UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
August 31,
2010
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number: 1-12227
THE SHAW GROUP INC.
(Exact name of registrant as
specified in its charter)
|
|
|
LOUISIANA
(State or other jurisdiction
of
incorporation or organization)
|
|
72-1106167
(I.R.S. Employer
Identification No.)
|
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:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
Common Stock no par value
|
|
New York Stock Exchange
|
Preferred Stock Purchase Rights
with respect to Common Stock no par value
|
|
New York Stock Exchange
|
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):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(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
$2.4 billion (computed by reference to the closing sale
price of the registrants common stock on the New York
Stock Exchange (NYSE) on February 26, 2010, 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 25, 2010 was 84,962,059.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2011 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission (the SEC) within
120 days of August 31, 2010, are incorporated by
reference into Part III of this Annual Report on
Form 10-K
for the fiscal year ended August 31, 2010
(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.
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 utilities, independent and merchant
power producers, and government agencies. 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 (AP1000 is a trademark of
Westinghouse Electric Co., LLC.). 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 an advantage 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:
|
|
|
First Quarter
|
|
November
30th
|
Second Quarter
|
|
February
28th
|
Third Quarter
|
|
May 31st
|
Fourth Quarter
|
|
August
31st
|
2
Our stock trades on the 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 breadth of
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 select assets of the IT Group, Inc.
(IT Group) significantly expanded our position in the
environmental remediation and infrastructure markets,
particularly in the U.S. government services sector. The
acquisition further diversified our clientele 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
(our 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 industries through the commercial relationship agreement
with Toshiba (Westinghouse CRA), which provides us certain
exclusive opportunities to bid on projects for which we would
perform EPC services for future projects using
Westinghouses nuclear AP1000 technology. For an
explanation of this investment, see Part I,
Item 1 Business Investment in
Westinghouse Segment, below.
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. We believe our
direct hire construction capabilities provide us with a
competitive advantage in many of the markets we serve.
Our segments strive to support and complement each other,
enabling Shaw to rely on internal resources for much of our
work. As of this publication, two of our segments have been
renamed to accurately reflect their service offerings, including
Power, formerly the Fossil, Renewables & Nuclear
Segment, and Plant Services, formerly the Maintenance Segment.
Currently, we are organized under the following seven reportable
segments:
|
|
|
|
|
Power (formerly known as Fossil, Renewables & Nuclear),
|
|
|
|
Plant Services (formerly known as Maintenance),
|
|
|
|
Environmental & Infrastructure (E&I),
|
|
|
|
Energy & Chemicals (E&C),
|
|
|
|
Fabrication & Manufacturing (F&M),
|
|
|
|
Investment in Westinghouse, and
|
|
|
|
Corporate
|
3
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 15 Business Segments included in our
consolidated financial statements beginning on
page F-2.
In addition, see Item 1A Risk Factors for a
discussion of the risks related to our foreign operations.
Power
Segment
Our Power segment provides a range of services, including
design, engineering, construction, procurement, technology and
consulting services, primarily to the fossil and nuclear power
generation industries.
Nuclear Power Generation. Approximately 20% of
the electric power generated in the U.S. is 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 industry.
We have been awarded a technical services contract for four
AP1000 nuclear power units at two sites and an initial contract
to provide technical services for additional AP1000 nuclear
power plants at a third site in the Peoples Republic of
China (China). We have been awarded three EPC contracts to build
a total of six AP1000 units at three U.S. project
sites two nuclear power units each for Georgia
Power, South Carolina Electric & Gas and Progress
Energy. Advancement on the China AP1000 nuclear projects
continues with the completion of significant construction
milestones, including the placement of first nuclear concrete at
all four units. Several structural modules have been set,
including the Containment Vessel (CV) Bottom Head at three
of the four units and the CV 2nd Ring at two units. At our
domestic sites, commercial operation is expected between 2016
and 2019 for four AP1000 nuclear units, two each at the Vogtle
Electric Generating Plant in Georgia and the V.C. Summer Nuclear
Station in South Carolina.
Nuclear Services. In addition to the contracts
we have been awarded in the area of new plant construction, we
are recognized in the power industry for improving the
efficiency, capacity output and reliability of existing nuclear
plants through uprate projects. These carbon-neutral uprate
projects represent a competitive cost alternative to new plant
construction and are expected to be an important component in
the expansion of domestic power generation and our Power
segment. In May 2010, we announced the award of an extended
power uprate (EPU) contract for Entergys Grand Gulf
Nuclear Station.
Gas-Fired Generation. Approximately 22% of
electric power generated in the U.S. is from natural
gas-fired power plants. We continue to observe increased
activity in gas-fired electric generation, as electric utilities
and independent power producers look to diversify their options.
In many states, initiatives to reduce carbon dioxide and other
greenhouse gas emissions, as well as anticipated demand for
additional electric power generation capacity, have stimulated
renewed interest in 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
more volatile operating costs. In addition, gas-fired generation
has the potential to complement wind, solar and other
alternative generation facilities because gas-fired facilities
can be brought online quickly to smooth the inherently variable
generation of alternative energy sources. We expect power
producers to increase capital spending on gas-fired power plants
to take advantage of recent lower natural gas prices, which
could remain low for some time because of potential 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 area.
Clean Coal-Fired Generation. Approximately 46%
of electric power generated in the U.S. is from coal-fired
power plants. Electric power companies in the
U.S. historically have 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 compared to other fossil fuels , and the
U.S. has significant coal reserves. However, uncertainty
surrounding potential regulations targeting carbon and other
emissions, as well as the global economic downturn and low
natural gas prices, has caused the development of coal and other
solid fuel-fired power plants to slow significantly.
Nevertheless, we believe that coal will continue to be a major
component of future U.S. energy generation, and we intend
to continue positioning our resources to capture a significant
share of any new build, retrofit or expansion projects.
4
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 systems, and selective catalytic reduction (SCR)
processes for fossil fueled power plants. AQC activity is
heavily dependent on federal and state regulation of air
pollution. Although activity has declined in recent years, we
are closely following air regulations that are being developed
by the Environmental Protection Agency (EPA). We anticipate that
these new regulations may drive a rebound in AQC activity.
The Clean Air Transport Rule (Transport Rule) is
being developed by EPA as a replacement for the Clean Air
Interstate Rule (CAIR) that was vacated by the D.C. Circuit
Court of Appeals in July 2008. The Transport Rule is designed to
lower sulfur dioxide
(SO2)
and nitrogen oxides (NOx) emissions. It was issued in proposed
form in July 2010, and the final rule is expected by mid 2011.
The MACT Rule (maximum achievable control technology) is being
developed by EPA to address mercury and other hazardous air
pollutants (HAPs). The MACT Rule is expected to be issued in
proposed form by early 2011 with a final rule by November 2011.
Regulation of greenhouse gases (GHGs) by EPA under the Clean Air
Act is scheduled to begin during 2011. This regulation will
require application of best available control technologies
(BACT). EPA is in the process of developing these BACT rules.
Owners of fossil fueled power plants are studying the available
guidance on these proposed rules and developing compliance
strategies. We anticipate opportunities for retrofit of the
various air pollution control technologies to arise as these
plans are finalized.
Plant
Services Segment
Our Plant Services segment is a market leader, providing a full
range of integrated asset life-cycle capabilities that
complement our power and process industrial EPC services. We
provide clients with refueling outage maintenance, turnaround
maintenance, routine maintenance, modifications, capital
construction, off-site modularization, offshore fabrication,
reliability engineering, plant engineering, plant support and
specialty services. We perform services to restore, rebuild,
repair, renovate and modify industrial facilities, as well as
offer predictive and preventative maintenance. The services
provided by our Plant Services segment are provided at client
work sites primarily in North America.
Nuclear Plant Maintenance and
Modifications. There are currently 104 operating
nuclear reactors in the U.S., each requiring engineering,
maintenance and modification services at various times to
support daily operations, plant refueling outages, life/license
extensions, materials upgrades, capacity uprates and performance
improvements. We provide systemwide maintenance and modification
services to 36 of the 104 operating domestic nuclear reactors,
including the countrys two largest nuclear fleets.
We provide a continuum of support and planning between refueling
outages, maintaining an experienced core team of professionals.
We concentrate on complicated, noncommodity projects in which
our historical expertise and project management skills add
value. We can further expand supplemental nuclear plant
modifications for existing clients and are capable of providing
services to international clients operating nuclear plants.
Fossil Plant Maintenance and Modifications. In
addition to nuclear plant maintenance, we provide or offer
services to fossil generating facilities including coal and
natural gas plants. Our nuclear maintenance expertise and
construction planning and execution skills provide the basis for
expansion of services into this area.
Process and Industrial Maintenance and
Modifications. We have a continuous presence at
several U.S. field locations serving alternative energy,
petrochemical, specialty chemical, oil and gas, manufacturing
and refining industries. We offer comprehensive services to
clients in combinations that increase capacity, reduce
expenditures and optimize costs to enable the highest return on
production within their facilities.
Capital Construction. Our capital construction
experts bring decades of experience to serve clients in
chemical, petrochemical, refining and power industries
throughout the U.S. Our construction scope includes
constructability reviews, civil and concrete work, structural
steel erection, electrical and instrumentation services,
mechanical and piping system erection and modular construction.
We also successfully mobilize
5
resources under demanding client deadlines to rebuild and
restore facilities damaged by natural disasters or catastrophes
in the Gulf Coast region.
Environmental &
Infrastructure (E&I) Segment
As a leader in engineering, design, environmental remediation
and construction, our E&I segment provides program and
construction management, remediation and restoration, logistics
support, operations and maintenance, emergency response and
recovery, laboratory services and energy efficiency services to
commercial and U.S. federal, state and local government
clients. With staff throughout the U.S. and abroad, we
provide full-service solutions to clients facing complex
environmental and infrastructure challenges with quality and
safety in mind.
Program Management. We manage large federal,
state and local government programs, including capital
improvement, emergency response and disaster recovery, and
energy efficiency programs, as well as private-sector commercial
programs. We provide planning, program management, operations
management and technical services for clients such as the
Federal Emergency Management Agency (FEMA) and for programs such
as the State of Louisianas Energy Program, Energy
Efficiency and Conservation Block Program and the Hazard
Mitigation Grant and Community Development Block Grant Programs
administered by the Office of Community Development. We staff
projects with experienced professionals and provide clients with
a single point of accountability. Our integrated business teams
provide expertise and consistency throughout each program.
Design-Build. We use our proficiencies in
engineering, design, procurement, operations, construction and
construction management for all design-build phases of large
infrastructure projects. Our hurricane protection project in New
Orleans, Louisiana, is the largest design-build civil works
project ever undertaken by the U.S. Army Corps of Engineers
(USACE). Also, the U.S. DOE contracted Shaw, 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-its-kind
facility in the U.S. to process weapons-grade plutonium
into fuel for nuclear power generating plants. Additionally,
Shaw provides a range of cost-effective green building
solutions, including those that meet requirements for Leadership
in Energy and Environmental Design (LEED) certified structures
for the federal government, to help our clients achieve their
sustainability goals and improve their earnings.
Environmental Remediation. As a leading
service provider in environmental remediation, our E&I
segment provides a full range of engineering, design,
construction and scientific services to a variety of clients,
including those in the chemical, energy, real estate,
manufacturing and transportation fields. We execute complex
remediation and restoration projects for the
U.S. government at military bases with unexploded ordnance
exposure and residual fuel and chemical contamination, as well
as at former nuclear weapons production and atomic testing
sites. We also remediate a variety of sites such as the
USACEs Formerly Utilized Sites Remedial Action Program
(FUSRAP) Superfund site in Maywood, New Jersey. Our
technological capabilities such as laboratory assessments, field
testing and analytic evaluation support a wide range of client
needs, including but not limited to groundwater modeling,
contaminant transport and soil washing. Additionally, we have
the largest production capacity of microbial cultures in the
industry, allowing for the biological remediation of
contaminated groundwater and the sale of cultures to licensees.
Emergency Response & Recovery. We
provide emergency response, relief and recovery services for
clients and communities around the world. Our specialized
resources and equipment, including real-time professional
staffing deployments, nationwide locations and technological
capabilities enable quick response to adverse environmental,
health, safety and economic impacts resulting from natural
disasters, industrial accidents or acts of terrorism. We have
responded to numerous emergencies, including hurricanes Katrina,
Ike and Gustav, the earthquake in Haiti and, most recently, the
Deepwater Horizon oil spill in the Gulf of Mexico.
Coastal, Maritime and Natural Resource Engineering and
Restoration. We provide engineering and design
services, including port and waterway navigation feasibility and
development, sediment management, coastal engineering,
environmental services, levee development, barrier island and
shoreline protection and restoration, and marine security. We
also perform wetlands construction, mitigation and restoration.
Many of
6
our projects are generated by the Coastal Wetlands Planning
Protection and Restoration Act, which provides federal funds to
restore and conserve coastal wetlands and barrier islands. In
response to the Deepwater Horizon oil spill, we are providing
the State of Louisiana with project management and construction
services.
General Infrastructure and Transportation. We
provide construction management and program management for
infrastructure projects related to transportation, water and
wastewater systems. We also 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 also are
included in our scope of services. 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.
Other Federal Services. We offer program
management, operations, engineering, design, construction,
consulting and technology-based solutions to help
U.S. government clients including the DOE, USACE,
Department of Defense (DoD), EPA, Federal Transit Administration
(FTA) and FEMA manage large 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 those prescribed in the Comprehensive
Environmental Response Compensation and Liability Act, also
known as the Superfund law, and the Resource Conservation and
Recovery Act. Additionally, we support our clients efforts
to comply with the Clean Water Act, Clean Air Act and Toxic
Substances Control Act. 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 and are a premier provider of full-service
environmental, engineering, design, project management,
procurement and construction services to upgrade, repair,
construct or deactivate fuel systems for both government and
commercial clients.
Energy &
Chemicals (E&C) Segment
Our E&C segment provides a full range of project services
to the oil and gas, refining, petrochemical and upstream
industries globally. Our services include consulting, technology
licensing, project management, engineering, procurement,
construction, commissioning and startup. We are differentiated
by our process technologies, many of which are proprietary, and
our ability to develop, commercialize and integrate new
technologies. We also are differentiated by our ability to
perform projects that range from small consulting studies to
large EPC projects. From our main offices in Houston, Texas;
Baton Rouge, Louisiana; Cambridge, Massachusetts; Toronto,
Canada; Mumbai, India and Milton Keynes, England, we concentrate
on five major industry areas: consulting, ethylene,
chemicals/petrochemicals, refining and upstream.
Although the current global economic climate has adversely
impacted the E&C segments business prospects, we
anticipate that, as the economy recovers, expenditures by our
major oil and gas and petrochemical clients will revert to prior
levels.
Consulting. Our consulting business provides
independent commercial, financial and technical management
advice. We support operating companies, the financial sector,
developers, utilities and governments with projects in the
power, hydrocarbon processing, water and related industries. Our
expertise is valued by clients seeking to design and construct
new facilities. Companies with existing assets seek our advice
to enhance facilities or to support a range of asset
transactions. While the global economic downturn has slowed the
pace of new consulting engagements, we expect activity to
commensurate with any economic recovery.
Ethylene. The manufacture of ethylene is one
of Shaws core proprietary technologies. Produced by the
steam cracking of hydrocarbon feedstocks, ethylene and its other
olefin co-products, propylene and butadiene, are key building
blocks for other petrochemicals and polymers. We provide a range
of project services to support this technology, from conceptual
studies through detailed design and EPC. Since we built our
first ethylene plant in 1941, we have designed
and/or built
more than 120 grassroots units, which provide a
7
significant portion of the worlds ethylene supply. A key
component of our ethylene technology is our advanced furnace
technology, which is based on more than 40 years of
research, design and operating experience. Since 1996, Shaw has
licensed more than 170 furnaces. All were installed in
grassroots or revamp projects that, together, produce more than
17 million metric tons of ethylene per year.
This year we achieved full commercial operation of a
1.3 million metric ton grassroots ethylene plant in Saudi
Arabia. The plant was based on our proprietary ethylene
technology and included eight furnaces. During fiscal year 2010,
we also marked progress on a 1.0 million metric ton olefins
recovery facility with a 220 megawatt power cogeneration unit in
Singapore, where we are providing proprietary technology and EPC
services.
The large amount of ethylene on the market, coupled with the
economic slowdown, has contributed to reduced ethylene demand
and delays of new awards. However, there are exceptions, such as
the Middle East, where projects are more likely to proceed
because of the availability of low-cost feedstock, and China,
India and Latin America, where ethylene markets seem to be
affected less by the economic slowdown. In North America, we
believe that low natural gas prices will make ethylene
production more competitive. We also believe that as owners seek
to increase propylene production and maximize overall
productivity, there will be greater opportunities to revamp
existing facilities during the next several years.
Petrochemicals. We are a leading provider of
proprietary technology, engineering, procurement, construction,
commissioning, startup, operations and maintenance services to
petrochemical complexes worldwide. Our portfolio, which includes
technologies with alliance partners, offers polyethylene and
acrylonitrile butadiene styrene polymer (ABS). We also provide
integration expertise and other services for manufacturing
plants that make solar-grade polysilicon, with one major project
under way. Through our Badger Licensing LLC joint venture, we
offer ethylbenzene, styrene monomer, cumene and bisphenol A
(BPA). Badger also recently added a new technology,
BenzOUTtm,
which reduces benzene in gasoline to meet current and future
environmental regulations.
While there has been significant production growth in commodity
petrochemicals such as polyethylene, polypropylene and ethylene
oxide/glycol during the past several years, mostly in the Middle
East and China, the economic downturn has impacted demand and
delayed plans for new facilities. As the economy recovers, we
believe we will see growth in regions such as India and Latin
America, where new integrated complexes are being planned, and
the Middle East and Asia, where plans are under way to expand
production of commodity petrochemicals.
Oil Refining. We provide technology,
engineering, procurement, construction and startup and
commissioning services for projects ranging from grassroots
designs to revamps of existing units. Services include
technology licensing, front-end studies, front-end engineering
and design (FEED), licensor integration, project management
consultancy (PMC), detailed engineering, EPC, startup and
commissioning.
Shaws Fluid Catalytic Cracking (FCC) technology, jointly
licensed with an international partner, remains a key
technology, stemming from its flexibility to handle a variety of
feedstocks and its ability to significantly increase the
production of gasoline and polymer-grade propylene. Whether
applied in a grassroots unit or a revamp, our FCC technology can
process low-quality feedstocks and add value by improving
product yields, quality and energy efficiency. We have completed
more than 48 grassroots licensed FCC units and many revamps that
include modifications to our competitors technology
designs. We also offer enhanced high severity cracking
technologies, including Deep Catalytic Cracking (DCC) and
Catalytic Pyrolysis Process (CPP), which maximize the production
of propylene and ethylene.
Though the refining sector has slowed, we expect growth in
Brazil, which is expanding its capacity to process domestic
heavy crude oil; China, India and Iraq, where new refineries are
expected to address domestic demand; and other parts of the
Middle East, which we believe could transform into a major
refining and petrochemical product exporting hub. In addition,
reconfiguration of U.S. and European refineries to produce
cleaner fuels and meet environmental standards may create new
opportunities for us.
8
Upstream. Our oil and gas capabilities include
conceptual design, feasibility studies, technology development,
FEED, detailed engineering and EPC. Project experience includes
oil and gas facilities, gas transmission and storage, gas
processing and synthesis gas (syngas).
Our Upstream business has been successful in winning PMC work
and new contracts in the offshore sector. Upstream also has been
successful in winning contracts in the alternate energy/clean
technology sector, which have the potential to establish our
long-term competitive position in clean technologies. Syngas
production and carbon capture and storage (CCS) are a major part
of our growth plans. We believe the demand for our services will
grow with rising demand for clean energy.
Fabrication &
Manufacturing (F&M) Segment
We believe our F&M segment is among the largest worldwide
suppliers of fabricated piping systems. Demand for this
segments products typically is driven by capital projects
in the electric power, chemical and refinery industries. We seek
to minimize the net working capital requirements of our F&M
segment by contemporaneously invoicing clients when we purchase
materials for our pipe, steel, and 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 support both external clients and other Shaw business
segments. For example, F&M provides pipe and structural
steel fabrication for the E&Is DOE work, several
power projects and a large project for our E&C segment.
F&Ms newest facility assembles modules for the
construction of nuclear power plants and offshore oil and gas
projects.
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 on a global scale has
positioned us among the largest suppliers of fabricated piping
systems for power generation facilities in the U.S. and
worldwide. Piping systems are normally on the critical path
schedule for heavy industrial plants that process large
quantities of fluids or gases. Large piping systems account for
significant components within power generation, chemical and
other processing facilities.
We fabricate complex piping systems using carbon steel,
stainless, nickel, titanium, aluminum, and chrome moly 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 technology of its kind.
Using this technology, we bend carbon steel and alloy pipe for
industrial, commercial and architectural applications.
Delivering to a project sites pipe that has been pre-bent to
client specifications can provide significant savings in labor,
time and material costs as compared to field fabrication. Bent
pipe also provides greater strength than welded pipes and
fittings.
Additionally, we implemented a robotics welding program that we
believe results in increased productivity and quality. By using
robotics, as well as automated and semi-automated welding
processes and production technology, we are able to provide a
complete range of pipe fabrication services.
We operate pipe fabrication facilities in Louisiana, Arkansas,
South Carolina, Utah, Mexico and Venezuela, as well as through a
joint venture in Bahrain. Our South Carolina facility is
certified to fabricate pipe for nuclear energy plants and
maintains nuclear pipe American Society of Mechanical Engineers
certification. Additionally, we are constructing another pipe
fabrication facility Shaw Emirates Pipe
Manufacturing LLC in the Industrial City of Abu
Dhabi in the United Arab Emirates.
Through structural steel fabrication, we produce custom
fabricated steel components and structures used in the
architectural and industrial fields. 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 operations in Louisiana and Mexico, offering
the latest advanced and efficient technology for structural
steel fabrication.
9
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 and engineering and construction
firms, as well as other business segments within our company. We
maintain an inventory of pipe and pipe fittings, enabling us to
realize greater efficiencies in the purchase of raw materials,
overall lead times and costs.
We operate distribution centers in Louisiana, Texas, Georgia,
New Jersey and Oklahoma to distribute our products and products
manufactured by third parties.
Module Fabrication and Assembly. We began
operations of our module fabrication and assembly facility in
Lake Charles, Louisiana, in May 2010. This facility is believed
to be the first of its kind in the U.S. It will build
modules for the construction of nuclear power plants and will
have capabilities to build modules for petrochemical and
chemical plants around the world. The module facility uses our
industry-leading technologies and our proprietary operations
management systems. We have received orders for the first
nuclear reactors to be built in the U.S. in more than
30 years, all of which will use AP1000 modular technology.
The modules used in these nuclear power plants will be
fabricated in our Lake Charles, Louisiana facility.
Investment
in Westinghouse Segment
Our Investment in Westinghouse segment includes our 20% equity
interest (Westinghouse Equity) in Westinghouse. 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 five reactors under
construction in South Korea, four reactors under construction in
China and is under consideration for numerous new nuclear
reactors in multiple countries. Please see our disclosures under
Note 7 Equity Method Investments and
Note 9 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-2
and Liquidity below with respect to circumstances in
which our Westinghouse Equity may be repurchased by Toshiba.
In October 2006, concurrent and in connection with our
acquisition of the Westinghouse Equity, we entered into the
Westinghouse Commercial Relationship Agreement (CRA) with
Toshiba, which provides us with certain exclusive opportunities
to bid on projects for which we would perform EPC services on
future Westinghouse AP 1000 nuclear power plants, along with
other commercial opportunities, such as supplying piping for
those units. The Westinghouse CRA has approximately a six-year
term and contains renewal provisions. As long as we maintain
more than a 15% interest in Westinghouse, we retain the
exclusivity rights provided under the terms of the Westinghouse
CRA. If our interest in Westinghouse drops below that threshold,
we would continue to retain our rights under the Westinghouse
CRA for projects for which a request for proposal had been
received prior to the CRAs termination.
The Westinghouse Equity was purchased by our wholly-owned
subsidiary, Nuclear Energy Holdings, LLC (NEH), for an aggregate
purchase price in excess of $1.1 billion. NEH partially
funded the purchase price by issuing Japanese Yen
(JPY)-denominated bonds (Westinghouse Bonds) with a total face
value of approximately JPY 128.98 billion, then equivalent
to approximately $1.1 billion. Because the Westinghouse
Bonds are denominated in JPY, at the end of each fiscal period,
U.S. generally accepted accounting principles (GAAP)
requires that for financial reporting purposes we revalue the
JPY-denominated Westinghouse Bond debt to its U.S. Dollar
equivalent at the JPY / U.S. Dollar exchange rate
in effect at the end of each fiscal period, with the difference
being recognized as a non-cash gain or (loss) in our Statement
of Operations for that fiscal period. The Westinghouse Bonds are
limited recourse to us (except NEH) and are collateralized
primarily by the Westinghouse Equity. The Westinghouse Bonds are
governed by an agreement between NEH and the Bond Trustee (Bond
Trust Deed) and are collateralized primarily by the
Westinghouse Equity and JPY-denominated put option rights
between NEH and Toshiba (Put Option).
The put option agreements, executed as part of the Investment in
Westinghouse transaction, govern the Put Option and provide us a
one-time opportunity to sell all or part of our Westinghouse
Equity to Toshiba for
10
a pre-determined JPY-denominated price. The JPY-denominated
proceeds of any such sale must be used to retire or reduce the
JPY-denominated Westinghouse Bonds. Under the terms of the put
option agreements, should we choose to put all of our
Westinghouse Equity to Toshiba, we will receive from Toshiba at
least JPY 124.7 billion (approximately 97% of our original
JPY equivalent purchase price), and under certain circumstances,
up to JPY 128.98 billion (100% of the face value of the
bonds outstanding), to retire the Westinghouse Bonds.
Fluctuations in the JPY to U.S. Dollar exchange rate do not
alter the amount of Toshibas JPY-denominated payment
obligation should we exercise the Put Option nor the amount of
the Westinghouse Bond debt which we must pay with the
JPY-denominated Put Option proceeds. Consequently, the
JPY-denominated Put Option substantially mitigates currency
fluctuation risks both to NEH and to the holders of the
JPY-denominated Westinghouse Bonds that putting the shares to
Toshiba would result in insufficient proceeds to cover the
Westinghouse Bond debt or any portion there of should there be
an unfavorable JPY to U.S. Dollar exchange rate. Should we
decide to put only a portion of the Westinghouse Equity back to
Toshiba, we will maintain our exclusivity rights provided under
the terms of the Westinghouse CRA as long as we do not put more
than 5% of our Westinghouse Equity, maintaining more than a 15%
ownership.
Under the put option agreements, NEH may exercise the option to
sell all or part of our Westinghouse Equity to Toshiba during a
defined Exercise Period, that commenced the earlier
of March 31, 2010, or the occurrence of a Toshiba
Event. A Toshiba Event is defined in the put option
agreements and is caused by, among other things, Toshiba failing
to maintain certain minimum financial metrics. Toshiba timely
notified us that it experienced a Toshiba Event as of
May 8, 2009, when it failed to maintain a minimum
consolidated net worth of JPY 800 billion. Although in June
2009 Toshiba reported that it raised sufficient equity to bring
its consolidated net worth above the Toshiba Event threshold,
the Toshiba Event itself triggered certain rights for the
Westinghouse Bond holders under the terms of the Bond
Trust Deed. Specifically, because Toshiba failed to meet
certain minimum financial metrics under the put option agreement
(which partially collateralizes the Westinghouse Bonds), the
Westinghouse Bond holders now have the ability to direct us to
exercise the Put Option, as a result of which we would receive
the pre-determined JPY-denominated put price. Those proceeds
would, in turn, be used to retire the Westinghouse Bonds. Should
we exercise the Put Option at the Westinghouse Bond
holders direction, neither our, nor Toshibas
obligations under the Westinghouse CRA will be affected. We may
elect to exercise the Put Option at any time through
February 28, 2013. If we allow the Put Option to expire
unexercised or exercise the Put Option to sell a portion of our
Westinghouse Equity to Toshiba, we would need to repay the
remaining JPY denominated bonds using one or a combination of
the following: our available cash
and/or
future internally generated cash, proceeds from borrowings under
our current or future credit facilities, or proceeds from the
issuance of additional equity. There can be no assurance that we
will have sufficient cash or the ability to access credit
sufficient to repay this debt or be able to obtain credit on
terms similar to those obtained with the Westinghouse Bonds.
As a result of the Westinghouse Bond holders having the ability
to direct us to exercise the Put Option to retire the
Westinghouse Bonds, in the third quarter of fiscal year 2009, we
reclassified the Westinghouse Bonds from long term debt to a
current liability. Additionally, we were required to expense a
pre-tax total of $29.4 million as interest expense, which
included $22.8 million in unamortized original issuance
bond discount and the remaining $6.6 million of unamortized
deferred financing costs associated with the Westinghouse Bonds.
The Put Option is not a freestanding financial
instrument or a derivative instrument under
GAAP and, consequently, is not separated from our equity
investment in Westinghouse for financial reporting purposes.
Therefore, neither the Put Option nor its foreign currency
component may be revalued at current exchange rates at the end
of each fiscal period. So while the JPY value of the
JPY-denominated Westinghouse Bond debt and the JPY value of the
pre-determined JPY-denominated Put Option price remain constant,
and our obligation to use the JPY-denominated proceeds from
(partially or entirely) exercising the put to pay the
JPY-denominated debt remains constant the
U.S. Dollar equivalent value of the debt on our balance
sheets fluctuates each fiscal period according to the
JPY / U.S. Dollar exchange rates. Despite the
fact that the Westinghouse Bonds currency translation has no
impact on the value of the JPY-denominated debt or the
JPY-denominated put proceeds, the non-cash foreign currency
translation to U.S. Dollar has impacted in a material
11
way (both positively and negatively), and will likely continue
to impact, our Statement of Operations in each reporting period.
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 discussed
above, the financial results of the Westinghouse segment
continue to experience significant volatility from non-operating
foreign exchange translation gains and losses in our
Consolidated Statement of Operations resulting from the changes
in the JPY/U.S. Dollar exchange rate. At August 31,
2010, the JPY to dollar exchange rate was 84.8:1 and currency
translation losses for fiscal 2010 resulting from the increase
in the value of the JPY to U.S. Dollar amounted to
$131.6 million pre-tax, or $80.4 million after-tax.
As part of the Investment in Westinghouse transaction, we also
executed shareholder agreements (Shareholder Agreements) which,
among other things, set for NEH a target minimum dividend of
approximately $24.0 million annually (Westinghouse
Dividend) for the first six years we hold our Westinghouse
Equity. Under the Shareholder Agreements, each of the
shareholders is due to receive as dividends agreed percentages
of 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, the shortfall accrues 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. We have
received dividends totaling $69.5 million to date.
Dividends received are accounted for as a reduction in the
carrying value of our Investment in Westinghouse. Any shortfall
in target minimum Westinghouse Dividends received is not
included in the results of our Investment in Westinghouse
segment as they are dependent on future earnings of
Westinghouse. At August 31, 2010, the dividend shortfall
totaled $14.5 million.
For additional information, see Note 7 Equity
Method Investments and Note 9 Debt and Revolving
Lines of Credit included in our consolidated financial
statements beginning on
page F-2.
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 and national oil
companies and industrial corporations, and government agencies.
See Note 15 Business Segments included in
Part II, Item 8 Financial Statements and
Supplementary Data for information regarding our client
concentrations. Additionally, see Part II,
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Backlog for information regarding our
backlog concentrations as of August 31, 2010.
We conduct our business development efforts principally with an
in-house sales force. Additionally, 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, stock, or any combination thereof. We pay our
independent contractors on a commission basis that also may
include a monthly retainer.
12
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 Plant Services
segment during our fiscal year. Generally, spring and autumn are
the peak periods for our Plant Services segment.
Competition
The industries 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 and construction
companies are competing in these industries, and certain
competitors may have greater financial and other resources and
more experience, industry knowledge, and client relationships.
Companies that we compete with in our Power segment include
Bechtel Corporation, Fluor Corporation, URS Corporation,
Black & Veatch Corporation, and Zachry Corporation.
Companies that we compete with in our E&C segment include
CB&I Lummus, KBR, Inc., Samsung, The Linde Group, and
Technip. Companies that we compete with in our E&I segment
include CH2M Hill, URS, Fluor, Jacobs Engineering Group, Inc.,
Bechtel, AECOM, and TetraTech, Inc. Companies that we compete
with in our Plant Services segment include Fluor,
Day & Zimmerman, Turner Industries, KBR, and Jacobs.
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 potential
future revenues we expect may result from contracts awarded to
us by clients. Backlog is estimated using legally binding
agreements for projects that management believes are likely to
proceed. Management evaluates the potential backlog value of
each project awarded 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, 2010 and 2009 (in millions).
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
By Segment
|
|
2010
|
|
|
2009
|
|
|
Power
|
|
$
|
11,407.9
|
|
|
$
|
12,795.1
|
|
Plant Services
|
|
|
1,850.0
|
|
|
|
1,808.1
|
|
E&I
|
|
|
4,942.8
|
|
|
|
5,439.0
|
|
E&C
|
|
|
671.0
|
|
|
|
1,298.6
|
|
F&M
|
|
|
1,246.7
|
|
|
|
1,374.8
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
20,118.4
|
|
|
$
|
22,715.6
|
|
|
|
|
|
|
|
|
|
|
For additional information with respect to our backlog as of
August 31, 2010 and 2009, 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-
13
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
markup 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 that, in many cases, are
pre-agreed-upon liquidated damages. All contract types are
subject to client-authorized amendment.
At August 31, 2010, approximately 52% of our backlog was
comprised of cost-reimbursable contracts and 48% 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 typically are 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 initially do
not provide us with a 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 also may 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 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
14
other industry 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 2011.
Our principal raw materials for our pipe and steel 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 pipe fittings) at a higher price.
We keep certain items in stock at each of our facilities and
transport items among 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.
Environmental
Health & Safety (EHS)
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 reached full commercial operation of a
grassroots ethylene plant for Eastern Petrochemical Company
(SHARQ) in Saudi Arabia without a lost-time incident. We strive
for zero injuries, illnesses and environmental incidents on all
of our job sites.
