
|
We value the interest rate swap liability utilizing a discounted
cash flow model that takes into consideration forward interest
rates observable in the market and the firms credit risk.
Our counterparty to this instrument is a major U.S. bank.
As discussed in Note 8 Debt and Revolving Lines
of Credit, we designated the swap as a hedge against changes in
cash flows attributable to changes in the benchmark interest
rate related to our Westinghouse Bonds.
We manage our currency exposures through the use of foreign
currency derivative instruments denominated in our major
currencies, which are generally the currencies of the countries
for which we do the majority of our international business. We
utilize derivative instruments to manage the foreign currency
exposures related to specific assets and liabilities that are
denominated in foreign currencies and to manage forecasted cash
flows denominated in foreign currencies generally related to
engineering and construction projects. Our counterparties to
these instruments are major U.S. banks. These currency
derivative instruments are carried on the consolidated balance
sheet at fair value and are based upon market observable forward
exchange rates and forward interest rates.
We value derivative assets by discounting future cash flows
based on currency forward rates. The discount rate used for
valuing derivative assets incorporates counterparty credit risk,
as well as the firms cost of capital. Derivative
liabilities are valued using a discount rate which incorporates
the firms credit risk.
|
|
Note 3
|
Cash,
Cash Equivalents, Short-term Investments and Restricted and
Escrowed Cash
|
Cash and cash equivalents primarily consist of deposits held at
major banks and money market funds. Short-term investments
consist of time deposits held at major banks. The amortized
principal amounts of our cash, cash equivalents and short-term
investments approximated their fair values at August 31,
2009. We use
F-19
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the specific identification method to determine any realized
gains or losses from the sale of our short-term investments.
The components of our cash equivalents, restricted and escrowed
cash and short-term investments held were as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Deposit in banks and money market funds
|
|
$
|
1,191,063
|
|
|
$
|
936,657
|
|
Time deposits
|
|
|
342,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,533,282
|
|
|
$
|
936,657
|
|
|
|
|
|
|
|
|
|
|
Balance sheet classification:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,029,138
|
|
|
$
|
927,756
|
|
|
|
|
|
|
|
|
|
|
Restricted and escrowed cash
|
|
$
|
81,925
|
|
|
$
|
8,901
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
342,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted and escrowed short-term investments
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2009 and August 31, 2008, we had a total
of restricted short-term investments and escrowed cash of
$161.9 million and $8.9 million, respectively. At
August 31, 2009 and August 31, 2008, the total of our
restricted short-term investments and escrowed cash consisted
of: $0.4 million and $0.7 million, respectively,
related to deposits designated to fund remediation costs
associated with a sold property; $23.1 million and
$7.2 million, respectively, related to amounts
contractually required by various other projects and primarily
dedicated to the payment of suppliers; $0.3 million and
$1.0 million, respectively, related to insurance loss
reserves and $138.1 million at August 31, 2009 related
to cash secured letters of credit.
|
|
Note 4
|
Inventories,
Accounts Receivable and Concentrations of Credit Risk
|
The major components of inventories were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Raw materials
|
|
$
|
13,940
|
|
|
$
|
110,469
|
|
|
$
|
124,409
|
|
|
$
|
11,778
|
|
|
$
|
129,716
|
|
|
$
|
141,494
|
|
Work in process
|
|
|
2,778
|
|
|
|
40,923
|
|
|
|
43,701
|
|
|
|
3,831
|
|
|
|
20,242
|
|
|
|
24,073
|
|
Finished goods
|
|
|
94,174
|
|
|
|
|
|
|
|
94,174
|
|
|
|
75,896
|
|
|
|
|
|
|
|
75,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,892
|
|
|
$
|
151,392
|
|
|
$
|
262,284
|
|
|
$
|
91,505
|
|
|
$
|
149,958
|
|
|
$
|
241,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade accounts receivable, net
|
|
$
|
671,324
|
|
|
$
|
556,711
|
|
Unbilled accounts receivable
|
|
|
11,382
|
|
|
|
11,770
|
|
Retainage
|
|
|
133,156
|
|
|
|
97,389
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, including retainage, net
|
|
$
|
815,862
|
|
|
$
|
665,870
|
|
|
|
|
|
|
|
|
|
|
F-20
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Analysis of the change in the allowance for doubtful accounts
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance, September 1
|
|
$
|
27,391
|
|
|
$
|
26,634
|
|
Provision
|
|
|
25,355
|
|
|
|
12,445
|
|
Write offs
|
|
|
(22,128
|
)
|
|
|
(8,352
|
)
|
Other
|
|
|
(2,349
|
)
|
|
|
(3,336
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance, August 31
|
|
$
|
28,269
|
|
|
$
|
27,391
|
|
|
|
|
|
|
|
|
|
|
Included in our trade accounts receivable at August 31,
2009 and 2008 are approximately $9.0 million of outstanding
invoices due from a local government entity resulting from
revenues earned in providing disaster relief, emergency response
and recovery services. The local government entity has raised
issues with our invoiced amounts, and we are currently in
litigation with the government entity. The amounts we ultimately
collect could differ from amounts currently recorded.
Concentrations
of Credit
Amounts due from U.S. government agencies or entities were
$110.3 million and $66.9 million at August 31,
2009 and August 31, 2008, respectively.
Costs and estimated earnings in excess of billings on
uncompleted contracts include $217.1 million and
$157.9 million at August 31, 2009 and August 31,
2008, respectively, related to the U.S. government agencies
and related entities.
|
|
Note 5
|
Property
and Equipment:
|
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Transportation equipment
|
|
$
|
20,977
|
|
|
$
|
31,252
|
|
Furniture, fixtures and software
|
|
|
146,905
|
|
|
|
142,311
|
|
Machinery and equipment
|
|
|
219,753
|
|
|
|
184,619
|
|
Buildings and improvements
|
|
|
151,708
|
|
|
|
130,018
|
|
Assets acquired under capital leases
|
|
|
5,651
|
|
|
|
9,102
|
|
Land
|
|
|
12,404
|
|
|
|
13,026
|
|
Construction in progress
|
|
|
79,004
|
|
|
|
8,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636,402
|
|
|
|
519,305
|
|
Less: accumulated depreciation
|
|
|
(250,796
|
)
|
|
|
(233,755
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
385,606
|
|
|
$
|
285,550
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases, net of accumulated
depreciation, were $2.0 million and $2.3 million at
August 31, 2009 and 2008, respectively. If the assets
acquired under capital leases transfer title at the end of the
lease term or contain a bargain purchase option, the assets are
amortized over their estimated useful lives; otherwise, the
assets are amortized over the respective lease term.
Depreciation and amortization expense of $52.3 million,
$43.7 million and $37.8 million for the fiscal years
ended August 31, 2009, 2008, and 2007, respectively, is
included in cost of revenues and general and administrative
expenses in the accompanying consolidated statements of
operations.
F-21
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In fiscal year 2009, we recorded an increase of
$64.4 million to construction in progress for our nuclear
modular fabrication facility.
In fiscal year 2009, we recorded an asset impairment charge of
$5.5 million for a consolidated joint venture. The
impairment charge reduced the property, plant and equipment to
its salvage value.
|
|
Note 6
|
Equity
Method Investments and Variable Interest Entities
|
As is common in the engineering, procurement and construction
(EPC) industries, we execute certain contracts jointly with
third parties through joint ventures, limited partnerships and
limited liability companies. If a joint venture is determined to
be a Variable Interest Entity (VIE) as defined by FASB Financial
Interpretation No. 46 (as revised) [FIN 46(R)],
Consolidation of Variable Interest Entities an
interpretation of ARB No. 51 (revised December 2003),
and we are determined to be the primary beneficiary of that VIE
because we are subject to a majority of the risk of loss from
the VIEs activities or entitled to receive the majority of
the VIEs residual returns or both, the joint venture is
consolidated in accordance with FIN 46(R). If consolidation
of the VIE or joint venture is not required, we generally
account for these joint ventures using the equity method of
accounting with our share of the earnings (losses) from these
investments reflected in one line item on the consolidated
statement of operations, except for certain joint ventures with
construction activities for which our percentage share of
revenues and costs from the joint ventures are reflected in our
consolidated statements of operations.
Equity
Method Investments
Our significant unconsolidated subsidiary that is accounted for
using the equity method of accounting is our Investment in
Westinghouse. On October 16, 2006, we acquired our
Investment in Westinghouse in two companies that, together with
their subsidiaries, are collectively referred to as the
Westinghouse Group (Westinghouse). We financed this investment
partially through our subsidiary Nuclear Energy Holdings, LLC
(NEH), issuing limited recourse to us (except NEH) Japanese Yen
(JPY)-denominated bonds (Westinghouse Bonds). We entered into
the following agreements in connection with our Westinghouse
Equity purchase including: (1) an agreement that allows us
to put all or part of our newly-acquired 20% equity interest in
Westinghouse to Toshiba Corporation (Toshiba); (2) a
commercial relationship agreement; and (3) a shareholder
agreement, each of which is described below. We issued
JPY-denominated bonds on October 13, 2006, for
U.S. dollar equivalent net proceeds of approximately
$1.1 billion to provide financing for the acquisition of
the Westinghouse equity interest and the related agreements. See
Note 8 Debt and Revolving Lines of Credit for
additional information on our Westinghouse bonds. We also paid
cash of approximately $50.5 million and issued a promissory
note in the amount of $2.5 million for the remaining
acquisition costs and fees related to this transaction. The
total cost of approximately $1.1 billion for this
transaction is accounted for under the equity method of
accounting.
On October 16, 2006, two newly-formed companies, Toshiba
Nuclear Energy Holdings (US), Inc. (TNEH-US) and subsidiaries
and Toshiba Nuclear Energy Holdings (UK), Ltd. (TNEH-UK) and
subsidiaries (the Acquisition Companies) owned and capitalized
to a total of $5.4 billion, provided 77% by Toshiba, 20% by
us (through our wholly-owned acquisition subsidiary Nuclear
Energy Holdings LLC (NEH)), and 3% by Ishikawajima-Harima Heavy
Industries Co., Ltd (IHI), acquired BNFL USA Group Inc. (also
referred to as Westinghouse Electric Company LLC) and
Westinghouse Electric UK Limited and their subsidiaries
(collectively Westinghouse) from British Nuclear Fuels plc
(BNFL). In October 2007, Toshiba reduced its ownership to 67% by
selling 10% of Westinghouse to National Atomic Company
Kazatomprom, a major supplier of uranium based in the Republic
of Kazakhstan. Our total cost of the equity investment and the
related agreements, including related acquisition costs, but
excluding deferred financing costs of approximately
$11.0 million related to the Westinghouse Bonds, was
approximately $1.1 billion. We obtained financing for our
equity investment through the Japanese-market private placement,
on October 13, 2006, of approximately
F-22
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$1.1 billion face value of JPY-denominated bonds (the
Westinghouse Bonds). If we do not exercise the Put Option,
described below, we are obligated to pay a third party
consultant $3.3 million.
In connection with our Investment in Westinghouse, we entered
into JPY denominated Put Option Agreements (Put Option) with
Toshiba Corporation (Toshiba), providing us the option to sell
to Toshiba all or part of our Westinghouse Equity during a
defined Exercise Period. Per the Put Option, the
Exercise Period commences the earlier of March 31, 2010, or
the occurrence of a Toshiba Event that is caused by,
among other things, certain Toshiba financial metrics. The Put
Option provided financial support to NEH to issue the
Westinghouse Bonds on a non-recourse basis to us (except NEH) as
the Westinghouse Bonds are collateralized primarily by the
Westinghouse Equity. If, due to legal reasons or other
regulatory constraints, Toshiba cannot take possession of the
shares upon our exercise of the Put Option, Toshiba is required
to provide security for the Westinghouse Bonds for a period of
time and may delay the transfer of ownership and settlement of
the Westinghouse Bonds by NEH. The Put Option can only be
exercised once, and any proceeds received from the Put Option
must be used to repay the Westinghouse Bonds. Toshiba notified
us on May 11, 2009, that it experienced a Toshiba Event as
of May 8, 2009, because it failed to maintain a minimum
consolidated net worth of JPY 800 billion, thus triggering
the Exercise Period. A Toshiba Event is not an event of
default or other violation of the Bond Trust Deed or
the Put Option Agreement, but due to the Toshiba Event, the
Westinghouse Bond holders now have the opportunity to direct us
to exercise the Put Option. See Note 8 Debt and
Revolving Lines of Credit for additional information regarding
our Investment in Westinghouse, the Put Option and the Toshiba
Event.
Under generally accepted accounting principles, the Put Option
is not considered a freestanding financial instrument or a
derivative instrument, and therefore, has not been separated
from our equity investment in Westinghouse. The Put Option is
JPY-denominated and does not require or permit net settlement.
Therefore, neither the Put Option nor its foreign currency
component meet the definition of a derivative instrument under
SFAS 133 and therefore are not separated from the host
contract (the hybrid equity investment in Westinghouse with a
JPY-denominated put option).
As part of our Investment in Westinghouse, we entered into
shareholder agreements on October 4, 2006, that set a
targeted minimum dividend of approximately $24.0 million
annually for the first six years we hold our Westinghouse
Equity. Under the shareholder agreements, the shareholders are
due to receive as dividends agreed percentages no less than 65%,
but not to exceed 100%, of Westinghouses net income. If
the shareholders receive less than the target minimum dividend
amount in any year during the first six years, they retain the
right to receive this shortfall to the extent Westinghouse earns
net income in the future. Our right to receive any shortfalls
between the target minimum dividend amount and the dividends
actually paid by Westinghouse during the first six years of our
investment (or such shorter period in the event of earlier
termination) survives the sale of our Westinghouse Equity,
although this right is dependent upon Westinghouse earning net
income at some future time. Accordingly we recognize net income
only to the extent of our pro rata portion of
Westinghouses actual earnings. We have received total
dividends to date of $32.4 million.
In connection and concurrent with the acquisition of our
Investment in Westinghouse, we also executed a Commercial
Relationship Agreement (Westinghouse CRA) with Toshiba that
provides us with certain exclusive opportunities to bid on
projects where we would perform engineering, procurement and
construction services on future Westinghouse advanced passive
AP1000tm
nuclear power plants, along with other commercial opportunities,
such as the supply of piping for those units. The term of the
Westinghouse CRA is six years and contains renewal provisions.
We concluded that, for accounting purposes, no value should be
allocated to the Westinghouse CRA and that the Westinghouse CRA
should not be recognized as a separate asset.
Westinghouse maintains its accounting records for reporting to
its majority owner, Toshiba, on a calendar quarter basis with a
March 31 fiscal year end. Reliable financial information about
Westinghouses operations is available to us for
Westinghouses calendar quarter periods. As a result, we
record our 20% interest in the equity earnings (loss) reported
to us by Westinghouse based upon Westinghouses calendar
quarterly reporting
F-23
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
periods, or two months in arrears of our current periods. Under
this policy, our fiscal 2009 and 2008 equity in earnings include
Westinghouses operations for the period July 1, 2008
through June 30, 2009 and July 1, 2007 through
June 30, 2008, respectively. Our fiscal 2007 equity in
earnings include Westinghouses operations from the
effective date of our acquisition, October 1, 2006 through
June 30, 2007.
Summarized financial information for Westinghouse, assuming a
100% ownership interest, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Balance Sheets
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
Current assets
|
|
$
|
2,318,455
|
|
|
$
|
2,031,501
|
|
Noncurrent assets
|
|
|
6,059,812
|
|
|
|
6,359,794
|
|
Current liabilities
|
|
|
2,072,395
|
|
|
|
1,660,093
|
|
Noncurrent liabilities
|
|
|
1,148,347
|
|
|
|
979,562
|
|
Noncontrolling interest
|
|
|
85,324
|
|
|
|
4,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2008
|
|
|
July 1, 2007
|
|
|
October 1, 2006
|
|
Statements of Operations
|
|
to June 30, 2009
|
|
|
to June 30, 2008
|
|
|
to June 30, 2007
|
|
|
Revenues
|
|
$
|
3,525,889
|
|
|
$
|
2,911,399
|
|
|
$
|
1,712,165
|
|
Gross profit
|
|
|
743,996
|
|
|
|
712,426
|
|
|
|
433,608
|
|
Income from continuing operations before income taxes
|
|
|
108,930
|
|
|
|
153,098
|
|
|
|
31,151
|
|
Net income attributable to shareholders
|
|
|
57,441
|
|
|
|
123,351
|
|
|
|
17,868
|
|
For all other jointly owned operations that are accounted for
using the equity method of accounting, aggregated summarized
financial information assuming a 100% ownership interest is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
Balance Sheets
|
|
2009
|
|
|
2008
|
|
|
Current assets
|
|
$
|
35,603
|
|
|
$
|
79,755
|
|
Noncurrent assets
|
|
|
42,255
|
|
|
|
371,150
|
|
Current liabilities
|
|
|
38,659
|
|
|
|
86,699
|
|
Noncurrent liabilities
|
|
|
6,528
|
|
|
|
273,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
Statements of Operations
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
116,868
|
|
|
$
|
260,022
|
|
|
$
|
429,451
|
|
Gross profit
|
|
|
21,600
|
|
|
|
39,301
|
|
|
|
49,991
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(696
|
)
|
|
|
(711
|
)
|
|
|
44,648
|
|
Net income (loss)
|
|
|
(1,147
|
)
|
|
|
(825
|
)
|
|
|
44,648
|
|
The following is a summary of our investments in and advances to
unconsolidated entities, joint ventures and limited partnerships
that are accounted for under the equity method (in thousands,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
At August 31,
|
|
|
|
Percentage
|
|
|
2009
|
|
|
2008
|
|
|
Investment in Westinghouse
|
|
|
20%
|
|
|
$
|
1,008,442
|
|
|
$
|
1,158,660
|
|
Other
|
|
|
23% - 50%
|
|
|
|
21,295
|
|
|
|
19,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in and advances to unconsolidated entities,
joint ventures and limited partnerships
|
|
|
|
|
|
$
|
1,029,737
|
|
|
$
|
1,178,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings (losses) from unconsolidated entities, net of income
taxes, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Investment in Westinghouse
|
|
$
|
9,240
|
|
|
$
|
15,026
|
|
|
$
|
2,176
|
|
Other
|
|
|
1,779
|
|
|
|
2,655
|
|
|
|
(25,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings (losses) from unconsolidated entities, net income
of taxes
|
|
$
|
11,019
|
|
|
$
|
17,681
|
|
|
$
|
(23,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Interest Entities
We enter into joint ventures to bid and propose on specific
contracts. If the contract is ultimately awarded to the joint
venture entity, certain modifications to the operating
agreements are often made and initial working capital
investments are then made by each joint venture partner. If a
contract is not awarded, the joint venture is dissolved.
Typically, the activity in these joint ventures is limited to
bid and proposal costs initially and are not material.
Some of our unconsolidated entities have operating agreements
that allow for changes in ownership interests and allocation of
profits and losses if certain events should occur. These
changes, should they occur, would require us to reconsider
whether these entities meet the definition of a VIE as well as
the determination of the primary beneficiary, if any, in
accordance with FIN 46(R).
The following is a summary of our significant VIEs at
August 31, 2009:
Consolidated
VIEs
|
|
|
|
|
In November 1993, Shaw-Nass Middle East, W.L.L. (Shaw-Nass) was
created to support the fabrication and distribution of pipe in
the Middle East and is located in Bahrain. We acquired a 49%
equity interest in the joint venture, and have made advances to
the entity and have issued interest bearing loans to fund
working capital and to finance certain equipment purchases. This
entity which is included in our Fabrication &
Manufacturing (F&M) segment had total assets of
approximately $33.7 million and total liabilities of
$9.1 million at August 31, 2009. The creditors of
Shaw-Nass, which are currently limited to vendors and suppliers,
do not have recourse to our general credit. Our maximum exposure
to loss is limited to our equity interest of $12.3 million
at August 31, 2009.
|
|
|
|
In April 2003, our subsidiary, Badger Technologies Holdings
L.L.C. (Badger) contributed the right to license certain
technology to acquire a 50% equity interest in a joint venture,
Badger Licensing. Creditors of Badger Licensing, which are
currently limited to vendors and suppliers, do not have recourse
to our general credit. Our maximum exposure to loss is limited
to our equity interest and outstanding advances and loans to
LLC. This entity had total assets and liabilities of
$18.3 million and $0.5 million at August 31,
2009, respectively and is included in our E&C segment. The
creditors of the entity, which are currently limited to vendors
and suppliers, do not have recourse to our general credit. Our
exposure to losses is limited to our equity interest of
$6.5 million at August 31, 2009 and certain costs
incurred on behalf of the joint ventures operations we
have agreed to absorb, estimated to be approximately
$3.6 million annually. We also have a funding commitment of
up to $10.0 million for any third-party claim that Badger
does not have the surplus cash to cover.
|
|
|
|
In October 2006, NEH was created to issue the Westinghouse bonds
and hold our 20% equity interest in Westinghouse.
|
F-25
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Unconsolidated
VIEs Equity Method
|
|
|
|
|
On November 4, 2008, we sold our interests in Little Rock
Family Housing LLC, Hanscom Family Housing LLC and Patrick
Family Housing LLC. With this sale, we have sold all remaining
interests in our housing privatization projects. We received no
proceeds as part of the sale transaction but were released from
certain liabilities, obligations and funding of further equity.
|
|
|
|
In February 2005, we contributed cash of $2.8 million to
American Eagle Northwest, LLC for a 50% equity interest. This
entity was established to undertake the privatization of
military family housing for U.S. Navy personnel and their
families under a design, build and rental housing contract in
the State of Washington. On November 20, 2007, American
Eagle Northwest, LLC sold its interest in Pacific Northwest
Communities, LLC for net proceeds of approximately
$12.8 million. We were released from all further
obligations under the guarantee but remained liable for certain
potential claims or lawsuits up to a maximum of
$7.1 million. At August 31, 2009 all claims and
lawsuits were settled with respect to our obligations under
terms of the sale.
|
Guarantees
Related to Military Housing Privatization Construction
Entities
We entered into an indemnity agreement with a third party to
guarantee the payment of performance bonds issued on behalf of
construction entities performing services on a series of
military housing privatization projects that were being built by
us and our joint venture partner. This indemnity agreement
supports surety bonds issued on our behalf at the following
military sites: Hanscom Air Force Base, Patrick Air Force Base,
Little Rock Air Force Base and Fort Leonard Wood. Under
this indemnity agreement, the parent of our joint venture
partner and we were jointly and severally liable for the
performance of the bonded construction work up to a maximum of
$30.0 million. However, each partners individual
maximum liability was capped at $15.0 million. In February
2007, we recorded a liability for the maximum exposure of
$15.0 million. As of August 31, 2009, we have paid
$13.8 million under this indemnity agreement, and while the
indemnity agreement remains in full force and effect, no amounts
are outstanding, due or payable.
Related
Party Transactions
The following table summarizes related party transactions with
these unconsolidated entities included in our consolidated
financial statements at August 31, 2009 and 2008 and for
the fiscal years ending August 31, 2009, 2008 and 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Privatization
|
|
|
|
|
|
|
Entities
|
|
|
Other(1)
|
|
|
Revenue from unconsolidated entities for years ended
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
782
|
|
|
$
|
3,746
|
|
2008
|
|
|
38,893
|
|
|
|
10,738
|
|
2007
|
|
|
28,674
|
|
|
|
5,651
|
|
Accounts and other receivables from unconsolidated entities at
August 31,
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
3,534
|
|
2008
|
|
|
3,503
|
|
|
|
5,857
|
|
Advances to unconsolidated entities at August 31,
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
includes activity with Westinghouse |
F-26
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7
|
Goodwill,
Other Intangibles and Contract Adjustments and Accrued Contract
Losses
|
Goodwill
The following table reflects the changes in the carrying value
of goodwill by segment from September 1, 2007 to
August 31, 2009(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Nuclear
|
|
|
Maintenance
|
|
|
E&I
|
|
|
E&C
|
|
|
F&M
|
|
|
Total
|
|
|
Balance at September 1, 2007
|
|
$
|
148,577
|
|
|
$
|
42,027
|
|
|
$
|
194,174
|
|
|
$
|
111,862
|
|
|
$
|
17,311
|
|
|
$
|
513,951
|
|
Resolution of acquired tax contingency (see Note 13)
|
|
|
(9,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,400
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,153
|
|
|
|
651
|
|
|
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2008
|
|
$
|
139,177
|
|
|
$
|
42,027
|
|
|
$
|
194,174
|
|
|
$
|
114,015
|
|
|
$
|
17,962
|
|
|
$
|
507,355
|
|
Remeasurement of acquired tax contingency
|
|
|
|
|
|
|
|
|
|
|
(4,366
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,366
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,440
|
)
|
|
|
(244
|
)
|
|
|
(1,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2009
|
|
$
|
139,177
|
|
|
$
|
42,027
|
|
|
$
|
189,808
|
|
|
$
|
112,575
|
|
|
$
|
17,718
|
|
|
$
|
501,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had tax-deductible goodwill of approximately
$92.1 million and $107.2 million at August 31,
2009 and August 31, 2008, respectively. The difference
between the carrying value of goodwill and the amount deductible
for taxes is primarily due to the amortization of goodwill
allowable for tax purposes.
Intangible
Assets
At August 31, 2009 and 2008, amortizable intangible assets
included in other assets (other than contract (asset)
adjustments discussed below) consisted of proprietary ethylene
technology acquired in the Stone & Webster acquisition
in fiscal year 2000, certain petrochemical process technologies,
patents and tradenames acquired in the Badger Technologies
acquisition in fiscal year 2003 (both of which are being
amortized over fifteen years) and patents acquired in the IT
Group acquisition in fiscal year 2002 (which are being amortized
over ten years). Additionally, we recorded a client relationship
intangible related to the IT Group acquisition (which is being
amortized over ten years) and technology patents in the
Envirogen acquisition (which are being amortized over three to
seven years).
We amortize all of these intangible assets using the straight
line method. Amortization expense included in cost of revenues
was $3.2 million, $3.2 million and $3.3 million
for the fiscal years ended August 31, 2009, 2008, and 2007,
respectively.
F-27
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The gross carrying values and accumulated amortization of
amortizable intangible assets are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Technologies,
|
|
|
|
|
|
|
Patents and Tradenames
|
|
|
Client Relationships
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
August 31, 2007 balance
|
|
$
|
44,661
|
|
|
$
|
(18,246
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,075
|
)
|
Adjustments
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(2,954
|
)
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2008 balance
|
|
$
|
44,526
|
|
|
$
|
(21,200
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,277
|
)
|
Adjustments
|
|
|
(572
|
)
|
|
|
541
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(2,875
|
)
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009 balance
|
|
$
|
43,954
|
|
|
$
|
(23,534
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the scheduled future annual
amortization for our intangible assets not associated with
contract adjustments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Proprietary Technologies,
|
|
|
Client
|
|
|
|
Patents and Tradenames
|
|
|
Relationships
|
|
|
2010
|
|
$
|
2,772
|
|
|
$
|
202
|
|
2011
|
|
|
2,772
|
|
|
|
202
|
|
2012
|
|
|
2,769
|
|
|
|
133
|
|
2013
|
|
|
2,766
|
|
|
|
|
|
2014
|
|
|
2,766
|
|
|
|
|
|
Thereafter
|
|
|
6,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,420
|
|
|
$
|
537
|
|
|
|
|
|
|
|
|
|
|
F-28
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Debt and Revolving Lines of Credit
|
Our debt (including capital lease obligations) consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
|
August 31, 2008
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Notes payable on purchase of Gottlieb, Barnett &
Bridges; 0% interest; due and paid on January 10, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,716
|
|
|
$
|
|
|
Notes payable of Liquid Solutions LLC, a VIE; interest payable
monthly at an average interest rate of 8.2% and 8.3% and monthly
payments of $0.02 million and $0.08 million, through
May and June 2011, respectively
|
|
|
1,197
|
|
|
|
1,269
|
|
|
|
946
|
|
|
|
2,466
|
|
Notes payable on purchases of equipment; 0% to 1.3% interest;
payments discounted at imputed rate of 5.9% interest; due
September through October 2010
|
|
|
10,610
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
Notes payable on purchases of equipment; 5.2% to 6.0% interest;
due June 2011 through July 2012
|
|
|
1,188
|
|
|
|
1,824
|
|
|
|
|
|
|
|
|
|
Other notes payable
|
|
|
1,608
|
|
|
|
1,008
|
|
|
|
833
|
|
|
|
833
|
|
Capital lease obligations
|
|
|
796
|
|
|
|
1,380
|
|
|
|
1,509
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
15,399
|
|
|
|
7,627
|
|
|
|
6,004
|
|
|
|
3,579
|
|
Westinghouse Bonds (see description below)
|
|
|
1,387,954
|
|
|
|
|
|
|
|
|
|
|
|
1,162,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,403,353
|
|
|
$
|
7,627
|
|
|
$
|
6,004
|
|
|
$
|
1,165,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes payable on purchases of equipment are collateralized
by the purchased equipment. The carrying amount of the equipment
pledged as collateral was approximately $19.3 million at
August 31, 2009.
Annual scheduled maturities of debt and minimum lease payments
under capital lease obligations during each year ending August
31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
Lease Obligations
|
|
|
Debt
|
|
|
2010
|
|
$
|
945
|
|
|
$
|
14,603
|
|
2011
|
|
|
478
|
|
|
|
5,360
|
|
2012
|
|
|
401
|
|
|
|
887
|
|
2013
|
|
|
399
|
|
|
|
1,387,954
|
|
2014
|
|
|
266
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,489
|
|
|
|
1,408,804
|
|
Less: amount representing interest
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,176
|
|
|
$
|
1,408,804
|
|
|
|
|
|
|
|
|
|
|
Westinghouse
Bonds
In the first quarter of fiscal year 2007, we issued the
Westinghouse Bonds to partially finance our Investment in
Westinghouse and entered into the Put Option with Toshiba. The
Put Option provided financial support to NEH enabling NEH to
issue the Westinghouse Bonds on a limited recourse basis to us
(except NEH) as the Westinghouse Bonds are collateralized
primarily by the Westinghouse Equity.