Industry
Certifications
In order to perform certain aspects of nuclear power plant
construction, fabrication and installation activities of
American Society of Mechanical Engineers (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) for N and N3 stamped
nuclear components. ASME NQA-1 is the NRC-endorsed industry
standard that defines the Quality Assurance Program requirements
for Nuclear Facility Applications. SMS is a key contributor to
the nuclear supply chain which commits to and complies with this
standard.
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.;
Maracaibo, Venezuela; and Manama, Bahrain; maintain the ASME
certification (U and PP stamps). The majority of our fabrication
facilities, as well as our subsidiaries in Derby, U.K.;
Maracaibo, Venezuela; and Manama, Bahrain; also have obtained
the required ASME certification (S stamp) and the National Board
certification (R stamp).
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 also is registered by the
International Organization of Standards (ISO 9002).
Substantially all of our North American engineering operations,
as well
15
as our U.K. and Middle East operations, are registered also 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,
ShawMantm,
and our web-based earned value application,
ShawTractm,
to be proprietary assets.
Our E&C segment has developed or has the right to license
leading process technologies, including technologies from third
parties, used for the production of a variety of petrochemicals
and chemicals. We have 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. We believe
our complete technology portfolio and experience in the
commercial application of technologies and related know-how
differentiates us from our competitors, enhances our margins and
provides early involvement in projects that may utilize our
broad range of engineering, procurement and construction
capabilities. We also are developing and researching new
technologies to complement and expand our offerings.
Through our IT Group acquisition in 2002 and the acquisition of
Envirogen in 2003, we acquired certain patents and proprietary
technologies that are useful in our environmental remediation
business. The technologies include a number of processes for the
treatment of soil and groundwater contaminated with a variety of
compounds including organics, chlorinated organics, oxygenates
and metals.
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
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 could result in, among
other things, administrative, civil
and/or
criminal penalties, remedial requirements and orders limiting or
enjoining some or all of our future operations.
Under the Comprehensive Environmental Response, Compensation and
Liability Act (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. Liable parties under CERCLA may
be required to pay for the costs of remediating the hazardous
substances that have been released into the environment, for
damages to natural resources, and for the costs of certain
health studies. In addition, where contamination may be present,
it is not uncommon for the neighboring landowners and other
third parties to file claims for personal injury, property
damage and recovery of response costs. 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 also could incur environmental
liability at sites where we have been 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
16
responsible under CERCLA or RCRA for damages caused while
performing services or otherwise, we may be forced to incur
cleanup costs and other costs directly, notwithstanding the
potential availability of contribution or indemnification from
other parties. During 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.
The Federal Water Pollution Control Act, also known as the Clean
Water Act, and applicable state laws impose restrictions and
strict controls regarding the discharge of pollutants into state
waters or waters of the United States. The discharge of
pollutants into jurisdictional waters is prohibited unless the
discharge is permitted by the EPA or applicable state agencies.
In addition, the Oil Pollution Act of 1990 imposes a variety of
requirements on responsible parties related to the prevention of
oil spills and liability for damages, including natural resource
damages, resulting from such spills in waters of the United
States. A responsible party includes the owner or operator of a
facility. The Clean Water Act and analogous state laws provide
for administrative, civil and criminal penalties for
unauthorized discharges and, together with the Oil Pollution
Act, impose rigorous requirements for spill prevention and
response planning, as well as substantial potential liability
for the costs of removal, remediation, and damages in connection
with any unauthorized discharges.
The federal Clean Air Act and analogous state laws require
permits for facilities that have the potential to emit
substances into the atmosphere that could adversely affect
environmental quality. Failure to obtain a permit or to comply
with permit requirements could result in the imposition of
substantial administrative, civil and even criminal penalties.
More stringent laws and regulations relating to climate change
and greenhouse gases (GHGs) may be adopted in the future and
could impact our business. On December 15, 2009, the EPA
published its findings that emissions of carbon dioxide,
methane, and other GHGs present an endangerment to public heath
and the environment because emissions of such gases are,
according to the EPA, contributing to the warming of the
earths atmosphere and other climate changes. These
findings allow the EPA to adopt and implement regulations that
would restrict emissions of GHGs under existing provisions of
the federal Clean Air Act. The EPA has adopted regulations that
would require a reduction in emissions of GHGs from motor
vehicles and could trigger permit review for GHGs from certain
stationary sources. In June 2010, EPA adopted the Prevention of
Significant Deterioration and Title V Greenhouse Gas
Tailoring Rule, which phases in permitting requirements for
stationary sources of GHGs, beginning January 2, 2011. This
rule tailors these permitting programs to apply to
certain stationary sources of GHG emissions in a multi-step
process, with the largest sources first subject to permitting.
In addition, in April 2010, the EPA proposed to expand its
existing GHG reporting rule to include onshore oil and natural
gas production, processing, transmission, storage, and
distribution facilities. In addition, both houses of Congress
have actively considered legislation to reduce emissions of
GHGs, and more than one-third of the states have already taken
legal measures to reduce emissions of GHGs, primarily through
the planned development of GHG emission inventories
and/or
regional GHG cap and trade programs. Most of these cap and trade
programs work by requiring either major sources of emissions or
major producers of fuels to acquire and surrender emission
allowances, with the number of allowances available for purchase
reduced each year until the overall GHG emission reduction goal
is achieved.
It is not possible to predict at this time whether these
requirements or any regulations or legislation adopted in the
future to control GHG emissions would have an overall negative
or positive impact on our business. If these requirements
increase the cost of doing business for our customers and reduce
the demand for our customers products, the demand for our
services could be reduced. Alternatively, these requirements
could result in an increased demand for our services related to
the reduction of emissions. Finally, it should be noted that
some scientists have concluded that increasing concentrations of
GHGs in the Earths atmosphere may produce climate changes
that have significant physical effects, such as increased
frequency and severity of storms (including hurricanes),
droughts, and floods, and other climatic events; if any such
effects were to occur, they could have an adverse effect on our
assets and operations.
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 GHG pursuant to the United Nations Framework
Convention on Climate Change, also known as the Kyoto
17
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 changing constantly, 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 27,000 people, including part-time
and temporary workers. This total includes approximately 14,000
craft employees, 9,000 technical employees and 4,000
nontechnical administrative employees. Approximately
4,000 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 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 2010
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 26, 2010. 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.
18
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 on
page 1 in this
Form 10-K.
All forward-looking statements made by us are qualified by the
risk factors described below.
Risks
Related to Our Operations
Demand
for our products and services is cyclical and vulnerable to
sudden economic downturns and reductions in private industry and
government spending and/or their ability to meet existing
payment obligations. If general economic conditions continue to
weaken or the credit markets deteriorate, then we may be unable
to recover expenditures and our revenues, profits and our
financial condition may be negatively impacted.
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.
Fluctuations in the economy can affect consumers demand
for electricity and thus our clients capital spending
priorities. Due to the current economic downturn, many of our
clients may face budget shortfalls or may delay capital spending
resulting in a decrease in 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. This reduction in spending could have a material
adverse effect on our operations.
Our clients may demand better pricing terms and their ability to
timely pay our invoices may be affected by an ongoing weak
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. Further, 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. 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.
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
19
utilities and some of our clients. The award of many of our
contracts is determined by competitive bid. That competition can
impact the margin we earn on our contracts or cause us not to
win the award. For a discussion of certain specific competitors
as well as the impact of competition on our business, please see
Management Discussion and Analysis of Financial Condition
and Results of Operation.
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
dependent on winning new contracts. We operate in highly
competitive markets and it is difficult to predict whether and
when we will be awarded new contracts due to a multiple of
factors including: the lengthy and complex bidding and selection
process, client capital investment decisions, market conditions,
available financing, government approvals, permitting and
environmental matters. Further, most of those same factors can
delay or stop a project. Consequently, we are subject to the
risk of losing new awards to competitors and the risk a project
may experience significant delay or cancellation
impacting our results of operations and cash flows which
fluctuate from quarter to quarter depending on the timing and
size of new contract awards.
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, 2010, our backlog was approximately
$20.1 billion. Our backlog consists of projects for which
we have legally binding contracts or commitments from clients,
including legally binding agreements without defined scope.
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 for government and
maintenance contracts that may not specify actual dollar amounts
for the work to be performed. For these contracts, we calculate
our backlog of estimated work to be performed, based on our
knowledge of our clients stated intentions or our historic
experience. Projects may remain in our backlog for extended
periods of time.
There can be no assurance we will realize revenues projected in
our backlog or, if realized, such revenues will result in
profits. Due to project terminations, suspensions
and/or
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. 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 balance sheet,
results of operations and cash flow and may reduce the value of
our stock. For example, during the fiscal quarter ended
May 31, 2009, we received notice from our client of a
significant delay in the construction schedule for two new
AP1000 nuclear reactors to be located in Florida. Our client
advised us that activities for the project would be slowed
considerably until the combined operating license (COL) is
issued by the NRC for the plant which we understand, if the
license schedule remains on schedule, will occur in late 2012.
As a result, the proposed first reactor is now expected to enter
service in 2021, with the second anticipated 18 months
later. In the interim, we continue to perform limited
engineering and support services, however, the amount of
revenues and contract profit expected to be generated from this
project during fiscal year 2011 and 2012 is likely to be
immaterial when considered in relation to our consolidated
operations.
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, upon cancellation we typically
have no contractual right to the total revenues reflected in our
backlog for that particular contract.
20
The
nature of our contracts, particularly our reimbursable and
fixed-price contracts, could adversely affect us.
Approximately 52% of our backlog at August 31, 2010, was
from cost-reimbursable contracts and the remaining 48% 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 certain reimbursable contracts containing a
target price, 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
target-priced contracts, we are generally unable to recover all
cost overruns to the approved contract price. Under certain
reimbursable target price contracts, we share with the client
any savings up to a negotiated or target ceiling. When costs
exceed the negotiated ceiling price, 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 are not
limited to:
|
|
|
|
|
engineering design changes;
|
|
|
|
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;
|
|
|
|
changes in the cost of equipment, commodities, materials or
labor;
|
|
|
|
difficulties in obtaining required permits or approvals;
|
|
|
|
changes in laws and regulations;
|
|
|
|
changes in labor conditions, including the availability and
productivity of labor;
|
|
|
|
project modifications creating unanticipated costs;
|
|
|
|
delays caused by local weather conditions;
|
|
|
|
failure to perform by our project owners, suppliers or
subcontractors; and
|
|
|
|
general economic conditions.
|
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
21
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.
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 20
Accounting for Claims, Unapproved Change Orders and Incentives
on Long-Term Construction Contracts included in our consolidated
financial statements beginning on
page F-2.
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 Power 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
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
liability, 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 in an effort to meet our contractual
obligations exceeds the amount we have estimated in bidding for
fixed-price work, we could experience losses in the performance
of these contracts.
If we
are unable to form teaming arrangements, particularly for some
of our international opportunities, our ability to compete for
and win business may be negatively impacted.
In both the private and public sectors, either acting as a prime
contractor, a subcontractor or as a member of consortium, we may
join with other firms to form a team to compete for a single
contract. Because a team can often offer stronger combined
qualifications than any firm standing alone, these teaming
arrangements can be very important to the success of a
particular contract bid process or proposal. This can be
particularly true in international operations in which bidding
success can be substantially impacted by the presence and /or
quality of the local partner. The failure to maintain such
relationships in both foreign and domestic markets may impact
our ability to win work.
22
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.
For the fiscal year ended August 31, 2010, 89.8% of our
E&I segments backlog was with U.S. government
agencies.
The
limitation or the modification of the Price-Anderson Acts
indemnification authority and similar federal programs for
nuclear and other potentially hazardous activities, could
adversely affect our business.
The Price-Anderson Act (PAA) comprehensively regulates the
manufacture, use and storage of radioactive materials, while
promoting the nuclear energy industry by offering
indemnification to the nuclear industry against liability
arising from nuclear incidents in the U.S. for non-military
facilities for incidents in connection with contractual activity
for DOE, while still ensuring compensation for the general
public. The Energy Policy Act of 2005 extended the period of
coverage to include all nuclear power reactors issued
construction permits through December 31, 2025. 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.
Public Law
85-804 (PL
85-804)
which indemnifies government contractors who conduct certain
approved contractual activity related to unusually hazardous or
nuclear activity, may provide additional or alternative
indemnification for such activities. If the contractor
protection currently provided by the PAA or PL
85-804 is
significantly modified, is not approved for, or does not extend
to all of our services, our business could be adversely affected
by either our clients refusal to retain us for potentially
covered projects or our inability to obtain commercially
adequate insurance and indemnification.
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
U.S. 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
23
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 DOEs 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 future operations.
We may
be exposed to additional risks in our Power segment, as we begin
to execute our significant nuclear backlog and book new nuclear
awards. These risks include greater backlog concentration in
fewer projects, possibly increasing requirements for letters of
credit and potential cost overruns which could have a material
adverse effect on our future revenues and liquidity.
Additionally, the current economic conditions may impact the
pace of the development of nuclear projects.
We expect to convert a significant part of our backlog of
nuclear projects in the Power segment into revenues in the
future. Nuclear projects may utilize larger sums of working
capital than other projects in this segment and will be
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 may 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,
if any of the nuclear projects currently included in our backlog
are significantly delayed, modified or canceled, our reported
backlog and future earnings may be materially and adversely
impacted.
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. Finally, the significant expense
associated with nuclear projects, weak global economic
conditions and other competitive factors, including less
expensive alternative energies like natural gas, may result in
additional delays for currently expected projects or slower
demand for nuclear energy projects over time.
Environmental
laws and regulations expose us to certain risks, could increase
our costs and liabilities and impact demand for our services.
While all of our operations are impacted by environmental laws
and regulations, these impacts may be most significant for our
nuclear and integrated environmental solutions
businesses.
General
Our operations are subject to environmental laws and
regulations, including those concerning:
|
|
|
|
|
emissions into the air;
|
|
|
|
climate change legislation;
|
|
|
|
discharges into waterways;
|
|
|
|
generation, storage, handling, treatment, transport and disposal
of waste materials and hazardous substances; and
|
|
|
|
health and safety.
|
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
24
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 risks associated with
these activities are most significant within our E&I
segment, which has two subsidiaries (The Land Bank Group Inc.
and Shaw Environmental Solutions LLC) that purchase
and/or
assume liability with respect to properties that have
experienced environmental damage. We can provide no assurance
that our insurance coverage or other loss remediation strategies
will insulate us from any material liability associated with
these operations.
In addition to existing environmental regulations, the adoption
and implementation of regulations imposing reporting obligations
on, or limiting emissions of greenhouse gases from, our
customers equipment and operations could significantly
impact demand for our services, particularly among our customers
for coal and gas-fired generation facilities as well as our
customers in the petrochemicals business. Any significant
reduction in demand for our services as a result of the adoption
of these or similar proposals could have a significant adverse
impact on our results of operations.
Nuclear
Operations
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 and regulatory approvals that can be even more
stringent and time consuming than similar processes for more
conventional construction projects. We are subject to
regulations from a number of entities, including the Nuclear
Regulatory Commission (NRC), International Atomic Energy Agency
(IAEA) and the European Union (EU), which have a substantial
effect on our nuclear operations. An example of the way these
regulatory entities impact our business is the NRCs
certification process for the AP1000 design. The NRC notified
Westinghouse that the proposed AP1000 shield building design
will require modification before it will certify the AP1000
design. The IAEA and the EU both have systems for nuclear
material safeguards. Global-scale agreements on nuclear safety
such as the Convention on Nuclear Safety and the Joint
Convention on the Safety of Spent Fuel Management and on the
Safety of Radioactive Waste Management are also in place. The
Euratom Treaty has created uniform safety standards aimed at
protecting the public and workers and passed rules governing the
transportation of radioactive waste. In addition, licensed
nuclear facilities must comply with strict inspection
procedures. Regulations governing the shutdown and dismantling
of nuclear facilities and the disposal of nuclear wastes could
also have an effect on our operations. Delays in receiving
necessary approvals, permits or licenses, failure to maintain
sufficient compliance programs, or other problems encountered
during construction could cause our actual results of operations
to significantly differ from anticipated results,
Our,
our clients and our partners ability 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 Power segment requires significant investments
of time and money by our clients and sometimes by our partners.
There are no assurances that we or 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 delayed AP1000
design certification due to the proposed AP1000 shield building
described above may cause a schedule 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. Additionally, we have been advised that
activities for an AP1000 nuclear reactor to be built in Florida
will be slowed considerably until a Combined Operating License
(COL) is issued by the NRC for the plant. We understand that the
issuance of the COL may be delayed until 2012. As a result, the
first reactor in Florida is now expected to enter service in the
2021 timeframe, with the second anticipated 18 months later.
25
Due to
the international nature of our business we could be adversely
affected by violations of the U.S. Foreign Corrupt Practices
Act, similar worldwide anti-bribery laws, and various
international trade and export laws.
The international nature of our business creates various
domestic and local regulatory challenges. 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. Additionally, our global operations require
us to import and export goods and technologies across
international borders, which requires a robust compliance
program. 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
or other regulatory 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.
Political
and economic conditions in foreign countries in which we operate
could adversely affect us.
Approximately 20% of our fiscal year 2010 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:
|
|
|
|
|
uncertain economic conditions in the foreign countries in which
we make capital investments, operate and sell products and
services;
|
|
|
|
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;
|
|
|
|
security and safety of employees and subcontractors;
|
|
|
|
expropriation of property;
|
|
|
|
restrictions on the right to convert or repatriate currency;
|
|
|
|
changes in labor conditions;
|
|
|
|
changing general economic and political conditions in foreign
markets;
|
|
|
|
terrorist attacks;
|
|
|
|
commodity prices and availability;
|
|
|
|
potential incompatibility with foreign joint venture
partners; and
|
|
|
|
interruptions or delays in international shipping.
|
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 USD 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,
26
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 USD/JPY
exchange rate changes, the amount of USD required to service
this debt will change.
The
recent adoption of financial reform legislation by the United
States Congress could have an adverse effect on our ability to
use derivative instruments to hedge risks associated with our
business.
The United States Congress recently adopted comprehensive
financial reform legislation that establishes federal oversight
and regulation of the
over-the-counter
derivatives market and entities, including businesses like ours,
that participate in that market. The new legislation, known as
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act), was signed into law by the
President on July 21, 2010, and requires the Commodities
Futures Trading Commission and the SEC to promulgate rules and
regulations implementing the new legislation within
360 days from the date of enactment. The Dodd-Frank Act may
require us to comply with margin requirements and with certain
clearing and trade-execution requirements in connection with our
derivative activities, although the application of those
provisions to us is uncertain at this time. The Dodd-Frank Act
may also require the counterparties to our derivative
instruments to spin off some of their derivative activities to a
separate entity, which may not be as creditworthy as the current
counterparty. The new legislation and any new regulations could
significantly increase the cost of derivative contracts
(including through requirements to post collateral which could
adversely affect our available liquidity), materially alter the
terms of derivative contracts, reduce the availability of
derivatives to protect against risks we encounter, reduce our
ability to monetize or restructure our existing derivative
contracts, and increase our exposure to less creditworthy
counterparties. If we reduce our use of derivatives as a result
of the legislation and regulations, our results of operations
may become more volatile and our cash flows may be less
predictable, which could adversely affect our ability to plan
for and fund capital expenditures. Any of these consequences
could have a material, adverse effect on our business, our
financial condition, and our results of operations.
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 from
Westinghouse sufficient to cover these costs. In an effort to
mitigate this risk, we enter into foreign currency forward
contracts from
time-to-time,
to hedge the impact of exchange rate changes on our
JPY-denominated cash interest payments on the Westinghouse
Bonds. We normally focus our hedge transactions to the JPY
interest payments due within the following twelve months.
We may be forced by the Westinghouse Bond holders to put all or
part of our Westinghouse Equity back to Toshiba. 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. We are currently
within the Exercise Period that commenced upon the earlier of
March 31, 2010, or a Toshiba Event. Toshiba timely notified
us that it experienced a Toshiba Event as of May 8, 2009,
when it failed to maintain a minimum consolidated net worth of
JPY 800 billion. Although in June 2009 Toshiba reported
that it raised sufficient equity to bring its consolidated net
worth above the Toshiba Event threshold, the Toshiba Event
itself triggered certain rights for the Westinghouse Bond
holders under the terms of the Bond Trust Deed.
The Toshiba Event is not an event of default or
other violation of the Bond Trust Deed or the Put Option
Agreements, but due to the Toshiba Event, the Westinghouse Bond
holders now have an opportunity to direct us to exercise the Put
Option, through which we would receive the pre-determined
JPY-denominated put price and use those proceeds to pay off the
JPY-denominated Westinghouse Bond debt. 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
27
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 approves a resolution instructing the bond
trustee to direct the exercise. Alternatively, a written
resolution signed by bondholders representing no less than 75%
of the Westinghouse Bond principal amount outstanding and
instructing the bond trustee to direct us to exercise the Put
Option 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. 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 128.98 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 may be required to
fund the estimated 3% difference (equal to JPY 4.3 billion,
or the USD equivalent of approximately $50.2 million using
exchange rates at August 31, 2010) between the
anticipated Put Option proceeds and the principal amount owed on
the Westinghouse Bonds. Because the Put Option agreement require
Toshiba to repurchase the Westinghouse Equity from us and any
proceeds received from Toshibas repurchase of the
Westinghouse Equity must 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 certain terms
of the Bond Trust Deed and related transaction documents,
refinancing some or all of our Investment in Westinghouse or
negotiating 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 all of the Westinghouse
Equity to Toshiba.
Sale of more than 5% of our Westinghouse Equity may affect our
ability to extend the Westinghouse CRA beyond its original term,
which expires in 2013. However, neither our nor Toshibas
obligations under the Westinghouse CRA will be affected should
we exercise the Put Option at the direction of an Extraordinary
Resolution through its original term, which expires in 2013.
Although 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.
For additional information, see Investment in Westinghouse
Segment in Our Business Segments above,
Note 7 Equity Method Investments and
Note 9 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-2
and in Liquidity below.
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,
28
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.
Risks
Related to Financial Reporting and Corporate
Governance
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:
|
|
|
|
|
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;
|
|
|
|
revenues recognized related to project incentives we expect to
earn;
|
|
|
|
recoverability of inventory and application of lower of cost or
market accounting;
|
|
|
|
provisions for uncollectible receivables and client claims and
recoveries of costs from subcontractors, vendors and others;
|
|
|
|
provisions for income taxes and related valuation allowances;
|
|
|
|
recoverability of goodwill;
|
|
|
|
recoverability of other intangibles and related estimated lives;
|
|
|
|
valuation of assets acquired and liabilities assumed in
connection with business combinations;
|
|
|
|
valuation of defined benefit pension plans; and
|
|
|
|
accruals for estimated assets and liabilities, including
litigation and insurance recoveries/reserves.
|
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 estimated to be incurred. Our actual
results could differ materially from our estimates. Changes in
reported amounts, the effects of those changes and changes in
estimates may be recorded in future periods.
29
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 $499.5 million of goodwill and $18.0 million of
intangible assets recorded on our consolidated balance sheet at
August 31, 2010. 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.
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.
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. Additionally, we have a shareholder rights plan
that, among other things, allows our
30
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.
Risks
Related to Our Liquidity and Capital Resources
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.
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, 2010, we had no
outstanding borrowings under the Facility with outstanding
letters of credit inclusive of both domestic financial and
domestic performance of approximately $303.9 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.
Downgrades
by rating agencies, inability to obtain adequate surety bonding
or letters of credit could affect our business strategies by
requiring us to modify existing bonding facilities and/or 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.
31
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.
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.
Restrictive
covenants in our Facility may restrict our ability to pursue our
business strategies.
Our Facility limits our ability to, among other things:
|
|
|
|
|
incur indebtedness or contingent obligations;
|
|
|
|
issue preferred stock;
|
|
|
|
pay dividends or make distributions to our shareholders;
|
|
|
|
repurchase or redeem our capital stock or subordinated
indebtedness;
|
|
|
|
make investments;
|
|
|
|
create liens;
|
|
|
|
enter into sale/leaseback transactions;
|
|
|
|
incur restrictions on the ability of our subsidiaries to pay
dividends or to make other payments to us;
|
|
|
|
make capital expenditures;
|
|
|
|
enter into transactions with our shareholders and affiliates;
|
|
|
|
sell and pledge assets; and
|
|
|
|
acquire the assets of, or merge or consolidate with, other
companies or transfer all or substantially all of our assets.
|
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. Moreover, the form or level of our indebtedness may
prevent us from raising additional capital on attractive terms
or obtaining additional financing if needed.
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.
32
Because
of the capital-intensive nature of our business, we are
vulnerable to significant fluctuations in our liquidity that may
vary substantially over time.
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.
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, 2010, we had total outstanding indebtedness
of approximately $1,526.1 million, approximately
$1,520.7 million of which relates to our Westinghouse Bonds
and is of limited recourse to us. In addition, at
August 31, 2010, letters of credit, domestic and foreign,
issued for our account in an aggregate amount of
$641.7 million were outstanding and we had no borrowings
under our Facility. Our indebtedness could have important
consequences, including the following:
|
|
|
|
|
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;
|
|
|
|
limiting our ability to obtain additional financing and creating
additional liens on our assets;
|
|
|
|
limiting our flexibility in planning for, and reacting to,
changes in our business;
|
|
|
|
placing us at a competitive disadvantage if we are more
leveraged than our competitors;
|
|
|
|
making us more vulnerable to adverse economic and industry
conditions; and
|
|
|
|
restricting us from making additional investments or
acquisitions by limiting our aggregate debt obligations.
|
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 Labor and Employment
Our
failure to attract and retain qualified personnel, including
engineers, skilled workers and key officers, could have an
adverse effect on us.
Our ability to attract and retain qualified professional
and/or
skilled 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 personnel. 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.
Work
stoppages, Union negotiations and other labor problems could
adversely affect us.
At August 31, 2010, approximately 15% 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. There is inherent risk that on-going or future
negotiations relating to collective bargaining agreements or
union
33
representation may not be favorable to us. From time to time, we
have also experienced attempts to unionize our non-union shops.
Such efforts can often disrupt or delay work and present risk of
labor unrest.
We may
be required to contribute cash to meet our underfunded pension
obligations in certain
multi-employer
pension plans.
Domestically, we participate in various multi-employer pension
plans under union and industry wide agreements that, generally,
provide defined benefits to employees covered by collective
bargaining agreements. Absent an applicable exemption, a
contributor to a multiemployer plan is liable, upon termination
or withdrawal from a plan, for its proportionate share of the
plans underfunded vested liability. Funding requirements
for benefit obligations of our pension plans are subject to
certain regulatory requirements and we may be required to make
cash contributions which may be material to one or more of these
plans to satisfy certain underfunded benefit obligations.
Our
employees work on projects that are inherently dangerous and a
failure to maintain a safe work site could result in significant
losses.
Safety is a primary focus of our business and is critical to our
reputation, however we often work on large-scale and complex
projects, frequently in geographically remote locations. Our
project sites can place our employees and others near large
equipment, dangerous processes or highly regulated materials,
and in challenging environments. Often, we are responsible for
safety on the project sites where we work. Many of our clients
require that we meet certain safety criteria to be eligible to
bid on contracts, and some of our contract fees or profits are
subject to satisfying safety criteria. Unsafe work conditions
also have the potential of increasing employee turnover,
increasing project costs and raising our operating costs. If we
fail to implement appropriate safety procedures
and/or if
our procedures fail, our employees or others may suffer
injuries. Although we maintain functional groups whose primary
purpose is to implement effective health, safety and
environmental procedures throughout our company, the failure to
comply with such procedures, client contracts or applicable
regulations could subject us to losses and liability.
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 14
Contingencies and Commitments included in our consolidated
financial statements beginning on
page F-2.
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 14 Contingencies and
Commitments and Note 20 Accounting for Claims,
Unapproved Change Orders and Incentives on Long-Term
Construction Contracts included in our consolidated financial
statements beginning on
page F-2.
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 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
34
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.
35
At August 31, 2010, 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/Power
|
|
Leased
|
Charlotte, NC
|
|
Office Building
|
|
Power
|
|
Leased
|
Charlotte, NC
|
|
Office Building
|
|
Power
|
|
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
|
|
Plant Services
|
|
Owned
|
Derby, United Kingdom
|
|
Manufacturing Facility
|
|
Power
|
|
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/E&I
|
|
Leased
|
Houston, TX
|
|
Pipe Fittings Distribution Facility
|
|
F&M
|
|
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
|
|
Plant Services
|
|
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
|
Mississauga, Ontario
|
|
Office Building
|
|
E&C
|
|
Leased
|
Monroeville, PA
|
|
Office Building & Storage
|
|
E&I
|
|
Leased
|
Moorestown, NJ
|
|
Office Building
|
|
Power
|
|
Leased
|
New Brunswick, NJ
|
|
Manufacturing Facility
|
|
F&M
|
|
Leased
|
Prairieville, LA
|
|
Manufacturing Facility
|
|
Plant Services
|
|
Owned
|
St. Paul, VA
|
|
Warehouse
|
|
Power
|
|
Leased
|
Shreveport, LA
|
|
Manufacturing Facility
|
|
F&M
|
|
Owned
|
Shreveport, LA
|
|
Piping Components & Manufacturing Facility
|
|
F&M
|
|
Owned
|
Stoughton, MA
|
|
Office Building
|
|
E&C/Power
|
|
Leased
|
Trenton, NJ
|
|
Office Building
|
|
E&I
|
|
Leased
|
Tulsa, OK
|
|
Pipe Fabrication & Distribution 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
|
36
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 Note 14
Contingencies and Commitments to our consolidated financial
statement beginning on
page F-2.
|
|
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, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
33.63
|
|
|
|
24.50
|
|
Second Quarter
|
|
|
35.97
|
|
|
|
27.85
|
|
Third Quarter
|
|
|
40.49
|
|
|
|
30.78
|
|
Fourth Quarter
|
|
|
38.07
|
|
|
|
30.52
|
|
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
|
|
The closing sales price of our common stock on October 25,
2010, as reported on the NYSE, was $31.82 per share. On
October 25, 2010, we had 269 shareholders of record.
We have not paid any cash dividends on the common stock. The
declaration of dividends is at the discretion of our Board of
Directors, and our dividend policy is reviewed by the Board of
Directors on a regular basis. 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 our discussion of Liquidity and
Capital Resources included in Part II, Item 7
Managements Discussion and Analysis of
Financial Condition and Results of Operations below.
Stock
Performance Graph
The following graph compares the cumulative
5-year total
return to shareholders of our common stock relative to the
cumulative total returns of the S&P 500 index (S&P
500) and the Dow Jones US Heavy Construction index (DJ
Heavy Construction). An investment of $100 (with reinvestment of
all dividends) is assumed to have been made in our common stock
and the S&P 500 and DJ Heavy Construction indexes on
August 31, 2005 and its relative performance is tracked
through August 31, 2010.
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
37
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*
Among
Shaw Group Inc. (The), the S&P 500 Index
and the Dow Jones US Heavy Construction Index
*$100 invested on 8/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending August 31.
Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
Copyright©
2010 Dow Jones & Co. All rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/05
|
|
|
8/06
|
|
|
8/07
|
|
|
8/08
|
|
|
8/09
|
|
|
8/10
|
The Shaw Group Inc.
|
|
|
|
100.00
|
|
|
|
|
119.24
|
|
|
|
|
237.20
|
|
|
|
|
234.79
|
|
|
|
|
139.00
|
|
|
|
|
153.55
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
108.88
|
|
|
|
|
125.36
|
|
|
|
|
111.40
|
|
|
|
|
91.06
|
|
|
|
|
95.53
|
|
DJ Heavy Construction
|
|
|
|
100.00
|
|
|
|
|
139.20
|
|
|
|
|
232.71
|
|
|
|
|
225.37
|
|
|
|
|
151.11
|
|
|
|
|
133.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
38
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth selected financial data as of and
for the last five fiscal years ended August 31. The
information presented below has been derived from our audited
consolidated financial statements and should be read in
conjunction with our consolidated financial statements and
related notes thereto beginning on
page F-2.
KPMG LLP (KPMG), independent registered public accounting firm,
audited our consolidated financial statements for the fiscal
years ended August 31, 2007, 2008, 2009 and 2010.
Ernst & Young LLP, independent registered public
accounting firm, audited our consolidated financial statements
for the fiscal year ended August 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
(In millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,000.8
|
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
$
|
5,723.7
|
|
|
$
|
4,775.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
92.7
|
|
|
$
|
15.0
|
|
|
$
|
140.7
|
|
|
$
|
(19.0
|
)
|
|
$
|
50.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share from continuing operations
|
|
$
|
1.08
|
|
|
$
|
0.18
|
|
|
$
|
1.67
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,996.3
|
|
|
$
|
5,557.2
|
|
|
$
|
4,587.3
|
|
|
$
|
3,894.4
|
|
|
$
|
2,537.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westinghouse bonds, short-term
|
|
$
|
1,520.7
|
|
|
$
|
1,388.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current
maturities
|
|
$
|
1.0
|
|
|
$
|
7.6
|
|
|
$
|
1,165.6
|
|
|
$
|
1,096.8
|
|
|
$
|
173.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 beginning on
page F-2.
The following analysis contains forward-looking statements about
our future revenues, operating results and expectations. See
Cautionary Statement Regarding Forward-Looking
Statements and Part I, Item 1A Risk
Factors for a discussion of the risks, assumptions and
uncertainties affecting these statements.
Overview
We achieved a number of significant milestones during fiscal
year 2010. Most notably, two of our domestic EPC AP1000 nuclear
power projects began producing meaningful financial results and
we continued our strong performance on our hurricane protection
project for the USACE in southeast Louisiana. Additionally, our
work in China on the first four AP1000 nuclear reactors under
construction continued to progress. Our fiscal year 2010
financial results were mixed with revenue and gross profit
slightly lower than in fiscal year 2009, while income before tax
was significantly improved. Operating cash flow was strong
although less than the record cash flow from fiscal year 2009.
We maintained a record amount of cash and cash equivalents and
unrestricted and restricted short-term investments. The global
economic climate and an uncertain domestic regulatory framework
negatively impacted the number and value of new awards our
segments received, which in turn, may adversely affect the
financial results for those businesses in the first half of
fiscal year 2011.
Our Power segments financial results reflect increased
activity on two of our domestic AP1000 nuclear power projects as
well as continued execution of EPC projects for new coal- and
gas-fired power plants. We achieved certain milestones on our
services contract for four new AP1000 units in China in
fiscal year 2010, including the placement of the first nuclear
concrete at all four units. Additionally, several structural
modules have been set, including the CV Bottom Head at three of
the four units and the CV 2nd Ring on two units.
39
The experience gained in China will benefit our domestic AP1000
nuclear projects as they reach similar stages of project
execution. We have also made progress in achieving price
certainty in a number of key commodities, which resulted in
positive revisions to our estimated cost at completion on a
number of contracts.
Our Plant Services segment achieved a slight increase in
revenues and a significant increase in profits in fiscal year
2010. The segment benefited from a greater number and longer
duration of fueling outages at U.S. nuclear power plants
for new and existing customers. However, we believe major
capital commitments at other industrial clients were delayed due
to the global economic climate which offset the increased
business volume from the nuclear plant outage work.
Our E&I segment generated strong revenue and earnings,
primarily driven by increased volume in our federal sector for
construction activity on our hurricane protection project for
the USACE in southeast Louisiana and our MOX project for the DOE
in South Carolina. These two projects continue to drive
E&Is earnings.
Our E&C segment experienced reduced revenues and earnings
in fiscal year 2010 resulting primarily from a decline in new
awards of high-margin engineering services contracts and a shift
in revenues in fiscal year 2010 shift toward lower-margin EPC
work on a major international project. We anticipate continued
reduced revenues and profits during the first half of fiscal
year 2011 for the E&C segment.
Similarly, our F&M segment experienced reduced revenues in
fiscal year 2010 as compared to the record set in fiscal year
2009. We believe the global economic conditions resulted in
fewer projects being executed and delays in capital commitments
in fiscal year 2010 which, in turn, increased market pricing
pressure and reduced profit margins on our work. Our new orders
bookings (excluding the receipt of nuclear scope transferred
from our Power segment) declined throughout the year. The
decline in new orders (excluding the transfer of nuclear scope)
is likely to result in comparatively reduced revenues and
profits during the first half of fiscal year 2011. Finally,
during fiscal year 2010 we completed our new
state-of-the-art
module facility in Lake Charles, Louisiana.
Our consolidated financial results continue to be negatively
impacted by significant non-operating foreign exchange
translation losses on our JPY-denominated Westinghouse Bonds.
The translation loss occurs when the JPY appreciates against the
USD. In fiscal years 2010 and 2009, we recorded pre-tax losses
of $131.6 million and $198.1 million, respectively,
related to foreign currency translation losses on the
JPY-denominated bonds. The exchange rate of the JPY to the
U.S. Dollar at August 31, 2010 was 84.8 as compared to
92.9 as of August 31, 2009.
Consolidated
Results of Operations
Consolidated
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
7,000.8
|
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
$ Change from prior period
|
|
|
(278.9
|
)
|
|
|
281.7
|
|
|
|
|
|
% Change from prior period
|
|
|
(3.8
|
)%
|
|
|
4.0
|
%
|
|
|
|
|
Consolidated revenues decreased during fiscal year 2010 as
compared to fiscal year 2009. This decrease was primarily due to
a $188.6 million decrease in revenues attributable to
client furnished material in our E&C segment in fiscal year
2010 for which we recognize no gross profit. Revenues also
declined in our F&M segment due to reduced business volumes.
40
Consolidated
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
586.0
|
|
|
$
|
607.4
|
|
|
$
|
586.0
|
|
$ Change from prior period
|
|
|
(21.4
|
)
|
|
|
21.4
|
|
|
|
|
|
% Change from prior period
|
|
|
(3.5
|
)%
|
|
|
3.7
|
%
|
|
|
|
|
Consolidated gross profit decreased during fiscal year 2010 as
compared to fiscal year 2009 primarily due to decreases in our
E&C and F&M segments. E&Is gross profit
increased in fiscal year 2010 as compared to fiscal year 2009
due to increased construction activity on a hurricane protection
project for the USACE in southeast Louisiana. See Segment
Results of Operations below for additional information.
Consolidated
Selling, General & Administrative Expenses
(SG&A):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
288.0
|
|
|
$
|
308.7
|
|
|
$
|
276.3
|
|
$ Change from prior period
|
|
|
(20.7
|
)
|
|
|
32.4
|
|
|
|
|
|
% Change from prior period
|
|
|
(6.7
|
)%
|
|
|
11.7
|
%
|
|
|
|
|
Consolidated SG&A decreased in fiscal year 2010 as compared
to fiscal year 2009 primarily as a result of decreases in
professional and contractor fees of approximately
$15.9 million and non-income related taxes of approximately
$5.0 million. Partially offsetting this decrease was an
increase in employee compensation and related costs.
Consolidated
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
43.9
|
|
|
$
|
73.6
|
|
|
$
|
45.9
|
|
$ Change from prior period
|
|
|
(29.7
|
)
|
|
|
27.7
|
|
|
|
|
|
% Change from prior period
|
|
|
(40.4
|
)%
|
|
|
60.3
|
%
|
|
|
|
|
Consolidated interest expense decreased in fiscal year 2010 as
compared to fiscal year 2009. Interest expense associated with
the JPY denominated bonds decreased approximately
$30.6 million, or 44.5%, to $38.1 million in fiscal
year 2010 from $68.7 million in fiscal year 2009 due
primarily to our expensing in fiscal year 2009 the original
issuance bond discount of $22.8 million and the remaining
deferred financing cost of $6.6 million associated with the
Westinghouse Bonds due to the occurrence of a Toshiba Event.
Consolidated
Provision for Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
44.0
|
|
|
$
|
11.9
|
|
|
$
|
71.4
|
|
$ Change from prior period
|
|
|
32.1
|
|
|
|
(59.5
|
)
|
|
|
|
|
% Change from prior period
|
|
|
269.7
|
%
|
|
|
(83.3
|
)%
|
|
|
|
|
Consolidated effective tax rate for fiscal year 2010 was 30% as
compared to 37% for fiscal year 2009. The decrease in our
effective tax rate was primarily due to the mix of earnings
between our domestic and foreign operations, and a lower
provision for uncertain tax positions in fiscal year 2010 as
compared to fiscal year 2009. The consolidated effective tax
rate for fiscal year 2010 also includes a benefit of research
and experimentation tax credits in submitted claims or filed
returns that were included in the provision for uncertain tax
positions. See Note 10 Income Taxes to our
consolidated financial statements for a reconciliation of the
federal statutory rate to the consolidated effective tax rate.
41
Consolidated
Earnings (Losses) from Unconsolidated Entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
7.1
|
|
|
$
|
11.0
|
|
|
$
|
17.7
|
|
$ Change from prior period
|
|
|
(3.9
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
% Change from prior period
|
|
|
(35.5
|
)%
|
|
|
(37.9
|
)%
|
|
|
|
|
Earnings from unconsolidated entities decreased in fiscal year
2010 as compared to fiscal year 2009 primarily due to a
$2.3 million net of tax reduction in earnings related to
our Westinghouse Equity.
Consolidated
Net Income (Loss) Attributable to Shaw:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
$
|
92.7
|
|
|
$
|
15.0
|
|
|
$
|
140.7
|
|
$ Change from prior period
|
|
|
77.7
|
|
|
|
(125.7
|
)
|
|
|
|
|
% Change from prior period
|
|
|
518.0
|
%
|
|
|
(89.3
|
)%
|
|
|
|
|
The increase in consolidated net income in fiscal year 2010 as
compared to fiscal year 2009 was due to the reduction in current
fiscal year of the pre-tax non-cash foreign currency translation
loss on the Westinghouse Bonds of $66.5 million as well as
the other factors discussed above.
42
Segment
Results of Operations
The following analysis of our segments results of
operations comparing revenues, gross profit, and Income (loss)
before income taxes and earnings (losses) from unconsolidated
entities for each of our operating segment for the fiscal years
ended August 31, 2010, 2009, and 2008 (in millions, except
for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
$
|
2,297.9
|
|
|
$
|
2,581.2
|
|
|
$
|
2,655.1
|
|
Plant Services
|
|
|
881.0
|
|
|
|
864.1
|
|
|
|
1,018.2
|
|
E&I
|
|
|
2,215.2
|
|
|
|
1,835.5
|
|
|
|
1,462.1
|
|
E&C
|
|
|
1,114.6
|
|
|
|
1,371.5
|
|
|
|
1,283.3
|
|
F&M
|
|
|
492.0
|
|
|
|
623.4
|
|
|
|
576.6
|
|
Corporate
|
|
|
0.1
|
|
|
|
4.0
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,000.8
|
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
$
|
119.7
|
|
|
$
|
87.0
|
|
|
$
|
153.1
|
|
Plant Services
|
|
|
53.2
|
|
|
|
17.8
|
|
|
|
49.4
|
|
E&I
|
|
|
206.8
|
|
|
|
161.7
|
|
|
|
105.9
|
|
E&C
|
|
|
110.7
|
|
|
|
198.7
|
|
|
|
124.3
|
|
F&M
|
|
|
93.5
|
|
|
|
138.0
|
|
|
|
150.0
|
|
Corporate
|
|
|
2.1
|
|
|
|
4.2
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
586.0
|
|
|
$
|
607.4
|
|
|
$
|
586.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
|
5.2
|
%
|
|
|
3.4
|
%
|
|
|
5.8
|
%
|
Plant Services
|
|
|
6.0
|
|
|
|
2.1
|
|
|
|
4.9
|
|
E&I
|
|
|
9.3
|
|
|
|
8.8
|
|
|
|
7.2
|
|
E&C
|
|
|
9.9
|
|
|
|
14.5
|
|
|
|
9.7
|
|
F&M
|
|
|
19.0
|
|
|
|
22.1
|
|
|
|
26.0
|
|
Corporate
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
8.4
|
%
|
|
|
8.3
|
%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and earnings (losses) from
unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
$
|
64.9
|
|
|
$
|
29.3
|
|
|
$
|
112.7
|
|
Plant Services
|
|
|
43.7
|
|
|
|
6.7
|
|
|
|
33.8
|
|
E&I
|
|
|
138.8
|
|
|
|
91.0
|
|
|
|
39.3
|
|
E&C
|
|
|
64.4
|
|
|
|
153.0
|
|
|
|
97.4
|
|
F&M
|
|
|
63.9
|
|
|
|
106.6
|
|
|
|
126.8
|
|
Investment in Westinghouse
|
|
|
(169.8
|
)
|
|
|
(267.0
|
)
|
|
|
(107.9
|
)
|
Corporate
|
|
|
(58.1
|
)
|
|
|
(87.0
|
)
|
|
|
(81.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes and earnings (losses)
from unconsolidated entities
|
|
$
|
147.8
|
|
|
$
|
32.6
|
|
|
$
|
220.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM Not meaningful.
43
Our revenues by industry were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Industry
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
Environmental and Infrastructure
|
|
$
|
2,215.2
|
|
|
|
32
|
|
|
$
|
1,835.5
|
|
|
|
25
|
|
|
$
|
1,462.1
|
|
|
|
21
|
|
Power Generation
|
|
|
2,985.8
|
|
|
|
43
|
|
|
|
3,168.5
|
|
|
|
44
|
|
|
|
3,258.7
|
|
|
|
47
|
|
Chemicals
|
|
|
1,715.0
|
|
|
|
24
|
|
|
|
2,120.0
|
|
|
|
29
|
|
|
|
2,096.9
|
|
|
|
29
|
|
Other
|
|
|
84.8
|
|
|
|
1
|
|
|
|
155.7
|
|
|
|
2
|
|
|
|
180.3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,000.8
|
|
|
|
100
|
%
|
|
$
|
7,279.7
|
|
|
|
100
|
%
|
|
$
|
6,998.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues by geographic region were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Geographic Region
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
(In millions)
|
|
|
%
|
|
|
United States
|
|
$
|
5,619.0
|
|
|
|
80
|
|
|
$
|
5,669.7
|
|
|
|
78
|
|
|
$
|
5,422.2
|
|
|
|
78
|
|
Asia/Pacific Rim countries
|
|
|
965.2
|
|
|
|
14
|
|
|
|
978.4
|
|
|
|
13
|
|
|
|
573.0
|
|
|
|
8
|
|
Middle East
|
|
|
263.2
|
|
|
|
4
|
|
|
|
386.3
|
|
|
|
5
|
|
|
|
719.5
|
|
|
|
10
|
|
United Kingdom and other European Countries
|
|
|
67.6
|
|
|
|
1
|
|
|
|
127.9
|
|
|
|
2
|
|
|
|
193.9
|
|
|
|
3
|
|
South America and Mexico
|
|
|
16.0
|
|
|
|
|
|
|
|
51.8
|
|
|
|
1
|
|
|
|
33.6
|
|
|
|
1
|
|
Canada
|
|
|
23.3
|
|
|
|
|
|
|
|
37.7
|
|
|
|
1
|
|
|
|
25.4
|
|
|
|
|
|
Other
|
|
|
46.5
|
|
|
|
1
|
|
|
|
27.9
|
|
|
|
|
|
|
|
30.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,000.8
|
|
|
|
100
|
%
|
|
$
|
7,279.7
|
|
|
|
100
|
%
|
|
$
|
6,998.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Analysis Fiscal Year 2010 Compared to Fiscal Year
2009
Power
Segment
Our Power segment continued executing major electric power
generation projects across the globe during fiscal year 2010.
The segments activity increased on two contracts for four
domestic AP1000 nuclear units and two domestic new build
gas-fired plants. Additionally, work continues on our services
contract for four new AP1000 nuclear power reactors in China.
However, reduced demand for electricity in the U.S. and
uncertainty regarding air emission regulations in the
U.S. contributed to a decline in our coal and air quality
control businesses where we saw substantially reduced
activities, opportunities and new awards throughout fiscal year
2010.
Revenues
Revenues decreased $283.3 million, or 11.0%, to
$2,297.9 million in fiscal year 2010 from
$2,581.2 million in fiscal year 2009. This decrease was
primarily due to the significant decline in volume in our AQC
and coal business lines attributable to the substantial
completion of several large projects in fiscal year 2009. When
aggregated, the reduced activity on those projects resulted in
decreased revenue of approximately $861.9 million in fiscal
year 2010 compared to fiscal year 2009. This decrease was
partially offset by increased volume on two contracts for four
domestic AP1000 nuclear reactors, two new build gas-fired power
plants, and our services contract for four new AP1000 nuclear
power reactors in China representing approximately
$610.6 million in increased revenue in fiscal year 2010
compared to fiscal year 2009.
Gross
Profit and Gross Profit Percentage
Gross profit increased $32.7 million, or 37.6%, to
$119.7 million in fiscal year 2010 from $87.0 million
in fiscal year 2009, and gross profit percentage increased to
5.2% in fiscal year 2010 from 3.4% in fiscal year 2009. The
increases in gross profit and gross profit percentage were due
to increased activity in fiscal year
44
2010 on domestic AP1000 contracts and increased profitability in
our coal business lines which, when aggregated, added
$108.9 million in gross profit in fiscal year 2010 compared
to fiscal year 2009. Additionally, we have made progress in
achieving price certainty on a number of key commodities, which
resulted in reductions to our estimated cost at completion on a
number of contracts. In fiscal year 2009, we reported
significantly increased estimated costs to complete two
coal-fired power plant projects, one of which amounted to
$73.9 million. Higher legal costs and reduced volumes in
our AQC business line in fiscal year 2010 partially offset the
increases in gross profit described previously.
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes and earnings from unconsolidated
entities increased $35.6 million, or 121.5%, to
$64.9 million in fiscal year 2010 from $29.3 million
in fiscal year 2009. This increase primarily resulted from the
same factors affecting gross profit discussed above, as well as
a slight decrease in the segments general and
administrative expenses in fiscal year 2010 as compared to
fiscal year 2009.
Plant
Services Segment
Our Plant Services segment generated increased revenue and
profitability in fiscal year 2010 compared to fiscal year 2009.
These increases were driven primarily by projects for nuclear
power plant refueling outages for new and existing customers.
Partially offsetting the increase in revenue and profits was a
decline in the volume of construction projects due to an overall
decline in client capital spending and significant competition
in the process and industrial markets.
Revenues
Revenues increased $16.9 million, or 2.0%, to
$881.0 million in fiscal year 2010 from $864.1 million
in fiscal year 2009. The increase was primarily attributable to
a greater number and longer duration of nuclear power plant
refueling outages for new and existing customers of
approximately $79.0 million. A decline in the volume of
smaller project awards partially offset increased revenues in
fiscal year 2010 as compared to fiscal year 2009 resulting from
a decline in overall construction spending and significant
competition in the process and industrial markets.
Gross
Profit and Gross Profit Percentage
Gross profit increased $35.4 million, or 198.9%, to
$53.2 million in fiscal year 2010 from $17.8 million
in fiscal year 2009 and gross profit percentage increased to
6.0% in fiscal year 2010 from 2.1% in fiscal year 2009. The
increases in gross profit and gross profit percentage were
primarily due to the increased number and length of nuclear
refueling outages in fiscal year 2010 as well as a reduction of
indirect expenses of approximately $14.5 million compared
to fiscal year 2009. Fiscal year 2009s gross profit and
gross profit percentage were negatively impacted in the second
quarter of fiscal 2009 by the resolution of a dispute with the
owner of a major domestic power project.
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes and earnings from unconsolidated
entities increased $37.0 million, or 552.2%, to
$43.7 million in fiscal year 2010 from $6.7 million in
fiscal year 2009. The increase primarily resulted from the same
factors affecting gross profit discussed above as well as lower
general and administrative expenses.
E&I
Segment
Our E&I segments revenues and profitability increased
during fiscal year 2010 as compared to fiscal year 2009. These
increases were driven primarily by our activities on our
hurricane protection project for the USACE in southeast
Louisiana, construction services for the temporary sand berms
off the coast of Louisiana and our MOX project for the DOE in
South Carolina. The USACE project should continue through fiscal
year 2011 and the MOX project should continue for several years,
depending on client options for additional work.
45
Revenues
Revenues increased $379.7 million, or 20.7%, to
$2,215.2 million in fiscal year 2010 from
$1,835.5 million in fiscal year 2009 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, the temporary
sand berm construction and our MOX project.
Gross
Profit and Gross Profit Percentage
Gross profit increased $45.1 million, or 27.9%, to
$206.8 million in fiscal year 2010 from $161.7 million
in fiscal year 2009 while gross profit percentage increased to
9.3% in fiscal year 2010 from 8.8% in fiscal year 2009. The
increase in gross profit and gross profit percentage was
primarily due to activity on a hurricane protection, sand berm
and MOX projects noted above. Gross profit and gross profit
percentage also increased due to the overall volume increases
and lower overhead costs as a percentage of revenue as compared
to the prior fiscal year.
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes and earnings from unconsolidated
entities increased $47.8 million, or 52.5%, to
$138.8 million in fiscal year 2010 from $91.0 million
in fiscal year 2009. The increase primarily resulted from the
same factors affecting gross profit discussed above.
E&C
Segment
As anticipated, our E&C segment results were adversely
impacted by the current economic climate resulting in lower
revenues and earnings in fiscal year 2010 as compared to the
record levels in the fiscal year 2009. Revenues for E&C
decreased from fiscal year 2009 primarily due to reduced volumes
of client furnished materials and reimbursable costs which are
invoiced to clients without profit and reduced revenues from
engineering projects as a result of decreased new work awards.
We see 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, but the
timing and award of these projects remains uncertain. As a
result, we expect E&Cs volume of business through the
first two quarters of fiscal year 2011 to be similar to the
second half fiscal year 2010. The remainder of fiscal year 2011
is dependent on our ability to book new work during the first
half of fiscal year 2011
Revenues
Revenues decreased $256.9 million, or 18.7%, to
$1,114.6 million in fiscal year 2010 from
$1,371.5 million in fiscal year 2009 due primarily to a
decrease of $188.6 million in the volume of reimbursable
client furnished materials for which we recognize no gross
profit or loss and a decline in engineering services projects
due to lack of new awards. Partially offsetting these decreases
was increased volume on a major international ethylene project
in Asia.
Gross
Profit and Gross Profit Percentage
Gross profit decreased $88.0 million, or 44.3%, to
$110.7 million in fiscal year 2010 from $198.7 million
in fiscal year 2009. Gross profit percentage decreased to 9.9%
in fiscal year 2010 from 14.5% in fiscal year 2009. The decrease
in gross profit is due to the lower volume of engineering
contracts in fiscal year 2010 compared to fiscal year 2009. The
decrease in gross profit percentage is a result of lower volumes
of higher margin engineering projects and increased activity
from our major international ethylene project in Asia which has
a lower gross margin percentage than our engineering projects.
The reduced gross margin percentage was most prevalent during
the fourth quarter of fiscal year 2010 when field costs
increased on the international ethylene project.
46
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes and earnings from unconsolidated
entities decreased $88.6 million, or 57.9%, to
$64.4 million in fiscal year 2010 from $153.0 million
in fiscal year 2009. This decrease was primarily due to the
factors affecting gross profit discussed above.
F&M
Segment
Our F&M segment experienced decreased business volumes in
fiscal 2010 from the record levels in fiscal year 2009. The
global economic downturn negatively impacted our end markets,
particularly clients in the oil refining and
chemical/petrochemical industries with many projects being
delayed into fiscal 2011. As a result, our non-nuclear bookings
and profits declined in fiscal 2010. We expect the downturn in
volume and profits to continue into the first half of fiscal
year 2011 but subsequently to improve to the extent that the
modular assembly and pipe fabrication work associated with the
AP1000 work subcontracted from our Power segment commences.
Revenues
Revenues decreased $131.4 million, or 21.1%, to
$492.0 million in fiscal year 2010 from $623.4 million
in fiscal year 2009. This decrease was due to lower volumes
resulting from lower bookings across the majority of our
U.S. operations as a result of global economic environment
partially offset by higher revenues in our Mexican operations.
Gross
Profit and Gross Profit Percentage
Gross profit decreased $44.5 million, or 32.2%, to
$93.5 million in fiscal year 2010 from $138.0 million
in fiscal year 2009. Gross profit percentage decreased to 19.0%
in fiscal year 2010 from 22.1% in fiscal year 2009. The decrease
in gross profit and gross profit percentage was primarily due to
reduced client demand for pipe fabrication services, a more
competitive pricing environment and the completion of higher
margin contracts in fiscal year 2010 as compared to fiscal year
2009.
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes and earnings from unconsolidated
entities decreased $42.7 million, or 40.1%, to
$63.9 million in fiscal year 2010 from $106.6 million
in fiscal year 2009 primarily due to the factors affecting gross
profit discussed above.
Investment
in Westinghouse Segment
The results of our Investment in Westinghouse segment include
both our 20% interest in Westinghouses reported earnings
(loss), and the gain (loss) on translating the JPY-denominated
Westinghouse Bonds (used to partially fund the Investment in
Westinghouse in October 2006 through our subsidiary, NEH) to the
USD equivalent at the end of each fiscal period. For fiscal
years 2010 and 2009, we incurred losses before income taxes and
earnings (losses) from unconsolidated entities of
$169.8 million and $267.0 million in our Investment in
Westinghouse segment. These results do not include any
Westinghouse Dividends.
Because the Westinghouse Bonds are denominated in JPY, at the
end of each fiscal period, GAAP requires that we revalue for
financial reporting purposes the JPY-denominated Westinghouse
Bond debt to its USD equivalent at the
JPY / US Dollar exchange rate in effect at the
end of each fiscal period, with the difference being recognized
as a non-cash gain or (loss) in our Statement of Operations for
that fiscal period. The losses in fiscal years 2010 and 2009
were primarily attributable to the non-cash foreign currency
translation losses of $131.6 million and
$198.1 million, respectively, resulting from revaluing the
JPY-denominated Westinghouse Bonds to the USD equivalent at the
end of the fiscal period.
As a result of the Westinghouse Bond holders having the ability
to require us to exercise the Put Option to retire the bonds due
to the Toshiba Event described previously, we reclassified the
Westinghouse Bonds from long-term to current liabilities in the
third quarter of fiscal year 2009. Additionally, we were
required to
47
expense a pre-tax total of $29.4 million in as interest
expense, which included the $22.8 million in pre-tax
unamortized original issuance bond discount as well as the
$6.6 million in unamortized deferred financing costs
associated with the Westinghouse Bonds. See
Item 1 Business for additional information.
Our 20% interest in Westinghouses earnings increased
$4.2 million, or 36.5%, to $15.7 million in fiscal
year 2010 from $11.5 million in fiscal year 2009. This
increase was related to increases in revenues and operation
profits in its Nuclear Services and Nuclear Power Plants
segments.. 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, 2009,
through their calendar quarter ended June 30, 2010, were
included in our financial statements for the twelve months ended
August 31, 2010; and 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.
As noted previously, the Westinghouse Bonds are JPY-denominated.
From
time-to-time,
we enter into foreign currency forward contracts to hedge the
impact of exchange rate changes on our JPY-denominated cash
interest payments on the Westinghouse bonds,. We normally focus
our hedge transactions to the JPY interest payments due within
the following twelve months.
Corporate
Corporate SG&A expenses decreased $16.4 million, or
18.0%, to $74.9 million in fiscal year 2010 from
$91.3 million in fiscal year 2009. This decrease was due
primarily to the successful remediation of material weaknesses
in fiscal year 2009 resulting in lower professional fees in the
current fiscal year, lower non-income-related tax expenses in
fiscal year 2010, and lower compensation costs. This decrease
was partially offset by an increase in health insurance costs.
Segment
Analysis Fiscal Year 2009 Compared to Fiscal Year
2008
Power
Segment
During 2009, our Power 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 and may
continue to impact those decisions going forward. 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.
48
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 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 gross profit.
Income
(loss) before income taxes and earnings (losses) from
unconsolidated entities
Income before income taxes 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.
Plant
Services Segment
Our Plant Services 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 and 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 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.
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.
49
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 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.
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 and earnings (losses) from
unconsolidated entities
Income before income taxes 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
50
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.
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.
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 and 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.
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
51
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
Selling,
General and Administrative Expenses (SG&A)
Corporate SG&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 company aircraft. Additionally, we initiated
cost-savings initiatives throughout fiscal year 2009.
Liquidity
and Capital Resources
Overview
of Fiscal Years 2010, 2009, and 2008
We generated $466.6 million in positive operating cash flow
during 2010, and at August 31, 2010, our cash and cash
equivalents, restricted and escrowed cash and cash equivalents,
and unrestricted and restricted short-term investments increased
$286.4 million, or 18.7%, to a record $1,819.7 million
from $1,533.3 million at August 31, 2009. In addition
to our cash and cash equivalents, we had $791.1 million of
revolving credit available for borrowings under our Facility at
August 31, 2010. Because we have pledged
$296.9 million of our cash as collateral for letters of
credit and because we may access that cash if needed, and
replace that pledge with funding under our Facility, we view our
net revolving credit availability as approximately
$494.2 million.
Operating cash flow was generated by all operating segments
during fiscal year 2010 except for our E&C, Corporate and
Investment in Westinghouse segments. Operating cash flow was
generated primarily by earnings in each segment, positive
working capital movements, and the receipt of approximately
$22.8 million in dividends from our investment in
Westinghouse. In addition to the dividends received from our
investment in Westinghouse, we also received a return of
investment from Westinghouse of approximately $14.3 million.
Our primary source of operating cash inflows is from collections
of our accounts receivable, which are generally invoiced based
upon achieving performance milestone prescribed in our
contracts. Our outstanding accounts receivable (AR) and costs
and estimated earnings in excess of billings (CIE) are reviewed
monthly and tend to be due from high quality credit clients such
as regulated utilities, government agencies, multinational oil
companies and industrial corporations, independent and merchant
power producers. AR and CIE were 30.2% and 31.1% of current
assets at August 31, 2010 and 2009, respectively. Positive
working capital movements on contracts tend to be timing related
and will reverse if new projects are not booked with similar
positive working capital terms. See Note 5
Accounts Receivable, Concentrations of Credit Risk, and
Inventories and Note 20 Accounting for Claims,
Unapproved Change Orders and Incentives on Long-Term
Construction Contracts to our consolidated financial statements
beginning on
page F-2
for additional information.
Many of our clients require that we issue letters of credit or
surety bonds for work we perform. Our 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 from our clients more favorable terms reducing
letter of credit and surety requirements on new work. Our need
for letter of credit capacity may increase as we seek additional
construction projects. Increases in outstanding performance
letters of credit issued under our Facility reduce the available
borrowing capacity under our
52
Facility. During the first quarter of fiscal year 2010, we
increased the commitments under our Facility and extended its
duration until October 2012. See additional details below.
Over the past three years, we have generated significant
operating cash flow and currently have in excess of
$1.8 billion of cash and short-term marketable securities.
Our excess cash is generally invested in (1) 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, respectively, (2) interest bearing deposit
accounts with commercial banks rated at least A/A2 or better by
S&P
and/or
Moodys, respectively (3) publicly traded debt rated
at least A/A2 or better by S&P
and/or
Moodys, respectively, with maturities up to two years at
the time of purchase or (4) publicly traded debt funds
holding securities rated at least A/A2 or better by S&P
and/or
Moodys, respectively.
At August 31, 2010, the amounts shown as restricted cash
and restricted short-term investments in the accompanying
balance sheet included approximately $296.9 million used to
voluntarily secure letters of credit and approximately
$23.4 million to secure insurance related contingent
obligations in lieu of a letter of credit. We expect to continue
for the short term to voluntarily cash collateralize certain
letters of credit in fiscal 2011 if the bank fees avoided on
those letters of credit exceed the return on other investment
opportunities.
In March 2009 and November 2009, we made voluntary cash
contributions to underfunded pension plans in the United Kingdom
totaling £8.0 million (approximately
$11.4 million) and £5.0 million (approximately
$8.3 million), respectively.
Approximately $223.1 million of our cash at August 31,
2010, 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 continue to invest a portion of our excess cash to support
the growth of our business lines. In fiscal year 2010, we
invested approximately $194.4 million for property and
equipment, primarily for our new modular facility in Louisiana,
and for the purchase of heavy cranes used at large industrial
construction sites. In addition, during fiscal year 2010, we
made an investment of approximately $10.0 million to a
joint venture that will construct a pipe fabrication facility in
the U.A.E.
Our strong cash position, combined with the global economic
climate, has created opportunities for us to obtain market
discounts and provide protection from potential future price
escalation for our EPC projects by undertaking an early
procurement program. Accordingly, we have begun to procure
certain commodities, subcontracts and construction equipment
early in the life cycle of major projects. If successful, this
strategy will provide price and schedule certainty but requires
that we expend our cash earlier than originally estimated under
the contracts. At August 31, 2010, we have expended
approximately $30.9 million under the early procurement
program for fiscal year 2010 and are currently evaluating early
procurement opportunities up to $110.0 million for fiscal
year 2011. It is our intent to balance any potential
cancellation exposure associated with early procurements with
our termination rights and obligations under the respective
prime contracts with our clients and to help protect ourselves
from suppliers failing to perform by requiring financial
security instruments to support their performance. However, we
can provide no assurance that our intent to manage our
cancellation exposure will be successful. In addition, while we
currently intend to pursue procurements of this magnitude during
fiscal year 2011, our ability to complete such purchases is
subject to our ability to execute definitive purchase contracts
as well as our ability to terminate this strategy should we
identify other opportunities or needs that we determine are in
our best interests to pursue.
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.
53
The following table sets forth the cash flows for the last three
years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Cash flow provided by (used in) operations
|
|
$
|
466,580
|
|
|
$
|
737,976
|
|
|
$
|
640,738
|
|
Cash flow provided by (used in) investing
|
|
|
(558,336
|
)
|
|
|
(605,027
|
)
|
|
|
(96,815
|
)
|
Cash flow provided by (used in) financing
|
|
|
(23,026
|
)
|
|
|
(30,450
|
)
|
|
|
43,401
|
|
Cash (to) from variable interest entities
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
(1,620
|
)
|
|
|
(1,117
|
)
|
|
|
(927
|
)
|
Operating
Cash Flow
We generated $466.6 million in operating cash flows during
fiscal year 2010 primarily as a result of earnings generated
from our operating segments, positive working capital movements
and dividends received from our Investment in Westinghouse. The
primary contributors of this positive operating cash flow were
our Power and E&I segments. We forecast our net operating
cash flow will continue to be positive during fiscal year 2011,
although at levels less than prior years.
In fiscal year 2009, we generated record cash flow of
$738.0 million compared to $640.7 million in fiscal
year 2008. The increase was generated primarily by earnings from
all our operating segments as well as positive working capital
movements. The largest contributors to this cash flow were from
our Power and F&M segments.
Investing
Cash Flow
Cash used in investing activities in fiscal year 2010 decreased
$46.7 million as compared to fiscal year 2009 primarily due
to our use of $383.6 million for restricted and escrowed
cash as well as restricted and unrestricted short-term
investments in fiscal year 2010 compared to $495.0 million
in fiscal year 2009 offset by $194.4 million used for the
purchase of property in equipment in fiscal year 2010 compared
to $132.2 million in fiscal year 2009. During fiscal year
2010, our investing activities also included a return of
investment from Westinghouse of approximately
$14.3 million. In addition, in fiscal year 2010 we
increased the cash pledged, at our option, to secure certain
outstanding letters of credit issued to support our project
execution activities to $296.9 million from
$152.7 million in fiscal 2009.
Net cash used in investing activities decreased in fiscal year
2009 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.
Financing
Cash Flow
Net cash flows used in financing activities decreased
$7.4 million in fiscal year 2010 compared to fiscal year
2009 primarily due to the an increase in the repayment of debt
and leases offset by an increase 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.
Net cash flows from financing activities decreased
$73.9 million from fiscal year 2008 to fiscal year 2009
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 12
Share-Based Compensation in Part II,
Item 8 Financial Statements and Supplementary
Data for additional information about our Stock Compensation
Plans.
See Note 9 Debt and Revolving Lines of Credit
and Note 7 Equity Method Investments in
Part II, Item 8 Financial Statements and
Supplementary Data for additional information about our
Westinghouse Bonds.