F-29
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As discussed in Note 6 Equity Method
Investments and Variable Interest Entities, the Put Option
provides us the option to sell all or part of our Westinghouse
Equity to Toshiba during the Exercise Period. Toshiba notified
us on May 11, 2009 that it experienced a Toshiba Event as
of May 8, 2009, because it failed to maintain a minimum
consolidated net worth of JPY 800 billion, thus triggering
the Exercise Period. A Toshiba Event is not an event of
default or other violation of the Bond Trust Deed or
the Put Option Agreement, but due to the Toshiba Event, the
Westinghouse Bond holders now have the opportunity to direct us
to exercise of the Put Option. To do so, a
supermajority of the bondholders representing a
majority of not less than an aggregate 75% of the principal
amount outstanding, must pass a resolution instructing the bond
trustee to direct us to exercise the Put Option. Specifically,
in order for the bond trustee to direct us to exercise the Put
Option, the Westinghouse Bond holders must convene a meeting
with a quorum of bondholders representing no less than 75% of
the Westinghouse Bonds principal amount outstanding during which
a 75% majority of the required quorum approve a resolution
instructing the bond trustee to take such action. Alternatively,
a written resolution instructing the bond trustee to direct us
to exercise the Put Option and signed by bondholders
representing no less than 75% of the Westinghouse Bond principal
amount outstanding shall have the same effect (collectively an
Extraordinary Resolution).
If the Westinghouse Bonds are repaid with the proceeds of a Put
Option exercise, the Westinghouse Bond JPY-denomination
mitigates the risk to bondholders of a proceeds shortfall that
could result from currency fluctuation. Further if we decide to
exercise or an Extraordinary Resolution directs an exercise of
the Put Option following a Toshiba Event, Toshiba is required to
pay us approximately JPY 129.0 billion (equal to 100% of
the face value of the Westinghouse Bonds currently outstanding).
However, if we exercise the Put Option under other provisions of
the Put Option, we would be required to fund the estimated 3%
difference (equal to JPY 4.3 billion, or approximately
$45.8 million using exchange rates at August 31,
2009) between the anticipated Put Option proceeds and the
principal amount owed on the Westinghouse Bonds. If the Put
Option expires unexercised on February 28, 2013, we will be
required to repay the Westinghouse Bonds using some combination
of internally generated cash flows, new borrowings or proceeds
from the issuance of equity. We may not be able to obtain credit
in the future on terms similar to the terms reflected in the
Westinghouse Bonds should we elect to pursue such a financing.
Due to the Toshiba Event, we reclassified our Investment in
Westinghouse and the corresponding JPY-denominated debt from
long-term to short-term in our consolidated balance sheet.
Further, we were required to expense in our consolidated
statement of operations the original issuance bond discount of
$22.8 million (including $5.9 million in foreign
exchange loss) and the remaining deferred financing costs of
$6.6 million during the third quarter of our fiscal year
2009.
Neither our nor Toshibas obligations under the
Westinghouse CRA, as discussed in Note 6 Equity
Method Investments and Variable Interest Entities, will be
affected should we exercise the Put Option at the direction of
an Extraordinary Resolution through its original term which
expires in 2013.
F-30
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Westinghouse Bonds consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Westinghouse Bonds, face value 50.98 billion JPY due
March 15, 2013; interest only payments; coupon rate of
2.20%;
|
|
$
|
426,875
|
|
|
$
|
426,875
|
|
Westinghouse Bonds, face value 78 billion JPY due
March 15, 2013; interest only payments; coupon rate of
0.70% above the six-month JPY LIBOR rate (0.60% at
August 31, 2009)
|
|
|
653,125
|
|
|
|
653,125
|
|
Original Discount on Westinghouse Bonds
|
|
|
|
|
|
|
(30,535
|
)
|
Accumulated Discount Accretion
|
|
|
|
|
|
|
9,323
|
|
Increase in debt due to foreign currency translation adjustments
since date of issuance
|
|
|
307,954
|
|
|
|
103,219
|
|
|
|
|
|
|
|
|
|
|
Total short-term portion of debt
|
|
|
1,387,954
|
|
|
|
|
|
Total long-term portion of debt
|
|
|
|
|
|
|
1,162,007
|
|
|
|
|
|
|
|
|
|
|
Total Westinghouse debt
|
|
$
|
1,387,954
|
|
|
$
|
1,162,007
|
|
|
|
|
|
|
|
|
|
|
On October 16, 2006, we entered into an interest rate swap
agreement through March 15, 2013 in the aggregate notional
amount of JPY 78 billion. We designated the swap as a hedge
against changes in cash flows attributable to changes in the
benchmark interest rate. Under the agreement, we make fixed
interest payments at a rate of 2.398%, and we receive a variable
interest payment equal to the six-month JPY London Interbank
Offered Rate (LIBOR) plus a fixed margin of 0.7%, effectively
fixing our interest rate on the floating rate portion of the JPY
78 billion Westinghouse Bonds at 2.398%. At August 31,
2009 and August 31, 2008, the fair value of the swap
totaled approximately $31.4 million and $8.8 million,
respectively, and is included as a current and non-current
liability, respectively, and in accumulated other comprehensive
loss, net of deferred taxes, in the accompanying consolidated
balance sheets. There was no material ineffectiveness of our
interest rate swap for the fiscal year ended August 31,
2009.
Credit
Facility
On April 25, 2005, we entered into a five year
$450.0 million Senior Secured Credit Facility (Facility).
On the effective date, the entire $450.0 million Facility
was available for the issuance of performance letters of credit
and the lesser of the unused portion of the $450.0 million
facility or $200.0 million, was available for revolving
credit loans and the issuance of financial letters of credit.
The terms performance letter of credit and
financial letter of credit have meanings customary
for financings of this type. As part of this transaction, we
expensed the deferred financing fees of $3.4 million
associated with our previous credit facility during the third
quarter of fiscal year 2005.
On October 15, 2008, we entered into Amendment VI to our
Credit Agreement to extend the maturity from April 25, 2010
to April 25, 2011. We received commitments to the one year
extension totaling $829 million. We also received a new
incremental commitment to the full remaining term of the
facility of $3 million making the amount currently
effective under the facility $1.053 billion until
April 25, 2010. The amount then effective reduced to
$829 million thereafter until April 25, 2011. However,
we retained our ability to seek additional commitments to
increase the Facility up to a total capacity of
$1.25 billion subject to the consent of the Administrative
Agent and, in some instances, those lenders who issue letters of
credit under the Facility on the Companys behalf. With
Amendment VI, we also received consent to pledge up to
$200 million of our unrestricted cash on hand to
collateralize additional letters of credit, incremental to
amounts available under the Facility, provided that at the time
we pledge the cash and immediately thereafter, we have at least
$500 million in unrestricted cash on hand. The amended
Facility retained its other substantive terms.
F-31
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On December 30, 2008, we received an additional commitment
from an existing lender to extend $45.0 million of its
commitment until April 25, 2011. As a result, the aggregate
amount then effective under our Facility remained at
$1.053 billion until April 25, 2010 and reduces to
$874.0 million during the period from April 26, 2010
to April 25, 2011.
On September 24, 2009, we entered into the Restated Credit
Agreement (Restated Agreement) with a group of lenders that
provides new and extended lender commitments of
$1,214.0 million, all of which is available for the
issuance of performance and financial letters of credit
and / or borrowings for working capital needs and
general corporate purposes. Amounts outstanding as performance
and financial letters of credit reduce the amount otherwise
available for borrowing under the Facility. The Restated
Agreement includes new lenders to the Facility as well as
certain existing lenders who will exit the Facility in 2010 or
2011, following the expiration of their existing commitment.
Accordingly, the Restated Agreement contemplates three groups of
lenders, the 2010 Lenders, the 2011 Lenders
and the 2012 Lenders, with the Facility terminating
with respect to such lenders on April 25, 2010,
April 25, 2011 and October 25, 2012, respectively. The
Restated Agreement makes available $1,214.0 million in
commitments through April 25, 2010 (up from
$1,053.0 million), $1,095.0 million from
April 26, 2010 through April 25, 2011 (up from
$874.0 million), and $1.0 billion from April 26,
2011 through October 25, 2012, where there had been no
previous commitments. The Facility is available for working
capital needs to fund fixed asset purchases, acquisitions,
investments in joint ventures and general corporate purposes.
The Restated Agreement allows the Company to seek new or
increased lender commitments under this Facility subject to the
consent of the Administrative Agent and, in some instances,
those lenders who issue letters of credit under the Facility on
the Companys behalf,
and/or seek
other supplemental credit facilities on a pari passu basis with
the Facility, of up to an aggregate of $400.0 million.
Additionally, the Company may pledge up to $300.0 million
of unrestricted cash on hand to secure additional letters of
credit incremental to amounts available under the Facility,
provided that the Company and its subsidiaries have unrestricted
cash and cash equivalents of at least $500.0 million
available immediately following the pledge. The borrowing base
restrictions that were set forth in the original credit
agreement are not included in the Restated Agreement.
The Restated Agreement contains certain financial covenants that
were effective August 31, 2009, replacing the Facilities
then existing financial covenants, including:
|
|
|
|
|
a maximum leverage ratio of 2.5x our earnings before interest,
income taxes, depreciation and amortization (EBITDA) as defined
in the Restated Agreement and adjusted for certain non-cash
items and for the pro forma impact of acquisitions and
dispositions of operations and assets; (Amendment IV to the
Facility had increased the maximum leverage ratio to 2.75x our
EBITDA for quarters ending prior to August 31, 2007 and
2.5x on or thereafter);
|
|
|
|
a minimum debt service charge coverage ratio of 3.0x EBITDA. The
previous Credit Agreement contained a minimum fixed charge
coverage ratio of 2.5x EBITDA (Amendment IV to the Facility
had decreased the minimum fixed charge coverage ratio to 2.25x
our EBITDA for quarters ending on or prior to February 29,
2008 and 2.5x thereafter); and
|
|
|
|
a minimum consolidated net worth as defined by the Restated
Credit Agreement.
|
At August 31, 2009, we were in compliance with the
financial covenants contained in the Facility agreement.
The Restated Agreement continues to be secured by, among other
things: (1) a first priority security interest in all of
our tangible and intangible assets (including, without
limitation, equipment, real estate and intellectual property)
and a pledge of all of our domestic capital stock and the
capital stock of our guarantor subsidiaries; (2) guarantees
by our domestic subsidiaries; and (3) 66% of the capital
stock in certain of our
F-32
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
foreign subsidiaries. The Restated Agreement permits the release
of such liens if (a) the Company obtains a corporate credit
rating of at least BBB- from Standard & Poors
and Baa3 from Moodys Investment Services, (b) all
liens securing any supplemental credit facilities are released,
and (c) other conditions specified in the Restated Credit
Agreement are satisfied.
The Restated Agreement limits our ability to declare or pay
dividends or make any distributions of capital stock (other than
stock splits or dividends payable in our own capital stock) or
redeem, repurchase or otherwise acquire or retire any of our
capital stock. If unrestricted cash and cash equivalents after
giving effect to any dividend or stock repurchase is at least
$500 million, we are limited to aggregate dividend payments
and/or stock
repurchases during the life of the Restated Agreement to
$250 million. In situations where our unrestricted cash and
cash equivalents is less than $500 million, our ability to
pay dividends or repurchase our shares is limited to
$25 million per fiscal year.
Under the Restated Agreement, we are required, with certain
exceptions, to prepay loans outstanding under the Facility with:
(1) the proceeds of new indebtedness; (2) insurance
proceeds or condemnation awards in excess of $5.0 million
that are not applied or contractually committed to rebuild,
restore or replace the property within 180 days of the
receipt thereof; and (3) the sale of certain assets or the
stock of any subsidiaries in excess of $5.0 million the
proceeds of which are either (a) not used to finance a
permitted acquisition as defined in the Restated Agreement or
(b) that are not reinvested within one year of the receipt
thereof.
Under the Restated Agreement, interest is computed, at our
option for each revolving credit loan, using the defined base
rate or the defined LIBOR rate, plus a margin. The terms
base rate and LIBOR rate have meanings
customary for financings of this type. The margin is adjusted
based on the ratings of the Facility by Standard and Poors
Rating Services or Moodys Investor Services or, if the
Facility is not rated, the margin is based on our leverage ratio
as defined in the agreement. The margins for revolving credit
loans under the Facility may be in a range of: (1) LIBOR
plus 1.50% to 3.00% for the 2010 Lenders and the 2011 Lenders
and LIBOR plus 2.5% to 4.25% for the 2012 Lenders; or
(2) the defined base rate plus 0.00% to 0.50% for the 2010
Lenders and the 2011 Lenders and 1.0% to 2.75% for the 2012
Lenders. Under the previous Facility, the margins for revolving
credit loans under the Facility may be in a range of:
(1) LIBOR plus 1.50% to 3.00%; or (2) the defined base
rate plus 0.00% to 0.50%. Although there were no borrowings as
of August 31, 2009, the interest rate that would have
applied to any borrowings under the Facility was 3.5%. The total
amount of fees associated with letters of credit issued under
the Facility were approximately $12.5 million,
$13.2 million and $9.1 million for fiscal year 2009,
2008 and 2007, respectively. Commitment fees associated with
unused credit line availability were approximately
$1.1 million, $0.7 million and $1.1 million for
fiscal year 2009, 2008 and 2007, respectively.
For the years ended August 31, 2009, 2008 and 2007, we
recognized, $3.0 million, $2.9 million and
$1.9 million, respectively, of interest expense associated
with the amortization of financing fees related to our Facility.
At August 31, 2009 and 2008, unamortized deferred financing
fees related to our Facility were approximately
$5.0 million and $5.3 million, respectively.
At August 31, 2009, the portion of the Facility available
for financial letters of credit
and/or
revolving credit loans was limited to the lesser of:
(1) $455.3 million, representing the total Facility
($1.053 billion at August 31, 2009) less
outstanding letters of credit ($597.7 million at
August 31, 2009); or (2) $236.8 million,
representing $425.0 million less the current outstanding
amount of financial letters of credit ($188.2 million at
August 31, 2009).
F-33
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the outstanding and available
amounts under our Facility at August 31, 2009 (in millions):
|
|
|
|
|
Total Facility
|
|
$
|
1,053.0
|
|
Less: outstanding performance letters of credit
|
|
|
(409.5
|
)
|
Less: outstanding financial letters of credit
|
|
|
(188.2
|
)
|
Less: outstanding revolving credit loans
|
|
|
|
|
|
|
|
|
|
Remaining availability under the Facility
|
|
$
|
455.3
|
|
|
|
|
|
|
Other
Revolving Lines of Credit
Shaw Nass, a consolidated VIE, has an available credit facility
with a total capacity of 3.0 million Bahraini Dinars (BHD)
or approximately $8.0 million, of which BHD
1.5 million is available for bank guarantees and letters of
credit. At August 31, 2009, Shaw Nass had no borrowings
under its revolving line of credit and approximately
$0.4 million in outstanding bank guarantees under the
facility. The interest rate applicable to any borrowings is
variable (1.54% at August 31, 2009) plus 2.25% per
annum. We have provided a 50% guarantee related to this credit
facility.
We have an uncommitted, unsecured bilateral line of credit for
the issuance of performance letters of credit with a bank. Fees
under this facility are paid quarterly. At August 31, 2009
and 2008, there were $24.8 million and $27.3 million
of letters of credit outstanding under this facility,
respectively.
On March 12, 2008, a bank extended to us a
$25.0 million uncommitted, unsecured bilateral line of
credit for the issuance of performance letters of credit in
Saudi Arabia. On May 21, 2008, the bank increased its
uncommitted line of credit from $25.0 million to
$50.0 million. Fees under this facility are paid quarterly.
At August 31, 2009 and 2008, there were $29.8 million
and $49.0 million letters of credit outstanding under this
facility, respectively.
Intraperiod
Allocation of Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Provision for income taxes
|
|
$
|
11,880
|
|
|
$
|
71,384
|
|
|
$
|
10,747
|
|
Income from 20% investment in Westinghouse
|
|
|
2,247
|
|
|
|
9,645
|
|
|
|
1,397
|
|
Earnings (losses) from unconsolidated entities
|
|
|
1,119
|
|
|
|
1,707
|
|
|
|
(18,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax from continuing operations
|
|
|
15,246
|
|
|
|
82,736
|
|
|
|
(6,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense for tax purposes less than (in excess of)
amounts recognized for financial reporting
|
|
|
1,389
|
|
|
|
(37,464
|
)
|
|
|
(3,850
|
)
|
Pension liability
|
|
|
(6,422
|
)
|
|
|
(736
|
)
|
|
|
(5,942
|
)
|
Other comprehensive income of investment in Westinghouse
|
|
|
(50,744
|
)
|
|
|
4,206
|
|
|
|
12,526
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
4,943
|
|
|
|
|
|
Derivative instrument
|
|
|
(8,711
|
)
|
|
|
(775
|
)
|
|
|
(2,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
(49,242
|
)
|
|
$
|
52,910
|
|
|
$
|
(6,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax attributable to income before income taxes,
minority interest, and earnings (losses) from unconsolidated
entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
69,779
|
|
|
$
|
56,871
|
|
|
$
|
|
|
State and local
|
|
|
18,027
|
|
|
|
12,133
|
|
|
|
3,482
|
|
Foreign
|
|
|
6,009
|
|
|
|
11,587
|
|
|
|
12,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
93,815
|
|
|
|
80,591
|
|
|
|
16,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(66,592
|
)
|
|
|
3,480
|
|
|
|
(3,695
|
)
|
State and local
|
|
|
(17,834
|
)
|
|
|
(2,038
|
)
|
|
|
(1,002
|
)
|
Foreign
|
|
|
2,491
|
|
|
|
(10,649
|
)
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
(81,935
|
)
|
|
|
(9,207
|
)
|
|
|
(5,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
11,880
|
|
|
$
|
71,384
|
|
|
$
|
10,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities include $8.6 million and
$25.4 million at August 31, 2009 and 2008,
respectively, of current income taxes payable, including amounts
due for foreign and state income taxes. We paid no federal
income taxes in the year ended August 31, 2007 primarily
due to the utilization of U.S. operating losses.
Income before income taxes, minority interest, and
earnings (losses) from unconsolidated entities
(pre-tax
income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
(5,454
|
)
|
|
$
|
196,606
|
|
|
$
|
(8,176
|
)
|
Foreign
|
|
|
38,043
|
|
|
|
23,884
|
|
|
|
41,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest, and earnings
(losses) from unconsolidated entities
|
|
$
|
32,589
|
|
|
$
|
220,490
|
|
|
$
|
33,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the significant differences between
the effective income tax rate and the federal statutory rate on
pretax income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Federal statutory tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of federal income tax benefit
|
|
|
|
|
|
|
4
|
%
|
|
|
5
|
%
|
Foreign tax differential
|
|
|
(6
|
)%
|
|
|
2
|
%
|
|
|
(13
|
)%
|
Work Opportunity Tax Credit
|
|
|
(4
|
)%
|
|
|
|
|
|
|
(22
|
)%
|
Foreign tax credits
|
|
|
(9
|
)%
|
|
|
(5
|
)%
|
|
|
(6
|
)%
|
Section 199 Domestic Manufacturer Deduction
|
|
|
(9
|
)%
|
|
|
(2
|
)%
|
|
|
|
|
Valuation allowance
|
|
|
(2
|
)%
|
|
|
(5
|
)%
|
|
|
|
|
Minority interest
|
|
|
(18
|
)%
|
|
|
(4
|
)%
|
|
|
(19
|
)%
|
Compensation and stock options
|
|
|
13
|
%
|
|
|
2
|
%
|
|
|
11
|
%
|
Uncertain tax positions
|
|
|
25
|
%
|
|
|
|
|
|
|
30
|
%
|
Nondeductible meals and entertainment
|
|
|
14
|
%
|
|
|
3
|
%
|
|
|
8
|
%
|
Other, net
|
|
|
(2
|
)%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
%
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate for pre-tax income
excluding minority interest for the years ended August 31,
2009, 2008 and 2007 was 75%, 37% and 51% respectively.
F-36
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred
Taxes
The tax effect of temporary differences that give rise to
significant portions of the deferred tax accounts:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
9,264
|
|
|
$
|
5,756
|
|
Net operating loss and tax credit carryforwards
|
|
|
54,535
|
|
|
|
70,174
|
|
Other expenses not currently deductible
|
|
|
51,343
|
|
|
|
22,624
|
|
Investments in affiliates, primarily due to impairment
|
|
|
|
|
|
|
16,569
|
|
Foreign currency
|
|
|
115,527
|
|
|
|
39,629
|
|
Derivative instrument
|
|
|
12,108
|
|
|
|
3,441
|
|
Deferred financing costs
|
|
|
10,583
|
|
|
|
|
|
Equity in other comprehensive income of Westinghouse
|
|
|
34,227
|
|
|
|
|
|
Compensation related expenses
|
|
|
66,030
|
|
|
|
41,599
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
353,617
|
|
|
|
199,792
|
|
Less valuation allowance
|
|
|
(22,025
|
)
|
|
|
(12,923
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
331,592
|
|
|
|
186,869
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
|
(45,735
|
)
|
|
|
(44,773
|
)
|
Property, plant and equipment
|
|
|
(26,976
|
)
|
|
|
(25,172
|
)
|
Equity in other comprehensive income of Westinghouse
|
|
|
|
|
|
|
(16,732
|
)
|
Investments in affiliates
|
|
|
(11,148
|
)
|
|
|
|
|
Employee benefits and other expenses
|
|
|
(3,034
|
)
|
|
|
(3,124
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(86,893
|
)
|
|
|
(89,801
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
244,699
|
|
|
$
|
97,068
|
|
|
|
|
|
|
|
|
|
|
Unremitted
Earnings
We have not recognized a deferred tax liability of approximately
$54.0 million for the undistributed earnings of our foreign
operations that arose in 2009 and prior years as we consider
these earnings to be indefinitely invested. As of
August 31, 2009, the undistributed earnings of these
subsidiaries were approximately $140.0 million. A deferred
tax liability will be recognized when we can no longer
demonstrate that we plan to permanently reinvest the
undistributed earnings.
Losses
and Valuation Allowances
The valuation allowance for deferred tax assets at
August 31, 2009 and 2008 was $22.0 million and
$12.9 million, respectively. These valuation allowances
were related to foreign and state net operating loss
carryforwards. The net change in the total valuation allowance
for each of the years ended August 31, 2009, 2008, and 2007
was an increase (decrease) of $9.1 million,
($11.1) million and $1.1 million, respectively. During
fiscal 2008, $1.5 million of the reduction in valuation
allowance for deferred tax assets was allocated to
shareholders equity. During fiscal 2009, a valuation
allowance was established for certain additional state net
operating losses which, if realizable, would reduce future state
taxes payable totaling $10.8 million. Additionally,
valuation allowances totaling $3.1 million associated with
certain state net operating losses were released.
F-37
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During fiscal 2008, we utilized all of our remaining
U.S. federal net operating loss carryforward except for
$24.4 million that is limited to use at $1.8 million a
year against future federal taxable income and expires through
2022. At August 31, 2009, we have $3.5 million of
U.S. federal credits available for carryforward which
expire at various times and amounts through 2027. Additionally,
we have $39.2 million of foreign net operating losses and
$8.5 million of foreign capital losses available for
carryforward with varying expiration dates. A full valuation
allowance has been established for the capital losses. There are
also state net operating losses available for carryforward which
would reduce future state taxes payable by up to
$23.9 million of which we currently believe that
$6.0 million will be utilized. A valuation allowance has
been established for the difference.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in those
jurisdictions during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities (including the
impact of available carryback and carryforward periods),
projected future taxable income, and tax-planning strategies in
making this assessment. Based on the level of historical federal
taxable income and projections for future federal taxable income
over the periods for which the U.S. deferred tax assets are
deductible, management believes that it is more likely than not
that we will realize the benefits of these deductible
differences, net of the existing valuation allowances at
August 31, 2009. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the
carryforward period are reduced.
FASB
Interpretation No. 48
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes,
(FIN 48) effective September 1, 2007.
Under FIN 48, we provide for uncertain tax positions, and
the related interest, and adjust unrecognized tax benefits and
accrued interest accordingly. We recognize potential interest
and penalties related to unrecognized tax benefits in income tax
expense. A reconciliation of unrecognized tax benefits, interest
and penalties is as follows:
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
Tax
|
|
(In thousands)
|
|
Benefits
|
|
|
Balance at September 1, 2007
|
|
$
|
28,179
|
|
Increase in Tax Positions
|
|
|
1,728
|
|
Settlements
|
|
|
(121
|
)
|
Increase, Interest Net
|
|
|
239
|
|
Increase, Penalties Net
|
|
|
19
|
|
Currency Translation Adjustment Net
|
|
|
82
|
|
|
|
|
|
|
Balance at August 31, 2008
|
|
|
30,126
|
|
Increase in Tax Positions prior years
|
|
|
25,406
|
|
Increase in Tax Positions current year
|
|
|
732
|
|
Settlements
|
|
|
(9,902
|
)
|
Increase, Interest Net
|
|
|
3,910
|
|
Increase, Penalties Net
|
|
|
1,915
|
|
Currency Translation Adjustment Net
|
|
|
(47
|
)
|
|
|
|
|
|
Balance at August 31, 2009
|
|
$
|
52,140
|
|
|
|
|
|
|
F-38
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The portion of the balance at August 31, 2009 that would
affect our effective tax rate is $34.5 million. Interest,
penalties and currency translation adjustments included in the
balance at August 31, 2009 is $4.3 million. The
remaining difference represents the amount of unrecognized tax
benefits for which the ultimate tax consequence is certain, but
for which there is uncertainty about the timing of the tax
consequence recognition. Because of the impact of deferred tax
accounting, the timing would not impact the annual effective tax
rate but could accelerate the payment of cash to the taxing
authority to an earlier period.
Our subsidiaries file income tax returns in numerous tax
jurisdictions, including the U.S., most U.S. states and
certain
non-U.S. jurisdictions.
Tax returns are also filed in certain jurisdictions where our
subsidiaries execute project-related work. The statute of
limitations varies by the various jurisdictions in which we
operate. 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. Although we believe our calculations for our tax returns
are correct and the positions taken thereon are reasonable, the
final outcome of tax audits could be materially different than
the resolution we currently anticipate, and those differences
could result in significant costs or benefits to us.
Certain tax years are under audit by relevant tax authorities
including the beginning of an examination of the fiscal years
2006 through 2008 U.S. federal tax returns by the Internal
Revenue Service (IRS). We have extended the statute of
limitations on our U.S. federal returns for the fiscal
years involved in the IRS appeal (see Note 13
Contingencies and Commitments). In addition, many
U.S. states suspend the state statute of limitations for
any year for which the U.S. federal statute has been
extended.
While the IRS appeal of fiscal years 2004 and 2005 may be
concluded in the foreseeable future, including in fiscal year
2010, it is not possible at this time to estimate the impact of
changes over the next 12 months in unrecognized tax
benefits.
We are authorized to issue an aggregate of two hundred twenty
million (220,000,000) shares, of which two hundred million
(200,000,000) shares shall be common stock, no par value
(Common Stock), and twenty million (20,000,000)
shares shall be preferred stock, no par value (Preferred
Stock). Each outstanding share of Common Stock entitles
its holder to one vote on each matter properly submitted to our
shareholders for their vote, waiver, release or other action.
There are no preemptive rights with respect to any class of
stock.
Preferred Stock: Our Board of Directors
is authorized to issue Preferred Stock from time to time in one
or more series and with such rights, privileges and preferences
as the Board of Directors shall from time to time determine. Of
the Preferred Stock, 2,000,000 shares are designated as
Series A Junior Participating Preferred Stock
(the Series A Preferred Stock) related to the
preferred share purchase rights discussed below. We had no
shares of Series A Preferred Stock outstanding at
August 31, 2009 and 2008.
Common Stock: At August 31, 2009
and 2008, we had 89,316,057 and 89,195,901 shares issued
and 83,606,808 and 83,535,441 shares outstanding,
respectively.
Treasury Stock: Treasury stock is
recorded at cost. At August 31, 2009 and 2008, we had
5,709,249 and 5,660,460 shares classified as Treasury Stock
at a cost of $116.1 million and $115.0 million,
respectively. For the years ended August 31, 2009 and 2008,
we repurchased 48,789 and 145,976 shares at a cost of
$1.2 million and $9.9 million, respectively. The
repurchases of treasury stock were the result of tax
withholdings on stock compensation transactions.
Shareholder Rights Plan: On
July 9, 2001, our Board of Directors adopted a Shareholder
Rights Plan (Plan) pursuant to a Rights Agreement
dated July 9, 2001, by and between us and First Union
National Bank, as Rights Agent. Under the Plan, a dividend of
one preferred share purchase right (Right), was
F-39
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
declared and paid for each share of our common stock outstanding
on July 31, 2001. As to shares of our common stock issued
after July 31, 2001, a Right automatically attaches to each
share after its issuance.
The Rights are intended to deter and protect shareholders from
coercive and otherwise unfair takeover tactics, and to thereby
better enable all of our shareholders to realize the long-term
value of their investment in us. The Rights work by imposing a
significant penalty upon any person or group which acquires 15%
or more of our outstanding common stock without the approval of
our Board of Directors by diluting such person or groups
voting power as well as significantly increasing the aggregate
purchase price it must pay to acquire our company. Accordingly,
we believe that the Rights will encourage anyone seeking to
acquire our company to negotiate with our Board of Directors
prior to attempting a takeover. The Rights should not interfere
with a merger or other business combination approved by our
Board of Directors.
The Rights become exercisable only if a person or group (an
Acquiring Person) either: (1) acquires 15% or
more of our outstanding common stock; or (2) commences a
tender offer, which would result in the acquisition of 15% or
more of our outstanding common stock. Our Board of Directors is
authorized to reduce the threshold at which a person or group
becomes an Acquiring Person from 15% to not less than 10% of our
outstanding common stock, unless such reduction would cause a
person or group to become an Acquiring Person by virtue of its
existing ownership interest at such time.