54
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. On April 25, 2010, the
commitments of the 2010 Lenders expired, reducing total lender
commitments to $1,095.0 million. Current commitments
available under The Restated Agreement expire as follows:
|
|
|
|
|
Commitment Expiration
|
|
(In millions)
|
|
|
Total Commitments as of August 31, 2010
|
|
$
|
1,095.0
|
|
Commitments expiring April 25, 2011
|
|
|
(95.0
|
)
|
|
|
|
|
|
Commitments April 25, 2011 through October 25, 2012
|
|
$
|
1,000.0
|
|
|
|
|
|
|
The Restated Agreement allows us 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 our 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, we may pledge up to $300.0 million of our
unrestricted cash on hand to secure additional letters of credit
incremental to amounts available under the Facility, provided
that we 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 a revised pricing
schedule with respect to letter of credit fees and interest
rates payable by us.
The Restated 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 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 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 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,
(b) all liens securing any supplemental credit facilities
are released, and (c) other conditions specified in the
Restated Agreement are satisfied.
55
During fiscal year 2010, 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
$303.9 million as of August 31, 2010, and those
letters of credit reduce what is otherwise available for
borrowing under our Facility.
At August 31, 2010, we were in compliance with the
covenants contained in our Restated Credit Agreement.
See Note 9 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-2
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 2010.
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 9 Debt and Revolving Lines of Credit
included in our consolidated financial statements beginning on
page F-2
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 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 7 Equity Method Investments included
in our consolidated financial statements beginning on
page F-2
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, 2010, 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
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Letters of Credit -Domestic and Foreign
|
|
$
|
641.7
|
|
|
$
|
540.7
|
|
|
$
|
101.0
|
|
|
$
|
|
|
|
$
|
|
|
Surety bonds
|
|
|
609.0
|
|
|
|
574.2
|
|
|
|
18.1
|
|
|
|
2.8
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
1,250.7
|
|
|
$
|
1,114.9
|
|
|
$
|
119.1
|
|
|
$
|
2.8
|
|
|
$
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2010. |
Of the amount of outstanding letters of credit at
August 31, 2010, $450.5 million were issued to clients
in connection with contracts (performance letters of credit). Of
the $450.5 million, five clients held $297.3 million
56
or 66.0% of the outstanding letters of credit. The largest
aggregate amount of letters of credit issued and outstanding at
August 31, 2010 to a single client on a single project is
$117.5 million, of which, $58.7 million was returned
to us in October 2010, reducing the amount of outstanding
letters of credit. Our ability to borrow under our facility is
reduced by the dollar value of the letters of credit we have
outstanding.
At August 31, 2010 and August 31, 2009, we had total
surety bonds of $609.0 million and $729.7 million,
respectively. However, based on our
percentage-of-completion
on contracts covered by these surety bonds, our estimated
potential liability at August 31, 2010 and August 31,
2009 was $262.6 million and $282.1 million,
respectively.
Fees related to these commercial commitments were
$19.3 million for fiscal year 2010 compared to
$14.9 million for fiscal year 2009.
For a discussion of long-term debt and a discussion of
contingencies and commitments, see Note 9 Debt
and Revolving Lines of Credit and Note 14
Contingencies and Commitments, respectively, included in our
consolidated financial statements beginning on
page F-2.
Aggregate
Contractual Obligations
As of August 31, 2010 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(a)
|
|
$
|
1,630.7
|
|
|
$
|
39.5
|
|
|
$
|
1,591.2
|
|
|
$
|
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
1.5
|
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
|
|
Interest rate swap(b)
|
|
|
33.2
|
|
|
|
|
|
|
|
33.2
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
359.4
|
|
|
|
72.8
|
|
|
|
113.1
|
|
|
|
81.7
|
|
|
|
91.8
|
|
Purchase obligations(c)
|
|
|
20.4
|
|
|
|
9.7
|
|
|
|
9.1
|
|
|
|
1.6
|
|
|
|
|
|
Pension obligations(d)
|
|
|
72.2
|
|
|
|
7.4
|
|
|
|
13.4
|
|
|
|
14.0
|
|
|
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
2,117.4
|
|
|
$
|
129.9
|
|
|
$
|
1,760.8
|
|
|
$
|
97.5
|
|
|
$
|
129.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts for long-term debt obligations represent both principal
and interest payments. Future interest payments for the
JPY-denominated Westinghouse bonds are estimated using the JPY
to dollar exchange rate at August 31, 2010. |
|
(b) |
|
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. At August 31, 2010, the fair
value of the swap totaled approximately $33.2 million and
is included as a current liability in our consolidated financial
statements beginning on
page F-2. |
|
(c) |
|
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. |
|
(d) |
|
Pension obligations, representing amounts expected to be paid
out from plans, noted under the heading After
5 years are presented for the years
2016-2020. |
See Note 9 Debt and Revolving Lines of Credit,
Note 13 Operating Leases,
Note 14 Contingencies and Commitments and
Note 17 Employee Benefit Plans included in our
consolidated financial statements beginning on
page F-2.
Backlog
of Unfilled Orders
General. Our backlog represents
managements estimate of potential future revenues we
expect may result from contracts awarded to us by clients.
Backlog is estimated using legally binding agreements for
projects that management believes are likely to proceed.
Management evaluates the potential backlog value of
57
each project awarded 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 change
and/or may
be suspended or cancelled at any time by our clients.
New bookings and ultimately the amount of backlog of unfilled
orders is largely a reflection of the global economic trends.
The volume of backlog 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 whether
for convenience or a stated cause. 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:
Power and E&C Segments. We define backlog
in our Power 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 finalized and may be revised over time. The value of
work subcontracted to our F&M segment is removed from the
backlog of the Power and E&C segments and is shown in the
backlog of our F&M segment.
Plant Services Segment. We define backlog in
the Plant Services segment to include projects which are based
on legally binding contracts from our clients. 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 Plant Services segment backlog does not include any awards
for work expected to be performed more than five years after the
date of our financial statements.
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,
confirmed funding is usually appropriated 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 provided
by our clients of future values, 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
58
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.
F&M Segment. We define 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
Power, E&I, and E&C segments. In such cases, we
include the value of the subcontracted work in our F&M
segments backlog and exclude it from the corresponding
affiliate segment.
At August 31, 2010, and August 31, 2009, our backlog
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
Segment
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Power
|
|
$
|
11,407.9
|
|
|
|
57
|
|
|
$
|
12,795.1
|
|
|
|
56
|
|
Plant Services
|
|
|
1,850.0
|
|
|
|
9
|
|
|
|
1,808.1
|
|
|
|
8
|
|
E&I
|
|
|
4,942.8
|
|
|
|
25
|
|
|
|
5,439.0
|
|
|
|
24
|
|
E&C
|
|
|
671.0
|
|
|
|
3
|
|
|
|
1,298.6
|
|
|
|
6
|
|
F&M
|
|
|
1,246.7
|
|
|
|
6
|
|
|
|
1,374.8
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
20,118.4
|
|
|
|
100
|
%
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
Industry
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Environmental and Infrastructure
|
|
$
|
4,942.8
|
|
|
|
25
|
|
|
$
|
5,439.0
|
|
|
|
24
|
|
Energy
|
|
|
13,938.4
|
|
|
|
69
|
|
|
|
15,478.1
|
|
|
|
68
|
|
Chemical
|
|
|
1,225.5
|
|
|
|
6
|
|
|
|
1,761.1
|
|
|
|
7
|
|
Other
|
|
|
11.7
|
|
|
|
|
|
|
|
37.4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
20,118.4
|
|
|
|
100
|
%
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
Geographic Region
|
|
in millions
|
|
|
%
|
|
|
in millions
|
|
|
%
|
|
|
Domestic
|
|
$
|
19,126.6
|
|
|
|
95
|
|
|
$
|
20,978.2
|
|
|
|
92
|
|
International
|
|
|
991.8
|
|
|
|
5
|
|
|
|
1,737.4
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
20,118.4
|
|
|
|
100
|
%
|
|
$
|
22,715.6
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in backlog 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, 2010.
During the fiscal quarter ended May 31, 2009, we received
notice from our client of a significant delay in the
construction schedule for the aforementioned two new AP1000
nuclear reactors to be located in Florida
59
relating to early construction activities. Our client advised us
that these activities would not be performed for these units
until the combined operating license (COL) is issued by the
Nuclear Regulatory Commission for the plant, which we understand
is expected to occur in late 2012. As a result, the first
reactor is now expected to enter service in 2021, with the
second 18 months later. In the interim, we continue to
perform limited engineering and support services and have not
removed or altered the corresponding contract value from our
backlog as our contract with the client remains in effect. The
amount of revenues and contract profit expected to be generated
from this project during fiscal year 2011 and 2012 is likely to
be immaterial when considered in relation to our consolidated
operations. We expect to recover any future adverse cost impacts
associated with the current schedule delay. If our client were
to cancel the project, we would be entitled to retain all
proceeds collected to date, collect any receivables that may be
outstanding at that time and be entitled to invoice additional
amounts as prescribed under our contract.
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 89.8% 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 recent economic downturn. Cancellation of this,
or any of our other nuclear projects in backlog would result in
a significant reduction of our reported backlog as well as on
our future earnings.
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. Additionally, 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 Power 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.
60
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
Our revenues are primarily derived from long-term contracts that
are reported on the
percentage-of-completion
method of accounting in accordance with Accounting Standards
Codification (ASC)
605-35,
Construction-Type and Production-Type 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. For example, our Power 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
61
segment. We segment revenues, costs and gross profit related to
our significant F&M subcontracts if they meet the contract
segmenting criteria in ASC 605. 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 and steel fabrication 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. 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, 2010 and 2009 was
$8.2 million and $13.0 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
and revenue recognition guidelines of ASC 605, 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
62
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 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 ASC 450, 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, 2010, we
had deferred tax assets of $273.3 million, net of valuation
allowance and deferred tax liabilities, including
$53.0 million related to net operating losses and tax
credit carryforwards. At August 31, 2010, we had a deferred
tax asset valuation allowance of $27.4 million (see
Note 10 Income Taxes included in our
consolidated financial statements beginning on
page F-2).
Goodwill
and Intangible Assets Impairment Review
In accordance with current accounting guidance, we identified
seven reporting units for the purpose of conducting our goodwill
impairment review. In determining our reporting units, we
considered (i) whether an operating segment or a component
of an operating segment was a business, (ii) whether
discrete financial information was available, and
(iii) whether the financial information is regularly
reviewed by management of the operating segment.
To calculate the fair value of a reporting unit used in our
goodwill impairment review, we utilized the guideline public
company method (a market approach) and the discounted cash flow
method (an income approach). The reporting units fair
value was determined by averaging the resulting fair values
calculated under these two methods. When performing our annual
impairment analysis, we also reconcile the total of the fair
values of our reporting units with our market capitalization to
determine if the sum of the individual fair values is reasonable
compared to the external market indicators. If our
reconciliation indicates a significant difference between our
external market capitalization and the fair values of our
reporting units, we review and adjust, if appropriate, our
weighted-average cost of capital and consider if the implied
control premium is reasonable in light of current market
conditions.
63
The guideline public company method relies on valuation
multiples derived from stock prices, financial results and
enterprise values from the trailing twelve months of publicly
traded companies that are comparable to the subject reporting
unit. The derived valuation multiples are then applied to each
reporting unit to develop an estimate of the fair value of the
subject reporting unit. The earnings multiples used in our
goodwill impairment review ranged between 5 times and 9 times.
The discounted cash flow method relies upon a companys
estimated future cash flows, and then discounting
those future flows by the desired rate of return in order to
determine the present value of the future cash
stream. To arrive at the cash flow projections used in our
discounted cash flow models, we use internal models to estimate
the expected results for the next five years. The key
assumptions used in our discounted cash flow models to determine
fair value are discount rates, annual revenue growth rates,
average operating margin, and terminal value capitalization
rate. The discount rates used in the discounted cash flow models
ranged from 13.0% to 15.0%. The terminal value was calculated by
using a terminal value capitalization rate of 3%.
Changes in assumptions or estimates used in our goodwill
impairment testing could materially affect the determination of
the fair value of a reporting unit, and therefore could
eliminate the excess of fair value over carrying value of a
reporting unit and, in some cases, could result in impairment.
Such changes in assumptions could be caused by a loss of one or
more significant contracts, reductions in government
and/or
private industry spending or a decline in the demand for our
services due to changing economic conditions. Given the nature
of our business, if we are unable to win or renew contracts,
unable to estimate and control our contract costs, fail to
adequately perform to our clients expectations, fail to
procure third-party subcontractors, heavy equipment and
materials or fail to adequately secure funding for our projects,
our profits, revenues and growth over the long-term would
decline and such a decline could significantly affect the fair
value assessment of our reporting units and cause our goodwill
to become impaired.
At the March 1, 2010 testing date, our annual review did
not indicate an impairment of goodwill for any of our reporting
units and all of our reporting units had fair values in excess
of carrying values by more than 10%. The resulting fair values
provided valuations that, in aggregate, reasonably reconciled to
our market capitalization, taking into account observable
control premiums. No events or changes in circumstances have
occurred that would indicate an impairment of goodwill since the
annual testing date.
See Note 8 Goodwill and Other Intangibles to
our consolidated financial statements beginning on
page F-2
for additional information related to our goodwill impairment
reviews.
We also perform an analysis on our intangible assets to test for
impairment whenever events occur that indicate an impairment
could exist.
Pension
Plans
Our pension benefit obligations and expenses are calculated
using actuarial models and methods, in accordance with
ASC 715, Compensation Retirement Benefits. 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 4.75-4.90% at August 31, 2010, compared to
5.60% 5.75% at August 31, 2009, reflecting
lower interest rates experienced during the fiscal year. A
25 basis point increase in the discount rates would reduce
the benefit obligations on our foreign pension plans by
approximately $5.5 million.
64
The rate of return expected on our plan assets was
5.99% 7.0% at August 31, 2010 compared to
6.4% 7.0% at August 31, 2009. 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.
Multiemployer
Plans
We participate in various multiemployer pension plans under
union and industry-wide agreements. Generally, these plans
provide defined benefits to substantially all employees covered
by collective bargaining agreements. Under the Employee
Retirement Income Security Act (ERISA), a contributor to a
multiemployer plan may be liable, upon termination or withdrawal
from a plan, for its proportionate share of a plans
unfunded vested liability. We recognize expense in connection
with these plans as contributions are funded. Moreover, if we
were to exit certain markets or otherwise cease making
contributions to these funds, we might trigger a substantial
withdrawal liability. Based on the most recent information
available to us, we believe that the present value of actuarial
accrued liabilities in one of these multiemployer plans exceeds
the value of the assets held in trust to pay benefits. As a
result, our contributions in the future might increase. Any
adjustment for withdrawal liability will be recorded when it is
probable that a liability exists and can be reasonably estimated.
Recent
Accounting Guidance
For a discussion of recent accounting guidance and the expected
impact that the guidance could have on our consolidated
financial statements, see Note 1 Description of
Business and Summary of Significant Accounting Policies 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
speculative or trading purposes. 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 $1,095.0 million
unexpired limit of the Restated Credit Agreement. Although there
were no borrowings as of August 31, 2010, the interest rate
that would have applied to any borrowings under the Facility was
4.6%. For further discussion, see Note 9 Debt
and Revolving Lines of Credit included in consolidated financial
statements beginning on
page F-2.
At August 31, 2010, we have outstanding variable rate
Westinghouse bonds (face value billion JPY) with a coupon rate
of 0.70% above the sixth-month JPY LIBOR rate (0.44% as of
August 31, 2010). We have entered into an interest rate
swap agreement with a major bank 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
repayments and related weighted average interest rates by
expected maturity dates. The information is presented in
U.S. Dollar
65
equivalents, which is our reporting currency. The table is
denominated in millions of U.S. Dollars and is accurate as
of August 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Dates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
4.5
|
|
|
$
|
0.3
|
|
|
$
|
427.2
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
432.3
|
|
|
$
|
607.9
|
|
Average interest rate
|
|
|
5.9
|
%
|
|
|
6.1
|
%
|
|
|
2.2
|
%
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate
|
|
|
|
|
|
|
|
|
|
|
653.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
653.1
|
|
|
$
|
918.3
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010.
Foreign
Currency Exchange Rate Risk
During fiscal year 2007, we issued the JPY-denominated
Westinghouse Bonds in connection with our Investment in
Westinghouse. These bonds, which have an aggregate face value of
JPY128.98 billion (or $1.52 billion as of
August 31, 2010), 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 in full, would 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 7 Equity
Method Investments and Note 9 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, 2010, 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 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, 2010.
|
|
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 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, 2010 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, 2010, 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 28, 2010, 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, 2010, that have materially affected, or are
reasonable likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Directors
J. M. Bernhard, Jr., age 56, 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.
James F. Barker, age 63, 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 73, has served as a director
since July 2007. Mr. Capps served as Chief Executive
Officer of Dominion Resources, Inc. (NYSE: D) from January
2000 to December 2005; as President from September 1995 to
December 2003; as Chairman from September 1995 to January 2000;
as Vice Chairman of the Board from January 2000 to August 2000;
and as President and Chief Executive Officer from September 1995
to January 2000. Dominion Resources is a power and energy
company that supplies electricity, natural gas and other energy
sources, and operates generation facilities. Mr. Capps is a
member of the boards of directors of Amerigroup Corp. of
Virginia Beach, a publicly-held, managed-health care company,
and of 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 62, 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.
68
David W. Hoyle, age 71, has served as a director
since January 1995. For the past 25 years, he has been
self-employed, primarily as a real estate developer. From 1992
until 2010, he served as a Senator in the North Carolina
General Assembly. In October 2010, he was sworn in as Secretary
of Revenue for the State of North Carolina. Senator Hoyle
is the Chairman of the board of directors of Citizens South
Banking Corporation, a bank holding company, and is the Chairman
Emeritus 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 68, has served as a director
since August 2006. Mr. Mancuso was named Vice President and
Chief Financial Officer of Computer Services Corporation (NYSE:
CSC), a publicly-held leading provider of information technology
and professional services to large corporations and governments,
on December 1, 2008. In June 2006, after
13 years service, Mr. Mancuso retired from
General Dynamics Corporation (NYSE: GD), 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; he served as its 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 59, 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 61, was appointed to a
newly-created eighth director position by our Board on
April 22, 2009. Mr. Tritch is the retired Chairman of
Westinghouse Electric Company, a group company of Toshiba
Corporation, and has served in that capacity from July 1,
2008, to July 1, 2010. Westinghouse is a pioneering nuclear
power company and a leading supplier of nuclear plant products
and technologies to utilities throughout the world. From July
2002 to July 2008, Mr. Tritch served as President and Chief
Executive Officer of Westinghouse. Mr. Tritch had 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 Board of Trustees at the
University of Pittsburgh; a member of the Board of Trustees for
the Senator John Heinz History Center in Pittsburgh; and a
member of the board of directors of Koppers Holdings, Inc.
(NYSE: KOP), a publicly-held company and a leading producer of
carbon compounds and treated wood products, headquartered in
Pittsburgh, Pennsylvania. He is also a member of the Board of
PaR Systems, a privately-held robotic systems supplier,
headquartered in Minneapolis, Minnesota, and a director of
several charitable organizations.
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.
|
|
|
56
|
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer
|
George P. Bevan
|
|
|
63
|
|
|
President of the Environmental & Infrastructure (E&I)
Group
|
David L. Chapman, Sr.
|
|
|
65
|
|
|
President of the Fabrication & Manufacturing (F&M)
Group
|
John Donofrio
|
|
|
48
|
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Brian K. Ferraioli
|
|
|
55
|
|
|
Executive Vice President and Chief Financial Officer
|
Gary P. Graphia
|
|
|
48
|
|
|
Executive Vice President and Chief Operating Officer
|
Michael J. Kershaw
|
|
|
61
|
|
|
Senior Vice President and Chief Accounting Officer
|
Louis J. Pucher
|
|
|
67
|
|
|
President of the Energy & Chemicals (E&C) Group
|
Clarence Ray
|
|
|
63
|
|
|
Chief Executive Officer of Power 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.
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 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
70
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.
Clarence Ray currently serves as Chief Executive Officer
of our Power Group, having been appointed to this position on
September 14, 2010. Mr. Ray first joined us in
February 2007 as Executive Vice President of our Power Group and
held that position until appointed to his current position.
Prior to joining Shaw, from April 2006 to January 2007,
Mr. Ray served as Group Vice President, Construction and
Project Management and, from January 2004 until April 2006,
served as Group Vice President and Chief Procurement Officer of
the Procurement, Construction and EH&S for Duke Energy
Corporation, a highly diversified energy holding company
headquartered in Charlotte, North Carolina.
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 2011 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 2011 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 2011 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 2011 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 2011 Annual
Meeting of Shareholders.
|
|
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 Sheets as of March 31, 2010 and 2009
|
Combined Statements of Operations for the fiscal years ended
March 31, 2010 and 2009
|
Combined Statements of Stockholders Equity for the fiscal
years ended March 31, 2010 and 2009
|
Combined Statements of Cash Flows for the fiscal years ended
March 31, 2010 and 2009
|
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.
72
3. Exhibit Listing.
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
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
.1
|
|
Investment Agreement, dated as of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy Holdings Corporation (US) Inc.,
a Delaware corporation (the US Company), The Shaw
Group Inc. (the Company) and Nuclear Energy
Holdings, L.L.C. (NEH)
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
.2
|
|
Investment Agreement, dated as of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy Holdings (UK) Limited, a company
registered in England with registered number 5929672 (the
UK Company), the Company and NEH
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.1
|
|
Amendment to and Restatement of the Articles of Incorporation of
the Company dated February 23, 2007
|
|
Form 10-K/A
(Amendment No. 1) for the fiscal year ended
August 31, 2006
|
|
1-12227
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.2
|
|
Amended and Restated By-Laws of the Company dated as of January
30, 2007
|
|
Form 10-K/A
(Amendment No. 1) for the fiscal year ended
August 31, 2006
|
|
1-12227
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.1
|
|
Specimen Common Stock Certificate
|
|
Form 10-K
for the fiscal year ended August 31, 2007
|
|
1-12227
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2
|
|
Rights Agreement, dated as of July 9, 2001, between the Company
and First Union National Bank, as Rights Agent, including the
Form of Articles of Amendment to the Restatement of the Articles
of Incorporation of the Company as Exhibit A, the form of Rights
Certificate as Exhibit B and the form of the Summary of Rights
to Purchase Preferred Shares as Exhibit C (Exhibit A-1 and A-2)
|
|
Form 8-A
filed on July 30, 2001
|
|
1-12227
|
|
99.1
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.3
|
|
The Shaw Group Inc. hereby agrees to furnish copies of
instruments defining the rights of holders of long-term debt of
The Shaw Group Inc. and its consolidated subsidiaries to the
Commission upon request.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.1
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period February 28, 2009
|
|
1-12227
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.2
|
|
Form of Section 16 Officer Restricted Stock Unit Award Agreement
under The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period November 30, 2009
|
|
1-12227
|
|
10.66
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
Exhibit
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.3
|
|
Form of Employee Incentive Stock Option Award under The Shaw
Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period November 30, 2009
|
|
1-12227
|
|
10.67
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.4
|
|
Form of Employee Nonqualified Stock Option Award Agreement under
The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period November 30, 2009
|
|
1-12227
|
|
10.68
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.5
|
|
Form of Employee Restricted Stock Unit Award Agreement under The
Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period November 30, 2009
|
|
1-12227
|
|
10.69
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.6
|
|
Form of Canadian Employee Incentive Stock Option Agreement under
The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the period November 30, 2009
|
|
1-12227
|
|
10.70
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.7
|
|
The Shaw Group Inc. Stone & Webster Acquisition Stock
Option Plan
|
|
Form S-8
filed on June 12, 2001
|
|
333-62856
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.8
|
|
The Shaw Group Inc. 1993 Employee Stock Option Plan, amended and
restated through October 8, 2001
|
|
Form 10-K
for the fiscal year ended August 31, 2001
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.9
|
|
The Shaw Group Inc. 2005 Non-Employee Director Stock Incentive
Plan, amended and restated through November 2, 2007
|
|
Form 10-Q
for the quarter ended November 30, 2007
|
|
1-12227
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.10
|
|
Written description of the Companys compensation policies
and programs for non-employee directors
|
|
Proxy Statement for the 2009 Annual Meeting of Shareholders
contained in The Shaw Group Inc.s Schedule 14A filed
on December 24, 2008
|
|
1-12227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.11
|
|
Flexible Perquisites Program for certain executive officers
|
|
Form 8-K
filed on November 1, 2004
|
|
1-12227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.12
|
|
Written description of the Companys incentive compensation
policies programs for executive officers, including performance
targets for fiscal year end 2009
|
|
Proxy Statement for the 2009 Annual Meeting of Shareholders
contained in The Shaw Group Inc.s Schedule 14A filed
on December 17, 2009
|
|
1-12227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.13
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008, by and between the Company and J.M. Bernhard, Jr.
|
|
Form 8-K
filed on January 7, 2009
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.14
|
|
Amended and Restated Employment Agreement dated as of December
22, 2008 by and between the Company and Gary P. Graphia
|
|
Form 8-K
filed on December 24, 2008
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.15
|
|
Employee Indemnity Agreement dated as of July 12, 2007 between
the Company and Brian K. Ferraioli
|
|
Form 10-K
for the fiscal year ended August 31, 2007
|
|
1-12227
|
|
10.34
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.16
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 between the Company and Brian K. Ferraioli
|
|
Form 8-K
filed on January 7, 2009
|
|
1-12227
|
|
10.2
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
Exhibit
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.17
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 by and between the Company and George P. Bevan
|
|
Form 10-Q
for the quarter ended February 28, 2009
|
|
1-12227
|
|
10.13
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.18
|
|
Amendment to the Amended and Restated Employment Agreement dated
December 31, 2008, by and between the Company and
J.M. Bernhard, Jr
|
|
Form 10-Q
for the quarter ended May 31, 2010
|
|
1-12227
|
|
10.48
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.19
|
|
Employment Agreement of David L. Chapman, Sr. dated April 6, 2002
|
|
Form 8-K
filed December 24, 2003
|
|
1-12227
|
|
99.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.20
|
|
Amendment to Employment Agreement of David L. Chapman, Sr.,
dated November 29, 2004 (with an effective date of April 1, 2005)
|
|
Form 8-K
filed on January 12, 2005
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.21
|
|
Letter Agreement between the Company and David L. Chapman, Sr.
dated as of March 12, 2008
|
|
Form 8-K
filed on March 17, 2008
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.22
|
|
Offer Letter dated as of August 31, 2007, by and between the
Company and Michael J. Kershaw
|
|
Form 8-K
filed on December 21, 2007
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.23
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 by and between the Company and Lou Pucher
|
|
Form 10-Q
for the quarter ended February 28, 2009
|
|
1-12227
|
|
10.16
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.24
|
|
Second Amended and Restated Employment Agreement dated as of
July 22, 2010 by and between the Company and John Donofrio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.25
|
|
The Shaw Group Inc. 401(k) Plan
|
|
Form S-8
filed on May 4, 2004
|
|
333-115155
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.26
|
|
The Shaw Group Inc. 401(k) Plan for Certain Hourly Employees
|
|
Form S-8
filed on May 4, 2004
|
|
333-115155
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.27
|
|
The Shaw Group Deferred Compensation Plan
|
|
Form 10-Q
for the quarter ended February 28, 2009
|
|
1-12227
|
|
10.10
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.28
|
|
The Shaw Group Deferred Compensation Plan Form of Adoption
|
|
Form 10-Q
for the quarter ended February 28, 2009
|
|
1-12227
|
|
10.11
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.29
|
|
Trust Agreement, dated as of January 2, 2007 by and between the
Company and Fidelity Management Trust Company for The Shaw Group
Deferred Compensation Plan Trust
|
|
Form 10-Q
for the quarter ended February 28, 2007
|
|
1-12227
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.30
|
|
Asset Purchase Agreement, dated as of July 14, 2000, among Stone
& Webster, Incorporated, certain subsidiaries of Stone
& Webster, Incorporated and the Company
|
|
Form 8-K
filed on July 28, 2000
|
|
1-12227
|
|
2.1
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
Exhibit
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.31
|
|
Composite Asset Purchase Agreement, dated as of January 23,
2002, by and among the Company, The IT Group, Inc. and certain
subsidiaries of The IT Group, Inc., including the following
amendments:(i) Amendment No. 1, dated January 24, 2002, to Asset
Purchase Agreement, (ii) Amendment No. 2, dated January 29,
2002, to Asset Purchase Agreement, and (iii) a letter agreement
amending Section 8.04(a)(ii) of the Asset Purchase Agreement,
dated as of April 30, 2002, between The IT Group, Inc. and the
Company
|
|
Form 8-K
filed on May 16, 2002
|
|
1-12227
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.32
|
|
Amendment No. 3, dated May 2, 2002, to Asset Purchase Agreement
by and among the Company, The IT Group, Inc. and certain
subsidiaries of The IT Group, Inc.
|
|
Form 8-K
filed on May 16, 2002
|
|
1-12227
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.33
|
|
Amendment No. 4, dated May 3, 2002, to Asset Purchase Agreement
by and among the Company, The IT Group, Inc. and certain
subsidiaries of the IT Group, Inc.
|
|
Form 8-K
filed on May 16, 2002
|
|
1-12227
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.34
|
|
Put Option Agreement, dated as of October 13, 2006, between NEH
and Toshiba related to shares in the US acquisition company
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.35
|
|
Put Option Agreement, dated as of October 13, 2006, between NEH
and Toshiba related to shares in the UK acquisition company
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.36
|
|
Shareholders Agreement, dated as of October 4, 2006, by and
among 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)
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.37
|
|
Shareholders Agreement, dated as of October 4, 2006, by and
among 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
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.5
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
Exhibit
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.38
|
|
Bond Trust Deed, dated October 13, 2006, between NEH and The
Bank of New York, as trustee
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.39
|
|
Parent Pledge Agreement, dated October 13, 2006, between the
Company and The Bank of New York
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.40
|
|
Issuer Pledge Agreement, dated October 13, 2006, between NEH and
The Bank of New York
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.41
|
|
Deed of Charge, dated October 13, 2006, among NEH, The Bank of
New York, as trustee, and Morgan Stanley Capital Services Inc.,
as swap counterparty
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.42
|
|
Transferable Irrevocable Direct Pay Letter of Credit (Principal
Letter of Credit) effective October 13, 2006 of Bank of America
in favor of NEH
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.10
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.43
|
|
Transferable Irrevocable Direct Pay Letter of Credit (Interest
Letter of Credit) effective October 13, 2006 of Bank of America
in favor of NEH
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.11
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.44
|
|
Reimbursement Agreement dated as of October 13, 2006, between
the Company and Toshiba
|
|
Form 8-K
filed on October 18, 2006
|
|
1-12227
|
|
10.12
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.45
|
|
Amended and Restated Credit Agreement, dated as of September 24,
2009, among the Company, as borrower; the Companys
subsidiaries signatories thereto, as guarantors; BNP Paribas, as
administrative agent; and the other agents lenders signatory
thereto.
|
|
Form 8-K
filed on September 25, 2009
|
|
1-12227
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.46
|
|
Form of Nonemployee Director Nonqualified Stock Option Award
Agreement under The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the quarter ended February 28, 2010
|
|
1-12227
|
|
10.46
|
|
|
|
|
|
|
|
|
|
|
|
|
*10
|
.47
|
|
Form of Nonemployee Director Restricted Stock Unit Award
Agreement under The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
Form 10-Q
for the quarter ended February 28, 2010
|
|
1-12227
|
|
10.47
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
.1
|
|
The Shaw Group Inc. Code of Corporate Conduct dated June 2006
|
|
Form 10-K
for the fiscal year ended August 31, 2007
|
|
1-12227
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
.2
|
|
The Shaw Group Inc. Code of Ethics for Chief Executive Officer
and Senior Financial Officers (adopted as of December 16, 2003)
|
|
Form 10-K
for the fiscal year ended August 31, 2007
|
|
1-12227
|
|
14.2
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
Exhibit
|
|
|
|
|
|
Registration
|
|
or Other
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
.3
|
|
The Shaw Group Inc. Insider Trading Policy dated June 2006
|
|
Form 10-K
for the fiscal year ended August 31, 2007
|
|
1-12227
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
.1
|
|
Subsidiaries of The Shaw Group Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of KPMG LLP, independent registered public accounting
firm of The Shaw Group Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered public
accounting firm of Toshiba Nuclear Energy Holdings (US), Inc.
and Toshiba Nuclear Energy Holdings (UK) Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
78
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 28, 2010
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 and in the capacities and on
the dates 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 28, 2010
|
|
|
|
|
|
/s/ Brian
K. Ferraioli
Brian
K. Ferraioli
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Michael
J. Kershaw
Michael
J. Kershaw
|
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Albert
D. McAlister
Albert
D. McAlister
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ David
W. Hoyle
David
W. Hoyle
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ James
F. Barker
James
F. Barker
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Daniel
A. Hoffler
Daniel
A. Hoffler
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Michael
J. Mancuso
Michael
J. Mancuso
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Thomas
E. Capps
Thomas
E. Capps
|
|
Director
|
|
October 28, 2010
|
|
|
|
|
|
/s/ Stephen
R. Tritch
Stephen
R. Tritch
|
|
Director
|
|
October 28, 2010
|
79
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-69
|
|
Combined Financial Statements
|
|
|
|
|
|
|
|
F-70
|
|
|
|
|
F-71
|
|
|
|
|
F-72
|
|
|
|
|
F-73
|
|
|
|
|
F-74
|
|
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, 2010, 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 2010 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, 2010, 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, 2010 and 2009, 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, 2010, and our
report dated October 28, 2010 expressed an unqualified
opinion on those consolidated financial statements.
Baton Rouge, Louisiana
October 28, 2010
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, 2010
and 2009, 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, 2010. 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, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended August 31, 2010, 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, 2010, 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 28, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Baton Rouge, Louisiana
October 28, 2010
F-3
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Years Ended August 31, 2010,
2009 and 2008
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
7,000,779
|
|
|
$
|
7,279,690
|
|
|
$
|
6,998,011
|
|
Cost of revenues
|
|
|
6,414,826
|
|
|
|
6,672,260
|
|
|
|
6,411,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
585,953
|
|
|
|
607,430
|
|
|
|
586,033
|
|
Selling, general, and administrative expenses
|
|
|
288,014
|
|
|
|
308,683
|
|
|
|
276,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
297,939
|
|
|
|
298,747
|
|
|
|
309,705
|
|
Interest expense
|
|
|
(5,754
|
)
|
|
|
(4,919
|
)
|
|
|
(8,595
|
)
|
Interest expense on Japanese Yen-denominated bonds including
accretion and amortization
|
|
|
(38,121
|
)
|
|
|
(68,676
|
)
|
|
|
(37,351
|
)
|
Interest income
|
|
|
13,717
|
|
|
|
10,028
|
|
|
|
20,936
|
|
Foreign currency translation losses on Japanese Yen-denominated
bonds, net
|
|
|
(131,584
|
)
|
|
|
(198,077
|
)
|
|
|
(69,652
|
)
|
Other foreign currency transaction gains, net
|
|
|
3,320
|
|
|
|
1,002
|
|
|
|
6,627
|
|
Other income (expense), net
|
|
|
8,313
|
|
|
|
(5,516
|
)
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and earnings (losses) from
unconsolidated entities
|
|
|
147,830
|
|
|
|
32,589
|
|
|
|
220,490
|
|
Provision for income taxes
|
|
|
44,008
|
|
|
|
11,880
|
|
|
|
71,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before earnings from unconsolidated entities
|
|
|
103,822
|
|
|
|
20,709
|
|
|
|
149,106
|
|
Income from 20% Investment in Westinghouse, net of income taxes
|
|
|
6,986
|
|
|
|
9,240
|
|
|
|
15,026
|
|
Earnings from unconsolidated entities, net of income taxes
|
|
|
91
|
|
|
|
1,779
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
110,899
|
|
|
|
31,728
|
|
|
|
166,787
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
18,185
|
|
|
|
16,733
|
|
|
|
26,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Shaw
|
|
$
|
92,714
|
|
|
$
|
14,995
|
|
|
$
|
140,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Shaw per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.10
|
|
|
$
|
0.18
|
|
|
$
|
1.71
|
|
Diluted
|
|
$
|
1.08
|
|
|
$
|
0.18
|
|
|
$
|
1.67
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
84,041
|
|
|
|
83,244
|
|
|
|
82,063
|
|
Diluted
|
|
|
85,834
|
|
|
|
84,411
|
|
|
|
84,152
|
|
See accompanying notes to consolidated financial statements.
F-4
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of August 31, 2010 and 2009
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
912,736
|
|
|
$
|
1,029,138
|
|
Restricted and escrowed cash and cash equivalents
|
|
|
33,926
|
|
|
|
81,925
|
|
Short-term investments
|
|
|
551,960
|
|
|
|
342,219
|
|
Restricted short-term investments
|
|
|
321,056
|
|
|
|
80,000
|
|
Accounts receivable, including retainage, net
|
|
|
833,574
|
|
|
|
815,862
|
|
Inventories
|
|
|
228,891
|
|
|
|
262,284
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts, including claims
|
|
|
637,651
|
|
|
|
599,741
|
|
Deferred income taxes
|
|
|
319,712
|
|
|
|
270,851
|
|
Investment in Westinghouse
|
|
|
967,916
|
|
|
|
1,008,442
|
|
Prepaid expenses and other current assets
|
|
|
64,468
|
|
|
|
62,786
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,871,890
|
|
|
|
4,553,248
|
|
Investments in and advances to unconsolidated entities, joint
ventures, and limited partnerships
|
|
|
11,656
|
|
|
|
21,295
|
|
Property and equipment, at cost
|
|
|
777,739
|
|
|
|
636,402
|
|
Less accumulated depreciation
|
|
|
(293,098
|
)
|
|
|
(250,796
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
484,641
|
|
|
|
385,606
|
|
Goodwill
|
|
|
499,495
|
|
|
|
501,305
|
|
Intangible assets
|
|
|
18,040
|
|
|
|
20,957
|
|
Deferred income taxes
|
|
|
14,925
|
|
|
|
|
|
Other assets
|
|
|
95,622
|
|
|
|
74,763
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,996,269
|
|
|
$
|
5,557,174
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
878,984
|
|
|
$
|
859,753
|
|
Accrued salaries, wages and benefits
|
|
|
149,010
|
|
|
|
175,750
|
|
Other accrued liabilities
|
|
|
194,077
|
|
|
|
187,020
|
|
Advanced billings and billings in excess of costs and estimated
earnings on uncompleted contracts
|
|
|
1,468,432
|
|
|
|
1,308,325
|
|
Japanese Yen-denominated bonds secured by Investment in
Westinghouse
|
|
|
1,520,674
|
|
|
|
1,387,954
|
|
Interest rate swap contract on Japanese Yen-denominated bonds
|
|
|
33,242
|
|
|
|
31,369
|
|
Short-term debt and current maturities of long-term debt
|
|
|
4,479
|
|
|
|
15,399
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,248,898
|
|
|
|
3,965,570
|
|
Long-term debt, less current maturities
|
|
|
979
|
|
|
|
7,627
|
|
Deferred income taxes
|
|
|
59,282
|
|
|
|
26,152
|
|
Other liabilities
|
|
|
99,829
|
|
|
|
109,835
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,408,988
|
|
|
|
4,109,184
|
|
|
|
|
|
|
|
|
|
|
Contingencies and commitments (Note 14)
|
|
|
|
|
|
|
|
|
Shaw 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;
90,669,011 and 89,316,057 shares issued, respectively; and
84,913,062 and 83,606,808 shares outstanding, respectively
|
|
|
1,283,890
|
|
|
|
1,237,727
|
|
Retained earnings
|
|
|
516,365
|
|
|
|
423,651
|
|
Accumulated other comprehensive loss
|
|
|
(142,645
|
)
|
|
|
(121,966
|
)
|
Treasury stock, 5,755,949 and 5,709,249 shares, respectively
|
|
|
(117,453
|
)
|
|
|
(116,113
|
)
|
|
|
|
|
|
|
|
|
|
Total Shaw shareholders equity
|
|
|
1,540,157
|
|
|
|
1,423,299
|
|
Noncontrolling interests
|
|
|
47,124
|
|
|
|
24,691
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,587,281
|
|
|
|
1,447,990
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
5,996,269
|
|
|
$
|
5,557,174
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Treasury
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Treasury
|
|
|
Common
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Stock Shares
|
|
|
Stock Amount
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total Shaw Equity
|
|
|
Equity
|
|
|
Equity
|
|
|
Balance, September 1, 2007
|
|
|
86,711,957
|
|
|
|
(5,514,484
|
)
|
|
$
|
1,104,633
|
|
|
$
|
(105,048
|
)
|
|
$
|
(17,073
|
)
|
|
$
|
273,602
|
|
|
$
|
1,256,114
|
|
|
$
|
18,825
|
|
|
$
|
1,274,939
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,717
|
|
|
|
140,717
|
|
|
|
26,070
|
|
|
|
166,787
|
|
FIN 48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,943
|
)
|
|
|
(4,943
|
)
|
|
|
|
|
|
|
(4,943
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,837
|
|
|
|
|
|
|
|
6,837
|
|
|
|
|
|
|
|
6,837
|
|
Change in unrealized net gains (losses) on hedging activities,
net of tax of $775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
(1,360
|
)
|
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax of $4,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,467
|
|
|
|
|
|
|
|
6,467
|
|
|
|
|
|
|
|
6,467
|
|
Pension liability, not yet recognized in net periodic pension
expense, net of tax benefit of $736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,238
|
|
|
|
26,070
|
|
|
|
169,308
|
|
Exercise of options
|
|
|
2,492,602
|
|
|
|
|
|
|
|
41,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,816
|
|
|
|
|
|
|
|
41,816
|
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
37,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,464
|
|
|
|
|
|
|
|
37,464
|
|
Stock-based compensation
|
|
|
(8,658
|
)
|
|
|
(145,976
|
)
|
|
|
21,001
|
|
|
|
(9,903
|
)
|
|
|
|
|
|
|
|
|
|
|
11,098
|
|
|
|
|
|
|
|
11,098
|
|
Contributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050
|
|
|
|
1,050
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,863
|
)
|
|
|
(16,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2008
|
|
|
89,195,901
|
|
|
|
(5,660,460
|
)
|
|
$
|
1,204,914
|
|
|
$
|
(114,951
|
)
|
|
$
|
(9,609
|
)
|
|
$
|
409,376
|
|
|
$
|
1,489,730
|
|
|
$
|
29,082
|
|
|
$
|
1,518,812
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,995
|
|
|
|
14,995
|
|
|
|
16,733
|
|
|
|
31,728
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,339
|
)
|
|
|
|
|
|
|
(10,339
|
)
|
|
|
|
|
|
|
(10,339
|
)
|
Change in unrealized net gains (losses) on hedging activities,
net of tax benefit of $8,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,857
|
)
|
|
|
|
|
|
|
(13,857
|
)
|
|
|
|
|
|
|
(13,857
|
)
|
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax benefit of $50,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,717
|
)
|
|
|
|
|
|
|
(80,717
|
)
|
|
|
|
|
|
|
(80,717
|
)
|
Pension liability, not yet recognized in net periodic pension
expense, net of tax benefit of $6,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,362
|
)
|
|
|
16,733
|
|
|
|
(80,629
|
)
|
Adjustment for Westinghouses cumulative effect upon
initial adoption of SFAS 158 (codified in ASC 715),
net of tax benefit of $462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720
|
)
|
|
|
(720
|
)
|
|
|
|
|
|
|
(720
|
)
|
Exercise of options
|
|
|
76,828
|
|
|
|
|
|
|
|
1,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,233
|
|
|
|
|
|
|
|
1,233
|
|
Shares exchanged for taxes on stock based compensation
|
|
|
(13,106
|
)
|
|
|
(48,789
|
)
|
|
|
(315
|
)
|
|
|
(1,162
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,477
|
)
|
|
|
|
|
|
|
(1,477
|
)
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,472
|
)
|
|
|
|
|
|
|
(1,472
|
)
|
Stock-based compensation
|
|
|
56,434
|
|
|
|
|
|
|
|
33,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,367
|
|
|
|
|
|
|
|
33,367
|
|
Contributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,124
|
)
|
|
|
(21,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2009
|
|
|
89,316,057
|
|
|
|
(5,709,249
|
)
|
|
$
|
1,237,727
|
|
|
$
|
(116,113
|
)
|
|
$
|
(121,966
|
)
|
|
$
|
423,651
|
|
|
$
|
1,423,299
|
|
|
$
|
24,691
|
|
|
$
|
1,447,990
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,714
|
|
|
|
92,714
|
|
|
|
18,185
|
|
|
|
110,899
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,610
|
)
|
|
|
|
|
|
|
(5,610
|
)
|
|
|
|
|
|
|
(5,610
|
)
|
Change in unrealized net gains (losses) on hedging activities,
net of tax of $729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,144
|
)
|
|
|
|
|
|
|
(1,144
|
)
|
|
|
|
|
|
|
(1,144
|
)
|
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax of $7,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,640
|
)
|
|
|
|
|
|
|
(11,640
|
)
|
|
|
|
|
|
|
(11,640
|
)
|
Pension liability, not yet recognized in net periodic pension
expense, net of tax of $2,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,831
|
)
|
|
|
|
|
|
|
(2,831
|
)
|
|
|
|
|
|
|
(2,831
|
)
|
Unrealized loss on securities, net of tax of $348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546
|
|
|
|
|
|
|
|
546
|
|
|
|
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,035
|
|
|
|
18,185
|
|
|
|
90,220
|
|
Exercise of options
|
|
|
784,124
|
|
|
|
|
|
|
|
16,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,226
|
|
|
|
|
|
|
|
16,226
|
|
Shares exchanged for taxes on stock based compensation
|
|
|
(225,018
|
)
|
|
|
(46,700
|
)
|
|
|
(6,576
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,916
|
)
|
|
|
|
|
|
|
(7,916
|
)
|
Tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
1,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,590
|
|
|
|
|
|
|
|
1,590
|
|
Stock-based compensation
|
|
|
793,848
|
|
|
|
|
|
|
|
34,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,923
|
|
|
|
|
|
|
|
34,923
|
|
Acquisition of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,030
|
|
|
|
10,030
|
|
Contributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,975
|
|
|
|
8,975
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,757
|
)
|
|
|
(14,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2010
|
|
|
90,669,011
|
|
|
|
(5,755,949
|
)
|
|
$
|
1,283,890
|
|
|
$
|
(117,453
|
)
|
|
$
|
(142,645
|
)
|
|
$
|
516,365
|
|
|
$
|
1,540,157
|
|
|
|
47,124
|
|
|
$
|
1,587,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
THE SHAW
GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Years Ended August 31, 2010,
2009 and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
110,899
|
|
|
$
|
31,728
|
|
|
$
|
166,787
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
62,787
|
|
|
|
55,534
|
|
|
|
47,266
|
|
Provision for (benefit from) deferred income taxes
|
|
|
(14,507
|
)
|
|
|
(78,906
|
)
|
|
|
(7,231
|
)
|
Stock-based compensation expense
|
|
|
34,923
|
|
|
|
33,367
|
|
|
|
21,001
|
|
Earnings from unconsolidated entities, net of taxes
|
|
|
(7,077
|
)
|
|
|
(11,019
|
)
|
|
|
(18,276
|
)
|
Distributions from unconsolidated entities
|
|
|
24,678
|
|
|
|
29,972
|
|
|
|
16,927
|
|
Foreign currency transaction losses, net
|
|
|
128,264
|
|
|
|
197,075
|
|
|
|
63,025
|
|
Impairment of investments in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
1,686
|
|
Impairment of fixed assets and goodwill
|
|
|
421
|
|
|
|
5,806
|
|
|
|
3,733
|
|
Amortization of original issue discount and deferred offering
costs on Westinghouse Bonds
|
|
|
|
|
|
|
34,991
|
|
|
|
6,814
|
|
Other noncash Items
|
|
|
12,976
|
|
|
|
5,676
|
|
|
|
(4,239
|
)
|
Changes in assets and liabilities, net of effects of
acquisitions and consolidation of variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(30,231
|
)
|
|
|
(188,648
|
)
|
|
|
93,740
|
|
(Increase) decrease in costs and estimated earnings in excess of
billings on uncompleted contracts, including claims
|
|
|
(31,643
|
)
|
|
|
(136,090
|
)
|
|
|
(96,647
|
)
|
(Increase) in inventories
|
|
|
33,355
|
|
|
|
(20,996
|
)
|
|
|
(56,986
|
)
|
(Increase) decrease in other current assets
|
|
|
(13,885
|
)
|
|
|
3,113
|
|
|
|
(4,085
|
)
|
Increase in accounts payable
|
|
|
22,751
|
|
|
|
129,446
|
|
|
|
183,462
|
|
Increase (decrease) in accrued liabilities
|
|
|
(40,630
|
)
|
|
|
54,072
|
|
|
|
8,756
|
|
Increase in advanced billings and billings in excess of costs
and estimated earnings on uncompleted contracts
|
|
|
166,104
|
|
|
|
570,926
|
|
|
|
182,394
|
|
Net change in other assets and liabilities
|
|
|
7,395
|
|
|
|
21,929
|
|
|
|
32,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
466,580
|
|
|
|
737,976
|
|
|
|
640,738
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(194,382
|
)
|
|
|
(132,216
|
)
|
|
|
(129,166
|
)
|
Proceeds from sale of businesses and assets, net of cash
surrendered
|
|
|
24,297
|
|
|
|
25,816
|
|
|
|
24,022
|
|
Sales of restricted short-term investments
|
|
|
90,609
|
|
|
|
|
|
|
|
|
|
Purchases of variable interest entity debt
|
|
|
(19,915
|
)
|
|
|
|
|
|
|
|
|
Investment in, advances to, and return of capital from
unconsolidated entities and joint ventures
|
|
|
15,197
|
|
|
|
(3,670
|
)
|
|
|
(2,927
|
)
|
Cash withdrawn from restricted and escrowed cash
|
|
|
156,409
|
|
|
|
247,556
|
|
|
|
180,874
|
|
Cash deposited into restricted and escrowed cash
|
|
|
(105,350
|
)
|
|
|
(320,294
|
)
|
|
|
(169,618
|
)
|
Purchases of short-term investments
|
|
|
(1,117,553
|
)
|
|
|
(342,219
|
)
|
|
|
|
|
Proceeds from sale and redemption of short-term investments
|
|
|
899,835
|
|
|
|
|
|
|
|
|
|
Purchases of restricted short-term investments
|
|
|
(307,483
|
)
|
|
|
(80,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(558,336
|
)
|
|
|
(605,027
|
)
|
|
|
(96,815
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,340
|
)
|
|
|
(1,162
|
)
|
|
|
(9,903
|
)
|
Repayment of debt and capital leases
|
|
|
(24,343
|
)
|
|
|
(10,856
|
)
|
|
|
(7,527
|
)
|
Repayment of deferred financing costs
|
|
|
(9,721
|
)
|
|
|
|
|
|
|
(1,815
|
)
|
Issuance of common stock
|
|
|
16,226
|
|
|
|
1,233
|
|
|
|
41,816
|
|
Excess tax benefits from exercise of stock options and vesting
of restricted stock
|
|
|
1,934
|
|
|
|
1,459
|
|
|
|
36,879
|
|
Contributions received from noncontrolling interest
|
|
|
8,975
|
|
|
|
|
|
|
|
1,050
|
|
Distributions paid to noncontrolling interest
|
|
|
(14,757
|
)
|
|
|
(21,124
|
)
|
|
|
(16,863
|
)
|
Proceeds from revolving credit agreements
|
|
|
|
|
|
|
|
|
|
|
16,596
|
|
Repayments of revolving credit agreements
|
|
|
|
|
|
|
|
|
|
|
(16,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(23,026
|
)
|
|
|
(30,450
|
)
|
|
|
43,401
|
|
Effects of foreign exchange rate changes on cash
|
|
|
(1,620
|
)
|
|
|
(1,117
|
)
|
|
|
(927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(116,402
|
)
|
|
|
101,382
|
|
|
|
586,397
|
|
Cash and cash equivalents beginning of year
|
|
|
1,029,138
|
|
|
|
927,756
|
|
|
|
341,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
912,736
|
|
|
$
|
1,029,138
|
|
|
$
|
927,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to 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.
We have evaluated all events and transactions occurring after
the balance sheet date but before the financial statements were
issued and have included the appropriate disclosures in this
Annual Report on
Form 10-K.
Basis
of Presentation and Preparation
The accompanying consolidated financial statements include the
accounts of The Shaw Group Inc., its majority owned
subsidiaries, and any variable interest entities (VIEs) of which
we are the primary beneficiary (See Note 7). 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. The cost method is used when we do not
have the ability to exert significant influence. 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 engineering, procurement and construction (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 7 Equity Method
Investments for further discussion.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Marketable
Securities
We categorize our marketable securities as either
trading or
available-for-sale.
These investments are recorded at fair value and are classified
as short-term investments in the accompanying consolidated
balance sheets. Investments are made based on the Companys
investment policy and restrictions contained in our credit
facility, which specifies eligible investments and credit
quality requirements.
Trading securities are investments held in trust to satisfy
obligations under our deferred compensation plans. The changes
in fair values on trading securities are recorded as a component
of net income in other income (expense), net.
Available-for-sale
securities consist of mutual funds, U.S. government and
agency obligations, corporate notes and bonds, foreign
government and foreign government guaranteed securities, and
certificates of deposit at major banks. The changes in fair
values, net of applicable taxes, on
available-for-sale
securities are recorded as unrealized gains (losses) as a
component of accumulated other comprehensive income (loss) in
stockholders equity. When fair value of an investment
decreases below its cost or amortized cost and in
managements opinion that decline is
other-than-temporary,
the investments cost or amortized cost is written down to
its fair value and the amount written down is recorded in the
statement of operations in other income (expense), net.
Management considers a decline other than temporary
if, among other relevant factors, the fair value is
significantly below cost for a period of time. The amount of any
write-down is determined by the difference between cost or
amortized cost of the investment and its fair value at the time
management makes the
other-than-temporary
determination. During the fiscal year ended August 31,
2010, no
other-than-temporary
impairment was recognized.
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.
F-10
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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 expense 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),
net.
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,
F-11
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
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
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
ASC 350, Intangibles Goodwill and Other. We
operate our business using reportable segments as defined by
ASC 280, Segment Reporting. 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 2010 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 13% to 15% 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.
F-12
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 ASC 710,
Compensation General. Trading assets are stated at
fair value, with gains or losses resulting 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
Our revenues are primarily derived from long-term contracts that
are reported on the
percentage-of-completion
method of accounting in accordance with
ASC 605-35,
Construction-Type and Production-Type 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
F-13
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
ASC 605. 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
F-14
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010 and 2009 was
$8.2 million and $13.0 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
and revenue recognition guidelines of ASC 605. 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.
F-15
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Selling,
General, and Administrative Expenses
Our selling, general, and administrative (SG&A) expenses
represent overhead expenses that are not associated with the
execution of the contracts. SG&A expenses include charges
for such items as executive management, business development,
proposal expenses, 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 ASC 815, Derivatives and Hedging, which
requires entities to recognize all derivative instruments as
either assets or liabilities on the balance sheet at their
respective fair values. 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.
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 $2.8 million, $(2.7) million, and
$(1.5) million at August 31, 2010, 2009, and 2008,
respectively.
Other
Comprehensive Income
ASC 220, Comprehensive Income, establishes standards for
reporting and displaying comprehensive income and its components
in the consolidated financial statements. We report, net of tax,
foreign currency translation adjustments, unrealized gains and
losses on derivative instruments accounted for as cash flow
hedges, changes in our net pension liabilities, our equity in
Westinghouses pre-tax other comprehensive income, and
unrealized gains and losses on securities as components of other
comprehensive income.
Foreign
Currency Translation
Our significant foreign subsidiaries maintain their accounting
records in their local currency (primarily British pounds,
Mexican pesos, and Canadian dollars). 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. The net effect of foreign currency translation
adjustments is included in stockholders equity as a
component of accumulated other comprehensive income in the
accompanying Consolidated Balance Sheets. See
Note 19 Other Comprehensive Income (Loss) for
additional information.
Foreign currency transaction gains or losses are credited or
charged to income as incurred. Transaction gains reflected in
income were $3.3 million, $1.0 million, and
$6.6 million for the fiscal years 2010, 2009, and 2008,
respectively. Additionally, during fiscal years 2010, 2009 and
2008, we incurred foreign currency translation losses on the
Westinghouse Bonds associated with our investment in
Westinghouse of $131.6 million, $198.1 million, and
$69.7 million, respectively.
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
F-16
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010 and August 31, 2009, liabilities for
unpaid and incurred but not reported claims for all insurance
programs totaling $56.3 million and $53.0 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 9 Debt and
Revolving Lines of Credit for additional information.
Share-Based
Compensation
We account for share-based payments, including grants of
employee stock options and restricted stock-based awards and
purchases under employee stock purchase plans, in accordance
with ASC 718, Compensation-Stock Compensation, which
requires that all share-based payments (to the extent they are
compensatory) be recognized as an expense in our consolidated
statement of operations based on their fair values and the
estimated number of shares we ultimately expect to vest. In
addition, we have applied certain of the provisions of the
SECs SAB No. 107 (Topic 14), as amended, that is
also made a part of ASC 718, in our accounting for
stock-based compensation. We recognize stock-based compensation
expense on a straight-line basis over the service period of the
award, which is generally four years.
ASC 718 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 $34.9 million,
$33.4 million and $21.0 million for the years ended
August 31, 2010, 2009, and 2008, respectively. The total
income tax benefit recognized in the statements of operations
for share-based compensation arrangements was $9.6 million,
$9.5 million, and $8.2 million for the years ended
August 31, 2010, 2009, and 2008, respectively.
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 ASC 740 relating to uncertain tax positions
as of September 1, 2007, we recognize the effect of income
tax positions only if those positions 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.
F-17
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Contingencies
and Commitments
Liabilities for loss contingencies, including environmental
remediation costs not within the scope of ASC 410, Asset
Retirement and Environmental 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
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 had $52.4 million of such real estate assets recorded in
other assets on the accompanying balance sheets at
August 31, 2010, as compared to $17.5 million at
August 31, 2009. The increase of $35.0 million relates
to the consolidation in the current fiscal year of a VIE
formerly accounted for under the equity method. 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 4 Fair Value Measurements for
additional information.
Recently
Adopted Accounting Guidance
In June 2009, the Financial Accounting Standards Board (FASB)
issued the Accounting Standards Codification
tm
(ASC) as the sole source of authoritative nongovernmental GAAP.
The ASC supersedes all non-grandfathered, non-SEC accounting
literature but does not change how we account for transactions
or the nature of related disclosures made. When referring to
guidance issued by the FASB, we now reference ASC topics rather
than individual pronouncements. This change affects financial
statements issued for interim and annual periods ending after
September 15, 2009 and did not have a material effect on
our consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance for
business combinations in accordance with ASC 805, Business
Combinations. The guidance retains the fundamental requirements
that companies use the acquisition method of accounting
(previously referred to as the purchase method of accounting)
for all business combinations but introduced a number of
changes, including the way assets and liabilities are valued,
recognized, and measured as a result of business combinations.
ASC 805 requires an acquisition date fair value measurement
of assets acquired and liabilities assumed. It also requires the
fair value capitalization of in-process research and development
and requires acquisition-related costs to be expensed as
incurred. Adoption of ASC 805 did not have a material
impact on our consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance
that changes the accounting and reporting for non-controlling
interests in accordance with ASC 810, Consolidation.
Non-controlling interests are now reported as a component of
equity separate from the parents equity, and purchases or
sales of equity interests
F-18
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that do not result in a change in control are to be accounted
for as equity transactions. In addition, net income attributable
to a non-controlling interest is now included in net income, and
upon a loss of control, the interest sold, as well as any
interest retained, is now recorded at fair value with any gain
or loss recognized in net income. Adoption of ASC 810 did
not have a material impact on our consolidated financial
statements.
On September 1, 2009, we adopted the authoritative guidance
on fair value measurement for nonfinancial assets and
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually) in accordance with ASC 820, Fair Value
Measurements and Disclosures. Adoption of ASC 820 did not
have a material impact on our consolidated financial statements.
On September 1, 2009, we adopted Accounting Standards
Update (ASU)
2009-05,
Measuring Liabilities at Fair Value. ASU
2009-05,
issued August 2009, provides amendments to ASC 820, Fair
Value Measurements and Disclosure, for the fair value
measurement of liabilities. Adoption of ASU
2009-05 had
no impact on our consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance on
share-based payments in accordance with ASC 260, Earnings
per Share. ASC 260 addresses whether instruments granted in
share-based payment transactions are participating securities
prior to vesting and therefore, need to be included in the
earnings allocation in computing earnings per share. Adoption of
ASC 260 had no impact on our consolidated financial
statements.
On September 1, 2009, we adopted authoritative guidance on
accounting for nonrefundable maintenance deposits in accordance
with ASC 840, Leases. ASC 840 requires a maintenance
deposit paid by a lessee under an arrangement accounted for as a
lease and refunded only if the lessee performs specified
maintenance activities, to be accounted for as a deposit asset.
Adoption of ASC 840 did not have a material impact on our
consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance for
collaborative arrangements in accordance with ASC 808,
Collaborative Arrangements. ASC 808 applies to participants
in collaborative arrangements that are conducted without the
creation of a separate legal entity for the arrangement.
Adoption of ASC 808 had no impact on our consolidated
financial statements.
On September 1, 2009, we adopted authoritative guidance on
pension disclosures in accordance ASC 715,
Compensation Retirement Benefits. ASC 715
provides 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. We have
amended our disclosures accordingly in this
Form 10-K.
On September 1, 2009, we adopted authoritative guidance on
fair value disclosures in accordance with ASC 825,
Financial Instruments. ASC 825 requires disclosures about
fair value of financial instruments in interim financial
statements as well as in annual financial statements. Adoption
of ASC 825 did not have a material impact on our
consolidated financial statements.
On February 1, 2010, we adopted ASU
2010-02,
Consolidation (Topic 810) Accounting and Reporting
for Decreases in Ownership of a Subsidiary A Scope
Clarification. ASU
2010-02,
issued January 2010, clarifies the scope of the decrease in
ownership provisions of Subtopic
810-10 and
related guidance. The amendments in ASU
2010-02
expand the disclosure requirements about deconsolidation of a
subsidiary or derecognition of a group of assets. ASU
2010-02
should be applied retrospectively to the first period that FASB
Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB 51 (now
included in Subtopic
810-10) is
adopted. Adoption of ASU
2010-02 had
no impact on our consolidated financial statements as we have
had no such decreases in ownership of our subsidiaries.
F-19
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 1, 2010, we adopted ASU
2010-01,
Equity (Topic 505) Accounting for Distributions to
Shareholders with Components of Stock and Cash. ASU
2010-01,
issued January 2010, clarifies that the stock portion of a
distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in
earnings per share prospectively and is not a stock dividend.
ASU 2010-01
is effective for interim and annual periods ending on or after
December 15, 2009, and should be applied on a retrospective
basis. Adoption of ASU
2010-01 had
no impact on our consolidated financial statements.
On March 1, 2010, we adopted ASU
2010-06,
Improving Disclosure about Fair Value Measurements. ASU
2010-06,
issued January 2010, requires additional disclosures regarding
fair value measurements, amends disclosures about
post-retirement benefit plan assets, and provides clarification
regarding the level of disaggregation of fair value disclosures
by investment class. The ASU is effective for interim and annual
reporting periods beginning after December 15, 2009, except
for certain Level 3 activity disclosure requirements that
will be effective for reporting periods beginning after
December 15, 2010. We have amended our disclosures
accordingly in this
Form 10-K.
Recent
Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued ASU
2009-13,
Multiple Deliverable Revenue Arrangements, a consensus of the
FASB Emerging Issues Task Force. This update provides amendments
to the criteria of ASC 605, Revenue Recognition, for
separating consideration in multiple-deliverable arrangements.
The amendments to this update establish a hierarchy for
determining the selling price of a deliverable.
ASU 2009-13
is effective prospectively for financial statements issued for
years beginning on or after June 15, 2010. Since the
majority of our revenues are derived from contracts outside the
scope of ASU
2009-13, the
adoption of ASU
2009-13 will
not have a material impact on our consolidated financial
statements.
In June 2009, the FASB issued ASU
2009-17. ASU
2009-17
amends previous GAAP and requires a company to perform an
analysis to determine whether its interest in a variable
interest entity gives it a controlling financial interest. 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. ASU
2009-17
eliminates the quantitative approach previously required for
determining the primary beneficiary of a variable interest
entity, requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity, and
significantly enhances disclosures. We will apply ASU
2009-17
prospectively effective September 1, 2010. ASU
2009-17 will
not have a material impact on our consolidated financial
statements.
Reclassifications
Certain reclassifications have been made to prior periods
consolidated financial statements in order to conform to the
2010 presentation.
|
|
Note 2
|
Cash,
Cash Equivalents and Short-term Investments
|
We consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Our major categories of investments are as follows:
Money market mutual funds We invest in money market
funds that seek to maintain a stable net asset value of $1 per
share, while limiting overall exposure to credit, market and
liquidity risks.
Certificates of deposit Certificates of deposit are
short-term interest-bearing debt instruments issued by various
financial institutions with which we have an established banking
relationship.
F-20
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Bond mutual funds We invest in publicly traded and
valued bond funds.
Foreign government and foreign government guaranteed
securities We invest in foreign government and
foreign government guaranteed securities that are publicly
traded and valued. Losses in this category are primarily due to
market liquidity and interest rate increases.
Corporate notes and bonds We evaluate our corporate
debt securities based on a variety of factors including, but not
limited to, the credit rating of the issuer. On the date of
settlement, our corporate debt securities are rated at least
A by Standard & Poors Rating Service
(S&P) and have maturities not exceeding two years. Losses
in this category are due primarily to market liquidity and
interest rate increases.
At August 31, 2010, the components of our cash, cash
equivalents, and short-term investments were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Recorded
|
|
|
Cash and
|
|
|
Short-term
|
|
|
|
Basis
|
|
|
Gain
|
|
|
(Loss)
|
|
|
Basis
|
|
|
Cash Equivalents
|
|
|
Investments
|
|
|
Cash
|
|
$
|
401,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
401,277
|
|
|
$
|
401,277
|
|
|
$
|
|
|
Money market mutual funds
|
|
|
509,781
|
|
|
|
|
|
|
|
|
|
|
|
509,781
|
|
|
|
509,781
|
|
|
|
|
|
Certificates of deposit
|
|
|
325,668
|
|
|
|
|
|
|
|
|
|
|
|
325,668
|
|
|
|
1,678
|
|
|
|
323,990
|
|
Available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond mutual funds
|
|
|
75,236
|
|
|
|
738
|
|
|
|
|
|
|
|
75,974
|
|
|
|
|
|
|
|
75,974
|
|
Foreign government and foreign government guaranteed securities
|
|
|
42,570
|
|
|
|
217
|
|
|
|
|
|
|
|
42,787
|
|
|
|
|
|
|
|
42,787
|
|
Corporate notes and bonds
|
|
|
109,270
|
|
|
|
320
|
|
|
|
(381
|
)
|
|
|
109,209
|
|
|
|
|
|
|
|
109,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,463,802
|
|
|
$
|
1,275
|
|
|
$
|
(381
|
)
|
|
$
|
1,464,696
|
|
|
$
|
912,736
|
|
|
$
|
551,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2009, the components of our cash, cash
equivalents, and short-term investments were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Recorded
|
|
|
Cash and Cash
|
|
|
Short-term
|
|
|
|
Basis
|
|
|
Gain
|
|
|
(Loss)
|
|
|
Basis
|
|
|
Equivalents
|
|
|
Investments
|
|
|
Cash and cash equivalents
|
|
$
|
1,029,138
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,029,138
|
|
|
$
|
1,029,138
|
|
|
$
|
|
|
Time deposits
|
|
|
342,219
|
|
|
|
|
|
|
|
|
|
|
|
342,219
|
|
|
|
|
|
|
|
342,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,371,357
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,371,357
|
|
|
$
|
1,029,138
|
|
|
$
|
342,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains and losses from sales of
available-for-sale
securities are determined using the specific identification
method and are included in other income (expense),
net. During the fiscal year ending August 31, 2010,
the proceeds and realized gains and losses were as follows (in
thousands):
|
|
|
|
|
Proceeds
|
|
$
|
447,707
|
|
Realized gains
|
|
$
|
2,372
|
|
Realized losses
|
|
$
|
(362
|
)
|
F-21
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There were no transfers of securities from one category to
another during the fiscal year ending August 31, 2010.