Once the Rights become exercisable, each Right entitles its
holder (other than the Acquiring Person) to purchase from us,
for the exercise price of the Right (currently set at $170.00)
either: (i) one one-hundredth of a share of our
Series A Preferred Stock; or (ii) a number of shares
of our common stock having a market value equal to two times the
exercise price of the Right (Flip In). In addition,
if the company is later acquired in a merger or similar
transaction after the Rights have become exercisable, each Right
will entitle its holder (other than the Acquiring Person) to
purchase, for the exercise price of the Right (currently set at
$170.00), a number of shares of the acquiring corporation having
a market value equal to two times the exercise price of the
Right based on the market price of the acquiring
corporations stock prior to such merger (Flip
Over).
After a person or group becomes an Acquiring Person, but before
an Acquiring Person owns 50% or more of our outstanding common
stock, our Board of Directors may extinguish the Rights by
exchanging one share of our common stock or an equivalent
security for each Right, other than the Rights held by the
Acquiring Person.
Our Board of Directors may redeem the Rights for $0.01 per Right
at any time before any person or group becomes an Acquiring
Person. If our Board redeems any Rights, it must redeem all of
the Rights. Until a Right is exercised, the holder of the Right
has no rights as a shareholder, including no rights to vote or
to receive dividends. The issuance of the Rights alone has no
dilutive effect. The Rights will automatically expire on
July 9, 2011.
|
|
Note 11
|
Share-Based Compensation
|
Stock
Compensation Plans
We maintain the following share-based compensation plans to
provide equity incentive award opportunities to our directors,
officers and key employees. These plans are administered by the
Compensation
F-40
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Committee of the Board of Directors, which approves participant
eligibility, the number of shares awarded and the terms,
conditions and other provisions of each award:
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
Plan
|
|
Shares
|
|
|
Types of Equity Instrument Authorized
|
|
1993 Employee Stock Option Plan (1993 Plan)
|
|
|
3,844,000
|
|
|
Qualified and non-qualified stock options and restricted stock
awards
|
1996 Non-Employee Director Stock Option Plan (1996 Plan)
|
|
|
300,000
|
|
|
Non-qualified stock options
|
Stone & Webster Acquisition Stock Option Plan
(Stone & Webster Plan)
|
|
|
1,070,000
|
|
|
Non-qualified stock options
|
2001 Employee Incentive Compensation Plan (2001 Plan)
|
|
|
9,500,000
|
|
|
Qualified and non-qualified stock options, stock appreciation
rights, performance shares and restricted stock awards
|
2005 Non-Employee Director Stock Incentive Plan (Directors
Plan)
|
|
|
300,000
|
|
|
Non-qualified stock options and phantom stock awards
|
2008 Omnibus Incentive Plan
|
|
|
4,500,000
|
|
|
Non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock, restricted stock units,
performance shares and other stock-based awards
|
Shares not awarded that were previously available under the 1993
and 1996 Plans have expired. Upon adoption of the 2008 Omnibus
Incentive Plan, our existing share-based compensation plans,
including the 2001 Plan and the Directors Plan
(collectively the Prior Plans), terminated. No new awards will
be granted under the Prior Plans, and there is no longer any
authority to issue the remaining shares of common stock
available under the Prior Plans. All awards granted under these
plans that were outstanding as of January 28, 2009 remain
outstanding and continue to be governed by the Prior Plans.
Shares available for future stock option and restricted stock
awards to employees and directors under existing plans were
2,845,364 and 2,744,633 at August 31, 2009 and
August 31, 2008, respectively.
Stock
Options
We use the modified Black-Scholes option pricing model to
estimate the fair value of stock option awards with the
following weighted-average assumptions for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected volatility
|
|
|
64.0
|
%
|
|
|
52.0
|
%
|
|
|
42.0
|
%
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
3.6
|
%
|
|
|
4.7
|
%
|
Expected term of options (in years)
|
|
|
4.9
|
|
|
|
5.4
|
|
|
|
6.2
|
|
Grant-date fair value
|
|
$
|
9.96
|
|
|
$
|
32.79
|
|
|
$
|
13.33
|
|
These assumptions are based on multiple factors, including
future and historical employment and post-employment option
exercise patterns for certain relatively homogeneous
participants and their impact on expected terms of the options
and the implied volatility of our stock price. We had no
dividends on our common stock for the years presented so the
assumed dividend yield used to calculate the grant date fair
value was zero. Stock option awards generally vest annually on a
ratable basis over four years with a total term to exercise of
ten years from date of grant. Awards are issued at the grant
date fair market value on the date of grant.
F-41
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents stock option activity from
September 1, 2007 to August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contract Term
|
|
|
Outstanding at September 1, 2007,
|
|
|
5,291,809
|
|
|
$
|
18.86
|
|
|
|
5.8
|
|
Granted
|
|
|
406,072
|
|
|
|
65.86
|
|
|
|
|
|
Exercised
|
|
|
(2,492,602
|
)
|
|
|
16.78
|
|
|
|
|
|
Forfeited
|
|
|
(102,200
|
)
|
|
|
30.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2008,
|
|
|
3,103,079
|
|
|
|
26.27
|
|
|
|
6.0
|
|
Granted
|
|
|
1,218,011
|
|
|
|
18.38
|
|
|
|
|
|
Exercised
|
|
|
(76,828
|
)
|
|
|
16.64
|
|
|
|
|
|
Forfeited
|
|
|
(93,131
|
)
|
|
|
37.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2009
|
|
|
4,151,131
|
|
|
|
23.89
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 31, 2009
|
|
|
2,195,754
|
|
|
$
|
21.46
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the compensation expense that was
included in general and administrative expenses and cost of
revenues on the accompanying consolidated statements of
operations related to these stock option grants for the periods
indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Stock Option Compensation Expense
|
|
$
|
9.7
|
|
|
$
|
9.3
|
|
|
$
|
8.5
|
|
The aggregate intrinsic value of options outstanding was
$36.7 million and $78.5 million at August 31,
2009 and August 31, 2008, respectively. The aggregate
intrinsic value of options exercisable was $21.6 million
and $53.3 million at August 31, 2009 and
August 31, 2008, respectively. The total intrinsic value of
options exercised was $1.0 million, $113.8 million and
$10.2 million for the fiscal years ended August 31,
2009, 2008 and 2007, respectively.
Net cash proceeds from the exercise of stock options for the
fiscal years ended August 31, 2009 and August 31, 2008
were $1.3 million and $41.8 million, respectively. The
actual income tax benefit realized from stock option exercises
were $0.3 million, $40.4 million and $2.9 million
for the fiscal years ended August 31, 2009, 2008 and 2007,
respectively.
At August 31, 2009 we have $19.7 million of
unrecognized compensation expense related to unvested stock
options awards expected to be recognized over a weighted-average
period of 1.3 years. The grant date fair value of stock
awards vested was $9.1 million, $8.2 million and
$9.5 million for the fiscal years 2009, 2008 and 2007,
respectively.
Restricted
Stock
The compensation expense for restricted stock awards is
determined based on the market price of our stock at the date of
grant applied to the total number of shares that are anticipated
to fully vest. At August 31, 2009, we have unrecognized
compensation expense of $52.6 million associated with
unvested restricted stock awards. This amount is expected to be
recognized over a weighted average period of 1.3 years.
F-42
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents the compensation expense that was
included in general and administrative expenses and cost of
revenues on the accompanying consolidated statements of
operations related to these restricted stock grants for the
periods indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Restricted Stock Compensation Expense
|
|
$
|
23.6
|
|
|
$
|
11.7
|
|
|
$
|
10.9
|
|
The following table summarizes our unvested restricted stock
activity from September 1, 2007 to August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested restricted stock at September 1, 2007
|
|
|
995,620
|
|
|
$
|
24.70
|
|
Granted
|
|
|
252,620
|
|
|
|
65.28
|
|
Vested
|
|
|
(441,228
|
)
|
|
|
22.41
|
|
Forfeited
|
|
|
(67,295
|
)
|
|
|
33.74
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock at August 31, 2008
|
|
|
739,717
|
|
|
|
39.01
|
|
Granted:
|
|
|
|
|
|
|
|
|
Liability-classified restricted stock units granted 10/31/08
|
|
|
1,288,761
|
|
|
|
17.95
|
|
Equity-classified restricted stock units regranted 1/28/09
|
|
|
1,281,512
|
|
|
|
29.39
|
|
Restricted stock granted
|
|
|
1,111,247
|
|
|
|
18.20
|
|
|
|
|
|
|
|
|
|
|
Total granted
|
|
|
3,681,520
|
|
|
|
|
|
Vested
|
|
|
(332,855
|
)
|
|
|
32.27
|
|
Forfeited:
|
|
|
|
|
|
|
|
|
Liability-classified restricted stock units granted 10/31/08 and
cancelled 1/28/09
|
|
|
(1,281,512
|
)
|
|
|
29.39
|
|
Restricted stock forfeited
|
|
|
(77,808
|
)
|
|
|
25.31
|
|
|
|
|
|
|
|
|
|
|
Total forfeited
|
|
|
(1,359,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock at August 31, 2009
|
|
|
2,729,062
|
|
|
$
|
27.29
|
|
|
|
|
|
|
|
|
|
|
As a result of shareholder approval of the 2008 Omnibus
Incentive Plan, 1,281,512 restricted stock units with an average
market value of $17.95 per share previously classified as
liability awards were modified for accounting purposes to be
equity awards. Awards classified as liabilities result in
variable compensation expense based upon the closing price of
our stock at the date of each reporting period while equity
awards result in fixed compensation expense based upon the
weighted-average price per share on the date of grant. On
January 28, 2009, the price used to re-measure the
liability awards was our closing stock price of $29.39, and the
modified equity awards have a weighted-average price per share
of $29.39
We receive a tax deduction for certain stock option awards when
exercised, generally for the excess of the fair value at the
date of exercise over the option exercise price. In addition, we
receive a tax deduction when restricted stock awards vest at a
higher value than the value used to recognize compensation
expense at the date of award. Prior to adoption of
SFAS 123(R), we reported all tax benefits resulting from
the grant of equity incentive awards as operating cash flows in
our consolidated statements of cash flows. In accordance with
SFAS 123(R), we report gross excess tax benefits from
equity incentive awards as financing cash flows.
F-43
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12
|
Operating
Leases
|
We lease certain office buildings, fabrication and warehouse
facilities, machinery and equipment under various lease
arrangements. Leases that do not qualify as capital leases are
classified as operating leases and the related lease payments
are expensed on a straight-line basis over the lease term,
including, as applicable, any free-rent period during which we
have the right to use the asset. For leases with renewal options
where the renewal is reasonably assured, the lease term,
including the renewal period, is used to determine the
appropriate lease classification and to compute periodic rental
expense.
Certain of our operating lease agreements are non-cancelable and
expire at various times and require various minimum rentals. The
non-cancelable operating leases with initial non-cancelable
periods in excess of twelve months that were in effect as of
August 31, 2009 require us to make the following estimated
future payments:
|
|
|
|
|
For the year ending August 31 (in thousands):
|
|
|
|
|
2010
|
|
$
|
80,914
|
|
2011
|
|
|
70,833
|
|
2012
|
|
|
60,999
|
|
2013
|
|
|
50,557
|
|
2014
|
|
|
43,751
|
|
Thereafter
|
|
|
115,139
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
422,193
|
|
|
|
|
|
|
Future minimum lease payments as of August 31, 2009 have
not been reduced by minimum non-cancelable sublease rentals
aggregating approximately $0.9 million.
In 2002, we entered into a
10-year
non-cancelable operating lease for our Corporate Headquarters
building in Baton Rouge, Louisiana. In connection with this
lease, we purchased an option for $12.2 million for the
right to acquire additional office space and undeveloped land
for approximately $150 million. The option expires the
earlier of January 2012, or upon renewal of the existing
Corporate Headquarters lease. The cost of the option is included
in other assets. The book value of the option is assessed for
impairment annually based on appraisals of the additional office
space and undeveloped land subject to the option. If we renew
the lease rather than exercise the option, the option value will
be expensed over the term of the new Corporate Headquarters
building lease.
We also enter into lease agreements for equipment needed to
fulfill the requirements of specific jobs. Any payments owed or
committed under these lease arrangements as of August 31,
2009 are not included as part of total minimum lease payments
shown above.
The total rental expense for the fiscal years ended
August 31, 2009, 2008, and 2007 was approximately
$178.1 million, $170.6 million and
$166.6 million, respectively. Deferred rent payable
(current and long-term) aggregated $30.3 million and
$28.9 million at August 31, 2009 and 2008,
respectively.
|
|
Note 13
|
Contingencies
and Commitments
|
Tax
Matters
In connection with the IRS examinations of our U.S. federal
tax returns for the 2002 through 2005 fiscal years, the IRS
proposed certain adjustments relating to the sourcing of
procurement income to one of our overseas entities and to our
U.S. parent company. We protested our disagreement with
these adjustments and the related penalties to the Appeals level
within the IRS for fiscal years 2002 through 2005 and have now
resolved through fiscal year 2003 the amount of procurement
income to be recognized by our U.S. parent
F-44
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
company. An agreement was reached whereby approximately
$5.8 million of additional federal and state income taxes
will be paid plus a non-deductible penalty of $2.0 million.
Interest accrues on the added taxes from the time net operating
loss carryovers are expected to be used in the 2007 fiscal year.
The agreement reached also effectively resolves the procurement
income matter for the 2004 and 2005 fiscal years. Other proposed
adjustments to the 2004 and 2005 fiscal years, unrelated to the
procurement income matter, have been protested to the Appeals
level. These protested adjustments cover approximately
$14.0 million of additional federal and state income tax
for which the interest would likewise begin running from fiscal
2007. Tax and interest accrual provisions have been made in our
financial statements for the agreed adjustments in the two IRS
audit cycles covering the 2002 through 2005 fiscal years and for
uncertain tax provisions as discussed in Note 8
Income Taxes.
In a separate matter, the Louisiana Department of Revenue (LDR)
has filed a collection suit against our Louisiana domiciled
parent corporation for franchise taxes in the amount of
$1.7 million for fiscal years 2001 and 2002 plus interest
of $1.6 million (computed through June 15, 2008). The
LDRs lawsuit sets forth their theory that cash pooled by
our parent corporation and invested on behalf of our operating
subsidiaries creates additional asset and revenue apportionment
to Louisiana. We are also under audit by the LDR for fiscal
years
2003-2006. A
resolution of the matter has been arrived at with the LDR
whereby franchise tax fiscal years 2001 through 2009 will be
resolved by way of a franchise tax and interest payment to the
LDR by October 31, 2009 with the LDR and Shaw then moving
to dismiss both the LDRs collection suit and a protective
refund suit filed by Shaw for its 2009 franchise tax fiscal year.
While management cannot predict the ultimate outcome of the
above matters, provisions have been made in our financial
statements where appropriate. The matters, if decided adversely
to us or settled by us, individually or in the aggregate, could
have a material adverse effect on our financial statements.
Military
Housing Privatization Entities
See Note 6 Equity Method Investments and
Variable Interest Entities for discussion of commitments and
contingencies related to privatization entities.
|
|
|
|
|
liquidated damages, if the project does not meet predetermined
completion dates; and
|
|
|
|
penalties or liquidated damages for failure to meet other cost
or project performance measures.
|
We attempt to limit our exposure under these penalty or
liquidated damage provisions and attempt to pass certain cost
exposure for craft labor
and/or
commodity-pricing risk to clients. We also have claims from
clients as well as vendors, subcontractors and others that are
subject to negotiation or the contractual dispute resolution
processes defined in the contracts (see Note 19
Long-Term Construction Accounting for Revenue and
Profit/Loss Recognition Including Claims, Unapproved Change
Orders and Incentives for further discussion).
Other
Guarantees
Our lenders issue letters of credit on our behalf to clients or
sureties in connection with our contract performance and, in
limited circumstances, on certain other obligations of third
parties. We are required to reimburse the issuers of these
letters of credit for any payments that they make pursuant to
these letters of credit. The aggregate amount of outstanding
financial and performance letters of credit (including foreign
and domestic, secured and unsecured, and cash collateralized)
was $790.3 million and $726.1 million at
August 31, 2009 and August 31, 2008, respectively. Of
the amount of outstanding letters of credit at August 31,
2009, $602.2 million are performance letters of credit
issued to our clients. Of the $602.2 million, five clients
held $356.7 million or 59.2% of the outstanding letters of
credit. The largest aggregate amount of letters of credit issued
to a single client on a single project is $117.0 million.
F-45
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the ordinary course of business, we enter into various
agreements providing financial or performance assurances to
clients on behalf of certain unconsolidated partnerships, joint
ventures or other jointly executed contracts. These agreements
are entered into primarily to support the project execution
commitments of these entities and are generally a guaranty of
our own performance. These assurances have various expiration
dates ranging from mechanical completion of the facilities being
constructed to a period extending beyond contract completion.
The maximum potential payment amount of an outstanding
performance guarantee is the remaining cost of work to be
performed by or on behalf of third parties under engineering and
construction contracts. Amounts that may be required to be paid
in excess of our estimated cost to complete contracts in
progress are not estimable. For cost reimbursable contracts,
amounts that may become payable pursuant to guarantee provisions
are normally recoverable from the client for work performed
under the contract. For fixed price contracts, this amount is
the cost to complete the contracted work less amounts remaining
to be billed to the client under the contract. Remaining
billable amounts could be greater or less than the cost to
complete. In those cases where cost exceeds the remaining
amounts payable under the contract, we may have recourse to
third parties such as owners, co-venturers, subcontractors or
vendors.
Legal
Proceedings
During fiscal year 2005, the U.S. District Court for the
District of Delaware rendered a judgment against us and in favor
of Saudi American Bank (SAB) in the amount of
$11.4 million, inclusive of interest and attorneys
fees but exclusive of post-judgment legal interest, while
pending appeal. In the suit against us (and others), SAB claimed
that as part of our July 2000 Stone & Webster
Incorporated asset acquisition, we assumed certain liabilities
under an existing loan agreement and guarantee. We appealed the
decision to the U.S. Court of Appeals for the Third
Circuit, which issued its decision on December 30, 2008. In
that decision, the Third Circuit reversed the District
Courts summary judgment ruling, vacated the District
Courts awards to SAB and remanded the matter to the
District Court for further consideration consistent with the
Third Circuits findings. On January 13, 2009, SAB
filed a petition for rehearing. On February 24, 2009, the
Third Circuit granted that petition and that same day issued a
new, broader opinion that again reversed, vacated and remanded
the District Courts decision. On September 11, 2009,
the District Court entered a Stipulation of Dismissal that
dismissed the case with prejudice and without costs to any party.
We currently have pending before the American Arbitration
Association (AAA) the case of Stone & Webster, Inc.
(S&W) v. Mitsubishi Heavy Industries, Ltd. and
Mitsubishi Power Systems, Inc. (collectively, Mitsubishi). In
that matter, S&W seeks approximately $38.0 million in
damages from Mitsubishi. Mitsubishi denies liability and has
asserted a counterclaim totaling approximately
$29.0 million. On November 16, 2007, a majority of the
AAA Tribunal transmitted a Partial Final Award
granting certain relief to S&W contingent upon further
proceedings with the Tribunal. Mitsubishi filed in
U.S. District Court for the Southern District of New York
(S.D.N.Y.) a petition to vacate the award. On November 14,
2008, S&W filed with the S.D.N.Y. a petition and motion to
confirm the Tribunals Partial Final Award. The District
Court dismissed Mitsubishis petition to vacate and
S&Ws petition and motion to confirm without
prejudice, which the parties may re-file after there is a final
award. Meanwhile, the Tribunal is moving forward with its
proceedings. We previously made provisions in our financial
statements based on managements judgment about the
probable outcome of this case. If Mitsubishi prevails on its
counterclaim
and/or its
petition to vacate as described above, we may not receive our
claim for liquidated damages. In such an event, the individual
or combined rulings could have a material adverse effect on our
financial statements for the period in which any judgment
becomes final.
In connection with a services contract signed in 2000 for the
construction of two nuclear power plants in Asia, we asserted
claims against our client before the host countrys
arbitration association. In that arbitration, we sought an
approximate $49.6 million increase in the contract target
price that, if awarded, would eliminate potential penalties
associated with cost incentive/penalty provisions set forth in
the contract. If the arbitration association failed to award the
target cost increase or it awarded an increase less than the
requested amount, we faced an assessment of up to approximately
$13.6 million in such penalties. Further, we sought from
the
F-46
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
client approximately $22.2 million for reimbursement of
severance and pension payments, unpaid invoices, increased
overhead and outstanding fixed fee amounts. The client presented
a counterclaim asserting $4.3 million in damages relating
to alleged defective work and an additional $23.6 million
for completion damages, though the contract limits such damages
to $20.0 million. The client further sought to keep
$7.2 million in cash drawn on a previously issued letter of
credit against the claims asserted. On September 3, 2008,
the arbitration association rendered an award granting most of
our claims and dismissing all of the clients
counterclaims. We have initiated proceedings to enforce the
award in both the host country and in the U.S. District
Court for the Middle District of Louisiana. The proceedings in
the U.S. District Court have come to an end when the Court
declined jurisdiction based on a finding of forum non
conveniens. The client has initiated proceedings in the host
country to contest the awards validity, oppose our
enforcement actions and overturn the award, which are all still
underway. We have made provisions in our financial statements
based on managements judgment about the probable outcome
of this case. If the client prevails on its counterclaim for
defective work and completion damages
and/or its
challenge of the existing award to us to increase the target
contract price and other claims for compensation, the individual
or combined rulings could have a material adverse effect on our
financial statements.
In connection with an international fixed price contract
executed by our Fossil, Renewables & Nuclear segment
that is subject to a schedule of rates for changes and where our
services include fabrication, erection and construction, we
filed a Request for Arbitration with the London Court of
International Arbitration. In the request, we currently seek
claims of approximately $24.0 million in additional
compensation from our client, the prime contractor on the
project, related to delay and disruption, loss of profit on
descoped areas and changed labor practices. In addition, we have
requested additional compensation relative to remeasurements of
quantities and scope variations from our client of approximately
$14.3 million. On August 12, 2009, the client, who
holds a $2.2 million performance letter of credit from us,
filed its Statement of Defenses and Counterclaim. Although the
Statement of Defenses contests most of our claims, in the
submittal our client did concede three of our claims that have a
total value of $12.3 million. The clients
counterclaim seeks an amount totaling approximately
$25.6 million related to certain alleged costs associated
with completing work that the client removed from our scope and
damages suffered because of our alleged failure to complete work
in a timely manner. The performance letter of credit was reduced
from $4.3 million to $2.2 million effective
June 19, 2009. We have evaluated our claims and our
clients counterclaims and made provisions in our financial
statements based on managements judgment about the
probable outcome of this arbitration. While we expect a
favorable resolution to these matters, the dispute resolution
process could be lengthy, and if the client were to prevail
completely or substantially in this matter, the outcome could
have a material adverse effect on our statement of operations
and statement of cash flows. The value of the claims and our
letter of credit stated herein in U.S. dollars do fluctuate
because of changes in the exchange rate of the GBP.
Our subsidiary, Stone & Webster, Inc.
(S&W), is nearing completion of work for Xcel
Energy (d/b/a Public Service of Colorado) on Xcels
Comanche project in Colorado. There are material claims by
S&W against Xcel for contract changes relating to
coordination of the work, delays, and resulting impacts to our
work. The resulting change order request submitted by S&W
was denied. As a result, S&W filed a lawsuit, 2009-CV-6913,
in the District Court, City and County of Denver, Colorado,
against Xcel on July 14, 2009, seeking damages in excess of
$71.0 million. Xcel counterclaimed, alleging nearly
$56.0 million in damages or set-offs against S&W. We
believe S&W has a sound legal and factual basis for its
claims, and we expect a favorable resolution to these matters.
However, the litigation could be lengthy, and if Xcel were to
prevail completely or substantially in this matter, the outcome
could have a material adverse effect on our financial statements.
Environmental
Liabilities
LandBank, a subsidiary of our Environmental and Infrastructure
(E&I) segment, acquires and remediates environmentally
impaired real estate. The real estate is recorded at cost, which
typically reflects some degree
F-47
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of discount due to environmental issues related to the real
estate. As remediation efforts are expended, the book value of
the real estate is increased to reflect improvements made to the
asset. We had $17.7 million of such real estate assets
recorded in other assets on the accompanying balance sheet at
August 31, 2009 as compared to $27.5 million at
August 31, 2008. In the third quarter of fiscal 2009, we
reclassified the net book value of $9.4 million associated
with one real estate asset to property and equipment as the
company is an occupant of this property. Additionally, LandBank
records a liability for estimated remediation costs for real
estate that is sold, but for which the environmental obligation
is retained. We also record an environmental liability for
properties held by LandBank if funds are received from
transactions separate from the original purchase to pay for
environmental remediation costs. At August 31, 2009, our
E&I segment had $5.0 million of environmental
liabilities recorded in other liabilities in the accompanying
balance sheets as compared to $5.7 million at
August 31, 2008.
Employment
Contracts
We have entered into employment agreements with each of our
senior corporate executives and certain other key employees. In
the event of termination, these individuals may be entitled to
receive their base salaries, bonuses and certain other benefits
for the remaining term of their agreement and all options and
similar awards may become fully vested. Additionally, for
certain executives, in the event of death, their estates are
entitled to certain payments and benefits.
|
|
Note 14
|
Business
Segments
|
For management and internal reporting purposes, we have
organized our business into seven reportable
segments Fossil, Renewables & Nuclear;
Maintenance; Environmental and Infrastructure (E&I); Energy
and Chemicals (E&C); Pipe Fabrication and Manufacturing
(F&M); Corporate and Investment in Westinghouse.
The Fossil, Renewables & Nuclear segment provides a
range of project-related services, including design,
engineering, construction, procurement, technology and
consulting services, primarily to the global fossil and nuclear
power generation industries.
The Maintenance segment performs routine and outage/turnaround
maintenance, predictive and preventative maintenance, as well as
construction and major modification services, to clients
facilities in the industrial markets primarily in North America.
The E&I segment designs and executes remediation solutions
including the identification of contaminants in soil, air and
water. It also provides project and facilities management and
other related services for non-environmental construction,
watershed restoration, emergency response services, outsourcing
of privatization markets, program management, operations and
maintenance solutions to support and enhance domestic and global
land, water and air transportation systems.
The E&C segment provides a full range of project-related
services including proprietary technology, project management,
engineering, procurement, construction, commissioning/start-up
and consulting to the oil and gas, refining, and petrochemical
industries globally.
The F&M segment provides integrated piping systems and
services for new construction, site expansion and retrofit
projects for energy and chemical plants. We operate several pipe
fabrication facilities in the U.S. and abroad. We also
operate two manufacturing facilities that provide products for
our pipe fabrication services operations, as well as to third
parties. In addition, we operate several distribution centers in
the U.S., which distribute our products to our clients.
The Investment in Westinghouse segment includes our Westinghouse
Equity and the $1.1 billion in Westinghouse Bonds.
Westinghouse serves the domestic and international nuclear
electric power industry by
F-48
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
supplying advanced nuclear plant designs and equipment, fuel and
a wide range of other products and services to the owners and
operators of nuclear power plants.
The Corporate segment includes the corporate management and
expenses associated with managing the overall company. These
expenses include compensation and benefits of corporate
management and staff, legal and professional fees, and
administrative and general expenses, which are not allocated to
the business units. Our Corporate assets primarily include cash
and cash equivalents held by the corporate entities,
property & equipment related to the corporate facility
and certain information technology costs.