We evaluate whether unrealized losses on investments in
securities are
other-than-temporary,
and if we believe the unrealized losses are
other-than-temporary,
we record an impairment charge. No
other-than-temporary
impairment losses were recognized during the fiscal ending
August 31, 2010.
Gross unrealized losses on investment securities and the fair
value of those securities that have been in a continuous loss
position for which we have not recognized an impairment charge
at August 31, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Foreign government guaranteed securities
|
|
$
|
|
|
|
$
|
|
|
Corporate notes and bonds
|
|
|
12,186
|
|
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,186
|
|
|
$
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
At August 31, 2010, maturities of debt securities
classified as
available-for-sale
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Estimated
|
|
|
|
Basis
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
53,729
|
|
|
$
|
53,852
|
|
Due in one to two years
|
|
|
98,110
|
|
|
|
98,144
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
151,839
|
|
|
$
|
151,996
|
|
|
|
|
|
|
|
|
|
|
See Note 3 for information on our restricted and escrowed
cash and equivalents and restricted short-term investments.
|
|
Note 3
|
Restricted
and Escrowed Cash and Equivalents and Restricted Short-term
Investments
|
At August 31, 2010, the components of our restricted and
escrowed cash and equivalents and restricted short-term
investments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
|
|
|
Holding
|
|
|
Restricted and
|
|
|
Restricted
|
|
|
|
Recorded
|
|
|
Period
|
|
|
Escrowed Cash and
|
|
|
Short-term
|
|
|
|
Basis
|
|
|
(Loss)
|
|
|
Cash Equivalents
|
|
|
Investments
|
|
|
Cash
|
|
$
|
7,769
|
|
|
$
|
|
|
|
$
|
7,769
|
|
|
$
|
|
|
Money market mutual funds
|
|
|
26,157
|
|
|
|
|
|
|
|
26,157
|
|
|
|
|
|
Certificates of deposit
|
|
|
296,874
|
|
|
|
|
|
|
|
|
|
|
|
296,874
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and bond mutual funds
|
|
|
6,156
|
|
|
|
101
|
|
|
|
|
|
|
|
6,156
|
|
U.S. government and agency securities
|
|
|
4,350
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
4,350
|
|
Corporate notes and bonds
|
|
|
13,676
|
|
|
|
(304
|
)
|
|
|
|
|
|
|
13,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
354,982
|
|
|
$
|
(330
|
)
|
|
$
|
33,926
|
|
|
$
|
321,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At August 31, 2009, the components of our restricted and
escrowed cash and equivalents and restricted short-term
investments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
|
|
|
Holding
|
|
|
Restricted and
|
|
|
Restricted
|
|
|
|
Recorded
|
|
|
Period
|
|
|
Escrowed Cash and
|
|
|
Short-term
|
|
|
|
Basis
|
|
|
(Loss)
|
|
|
Cash Equivalents
|
|
|
Investments
|
|
|
Cash
|
|
$
|
81,925
|
|
|
$
|
|
|
|
$
|
81,925
|
|
|
$
|
|
|
Certificates of deposit
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,925
|
|
|
$
|
|
|
|
$
|
81,925
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our restricted and escrowed cash and equivalents and restricted
short-term investments were restricted for the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
Contractually required by projects
|
|
$
|
6,232
|
|
|
$
|
23,111
|
|
Voluntarily used to secure letters of credit
|
|
|
296,873
|
|
|
|
138,085
|
|
Secure contingent obligations in lieu of letters of credit
|
|
|
23,353
|
|
|
|
|
|
Assets held in trust and other
|
|
|
28,524
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
354,982
|
|
|
$
|
161,925
|
|
|
|
|
|
|
|
|
|
|
We are able to access cash we pledged to secure various letters
of credit by delivering to a third party a new letter of credit
under our credit facility.
|
|
Note 4
|
Fair
Value Measurements
|
We follow the authoritative guidance set forth in ASC 820,
Fair Value Measurements and Disclosures, for fair value
measurements relating to financial and nonfinancial assets and
liabilities, including presentation of required disclosures in
our condensed consolidated financial statements. This guidance
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the
measurement date. The guidance also establishes a fair value
hierarchy, which requires maximizing the use of observable
inputs when measuring fair value.
The three levels of inputs that may be used are:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Significant unobservable inputs
that are not corroborated by market data.
F-23
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
At August 31, 2010, our financial assets and liabilities
measured at fair value on a recurring basis were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Fair Value Measurements Using
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and Restricted Short-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
620,864
|
|
|
$
|
|
|
|
$
|
620,864
|
|
|
$
|
|
|
Stock and bond mutual funds
|
|
|
82,130
|
|
|
|
82,130
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
|
4,350
|
|
|
|
|
|
|
|
4,350
|
|
|
|
|
|
Foreign government and foreign government guaranteed securities
|
|
|
42,787
|
|
|
|
|
|
|
|
42,787
|
|
|
|
|
|
Corporate notes and bonds
|
|
|
122,885
|
|
|
|
|
|
|
|
122,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
873,016
|
|
|
$
|
82,130
|
|
|
$
|
790,886
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
33,242
|
|
|
$
|
|
|
|
$
|
33,242
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward assets
|
|
$
|
2,669
|
|
|
$
|
|
|
|
$
|
2,669
|
|
|
$
|
|
|
Other Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward liabilities
|
|
$
|
174
|
|
|
$
|
|
|
|
$
|
174
|
|
|
$
|
|
|
The following are the primary valuation methodologies used for
valuing our short-term and restricted short-term investments:
|
|
|
|
|
Corporate bonds and U.S. government bonds: Valued at quoted
prices in markets that are not active, broker dealer quotations,
or other methods by which all significant inputs are observable,
either directly or indirectly.
|
|
|
|
Foreign government and foreign government guaranteed securities:
Valued at quoted prices in markets that are not active, broker
dealer quotations, or other methods by which all significant
inputs are observable, either directly or indirectly.
|
|
|
|
Stock and bond mutual funds: Valued at the net asset value of
shares held at year end as quoted in the active market.
|
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 counterpartys
credit risk. Our counterparty to this instrument is a major
U.S. bank. As discussed in Note 9 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 transaction exchange exposures with foreign
currency derivative instruments denominated in our major
currencies, which are generally the currencies of the countries
in which we conduct the majority of our international business.
We utilize derivative instruments such as forward contracts to
manage forecasted cash flows denominated in foreign currencies
generally related to engineering and construction projects. Our
F-24
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 our cost of capital. Derivative liabilities are
valued using a discount rate that incorporates our credit risk.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring
Basis
Effective September 1, 2009, we adopted ASC 820, the
fair value measurement guidance for all nonfinancial assets and
liabilities recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. These assets and
liabilities include items such as goodwill and long lived assets
that are measured at fair value resulting from impairment, if
deemed necessary. During the fiscal year ending August 31,
2010, we did not record any fair value adjustments related to
those nonfinancial assets and liabilities measured at fair value
on a nonrecurring basis.
Effects
of Derivative Instruments on Income and Other Comprehensive
Income
Gains and losses related to derivative instruments have been
recognized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized
|
|
August 31,
|
|
|
|
in Income on Derivatives
|
|
2010
|
|
|
2009
|
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
Other Comprehensive Income (Loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(13.9
|
)
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other foreign currency transactions gains (losses), net
|
|
$
|
2.8
|
|
|
$
|
(2.7
|
)
|
Note 5
Accounts Receivable, Concentrations of Credit Risk, and
Inventories
Accounts
Receivable
Our accounts receivable, net of allowance for doubtful accounts,
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Trade accounts receivable, net
|
|
$
|
654,725
|
|
|
$
|
671,324
|
|
Unbilled accounts receivable
|
|
|
16,184
|
|
|
|
11,382
|
|
Retainage
|
|
|
162,665
|
|
|
|
133,156
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$
|
833,574
|
|
|
$
|
815,862
|
|
|
|
|
|
|
|
|
|
|
F-25
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):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance, September 1
|
|
$
|
28,269
|
|
|
$
|
27,391
|
|
Provision
|
|
|
15,668
|
|
|
|
25,355
|
|
Write offs
|
|
|
(21,061
|
)
|
|
|
(22,128
|
)
|
Other
|
|
|
(1,102
|
)
|
|
|
(2,349
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance, August 31
|
|
$
|
21,774
|
|
|
$
|
28,269
|
|
|
|
|
|
|
|
|
|
|
Included in our trade accounts receivable, net at
August 31, 2010, and 2009, were 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 challenged the appropriateness of
our invoiced amounts, and we are currently in litigation with
the government entity. The amounts we ultimately collect could
differ materially from amounts currently recorded.
At August 31, 2010, retainage above includes approximately
$110.0 million related to an air quality control project
for which completion of certain milestones is pending and for
which full retention release is anticipated. Additionally, at
August 31, 2010, we have approximately $74.8 million
included in trade receivables, net for this project, primarily
related to periodic costs and milestone reconciliation invoices.
While the client has questioned certain elements of our costs,
we believe contractual entitlement supports full recovery and
are seeking payment of amounts due.
Concentrations
of Credit
Amounts due from U.S. government agencies or entities were
$72.1 million and $110.3 million at August 31,
2010, and August 31, 2009, respectively. Costs and
estimated earnings in excess of billings on uncompleted
contracts include $309.3 million and $217.1 million at
August 31, 2010, and August 31, 2009, respectively,
related to the U.S. government agencies and related
entities.
Additionally, at August 31, 2010 and August 31, 2009,
respectively, we had approximately $110.0 million and
$94.6 million in retention and approximately
$74.8 million and $13.3 million in trade receivables
related to one customer.
Inventories
The major components of inventories were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Raw materials
|
|
$
|
15,497
|
|
|
$
|
92,329
|
|
|
$
|
107,826
|
|
|
$
|
13,940
|
|
|
$
|
110,469
|
|
|
$
|
124,409
|
|
Work in process
|
|
|
2,030
|
|
|
|
28,472
|
|
|
|
30,502
|
|
|
|
2,778
|
|
|
|
40,923
|
|
|
|
43,701
|
|
Finished goods
|
|
|
90,563
|
|
|
|
|
|
|
|
90,563
|
|
|
|
94,174
|
|
|
|
|
|
|
|
94,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
108,090
|
|
|
$
|
120,801
|
|
|
$
|
228,891
|
|
|
$
|
110,892
|
|
|
$
|
151,392
|
|
|
$
|
262,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Property
and Equipment:
|
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Transportation equipment
|
|
$
|
10,899
|
|
|
$
|
20,977
|
|
Furniture, fixtures, and software
|
|
|
162,446
|
|
|
|
146,905
|
|
Machinery and equipment
|
|
|
263,759
|
|
|
|
219,753
|
|
Buildings and improvements
|
|
|
233,353
|
|
|
|
151,708
|
|
Assets acquired under capital leases
|
|
|
3,612
|
|
|
|
5,651
|
|
Land
|
|
|
14,269
|
|
|
|
12,404
|
|
Construction in progress
|
|
|
89,401
|
|
|
|
79,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777,739
|
|
|
|
636,402
|
|
Less: accumulated depreciation
|
|
|
(293,098
|
)
|
|
|
(250,796
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
484,641
|
|
|
$
|
385,606
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases, net of accumulated
depreciation, were $1.6 million and $2.0 million at
August 31, 2010, and 2009, 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 expense of $59.8 million, $52.3 million,
and $43.7 million for the fiscal years ended
August 31, 2010, 2009, and 2008, respectively, is included
in cost of revenues and general and administrative expenses in
the accompanying consolidated statements of operations.
At August 31, 2010, construction in progress consisted
primarily of deposits on heavy equipment to be used on some of
our power projects. At August 31, 2009, construction in
progress consisted primarily of cost related to the construction
of our module fabrication and assembly facility in Lake Charles,
Louisiana.
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 7
|
Equity
Method Investments
|
We execute certain contracts 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 ASC 810 and we are the primary
beneficiary, the joint venture is consolidated in accordance
with ASC 810. 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 on one line
item in the consolidated statement of operations.
Our significant unconsolidated subsidiary that is accounted for
using the equity method of accounting is our Investment in
Westinghouse. In October 2006, we acquired our Investment in
Westinghouse through purchasing shares in two companies that,
together with their subsidiaries, are collectively referred to
as the Westinghouse Group (Westinghouse).
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, by Toshiba (77%), NEH
(20% our wholly-owned acquisition subsidiary), and
Ishikawajima-Harima Heavy Industries Co., Ltd (3%) (IHI),
acquired BNFL USA Group Inc. (also referred to as Westinghouse
Electric Company LLC) and Westinghouse
F-27
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
uranium supplier based in the Republic of Kazakhstan. Our total
cost of NEHs equity investment and the related agreements,
including related acquisition costs was approximately
$1.1 billion, excluding approximate $11.0 million
deferred financing costs related to the Westinghouse Bonds.
We partially financed our Westinghouse Equity purchase through a
Japanese-market private placement, on October 13, 2006, by
our subsidiary NEH issuing the JPY-denominated Westinghouse
Bonds with a total face value of approximately JPY
129.0 billion, equivalent to approximately
$1.08 billion. Proceeds from the issuance of the
JPY-denominated Westinghouse bonds net of $30.5 million of
original issue discount and $11.0 million of deferred
financing costs was approximately $1.04 billion. The
Westinghouse Bonds are limited recourse to us (except NEH), are
governed by the Bond Trust Deed, and are collateralized
primarily by the Westinghouse Equity and a JPY-denominated Put
Option between NEH and Toshiba. See Note 9 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.
The Put Option Agreements, executed as part of the Investment in
Westinghouse transaction, provide us the option to sell all or
part of our Westinghouse Equity to Toshiba for a pre-determined
JPY-denominated price. The proceeds of any such sale must be
used to pay the JPY-denominated Westinghouse Bond debt. Should
we choose to put all of our Westinghouse Equity to Toshiba, we
will receive from Toshiba at least JPY 124.7 billion
(approximately 97% of our original JPY-equivalent purchase
price), and under certain circumstances, up to JPY
129.0 billion (100% of the face value of the bonds
outstanding), all of which must be used to repay the
Westinghouse Bonds. Fluctuations in the JPY to USD exchange rate
do not alter the amount of Toshibas JPY-denominated
payment obligation should we exercise the Put Option nor the
amount of our obligation to pay the Westinghouse Bond debt with
the JPY-denominated proceeds. Consequently, the JPY-denominated
Put Option substantially mitigates currency fluctuation risks
both to NEH and to the holders of the JPY-denominated
Westinghouse Bonds, significantly reducing the possibility that
putting the shares to Toshiba would result in insufficient
proceeds to cover the Westinghouse Bonds debt, or any portion
thereof, should there be an unfavorable JPY to USD exchange rate.
Under the Put Option Agreement terms, NEH may exercise the
option to sell all or part of our Westinghouse Equity to Toshiba
during a defined Exercise Period, that commenced on
the earlier of March 31, 2010, or the occurrence of a
Toshiba Event. A Toshiba Event is defined in the Put
Option Agreements and is caused by, among other things, Toshiba
failing to maintain certain minimum financial metrics. Toshiba
timely notified us that it experienced a Toshiba Event as of
May 8, 2009, when it failed to maintain a minimum
consolidated net worth of JPY 800 billion. Although in June
2009 Toshiba reported that it raised sufficient equity to bring
its consolidated net worth above the Toshiba Event threshold,
the Toshiba Event itself triggered certain rights for the
Westinghouse Bond holders under the terms of the Bond
Trust Deed. Specifically, because Toshiba failed to meet
certain minimum financial metrics under the Put Option Agreement
(which partially collateralizes the Westinghouse Bonds), the
Westinghouse Bond holders now have the opportunity to direct us
to exercise the Put Option, as a result of which we would
receive the
pre-determined
JPY-denominated put price. Those proceeds would, in turn, be
used to retire the Westinghouse Bonds.
A Toshiba Event is not an event of default or other
violation of the Bond Trust Deed or the Put Option
Agreements, but due to the Toshiba Event, the Westinghouse Bond
holders now have the opportunity to direct us to exercise the
Put Option. See Note 9 Debt and Revolving Lines
of Credit for additional information regarding our Investment in
Westinghouse, the Put Option and the Toshiba Event.
F-28
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 as noted
above, any proceeds received must be used to repay the
Westinghouse Bonds.
As a result of the Westinghouse Bond holders having the ability
to require us to exercise the Put Option to retire the
Westinghouse Bonds, in the third quarter of fiscal year 2009, we
reclassified the Westinghouse Bonds as a current liability.
Additionally, we were required to expense a pre-tax total of
$29.4 million as interest expense, which included
$22.8 million in unamortized original issuance bond
discount and the remaining $6.6 million of unamortized
deferred financing costs associated with the Westinghouse Bonds.
Conversely, the Put Option is not considered a
freestanding financial instrument or a
derivative instrument under GAAP and, consequently,
is not separated from our equity investment in Westinghouse for
financial reporting purposes. Therefore, neither the Put Option
nor its foreign currency component may be revalued at current
exchange rates at the end of each fiscal period. So while the
JPY value of the JPY-denominated Westinghouse Bond debt and ,
the JPY value of the pre-determined JPY-denominated Put Option
price remain constant, and our obligation to use the
JPY-denominated proceeds from (partially or entirely) exercising
the put to pay the JPY-denominated debt remains
constant the USD value of the debt on our balance
sheets fluctuates each fiscal period according to the JPY/USD
exchange rates. Despite the fact that the Westinghouse Bonds
currency translation has no impact on the value of the
JPY-denominated debt or the
JPY-denominated
put proceeds, the non-cash foreign currency translation to USD
has impacted in a material way (both positively and negatively),
and will likely continue to impact, our Statement of Operations
in each reporting period.
As part of the Investment in Westinghouse transaction, we also
executed the Shareholder Agreements which, among other things,
set for NEH a target minimum dividend of approximately
$24.0 million annually (Westinghouse Dividend) for the
first six years we hold our Westinghouse Equity. Under the
Shareholder Agreements, each of the shareholders is due to
receive as dividends agreed percentages of 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, the shortfall
accrues 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. We have received dividends totaling
$69.5 million to date. Dividends received are accounted for
as a reduction of our investment in Westinghouse carrying value.
However, neither a shortfall in target minimum Westinghouse
Dividends nor any Westinghouse Dividends received is included in
the results of our Investment in Westinghouse segment. At
August 31, 2010, the dividend shortfall totaled
$14.5 million.
Concurrent and in connection with our acquisition of the
Westinghouse Equity, we executed with Toshiba the Westinghouse
CRA which provides us with certain exclusive opportunities to
bid on projects where we would perform EPC services on future
Westinghouse AP 1000 nuclear power plants, along with other
commercial opportunities, such as supplying piping for those
units. The Westinghouse CRA has a six year term and contains
renewal provisions. As long as we maintain more than a 15%
interest in Westinghouse, we maintain our exclusivity rights
provided under the terms of the Westinghouse CRA. However, we
would continue to retain our rights under the Westinghouse CRA
for projects for which a request for proposal had been received
prior to the CRAs termination. For accounting purposes we
concluded that no value should be allocated to the Westinghouse
CRA nor should it 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. Financial information about
Westinghouses operations is
F-29
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
available to us for Westinghouses calendar quarter
periods. We record our 20% interest of the equity earnings
(loss) and other comprehensive income (loss) reported to us by
Westinghouse two months in arrears of our current periods. Under
this policy, our fiscal 2010, 2009, and 2008 equity in earnings
include Westinghouses operations for the periods
July 1, 2009, through June 30, 2010; July 1,
2008, through June 30, 2009; and July 1, 2007, through
June 30, 2008, respectively.
Summarized unaudited financial information for Westinghouse,
before applying our Westinghouse Equity Interest, was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
Balance Sheets
|
|
June 30, 2010
|
|
June 30, 2009
|
|
Current assets
|
|
$
|
2,588,236
|
|
|
$
|
2,318,455
|
|
Noncurrent assets
|
|
|
6,150,264
|
|
|
|
6,059,812
|
|
Current liabilities
|
|
|
2,460,723
|
|
|
|
2,072,395
|
|
Noncurrent liabilities
|
|
|
1,146,392
|
|
|
|
1,148,347
|
|
Noncontrolling interest
|
|
|
133,187
|
|
|
|
85,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2009
|
|
July 1, 2008
|
|
July 1, 2007
|
Statements of Operations
|
|
to June 30, 2010
|
|
to June 30, 2009
|
|
to June 30, 2008
|
|
Revenues
|
|
$
|
4,202,881
|
|
|
$
|
3,525,889
|
|
|
$
|
2,911,399
|
|
Gross profit
|
|
|
894,677
|
|
|
|
743,996
|
|
|
|
712,426
|
|
Income from continuing operations before income taxes
|
|
|
145,070
|
|
|
|
108,930
|
|
|
|
153,098
|
|
Net income attributable to shareholders
|
|
|
78,257
|
|
|
|
57,441
|
|
|
|
123,351
|
|
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
|
|
2010
|
|
2009
|
|
Current assets
|
|
$
|
31,818
|
|
|
$
|
35,603
|
|
Noncurrent assets
|
|
|
10,849
|
|
|
|
42,255
|
|
Current liabilities
|
|
|
15,715
|
|
|
|
38,659
|
|
Noncurrent liabilities
|
|
|
8,132
|
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year ended August 31,
|
Statements of Operations
|
|
2010
|
|
2009
|
|
2008
|
|
Revenues
|
|
$
|
62,939
|
|
|
$
|
116,868
|
|
|
$
|
260,022
|
|
Gross profit
|
|
|
6,078
|
|
|
|
21,600
|
|
|
|
39,301
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(20
|
)
|
|
|
(696
|
)
|
|
|
(711
|
)
|
Net income (loss)
|
|
|
(11
|
)
|
|
|
(1,147
|
)
|
|
|
(825
|
)
|
F-30
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our investments in and advances to unconsolidated entities,
joint ventures, and limited partnerships and our overall
percentage ownership of these ventures that are accounted for
under the equity method were as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
At August 31,
|
|
|
|
Percentage
|
|
|
2010
|
|
|
2009
|
|
|
Investment in Westinghouse
|
|
|
20%
|
|
|
$
|
967,916
|
|
|
$
|
1,008,442
|
|
Other
|
|
|
23% - 50%
|
|
|
|
11,656
|
|
|
|
21,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in and advances to unconsolidated entities,
joint ventures, and limited partnerships
|
|
|
|
|
|
$
|
979,572
|
|
|
$
|
1,029,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) from unconsolidated entities, net of income
taxes, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Investment in Westinghouse, net of income taxes of $8,666,
$2,249, and $9,644, respectively
|
|
$
|
6,986
|
|
|
$
|
9,240
|
|
|
$
|
15,026
|
|
Other unconsolidated entities, net of income taxes of $406,
$1,118, and $1,707, respectively
|
|
|
91
|
|
|
|
1,779
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings (losses) from unconsolidated entities, net income
of taxes
|
|
$
|
7,077
|
|
|
$
|
11,019
|
|
|
$
|
17,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we purchased a loan from a third party for
$19.9 million that was due from a VIE accounted for under
the equity method. The purchase of the loan resulted in an
additional variable interest in the entity and we consolidated
the entity effective December 2009.
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 and are not material.
Certain 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 ASC 810.
The following is a summary of our significant VIEs at
August 31, 2010:
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 $32.0 million and total liabilities of
$3.9 million at August 31, 2010. 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 $13.9 million
at August 31, 2010.
|
F-31
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
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
$15.3 million and $5.6 million at August 31,
2010, 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
$4.8 million at August 31, 2010 and certain costs
incurred on behalf of the joint ventures operations we
have agreed to absorb. Until April 1, 2010, we have agreed
to absorb approximately $3.6 million annual of the joint
ventures costs. After April 1, 2010, these costs will
begin to be absorbed by both members and will be shared equally
as of January 1, 2011. 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.
|
Related
Party Transactions
The following table summarizes related party transactions with
these unconsolidated entities included in our consolidated
financial statements at August 31, 2010, and 2009 and for
the fiscal years ending August 31, 2010, 2009, and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Privatization
|
|
|
|
|
|
|
Entities
|
|
|
Other(1)
|
|
|
Revenue from unconsolidated entities for years ended
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
|
|
|
$
|
7,651
|
|
2009
|
|
|
782
|
|
|
|
3,746
|
|
2008
|
|
|
38,893
|
|
|
|
10,738
|
|
Accounts and other receivables from unconsolidated entities at
August 31,
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
|
|
|
$
|
4,265
|
|
2009
|
|
|
|
|
|
|
3,534
|
|
Advances to unconsolidated entities at August 31,
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
|
|
|
$
|
9
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
includes activity with Westinghouse |
During fiscal years ending August 31, 2009 and 2008,
related party transactions with unconsolidated entities were
included in our consolidated financial statements for certain of
our military housing privatization joint ventures. The
transactions were related to improvements, including renovations
or replacement of the facilities and construction of new houses,
and to provide ongoing management and maintenance services. The
underlying contracts related to these activities were sold or
terminated during fiscal years ending 2009 and 2008, thus
related party transactions were no longer included in our
consolidated financial statements thereafter.
F-32
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Goodwill
and Other Intangibles
|
Goodwill
The following table reflects the changes in the carrying value
of goodwill by segment from September 1, 2008 to
August 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
|
|
|
Plant Services
|
|
|
E&I
|
|
|
E&C
|
|
|
F&M
|
|
|
Total
|
|
|
Balance at September 1, 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
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
|
|
(1,244
|
)
|
|
|
(1,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2010
|
|
$
|
139,177
|
|
|
$
|
42,027
|
|
|
$
|
189,808
|
|
|
$
|
112,009
|
|
|
$
|
16,474
|
|
|
$
|
499,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had tax-deductible goodwill of approximately
$77.1 million and $92.1 million at August 31,
2010, and August 31, 2009, 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.
Goodwill
Impairment Review
In accordance with current accounting guidance, we have
identified seven reporting units for the purpose of conducting
our goodwill impairment review. In determining our reporting
units, we considered (i) whether an operating segment or a
component of an operating segment was a business,
(ii) whether discrete financial information was available,
and (iii) whether the financial information is regularly
reviewed by management of the operating segment.
To calculate the fair value of a reporting unit used in our
goodwill impairment review, we utilized the guideline public
company method (a market approach) and the discounted cash flow
method (an income approach). The reporting units fair
value was determined by averaging the resulting fair values
calculated under these two methods. When performing our annual
impairment analysis, we also reconcile the total of the fair
values of our reporting units with our market capitalization to
determine if the sum of the individual fair values is reasonable
compared to the external market indicators. If our
reconciliation indicates a significant difference between our
external market capitalization and the fair values of our
reporting units, we review and adjust, if appropriate, our
weighted-average cost of capital and consider if the implied
control premium is reasonable in light of current market
conditions.
The guideline public company method relies on valuation
multiples derived from stock prices, financial results and
enterprise values from the trailing twelve months of publicly
traded companies that are comparable to the subject reporting
unit. The derived valuation multiples are then applied to each
reporting unit to develop an estimate of the fair value of the
subject reporting unit. The earnings multiples used in our
goodwill impairment review ranged between 5.1 times and 9.5
times.
The discounted cash flow method relies upon a companys
estimated future cash flows, and then discounting
those future flows by the desired rate of return in order to
determine the present value of the future cash
stream. To arrive at the cash flow projections used in our
discounted cash flow models, we use internal models to estimate
the expected results for the next five years. The key
assumptions used in our discounted cash flow models to determine
fair value are discount rates, annual revenue growth rates,
average operating margin, and terminal value capitalization
rate. The discount rates used in the discounted cash flow models
ranged from 13.0% to 15.0%. The terminal value was calculated by
using a terminal value capitalization rate of 3%.
F-33
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The resulting fair values provided appropriate valuations that,
in aggregate, reasonably reconciled to our market
capitalization, taking into account observable control premiums.
At the March 1, 2010 testing date, our annual review did
not indicate an impairment of goodwill for any of our reporting
units and all of our reporting units had fair values in excess
of carrying values by more than 10%. The resulting fair values
provided valuations that, in aggregate, reasonably reconciled to
our market capitalization, taking into account observable
control premiums. No events or changes in circumstances have
occurred that would indicate an impairment of goodwill since the
annual testing date.
Intangible
Assets
At August 31, 2010 and 2009, 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 and 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).
We amortize all of these intangible assets using the straight
line method. Amortization expense included in cost of revenues
was $3.0 million, $3.2 million, and $3.2 million
for the fiscal years ended August 31, 2010, 2009, and 2008,
respectively.
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, 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
|
)
|
Adjustments
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(2,775
|
)
|
|
|
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010 balance
|
|
$
|
43,954
|
|
|
$
|
(26,250
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2011
|
|
$
|
2,772
|
|
|
$
|
202
|
|
2012
|
|
|
2,770
|
|
|
|
134
|
|
2013
|
|
|
2,766
|
|
|
|
|
|
2014
|
|
|
2,766
|
|
|
|
|
|
2015
|
|
|
2,766
|
|
|
|
|
|
Thereafter
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,704
|
|
|
$
|
336
|
|
|
|
|
|
|
|
|
|
|
F-34
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Debt and
Revolving Lines of Credit
|
Our debt (including capital lease obligations) consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Notes payable on purchases of equipment; 0% to 1.3% interest;
payments discounted at imputed rate of 5.9% interest; due
September 2010 through April 2011
|
|
$
|
4,079
|
|
|
$
|
|
|
|
$
|
10,610
|
|
|
$
|
2,146
|
|
Notes payable on purchases of equipment; 5.2% to 6.0% interest;
due June 2011 through July 2012, and paid in full October 2009
|
|
|
|
|
|
|
|
|
|
|
1,188
|
|
|
|
1,824
|
|
Other notes payable
|
|
|
|
|
|
|
|
|
|
|
2,805
|
|
|
|
2,277
|
|
Capital lease obligations
|
|
|
400
|
|
|
|
979
|
|
|
|
796
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,479
|
|
|
|
979
|
|
|
|
15,399
|
|
|
|
7,627
|
|
Westinghouse Bonds (see description below)
|
|
|
1,520,674
|
|
|
|
|
|
|
|
1,387,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,525,153
|
|
|
$
|
979
|
|
|
$
|
1,403,353
|
|
|
$
|
7,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes payable on purchases of equipment are collateralized
by the purchased equipment. The carrying amount of the equipment
pledged as collateral was approximately $18.8 million at
August 31, 2010.
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
|
|
|
2011
|
|
$
|
475
|
|
|
$
|
4,079
|
|
2012
|
|
|
399
|
|
|
|
|
|
2013
|
|
|
399
|
|
|
|
1,520,674
|
|
2014
|
|
|
266
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,539
|
|
|
|
1,524,753
|
|
Less: amount representing interest
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,379
|
|
|
$
|
1,524,753
|
|
|
|
|
|
|
|
|
|
|
Westinghouse
Bonds
The Westinghouse Equity was purchased by our wholly-owned
subsidiary NEH for an aggregate purchase price in excess of
$1.1 billion. NEH funded the purchase price by issuing
JPY-denominated Westinghouse Bonds with a total face value of
approximately JPY 128.98 billion, then equivalent to
approximately $1.1 billion. The Westinghouse Bonds are
limited recourse to us (except NEH), are governed by the Bond
Trust Deed, and are collateralized primarily by the
Westinghouse Equity and the JPY-denominated Put Option between
NEH and Toshiba.
The Put Option Agreements, executed as part of the Investment in
Westinghouse transaction, provide us the option to sell all or
part of our Westinghouse Equity to Toshiba for a pre-determined
JPY-denominated put price. The proceeds of any such sale must be
used to pay the JPY-denominated Westinghouse Bond debt. Should
we choose to put all of our Westinghouse Equity to Toshiba, we
will receive from Toshiba at least JPY
F-35
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
124.7 billion (approximately 97% of our original
JPY-equivalent purchase price), and under certain circumstances,
up to JPY 129.0 billion (100% of the face value of the
bonds outstanding), all of which must be used to repay the
Westinghouse Bonds. Because the JPY to USD exchange rate will
not alter the amount of Toshibas JPY-denominated payment
obligation should we exercise the Put Option nor the amount of
our obligation to pay the Westinghouse Bond debt which we must
pay with the JPY-denominated proceeds. Consequently the
JPY-denominated Put Option substantially mitigates currency
fluctuation risks both to NEH and to the holders of the
JPY-denominated Westinghouse Bonds proceeds, significantly
reducing the possibility that putting the shares to Toshiba
would result in insufficient proceeds to cover the Westinghouse
Bonds debt, or any portion thereof, should there be an
unfavorable JPY to USD exchange rate. If we allow the Put Option
to expire unexercised, we may not be able to obtain credit on
terms similar to those obtained with the Westinghouse Bonds.
As discussed in Note 7 Equity Method
Investments, under the Put Option Agreement terms, NEH may
exercise the option to sell all or part of our Westinghouse
Equity to Toshiba during a defined Exercise Period.
We are currently in the Exercise Period, that commenced the
earlier of March 31, 2010, or the occurrence of a
Toshiba Event. A Toshiba Event is defined in the Put
Option Agreements and is caused by, among other things, Toshiba
failing to maintain certain minimum financial metrics. Toshiba
timely notified us that it experienced a Toshiba Event as of
May 8, 2009, when it failed to maintain a minimum
consolidated net worth of JPY 800 billion. Although in June
2009 Toshiba reported that it raised sufficient equity to bring
its consolidated net worth above the Toshiba Event threshold,
the Toshiba Event itself triggered certain rights for the
Westinghouse Bond holders under the terms of the Bond
Trust Deed. The Toshiba Event is not an event of
default or other violation of the Bond Trust Deed or
the Put Option Agreements , but because Toshiba failed to meet
its consolidated net worth requirement, the Westinghouse Bond
holders now have the ability to direct us to exercise the Put
Option, as a result of which we would receive the pre-determined
JPY-denominated
put price. Those proceeds would, in turn, be used to retire the
JPY-denominated Westinghouse Bond debt. We may elect to exercise
the Put Option at any time through February 28, 2013.