The following table presents information about segment profit
and assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Renewables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
|
Corporate
|
|
|
|
|
|
|
& Nuclear
|
|
|
Maintenance
|
|
|
E&I
|
|
|
E&C
|
|
|
F&M
|
|
|
Westinghouse
|
|
|
and Other
|
|
|
Total
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external clients
|
|
$
|
2,581.2
|
|
|
$
|
864.1
|
|
|
$
|
1,835.5
|
|
|
$
|
1,371.5
|
|
|
$
|
623.4
|
|
|
$
|
|
|
|
$
|
4.0
|
|
|
$
|
7,279.7
|
|
Intersegment revenues
|
|
|
5.3
|
|
|
|
27.2
|
|
|
|
25.9
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.8
|
|
Interest income
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
0.4
|
|
|
|
|
|
|
|
5.4
|
|
|
|
10.0
|
|
Interest expense
|
|
|
1.0
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
68.7
|
|
|
|
3.3
|
|
|
|
73.6
|
|
Depreciation and amortization
|
|
|
13.8
|
|
|
|
2.9
|
|
|
|
9.9
|
|
|
|
7.7
|
|
|
|
10.6
|
|
|
|
|
|
|
|
2.9
|
|
|
|
47.8
|
|
Income (loss) before income taxes
|
|
|
29.3
|
|
|
|
6.7
|
|
|
|
91.0
|
|
|
|
153.0
|
|
|
|
106.6
|
|
|
|
(267.0
|
)
|
|
|
(87.0
|
)
|
|
|
32.6
|
|
Earnings (losses) from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
2.9
|
|
|
|
|
|
|
|
9.3
|
|
|
|
(2.0
|
)
|
|
|
11.0
|
|
Goodwill
|
|
|
139.2
|
|
|
|
42.0
|
|
|
|
189.8
|
|
|
|
112.6
|
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
501.3
|
|
Total assets
|
|
|
1,629.9
|
|
|
|
180.7
|
|
|
|
1,002.8
|
|
|
|
853.4
|
|
|
|
698.0
|
|
|
|
1,171.2
|
|
|
|
846.9
|
|
|
|
6,382.9
|
|
Investment in and advances to equity method investees
|
|
|
|
|
|
|
|
|
|
|
12.6
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
21.3
|
|
Purchases of property and equipment
|
|
|
67.0
|
|
|
|
2.3
|
|
|
|
10.1
|
|
|
|
3.6
|
|
|
|
77.8
|
|
|
|
|
|
|
|
9.0
|
|
|
|
169.8
|
|
Increases (decreases) in other assets, long-term, net
|
|
|
(6.4
|
)
|
|
|
1.4
|
|
|
|
(14.3
|
)
|
|
|
(2.3
|
)
|
|
|
(0.2
|
)
|
|
|
(7.8
|
)
|
|
|
1.5
|
|
|
|
(28.1
|
)
|
F-49
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Renewables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
|
Corporate
|
|
|
|
|
|
|
& Nuclear
|
|
|
Maintenance
|
|
|
E&I
|
|
|
E&C
|
|
|
F&M
|
|
|
Westinghouse
|
|
|
and other
|
|
|
Total
|
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external clients
|
|
$
|
2,655.1
|
|
|
$
|
1,018.2
|
|
|
$
|
1,462.1
|
|
|
$
|
1,283.3
|
|
|
$
|
576.6
|
|
|
$
|
|
|
|
$
|
2.7
|
|
|
$
|
6,998.0
|
|
Intersegment revenues
|
|
|
5.9
|
|
|
|
7.7
|
|
|
|
4.1
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.0
|
|
Interest income
|
|
|
3.8
|
|
|
|
0.3
|
|
|
|
1.5
|
|
|
|
7.8
|
|
|
|
1.7
|
|
|
|
|
|
|
|
5.8
|
|
|
|
20.9
|
|
Interest expense
|
|
|
1.3
|
|
|
|
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
(0.6
|
)
|
|
|
37.3
|
|
|
|
5.4
|
|
|
|
45.9
|
|
Depreciation and amortization
|
|
|
11.0
|
|
|
|
3.1
|
|
|
|
15.5
|
|
|
|
7.2
|
|
|
|
7.9
|
|
|
|
|
|
|
|
2.5
|
|
|
|
47.2
|
|
Income (loss) before income taxes
|
|
|
112.7
|
|
|
|
33.8
|
|
|
|
39.3
|
|
|
|
97.4
|
|
|
|
126.8
|
|
|
|
(107.9
|
)
|
|
|
(81.6
|
)
|
|
|
220.5
|
|
Earnings (losses) from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
0.3
|
|
|
|
15.0
|
|
|
|
0.9
|
|
|
|
17.7
|
|
Goodwill
|
|
|
139.2
|
|
|
|
42.0
|
|
|
|
194.2
|
|
|
|
114.0
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
507.4
|
|
Total assets
|
|
|
1,019.9
|
|
|
|
175.2
|
|
|
|
784.7
|
|
|
|
714.0
|
|
|
|
533.6
|
|
|
|
1,167.9
|
|
|
|
966.9
|
|
|
|
5,362.2
|
|
Investment in and advances to equity method investees
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
|
|
6.1
|
|
|
|
|
|
|
|
1,158.7
|
|
|
|
2.1
|
|
|
|
1,178.2
|
|
Purchases of property and equipment
|
|
|
22.9
|
|
|
|
4.5
|
|
|
|
17.3
|
|
|
|
13.0
|
|
|
|
45.7
|
|
|
|
|
|
|
|
25.7
|
|
|
|
129.1
|
|
Increases (decreases) in other assets, long-term, net
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
3.0
|
|
|
|
1.5
|
|
|
|
(1.7
|
)
|
|
|
(5.5
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Renewables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
|
|
|
Corporate
|
|
|
|
|
|
|
& Nuclear
|
|
|
Maintenance
|
|
|
E&I
|
|
|
E&C
|
|
|
F&M
|
|
|
Westinghouse
|
|
|
and other
|
|
|
Total
|
|
|
Fiscal Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external clients
|
|
$
|
1,635.6
|
|
|
$
|
1,081.5
|
|
|
$
|
1,469.3
|
|
|
$
|
1,063.9
|
|
|
$
|
472.8
|
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
5,723.7
|
|
Intersegment revenues
|
|
|
0.1
|
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
Interest income
|
|
|
3.0
|
|
|
|
1.9
|
|
|
|
1.2
|
|
|
|
4.5
|
|
|
|
0.9
|
|
|
|
|
|
|
|
2.3
|
|
|
|
13.8
|
|
Interest expense
|
|
|
1.5
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
30.6
|
|
|
|
9.6
|
|
|
|
43.4
|
|
Depreciation and amortization
|
|
|
3.6
|
|
|
|
3.5
|
|
|
|
11.6
|
|
|
|
5.7
|
|
|
|
5.9
|
|
|
|
|
|
|
|
11.0
|
|
|
|
41.3
|
|
Income (loss) before income taxes
|
|
|
42.3
|
|
|
|
9.3
|
|
|
|
18.3
|
|
|
|
35.2
|
|
|
|
91.2
|
|
|
|
(66.7
|
)
|
|
|
(96.4
|
)
|
|
|
33.2
|
|
Earnings (losses) from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
(27.4
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
2.2
|
|
|
|
0.1
|
|
|
|
(23.7
|
)
|
Goodwill
|
|
|
148.6
|
|
|
|
42.0
|
|
|
|
194.2
|
|
|
|
111.9
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
514.0
|
|
Total assets
|
|
|
700.2
|
|
|
|
123.9
|
|
|
|
803.1
|
|
|
|
422.1
|
|
|
|
492.8
|
|
|
|
1,136.1
|
|
|
|
972.7
|
|
|
|
4,650.9
|
|
Investment in and advances to equity method investees
|
|
|
|
|
|
|
0.5
|
|
|
|
32.7
|
|
|
|
4.7
|
|
|
|
3.1
|
|
|
|
1,126.7
|
|
|
|
0.3
|
|
|
|
1,168.0
|
|
Purchases of property and equipment
|
|
|
6.9
|
|
|
|
2.8
|
|
|
|
23.2
|
|
|
|
2.4
|
|
|
|
21.5
|
|
|
|
|
|
|
|
8.4
|
|
|
|
65.2
|
|
Increases (decreases) in other assets, long-term, net
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
(5.3
|
)
|
|
|
(6.0
|
)
|
|
|
(0.1
|
)
|
|
|
9.5
|
|
|
|
13.9
|
|
|
|
11.6
|
|
Segment net income (loss) before income taxes does not include
any corporate management fees. Corporate management charges to
segments were $63.4 million, $56.3 million and
$145.7 million for the years ended August 31, 2009,
2008 and 2007, respectively. All expenses related to the award
of options prior to the adoption of FAS 123R were accounted
for as general and administrative expenses and allocated to the
Corporate segment.
F-50
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of total segment assets to total consolidated
assets is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total segment assets
|
|
$
|
6,382.9
|
|
|
$
|
5,362.2
|
|
|
$
|
4,650.9
|
|
Elimination of intercompany receivables
|
|
|
(414.0
|
)
|
|
|
(299.1
|
)
|
|
|
(305.7
|
)
|
Elimination of investments in subsidiaries
|
|
|
(412.1
|
)
|
|
|
(412.1
|
)
|
|
|
(397.1
|
)
|
Income tax entries not allocated to segments
|
|
|
0.4
|
|
|
|
(63.7
|
)
|
|
|
(53.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
5,557.2
|
|
|
$
|
4,587.3
|
|
|
$
|
3,894.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present geographic revenues and long-lived
assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,669.7
|
|
|
$
|
5,422.2
|
|
|
$
|
4,525.1
|
|
Asia/Pacific Rim countries
|
|
|
978.4
|
|
|
|
573.0
|
|
|
|
224.3
|
|
Middle East
|
|
|
386.3
|
|
|
|
719.5
|
|
|
|
789.4
|
|
United Kingdom and other European countries
|
|
|
127.9
|
|
|
|
193.9
|
|
|
|
133.8
|
|
South America and Mexico
|
|
|
51.8
|
|
|
|
33.6
|
|
|
|
22.4
|
|
Canada
|
|
|
37.7
|
|
|
|
25.4
|
|
|
|
15.2
|
|
Other
|
|
|
27.9
|
|
|
|
30.4
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
$
|
5,723.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
450.6
|
|
|
$
|
1,245.6
|
|
|
$
|
1,173.8
|
|
United Kingdom
|
|
|
5.9
|
|
|
|
309.3
|
|
|
|
301.2
|
|
Other foreign countries
|
|
|
46.1
|
|
|
|
32.7
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
502.6
|
|
|
$
|
1,587.6
|
|
|
$
|
1,518.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues are attributed to geographic regions based on location
of the project or the ultimate destination of the product sold.
Long-lived assets include all long-term assets, except those
specifically excluded under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information, such as deferred income taxes.
Major
Customers
Our clients are principally major multi-national industrial
corporations, regulated and merchant energy producers,
governmental agencies and equipment manufacturers. Revenues
related to U.S. government agencies or entities owned by
the U.S. government were $1,543.3 million,
$1,111.0 million and $1,129.3 million for the fiscal
years ended August 31, 2009, 2008 and 2007, respectively,
representing approximately 21.2%, 16% and 20% of our total
revenues for fiscal years 2009, 2008 and 2007, respectively.
These revenues were recorded primarily in our E&I segment.
F-51
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information about our revenues by segment for major clients is
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Number of
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Clients
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Fossil, Renewables & Nuclear
|
|
|
1
|
|
|
$
|
223.2
|
|
|
|
9
|
%
|
Maintenance
|
|
|
2
|
|
|
|
296.3
|
|
|
|
34
|
|
E&I
|
|
|
1
|
|
|
|
1,458.8
|
|
|
|
80
|
|
E&C
|
|
|
2
|
|
|
|
679.1
|
|
|
|
50
|
|
F&M
|
|
|
1
|
|
|
|
116.4
|
|
|
|
19
|
%
|
U.S. government agencies or entities are considered to be
under common control and are treated as a single client of our
E&I segment in the table above.
Export
Revenues
For the fiscal years ended August 31, 2009, 2008 and 2007,
our international revenues include approximately
$1,262.8 million, $721.9 million and
$315.8 million, respectively, of exports from our domestic
facilities.
|
|
Note 15
|
Supplemental
Disclosure to Earnings (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
83,244
|
|
|
|
82,063
|
|
|
|
79,857
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
669
|
|
|
|
1,766
|
|
|
|
|
|
Restricted stock
|
|
|
498
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,411
|
|
|
|
84,152
|
|
|
|
79,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table includes weighted-average shares excluded
from the calculation of diluted income (loss) per share because
they were anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,578
|
|
|
|
301
|
|
|
|
5,451
|
|
Restricted stock
|
|
|
283
|
|
|
|
45
|
|
|
|
1,101
|
|
|
|
Note 16
|
Employee
Benefit Plans
|
The employee benefit and others plans described below cover
eligible employees.
Defined
Contribution Plans
We sponsor voluntary defined contribution plans for
substantially all U.S. employees who are not subject to
collective bargaining agreements. Contributions by eligible
employees are matched by Company contributions up to statutory
levels. We also sponsor similar plans in certain foreign
locations. Our expense for the plans for the fiscal years ended
August 31, 2009, 2008 and 2007, was approximately
$31.9 million, $24.5 million and $20.8 million,
respectively. Our plans offer employees a number of investment
options,
F-52
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including a limited amount for investment in our common stock.
Stock held in the plans is purchased on the open market. At
August 31, 2009 and 2008, our plans owned
1,593,660 shares and 1,075,260 shares, respectively,
of our common stock. The fair value of the common stock owned by
the plans was $46.7 million and $53.3 million at
August 31, 2009 and 2008, respectively.
Defined
Benefit Plans
Certain of our foreign subsidiaries sponsor both contributory
and noncontributory defined benefit plans for their employees.
These plans have been closed to new entrants, and during the
current fiscal year, two of the plans also curtailed future
retirement benefits for all active members. Benefits payable
under these plans will be limited to those benefits accumulated
at the time of curtailment adjusted by statutory inflation
indices where applicable. Our funding policy is to contribute
for current service costs plus minimum special payments when
warranted by applicable regulations. Additionally, we may elect
to make discretionary contributions. During the current fiscal
year we made a special contribution of $13.0 million to one
of our foreign plans.
As discussed in Note 1 Description of Business
and Summary of Significant Accounting Policies, we adopted the
provisions of SFAS 158 for the year ended August 31,
2007, which require us to recognize the funded status of our
defined benefit plans directly in our consolidated balance
sheets. SFAS 158 requires companies to recognize the funded
status of defined benefit pension and other postretirement plans
as a net asset or liability and to recognize changes in that
funded status in the year in which the changes occur through
other comprehensive income to the extent those changes are not
included in the net periodic cost. The funded status reported on
the balance sheet at August 31, 2007 under SFAS 158
was measured as the difference between the fair value of plan
assets and the benefit obligation on a
plan-by-plan
basis. The adoption of SFAS 158 did not impact our
compliance with debt covenants or our cash position. Other
comprehensive income will reflect gain or loss and prior service
costs or credit amounts arising during the period and
reclassification adjustments for amounts being recognized as
components of net periodic benefit cost during the year, net of
tax.
F-53
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Funded
Status
Below is a reconciliation of projected benefit obligations, plan
assets and the funded status of our defined benefit plans (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at the start of the year
|
|
$
|
154,822
|
|
|
$
|
170,500
|
|
Service cost
|
|
|
1,108
|
|
|
|
2,049
|
|
Interest cost
|
|
|
8,255
|
|
|
|
8,740
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
Participants contributions
|
|
|
522
|
|
|
|
902
|
|
Actuarial loss (gain)
|
|
|
12,536
|
|
|
|
(5,657
|
)
|
Benefits paid
|
|
|
(6,925
|
)
|
|
|
(7,202
|
)
|
Curtailment (gain)
|
|
|
(3,179
|
)
|
|
|
|
|
Other
|
|
|
(956
|
)
|
|
|
|
|
Foreign currency exchange
|
|
|
(15,024
|
)
|
|
|
(14,510
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at the end of the year
|
|
$
|
151,159
|
|
|
$
|
154,822
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of the plan assets at the start of the year
|
|
$
|
119,939
|
|
|
$
|
133,131
|
|
Actual return on plan assets
|
|
|
1,508
|
|
|
|
(2,909
|
)
|
Company contributions
|
|
|
18,587
|
|
|
|
7,058
|
|
Participants contributions
|
|
|
522
|
|
|
|
902
|
|
Benefits paid
|
|
|
(6,925
|
)
|
|
|
(7,202
|
)
|
Foreign currency exchange
|
|
|
(11,364
|
)
|
|
|
(11,041
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of the plan assets at the end of the year
|
|
|
122,267
|
|
|
|
119,939
|
|
|
|
|
|
|
|
|
|
|
Funded Status at end of the year
|
|
$
|
(28,892
|
)
|
|
$
|
(34,883
|
)
|
|
|
|
|
|
|
|
|
|
The funded status of our defined benefit pension plans totaling
$28.9 million and $34.9 million at August 31,
2009 and August 31, 2008, respectively, are included in
non-current liabilities on our consolidated balance sheet.
F-54
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Periodic Benefit Cost and Other Changes Recognized in Other
Comprehensive Income (Loss)
The following tables presents the components of net periodic
benefit cost and changes recognized in other comprehensive
income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,063
|
|
|
$
|
2,049
|
|
|
$
|
2,976
|
|
Interest cost
|
|
|
7,904
|
|
|
|
8,740
|
|
|
|
8,231
|
|
Expected return on plan assets
|
|
|
(6,420
|
)
|
|
|
(8,859
|
)
|
|
|
(8,497
|
)
|
Amortization of net loss
|
|
|
2,472
|
|
|
|
2,170
|
|
|
|
2,632
|
|
Curtailment (gain)
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost
|
|
$
|
2,330
|
|
|
$
|
4,100
|
|
|
$
|
5,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses totaling $63.3 million
and $49.4 million at August 31, 2009 and
August 31, 2008, respectively, are classified in
accumulated other comprehensive loss.
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted Average Assumptions Used to Determine
Benefit Obligations at August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.60-5.75
|
%
|
|
|
6.00-6.20
|
%
|
|
|
5.50-5.75
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00-4.70
|
%
|
|
|
4.00-4.50
|
%
|
Weighted Average Assumptions Used to Determine
Net Periodic Benefit Cost for Years Ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate at end of the year
|
|
|
6.00-6.20
|
%
|
|
|
5.50-5.75
|
%
|
|
|
5.00-5.25
|
%
|
Expected return on plan assets for the year
|
|
|
6.40-7.00
|
%
|
|
|
7.00-7.25
|
%
|
|
|
6.40-7.25
|
%
|
Rate of compensation increase at end of the year
|
|
|
4.00-4.70
|
%
|
|
|
3.25-4.50
|
%
|
|
|
4.00-4.75
|
%
|
We record annual amounts relating to our pension plans based on
calculations that incorporate various actuarial and other
assumptions including discount rates, mortality, assumed rates
of return, compensation increases and turnover rates. We review
assumptions on an annual basis and make modifications to the
assumptions based on current rates and trends when it is
appropriate to do so. The effect of modifications to those
assumptions is recorded in accumulated other comprehensive
income beginning September 1, 2006 and amortized to net
periodic cost over future periods using the corridor method. We
believe that the assumptions utilized in recording our
obligations under our plans are reasonable based on our
experience and market conditions.
Accumulated
Benefit Obligation and Estimated Future Benefit
Payments
The accumulated benefit obligations for the plans were $151.2
and $139.3 million at August 31, 2009 and 2008,
respectively. We estimate that $3.4 million of net
actuarial loss will be amortized from accumulated other
comprehensive income into net pension expense during fiscal year
2010.
F-55
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan
Assets, Investment Policies and Strategies and Expected
Long-Term Rate of Return on Plan Assets
Pension plan asset allocations at August 31, 2009 and 2008,
by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Equity securities
|
|
|
52.7
|
%
|
|
|
48.6
|
%
|
Debt securities
|
|
|
42.7
|
|
|
|
45.6
|
|
Other
|
|
|
4.6
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The plan trustees are responsible for ensuring that the
investments of the plans are managed in a prudent and effective
manner, and at a reasonable cost, so that there will be
sufficient amounts to meet the benefits as they mature. To this
end, the investment objective is to balance return and funding
risks.
Each plan has a target asset allocation. On a combined basis,
target asset allocations range from 20%-56% for equity
securities, 30%-60% for debt securities, and 0%-20% for other
investments. Asset class targets may vary from the stated
allocations depending upon prevailing market conditions. In
estimating the expected return on plan assets, the Company
considers past performance and future expectations for both the
types and expected mix of investments held.
Contributions
and Benefit Payments
We expect to contribute $4.6 million to the plans in fiscal
year 2010. The following benefit payments are expected to be
paid from plans (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Pension Benefits
|
|
|
2010
|
|
$
|
7,125
|
|
2011
|
|
|
6,226
|
|
2012
|
|
|
6,394
|
|
2013
|
|
|
6,567
|
|
2014
|
|
|
6,735
|
|
2015 2019
|
|
|
36,030
|
|
In addition to the pension plans disclosed above, we sponsor a
defined benefit pension plan for certain former employees of one
of our subsidiaries. No new participants have been admitted to
the plan in the last thirteen years. The plans benefit
formulas generally base payments to retired employees upon their
length of service. The plans assets are invested in fixed
income and equity based mutual funds. At August 31, 2009
and 2008, the fair market value of the plan assets was
$1.1 million and $1.3 million, respectively, which
exceeded the estimated accumulated projected benefit obligation
each year. Pension assets included in non-current assets at
August 31, 2009 and 2008 were $0.9 million and
$1.1 million, respectively.
Supplemental
Deferred Compensation Plans
We deposited cash of $1.1 million and $2.4 million
during the years ended August 31, 2009 and August 31,
2008, respectively, for a limited number of key employees under
the terms of our Deferred Compensation Plans. These are
non-qualified plans for a select group of our highly compensated
employees and are utilized primarily as vehicles to provide
discretionary deferred compensation amounts, subject to
multi-year cliff vesting requirements, in connection with the
recruitment or retention of key employees. These long-term
deferral awards are evidenced by individual agreements with the
participating employees and generally require the employee to
maintain continuous employment with us or an affiliate for a
minimum
F-56
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
period of time. Participating employees direct the funds into
investment options, and earnings and losses related to the
investments are reflected in each participating employees
account. At August 31, 2009 and August 31, 2008, other
assets include $11.0 million and $11.4 million,
respectively, related to these plans.
We previously deposited $15.0 million for our Chief
Executive Officer into an irrevocable trust (often referred to
as a Rabbi Trust) for purposes of a non-compete agreement. At
August 31, 2009 and August 31, 2008, other current
assets include $18.1 million and $18.0 million,
respectively, related to this non-compete agreement. The amount
of the initial deposit was previously expensed.
In addition to our contributions to the Deferred Compensation
Plan, we deposited cash of $1.0 million as of
August 31, 2008 into interest bearing accounts pursuant to
employment agreements entered into with certain employees. As of
August 31, 2009 and August 31, 2008, other assets
include $2.1 million related to these employment agreements.
Compensation expense recognized in the years ended
August 31, 2009, 2008 and 2007 was $3.9 million,
$4.2 million and $3.3 million, respectively, for these
agreements.
|
|
Note 17
|
Related
Party Transactions
|
In January 2003, our subsidiary, Stone & Webster,
Inc., was awarded a subcontract to perform engineering services
(ESA) for Bernhard Mechanical Contractors, Inc. (BMC). Our
Chairman, President and Chief Executive Officers brother
is an executive officer and a significant owner of BMC. The
total consideration for the engineering services provided was
approximately $2.0 million. In connection with the ESA, we
entered into an assignable guaranty agreement (Guaranty) with
BMC under which we agreed, subject to several conditions
precedent, to guarantee possible BMC obligations which could be
owed by BMC to its client pursuant to a separate
performance-based services and equipment contract. We recorded
the Guaranty at its fair value of approximately
$0.3 million. As consideration for the Guaranty, we entered
into an indemnification and fee agreement (Fee Agreement) with
BMC pursuant to which, among other things, BMC must pay us an
annual fee. In June 2009 we amended the Fee Agreement to include
quarterly financial certifications in lieu of other obligations.
BMC and the client are engaged in protracted litigation, to
which Shaw is not a party. We do not believe the litigation will
affect the probability of our obligation to make a payment under
the Guaranty, which we believe remains remote. While we expect
that we will not be required to make any payments under the
Guaranty, we estimate the maximum potential amount of any future
payment obligation (undiscounted) to be approximately
$13.0 million over the remaining term of the contract.
During fiscal 2009, we subcontracted a portion of our work,
primarily related to construction services, with two companies
owned by L. Lane Grigsby, a member of our Board until
January 28, 2009. There were no material payments made to
these companies during fiscal year 2009 and there was a balance
of $0.2 million due to the other company as of
August 31, 2009. We believe this subcontracted work was
performed under similar terms as would have been negotiated with
an unrelated party.
During fiscal year 2009, Steven Tritch served as Chairman of the
Board of Directors of Westinghouse Electric Company
(Westinghouse), a group company of Toshiba. Through
our Investment in Westinghouse, we have exclusive rights to bid
on EPC services on future AP1000 nuclear power technology units
to be built in the U.S. and other locations.
Mr. Tritch became a member of our Board effective
April 22, 2009, and his term on the Westinghouse Board
ended on July 1, 2009.
Our significant unconsolidated subsidiary that is accounted for
using the equity method of accounting is our Investment in
Westinghouse (see Note 6 Equity Method
Investments and Variable Interest Entities).
F-57
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18
|
Accumulated
Other Comprehensive Income (Loss)
|
The after-tax components of accumulated other comprehensive
income (loss) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westinghouses
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax other
|
|
|
Rate Swap
|
|
|
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
Comprehensive
|
|
|
Contract on
|
|
|
|
|
|
Other
|
|
|
|
Currency
|
|
|
Income (loss),
|
|
|
JPY-
|
|
|
Pension
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Net of
|
|
|
Denominated
|
|
|
Liability
|
|
|
Income
|
|
|
|
Adjustments
|
|
|
Shaws tax
|
|
|
Bonds
|
|
|
Adjustments
|
|
|
(Loss)
|
|
|
Balance at August 31, 2006
|
|
$
|
(7,824
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(17,539
|
)
|
|
$
|
(25,363
|
)
|
Current period change
|
|
|
1,404
|
|
|
|
19,593
|
|
|
|
(4,000
|
)
|
|
|
(8,707
|
)
|
|
|
8,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2007
|
|
|
(6,420
|
)
|
|
|
19,593
|
|
|
|
(4,000
|
)
|
|
|
(26,246
|
)
|
|
|
(17,073
|
)
|
Current period change
|
|
|
6,837
|
|
|
|
6,467
|
|
|
|
(1,360
|
)
|
|
|
(4,480
|
)
|
|
|
7,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2008
|
|
|
417
|
|
|
|
26,060
|
|
|
|
(5,360
|
)
|
|
|
(30,726
|
)
|
|
|
(9,609
|
)
|
Current Period Change
|
|
|
(10,339
|
)
|
|
|
(80,717
|
)
|
|
|
(13,857
|
)
|
|
|
(7,444
|
)
|
|
|
(112,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2009
|
|
$
|
(9,922
|
)
|
|
$
|
(54,657
|
)
|
|
$
|
(19,217
|
)
|
|
$
|
(38,170
|
)
|
|
$
|
(121,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19
|
Long-Term
Construction Accounting for Revenue and Profit/Loss Recognition
Including Claims, Unapproved Change Orders and
Incentives
|
Claims include amounts in excess of the original contract price
(as it may be adjusted for approved change orders) that we seek
to collect from our clients for delays, errors in specifications
and designs, contract terminations, change orders in dispute or
unapproved as to both scope and price, or other causes of
unanticipated additional costs and are included in estimated
revenues when recovery of the amounts is probable and the costs
can be reasonably estimated. Backcharges and claims against
vendors, subcontractors and others are included in our cost
estimates as a reduction in total estimated costs when recovery
of the amounts is probable and the costs can be reasonably
estimated. As a result, the recording of claims increases gross
profit or reduces gross loss on the related projects in the
periods the claims are reported. Profit recognition on claims is
deferred until the change order has been approved or the
disputed amounts have been settled. Claims receivable are
included in costs in excess and estimated earnings and billings
on uncompleted contracts on the accompanying consolidated
balance sheets.
We enter into cost-reimbursable arrangements in which the final
outcome or overall estimate at completion may be materially
different than the original contract value. While the terms of
such contracts indicate costs are to be reimbursed by our
clients, we typically process change notice requests to document
agreement as to scope and price. Due to the nature of these
items, we have not classified and disclosed the amounts as
unapproved change orders. While we have no history of
significant losses on this type of work, potential exposure
exists relative to costs incurred in excess of agreed upon
contract value.
Unapproved
Change Orders and Claims
The table below summarizes information related to our
significant unapproved change orders and claims from project
owners that we have recorded as of August 31, 2009 and
excludes all unrecorded amounts and
F-58
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
individually small unapproved change orders and claims. The
amounts included in determining the estimated contract gross
profit or loss on contracts and the amounts accrued in revenues
is as follows (in millions):
|
|
|
|
|
Amounts included in project
estimates-at-completion
at September 1, 2008
|
|
|
63.6
|
|
Changes in
estimates-at-completion
|
|
|
197.2
|
|
Approved by client
|
|
|
(37.9
|
)
|
|
|
|
|
|
Amounts included in project
estimates-at-completion
August 31, 2009
|
|
|
222.9
|
|
|
|
|
|
|
Amounts accrued in revenues (or reductions to contract costs) at
August 31, 2009
|
|
$
|
86.9
|
|
|
|
|
|
|
Included in our project
estimates-at-completion
at August 31, 2009 and shown in the table above are
expected cost recoveries associated with a claim of
approximately $100.0 million for price adjustments on a new
construction project. To date, we have recorded less than
$0.9 million in revenue in our financial statements, which
is reflected in the Amounts accrued in revenues
above. The remainder of these costs is expected to be incurred
over the life of the contract. While the client has disputed the
period covered in the calculation of the price adjustment, we
believe we are entitled to the amount claimed under our existing
contract with the client.
In addition, we have incorporated in our project
estimate-at-completion
approximately $66.2 million related to unapproved change
orders associated with permitting delays on a coal-plant
construction project. Of this amount, we have recorded
approximately $23.4 million based on percentage completion
accounting, which is included in the Amounts accrued in
revenues in the above table.
The difference between the amounts included in project
estimates-at-completion
(EAC) used in determining contract profit or loss and the
amounts recorded in revenues (or reductions to contract costs)
on uncompleted contracts are the forecasted costs for work which
have not yet been incurred (i.e. remaining
percentage-of-completion
revenue to be recognized on the related project).
If we collect amounts different than the amounts that we have
recorded as unapproved change orders/claims receivable, that
difference will be reflected in the EAC used in determining
contract profit or loss. Timing of claim collections is
uncertain and depends on negotiated settlements, trial date
scheduling and other dispute resolution processes pursuant to
the contracts. As a result, we may not collect our unapproved
change order/claims receivable within the next twelve months.
Also included in unapproved change orders and claims are two
matters currently in arbitration or in litigation. See
Note 13 Contingencies and Commitments for
additional detail.
In addition to the unapproved change orders and claims discussed
above, we have recorded as a reduction to costs approximately
$25.3 million, based on percentage completion accounting,
in expected recoveries for backcharges, liquidated damages and
other cost exposures resulting from supplier or subcontractor
caused impediments to our work. Such impediments may be caused
by the failure of suppliers or subcontractors to provide
services, materials, or equipment compliant with provisions of
our agreements, resulting in delays to our work or additional
costs to remedy. These expected recoveries are included in our
Costs and estimated earnings in excess of billings on
uncompleted contracts, including claims in the current
assets section on our balance sheet.
Should we not prevail in these matters, the outcome could have
an adverse effect on our statement of operations and statement
of cash flows.
Project
Incentives
Our contracts contain certain incentive and award fees that
provide for increasing or decreasing our fee based on some
measure of contract performance in relation to agreed upon
performance targets. The
F-59
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognition of revenues on contracts containing provisions for
incentive and award fees follows
SOP 81-1
and provides that all components of contract revenues, including
incentive payments such as performance incentives and award fees
should be considered in determining total estimated revenues.
Our revenue
estimates-at-completion
include an estimate of amounts that we expect to earn if we
achieve a number of agreed upon criteria. These amounts are
generally based on historic performance either on the specific
contract or with the specific client. At August 31, 2009
and August 31, 2008, our project estimates included
$32.9 million and $68.2 million related to estimated
achievement of these criteria. On a percentage of completion
basis, we have recorded $29.4 million and
$31.4 million of these estimated amounts in revenues for
the related contracts and equal amount in costs and estimated
earnings in excess of billings on uncompleted contracts in the
accompanying balance sheet based on our progress as of
August 31, 2009. If we do not achieve the criteria at the
amounts we have estimated, our revenues and profit related to
this project may be materially reduced. These incentive revenues
are being recognized using the
percentage-of-completion
method of accounting.
Contract
Losses
Accrued contract losses recorded on projects in progress are
included in billings in excess of estimated earnings on
uncompleted contracts and were $7.3 million and
$3.8 million at August 31, 2009 and 2008, respectively.
|
|
Note 20
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended August 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest)
|
|
$
|
31,134
|
|
|
$
|
32,628
|
|
|
$
|
23,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
82,079
|
|
|
$
|
14,498
|
|
|
$
|
8,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums
|
|
$
|
|
|
|
$
|
12,782
|
|
|
$
|
11,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment
|
|
$
|
37,627
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of purchase accounting tax contingency
|
|
$
|
|
|
|
$
|
9,400
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract on Japanese Yen-denominated bonds,
net of tax benefit of $8,711, $775 and $2,667, respectively
|
|
$
|
13,857
|
|
|
$
|
1,360
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses through issuance of debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Westinghouse accumulated other comprehensive income,
net of tax (benefit) of $(50,744), $4,206 and $12,526,
respectively
|
|
$
|
(80,717
|
)
|
|
$
|
6,467
|
|
|
$
|
19,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 21
|
Quarterly
Financial Data (Unaudited)
|
Summarized quarterly financial data for the years ended
August 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
(In thousands, except per share data)
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year ended August 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,900,433
|
|
|
$
|
1,667,517
|
|
|
$
|
1,848,442
|
|
|
$
|
1,863,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
188,093
|
|
|
$
|
102,358
|
|
|
$
|
162,985
|
|
|
$
|
153,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
114,987
|
|
|
$
|
31,953
|
|
|
$
|
84,351
|
|
|
$
|
67,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(7,684
|
)
|
|
$
|
(9,642
|
)
|
|
$
|
(38,501
|
)
|
|
$
|
(7,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation/transaction gains (losses)
|
|
$
|
(163,601
|
)
|
|
$
|
33,993
|
|
|
$
|
(31,924
|
)
|
|
$
|
(35,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest, and
earnings (losses) from unconsolidated entities
|
|
$
|
(58,159
|
)
|
|
$
|
55,419
|
|
|
$
|
14,273
|
|
|
$
|
21,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(39,917
|
)
|
|
$
|
36,335
|
|
|
$
|
7,898
|
|
|
$
|
10,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.48
|
)
|
|
$
|
0.44
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.48
|
)
|
|
$
|
0.43
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
(In thousands, except per share data)
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year ended August 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,712,160
|
|
|
$
|
1,644,561
|
|
|
$
|
1,813,064
|
|
|
$
|
1,828,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
135,018
|
|
|
$
|
123,946
|
|
|
$
|
172,896
|
|
|
$
|
154,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
66,130
|
|
|
$
|
52,283
|
|
|
$
|
100,569
|
|
|
$
|
90,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(6,241
|
)
|
|
$
|
(5,541
|
)
|
|
$
|
(7,053
|
)
|
|
$
|
(6,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation/transaction gains (losses)
|
|
$
|
(56,074
|
)
|
|
$
|
(33,901
|
)
|
|
$
|
(6,529
|
)
|
|
$
|
33,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest, and earnings
(losses) from unconsolidated entities
|
|
$
|
3,520
|
|
|
$
|
13,235
|
|
|
$
|
88,232
|
|
|
$
|
115,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,230
|
|
|
$
|
3,950
|
|
|
$
|
51,954
|
|
|
$
|
82,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.63
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.62
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 22
|
New
Accounting Pronouncements
|
In June 2008, the FASB issued FASB Staff Position (FSP) Emerging
Issues Task Force (EITF)
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities (FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and
therefore, need to be included in the earnings
F-61
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allocation in computing earnings per share. FSP
EITF 03-6-1
is effective for our fiscal year beginning September 1,
2009. We are currently evaluating the impact of FSP
EITF 03-6-1
on our consolidated financial statements. We do not anticipate
that the adoption of FSP
EITF 03-6-1
will have a material effect on our consolidated financial
statements.
In June 2008, the FASB issued EITF
No. 08-3,
Accounting by Lessees for Nonrefundable Maintenance
Deposits
(EITF 08-3).
EITF 08-3
requires a maintenance deposit paid by a lessee under an
arrangement accounted for as a lease that is refunded only if
the lessee performs specified maintenance activities to be
accounted for as a deposit asset. The cumulative effect of the
change in accounting principle shall be recognized as an
adjustment to the opening balance of retained earnings. This
consensus is effective for our fiscal year beginning
September 1, 2009. We are currently evaluating the impact
of
EITF 08-3
on our consolidated financial statements. We do not anticipate
that the adoption of
EITF 08-3
will have a material effect on our consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 requires that ownership interests
in subsidiaries held by parties other than the parent and the
amount of consolidated net income be clearly identified, labeled
and presented in the consolidated financial statements. It also
requires, once a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be
initially measured at fair value. Sufficient disclosures are
required to clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. It is effective for our fiscal year beginning
September 1, 2009 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority
interests. All other requirements shall be applied
prospectively. We do not believe adopting SFAS 160 will
have a material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (SFAS 141R).
SFAS 141R amends SFAS 141 and provides revised
guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed and any noncontrolling
interest in the acquired business. It also provides disclosure
requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. In April 2009, the FASB issued FSP
FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies (FSP
FAS 141R-1).
FSP
FAS 141R-1
amends and clarifies SFAS 141R to address initial
application, subsequent measurement and disclosure issues. These
standards are effective, on a prospective basis, for business
combinations that occur in our fiscal year beginning
September 1, 2009. We do not believe that adopting
SFAS 141R and FSP
FAS 141R-1
will have a material impact on our consolidated financial
statements.
In November 2007, the FASB issued EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements
(EITF 07-1).
EITF 07-1
applies to participants in collaborative arrangements that are
conducted without the creation of a separate legal entity for
the arrangement.
EITF 07-1
is effective for our fiscal year beginning September 1,
2009, and the effects of applying the consensus should be
reported as a change in accounting principle through
retrospective application to all prior periods presented for all
arrangements in place at the effective date unless it is
impracticable. We do not expect
EITF 07-1
to have a material impact on our consolidated financial
statements.
In December 2008, the FASB issued FSP
FAS 132R-1,
Employers Disclosures about Postretirement Benefit
Plan Assets (FSP
FAS 132R-1).
FSP
FAS 132R-1
amends SFAS No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, to
provide guidance on an employers disclosures about plan
assets of a defined benefit pension or other postretirement
plan. The additional disclosure requirements include expanded
disclosure about an entitys investment policies and
strategies, the categories of plan assets, concentrations of
credit risk and fair value measurements of plan assets. FSP
FAS 132R-1
is effective for annual financial statements for fiscal years
ending after December 31, 2009. We will amend our
disclosures accordingly beginning with our consolidated
financial statements included in our fiscal year 2010
Form 10-K.
F-62
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2009, the FASB issued FSP
SFAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
SFAS 107-1
and APB
28-1). FSP
SFAS 107-1
and APB 28-1
amends SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures
about fair value of financial instruments in interim financial
statements as well as in annual financial statements. This FSP
also amends Accounting Principles Board Opinion No. 28,
Interim Financial Reporting, to require those
disclosures in summarized financial information at interim
reporting periods. This FSP
SFAS 107-1
and APB 28-1
is effective for our interim period ending November 30,
2009. We do not expect FSP
SFAS 107-1
and APB 28-1
to have a material impact on our consolidated financial
statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 amends FIN 46(R) and
requires a company to perform an analysis to determine whether
its variable interests give it a controlling financial interest
in a variable interest entity. This analysis requires a company
to assess whether it has the power to direct the activities of
the variable interest entity and if it has the obligation to
absorb losses or the right to receive benefits that could
potentially be significant to the variable interest entity.
SFAS 167 requires an ongoing reassessment of whether a
company is the primary beneficiary of a variable interest
entity, eliminates the quantitative approach previously required
for determining the primary beneficiary of a variable interest
entity and significantly enhances disclosures. SFAS 167 may
be applied retrospectively in previously issued financial
statements with a cumulative-effect adjustment to retained
earnings as of the beginning of the first year restated.
SFAS 167 is effective for fiscal years beginning after
November 15, 2009. We are currently evaluating the impact
that the adoption of SFAS 167 will have on our consolidated
financial statements.
In June 2009, the FASB issued FAS 168, The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (SFAS 168). SFAS 168 establishes
the FASB Accounting Standards
Codificationtm
(Codification) as the single source of authoritative
U.S. generally accepted accounting principles
(U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources
of authoritative U.S. GAAP for SEC registrants.
SFAS 168 and the Codification are effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. When effective, the Codification will
supersede all existing non-SEC accounting and reporting
standards. The Codification is effective for us during our
interim period ending November 30, 2009 and will not have
an impact on our consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update
No. 2009-13
Multiple-Deliverable Revenue Arrangements a
consensus of the FASB Emerging Issues Task Force (ASU
2009-13)
which updates Topic 605, Revenue Recognition, of the
Codification. ASU
2009-13
provides another alternative for determining the selling price
of deliverables and will allow companies to allocate arrangement
consideration in multiple deliverable arrangements in a manner
that better reflects the transactions economics and could
result in earlier revenue recognition. ASU
2009-13 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010; however, early adoption is permitted. We are
currently evaluating the impact of adopting ASU
2009-13 on
our consolidated financial statements.
F-63
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
COMBINED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2009 and 2008, and
The Six-Month Period Ended March 31, 2007
CONTENTS
|
|
|
|
|
|
|
|
F-65
|
|
Combined Financial Statements
|
|
|
|
|
|
|
|
F-66
|
|
|
|
|
F-67
|
|
|
|
|
F-68
|
|
|
|
|
F-69
|
|
|
|
|
F-70
|
|
F-64
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Toshiba Nuclear
Energy Holdings (US), Inc. Toshiba Nuclear Energy Holdings (UK)
Ltd.
We have audited the accompanying combined balance sheets of
Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear
Energy Holdings (UK) Ltd. (the Company) as of March 31,
2009 and 2008, and the related combined statements of operations
and comprehensive income, stockholders equity, and cash
flows for the fiscal years ended March 31, 2009 and 2008,
and for the period from inception (October 1, 2006) to
March 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our 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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
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. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd. at March 31, 2009
and 2008, and the combined results of their operations and their
cash flows for the fiscal years ended March 31, 2009 and
2008, and for the period from inception (October 1,
2006) to March 31, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 6 to the combined financial
statements, at March 31, 2007, and during the fiscal year
ended March 31, 2009, the Company adopted the liability
provisions and measurement date provisions of FASB Statement
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. As discussed in
Note 7 to the combined financial statements, the Company
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, during the
fiscal year ended March 31, 2008.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 25, 2009
F-65
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
192,267
|
|
|
$
|
287,431
|
|
Receivables, net of allowance for doubtful accounts of $368 and
$213, respectively
|
|
|
361,034
|
|
|
|
384,221
|
|
Related-party receivables (Note 18)
|
|
|
213,824
|
|
|
|
252,520
|
|
Inventories (Note 8)
|
|
|
514,879
|
|
|
|
474,564
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
587,480
|
|
|
|
307,478
|
|
Amounts earned in excess of billings
|
|
|
57,783
|
|
|
|
53,246
|
|
Deferred income tax assets (Note 7)
|
|
|
67,857
|
|
|
|
76,774
|
|
Other current assets (Notes 3, 10)
|
|
|
133,391
|
|
|
|
162,496
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,128,515
|
|
|
|
1,998,730
|
|
NONCURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net (Note 9)
|
|
|
568,076
|
|
|
|
514,816
|
|
Goodwill (Notes 2, 5)
|
|
|
2,761,429
|
|
|
|
3,058,418
|
|
Other intangible assets, net (Note 5)
|
|
|
1,805,850
|
|
|
|
2,041,048
|
|
Uranium working stock (Note 11)
|
|
|
460,919
|
|
|
|
702,751
|
|
Other noncurrent assets (Notes 6, 10)
|
|
|
93,265
|
|
|
|
141,335
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
5,689,539
|
|
|
|
6,458,368
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
7,818,054
|
|
|
$
|
8,457,098
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
413,339
|
|
|
$
|
251,855
|
|
Related-party payables (Note 18)
|
|
|
51,788
|
|
|
|
389
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
949,115
|
|
|
|
687,411
|
|
Amounts billed in excess of revenue
|
|
|
165,882
|
|
|
|
176,623
|
|
Reserves for settlement obligations (Note 15)
|
|
|
15,806
|
|
|
|
22,517
|
|
Secured borrowings (Note 12)
|
|
|
|
|
|
|
50,000
|
|
Other current liabilities (Notes 3, 6, 13)
|
|
|
464,077
|
|
|
|
433,708
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,060,007
|
|
|
|
1,622,503
|
|
NONCURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Reserves for settlement obligations (Note 15)
|
|
|
13,081
|
|
|
|
28,751
|
|
Reserves for decommissioning matters (Note 4)
|
|
|
223,596
|
|
|
|
253,193
|
|
Benefit obligations (Note 6)
|
|
|
337,912
|
|
|
|
220,687
|
|
Deferred income tax liabilities (Note 7)
|
|
|
310,390
|
|
|
|
476,892
|
|
Other noncurrent liabilities (Note 13)
|
|
|
84,417
|
|
|
|
99,989
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
969,396
|
|
|
|
1,079,512
|
|
MINORITY INTEREST
|
|
|
4,691
|
|
|
|
4,728
|
|
STOCKHOLDERS EQUITY (NOTES 3, 6, 14)
|
|
|
4,783,960
|
|
|
|
5,750,355
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
7,818,054
|
|
|
$
|
8,457,098
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Year Ended March 31
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
NET REVENUES (NOTES 2, 3)
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
|
$
|
1,124,119
|
|
COST OF GOODS SOLD
|
|
|
2,662,412
|
|
|
|
2,043,109
|
|
|
|
823,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
732,886
|
|
|
|
667,346
|
|
|
|
301,097
|
|
MARKETING, ADMINISTRATIVE AND GENERAL EXPENSES
|
|
|
526,487
|
|
|
|
484,860
|
|
|
|
235,619
|
|
AMORTIZATION OF INTANGIBLES (NOTES 2, 5)
|
|
|
77,523
|
|
|
|
78,508
|
|
|
|
39,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
128,876
|
|
|
|
103,978
|
|
|
|
26,369
|
|
INTEREST AND OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
16,775
|
|
|
|
23,961
|
|
|
|
9,712
|
|
Interest expense
|
|
|
(6,470
|
)
|
|
|
(12,915
|
)
|
|
|
(9,445
|
)
|
(Loss) gain on foreign currency transactions, net
|
|
|
(23,267
|
)
|
|
|
17,381
|
|
|
|
773
|
|
Other (expense) income, net
|
|
|
(422
|
)
|
|
|
2,090
|
|
|
|
(4,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income (expense)
|
|
|
(13,384
|
)
|
|
|
30,517
|
|
|
|
(3,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST IN INCOME FROM
CONSOLIDATED SUBSIDIARIES
|
|
|
115,492
|
|
|
|
134,495
|
|
|
|
22,998
|
|
INCOME TAX PROVISION (NOTE 7)
|
|
|
47,648
|
|
|
|
24,176
|
|
|
|
9,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE MINORITY INTERESTS SHARE
|
|
|
67,844
|
|
|
|
110,319
|
|
|
|
13,135
|
|
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES
|
|
|
(264
|
)
|
|
|
(779
|
)
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
67,580
|
|
|
|
109,540
|
|
|
|
12,569
|
|
OTHER COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives (Note 3)
|
|
|
(15,550
|
)
|
|
|
(6,890
|
)
|
|
|
(856
|
)
|
Unrealized (loss) income related to pension and other
postretirement benefit plans (Note 6)
|
|
|
(96,823
|
)
|
|
|
23,161
|
|
|
|
3,430
|
|
Unrealized foreign currency (loss) gain on translation adjustment
|
|
|
(844,488
|
)
|
|
|
104,998
|
|
|
|
112,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
|
|
(956,861
|
)
|
|
|
121,269
|
|
|
|
115,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
$
|
(889,281
|
)
|
|
$
|
230,809
|
|
|
$
|
127,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Capital Stock
|
|
|
Retained Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Invested capital
|
|
$
|
5,400,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,400,000
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
12,569
|
|
|
|
|
|
|
|
12,569
|
|
Unrealized loss on derivatives, net of tax effect of $570
|
|
|
|
|
|
|
|
|
|
|
(856
|
)
|
|
|
(856
|
)
|
Change in unrecognized gains (losses) and prior service cost
related to pension and other postretirement benefit plans, net
of tax effect of $2,286
|
|
|
|
|
|
|
|
|
|
|
3,430
|
|
|
|
3,430
|
|
Unrealized foreign currency gain on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
112,573
|
|
|
|
112,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
12,569
|
|
|
|
115,147
|
|
|
|
127,716
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2007
|
|
|
5,400,000
|
|
|
|
12,569
|
|
|
|
115,147
|
|
|
|
5,527,716
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
109,540
|
|
|
|
|
|
|
|
109,540
|
|
Unrealized loss on derivatives, net of tax effect of $1,271
|
|
|
|
|
|
|
|
|
|
|
(6,890
|
)
|
|
|
(6,890
|
)
|
Change in unrecognized gains (losses) and prior service cost
related to pension and other postretirement benefit plans, net
of tax effect of $15,755
|
|
|
|
|
|
|
|
|
|
|
23,161
|
|
|
|
23,161
|
|
Unrealized foreign currency gain on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
104,998
|
|
|
|
104,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
109,540
|
|
|
|
121,269
|
|
|
|
230,809
|
|
Dividends
|
|
|
|
|
|
|
(8,170
|
)
|
|
|
|
|
|
|
(8,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2008
|
|
|
5,400,000
|
|
|
|
113,939
|
|
|
|
236,416
|
|
|
|
5,750,355
|
|
Cumulative effect of accounting for the SFAS No. 158
remeasurement adjustment, net of tax effect of $3,687
|
|
|
|
|
|
|
(5,913
|
)
|
|
|
|
|
|
|
(5,913
|
)
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
67,580
|
|
|
|
|
|
|
|
67,580
|
|
Unrealized loss on derivatives, net of tax effect of $2,902
|
|
|
|
|
|
|
|
|
|
|
(15,550
|
)
|
|
|
(15,550
|
)
|
Change in unrecognized gains (losses) and prior service cost
related to pension and other postretirement benefit plans, net
of tax effect of $(59,572)
|
|
|
|
|
|
|
|
|
|
|
(96,823
|
)
|
|
|
(96,823
|
)
|
Unrealized foreign currency (loss) on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(844,488
|
)
|
|
|
(844,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
67,580
|
|
|
|
(956,861
|
)
|
|
|
(889,281
|
)
|
Dividends
|
|
|
|
|
|
|
(71,201
|
)
|
|
|
|
|
|
|
(71,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2009
|
|
$
|
5,400,000
|
|
|
$
|
104,405
|
|
|
$
|
(720,445
|
)
|
|
$
|
4,783,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Year Ended March 31
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
67,580
|
|
|
$
|
109,540
|
|
|
$
|
12,569
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
148,597
|
|
|
|
139,808
|
|
|
|
69,065
|
|
Deferred income taxes
|
|
|
(1,109
|
)
|
|
|
(29,402
|
)
|
|
|
(4,573
|
)
|
Loss (gain) on sale of property, plant, and equipment
|
|
|
2,185
|
|
|
|
318
|
|
|
|
(36
|
)
|
Loss (gain) on foreign currency translation
|
|
|
23,267
|
|
|
|
(17,381
|
)
|
|
|
(773
|
)
|
Minority interest
|
|
|
264
|
|
|
|
779
|
|
|
|
566
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(21,553
|
)
|
|
|
(105,628
|
)
|
|
|
67,718
|
|
Notes repaid by related parties
|
|
|
927,630
|
|
|
|
542,967
|
|
|
|
|
|
Notes issued to related parties
|
|
|
(884,872
|
)
|
|
|
(444,448
|
)
|
|
|
(351,008
|
)
|
Inventories
|
|
|
(82,574
|
)
|
|
|
73,245
|
|
|
|
(146,091
|
)
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
(323,942
|
)
|
|
|
(150,427
|
)
|
|
|
(17,207
|
)
|
Other current assets
|
|
|
30,072
|
|
|
|
(99,057
|
)
|
|
|
17,254
|
|
Other noncurrent assets
|
|
|
47,864
|
|
|
|
(36,976
|
)
|
|
|
(55,697
|
)
|
Accounts payable and other current liabilities
|
|
|
85,069
|
|
|
|
187,131
|
|
|
|
127,462
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
303,716
|
|
|
|
130,500
|
|
|
|
105,597
|
|
Amounts billed in excess of revenue
|
|
|
(1,375
|
)
|
|
|
53,833
|
|
|
|
(13,643
|
)
|
Amounts earned in excess of billings
|
|
|
(6,269
|
)
|
|
|
(7,088
|
)
|
|
|
10,402
|
|
Other noncurrent liabilities
|
|
|
(52,653
|
)
|
|
|
14,409
|
|
|
|
57,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
261,897
|
|
|
|
362,123
|
|
|
|
(120,534
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition of Westinghouse, net of cash acquired
|
|
|
|
|
|
|
(47,972
|
)
|
|
|
(5,135,502
|
)
|
Acquisitions of businesses and intangible assets, net of cash
acquired
|
|
|
(2,000
|
)
|
|
|
(65,289
|
)
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
17
|
|
|
|
49
|
|
|
|
1,480
|
|
Purchases of property, plant and equipment
|
|
|
(168,503
|
)
|
|
|
(86,830
|
)
|
|
|
(43,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(170,486
|
)
|
|
|
(200,042
|
)
|
|
|
(5,177,108
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested capital
|
|
|
|
|
|
|
|
|
|
|
5,400,000
|
|
Payment of secured debt
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(71,201
|
)
|
|
|
(8,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(121,201
|
)
|
|
|
(8,170
|
)
|
|
|
5,400,000
|
|
EFFECT OF FOREIGN CURRENCY TRANSLATION
|
|
|
(65,374
|
)
|
|
|
20,809
|
|
|
|
10,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(95,164
|
)
|
|
|
174,720
|
|
|
|
112,711
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
287,431
|
|
|
|
112,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
192,267
|
|
|
$
|
287,431
|
|
|
$
|
112,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,145
|
|
|
$
|
5,504
|
|
|
$
|
3,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
46,173
|
|
|
$
|
63,078
|
|
|
$
|
18,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing of business acquisition
|
|
$
|
|
|
|
$
|
8,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-69
Fiscal Years Ended March 31, 2009 and 2008, and
Six-Month Period Ended March 31, 2007
|
|
1.
|
DESCRIPTION
OF BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
|
DESCRIPTION
OF BUSINESS
The combined financial statements include the accounts of the
holding companies Toshiba Nuclear Energy Holdings (US), Inc.
(TNEH-US) and subsidiaries and Toshiba Nuclear Energy Holdings
(UK) Ltd. (TNEH-UK) and subsidiaries (collectively, the
Company). On October 16, 2006, Toshiba Corporation
(Toshiba) acquired BNFL USA Group Inc. and Westinghouse Electric
UK Ltd. (collectively, Westinghouse) from BNFL, plc through
TNEH-US and TNEH-UK for its extensive expertise in nuclear power
generation and nuclear fuel and its worldwide market presence.
Toshiba acquired a 77% ownership and control of the Company. The
remaining 23% at the acquisition date was held by two strategic
partner companies: the Shaw Group Inc. (Shaw), 20% and IHI
Corporation (IHI), 3%. On October 1, 2007, National Atomic
Company Kazatomprom (Kazatomprom), a Kazakhstan joint stock
company, acquired a 10% interest in each of the holding
companies from Toshiba, reducing the Toshiba ownership of the
Company to 67%. Toshiba, Shaw, IHI and Kazatomprom have entered
into Shareholders Agreements for TNEH-US (U.S. Shareholders
Agreement) and TNEH-UK (UK Shareholders Agreement), which define
the owners rights and obligations with respect to
capitalization, management, control, dividends, shareholdings,
and certain other matters relating to TNEH-US and TNEH-UK.
For accounting purposes, the effective date of the acquisition
was October 1, 2006. The acquisition has been accounted for
under the purchase method of accounting, with the total purchase
price being allocated to Westinghouses identifiable assets
acquired and liabilities assumed based on fair values. The
excess of the purchase price over the identifiable tangible and
intangible assets was recorded as goodwill and is attributable
to the renewed global interest in nuclear energy and the related
potential earnings that may result from this interest. The
allocation of the purchase price for property and equipment,
intangible assets and deferred income taxes was based upon
valuation data at the date of the transaction.
TNEH-US and TNEH-UK are under common ownership, control and
management, and therefore, their accounts have been combined.
The Company operates on a fiscal year ended March 31. These
combined financial statements are for the fiscal years ended
March 31, 2009 and 2008, and the six-month period ended
March 31, 2007. All significant intercompany transactions
and balances have been eliminated in combination.
The Company serves the domestic and international nuclear
electric power industry by supplying advanced nuclear plant
designs and equipment, fuel and a wide range of other products
and services to the owners and operators of commercial nuclear
power plants.
BASIS
OF FINANCIAL STATEMENT PRESENTATION
The accompanying combined financial statements include the
assets and liabilities of the Company as of March 31, 2009
and 2008, and the results of operations for the fiscal years
ended March 31, 2009 and 2008, and the six-month period
ended March 31, 2007. Unless otherwise indicated, all
dollar amounts in these combined financial statements and notes
thereto are presented in thousands. Certain amounts for prior
periods have been reclassified to conform to presentation for
the fiscal year ended March 31, 2009.
SIGNIFICANT
ACCOUNTING POLICIES
Use of estimates The preparation of financial
statements in conformity with U.S. generally accepted
accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the reported amounts of contingent
assets and liabilities at the date of the
F-70
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Revenue recognition The Companys
products are generally sold based upon purchase orders or
contracts with customers that do not include right of return
provisions or other significant postdelivery obligations, beyond
warranty obligations. Products are manufactured by a standard
production process, even if manufactured to customers
specifications. Revenue is recognized from product sales when
title passes to the customer, the customer assumes risks and
rewards of ownership, and collectibility is reasonably assured.
Revenue from contracts to provide construction, engineering,
design, or other services is reported on the
percentage-of-completion
method of accounting, in accordance with Statement of Position
No. 81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP No. 81-1).
The Company bases its estimate of the degree of completion of
the contract by reviewing the relationship of costs incurred to
date to the expected total costs that will be incurred on the
project. In the case of modifications to the contract, revenue
is recognized when the change order has been agreed to by the
customer and approval is probable, but no margin is recognized
until a final executed change order is obtained.
Estimated contract earnings are reviewed and revised
periodically as the work progresses, and the cumulative effect
of any change in estimate is recognized in the period in which
the change is identified. Estimated losses are charged against
earnings in the period such losses are identified. The Company
recognizes revenue arising from contract claims either as income
or as an offset against a potential loss only when the amount of
the claim can be estimated reliably, realization is probable and
there is a legal basis of the claim.
Revenue for sales of multiple deliverables (which could be
different combinations of the Companys products and
services in one or a series of related contracts) is recognized
based on the relative fair value of the deliverables in
accordance with Emerging Issues Task Force Issue
00-21,
Revenue Arrangements with Multiple Deliverables. Relative
fair value is generally determined based on sales of similar
products and services in stand-alone contracts.
Uncertainties inherent in the performance of contracts include
labor availability and productivity, material costs, change
orders for scope and pricing, and customer acceptance issues.
The reliability of these cost estimates is critical to the
Companys revenue recognition as a significant change in
the estimates can cause the Companys revenue and related
margins to change significantly from the amounts estimated in
the early stages of a project.
Costs and estimated earnings in excess of billings on
uncompleted contracts (an asset) represent costs and estimated
profit thereon in excess of related contract billings on
contracts that are accounted for under the
percentage-of-completion
method and in progress at the balance sheet date. Billings in
excess of costs and estimated earnings on uncompleted contracts
(a liability) represent billings on contracts in excess of
related contract costs and estimated profit thereon at the
balance sheet date. Billings are generally based on the terms
for contracts accounted for under the
percentage-of-completion
method and progress of the contracts and may have no direct
relationship to the actual costs incurred at a given point in
time.
Under certain contracts to supply nuclear fuel to operating
plants, the Company may receive advanced payments ahead of
shipments or it may ship and defer billing for a short period of
time. Revenue is recognized when the product is shipped and risk
of loss is transferred to the customer for these contracts. Cash
received prior to revenue recognition for these contracts is
reported as amounts billed in excess of revenue in the
accompanying combined balance sheets. Deferred billings after
product has shipped are reported as amounts earned in excess of
billings in the accompanying combined balance sheets.
F-71
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Goodwill and other intangible assets
Impairment of goodwill and intangible assets with indefinite
lives is assessed under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, which requires goodwill and intangible
assets with indefinite lives to be tested annually for
impairment, with more frequent tests required if indications of
impairment exist. Under SFAS No. 142, impairment of
intangible assets with indefinite lives exists if the carrying
value of the intangible asset exceeds its fair value. Goodwill
is considered to be impaired under SFAS No. 142 if the
carrying value of a reporting unit exceeds its
estimated fair value. The Company conducts its tests of goodwill
impairment on an annual basis as of October 1, and on an
interim basis as necessary in accordance with
SFAS No. 142. The Company primarily uses a discounted
cash flow analysis to determine fair value. Key assumptions in
the determination of fair value include the use of an
appropriate discount rate, estimated future cash flows and
estimated run rates of operation, maintenance and general and
administrative costs. In estimating cash flows, the Company
incorporates expected growth rates, regulatory stability and
ability to renew contracts, as well as other factors into its
revenue and expense forecasts. Management believes that there
was no impairment of goodwill or indefinite-lived intangible
assets for the fiscal year ended March 31, 2009 and 2008.