In order for the Westinghouse Bond holders to direct us to put
the Westinghouse Equity to Toshiba, 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 approves a resolution instructing the bond
trustee to direct the exercise. Alternatively, a written
resolution signed by bondholders representing no less than 75%
of the Westinghouse Bond principal amount outstanding and
instructing the bond trustee to direct us to exercise the Put
Option shall have the same effect (collectively, an
Extraordinary Resolution). Should we exercise the
Put Option at the direction of an Extraordinary Resolution,
neither our nor Toshibas obligations under the
Westinghouse CRA will be affected through the CRAs
original term, which expires in 2013.
Because the Westinghouse Bond holders have the ability to
require us to exercise the Put Option to retire the Westinghouse
Bonds , in the third quarter of fiscal year 2009 we reclassified
the Westinghouse Bonds from long-term to short-term debt. At the
end of each fiscal period GAAP requires that we revalue the
JPY-denominated Westinghouse Bond debt to its USD equivalent,
with difference being recognized as a gain or (loss) in our
Statement of Operations for that fiscal period. Additionally,
during the third quarter of fiscal year 2009, the
reclassification of the Westinghouse Bonds to short-term debt
required us to expense a total of $29.4 million in interest
expense, which included a $22.8 million pre-tax unamortized
original issuance bond discount (including $5.9 million in
foreign exchange loss), or $14.0 million after tax, as well
as the remaining $6.6 million pre-tax deferred financing
costs , or $4.1 million after tax. Those non-cash charges
were included as interest expense in our Statement of Operations.
F-36
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Conversely, the Put Option is not considered a
freestanding financial instrument or a
derivative instrument under GAAP and, consequently,
is not separated from our equity investment in Westinghouse for
accounting purposes. Therefore, neither the Put Option nor its
foreign currency component may be revalued at current exchange
rates at the end of each fiscal period. So while the JPY value
of the JPY-denominated Westinghouse Bond debt remains constant,
the JPY value of the pre-determined JPY-denominated Put Option
price remains constant, and our obligation to use the
JPY-denominated proceeds from (partially or entirely) exercising
the put to pay the JPY-denominated debt remains
constant the USD value of the debt on our balance
sheets fluctuates each fiscal period with the JPY to USD
non-cash foreign currency translation. Despite the fact that the
Westinghouse Bonds currency translation has no impact on the
value of the JPY-denominated debt or the JPY-denominated put
proceeds, the non-cash foreign currency translation to USD has
impacted (both positively and negatively), and will likely
continue to impact, our Statement of Operations in each
reporting period.
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, additional or
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 financing. We may elect to exercise the Put Option
at any time through February 28, 2013.
The Westinghouse Bonds consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
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 (0.44% at
August 31, 2010)
|
|
|
653,125
|
|
|
|
653,125
|
|
Increase in debt due to foreign currency translation adjustments
since date of issuance
|
|
|
440,674
|
|
|
|
307,954
|
|
|
|
|
|
|
|
|
|
|
Total Westinghouse debt
|
|
$
|
1,520,674
|
|
|
$
|
1,387,954
|
|
|
|
|
|
|
|
|
|
|
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,
2010 and 2009, the fair value of the swap totaled approximately
$33.2 million and $31.4 million, respectively, and is
included as a current liability 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, 2010.
Credit
Facility
On April 25, 2005, we entered into a five year
$450.0 million Senior Secured Credit Facility (Facility),
which we have subsequently amended on a number of occasions in
response to our evolving credit needs. From the effective date,
the Facility has been available for issuing performance letters
of credit and financial letters of credit as well as revolving
credit loans. The terms performance letter of credit
and financial letter of credit have meanings
customary for financings of this type.
F-37
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On September 24, 2009, we entered into the Amended and
Restated Credit Agreement (Restated Agreement) with a group of
lenders that provided new and extended lender commitments to the
Facility 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 included
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 commitments. 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 made 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, and $1,000.0 million from
April 26, 2011, through October 25, 2012. 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, 2010, 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 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.
F-38
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 S&P or Moodys
Investors Service (Moodys) 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. Although there
were no borrowings at August 31, 2010, the interest rate
that would have applied to any base rate borrowings under the
Facility was 4.6%.
The total amount of fees associated with letters of credit
issued under the Facility were approximately $12.4 million,
$12.5 million, and $13.2 million for fiscal year 2010,
2009, and 2008, respectively, which includes commitment fees
associated with unused credit line availability of approximately
$3.5 million, $1.1 million, and $0.7 million,
respectively.
For the years ended August 31, 2010, 2009, and 2008, we
recognized, $4.6 million, $3.0 million, and
$2.9 million, respectively, of interest expense associated
with the amortization of financing fees related to our Facility.
At August 31, 2010, and 2009, unamortized deferred
financing fees related to our Facility were approximately
$10.3 million and $5.0 million, respectively.
At August 31, 2010, the portion of the Facility available
for financial letters of credit
and/or
revolving credit loans was $791.1 million, representing the
total Facility ($1,095.0 million at August 31,
2010) less outstanding letters of credit
($303.9 million at August 31, 2010).
The following table presents the outstanding and available
amounts under our Facility at August 31, 2010 (in millions):
|
|
|
|
|
Total Facility
|
|
$
|
1,095.0
|
|
Less: outstanding performance letters of credit
|
|
|
(197.2
|
)
|
Less: outstanding financial letters of credit
|
|
|
(106.7
|
)
|
Less: outstanding revolving credit loans
|
|
|
|
|
|
|
|
|
|
Remaining availability under the Facility
|
|
$
|
791.1
|
|
|
|
|
|
|
F-39
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Revolving Lines of Credit
Shaw-Nass, a consolidated VIE located in Bahrain, has an
available credit facility (Bahrain 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, 2010, Shaw-Nass had no borrowings under its
revolving line of credit and approximately $1.6 million in
outstanding bank guarantees under the facility. The interest
rate applicable to any borrowings is a variable rate (1.26% at
August 31, 2010) plus 2.25% per annum. We have
provided a 50% guarantee related to the Bahrain facility.
We have an uncommitted, unsecured standby letter of credit
facility with a bank. Fees under this facility are paid
quarterly. At August 31, 2010 and 2009, there were
$22.6 million and $24.8 million of letters of credit
outstanding under this facility, respectively.
A bank has extended to us a $50.0 million uncommitted,
unsecured bilateral line of credit for issuing performance
letters of credit in Saudi Arabia. Fees under this facility are
paid quarterly. At August 31, 2010 and 2009, there were
$29.8 million letters of credit outstanding, respectively,
under this facility.
Intraperiod
Allocation of Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Provision for income taxes
|
|
$
|
44,008
|
|
|
$
|
11,880
|
|
|
$
|
71,384
|
|
Income from 20% investment in Westinghouse
|
|
|
8,666
|
|
|
|
2,247
|
|
|
|
9,645
|
|
Earnings (losses) from unconsolidated entities
|
|
|
406
|
|
|
|
1,119
|
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax from continuing operations
|
|
|
53,080
|
|
|
|
15,246
|
|
|
|
82,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense for tax purposes less than (in excess of)
amounts recognized for financial reporting
|
|
|
(1,014
|
)
|
|
|
1,389
|
|
|
|
(37,464
|
)
|
Pension liability
|
|
|
(2,258
|
)
|
|
|
(6,422
|
)
|
|
|
(736
|
)
|
Other comprehensive income of investment in Westinghouse
|
|
|
(7,411
|
)
|
|
|
(50,744
|
)
|
|
|
4,206
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
4,943
|
|
Marketable securities
|
|
|
348
|
|
|
|
|
|
|
|
|
|
Derivative instrument
|
|
|
(729
|
)
|
|
|
(8,711
|
)
|
|
|
(775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
42,016
|
|
|
$
|
(49,242
|
)
|
|
$
|
52,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
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)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
51,597
|
|
|
$
|
69,779
|
|
|
$
|
56,871
|
|
State and local
|
|
|
322
|
|
|
|
18,027
|
|
|
|
12,133
|
|
Foreign
|
|
|
6,596
|
|
|
|
6,009
|
|
|
|
11,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
58,515
|
|
|
|
93,815
|
|
|
|
80,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(17,269
|
)
|
|
|
(66,592
|
)
|
|
|
3,480
|
|
State and local
|
|
|
(6,428
|
)
|
|
|
(17,834
|
)
|
|
|
(2,038
|
)
|
Foreign
|
|
|
9,190
|
|
|
|
2,491
|
|
|
|
(10,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
(14,507
|
)
|
|
|
(81,935
|
)
|
|
|
(9,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
44,008
|
|
|
$
|
11,880
|
|
|
$
|
71,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities include $16.7 million and
$8.6 million at August 31, 2010 and 2009,
respectively, of current income taxes payable, including amounts
due for foreign and state income taxes.
Income before income taxes, minority interest, and
earnings (losses) from unconsolidated entities (pre-tax
income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended August 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Domestic
|
|
$
|
78,157
|
|
|
$
|
(5,454
|
)
|
|
$
|
196,606
|
|
Foreign
|
|
|
69,673
|
|
|
|
38,043
|
|
|
|
23,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest, and earnings
(losses) from unconsolidated entities
|
|
$
|
147,830
|
|
|
$
|
32,589
|
|
|
$
|
220,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
U.S. Federal statutory tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of federal income tax benefit
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
Foreign tax differential
|
|
|
(2
|
)%
|
|
|
(6
|
)%
|
|
|
2
|
%
|
Work Opportunity Tax Credit
|
|
|
|
|
|
|
(4
|
)%
|
|
|
|
|
Foreign tax credits
|
|
|
(1
|
)%
|
|
|
(9
|
)%
|
|
|
(5
|
)%
|
Section 199 Domestic Manufacturer Deduction
|
|
|
(1
|
)%
|
|
|
(9
|
)%
|
|
|
(2
|
)%
|
Valuation allowance
|
|
|
2
|
%
|
|
|
(2
|
)%
|
|
|
(5
|
)%
|
Noncontrolling interests
|
|
|
(4
|
)%
|
|
|
(18
|
)%
|
|
|
(4
|
)%
|
Research and experimentation credit claims
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
Compensation and stock options
|
|
|
2
|
%
|
|
|
13
|
%
|
|
|
2
|
%
|
Uncertain tax positions
|
|
|
5
|
%
|
|
|
25
|
%
|
|
|
|
|
Nondeductible meals and entertainment
|
|
|
4
|
%
|
|
|
14
|
%
|
|
|
3
|
%
|
Rate changes
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(3
|
)%
|
|
|
(2
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
37
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate for pre-tax income
excluding minority interest for the years ended August 31,
2010, 2009 and 2008 was 34%, 75% and 37% respectively.
F-42
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)
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
8,303
|
|
|
$
|
9,264
|
|
Net operating loss and tax credit carryforwards
|
|
|
53,028
|
|
|
|
54,535
|
|
Other expenses not currently deductible
|
|
|
35,547
|
|
|
|
51,343
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
168,097
|
|
|
|
115,527
|
|
Derivative instrument
|
|
|
12,931
|
|
|
|
12,108
|
|
Deferred financing costs
|
|
|
7,545
|
|
|
|
10,583
|
|
Equity in other comprehensive income of Westinghouse
|
|
|
41,903
|
|
|
|
34,227
|
|
Compensation related expenses
|
|
|
55,305
|
|
|
|
66,030
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
382,659
|
|
|
|
353,617
|
|
Less valuation allowance
|
|
|
(27,398
|
)
|
|
|
(22,025
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
355,261
|
|
|
|
331,592
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
|
(52,281
|
)
|
|
|
(45,735
|
)
|
Property, plant and equipment
|
|
|
(26,551
|
)
|
|
|
(26,976
|
)
|
Equity in other comprehensive income of Westinghouse
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
(1,565
|
)
|
|
|
(11,148
|
)
|
Employee benefits and other expenses
|
|
|
(1,538
|
)
|
|
|
(3,034
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(81,935
|
)
|
|
|
(86,893
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
273,326
|
|
|
$
|
244,699
|
|
|
|
|
|
|
|
|
|
|
Unremitted
Earnings
We have not recognized a deferred tax liability of approximately
$56.0 million for the undistributed earnings of our foreign
operations that arose in 2010 and prior years as we consider
these earnings to be indefinitely invested. As of
August 31, 2010, the undistributed earnings of these
subsidiaries were approximately $144.0 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, 2010 and 2009 was $27.4 million and
$22.0 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, 2010, 2009, and 2008
was an increase (decrease) of $5.4 million,
$9.1 million and ($11.1) 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. During fiscal
2010, a valuation allowance was established for certain state
net operating losses which,
F-43
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
if realizable, would reduce future state taxes payable totaling
$5.6 million while valuation allowances totaling
$1.7 million associated with certain state net operating
losses were released. Additionally, the valuation allowance
increased $1.5 million as a result of a tax rate change.
At August 31, 2010, we have U.S. federal net operating
loss carryforwards totaling $22.4 million that are limited
to use at $2.0 million a year against future federal
taxable income and expires through 2022. Additionally, we have
$33.4 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
$31.4 million of which we currently believe that
$8.1 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, 2010. 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.
Uncertain
Tax Positions
We adopted the provisions of ASC 740 relating to uncertain
tax positions effective September 1, 2007. Under
ASC 740, 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
|
|
|
|
Benefits
|
|
(In thousands)
|
|
|
|
|
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
|
)
|
|
|
|
|
|
F-44
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
Tax
|
|
|
|
Benefits
|
|
(In thousands)
|
|
|
|
|
Balance at August 31, 2009
|
|
|
52,140
|
|
Increase (decrease) in Tax Positions prior years
|
|
|
(3,976
|
)
|
Increase in Tax Positions current year
|
|
|
443
|
|
Settlements
|
|
|
(1,924
|
)
|
Increase, Interest Net
|
|
|
508
|
|
Increase, Penalties Net
|
|
|
5
|
|
Currency Translation Adjustment Net
|
|
|
79
|
|
|
|
|
|
|
Balance at August 31, 2010
|
|
$
|
47,275
|
|
|
|
|
|
|
The portion of the balance at August 31, 2010, that would
affect our effective tax rate is $42.2 million. Interest,
penalties and currency translation adjustments included in the
balance at August 31, 2010, is $4.6 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
2004. 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 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 14 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
2011, 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
F-45
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010 and 2009.
Common Stock: At August 31, 2010
and 2009, we had 90,669,011 and 89,316,057 shares issued
and 84,913,062 and 83,606,808 shares outstanding,
respectively.
Treasury Stock: Treasury stock is
recorded at cost. At August 31, 2010 and 2009, we had
5,755,949 and 5,709,249 shares classified as Treasury Stock
at a cost of $117.5 million and $116.1 million,
respectively. For the years ended August 31, 2010 and 2009,
we repurchased 46,700 and 48,789 shares at a cost of
$1.3 million and $1.2 million, respectively. The
repurchases of treasury stock were the result of tax
withholdings on stock compensation transactions.
Shareholder Rights Plan: In July 2001
we adopted a shareholders rights plan (Rights Agreement)
pursuant to which we issued one preferred share purchase right
(Right) for each share of common stock in the Company
outstanding as of July 31, 2001. The Rights trade with, and
are inseparable from, the shares of common stock. New Rights
accompany any new shares of common stock issued after
July 31, 2001, until the Rights become exercisable or the
Rights Agreement terminates.
The Rights are intended to 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 persons 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, which expire on July 9, 2011, become
exercisable only if a person or group (Acquiring Person)
acquires or announces its intention to acquire 15% or more (the
triggering percentage) of the common stock. Our Board is
authorized to reduce the triggering percentage from 15% to no
less than 10% of the common stock.
In the event, and at the time, the Rights become exercisable,
each Right-holder (other than an Acquiring Person), will be
entitled to acquire shares of our common stock at a substantial
discount to the prevailing market price for shares of our common
stock (as described in the Rights Agreement). Additionally,
should the Company be acquired in a merger or similar
transaction after the Rights have become exercisable, each
Right-holder will be entitled to purchase shares of the
acquiring company at a substantial discount from the market
price of the acquiring companys stock price prior to the
acquisition or merger.
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 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 has the option, at any time prior to a person or group
becoming an Acquiring Person, to redeem the Rights for $0.01 per
Right. The Rights Agreement should not interfere with a merger
or other business combination at a full and fair price as
approved by our Board of Directors.
|
|
Note 12
|
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-46
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
1,192,304 and 2,845,364 at August 31, 2010, and
August 31, 2009, 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
57.5
|
%
|
|
|
64.0
|
%
|
|
|
52.0
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
3.0
|
%
|
|
|
3.6
|
%
|
Expected term of options (in years)
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
5.4
|
|
Grant-date fair value
|
|
$
|
13.75
|
|
|
$
|
9.96
|
|
|
$
|
32.79
|
|
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
F-47
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exercise of ten years from date of grant. Awards are issued at
the grant date fair market value on the date of grant.
The following table represents stock option activity from
September 1, 2008 to August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contract Term
|
|
|
Outstanding at September 1, 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
|
|
Granted
|
|
|
820,173
|
|
|
|
27.94
|
|
|
|
|
|
Exercised
|
|
|
(784,124
|
)
|
|
|
20.69
|
|
|
|
|
|
Forfeited
|
|
|
(182,433
|
)
|
|
|
29.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2010
|
|
|
4,004,747
|
|
|
|
25.10
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 31, 2010
|
|
|
2,169,124
|
|
|
$
|
23.59
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Stock Option Compensation Expense
|
|
$
|
10.8
|
|
|
$
|
9.7
|
|
|
$
|
9.3
|
|
The aggregate intrinsic value of options outstanding was
$40.9 million and $36.7 million at August 31,
2010, and August 31, 2009, respectively. The aggregate
intrinsic value of options exercisable was $25.5 million
and $21.6 million at August 31, 2010, and
August 31, 2009, respectively. The total intrinsic value of
options exercised was $9.8 million, $1.0 million, and
$113.8 million for the fiscal years ended August 31,
2010, 2009, and 2008, respectively.
Net cash proceeds from the exercise of stock options for the
fiscal years ended August 31, 2010, and August 31,
2009 were $16.2 million and $1.3 million,
respectively. The actual income tax benefit realized from stock
option exercises were $1.8 million, $0.3 million, and
$40.4 million for the fiscal years ended August 31,
2010, 2009, and 2008, respectively.
At August 31, 2010, we have $18.2 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 $11.1 million, $9.1 million, and
$8.2 million for the fiscal years 2010, 2009, and 2008,
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, 2010, we have unrecognized
compensation expense of $38.9 million associated with
unvested restricted stock awards. This amount is expected to be
recognized over a weighted average period of 1.1 years.
F-48
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Restricted Stock Compensation Expense
|
|
$
|
24.1
|
|
|
$
|
23.6
|
|
|
$
|
11.7
|
|
The following table summarizes our unvested restricted stock
activity from September 1, 2008 to August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
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
|
|
Granted
|
|
|
561,693
|
|
|
|
27.95
|
|
Vested
|
|
|
(964,830
|
)
|
|
|
28.19
|
|
Forfeited
|
|
|
(202,036
|
)
|
|
|
25.89
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock at August 31, 2010
|
|
|
2,123,889
|
|
|
$
|
27.24
|
|
|
|
|
|
|
|
|
|
|
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. We report gross excess tax
benefits from equity incentive awards as financing cash flows.
|
|
Note 13
|
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
F-49
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010, require us to make the following estimated
future payments:
|
|
|
|
|
For the year ending August 31 (in thousands):
|
|
|
|
|
2011
|
|
$
|
72,805
|
|
2012
|
|
|
61,677
|
|
2013
|
|
|
51,381
|
|
2014
|
|
|
45,791
|
|
2015
|
|
|
35,883
|
|
Thereafter
|
|
|
91,845
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
359,382
|
|
|
|
|
|
|
Future minimum lease payments as of August 31, 2010 have
not been reduced by minimum non-cancelable sublease rentals
aggregating approximately $0.8 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,
2010, are not included as part of total minimum lease payments
shown above.
The total rental expense for the fiscal years ended
August 31, 2010, 2009, and 2008 was approximately
$178.8 million, $178.1 million, and
$170.6 million, respectively. Deferred rent payable
(current and long-term) aggregated $32.0 million and
$30.3 million at August 31, 2010 and 2009,
respectively.
|
|
Note 14
|
Contingencies
and Commitments
|
Tax
Matters
In connection with the IRS examination of our U.S. federal
tax returns for the 2004 and 2005 fiscal years, we have
protested adjustments covering approximately $13.0 million
of additional federal and state income taxes, for which the
interest would begin running from fiscal 2007. Tax and interest
accrual provisions have been made in our financial statements
for the agreed adjustments in the IRS audit covering the 2004
and 2005 fiscal years and for uncertain tax provisions as
discussed in Note 10 Income Taxes.
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.
F-50
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In a separate matter, certain cases concerning Louisiana
franchise tax matters for fiscal years 2001 through 2009 have
been ordered dismissed by reason of joint requests made by the
Louisiana Department of Revenue and Shaw.
Guarantees
Our Facility 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 $641.7 million and $790.3 million at
August 31, 2010 and August 31, 2009, respectively. Of
the amount of outstanding letters of credit at August 31,
2010, $450.5 million are performance letters of credit
issued to our clients. Of the $450.5 million, five clients
held $297.3 million or 66.0% of the outstanding letters of
credit. The largest letter of credit issued to a single client
on a single project is $117.5 million.
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
In connection with an international 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 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 has 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 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 ended when
the Court declined jurisdiction based on a finding of forum non
conveniens. The client initiated proceedings in the host country
to contest the awards validity, oppose our enforcement
actions and overturn the award. In the first ruling by the host
countrys court addressing the validity of the arbitration
award, the court denied the clients petition to nullify
the award and the client appealed that ruling. The other
proceedings
F-51
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
initiated by the client to contest the award or oppose its
enforcement have been stayed pending the outcome of the
nullification petition now on appeal before the host
countrys appellate court. 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.
We filed a Request for Arbitration with the London Court of
International Arbitration (LCIA) in connection with an
international fixed price contract executed by our Power segment
that is subject to a schedule of rates for changes and where our
services include fabrication, erection and construction. In the
request, as amended in a January 2010 filing with the LCIA, we
currently seek claims of approximately $27.8 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
$13.6 million. On February 5, 2009, the client, who
holds a $2.1 million performance letter of credit from us,
filed a response that denied our claims and stated it had
counterclaims totaling approximately $61.4 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. On
August 12, 2009, the client filed a Statement of Defense
and Counterclaim, which was subsequently amended on June 2,
2010 in response to our January 2010 amendment, and wherein the
clients counterclaims were reduced to $24.4 million.
Within this counterclaim, the client also identified
$19.1 million it was owed for descopes of work, but agreed
in principal to change orders for remeasurements and variations
valued at $11.3 million. 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 statements of operations
and cash flows. The USD value of the claims and our letter of
credit stated herein fluctuate due to 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 on our ability to perform. 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, in which we are now seeking damages of
approximately $100.0 million. Xcel filed a counterclaim
that alleges approximately $70.0 million in damages or
set-offs against S&W. On June 3, 2010, Xcel made a
partial draw of $29.7 million on a $41.3 million
letter of credit from S&W, alleging S&W had failed to
perform its obligations under the EPC contract. We believe the
allegations are without merit and will pursue full recovery of
the funds. The trial of this case commenced on October 18,
2010. The parties anticipate it will last four weeks with a
verdict anticipated in mid-November, 2010. 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 litigation. 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 financial statements.
In connection with a contract executed by our Power segment for
the engineering, procurement and construction of a 600 MW
steam turbine electrical generation plant in the U.S., we have
commenced an arbitration proceeding with our equipment and
services supplier on the project. We contend that one of our
suppliers failed to comply with certain contractual obligations.
This failure disrupted and delayed our work, significantly
increased our costs and exposed us to the imposition of
liquidated damages by our client, the owner. On
December 30, 2009, we presented claims to our supplier in a
preliminary Notice of Claim. Our
F-52
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
supplier did not respond to this Notice of Claim and instead
filed a Demand for Arbitration dated January 13, 2010,
which requested declaratory relief, injunctive relief and
damages in an amount to be determined. We served our own Demand
for Arbitration on January 18, 2010, followed by a Detailed
Statement of Claim on May 17, 2010, identifying damages of
approximately $69.0 million. Also on May 17, 2010, the
supplier filed a Detailed Statement of Claim for approximately
$31.0 million with time extension and claimed legal
expenses still to be determined. We have also commenced an
arbitration proceeding against our client for this project. In
our arbitration demand, we seek relief from liquidated damages
assessed by the client, a contract price adjustment, and
outstanding monies owed under our contract, resulting in a total
claim amount of approximately $32.0 million. The client may
file a counterclaim, but has not done so to date. We have
evaluated our claims against both the supplier and our client
and our suppliers counterclaims and made provisions in our
financial statements based on managements judgment about
the probable outcome of the respective arbitrations. While we
expect a favorable resolution to these matters, the dispute
resolution process could be lengthy, and if our supplier
and/or our
client were to prevail completely or substantially in the
respective matters, such an outcome could have a material
adverse effect on our consolidated statement of operations.
For additional information related to our claims on major
projects, see Note 20 Accounting for Claims,
Unapproved Change Orders and Incentives on Long-Term
Construction Contracts.
Environmental
Liabilities
The LandBank Group, Inc., 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 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.
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, 2010, our E&I segment had $3.7 million
of environmental liabilities recorded in other liabilities in
the accompanying balance sheets as compared to $5.0 million
at August 31, 2009.
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 15
|
Business
Segments
|
Our reportable segments are Power; Plant Services; Environmental
and Infrastructure (E&I); Energy and Chemicals (E&C);
Pipe Fabrication and Manufacturing (F&M); Investment in
Westinghouse; and Corporate.
The Power segment provides a range of project-related services,
including design, engineering, construction, procurement,
technology, and consulting services, primarily to the global
fossil, renewable, and nuclear power generation industries.
The Plant Services 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.
F-53
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The E&I segment provides integrated engineering, design,
and construction services and executes remediation solutions for
contaminants in soil, air, and water for government and private
sector clients worldwide.
The E&C segment provides a range of project-related
services, including design, engineering, construction,
procurement, technology, and consulting services, primarily to
the oil and gas, refinery, petrochemical, and chemical
industries.
The F&M segment provides integrated piping systems and
services for new construction, site expansion, and retrofit
projects for energy and chemical plants. It operates several
pipe fabrication facilities in the U.S. and abroad. It also
operates two manufacturing facilities that provide products for
our pipe fabrication services operations, as well as to third
parties. In addition, it operates 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 Westinghouse Bonds. Westinghouse 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 nuclear power plants. Please see Notes 7
and 9 for additional information with respect to the
circumstances in which the Westinghouse Bond holders may direct
us to exercise the Put Option and sell the Westinghouse Equity
to Toshiba.
The Corporate segment includes 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 that 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 tables present certain financial information for
our segments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
Corporate
|
|
|
|
|
Power
|
|
Plant Services
|
|
E&I
|
|
E&C
|
|
F&M
|
|
Westinghouse
|
|
and Other
|
|
Total
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external clients
|
|
$
|
2,297.9
|
|
|
$
|
881.0
|
|
|
$
|
2,215.2
|
|
|
$
|
1,114.6
|
|
|
$
|
492.0
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
7,000.8
|
|
Intersegment revenues
|
|
|
4.6
|
|
|
|
49.7
|
|
|
|
16.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.9
|
|
Interest income
|
|
|
0.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
11.1
|
|
|
|
13.7
|
|
Interest expense
|
|
|
1.2
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
38.1
|
|
|
|
4.4
|
|
|
|
43.9
|
|
Depreciation and amortization
|
|
|
23.6
|
|
|
|
1.8
|
|
|
|
12.2
|
|
|
|
9.7
|
|
|
|
13.6
|
|
|
|
|
|
|
|
1.9
|
|
|
|
62.8
|
|
Income (loss) before income taxes
|
|
|
64.9
|
|
|
|
43.7
|
|
|
|
138.8
|
|
|
|
64.4
|
|
|
|
63.9
|
|
|
|
(169.8
|
)
|
|
|
(58.1
|
)
|
|
|
147.8
|
|
Earnings (losses) from unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
7.0
|
|
|
|
(0.4
|
)
|
|
|
7.1
|
|
Goodwill
|
|
|
139.2
|
|
|
|
42.0
|
|
|
|
189.8
|
|
|
|
112.0
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
499.5
|
|
Total assets
|
|
|
2,041.2
|
|
|
|
206.4
|
|
|
|
1,185.4
|
|
|
|
717.7
|
|
|
|
664.8
|
|
|
|
1,197.8
|
|
|
|
965.6
|
|
|
|
6,978.9
|
|
Investment in and advances to equity method investees
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7
|
|
Purchases of property and equipment
|
|
|
110.7
|
|
|
|
0.4
|
|
|
|
14.2
|
|
|
|
6.5
|
|
|
|
38.6
|
|
|
|
|
|
|
|
15.4
|
|
|
|
185.8
|
|
Increases (decreases) in other assets, long-term, net
|
|
|
(7.7
|
)
|
|
|
(1.5
|
)
|
|
|
33.1
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
17.9
|
|
F-54
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
Corporate
|
|
|
|
|
Power
|
|
Plant Services
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
Corporate
|
|
|
|
|
Power
|
|
Plant Services
|
|
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
|
)
|
F-55
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total segment assets
|
|
$
|
6,978.9
|
|
|
$
|
6,382.9
|
|
|
$
|
5,362.2
|
|
Elimination of intercompany receivables
|
|
|
(570.5
|
)
|
|
|
(414.0
|
)
|
|
|
(299.1
|
)
|
Elimination of investments in subsidiaries
|
|
|
(412.1
|
)
|
|
|
(412.1
|
)
|
|
|
(412.1
|
)
|
Income tax entries not allocated to segments
|
|
|
|
|
|
|
0.4
|
|
|
|
(63.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
5,996.3
|
|
|
$
|
5,557.2
|
|
|
$
|
4,587.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present geographic revenues and long-lived
assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,619.0
|
|
|
$
|
5,669.7
|
|
|
$
|
5,422.2
|
|
Asia/Pacific Rim countries
|
|
|
965.2
|
|
|
|
978.4
|
|
|
|
573.0
|
|
Middle East
|
|
|
263.2
|
|
|
|
386.3
|
|
|
|
719.5
|
|
United Kingdom and other European countries
|
|
|
67.6
|
|
|
|
127.9
|
|
|
|
193.9
|
|
South America and Mexico
|
|
|
16.0
|
|
|
|
51.8
|
|
|
|
33.6
|
|
Canada
|
|
|
23.3
|
|
|
|
37.7
|
|
|
|
25.4
|
|
Other
|
|
|
46.5
|
|
|
|
27.9
|
|
|
|
30.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,000.8
|
|
|
$
|
7,279.7
|
|
|
$
|
6,998.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
538.5
|
|
|
$
|
450.6
|
|
|
$
|
1,245.6
|
|
United Kingdom
|
|
|
4.3
|
|
|
|
5.9
|
|
|
|
309.3
|
|
Other foreign countries
|
|
|
67.1
|
|
|
|
46.1
|
|
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
609.9
|
|
|
$
|
502.6
|
|
|
$
|
1,587.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 ASC 280, Segment Reporting,
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 $1,724.5 million,
$1,543.3 million, and $1,111.0 million for the fiscal
years ended August 31, 2010, 2009, and 2008, respectively,
representing approximately 25%, 21%, and 16% of our total
revenues for fiscal years 2010, 2009, and 2008, respectively.
These revenues were recorded primarily in our E&I segment.
F-56
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
|
|
Power
|
|
|
2
|
|
|
$
|
907.2
|
|
|
|
40
|
%
|
Plant Services
|
|
|
2
|
|
|
|
354.6
|
|
|
|
40
|
%
|
E&I
|
|
|
1
|
|
|
|
1,703.8
|
|
|
|
77
|
%
|
E&C
|
|
|
2
|
|
|
|
712.3
|
|
|
|
64
|
%
|
F&M
|
|
|
1
|
|
|
|
53.1
|
|
|
|
11
|
%
|
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, 2010, 2009, and 2008,
our international revenues include approximately
$752.2 million, $1,262.8 million, and
$721.9 million, respectively, of exports from our domestic
facilities.
|
|
Note 16
|
Supplemental
Disclosure to Earnings (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
84,041
|
|
|
|
83,244
|
|
|
|
82,063
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,022
|
|
|
|
669
|
|
|
|
1,766
|
|
Restricted stock
|
|
|
771
|
|
|
|
498
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,834
|
|
|
|
84,411
|
|
|
|
84,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,222
|
|
|
|
1,578
|
|
|
|
301
|
|
Restricted stock
|
|
|
103
|
|
|
|
283
|
|
|
|
45
|
|
|
|
Note 17
|
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, 2010, 2009, and 2008, was approximately
$34.7 million, $31.9 million, and $24.5 million,
respectively. Our plans offer employees a number of investment
options,
F-57
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, 2010 and 2009, our plans owned
1,471,966 shares and 1,593,660 shares, respectively,
of our common stock. The fair value of the common stock owned by
the plans was $47.7 million and $46.7 million at
August 31, 2010 and 2009, 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 two of the
plans have 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 an
$8.2 million voluntary cash contribution to one of our
foreign plans.