(See Note 5 for additional information.)
Other intangible assets with definite lives are recorded at fair
market value at the time of acquisition and are amortized on a
straight-line basis over their estimated useful lives. (See
Notes 2 and 5 for additional information.)
Impairment of long-lived assets and definite-lived
intangible assets The carrying values of
long-lived assets, which include property, plant and equipment,
and definite-lived intangible assets, are evaluated periodically
in relation to the operating performance and future undiscounted
cash flows of the underlying assets. Adjustments are made if the
sum of expected future net cash flows is less than book value,
and if required, such adjustments would be measured based on
discounted cash flows. Management believes that there was no
impairment of long-lived assets or definite-lived intangible
assets for the fiscal year ended March 31, 2009 and 2008.
Income taxes The Company and its
U.S.-based
subsidiaries file a consolidated federal income tax return. The
Company files other state and foreign jurisdictional returns as
required. Deferred income taxes have been provided for temporary
differences between the financial reporting basis and tax
carrying amounts of assets and liabilities. These differences
create taxable or tax-deductible amounts for future periods.
Valuation allowances are recorded against deferred tax assets in
situations where significant uncertainty exists relative to
sufficient future taxable income in certain jurisdictions to use
the benefits associated with the deferred tax assets. At
March 31, 2009 and 2008, the Company recorded $18,030 and
$21,878, respectively, as valuation reserves, which are included
as a reduction to deferred tax assets in the accompanying
combined balance sheets.
The Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, effective as of April 1,
2007. FIN 48 provides guidance on accounting for income tax
positions about which the Company has concluded there is a level
of uncertainty with respect to the recognition in the
Companys financial statements. FIN 48 prescribes a
minimum recognition threshold a tax position is required to
meet. Tax positions are defined very broadly and include not
only tax deductions and credits but also decisions not to file
in a particular jurisdiction, as well as the taxability of
transactions. The effect of adopting FIN 48 was treated as
a preacquisition contingency, and an adjustment to goodwill of
$8,903 was recorded in the fiscal year ended March 31, 2008.
Translation of foreign currencies The local
currencies of the Companys foreign operations have been
determined to be their functional currencies. Assets and
liabilities of foreign operations are translated into
U.S. dollars at exchange rates at the balance sheet date.
Translation adjustments resulting from fluctuations in
F-72
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
exchange rates are included as a separate component of
accumulated other comprehensive income. Revenue and expense
accounts of these operations are translated at average exchange
rates prevailing during the period. Gains and losses arising
from transactions denominated in currencies other than the
functional currency are included in the results of operations of
the period in which they occur. Deferred taxes are not provided
on translation gains and losses because the Company expects
earnings of all foreign operations to be permanently reinvested.
Cash and cash equivalents For the purposes of
the combined financial statements, all highly liquid debt
instruments with original maturities of three months or less are
considered to be cash equivalents. Cash and cash equivalents may
at times exceed federally insured amounts for United States bank
accounts.
Receivables Credit is regularly extended to
customers for purchases made in the ordinary course of business
based upon the Companys assessment of creditworthiness.
Collection of customer receivables generally occurs within
90 days from billing; billing generally occurs according to
terms provided in contractual agreements. A valuation allowance
is provided for those accounts for which collection is estimated
as doubtful; uncollectible accounts are written off and charged
against the allowance. Increases in the allowance are charged to
marketing, general and administrative expenses in the
accompanying combined statements of operations and comprehensive
income. Accounts are judged to be delinquent principally based
on contractual terms. In estimating the allowance, management
considers, among other things, how recently and how frequently
payments have been received and the financial position of the
customer.
Inventories Inventories are stated at the
lower of cost determined on an average basis, or market. The
elements of cost included in inventories are direct labor,
direct material and certain overhead including depreciation.
Uranium assets Uranium, held in various
forms, is primarily used in the operations of the business. The
Company maintains uranium working stock in order to ensure
efficient manufacturing processes. The Company holds some
uranium as inventory for sale pursuant to a long-term contract
with one customer and an additional amount of surplus uranium
inventory, for which it periodically enters into transactions to
sell uranium when appropriate opportunities arise. The Company
classifies all uranium working stock as a noncurrent asset.
Uranium inventory is stated at the lower of cost or market. At
March 31, 2009, the spot price for natural uranium dropped
below the carrying value of the surplus uranium inventory, and
the Company recorded a reserve against the uranium inventory of
$2,951. (See Note 11 for additional information)
Property, plant and equipment Property, plant
and equipment (other than construction in progress) are recorded
at cost (including decommissioning costs where appropriate) less
accumulated depreciation. Construction in progress is stated at
cost and is not depreciated until placed in service.
Depreciation is calculated using the historical cost of assets,
generally on a straight-line basis, over their estimated useful
lives. The estimated lives used for depreciation purposes are:
|
|
|
Buildings and improvements
|
|
13 to 60 years
|
Machinery and equipment
|
|
3 to 20 years
|
Leasehold improvements are amortized over the shorter of
remaining lease term or the asset useful life.
Assets held under capital leases are capitalized in the
accompanying combined balance sheets and are depreciated over
their useful lives. Interest expense related to the capital
lease obligations is charged to the accompanying combined
statements of operations and comprehensive income over the
period of the lease.
Maintenance and repairs are charged to expense as incurred;
renewals and betterments are capitalized. When property, plant
and equipment are sold or otherwise disposed of, the asset and
related accumulated depreciation and amortization accounts are
relieved and any resulting gain or loss is reflected in earnings.
F-73
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Company recognizes asset retirement obligations (ARO) in
accordance with SFAS No. 143, Accounting For Asset
Retirement Obligations, for decommissioning and other legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development
and/or
normal use of the asset, and FIN 47, Accounting for
Conditional Asset Retirement Obligations, for conditional
ARO in which the timing or method of settlement are conditional
on a future event that may or may not be within the control of
the Company. Both SFAS No. 143 and FIN 47 require
that the fair value of a liability for an ARO be recognized in
the period in which it is incurred, if a reasonable estimate of
fair value can be made. The fair value of the liability is added
to the carrying amount of the associated asset. This additional
carrying amount is then depreciated over the estimated useful
life of the asset. (See Note 4 for additional information).
Settlement obligations The Company has
provided for estimated future costs pursuant to the resolution
of various settlements related to litigation as more fully
described in Note 15. These agreements generally require
the Company to provide cash
and/or
certain products and services at discounted prices.
The Company has estimated the future discounts and other costs
associated with these matters and has provided for their net
present value in the reserves for settlement obligations in the
combined balance sheets. The Company reflects changes in
estimates to the settlement obligations as events occur and
uncertainties are resolved.
Environmental costs Environmental
expenditures that do not extend the service lives of assets or
otherwise benefit future years are expensed. Environmental
expenditures related to operations that generate current or
future revenues are expensed or capitalized, as appropriate. The
Company records liabilities when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such estimates are adjusted, if necessary, as new
remediation requirements are defined or as additional
information becomes available.
Segment reporting SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information, establishes standards for a public company to
report financial and descriptive information about its
reportable operating segments in annual and interim financial
reports. Operating segments are components of an enterprise
about which separate financial information is available and
evaluated regularly by the chief operating decision-maker in
deciding how to allocate resources and evaluate performance.
SFAS No. 131 also establishes standards and related
disclosures about the way the operating segments were
determined, products and services, geographic areas and major
customers, differences between the measurements used in
reporting segment information and those used in the
general-purpose financial statements, and changes in the
measurement of segment amounts from period to period. The
description of the Companys reportable segments,
consistent with how business results are reported internally to
management and the disclosure of segment information in
accordance with SFAS No. 131, are presented in
Note 2. There is no aggregation within the Companys
defined business segments.
Research and development expenditures
Research and development expenditures on projects not
specifically recoverable directly from customers are charged to
operations in the year in which incurred. The Company recorded
$43,133, $41,688 and $47,091 of research and development costs,
which are included in marketing, administrative and general
expenses in the accompanying combined statements of operations
and comprehensive income for the fiscal years ended
March 31, 2009 and 2008, and the six-month period ended
March 31, 2007, respectively.
The NuStart Energy Development, LLC (NuStart) was formed in 2004
with the purpose of obtaining a Construction and Operating
License (COL) from the U.S. Nuclear Regulatory Commission
(NRC) for an advanced nuclear power plant and to complete the
design engineering for the two selected reactor technologies.
The NuStart consortium participants consist of ten members and
two reactor vendors, one of which is Westinghouse for its AP1000
reactor design. Under the NuStart consortium arrangement, work
is
F-74
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
performed and the Company receives funding through a Direct
Cooperative Agreement with the Department of Energy (DOE) for
research and development costs, design finalization costs and
costs associated with COL activities. The Company recorded
$8,316, $7,869, and $4,200 of proceeds as a reduction of
marketing, administrative and general expenses in the
accompanying combined statements of operations and comprehensive
income for the fiscal years ended March 31, 2009, 2008, and
the six month period ended March 31, 2007, respectively.
Precontract costs Pursuant to the provisions
of
SOP No. 81-1,
the Company began accounting for the design finalization and COL
activity costs as precontractual costs, and at March 31,
2009 and 2008, $34,600 and $23,800, respectively, of such costs
were included in costs and estimated earnings in excess of
billings on uncompleted contracts in the accompanying balance
sheets. That amount is net of proceeds from the DOE of $41,200
and $36,300, respectively. (See Note 16 for a discussion of
sales of AP1000 nuclear plants.)
Shipping and handling costs The Company
expenses shipping and handling costs as incurred. These costs
are included in cost of goods sold.
Pensions and postretirement benefits The
Company provides postretirement benefits in the form of
pensions, defined medical, dental and life insurance for
eligible retirees and dependents for the benefit of the majority
of employees.
The contributions to each of the funded pension plans are based
on independent actuarial valuations designed to secure or
partially secure the benefits as defined by local country rules.
The plans are funded by contributions, from the Company, and for
certain plans partly from the contributions of employees, to
separately administered funds. Actuarially calculated costs are
charged in the accompanying combined statements of operations
and comprehensive income so as to spread the cost of pensions
over the employees working lives. The normal cost is
attributed to years of employment using a projected unit credit
method. Variations in projected net pension liability from the
actuarial assumptions, which are identified as a result of
actuarial valuations, are amortized over the average expected
remaining working lives of employees. The disclosures for the
Companys pension plans as required by
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, and
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, are
detailed in Note 6.
Derivative instruments The Company enters
into derivative contracts to minimize the risk to cash flows
from exposure to fluctuations in foreign exchange rates. The
Company recognizes all derivatives on the balance sheet at fair
value. Derivatives that are not hedges are adjusted to fair
value and reflected through the results of operations. If the
derivative is designated as a hedge, in accordance with
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, and depending on the
nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item
is recognized in earnings. Cash inflows and outflows related to
derivative instruments are a component of operating cash flows
in the accompanying combined statements of cash flows.
Recognized gains or losses on hedged derivative instruments are
included in foreign currency gains and losses in the
accompanying combined statements of operations and comprehensive
income. A nonhedged derivatives change in fair value is
recognized in earnings.
Derivative contracts entered into by the Company may be
designated as either a hedge of a forecasted transaction or
future cash flows (cash flow hedge) if certain conditions are
met. For all hedge contracts, the Company prepares formal
documentation of the hedge in accordance with
SFAS No. 133. In addition, at inception and every
three months, the Company formally assesses whether the hedge
contract is highly effective in offsetting changes in cash flows
or fair values of hedged items. The Company documents hedging
activity by transaction type and risk management strategy.
F-75
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157), which defines
fair value, establishes a framework for measuring fair value in
GAAP and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements.
However, in some cases, the application of SFAS 157 may
change the Companys current practice for measuring and
disclosing fair values under other accounting pronouncements
that require or permit fair value measurements. The Company has
adopted SFAS 157 effective April 1, 2008, for
financial assets and liabilities, including derivatives. See
Note 3 for the derivative effects of implementing
SFAS 157 at the reporting date. The fair value of the
Companys remaining financial assets and liabilities was
not impacted by no SFAS 157.
Operating leases Rentals under operating
leases are charged on a straight-line basis over the lease term,
although the payments may not be made on such a basis. (See
Note 17 for additional information.)
Recently issued accounting pronouncements The
following new accounting standards have been issued, but have
not yet been adopted by the Company, as of March 31, 2009:
SFAS 157, Fair Value Measurements, will be adopted
as of April 1, 2009, for all nonfinancial items that are
not included as part of the 2008 adoption within financial
assets and liabilities. SFAS 157 must be applied
prospectively except in certain limited cases. The Company is
currently evaluating the impact, if any, of adopting
SFAS 157 on its non-financial assets and liabilities within
the combined financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, which permits entities to choose to measure
many financial instruments and certain other items at fair
value. For the Company, SFAS No. 159 is effective as
of April 1, 2009, and will have no impact on amounts
presented for periods prior to the effective date. The Company
is currently evaluating the impact of SFAS No. 159 on
its combined financial statements and has not yet determined
whether or not it will choose to measure items subject to
SFAS No. 159 at fair value.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)), which replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) retains the underlying concepts of
SFAS No. 141 in that all business combinations are
still required to be accounted for at fair value under the
acquisition method of accounting, but SFAS No. 141(R)
changes the method of applying the acquisition method in a
number of significant aspects. Acquisition costs will generally
be expensed as incurred; noncontrolling interests will be valued
at fair value at the acquisition date; in-process research and
development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will
affect income tax expense. The Company will apply the provisions
of SFAS No. 141(R) to its accounting for applicable
business combinations consummated after March 31, 2009. At
March 31, 2009, the Company had deferred transactions costs
of $3.6 million related to the business combination
discussed in Note 19 included in other current assets in
its combined balance sheets that will be expensed in the fiscal
year ended March 31, 2010, pursuant to the provisions of
SFAS No. 141(R).
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, which
changes the accounting, reporting and disclosure standards for
noncontrolling interests in a subsidiary. Accounting Research
Bulletin No. 51 (ARB No. 51) is amended to
require that the balance of the noncontrolling interest in a
subsidiary be reported as a component of equity rather than as
presented separately outside of equity in the accompanying
combined balance sheets. ARB No. 51 is further amended to
require that combined net income shall include the net income or
loss attributable to the noncontrolling interest, rather than as
a
F-76
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
deduction (or increase in the case of a loss) to net income as
reported in the accompanying combined statements of operations
and comprehensive income. SFAS No. 160 is required to
be adopted by the Company in its fiscal year beginning
April 1, 2009, and is not expected to have a significant
effect on the Companys financial position or results of
operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,
which changes the disclosure requirements for derivative
instruments and hedging activities. SFAS No. 161 will
require disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under
SFAS No. 133 and its related interpretations and
(c) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance and cash flows. The Company will include the
required disclosures in future combined financial statements.
In December of 2008, the FASB issued FASB Staff Position
FAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets. This statement amends
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, to provide
guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan. FSP
FAS 132(R)-1 is required to be adopted by the Company in
its March 31, 2010 financial statements. The Company is
currently evaluating the impact, if any, on its combined
financial statements.
Reportable segments were identified by the Companys
management based on the service provided or product sold by the
segment. The segments mirror the way the Companys chief
operating decision-maker regularly reviews operating results,
assesses performance and allocates resources across the Company.
The segments used for management reporting are as follows:
Nuclear Fuel Nuclear Fuel is a vertically
integrated provider of uranium procurement, specialty metal
alloy production, conversion of enriched uranium to fuel
pellets, fuel assembly fabrication and engineering services to
the global market of pressurized water reactors, boiling water
reactors, and the United Kingdom fleet of advanced gas cooled
and Magnox reactors.
Nuclear Services Westinghouse Nuclear
Services offers products and engineering, inspection,
maintenance and repair services that keep nuclear power plants
operating safely and competitively worldwide. Nuclear Services
personnel work closely with customers in the following areas:
field services, engineering analysis, component replacement,
instrumentation and control upgrades and critical replacement
parts supply.
Nuclear Power Plants Westinghouse Nuclear
Power Plants offers new plant designs, licensing, engineering
and component design. Nuclear Power Plants enters into contracts
to build nuclear power plants around the world that range from
project management activities to full Engineer, Procure and
Construct (EPC) contracts.
Eliminations/Corporate Center Eliminations
relate to intercompany sales. Corporate Center expenses relate
to unallocated expenses. Corporate Center assets include cash
and cash equivalents, prepaid assets, deferred tax assets and
property, plant and equipment.
F-77
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Revenue, operating profit (loss), total assets, goodwill, and
certain other amounts of income and expense consisted of the
following by business segment for the fiscal years ended
March 31, 2009 and 2008, and the six-month period ended
March 31, 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
962,432
|
|
|
$
|
1,152,042
|
|
|
$
|
417,182
|
|
Nuclear Services
|
|
|
1,674,957
|
|
|
|
1,316,420
|
|
|
|
644,766
|
|
Nuclear Power Plants
|
|
|
769,679
|
|
|
|
254,173
|
|
|
|
63,521
|
|
Eliminations
|
|
|
(11,770
|
)
|
|
|
(12,180
|
)
|
|
|
(1,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
|
$
|
1,124,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
37,527
|
|
|
$
|
94,634
|
|
|
$
|
24,023
|
|
Nuclear Services
|
|
|
124,636
|
|
|
|
81,451
|
|
|
|
58,936
|
|
Nuclear Power Plants
|
|
|
(8,494
|
)
|
|
|
(54,755
|
)
|
|
|
(31,255
|
)
|
Corporate Center
|
|
|
(24,793
|
)
|
|
|
(17,352
|
)
|
|
|
(25,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,876
|
|
|
$
|
103,978
|
|
|
$
|
26,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
23,802
|
|
|
$
|
23,564
|
|
|
$
|
11,637
|
|
Nuclear Services
|
|
|
21,435
|
|
|
|
19,445
|
|
|
|
9,514
|
|
Nuclear Power Plants
|
|
|
1,682
|
|
|
|
1,669
|
|
|
|
875
|
|
Corporate Center
|
|
|
24,155
|
|
|
|
16,622
|
|
|
|
7,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,074
|
|
|
$
|
61,300
|
|
|
$
|
29,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
20,379
|
|
|
$
|
20,669
|
|
|
$
|
10,298
|
|
Nuclear Services
|
|
|
25,719
|
|
|
|
26,051
|
|
|
|
12,976
|
|
Nuclear Power Plants
|
|
|
31,425
|
|
|
|
31,788
|
|
|
|
15,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,523
|
|
|
$
|
78,508
|
|
|
$
|
39,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets consist of the following by business segment at
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
1,917,280
|
|
|
$
|
2,133,523
|
|
|
|
|
|
Nuclear Services
|
|
|
2,461,816
|
|
|
|
2,520,812
|
|
|
|
|
|
Nuclear Power Plants
|
|
|
2,471,473
|
|
|
|
2,700,504
|
|
|
|
|
|
Corporate Center
|
|
|
967,485
|
|
|
|
1,102,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,818,054
|
|
|
$
|
8,457,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill consists of the following by business segment at
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
45,305
|
|
|
$
|
54,738
|
|
|
|
|
|
Nuclear Services
|
|
|
1,108,772
|
|
|
|
1,226,048
|
|
|
|
|
|
Nuclear Power Plants
|
|
|
1,607,352
|
|
|
|
1,777,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,761,429
|
|
|
$
|
3,058,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Revenue by geographical region is determined based on the
location of the customers to whom the services are provided and
products are sold. Revenue consists of the following by
geographical region for the fiscal years ended March 31,
2009 and 2008, and the six-month period ended March 31,
2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
1,807,825
|
|
|
$
|
1,318,455
|
|
|
$
|
658,468
|
|
China
|
|
|
283,360
|
|
|
|
190,186
|
|
|
|
3,322
|
|
France
|
|
|
253,822
|
|
|
|
198,499
|
|
|
|
32,840
|
|
UK
|
|
|
191,188
|
|
|
|
226,993
|
|
|
|
95,729
|
|
Sweden
|
|
|
182,598
|
|
|
|
195,781
|
|
|
|
62,654
|
|
Other European countries
|
|
|
328,103
|
|
|
|
285,503
|
|
|
|
125,809
|
|
South Korea
|
|
|
202,073
|
|
|
|
199,187
|
|
|
|
115,835
|
|
Other
|
|
|
146,329
|
|
|
|
95,851
|
|
|
|
29,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
|
$
|
1,124,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets consist of the following by geographical region at
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
5,282,182
|
|
|
$
|
4,971,238
|
|
UK
|
|
|
1,886,241
|
|
|
|
2,939,469
|
|
Other European countries
|
|
|
608,287
|
|
|
|
506,860
|
|
South Africa
|
|
|
27,266
|
|
|
|
28,545
|
|
Asia
|
|
|
14,078
|
|
|
|
10,986
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,818,054
|
|
|
$
|
8,457,098
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
DERIVATIVE
INSTRUMENTS, HEDGING ACTIVITIES AND CREDIT RISK
|
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
Techniques in managing foreign exchange risk include, but are
not limited to, foreign currency borrowing and investing and the
use of currency derivative instruments. The Company manages risk
related to material foreign exchange exposures through entrance
into derivative contracts. The purpose of the Companys
foreign currency risk management activities is to protect them
from the risk that the eventual dollar cash flows resulting from
the sale and purchase of services and products in foreign
currencies will be adversely affected by changes in exchange
rates.
The Company has adopted SFAS 157 effective April 1,
2008, for financial assets and liabilities, including
derivatives. In accordance with SFAS 157, assets and
liabilities are classified based on the inputs, observable and
unobservable, utilized in the fair value measurement. Observable
inputs are valuation inputs that reflect the assumptions market
participants would use in pricing the asset or liability
developed based on market data obtained from sources independent
of the reporting entity. Unobservable inputs are valuation
inputs that reflect the reporting entitys own assumptions
about the assumptions market participants would use in pricing
the asset or liability developed based on the best information
in the circumstances. The fair value hierarchy established by
SFAS 157 prioritizes the inputs used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). The Company has
classified all of its foreign exchange contracts as Level 2
with respect to the fair value hierarchy.
F-79
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Company determines the fair value using a
mark-to-market
model, incorporating real market pricing with probable
variables. Changes in the fair value of a derivative designed
and qualified as a cash flow hedge, to the extent effective, are
included in the combined statement of stockholders equity
as accumulated other comprehensive (loss) income until earnings
are affected by the hedged transaction. The Company discontinues
hedge accounting prospectively when it has determined that a
derivative no longer qualifies as an effective hedge.
The Company does not enter into derivative instruments for
speculative or trading purposes. Forward foreign exchange
contracts are primarily utilized to reduce the risk from foreign
currency price fluctuations related to firm or anticipated sales
transactions, commitments to purchase or sell equipment,
materials
and/or
services and principal and interest payments denominated in a
foreign currency. Forward foreign exchange contracts, which are
commitments to buy or sell a specified amount of a foreign
currency at a specified price and time, are generally used to
manage identifiable foreign currency commitments and exposures
related to assets and liabilities denominated in a foreign
currency. These contracts generally have an expiration date of
eight years or less.
HEDGING
INSTRUMENTS
The fair value of derivative instruments designated as hedging
instruments were net liabilities of $44,990 and $9,193 as of
March 31, 2009 and March 31, 2008, respectively. The
derivative instruments designated as hedging instruments are all
cash flow hedges. The Company included the gross fair value of
these derivative instruments in the accompanying combined
balance sheets.
The Company included a net unrealized loss on these cash flow
hedges of $18,452, $8,161 and $1,426 for the
12-month
period ended March 31, 2009 and March 31, 2008, and
the six-month period ended March 31, 2007, respectively.
These balances are included in other comprehensive income,
component of stockholders equity in the accompanying
combined balance sheets. The ineffective portion and amount
excluded from effectiveness testing on derivatives designated as
hedging instruments for the
12-month
period ended March 31, 2009 is a loss in the amount of
$16,952. For the
12-month
period ended March 31, 2008 this amount is a gain of $394
and for the
6-month
period ended March 31, 2007 this amount is a loss of $554.
These amounts are classified in other income and expense in the
accompanying combined statements of operations.
Assuming market rates remain the same, the Company estimates
$9,909 of the unrealized net losses on these cash flow hedges to
be reclassified into earnings in the
12-month
period ended March 31, 2010. Due to market rate
fluctuations on the March 31, 2008, cash flow hedges that
matured during 2009, a loss of $3,733 was recognized during the
current year. Changes in the timing or amount of the future cash
flows being hedged could result in hedges becoming ineffective,
and as a result, the amount of unrealized gain or loss
associated with those hedges would be reclassified from other
comprehensive income into earnings. The Company included the net
loss on these cash flow hedges in other income as a gain on
foreign exchange translation in the accompanying combined
statements of operations and comprehensive income. At
March 31, 2009, the maximum length of time over which the
Company is hedging its exposure to the variability in future
cash flows associated with foreign currency forecasted
transactions is through September 2016.
NONHEDGING
INSTRUMENTS
As of March 31, 2009, the fair value of derivative
instruments not designated as hedging instruments was a net
liability of $26,482. As of March 31, 2008, the fair value
of derivative instruments not designated as hedging instruments
was a net asset of $15,816. The Company included the gross fair
value of these derivative instruments in the accompanying
combined balance sheets.
The change in fair value is classified in other income and
expense as a (loss) gain on foreign exchange transaction in the
accompanying combined statements of operations and comprehensive
income in the amount
F-80
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
of $(42,296), $18,606 and $863, for the
12-month
period ended March 31, 2009 and March 31, 2008 and the
six-month period ended March 31, 2007.
The consolidation table below summarizes the fair value of
derivative instruments designated as hedging and nonhedging
instruments with SFAS 157 impact.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Hedge
|
|
|
Nonhedge
|
|
|
|
|
|
Hedge
|
|
|
Nonhedge
|
|
|
|
|
|
|
Accounting
|
|
|
Accounting
|
|
|
Total
|
|
|
Accounting
|
|
|
Accounting
|
|
|
Total
|
|
|
Fair value of derivative hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding SFAS 157
|
|
$
|
12,374
|
|
|
$
|
2,860
|
|
|
$
|
15,234
|
|
|
$
|
12,430
|
|
|
$
|
21,163
|
|
|
$
|
33,593
|
|
SFAS 157 adjustment
|
|
|
(1,054
|
)
|
|
|
(30
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other current assets
|
|
|
11,320
|
|
|
|
2,830
|
|
|
|
14,150
|
|
|
|
12,430
|
|
|
|
21,163
|
|
|
|
33,593
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding SFAS 157
|
|
|
(62,646
|
)
|
|
|
(30,029
|
)
|
|
|
(92,675
|
)
|
|
|
(21,623
|
)
|
|
|
(5,347
|
)
|
|
|
(26,970
|
)
|
SFAS 157 adjustment
|
|
|
6,336
|
|
|
|
717
|
|
|
|
7,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other current liabilities
|
|
|
(56,310
|
)
|
|
|
(29,312
|
)
|
|
|
(85,622
|
)
|
|
|
(21,623
|
)
|
|
|
(5,347
|
)
|
|
|
(26,970
|
)
|
Net position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability) excluding SFAS 157
|
|
|
(50,272
|
)
|
|
|
(27,169
|
)
|
|
|
(77,441
|
)
|
|
|
(9,193
|
)
|
|
|
15,816
|
|
|
|
6,623
|
|
Net SFAS 157 adjustment
|
|
|
5,282
|
|
|
|
687
|
|
|
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability)
|
|
$
|
(44,990
|
)
|
|
$
|
(26,482
|
)
|
|
$
|
(71,472
|
)
|
|
$
|
(9,193
|
)
|
|
$
|
15,816
|
|
|
$
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding SFAS 157
|
|
$
|
23,734
|
|
|
$
|
|
|
|
$
|
23,734
|
|
|
$
|
8,161
|
|
|
$
|
|
|
|
$
|
8,161
|
|
Net SFAS 157 adjustment
|
|
|
(5,282
|
)
|
|
|
|
|
|
|
(5,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted other comprehensive income
|
|
|
18,452
|
|
|
|
|
|
|
|
18,452
|
|
|
|
8,161
|
|
|
|
|
|
|
|
8,161
|
|
Income taxes
|
|
|
(2,902
|
)
|
|
|
|
|
|
|
(2,902
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
$
|
15,550
|
|
|
$
|
|
|
|
$
|
15,550
|
|
|
$
|
6,890
|
|
|
$
|
|
|
|
$
|
6,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CREDIT
RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash equivalents and
trade receivables. It is the Companys practice to place
its cash equivalents in high-quality securities with various
investment institutions. The Company derives the majority of its
revenue from sales and services, including engineering and
construction, to the energy industry. For the
12-month
period ended March 31, 2009, there were no customers who
individually accounted for greater than 10% of total revenue.
Trade receivables are generated from a broad and diverse group
of customers. At March 31, 2009, there were no customers
who accounted for more than 10% of receivables reported in the
accompanying combined balance sheets. The Company maintains an
allowance for losses based upon the expected collectibility of
all trade accounts receivable.
There are no significant concentrations of credit risk with any
individual counterparty related to the Companys derivative
contracts. The Company selects counterparties based on their
credit ratings, profitability, balance sheets, and a capacity
for timely payment of financial commitments, which is unlikely
to be adversely affected by foreseeable events.
F-81
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
ASSET
RETIREMENT OBLIGATIONS (ARO)
|
The Company recognizes ARO in accordance with provisions of
SFAS No. 143 and FIN 47. SFAS No. 143
requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is
incurred, if a reasonable estimate of fair value can be made. An
asset is also recorded equal to the fair value of the liability
when incurred. The asset carrying amount is then depreciated
over the life of the asset. The liability increases due to the
passage of time based on the time value of money until the
obligation is settled. Subsequent to the initial recognition,
the liability is adjusted for any revisions to the expected
value of the retirement obligation (with corresponding
adjustments to the plant and equipment) and for accretion of the
liability due to the passage of time. Retirement dates are
consistent with the economic useful life of the related asset
and are reviewed on an annual basis or as facts dictate.
Additional depreciation expense is recorded prospectively for
any plant and equipment increases.
The Companys ARO relate primarily to the decommissioning
of licensed nuclear facilities. These obligations address the
decommissioning, cleanup and release for acceptable alternate
use of such facilities.
The ARO is adjusted each period for any liabilities incurred or
settled during the period, accretion expense, and any revisions
made to the estimated cash flows. Management uses various
sources to produce detailed reviews of the ARO, which occur
every five years, except in the U.S. for facilities subject
to regulation by the NRC, which requires detailed reviews every
three years for nuclear material license holders. Net present
value calculations are made by escalating current year values by
3.0% per annum to the end of site life to estimate future cash
flows required to settle the obligation. The estimated future
cash flows are discounted using an interest rate equal to the
risk-free rate adjusted for the effect of the Companys
credit standing based on the maturity dates that coincide with
the expected timing of the estimated cash flows.
During the fiscal year ended March 31, 2009, the Company
reduced its liability by $14,821 based on an updated estimate at
its Columbia, South Carolina, facility. This asset is being
depreciated over 21 years, and the liability is being
accreted through cost of goods sold in the accompanying combined
statements of operations and comprehensive income.
During the year ended March 31, 2008, the Company increased
the liability and related asset by $5,682 based on an updated
estimate at its Nivelles, Belgium facility. This asset is being
depreciated over 15 years, and the liability is being
accreted through cost of goods sold in the accompanying combined
statements of operations and comprehensive income.
In accordance with
SOP No. 96-1,
Environmental Remediation Liabilities, the Company has
included the estimated recovery related to certain indemnities
for cleanup costs at its Hematite, Missouri facility. The amount
is reflected in other noncurrent assets on the accompanying
combined balance sheets. In addition, the Company has settled a
claim against the former owner of the Companys leased
facility at Waltz Mill, Pennsylvania related to certain
activities at the site not related to the Companys current
operations. The gross liability for ARO is included in the
amounts below.
Changes to the ARO presented as reserve for decommissioning
matters in the accompanying combined balance sheets, for the
fiscal years ended March 31, 2009 and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of year
|
|
$
|
277,561
|
|
|
$
|
268,257
|
|
Liabilities settled
|
|
|
(14,479
|
)
|
|
|
(7,843
|
)
|
Foreign currency translation effect
|
|
|
(7,422
|
)
|
|
|
4,006
|
|
Liabilities (reduced)/incurred
|
|
|
(14,821
|
)
|
|
|
5,682
|
|
Accretion expense
|
|
|
11,947
|
|
|
|
7,459
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
252,786
|
|
|
$
|
277,561
|
|
|
|
|
|
|
|
|
|
|
F-82
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Of the above balances as of March 31, 2009 and
March 31, 2008, $29,190 and $24,368, respectively, are
included in other current liabilities in the accompanying
combined balance sheets, which represent the expected settlement
of liabilities over the year after the combined balance sheet
dates.
|
|
5.
|
GOODWILL
AND INTANGIBLE ASSETS
|
As of March 31, 2009 and 2008, goodwill consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of year
|
|
$
|
3,058,418
|
|
|
$
|
2,960,476
|
|
FIN 48 adoption
|
|
|
|
|
|
|
8,903
|
|
Final purchase price adjustment
|
|
|
|
|
|
|
47,972
|
|
Business acquisitions
|
|
|
|
|
|
|
55,036
|
|
Purchase price allocation adjustments
|
|
|
(4,406
|
)
|
|
|
(36,901
|
)
|
Foreign currency translation adjustment
|
|
|
(292,583
|
)
|
|
|
22,932
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,761,429
|
|
|
$
|
3,058,418
|
|
|
|
|
|
|
|
|
|
|
Of the above amount of goodwill at March 31, 2009, only
$831,075 is amortizable for income tax purposes. Approximately
$60,000 of amortization will be deducted in tax returns for the
fiscal year ended March 31, 2009.
During the
12-month
period ended March 31, 2008, Westinghouse acquired the
assets of the three separate businesses for a total of $72,900,
which resulted in an increase of $55,036 in goodwill and an
additional $12,720 in intangible assets. The final valuation
adjustments to goodwill and intangible assets were recorded
during the allocation period as defined by
SFAS No. 141.
The carrying amount and accumulated amortization of identifiable
intangible assets as of March 31, 2009 and 2008, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
2009
|
|
|
2008
|
|
|
Contracted customer relationships
|
|
|
5-7
|
|
|
$
|
32,185
|
|
|
$
|
32,160
|
|
Noncontracted customer relationships
|
|
|
25
|
|
|
|
196,607
|
|
|
|
213,538
|
|
Developed technology
|
|
|
20-25
|
|
|
|
1,358,705
|
|
|
|
1,474,714
|
|
Brand name
|
|
|
Indefinite
|
|
|
|
398,794
|
|
|
|
431,153
|
|
Patent
|
|
|
20
|
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,993,791
|
|
|
|
2,159,065
|
|
Accumulated amortization
|
|
|
|
|
|
|
(187,941
|
)
|
|
|
(118,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
$
|
1,805,850
|
|
|
$
|
2,041,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $77,523, $78,508 and $39,109 for the
fiscal years ended March 31, 2009, 2008 and the six-month
period ended March 31, 2007, respectively.
F-83
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The table below presents the expected amortization expense for
definite-lived intangible assets for the next five years and
thereafter as of March 31, 2009. The amortization amounts
disclosed below are estimates. Actual amounts may differ from
these estimates due to such factors as sales or impairments of
intangible assets, acquisition of additional intangible assets
and other events.
|
|
|
|
|
For the fiscal year ending March 31:
|
|
|
|
|
2010
|
|
$
|
79,581
|
|
2011
|
|
|
79,581
|
|
2012
|
|
|
79,167
|
|
2013
|
|
|
77,188
|
|
2014
|
|
|
74,342
|
|
Thereafter
|
|
|
1,017,197
|
|
|
|
|
|
|
Total
|
|
$
|
1,407,056
|
|
|
|
|
|
|
|
|
6.
|
PENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
|
PENSION
PLANS
The majority of the employees of the Company are covered under
separate pension plans sponsored by the Westinghouse Electric
Company LLC (WEC LLC) (U.S. Plans), and separate plans
sponsored by Westinghouse Electric Belgium SA, Westinghouse
Electric Germany GmbH, Westinghouse Electrique France SAS,
Westinghouse Electric Sweden AB and the Westinghouse Electric
UK/Uranium Assets Management, Ltd. (WEC UK/UAM) Section of the
BNFL Group Pension Scheme
(Non-U.S. Plans).
Details of the aforementioned plans can be found in the
following tables.
Prior to the Transaction, the WEC UK/UAM employees were part of
the Combined Pension Scheme (CPS) in the UK. As a result of the
Transaction, these employees were given the option to either
receive a lump-sum distribution from the CPS or have their
assets transferred to a WEC UK/UAM section of the new BNFL Group
Pension Scheme (GPS). As of March 31, 2008, all of the
assets and liabilities of the CPS were transferred to the WEC
UK/UAM section of the GPS. This transfer changed the GPS to a
sectionalized Multiple Employer Scheme, and the Company was
required to account for the plan as a Defined Benefit Plan for
the 12-month
periods ended March 31, 2008.
Due to the fact that all employees had not made a decision to
transfer to the GPS by March 31, 2007, the Company elected
to transfer all assets and liabilities during the fiscal year
ended March 31, 2008, and thus the net benefit obligation
for the UK Plan at this date was zero. This transfer is included
within the Business Combinations line item within the
Non-U.S. Plans
category of the Change in Benefit Obligation and Change in Plan
Assets sections of the table presented later in this note.
F-84
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The following table presents the net periodic pension costs
covering current and former employees of the Company for the
fiscal years ended March 31, 2009 and 2008, and the
six-month period ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Service cost
|
|
$
|
40,013
|
|
|
$
|
2,008
|
|
|
$
|
42,021
|
|
|
$
|
37,331
|
|
|
$
|
2,909
|
|
|
$
|
40,240
|
|
|
$
|
17,127
|
|
|
$
|
634
|
|
|
$
|
17,761
|
|
Interest cost
|
|
|
23,343
|
|
|
|
7,691
|
|
|
|
31,034
|
|
|
|
19,752
|
|
|
|
6,700
|
|
|
|
26,452
|
|
|
|
7,987
|
|
|
|
2,901
|
|
|
|
10,888
|
|
Expected return on plan assets
|
|
|
(26,113
|
)
|
|
|
(3,155
|
)
|
|
|
(29,268
|
)
|
|
|
(21,445
|
)
|
|
|
(2,015
|
)
|
|
|
(23,460
|
)
|
|
|
(8,926
|
)
|
|
|
(871
|
)
|
|
|
(9,797
|
)
|
Amortization prior service cost
|
|
|
234
|
|
|
|
|
|
|
|
234
|
|
|
|
169
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
|
(46
|
)
|
|
|
(22
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ongoing periodic pension cost
|
|
|
37,431
|
|
|
|
6,522
|
|
|
|
43,953
|
|
|
|
35,807
|
|
|
|
7,594
|
|
|
|
43,401
|
|
|
|
16,188
|
|
|
|
2,664
|
|
|
|
18,852
|
|
Settlement charges
|
|
|
|
|
|
|
1,420
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
37,431
|
|
|
$
|
7,942
|
|
|
$
|
45,373
|
|
|
$
|
35,807
|
|
|
$
|
7,594
|
|
|
$
|
43,401
|
|
|
$
|
16,188
|
|
|
$
|
2,664
|
|
|
$
|
18,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended March 31, 2009, the Company
adopted the measurement date provision of SFAS No. 158
under the alternative transition method, which requires the
measurement date to coincide with the fiscal year-end date. The
Company recorded an after-tax charge of approximately $5,913 to
beginning retained earnings ($9,600 before tax) upon adoption of
this requirement. The assumptions used to develop the net
periodic pension cost and the present value of benefit
obligations for the fiscal year ended March 31, 2009, are
shown below.
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S. Ranges
|
|
Discount rate for obligations
|
|
|
6.25
|
%
|
|
|
3.80
|
% - 6.70%
|
Discount rate for expense
|
|
|
6.00
|
%
|
|
|
4.00
|
% - 6.00%
|
Compensation increase rate for obligations
|
|
|
4.00
|
%
|
|
|
2.50
|
% - 5.40%
|
Compensation increase rate for expense
|
|
|
3.50
|
%
|
|
|
2.50
|
% - 5.60%
|
Long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
5.90
|
% - 6.00%
|
Based on the requirements of SFAS No. 87, the Company
adjusts the discount rate to reflect current and
expected-to-be-available
interest rates on high-quality, fixed-income investments
expected to be available to the Company at the end of each year.
F-85
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the aggregate funded status and
changes in benefit obligations and plan assets of the defined
benefit pension plans and amounts recognized in the accompanying
combined balance sheets as of March 31, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Accumulated benefit obligation
|
|
$
|
417,633
|
|
|
$
|
143,184
|
|
|
$
|
560,817
|
|
|
$
|
344,409
|
|
|
$
|
190,050
|
|
|
$
|
534,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
382,670
|
|
|
$
|
197,143
|
|
|
$
|
579,813
|
|
|
$
|
337,659
|
|
|
$
|
143,890
|
|
|
$
|
481,549
|
|
Service cost
|
|
|
40,013
|
|
|
|
2,008
|
|
|
|
42,021
|
|
|
|
37,331
|
|
|
|
2,909
|
|
|
|
40,240
|
|
Interest cost
|
|
|
23,344
|
|
|
|
7,690
|
|
|
|
31,034
|
|
|
|
19,752
|
|
|
|
6,700
|
|
|
|
26,452
|
|
Employee contributions
|
|
|
8,893
|
|
|
|
366
|
|
|
|
9,259
|
|
|
|
5,662
|
|
|
|
496
|
|
|
|
6,158
|
|
Plan amendments
|
|
|
1,821
|
|
|
|
|
|
|
|
1,821
|
|
|
|
2,047
|
|
|
|
|
|
|
|
2,047
|
|
Actuarial (gain) loss
|
|
|
(1,191
|
)
|
|
|
(6,032
|
)
|
|
|
(7,223
|
)
|
|
|
(15,119
|
)
|
|
|
(5,844
|
)
|
|
|
(20,963
|
)
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,846
|
|
|
|
28,846
|
|
Adjustment for change in measurement date
|
|
|
15,839
|
|
|
|
|
|
|
|
15,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
(42,478
|
)
|
|
|
(42,478
|
)
|
|
|
|
|
|
|
26,747
|
|
|
|
26,747
|
|
Benefits paid
|
|
|
(7,558
|
)
|
|
|
(10,574
|
)
|
|
|
(18,132
|
)
|
|
|
(4,662
|
)
|
|
|
(6,601
|
)
|
|
|
(11,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
463,831
|
|
|
$
|
148,123
|
|
|
$
|
611,954
|
|
|
$
|
382,670
|
|
|
$
|
197,143
|
|
|
$
|
579,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
|
$
|
334,795
|
|
|
$
|
69,474
|
|
|
$
|
404,269
|
|
|
$
|
286,756
|
|
|
$
|
32,710
|
|
|
$
|
319,466
|
|
Actual return on plan assets
|
|
|
(114,983
|
)
|
|
|
(8,819
|
)
|
|
|
(123,802
|
)
|
|
|
16,205
|
|
|
|
(1,625
|
)
|
|
|
14,580
|
|
Employee contributions
|
|
|
8,893
|
|
|
|
366
|
|
|
|
9,259
|
|
|
|
5,662
|
|
|
|
496
|
|
|
|
6,158
|
|
Employer contributions
|
|
|
51,503
|
|
|
|
11,089
|
|
|
|
62,592
|
|
|
|
30,834
|
|
|
|
6,068
|
|
|
|
36,902
|
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,345
|
|
|
|
32,345
|
|
Benefits paid from plan assets
|
|
|
(7,558
|
)
|
|
|
(10,574
|
)
|
|
|
(18,132
|
)
|
|
|
(4,662
|
)
|
|
|
(6,601
|
)
|
|
|
(11,263
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
(15,265
|
)
|
|
|
(15,265
|
)
|
|
|
|
|
|
|
6,081
|
|
|
|
6,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of year
|
|
$
|
272,650
|
|
|
$
|
46,271
|
|
|
$
|
318,921
|
|
|
$
|
334,795
|
|
|
$
|
69,474
|
|
|
$
|
404,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued cost as included in the combined balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
|
|
|
$
|
1,648
|
|
|
$
|
1,648
|
|
|
$
|
849
|
|
|
$
|
3,060
|
|
|
$
|
3,909
|
|
Other current liabilities
|
|
|
(681
|
)
|
|
|
(4,791
|
)
|
|
|
(5,472
|
)
|
|
|
(528
|
)
|
|
|
(5,567
|
)
|
|
|
(6,095
|
)
|
Noncurrent benefit obligation
|
|
|
(190,500
|
)
|
|
|
(98,709
|
)
|
|
|
(289,209
|
)
|
|
|
(48,196
|
)
|
|
|
(125,162
|
)
|
|
|
(173,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit obligation
|
|
$
|
(191,181
|
)
|
|
$
|
(101,852
|
)
|
|
$
|
(293,033
|
)
|
|
$
|
(47,875
|
)
|
|
$
|
(127,669
|
)
|
|
$
|
(175,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive (loss)
income consist of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
|
$
|
(124,637
|
)
|
|
$
|
(6,516
|
)
|
|
$
|
(131,153
|
)
|
|
$
|
21,854
|
|
|
$
|
(1,660
|
)
|
|
$
|
20,194
|
|
Prior service cost
|
|
|
(3,407
|
)
|
|
|
|
|
|
|
(3,407
|
)
|
|
|
(1,878
|
)
|
|
|
|
|
|
|
(1,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, before tax effect
|
|
$
|
(128,044
|
)
|
|
$
|
(6,516
|
)
|
|
$
|
(134,560
|
)
|
|
$
|
19,976
|
|
|
$
|
(1,660
|
)
|
|
$
|
18,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE
U.S. PLANS
The Westinghouse Pension Trust Investment Committee
(Committee) has been appointed to review the investment
performance and other matters of the U.S. Plans, including
development of investment policies and strategies.
The asset allocation decision reflects the plans return
requirements, as well as the Committees tolerance for
return variability (risk). The assets are invested in long-term
strategies and evaluated within the context of a long-term
investment horizon. Investments will generally be restricted to
marketable securities. Leveraged and high-risk derivative
strategies will not be employed.
Investment objectives are designed to provide quantitative
standards against which to measure and evaluate the progress of
the plans, their major asset class composites and each
individual investment manager. The overall objective for the
Trust is to generate a rate of return, net of all fees and
expenses, in excess of a policy index that is comprised of a
weighted average of the market benchmarks for each asset class.
The policy indices are as follows:
|
|
|
|
|
|
|
Policy Index Weight
|
|
Asset Category
|
|
Market Benchmark Index
|
|
|
50
|
%
|
|
U.S. Equity
|
|
Wilshire 5000
|
|
20
|
%
|
|
International Equity
|
|
MSCI ACWI ex-U.S.
|
|
30
|
%
|
|
Fixed Income
|
|
Lehman Aggregate Bond Index
|
|
|
|
|
Cash Equivalents
|
|
U.S. Treasury Bills
|
The assumed long-term rate of return on U.S. Plan assets
was determined by taking a weighted average of the expected
rates of return on the asset classes. The weights are equal to
the portion of the portfolio invested in each class.
THE
NON-U.S.
PLANS
The investment management of the
Non-U.S. Plans
is handled by an appointed Asset Manager located in the country
of the plan sponsor. This Asset Manager is required to meet
established targets by investing the plan assets following the
prudent person principle in a mix of different adequate assets.
There is an established Strategic Asset Allocation agreed to by
the Company for these plans, but in some cases, the Asset
Manager has the flexibility to modify the allocation while still
adhering to set minimal and maximal bounds for each class of
asset. This allows the Asset Manager to optimize the portfolio
within defined risk guidelines.
The benchmark of the long-term portfolio (Strategic Asset
Allocation) for the
Non-U.S. Plans
is as follows:
|
|
|
|
|
Average Policy
|
|
|
|
|
Index Weight
|
|
Asset Category
|
|
Market Benchmark Index
|
|
25.0%
|
|
EMU
|
|
MSCI EMU net dividends reinvestment
|
25.0%
|
|
Global ex EMU
|
|
MSCI World ex-EMU net dividends reinvestment
|
32.5%
|
|
Bonds EMU
|
|
JPM EMU
|
10.0%
|
|
Bonds EMU Corporate
|
|
iBoxx Euro Corporate Bonds
|
7.5%
|
|
Real Estate EMU
|
|
EPRA Eurozone
|
F-87
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Pension plan assets consist of the following at March 31,
2009:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Target
|
|
|
Actual
|
|
|
U.S. Plans:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
50
|
%
|
|
|
44
|
%
|
Non-U.S.
equity securities
|
|
|
20
|
|
|
|
16
|
|
Debt securities
|
|
|
30
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
34
|
%
|
|
|
35
|
%
|
Corporate bonds
|
|
|
21
|
|
|
|
25
|
|
Government bonds
|
|
|
18
|
|
|
|
20
|
|
Cash and cash equivalents
|
|
|
27
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The assumed long-term rate of return for U.S. and
Non-U.S. plan
assets was determined by taking a weighted average of the
expected rates of return on the asset classes. The weights are
equal to the portion of the portfolio invested in each class.
Annual benefit payments for the year subsequent to
March 31, 2009 are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
Twelve-month period ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
8,911
|
|
|
$
|
7,344
|
|
|
$
|
16,255
|
|
2011
|
|
|
11,818
|
|
|
|
6,675
|
|
|
|
18,493
|
|
2012
|
|
|
14,977
|
|
|
|
7,689
|
|
|
|
22,666
|
|
2013
|
|
|
18,524
|
|
|
|
8,746
|
|
|
|
27,270
|
|
2014
|
|
|
22,509
|
|
|
|
7,469
|
|
|
|
29,978
|
|
2015-2019
|
|
|
183,538
|
|
|
|
48,777
|
|
|
|
232,315
|
|
Additionally, the Company anticipates funding its defined
benefit pension plans with the following cash contributions to
be paid during the fiscal year ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
Expected contributions
|
|
$
|
24,301
|
|
|
$
|
6,693
|
|
|
$
|
30,994
|
|
OTHER
POSTRETIREMENT BENEFIT PLANS
The Company also sponsors a postretirement benefits plan that
provides defined medical, dental and life insurance for eligible
retirees and dependents.
In prior years, the previous sponsor of this plan
(CBS Corporation (CBS), formerly known as Viacom, Inc.) was
required to reimburse Westinghouse for the costs of this plan
under the Assets Purchase Agreement (APA) dated June 25,
1998, between CBS and BNFL. Due to BNFLs sale of
Westinghouse to Toshiba on October 16, 2006, CBS has
successfully asserted that it is not obligated to make such
reimbursements because it claims the recent sale constituted a
Disposition as defined in the APA mentioned above.
F-88
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Currently, Westinghouse and Toshiba have requested, pursuant to
the Purchase Sales Agreement of October 16, 2006, that BNFL
reimburse Westinghouse for its postretirement benefit costs
subsequent to the sale date that would otherwise have been
reimbursed by CBS. To date, BNFL has continued to reimburse the
Company for the service costs. The actual costs that have been
or are expected to be reimbursed by BNFL to Westinghouse for the
fiscal years ended March 31, 2009 and 2008 are $5,487 and
$2,536, respectively. The net present value of the expected
reimbursements from BNFL is included as noncurrent asset in the
accompanying combined balance sheets at March 31, 2009 and
2008, in the amount of $28,693 and $32,338, respectively.
The components of net periodic postretirement benefit cost for
the fiscal years ended March 31, 2009 and 2008, and the
six-month period ended March 31, 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
1,837
|
|
|
$
|
2,577
|
|
|
$
|
1,177
|
|
Interest cost
|
|
|
2,826
|
|
|
|
3,799
|
|
|
|
1,918
|
|
Expected return on plan assets
|
|
|
(2,150
|
)
|
|
|
(2,157
|
)
|
|
|
(1,120
|
)
|
Net (gain) loss
|
|
|
(1,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit costs
|
|
$
|
967
|
|
|
$
|
4,219
|
|
|
$
|
1,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A plan amendment was made in January 2009 to eliminate the
prescription drug benefit for post-65 retirees. This amendment
caused a decrease in the net period benefit costs for the year
ended March 31, 2009.
The assumptions used to develop the net periodic postretirement
benefit cost and the present value of benefit obligations for
the fiscal year ended March 31, 2009, are shown below. A
measurement date of March 31, 2009, was used.
|
|
|
|
|
Discount rate for obligations
|
|
|
6.00
|
%
|
Discount rate for expense
|
|
|
6.00
|
%
|
Healthcare cost trend rates:
|
|
|
|
|
Pre-age 65
|
|
|
5.00
|
%
|
Post-age 65
|
|
|
8.00
|
%
|
Compensation increase rate for obligations
|
|
|
4.00
|
%
|
Compensation increase rate for expense
|
|
|
3.50
|
%
|
Long-term rate of return on plan assets
|
|
|
7.25
|
%
|
The healthcare cost trend rate is assumed to decrease to 5% by
2012 and remain at that level thereafter. The sensitivity to
changes in the assumed healthcare cost trend rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
Effect on total service and interest costs
|
|
$
|
56
|
|
|
$
|
(49
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
486
|
|
|
$
|
(433
|
)
|
F-89
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Net periodic postretirement benefit cost is determined using the
assumptions as of the beginning of the year. The funded status
is determined using the assumptions as of the end of the year.
The funded status and amounts recognized in the accompanying
combined balance sheets as of March 31, 2009 and 2008, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
47,329
|
|
|
$
|
72,472
|
|
Service cost
|
|
|
1,838
|
|
|
|
2,577
|
|
Interest cost
|
|
|
2,826
|
|
|
|
3,799
|
|
Plan amendments
|
|
|
(2,216
|
)
|
|
|
|
|
Adjustment for change in measurement date
|
|
|
1,166
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
3,084
|
|
|
|
(27,254
|
)
|
Benefits paid
|
|
|
(5,324
|
)
|
|
|
(4,265
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
48,703
|
|
|
$
|
47,329
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain recognized in accumulated other comprehensive
income, before tax effect
|
|
$
|
22,797
|
|
|
$
|
26,316
|
|
|
|
|
|
|
|
|
|
|
Annual benefit payments for the fiscal years subsequent to
March 31, 2009 are estimated to be as follows:
|
|
|
|
|
2010
|
|
$
|
3,076
|
|
2011
|
|
|
3,612
|
|
2012
|
|
|
4,082
|
|
2013
|
|
|
4,204
|
|
2014
|
|
|
4,498
|
|
2015-2019
|
|
|
24,955
|
|
SAVINGS
PLANS
The Company also provides a defined contribution (DC) plan
to U.S. employees. Employees may contribute from 2% to 35%
of their compensation on a pretax or posttax basis. WEC LLC
matches 50% of the first 6% of an employees compensation
contribution and WEC LLC contributed approximately $14,343,
$12,307 and $5,488, to the defined contribution plan for the
years ended March 31, 2009 and 2008, and the six-month
period ended March 31, 2007, respectively.
In addition, the Company offers similar plans to employees in
other countries outside of the U.S. Westinghouse Technology
Services, S.A. in Spain is the sponsor of an occupational, DC
plan where employees annual contributions equal to 1%-2%
of their pension-qualifying salary, which is matched by the
sponsor with a contribution equal to 250% of the
participants annual basic contribution. Westinghouse
Electric South Africa (Pty) Ltd. is a sponsor of a DC plan,
where employees can contribute 5%-20% of their annual salary to
this fund, but the sponsor does not contribute to the fund.
The Company files a U.S. consolidated income tax return and
other state and foreign jurisdictional income tax returns as
required. Income tax expense is computed on a separate return
basis.
Income taxes are not recorded on undistributed earnings of
foreign subsidiaries that have been or are intended to be
reinvested indefinitely. Upon distribution, those earnings may
be subject to UK income taxes and withholding taxes payable to
various foreign countries. A determination of the amount of
unrecognized
F-90
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
deferred tax liability for temporary differences related to
investments in foreign subsidiaries is not practical. Also, the
Company presently cannot estimate the amount of unrecognized
withholding taxes that may result.
The following provides detail of income tax expense (benefit)
reported in the accompanying combined statements of operations
and comprehensive income for the fiscal years ended
March 31, 2009 and 2008 and the six-month period ended
March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
6,444
|
|
|
$
|
(2,752
|
)
|
|
$
|
1,327
|
|
State
|
|
|
|
|
|
|
(752
|
)
|
|
|
(404
|
)
|
Foreign
|
|
|
42,313
|
|
|
|
57,082
|
|
|
|
13,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
|
48,757
|
|
|
|
53,578
|
|
|
|
14,436
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
11,288
|
|
|
|
(9,936
|
)
|
|
|
712
|
|
State
|
|
|
3,177
|
|
|
|
(729
|
)
|
|
|
250
|
|
Foreign
|
|
|
(15,574
|
)
|
|
|
(18,737
|
)
|
|
|
(5,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
|
(1,109
|
)
|
|
|
(29,402
|
)
|
|
|
(4,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision presented in combined statements of
operations and comprehensive income
|
|
$
|
47,648
|
|
|
$
|
24,176
|
|
|
$
|
9,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides detail of income before taxes and
minority interest reported in the accompanying combined
statements of operations and comprehensive income for the fiscal
years ended March 31, 2009 and 2008, and the six-month
period ended March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. income (loss)
|
|
$
|
26,939
|
|
|
$
|
(34,032
|
)
|
|
$
|
3,360
|
|
Foreign income
|
|
|
88,553
|
|
|
|
168,527
|
|
|
|
19,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
$
|
115,492
|
|
|
$
|
134,495
|
|
|
$
|
22,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual income tax expense (benefit) of continuing operations
differs from the amount computed by applying the statutory
U.S. federal tax rate of 35%. A reconciliation of income
tax expense at the U.S. Federal Statutory Tax Rate to the
actual tax expense from continuing operations for the fiscal
years ended March 31, 2009 and 2008, and the six-month
period ended March 31, 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax expense, computed at the statutory rate of 35%
|
|
$
|
40,422
|
|
|
$
|
47,073
|
|
|
$
|
8,049
|
|
State income taxes, net of U.S. federal income tax effect
|
|
|
916
|
|
|
|
(963
|
)
|
|
|
(100
|
)
|
Rate differential on foreign earnings
|
|
|
(3,282
|
)
|
|
|
(9,074
|
)
|
|
|
2,495
|
|
Changes to valuation allowances
|
|
|
2,262
|
|
|
|
1,808
|
|
|
|
|
|
Foreign tax on U.S. earnings
|
|
|
1,299
|
|
|
|
5,311
|
|
|
|
|
|
Effect of enacted
non-U.S. tax
rate changes on deferred income taxes
|
|
|
(1,073
|
)
|
|
|
(18,320
|
)
|
|
|
|
|
Nondeductible expenses
|
|
|
1,492
|
|
|
|
(1,659
|
)
|
|
|
(581
|
)
|
Reserve for uncertain tax positions
|
|
|
3,311
|
|
|
|
|
|
|
|
|
|
Provision-to-return
adjustments
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
47,648
|
|
|
$
|
24,176
|
|
|
$
|
9,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
41.3
|
%
|
|
|
18.0
|
%
|
|
|
42.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-91
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Changes in the statutory income tax rate in Sweden resulted in a
reduction to deferred income taxes and income tax expense of
$1,073 in the fiscal year ended March 31, 2009. The effect
of statutory tax rate reductions in the UK of 2.0%, Germany of
10.0% and Spain of 2.5% on deferred income tax balances resulted
in a reduction in income tax expense of $19,652 in the UK and an
increase in income tax expense of $1,267 in Germany and $65 in
Spain for the fiscal year ended March 31, 2008.
The Company provides deferred income taxes for temporary
differences between the financial reporting basis and tax
carrying amounts of assets and liabilities. The Company has
gross deferred income tax assets and liabilities of $897,685 and
$(1,122,188), respectively, at March 31, 2009 and $510,153
and $(888,393), respectively, at March 31, 2008. The
components of net deferred income tax assets and (liabilities)
at March 31, 2009 and 2008, are presented in the table
below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred income tax assets and liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue and contract reserves
|
|
$
|
23,482
|
|
|
$
|
3,948
|
|
Compensation and benefits
|
|
|
17,406
|
|
|
|
22,669
|
|
Inventory
|
|
|
8,633
|
|
|
|
8,267
|
|
Product warranty
|
|
|
4,816
|
|
|
|
6,573
|
|
General liability
|
|
|
4,102
|
|
|
|
1,983
|
|
Decommissioning
|
|
|
3,095
|
|
|
|
9,747
|
|
Other
|
|
|
7,022
|
|
|
|
23,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,556
|
|
|
|
77,019
|
|
Valuation allowance
|
|
|
(699
|
)
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
67,857
|
|
|
$
|
76,774
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset (liability) components at
March 31, 2009 and 2008 were presented in the accompanying
combined balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-term deferred income tax assets and liabilities:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
342,208
|
|
|
$
|
349,689
|
|
Compensation and benefits
|
|
|
85,596
|
|
|
|
18,325
|
|
Decommissioning
|
|
|
73,468
|
|
|
|
77,415
|
|
Fixed assets
|
|
|
(59,799
|
)
|
|
|
(66,369
|
)
|
Inventory
|
|
|
(76,865
|
)
|
|
|
(124,807
|
)
|
Goodwill and intangible assets
|
|
|
(711,625
|
)
|
|
|
(757,999
|
)
|
Other
|
|
|
53,958
|
|
|
|
48,487
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(293,059
|
)
|
|
|
(455,259
|
)
|
Valuation allowance
|
|
|
(17,331
|
)
|
|
|
(21,633
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax liabilities
|
|
$
|
(310,390
|
)
|
|
$
|
(476,892
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred income tax liabilities
|
|
$
|
(242,533
|
)
|
|
$
|
(400,118
|
)
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009, the Company has a U.S. federal
net operating loss carryforward of approximately $820,000 (or
tax-effected benefit of $287,000), which will expire from 2020
through 2026. The Company has a state net operating loss
tax-effected benefit of approximately $45,521, which will if not
used, expire from
F-92
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
2011 through 2022. The Company has
non-U.S. net
operating loss carryforwards in various countries of
approximately $29,416 (or tax-effected benefit of $9,687), all
of which have no expiration date.
The Company also has an alternative minimum tax credit
carryforward of approximately $1,870 that has no expiration date.
A valuation allowance is provided when it is more likely than
not that some portion or all of deferred tax assets will not be
realized. The Company has recorded a valuation allowance of
$14,246 for certain state net operating loss carryforwards
expected to produce no tax benefit. Additionally, the Company
has recorded a valuation allowance of $3,784 for certain
non-U.S. net
operating losses and other deferred tax assets in various
countries expected to produce no benefit. Subsequent recognition
of tax benefits related to valuation allowances established at
the time of the Transaction will reduce income tax expense.
The Company experienced an ownership change as a result of the
Transaction, causing a limitation on the annual use of the net
operating loss carryforwards. Any unused limitation can be
carried forward to subsequent years. The annual limitation
significantly exceeds the amount utilized in the fiscal years
ended March 31, 2009 and 2008.
Effective April 1, 2007, the Company adopted FIN 48,
which prescribes a minimum recognition threshold for recording a
tax benefit for uncertain income tax positions. An uncertain tax
position is defined very broadly and includes not only tax
deductions and credits but also decisions not to file in a
particular jurisdiction, as well as the taxability of
transactions. The effect of adopting FIN 48 was treated as
a preacquisition contingency, and the FIN 48 reserve that
was recorded resulted in an adjustment to goodwill of $8,903.
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits for the year (excluding interest
and penalties):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized tax benefit, beginning of year
|
|
$
|
9,129
|
|
|
$
|
11,668
|
|
Increases in tax positions in current year
|
|
|
1,614
|
|
|
|
2,292
|
|
Decrease in tax positions from prior year
|
|
|
(2,100
|
)
|
|
|
|
|
Lapse of statute of limitations or closed audits
|
|
|
|
|
|
|
(4,831
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
8,643
|
|
|
$
|
9,129
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
March 31, 2009, is $8,169 of tax benefits that, if
recognized, would affect the effective tax rate.
The Company records interest and penalties related to uncertain
income tax positions as income tax expense. Related to the
unrecognized tax benefits noted above, the Company accrued
penalties of $1,357 and interest of $339 during the fiscal year
ended March 31, 2009, and in total, as of March 31,
2009, has recognized a FIN 48 liability for penalties of
$1,592 and interest of $404.
While it is expected that the amount of unrecognized tax
benefits will change in the next 12 months, quantification
of an estimated range cannot be made at this time. The Company
does not expect a change to have a significant impact on the
results of operations or financial position of the Company;
however, actual settlements may be different from amounts
accrued.
The Companys income tax returns are subject to examination
by the relevant tax authorities for a number of years after the
returns have been filed. The Internal Revenue Service (IRS) has
completed its examination of the Companys U.S. federal
income tax returns filed for the March 31, 2005 year end.
F-93
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
With few exceptions, the Company is no longer subject to U.S.
federal, state, local or foreign examinations by tax authorities
for years before 2005. The Companys tax years for 2005
through 2008 are generally subject to examination by the tax
authorities in the U.S. and in various state and foreign
jurisdictions.
At March 31, 2009 and 2008, inventories consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials and consumables
|
|
$
|
88,193
|
|
|
$
|
77,787
|
|
Work in process
|
|
|
108,196
|
|
|
|
88,957
|
|
Finished goods
|
|
|
122,405
|
|
|
|
104,284
|
|
Engineering inventory
|
|
|
6,236
|
|
|
|
1,458
|
|
Uranium inventory
|
|
|
206,952
|
|
|
|
219,014
|
|
|
|
|
|
|
|
|
|
|
Gross inventories
|
|
|
531,982
|
|
|
|
491,500
|
|
Inventory reserve
|
|
|
(17,103
|
)
|
|
|
(16,936
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
514,879
|
|
|
$
|
474,564
|
|
|
|
|
|
|
|
|
|
|
Inventories other than those related to long-term contracts are
generally sold within one year.
|
|
9.
|
PROPERTY,
PLANT AND EQUIPMENT
|
At March 31, 2009 and 2008, property, plant and equipment
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
20,940
|
|
|
$
|
18,433
|
|
Buildings and improvements
|
|
|
142,839
|
|
|
|
149,354
|
|
Machinery and equipment
|
|
|
384,460
|
|
|
|
334,280
|
|
Construction in progress
|
|
|
166,494
|
|
|
|
106,647
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
714,733
|
|
|
|
608,714
|
|
Less accumulated depreciation
|
|
|
146,657
|
|
|
|
93,898
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
568,076
|
|
|
$
|
514,816
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the fiscal years ended March 31,
2009 and 2008, and the six-month period ended March 31,
2007, has been classified in the accompanying combined
statements of operations and comprehensive income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of goods sold
|
|
$
|
53,042
|
|
|
$
|
48,073
|
|
|
$
|
24,268
|
|
Marketing, administrative, and general expenses
|
|
|
18,032
|
|
|
|
13,227
|
|
|
|
5,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,074
|
|
|
$
|
61,300
|
|
|
$
|
29,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-94
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
OTHER
CURRENT AND NONCURRENT ASSETS
|
At March 31, 2009 and 2008, other current assets and other
noncurrent assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Prepaid insurance, taxes and other services
|
|
$
|
83,438
|
|
|
$
|
103,178
|
|
Derivative instruments, at fair value
|
|
|
14,150
|
|
|
|
33,593
|
|
Indemnity for Hematite decommissioning
|
|
|
13,613
|
|
|
|
|
|
Estimated settlement of environmental claim
|
|
|
|
|
|
|
16,309
|
|
Other
|
|
|
22,190
|
|
|
|
9,416
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
133,391
|
|
|
$
|
162,496
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets:
|
|
|
|
|
|
|
|
|
Indemnity for Hematite decommissioning
|
|
$
|
51,462
|
|
|
$
|
59,400
|
|
Contractual asset for postretirement benefit costs
|
|
|
28,693
|
|
|
|
32,338
|
|
Pension asset
|
|
|
1,648
|
|
|
|
3,909
|
|
Restricted cash
|
|
|
751
|
|
|
|
38,251
|
|
Other
|
|
|
10,711
|
|
|
|
7,437
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
93,265
|
|
|
$
|
141,335
|
|
|
|
|
|
|
|
|
|
|
Restricted cash at March 31, 2009 and 2008, is held
pursuant to customer contracts in lieu of other financial
security; the requirements to maintain restricted cash balances
expire by October 2012.
Uranium, held in various forms, is primarily used in the
operations of the business. The Company maintains uranium
working stock in order to ensure efficient manufacturing
processes. The Company holds some uranium as inventory for sale
pursuant to a long-term contract with one customer and an
additional amount of surplus uranium inventory, for which it
periodically enters into transactions to sell uranium when
appropriate opportunities arise. Such sales depend on many
factors, including market price conditions, availability of
willing purchasers and projected internal needs for uranium.
During the
12-month
period ended March 31, 2009, the Company entered into three
sales transactions to sell a total of 3 teU and 102 thousand SWU
for a total of $19 million. During the
12-month
period ended March 31, 2008, the Company entered into three
sales transactions to sell a total of 347 teU (in various forms)
for a total of $156 million.
The Company recognizes revenue on the sales of uranium when the
uranium is delivered and title passes to the customer. Below is
the classification of uranium assets within the accompanying
combined balance sheets as of March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Inventory held for long-term contract
|
|
$
|
76,189
|
|
|
$
|
104,376
|
|
Surplus available for sale
|
|
|
130,763
|
|
|
|
114,638
|
|
|
|
|
|
|
|
|
|
|
Gross uranium inventory
|
|
|
206,952
|
|
|
|
219,014
|
|
Reserve to reduce cost to market
|
|
|
(2,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net uranium inventory
|
|
|
204,001
|
|
|
|
219,014
|
|
Uranium working stock
|
|
|
460,919
|
|
|
|
702,751
|
|
|
|
|
|
|
|
|
|
|
Net uranium assets
|
|
$
|
664,920
|
|
|
$
|
921,765
|
|
|
|
|
|
|
|
|
|
|
F-95
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
DEBT AND
CREDIT FACILITIES
|
Revolving credit facilities In October 2006,
the Company entered into a three-year revolving credit facility
in the amount of $600,000 which was increased to $800,000 in
August 2007. In November 2008, the Company entered into a
four-year revolving credit facility in the amount of $150,000.
The main purpose of these facilities is to issue standby Letters
of Credit in U.S. dollars or alternative currencies.
Individual borrowings, which are allowed under the $800,000
facility, but not the $150,000 facility, are limited to
maturities of 6 months, unless consent is given by the
lenders for borrowings of up to 12 months. Individual
borrowings mature for the purpose of being replaced with new
borrowings at the prevailing market rates. Borrowings and
letters of credit are not callable and the facility is not
cancelable unless there is an event of default. There were no
events of default as of March 31, 2009. The facilities are
guaranteed by Toshiba, and interest rates paid under the
facilities are tied to the credit rating of Toshiba. Depending
on the Toshiba credit rating, interest rates are LIBOR plus
0.25% to 0.75%, and fees for capacity range from 0.06% to
0.175%. Under the $800,000 credit facility, there is also an
option to borrow on shorter notice at the current prime rate.
There were no outstanding borrowings under these facilities at
March 31, 2009 and March 31, 2008; however,
approximately $688,418 and $669,592 respectively was being used
for standby letters of credit. As current standby letters of
credit expire, the Company expects to replace them, as required,
with new letters of credit under the facility. The $800,000
revolving credit facility expires in October 2010 and $150,000
revolving credit facility expires in November 2012. The Company
expects to be able to negotiate a new credit agreement in equal
or greater capacity to replace the $800 million facility
that expires in October 2010.
Accounts receivable securitization program On
March 21, 2002, the Company entered into an agreement with
a financial institution whereby the Company securitizes on a
continuous basis an undivided interest in a specific pool of the
Companys domestic trade accounts receivable. On
April 21, 2008, Westinghouse repaid the outstanding amount
under the facility and received 100% interest in all accounts
receivable previously securitized under the facility.
|
|
13.
|
OTHER
CURRENT AND NONCURRENT LIABILITIES
|
At March 31, 2009 and 2008, other current and noncurrent
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Derivative instruments, at fair value
|
|
$
|
85,622
|
|
|
$
|
26,970
|
|
Accrued payroll and other employee compensation
|
|
|
71,702
|
|
|
|
71,892
|
|
Vacation liability
|
|
|
65,758
|
|
|
|
60,887
|
|
Contract and other reserves
|
|
|
54,319
|
|
|
|
39,126
|
|
Accrued royalties and commissions
|
|
|
41,472
|
|
|
|
48,979
|
|
Accrued income and other taxes
|
|
|
29,777
|
|
|
|
32,670
|
|
Reserve for decommissioning matters
|
|
|
29,190
|
|
|
|
24,368
|
|
Accrued product warranty
|
|
|
18,534
|
|
|
|
22,969
|
|
Contractually obligated liabilities
|
|
|
10,500
|
|
|
|
35,590
|
|
Environmental liabilities
|
|
|
7,227
|
|
|
|
4,247
|
|
Pension liability
|
|
|
5,472
|
|
|
|
6,095
|
|
Other
|
|
|
44,504
|
|
|
|
59,915
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
464,077
|
|
|
$
|
433,708
|
|
|
|
|
|
|
|
|
|
|
F-96
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Environmental liabilities
|
|
$
|
24,391
|
|
|
$
|
28,676
|
|
Accrued product warranty
|
|
|
19,117
|
|
|
|
19,416
|
|
Unfavorable lease reserve
|
|
|
4,723
|
|
|
|
7,299
|
|
Reserve for contract losses
|
|
|
894
|
|
|
|
11,841
|
|
Other
|
|
|
35,292
|
|
|
|
32,757
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
$
|
84,417
|
|
|
$
|
99,989
|
|
|
|
|
|
|
|
|
|
|
TNEH-USs capital structure consists of 4,400 authorized
shares of common stock with a par value of $0.01, of which 2,156
are Class A shares and 2,244 are Class B shares. Each
share of Class A and Class B stock is given one vote.
Class A stock has dividend preference over Class B
stock with regard to dividend distribution timing. There were
1,960 shares of Class A stock and 2,040 shares of
Class B stock issued and outstanding at March 31,
2009, for $1,960,000 and $2,040,000, respectively.
TNEH-UKs capital structure consists of 1,550 authorized
shares of common stock with a par value of one British Sterling
Pound, of which 760 are Class A shares and 790 are
Class B shares. Each share of Class A and Class B
stock is given one vote. Class A stock has dividend
preference over Class B stock with regard to dividend
distribution timing. There were 686 shares of Class A
stock and 714 shares of Class B stock issued and
outstanding at March 31, 2009, for $686,000 and $714,000,
respectively.
The U.S. Shareholders Agreement and UK Shareholders
Agreement describe the conditions under which dividends will be
paid. The intent of the Agreements is to pay dividends of at
least $22,222 (whole dollars) per share each fiscal year,
prorated for partial fiscal years, on a quarterly basis if and
when declared by the Boards of Directors of TNEH-US and TNEH-UK.
Dividend payments of $71,201 and $8,170 were paid on
December 31, 2008 and January 30, 2008, respectively.
The U.S. Shareholders Agreement and the UK Shareholders
Agreement also contain call options. Call prices are at fair
market value, to be determined by the parties. Call rights are
triggered by an event of insolvency of one shareholder, in which
case the shares of the insolvent shareholder may be called, or a
change in control event, in which case the shares of one
shareholder are transferred or acquired by a competitor of the
Company or any other person to whom the Company has not
consented. At March 31, 2009, no call options have been
exercised.
|
|
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Settlement obligations The Company provided
for the estimated future costs for the resolution of various
claims brought by utilities claiming a substantial amount of
damages in connection with alleged tube degradation in steam
generators sold by the Company as components of nuclear steam
supply systems. Under the settlement agreements, the Company
provides certain products and services at prices discounted at
varying rates, and the Company has recorded a liability for the
estimated future financial effects.
The reserve balances at March 31, 2009 and 2008, reflect
the net present value to satisfy the estimated obligations under
the existing settlement agreements and any related external
costs of defending litigation. The future obligations require
providing discounts on products and services or cash payments
through the fiscal year ending March 31, 2017, or until
such discount caps are reached. Imputed interest on the reserve
was $5,126 and $6,041 for the fiscal years ended March 31,
2009 and 2008, respectively. The reserve balances of
F-97
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
March 31, 2009 and 2008, of approximately $28,887 and
$51,268, respectively, in the accompanying combined balance
sheets are discounted from estimated gross liabilities of
approximately $34,327 and $90,000, respectively, using a
weighted average discount rate of 9.04%. Of the net reserve
balances at March 31, 2009 and 2008, $15,806 and $22,517,
respectively, are presented as current liabilities.
The expected gross obligation payments as of March 31, 2009
are expected to be fulfilled as presented in the table below:
|
|
|
|
|
For the fiscal year ending March 31:
|
|
|
|
|
2010
|
|
$
|
15,806
|
|
2011
|
|
|
6,080
|
|
2012
|
|
|
7,097
|
|
2013
|
|
|
4,699
|
|
2014-2017
|
|
|
645
|
|
|
|
|
|
|
|
|
$
|
34,327
|
|
|
|
|
|
|
Under the terms of the 2000 ABB Handels (ABB) Nuclear Purchase
Agreement, ABB provided the Company certain indemnities relative
to cleanup costs at the Hematite, Missouri fuel facility. The
indemnities provided an overall cap of $41,250 for costs
classified as legacy liabilities and $71,250 for decommissioning
and decontamination costs. As of March 31, 2009 and 2008,
the Company had a reserve of $99,718 and $107,600, respectively,
included in reserves for decommissioning matters on the
accompanying combined balance sheet, to cover future
expenditures. As of March 31, 2009 and 2008, the Company
had an asset for the expected collections under the indemnity of
$13,613 and $0, respectively, included in other current assets,
and $51,462 and $59,400, respectively, included in other
noncurrent assets in the accompanying combined balance sheets
representing the ABB indemnities (see Note 10). Management
believes that the current recorded reserve and asset are
appropriate based upon current project estimates and existing
indemnification clauses.
Product warranty The Company provides various
warranties on its products and contracts for specific periods of
time. Warranties vary depending upon the nature of the product
or contract and other factors. The liability for warranties is
based upon future product performance and durability and is
estimated largely based upon historical experience. Adjustments
are made to accruals as claim data and historical experience
warrant. The changes in the provision for those warranties for
the fiscal years ended March 31, 2009 and 2008, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning of year
|
|
$
|
42,385
|
|
|
$
|
41,693
|
|
Liabilities settled
|
|
|
(16,160
|
)
|
|
|
(14,771
|
)
|
Additional liabilities accrued
|
|
|
14,142
|
|
|
|
14,779
|
|
Foreign currency translation effect
|
|
|
(2,716
|
)
|
|
|
684
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
37,651
|
|
|
$
|
42,385
|
|
|
|
|
|
|
|
|
|
|
Recorded in balance sheet as:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
18,534
|
|
|
$
|
22,969
|
|
Other noncurrent liabilities
|
|
|
19,117
|
|
|
|
19,416
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
37,651
|
|
|
$
|
42,385
|
|
|
|
|
|
|
|
|
|
|
General The Company is involved in various
other litigation matters in the ordinary course of business.
Reserves are included in the accompanying combined balance
sheets for issues when a negative outcome is
F-98
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
probable and the amount is reasonably estimable. In the opinion
of management, while it is possible that certain outcomes could
be unfavorable to the Company, the ultimate resolution of such
matters will not result in judgments that, in the aggregate,
would materially affect the Companys financial position or
results of operations. The Company has recorded
$3.0 million in the accompanying combined balance sheet at
March 31, 2009, which is believed to be the best estimate
for litigation matters where a negative outcome is probable.
Environmental matters Compliance with
federal, state and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of
hazardous wastes and other related activities affecting the
environment have had and will continue to have an impact on the
Company. It is difficult to estimate the timing and ultimate
costs to be incurred in the future due to uncertainties about
the status of laws, regulations and technology; the adequacy of
information available for individual sites; the extended time
periods over which site remediation occurs; the availability of
waste disposal capacity; and the identification of new sites.
The Company has, however, recognized an estimated liability of
$31,618 and $32,923 as of March 31, 2009 and 2008,
respectively, measured in current dollars, for those sites where
it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. The Company recognizes
changes in estimates as new remediation requirements are defined
or as more information becomes available.
Operating expenses that are recurring and associated with
managing hazardous waste and pollutants in ongoing operations
totaled $2,662, $2,994 and $1,071 for the fiscal years ended
March 31, 2009 and 2008, and the six-month period ended
March 31, 2007, respectively. These expenses are included
in cost of goods sold in the accompanying combined statements of
operations and comprehensive income.
Management believes that the Company has adequately provided for
its present environmental obligations and that complying with
existing governmental regulations will not materially impact the
Companys financial position, liquidity or results of
operations.
Commitments In the ordinary course of
business, letters of credit and surety bonds are issued on
behalf of the Company. As of March 31, 2009 and 2008, the
Company had $688,418 and $669,592, respectively, under letters
of credit and $46,763 and $15,568 under surety bond obligations.
Other During the fiscal year ended
March 31, 2009 and 2008, the Company terminated contracts
with certain customers which resulted in the extinguishment of
liabilities in the amounts of $17,991 and $32,101, respectively.
These extinguishments are included in the accompanying combined
statement of operations and comprehensive income as reductions
to marketing, administrative and general expenses.
|
|
16.
|
SALES OF
AP1000 NUCLEAR PLANTS
|
The Companys advanced design nuclear reactor, the AP1000,
is based on passive safety technology and is the only such
reactor design to receive Final Design Certification
(DC) by the NRC. Subsequently, the Company has requested
that the NRC amend the DC to support closure of the remaining
COL issues and to incorporate design changes subsequent to the
original certification. In the fiscal year ended March 31,
2009, the Company experienced significant commercial activity
related to sales of AP1000 nuclear units.
CHINA
In July 2007, the Company signed three contracts for supply of
four AP1000 units into China. The units are being
constructed at sites designated by the Chinese customers, two at
Sanmen and two at Haiyang. The three contracts provide for
separate aspects of work, which are: the Nuclear Island (NI)
contract that provides for supply of the nuclear reactor and
other components to deliver steam to the turbine (being supplied
separately by the Chinese customer); a Technology Transfer (TT)
agreement that will enable the Chinese customer to design and
build future AP1000 units for use within China only,
without support from the Company; and a Fuel Assembly (FA)
contract to provide the initial core fuel load for each unit.
F-99
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The contracts are progressing well with major deliverables to
date being achieved. The first major construction milestone, the
pour of basemat structural concrete, was achieved on schedule.
Many of the NI major components have been ordered and support
the scheduled completion dates. Under a Consortium Agreement,
Shaw is providing a portion of the scope under the NI and TT
contracts. The Shaw scope is largely related to certain
construction management and engineering activities.
Revenue recognition is generally on the
percentage-of-completion
method and for the years ended March 31, 2009 and 2008,
$265,801 and $159,489, respectively, of revenue was recognized.
Cash is collected on a contract milestone basis, which may
precede or lag actual work performed.
At March 31, 2009 and 2008, cash collected exceeded costs
and estimated earnings and is included in billings in excess of
costs and estimated earnings on uncompleted contracts in the
accompanying combined balance sheets.
U.S.
During fiscal year 2009, the Company signed three EPC agreements
for the sale of AP1000 units to various
U.S. utilities. In April 2008, the Company signed an EPC
agreement with Georgia Power Company, Oglethorpe Power
Corporation, the Municipal Electric Authority of Georgia and the
City of Dalton, Georgia, for the sale of two AP1000 units
to be constructed in the state of Georgia. In May 2008, the
Company signed an EPC agreement with South Carolina
Electric & Gas Company and the South Carolina Public
Service Authority for the sale of two AP1000 units to be
constructed in state of South Carolina. In December 2008, the
Company signed an EPC agreement with Progress Energy Florida
(PEF) for the sale of two AP1000 units to be constructed in
the state of Florida. Unlike the sale in China, these EPC
contracts provide for turnkey plant projects in which the
Company will likely procure certain components from Toshiba and
IHI.
In conjunction with the three signed EPC agreements noted above,
the Company and Shaw (the Consortium Partners) signed a separate
Consortium Agreement for each individual EPC agreement, which
requires Shaw to provide substantially all of the construction
components of the EPC. The consortium is not a legal entity but
is a working arrangement that defines the split of work scope,
sharing of risk and dispute resolution between the Consortium
Partners.
The Company remains engaged in significant discussions with
several other U.S. utility customers for the sale of
additional AP1000 units. It is anticipated that these sales
agreements will be similar to those agreements already completed.
Revenue recognition on all US AP1000 agreements is generally on
the
percentage-of-completion
method and for the years ended March 31, 2009 and 2008,
$486,253 and $0, respectively, of revenue was recognized. Cash
is collected on a contract milestone basis, which may precede or
lag actual work performed.
At March 31, 2009 and 2008, costs and estimated earnings
were in excess of cash collected and are included in billings in
excess of costs and estimated earnings on uncompleted contracts
in the accompanying combined balance sheets.
SUBSEQUENT
EVENT
On April 30, 2009, the Company received notice from PEF of
its intention to delay the execution of the EPC contract, signed
in December 2008. PEF has determined that the delay is warranted
due to a decision by the NRC, which requires PEF to obtain its
Combined Operating License from the NRC prior to the beginning
of preconstruction work. As a result of this decision, and in
consultation with PEF, the Company will begin to plan for a
commercial operating date delay of at least 20 months for
the first of two units covered under the EPC. The EPC addresses
the potential for suspension of activity, and PEFs
notification will constitute a
F-100
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
suspension under the EPC. Neither party anticipates that this
suspension will result in termination of the contract. This
notification does not have a substantial impact on the
Companys combined balance sheets or statements of
operations and comprehensive income as of March 31, 2009.
The Company has commitments under operating leases for certain
machinery and equipment and facilities used in various
operations. Certain of these leases contain renewal options.
Rental expense was $40,627, $38,587 and $16,060 for the fiscal
years ended March 31, 2009 and 2008, and the six-month
period ended March 31, 2007, respectively. The Company
leased a facility used in the Nuclear Services business segment
under a capital lease. The facility is used for the purpose of
supplying nuclear engineering and services for commercial
nuclear reactors and for related warehouse and office
activities. The facility is included with buildings and
improvements under property, plant and equipment on the
accompanying combined balance sheets. The Company expects to
exercise its bargain purchase price and acquire the facility
during the fiscal year ending March 31, 2010.
Minimum lease payments under the Companys operating leases
as of March 31, 2009, are presented in the table below:
|
|
|
|
|
For the fiscal year ended March 31:
|
|
|
|
|
2010
|
|
$
|
35,143
|
|
2011
|
|
|
40,560
|
|
2012
|
|
|
24,513
|
|
2013
|
|
|
23,286
|
|
2014
|
|
|
21,315
|
|
Thereafter
|
|
|
201,154
|
|
|
|
|
|
|
Minimum lease payments
|
|
$
|
345,971
|
|
|
|
|
|
|
|
|
18.
|
RELATED-PARTY
TRANSACTIONS
|
The Company had loans receivable with Toshiba companies as of
March 31, 2009, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Borrower
|
|
Receivable
|
|
Accrued Interest
|
|
Interest Rate
|
|
Westinghouse
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
77,381
|
|
|
$
|
7
|
|
|
|
*0.84
|
%
|
Westinghouse
|
|
Toshiba America Capital Corp.
|
|
$
|
100,000
|
|
|
$
|
3
|
|
|
|
5.29
|
%
|
TNEH-UK
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
18,903
|
|
|
$
|
2
|
|
|
|
5.82
|
%
|
TNEH-US
|
|
Toshiba America Capital Corp.
|
|
$
|
11,400
|
|
|
$
|
|
|
|
|
0.44
|
%
|
|
|
|
* |
|
Weighted average interest rate for three separate loans. |
The Company has loans receivable with Toshiba companies as of
March 31, 2008, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Borrower
|
|
Receivable
|
|
Accrued Interest
|
|
Interest Rate
|
|
Westinghouse
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
199,912
|
|
|
$
|
110
|
|
|
|
*4.43
|
%
|
TNEH-UK
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
50,181
|
|
|
$
|
38
|
|
|
|
5.55
|
%
|
|
|
|
* |
|
Weighted average interest rate for four separate loans. |
The loan and related interest due to the Company outstanding at
March 31, 2009 and March 31, 2008, were repaid on
April 3, 2009 and April 4, 2008, respectively.
F-101
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Company has entered into numerous contracts and purchase
orders with its affiliates, Shaw and its affiliates, IHI and
Kazatomprom. Several of the contracts include more than one of
the owners. The contracts are generally to execute portions of
the Companys normal operations and other customer
contracts. In addition, the Company has entered into contracts
to procure components and services from Toshiba, IHI and Shaw in
connection with sales of AP1000 plants (see Note 16). For
the fiscal years ended March 31, 2009 and 2008, and the
six-month period ended March 31, 2007, the Company had the
following activity with related parties reported in the
accompanying combined statements of operations and comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
49,891
|
|
|
$
|
18,897
|
|
|
$
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
46,434
|
|
|
$
|
3,711
|
|
|
$
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, administrative, and general expenses
|
|
$
|
299
|
|
|
$
|
124
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009 and 2008, the Company had the following
outstanding balances with related parties reported in the
accompanying combined balance sheets:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Receivables, net
|
|
$
|
6,140
|
|
|
$
|
2,427
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,788
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
ACQUISITION
SUB-EVENT
|
On May 7, 2009, the Company acquired 52% of Nuclear Fuel
Industries, Ltd. (NFI), Japans sole producer of nuclear
fuel for boiling-water and pressurized-water reactors, for
$113 million. NFI will operate within the Fuel Segment of
the Company.
F-102