ASC 715, Retirement Benefits, requires us to recognize the
funded status of our defined benefit plans directly in our
consolidated balance sheets. ASC 715 also requires us 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. 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-58
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Defined
Benefit Pension Obligation and 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
151,159
|
|
|
$
|
154,822
|
|
Service cost
|
|
|
135
|
|
|
|
1,108
|
|
Interest cost
|
|
|
7,989
|
|
|
|
8,255
|
|
Participants contributions
|
|
|
|
|
|
|
522
|
|
Actuarial loss (gain)
|
|
|
12,357
|
|
|
|
12,536
|
|
Benefits paid
|
|
|
(7,334
|
)
|
|
|
(6,925
|
)
|
Curtailment (gain)
|
|
|
|
|
|
|
(3,179
|
)
|
Other
|
|
|
|
|
|
|
(956
|
)
|
Foreign currency exchange
|
|
|
(5,606
|
)
|
|
|
(15,024
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
158,700
|
|
|
$
|
151,159
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
122,267
|
|
|
$
|
119,939
|
|
Actual return on plan assets
|
|
|
10,415
|
|
|
|
1,508
|
|
Company contributions
|
|
|
12,185
|
|
|
|
18,587
|
|
Participants contributions
|
|
|
|
|
|
|
522
|
|
Benefits paid
|
|
|
(7,334
|
)
|
|
|
(6,925
|
)
|
Foreign currency exchange
|
|
|
(4,404
|
)
|
|
|
(11,364
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of the plan assets at end of year
|
|
|
133,129
|
|
|
|
122,267
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(25,571
|
)
|
|
$
|
(28,892
|
)
|
|
|
|
|
|
|
|
|
|
The funded status of our defined benefit pension plans of
$(25.6) million and $(28.9) million at August 31,
2010 and August 31, 2009, respectively, is included in
non-current liabilities shown on our consolidated balance sheet.
F-59
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components
of Net Periodic Benefit Cost and Changes Recognized in Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
135
|
|
|
$
|
1,063
|
|
|
$
|
2,049
|
|
Interest cost
|
|
|
8,034
|
|
|
|
7,904
|
|
|
|
8,740
|
|
Expected return on plan assets
|
|
|
(7,197
|
)
|
|
|
(6,420
|
)
|
|
|
(8,859
|
)
|
Amortization of net loss
|
|
|
3,284
|
|
|
|
2,472
|
|
|
|
2,170
|
|
Curtailment gain
|
|
|
|
|
|
|
(2,725
|
)
|
|
|
|
|
Other
|
|
|
40
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost
|
|
$
|
4,296
|
|
|
$
|
2,330
|
|
|
$
|
4,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
9,099
|
|
|
$
|
17,741
|
|
|
$
|
6,749
|
|
Amortization of net actuarial loss
|
|
|
(3,263
|
)
|
|
|
(2,574
|
)
|
|
|
(543
|
)
|
Other amortization
|
|
|
(40
|
)
|
|
|
(38
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes recognized in other comprehensive income
|
|
$
|
5,796
|
|
|
$
|
15,129
|
|
|
$
|
6,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses totaling $57.6 million
and $63.3 million at August 31, 2010 and
August 31, 2009, respectively, are classified in
accumulated other comprehensive loss. We estimate that
$3.6 million of net actuarial losses will be amortized from
accumulated other comprehensive income into net pension expense
during fiscal year 2011.
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted-average assumptions used to determine benefit
obligations at August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.75-4.90
|
%
|
|
|
5.60-5.75
|
%
|
|
|
6.00-6.20
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00-4.70
|
%
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.60-5.75
|
%
|
|
|
6.00-6.20
|
%
|
|
|
5.50-5.75
|
%
|
Expected long-term rate of return on assets
|
|
|
5.99-7.00
|
%
|
|
|
6.40-7.00
|
%
|
|
|
7.00-7.25
|
%
|
Rate of compensation increase at end of the year
|
|
|
4.00
|
%
|
|
|
4.00-4.70
|
%
|
|
|
3.25-4.50
|
%
|
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 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.
F-60
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term
Rate of Return Assumptions
The expected long-term rate of return on plan assets is
developed by blending the expected returns on each class of
investment in the plans portfolio. The expected returns by
asset class are developed considering both past performance and
future considerations. Annually, we review and adjust, as
required, the long-term rate of return for our pension plans.
The expected long-term rate of return on plan assets has ranged
from 5.99% to 7.25% over the past three years.
Accumulated
Benefit Obligation
The combined accumulated benefit obligations of our defined
benefit pension plans was $158.7 million and
$151.2 million at August 31, 2010 and 2009,
respectively.
Plan Assets, Investment Policies and Strategies and Expected
Long-Term Rate of Return on Plan Assets
Pension plan asset allocations at August 31, 2010 and 2009,
by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
At August 31,
|
|
Asset Category
|
|
2010
|
|
|
2009
|
|
|
Equity securities
|
|
|
54.5
|
%
|
|
|
52.7
|
%
|
Debt securities
|
|
|
41.7
|
|
|
|
42.7
|
|
Other
|
|
|
3.8
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
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
weighted-average basis, target asset allocations range from 20%
to 56% for equity securities, 30% to 60% for debt securities,
and 0% to 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.
The fair values of our defined benefit pension plan assets as of
August 31, 2010 and 2009 by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of August 31, 2010
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash and cash equivalents
|
|
$
|
1,925
|
|
|
$
|
1,925
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities(a)
|
|
|
72,503
|
|
|
|
72,503
|
|
|
|
|
|
|
|
|
|
Fixed Income securities(b)
|
|
|
55,770
|
|
|
|
26,778
|
|
|
|
28,682
|
|
|
|
310
|
|
Real estate funds
|
|
|
2,931
|
|
|
|
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,129
|
|
|
$
|
101,206
|
|
|
$
|
31,613
|
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of August 31, 2009
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
1,112
|
|
|
$
|
1,112
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities(a)
|
|
|
|
|
|
|
61,139
|
|
|
|
52,843
|
|
|
|
8,296
|
|
|
|
|
|
Fixed Income securities(b)
|
|
|
|
|
|
|
51,368
|
|
|
|
25,535
|
|
|
|
25,506
|
|
|
|
327
|
|
Real estate Funds
|
|
|
|
|
|
|
8,648
|
|
|
|
|
|
|
|
8,648
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
122,267
|
|
|
$
|
79,490
|
|
|
$
|
42,450
|
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Equity securities include both U.K., Canadian, and U.S. equity
securities. |
|
(b) |
|
Fixed income securities include both government and corporate
bonds. |
The following is a description of the primary valuation
methodologies used for our pension assets measured at fair value:
|
|
|
|
|
Corporate bonds: Valued at the closing price reported on the
active market on which the individual securities are traded.
|
|
|
|
Corporate bonds and government bonds: Valued at quoted prices in
markets that are not active, broker dealer quotations, or other
methods by which all significant inputs are observable, either
directly or indirectly.
|
|
|
|
Equity securities: Valued at the net asset value of shares held
at year end as quoted in the active market.
|
|
|
|
Real Estate: Valued at net asset value per unit held at year end.
|
Contributions
and Benefit Payments
We expect to contribute $4.8 million to the plans in fiscal
year 2011. The following benefit payments are expected to be
paid from the plans (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Pension Benefits
|
|
2011
|
|
$
|
7,445
|
|
2012
|
|
|
6,597
|
|
2013
|
|
|
6,756
|
|
2014
|
|
|
6,911
|
|
2015
|
|
|
7,052
|
|
2016 2020
|
|
|
37,390
|
|
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 fourteen 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, 2010
and 2009, the fair market value of the plan assets was
$1.2 million and $1.1 million, respectively, which
exceeded the estimated accumulated projected benefit obligation
each year. Pension assets included in non-current assets at
August 31, 2010 and 2009 were $1.0 million and
$0.9 million, respectively.
F-62
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Multiemployer
Plans
We participate in various multiemployer pension plans under
union and industry-wide agreements. Generally, these plans
provide defined benefits to substantially all employees covered
by collective bargaining agreements. Under the Employee
Retirement Income Security Act (ERISA), a contributor to a
multiemployer plan may be liable, upon termination or withdrawal
from a plan, for its proportionate share of a plans
unfunded vested liability.
We recognize expense in connection with these plans as
contributions are funded. We made contributions to these plans
and recognized expense during fiscal years 2010, 2009, and 2008
of $63.4 million, $62.8 million, and
$56.2 million, respectively.
Based on the most recent information available to us, we believe
that the present value of actuarial accrued liabilities in one
of these multi-employer plans exceeds the value of the assets
held in trust to pay benefits. Moreover, if we were to exit
certain markets or otherwise cease making contributions to these
funds, we might trigger a substantial withdrawal liability. Any
adjustment for withdrawal liability will be recorded when it is
probable that a liability exists and can be reasonably estimated.
Supplemental
Deferred Compensation Plans
We deposited cash of $1.8 million and $1.1 million
during the years ended August 31, 2010 and August 31,
2009, 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 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, 2010 and August 31, 2009, other
assets include $7.8 million and $11.0 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, 2010 and August 31, 2009, other current
assets include $18.4 million and $18.1 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, 2010 and August 31, 2009, other assets
include $1.0 million and $2.1 million, respectively,
related to these employment agreements.
Compensation expense recognized in the years ended
August 31, 2010, 2009, and 2008 was $3.7 million,
$3.9 million and $4.2 million, respectively, for these
agreements.
|
|
Note 18
|
Related
Party Transactions
|
As discussed in Note 7 Equity Method
Investments, our significant unconsolidated subsidiary that is
accounted for using the equity method of accounting is our
Investment in Westinghouse. We operate in a consortium that
includes Westinghouse on several new build nuclear power
projects. We also provide services to Westinghouse as part of
its arrangements with its clients. To date, the revenues and
expenses recorded on transactions between Westinghouse and us
have not been material.
F-63
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 19
|
Accumulated
Other Comprehensive Loss
|
The after-tax components of accumulated other comprehensive
income (loss) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Westinghouses
|
|
|
Change in
|
|
|
Liability,
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Pre-tax other
|
|
|
Unrealized
|
|
|
Not Yet
|
|
|
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
Comprehensive
|
|
|
Net Loss
|
|
|
Recognized in
|
|
|
|
|
|
Other
|
|
|
|
Currency
|
|
|
Income (loss),
|
|
|
on
|
|
|
Net Periodic
|
|
|
Unrealized
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Net of
|
|
|
Hedging
|
|
|
Pension
|
|
|
Gain (Loss)
|
|
|
Income
|
|
|
|
Adjustments
|
|
|
Shaws tax
|
|
|
Activities
|
|
|
Expense
|
|
|
On Securities
|
|
|
(Loss)
|
|
|
Balance at September 1, 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
|
)
|
Current Period Change
|
|
|
(5,610
|
)
|
|
|
(11,640
|
)
|
|
|
(1,144
|
)
|
|
|
(2,831
|
)
|
|
|
546
|
|
|
|
(20,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2010
|
|
$
|
(15,532
|
)
|
|
$
|
(66,297
|
)
|
|
$
|
(20,361
|
)
|
|
$
|
(41,001
|
)
|
|
$
|
546
|
|
|
$
|
(142,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The translation adjustments relate primarily to changes in the
value of the USD in relation to other currencies such as the
British Pounds Sterling (GBP), Mexican Pesos (MXP), and Canadian
Dollars (CAD).
|
|
Note 20
|
Accounting
for Claims, Unapproved Change Orders and Incentives on Long-Term
Construction Contracts
|
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 and estimated earnings in excess of 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 (in millions) summarizes information related to
our significant unapproved change orders and claims from project
owners that we have recorded on a total project basis at
August 31, 2010, and August 31, 2009, and excludes all
unrecorded amounts and non-significant unapproved change orders
and claims.
F-64
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Amounts included in project
estimates-at-completion
at September 1
|
|
$
|
222.9
|
|
|
$
|
63.6
|
|
Changes in
estimates-at-completion
|
|
|
65.2
|
|
|
|
197.2
|
|
Approved by client
|
|
|
(176.5
|
)
|
|
|
(37.9
|
)
|
|
|
|
|
|
|
|
|
|
Amounts included in project
estimates-at-completion
August 31
|
|
|
111.6
|
|
|
|
222.9
|
|
|
|
|
|
|
|
|
|
|
Amounts accrued in revenues (or reductions to contract costs) at
August 31
|
|
$
|
92.6
|
|
|
$
|
86.9
|
|
|
|
|
|
|
|
|
|
|
Unapproved change orders and claims included in project
estimates-at-completion
decreased nearly $100.0 million during the current period
due to successful resolution and approval of price adjustment
modifications on a large construction project. Still remaining
in amounts disclosed above are $21.0 million associated
with delay change orders on a coal plant construction project
for which we have reached resolution with the client and final
change orders are pending. We have excluded from our disclosures
those values associated with undisputed escalation provisions
for which existing contract terms provide for entitlement and
price.
As part of the application process for our clients to obtain
combined operating licenses (COL) for the domestic AP 1000
nuclear power plants, the Nuclear Regulatory Commission is
conducting technical reviews of the proposed design of the
facilities. These reviews could result in changes to the
proposed design, which may result in additional costs to
complete the facilities. We believe we will have contractual
entitlement to recover additional costs related to these design
changes. At this time, until designs are finalized, we are
unable to reliably estimate those costs, if any, and as a result
they are not included in our current estimated at completion
revenue or costs.
The difference between the amounts included in project 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 has 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 orders/claims receivable within the next twelve months.
Also included in unapproved change orders and claims are two
matters currently in arbitration or litigation. See
Note 14 Contingencies and Commitments for
additional information.
In addition to the unapproved change orders and claims discussed
above, we have recorded as a reduction to costs at
August 31, 2010, approximately $22.2 million 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. See Note 14 Contingencies and
Commitments for information with respect to certain vendor
backcharges.
Should we not prevail in these matters, the outcome could have
an adverse effect on our statement of operations and statement
of cash flows.
F-65
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 recognition of revenues on contracts
containing provisions for incentive and award fees 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 EACs include an estimate of amounts that we expect
to earn if we achieve a number of agreed upon criteria. At
August 31, 2010, and August 31, 2009, our project
estimates included $127.1 million and $32.9 million,
respectively, related to amounts at risk for the estimated
achievement of these criteria. On a
percentage-of-completion
basis, we have recorded $72.3 million and
$29.4 million of these estimated amounts in revenues for
the related contracts and equal amounts in costs and estimated
earnings in excess of billings on uncompleted contracts in the
accompanying consolidated balance sheets based on our progress
as of August 31, 2010, and August 31, 2009,
respectively. Included in these amounts are incentives tied to
performance guarantees for which realization is expected upon
project completion in approximately two years. If we do not
achieve the criteria at the amounts we have estimated, project
revenues and profit may be materially reduced. These incentive
revenues are 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 costs and estimated earnings
on uncompleted contracts and were $9.9 million and
$7.3 million at August 31, 2010 and 2009, respectively.
|
|
Note 21
|
Supplemental
Cash Flow Information
|
Supplemental cash flow information for the years ended
August 31, 2010, 2009, and 2008 is presented below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest)
|
|
$
|
32,906
|
|
|
$
|
31,134
|
|
|
$
|
32,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
66,909
|
|
|
$
|
82,079
|
|
|
$
|
14,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment
|
|
$
|
6,909
|
|
|
$
|
37,627
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of purchase accounting tax contingency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract on JYP-denominated bonds, net of
deferred tax of $729, $8,711, and $775, respectively
|
|
$
|
1,144
|
|
|
$
|
13,857
|
|
|
$
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Westinghouse accumulated other comprehensive income,
net of tax deferred tax of $(7,411), $(50,744), and $4,206,
respectively
|
|
$
|
(11,640
|
)
|
|
$
|
(80,717
|
)
|
|
$
|
6,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
THE SHAW
GROUP INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 22
|
Quarterly
Financial Data (Unaudited)
|
Summarized quarterly financial data for the years ended
August 31, 2010 and 2009 are as follows (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year ended August 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,858,515
|
|
|
$
|
1,624,259
|
|
|
$
|
1,789,254
|
|
|
$
|
1,728,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
154,736
|
|
|
$
|
145,140
|
|
|
$
|
151,685
|
|
|
$
|
134,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
78,959
|
|
|
$
|
72,821
|
|
|
$
|
76,959
|
|
|
$
|
69,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
(8,379
|
)
|
|
$
|
(7,641
|
)
|
|
$
|
(5,693
|
)
|
|
$
|
(8,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation/transaction gains (losses)
|
|
$
|
(102,756
|
)
|
|
$
|
41,948
|
|
|
$
|
35,549
|
|
|
$
|
(103,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and earnings (losses) from
unconsolidated entities
|
|
$
|
(27,130
|
)
|
|
$
|
104,834
|
|
|
$
|
109,324
|
|
|
$
|
(39,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Shaw
|
|
$
|
(20,485
|
)
|
|
$
|
63,726
|
|
|
$
|
68,363
|
|
|
$
|
(18,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Shaw per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
|
$
|
0.76
|
|
|
$
|
0.81
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.74
|
|
|
$
|
0.79
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and earnings (losses) from
unconsolidated entities
|
|
$
|
(58,159
|
)
|
|
$
|
55,419
|
|
|
$
|
14,273
|
|
|
$
|
21,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Shaw
|
|
$
|
(39,917
|
)
|
|
$
|
36,335
|
|
|
$
|
7,898
|
|
|
$
|
10,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Shaw per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.48
|
)
|
|
$
|
0.44
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.48
|
)
|
|
$
|
0.43
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
COMBINED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2010, 2009 and 2008
CONTENTS
|
|
|
|
|
|
|
|
F-69
|
|
Combined Financial Statements
|
|
|
|
|
|
|
|
F-70
|
|
|
|
|
F-71
|
|
|
|
|
F-72
|
|
|
|
|
F-73
|
|
|
|
|
F-74
|
|
F-68
The Board of Directors and Shareholders 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,
2010 and 2009, and the related combined statements of operations
and comprehensive income (loss), stockholders equity, and
cash flows for each of the three years in the period ended
March 31, 2010. 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, 2010
and 2009, and the combined results of their operations and their
cash flows for each of the three years in the period ended
March 31, 2010 in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 1 to the combined financial
statements, the Company changed its method of accounting for
noncontrolling interests with the adoption of the guidance
originally issued in FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(codified in FASB ASC Topic 810, Consolidation),
effective April 1, 2009. As discussed in Note 7 to the
combined financial statements, the Company changed its
measurement date for pensions with the adoption of the guidance
originally issued in FASB Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (codified in FASB ASC Topic 715,
Compensation Retirement Benefits), effective
April 1, 2008.
Pittsburgh, Pennsylvania
May 18, 2010
F-69
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
198,433
|
|
|
$
|
192,267
|
|
Receivables, net of allowance for doubtful accounts of $459 and
$368
|
|
|
457,568
|
|
|
|
361,034
|
|
Related-party receivables
|
|
|
615,119
|
|
|
|
213,824
|
|
Inventories, net
|
|
|
591,542
|
|
|
|
514,879
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
300,654
|
|
|
|
587,480
|
|
Amounts earned in excess of billings
|
|
|
95,826
|
|
|
|
57,783
|
|
Deferred income tax assets
|
|
|
76,298
|
|
|
|
67,857
|
|
Other current assets
|
|
|
152,044
|
|
|
|
133,391
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,487,484
|
|
|
|
2,128,515
|
|
NONCURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
870,440
|
|
|
|
568,076
|
|
Goodwill
|
|
|
2,816,522
|
|
|
|
2,775,369
|
|
Other intangible assets, net
|
|
|
1,851,882
|
|
|
|
1,805,850
|
|
Uranium assets
|
|
|
486,806
|
|
|
|
460,919
|
|
Other noncurrent assets
|
|
|
119,924
|
|
|
|
93,265
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
6,145,574
|
|
|
|
5,703,479
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
8,633,058
|
|
|
$
|
7,831,994
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
369,701
|
|
|
$
|
413,339
|
|
Related-party payables
|
|
|
40,447
|
|
|
|
51,788
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
1,165,831
|
|
|
|
949,115
|
|
Amounts billed in excess of revenue
|
|
|
244,049
|
|
|
|
165,882
|
|
Secured borrowings
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
462,318
|
|
|
|
479,883
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,282,346
|
|
|
|
2,060,007
|
|
NONCURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Reserves for decommissioning matters
|
|
|
227,072
|
|
|
|
223,596
|
|
Benefit obligations
|
|
|
301,113
|
|
|
|
337,912
|
|
Deferred income tax liabilities
|
|
|
392,454
|
|
|
|
324,330
|
|
Note due to related party
|
|
|
104,954
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
222,771
|
|
|
|
97,498
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
1,248,364
|
|
|
|
983,336
|
|
EQUITY:
|
|
|
|
|
|
|
|
|
TNEH-US & TNEH-UK stockholders equity
|
|
|
4,978,604
|
|
|
|
4,783,960
|
|
Noncontrolling interests
|
|
|
123,744
|
|
|
|
4,691
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
5,102,348
|
|
|
|
4,788,651
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
8,633,058
|
|
|
$
|
7,831,994
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements.
F-70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
NET REVENUES
|
|
$
|
4,159,969
|
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
COST OF GOODS SOLD
|
|
|
3,271,791
|
|
|
|
2,662,412
|
|
|
|
2,043,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
888,178
|
|
|
|
732,886
|
|
|
|
667,346
|
|
MARKETING, ADMINISTRATIVE AND GENERAL EXPENSES
|
|
|
623,668
|
|
|
|
526,487
|
|
|
|
484,860
|
|
AMORTIZATION OF INTANGIBLES
|
|
|
82,915
|
|
|
|
77,523
|
|
|
|
78,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
181,595
|
|
|
|
128,876
|
|
|
|
103,978
|
|
INTEREST AND OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,697
|
|
|
|
16,775
|
|
|
|
23,961
|
|
Interest expense
|
|
|
(16,027
|
)
|
|
|
(6,470
|
)
|
|
|
(12,915
|
)
|
(Loss) gain on foreign currency transactions, net
|
|
|
(5,674
|
)
|
|
|
(23,267
|
)
|
|
|
17,381
|
|
Other income (expense), net
|
|
|
77
|
|
|
|
(422
|
)
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other (expense) income
|
|
|
(18,927
|
)
|
|
|
(13,384
|
)
|
|
|
30,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
162,668
|
|
|
|
115,492
|
|
|
|
134,495
|
|
INCOME TAX PROVISION
|
|
|
70,021
|
|
|
|
47,648
|
|
|
|
24,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMBINED NET INCOME
|
|
|
92,647
|
|
|
|
67,844
|
|
|
|
110,319
|
|
LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
|
|
6,324
|
|
|
|
264
|
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO TNEH-US & TNEH-UK
|
|
$
|
86,323
|
|
|
$
|
67,580
|
|
|
$
|
109,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMBINED NET INCOME
|
|
$
|
92,647
|
|
|
$
|
67,844
|
|
|
$
|
110,319
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives
|
|
|
27,398
|
|
|
|
(15,550
|
)
|
|
|
(6,890
|
)
|
Change in unrecognized gains (losses) and prior service cost
related to pension and other postretirement benefit plans
|
|
|
26,582
|
|
|
|
(96,823
|
)
|
|
|
23,161
|
|
Unrealized foreign currency gain (loss) on translation adjustment
|
|
|
115,461
|
|
|
|
(844,470
|
)
|
|
|
104,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
|
169,441
|
|
|
|
(956,843
|
)
|
|
|
121,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
262,088
|
|
|
|
(888,999
|
)
|
|
|
231,387
|
|
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
|
|
|
7,801
|
|
|
|
282
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
TNEH-US &
TNEH-UK
|
|
$
|
254,287
|
|
|
$
|
(889,281
|
)
|
|
$
|
230,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements.
F-71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
TNEH-US &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
TNEH-UK
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
BALANCE AT MARCH 31, 2007
|
|
$
|
5,400,000
|
|
|
$
|
12,569
|
|
|
$
|
115,147
|
|
|
$
|
5,527,716
|
|
|
$
|
4,440
|
|
|
$
|
5,532,156
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling and noncontrolling
interests
|
|
|
|
|
|
|
109,540
|
|
|
|
|
|
|
|
109,540
|
|
|
|
779
|
|
|
|
110,319
|
|
Unrealized loss on derivatives, net of tax effect of $1,271
|
|
|
|
|
|
|
|
|
|
|
(6,890
|
)
|
|
|
(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
|
|
|
|
|
|
|
|
23,161
|
|
Unrealized foreign currency gain on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
104,998
|
|
|
|
104,998
|
|
|
|
(201
|
)
|
|
|
104,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
109,540
|
|
|
|
121,269
|
|
|
|
230,809
|
|
|
|
578
|
|
|
|
231,387
|
|
Dividends
|
|
|
|
|
|
|
(8,170
|
)
|
|
|
|
|
|
|
(8,170
|
)
|
|
|
(290
|
)
|
|
|
(8,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2008
|
|
$
|
5,400,000
|
|
|
$
|
113,939
|
|
|
$
|
236,416
|
|
|
$
|
5,750,355
|
|
|
$
|
4,728
|
|
|
$
|
5,755,083
|
|
Cumulative effect of accounting for changing the measurement
date of pension plans, net of tax effect of $3,687
|
|
|
|
|
|
|
(5,913
|
)
|
|
|
|
|
|
|
(5,913
|
)
|
|
|
|
|
|
|
(5,913
|
)
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling and noncontrolling
interests
|
|
|
|
|
|
|
67,580
|
|
|
|
|
|
|
|
67,580
|
|
|
|
264
|
|
|
|
67,844
|
|
Unrealized loss on derivatives, net of tax effect of $2,902
|
|
|
|
|
|
|
|
|
|
|
(15,550
|
)
|
|
|
(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
|
)
|
|
|
|
|
|
|
(96,823
|
)
|
Unrealized foreign currency gain on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(844,488
|
)
|
|
|
(844,488
|
)
|
|
|
18
|
|
|
|
(844,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
|
|
|
|
|
67,580
|
|
|
|
(956,861
|
)
|
|
|
(889,281
|
)
|
|
|
282
|
|
|
|
(888,999
|
)
|
Dividends
|
|
|
|
|
|
|
(71,201
|
)
|
|
|
|
|
|
|
(71,201
|
)
|
|
|
(319
|
)
|
|
|
(71,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2009
|
|
$
|
5,400,000
|
|
|
$
|
104,405
|
|
|
$
|
(720,445
|
)
|
|
$
|
4,783,960
|
|
|
$
|
4,691
|
|
|
$
|
4,788,651
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling and noncontrolling
interests
|
|
|
|
|
|
|
86,323
|
|
|
|
|
|
|
|
86,323
|
|
|
|
6,324
|
|
|
|
92,647
|
|
Unrealized gain on derivatives, net of tax effect of $(8,651)
|
|
|
|
|
|
|
|
|
|
|
27,398
|
|
|
|
27,398
|
|
|
|
|
|
|
|
27,398
|
|
Change in unrecognized gains (losses) and prior service cost
related to pension and other postretirement benefit plans, net
of tax effect of $(16,751)
|
|
|
|
|
|
|
|
|
|
|
26,582
|
|
|
|
26,582
|
|
|
|
|
|
|
|
26,582
|
|
Unrealized foreign currency gain on translation adjustment
|
|
|
|
|
|
|
|
|
|
|
113,984
|
|
|
|
113,984
|
|
|
|
1,477
|
|
|
|
115,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
86,323
|
|
|
|
167,964
|
|
|
|
254,287
|
|
|
|
7,801
|
|
|
|
262,088
|
|
Noncontrolling interest related to acquisitions and cash
contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,728
|
|
|
|
112,728
|
|
Dividends
|
|
|
|
|
|
|
(59,643
|
)
|
|
|
|
|
|
|
(59,643
|
)
|
|
|
(1,476
|
)
|
|
|
(61,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2010
|
|
$
|
5,400,000
|
|
|
$
|
131,085
|
|
|
$
|
(552,481
|
)
|
|
$
|
4,978,604
|
|
|
$
|
123,744
|
|
|
$
|
5,102,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements.
F-72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined net income
|
|
$
|
92,647
|
|
|
$
|
67,844
|
|
|
$
|
110,319
|
|
Adjustments to reconcile combined net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
172,997
|
|
|
|
148,597
|
|
|
|
139,808
|
|
Deferred income taxes
|
|
|
12,086
|
|
|
|
(1,109
|
)
|
|
|
(29,402
|
)
|
Loss on sale of property, plant and equipment
|
|
|
3,734
|
|
|
|
2,185
|
|
|
|
318
|
|
Loss (gain) on foreign currency transactions, net
|
|
|
5,674
|
|
|
|
23,267
|
|
|
|
(17,381
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(41,467
|
)
|
|
|
(21,553
|
)
|
|
|
(105,628
|
)
|
Notes repaid by related parties
|
|
|
2,041,911
|
|
|
|
927,630
|
|
|
|
542,967
|
|
Notes issued to related parties
|
|
|
(2,443,769
|
)
|
|
|
(884,872
|
)
|
|
|
(444,448
|
)
|
Inventories, net
|
|
|
94,463
|
|
|
|
(82,574
|
)
|
|
|
73,245
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
288,108
|
|
|
|
(323,942
|
)
|
|
|
(150,427
|
)
|
Other current assets
|
|
|
(10,071
|
)
|
|
|
30,072
|
|
|
|
(99,057
|
)
|
Other noncurrent assets
|
|
|
(12,360
|
)
|
|
|
47,864
|
|
|
|
(36,976
|
)
|
Accounts payable and other current liabilities
|
|
|
(89,468
|
)
|
|
|
85,388
|
|
|
|
187,150
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
224,269
|
|
|
|
303,716
|
|
|
|
130,500
|
|
Amounts billed in excess of revenue
|
|
|
(73,639
|
)
|
|
|
(1,375
|
)
|
|
|
53,833
|
|
Amounts earned in excess of billings
|
|
|
9,122
|
|
|
|
(6,269
|
)
|
|
|
(7,088
|
)
|
Other noncurrent liabilities
|
|
|
4,015
|
|
|
|
(52,653
|
)
|
|
|
14,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
278,252
|
|
|
|
262,216
|
|
|
|
362,413
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition of Westinghouse, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(47,972
|
)
|
Acquisitions of businesses and intangible assets, net of cash
acquired
|
|
|
(52,518
|
)
|
|
|
(2,000
|
)
|
|
|
(65,289
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
250
|
|
|
|
17
|
|
|
|
49
|
|
Purchases of property, plant and equipment
|
|
|
(268,783
|
)
|
|
|
(168,503
|
)
|
|
|
(86,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(321,051
|
)
|
|
|
(170,486
|
)
|
|
|
(200,042
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from noncontrolling interests
|
|
|
8,083
|
|
|
|
|
|
|
|
|
|
Payment of secured debt
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
Proceeds from related-party notes
|
|
|
100,508
|
|
|
|
|
|
|
|
|
|
Dividends paid to TNEH-US & TNEH-UK stockholders
|
|
|
(59,643
|
)
|
|
|
(71,201
|
)
|
|
|
(8,170
|
)
|
Dividends paid to noncontrolling interests
|
|
|
(1,476
|
)
|
|
|
(319
|
)
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
47,472
|
|
|
|
(121,520
|
)
|
|
|
(8,460
|
)
|
EFFECT OF FOREIGN CURRENCY TRANSLATION
|
|
|
1,493
|
|
|
|
(65,374
|
)
|
|
|
20,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
6,166
|
|
|
|
(95,164
|
)
|
|
|
174,720
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
192,267
|
|
|
|
287,431
|
|
|
|
112,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
198,433
|
|
|
$
|
192,267
|
|
|
$
|
287,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
8,131
|
|
|
$
|
2,145
|
|
|
$
|
5,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
45,088
|
|
|
$
|
46,173
|
|
|
$
|
63,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing of business acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements.
F-73
Fiscal Years Ended March 31, 2010, 2009 and 2008
|
|
1.
|
DESCRIPTION
OF BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
|
DESCRIPTION
OF BUSINESS
The accompanying 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.
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, 2010, 2009 and 2008.
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 AND
PREPARATION
The accompanying combined financial statements include the
assets and liabilities of the Company, its wholly-owned
subsidiaries, jointly-owned subsidiaries over which it exercises
control, and entities for which it has been determined to be the
primary beneficiary as of March 31, 2010 and 2009, and the
results of operations and of cash flows for the fiscal years
ended March 31, 2010, 2009 and 2008. Noncontrolling
interest amounts relating to the Companys
less-than-wholly-owned
consolidated subsidiaries are included within the Net
income attributable to noncontrolling interests caption in
the combined statements of operations and comprehensive income
(loss) and within the Noncontrolling interests
caption in the combined balance sheets. Unless otherwise
indicated, all dollar amounts in these combined financial
statements and notes thereto are presented in thousands. All
significant intercompany transactions and balances have been
eliminated in combination. Certain amounts for prior periods
have been reclassified to conform to presentation for the fiscal
year ended March 31, 2010.
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 financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F-74
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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 post delivery 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. 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 generally 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 revenue accounting. 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 generally recognized when the product is
shipped and risk of loss is transferred to the customer for
these contracts. Billings 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.
Goodwill and other intangible assets
Intangibles and goodwill accounting require goodwill and
intangible assets with indefinite lives to be tested annually
for impairment, with more frequent tests required if indications
of impairment exists. The Company conducts its tests of goodwill
impairment on an annual basis on October 1 and on an interim
basis as necessary. 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 if the carrying value of a reporting unit exceeds its
estimated fair value and a market approach, when available. The
Company primarily uses a discounted cash flow analysis to
determine fair value. Key assumptions in the
F-75
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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
years ended March 31, 2010, 2009 and 2008. See Note 6
for additional information.
Other intangible assets with definite lives are recorded at fair
market value at the time of acquisition and are amortized over
their estimated useful lives. The method of amortization
reflects the expected realization pattern of the economic
benefits relevant to the intangible assets, or if the Company is
unable to determine the expected realization pattern reliably,
they are amortized using the straight-line method. See
Notes 3 and 6 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 years ended March 31, 2010, 2009 and
2008.
Income taxes TNEH-US 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, 2010 and 2009, the Company recorded $32,622 and
$17,331, respectively, as valuation reserves, which are included
as a reduction to deferred tax assets in the accompanying
combined balance sheets. See Note 8 for additional
information.
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 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
F-76
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
statements of operations and comprehensive income (loss).
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 or market. Cost is determined on a
first-in,
first-out (FIFO) or average cost method depending on the nature
of the inventory. Inventories are reported net of any related
reserves. 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 manufacturing operations of the
business. The Company maintains uranium working stock in order
to ensure efficient manufacturing processes. The Company
classifies all uranium working stock as a noncurrent asset, and
the majority of this is denominated in Great Britain Pounds. The
Company also 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. Uranium inventory is stated at the lower of
cost or market. At March 31, 2010, the spot price for
natural uranium was below the carrying value of the surplus
uranium inventory, and the Company recorded a charge against the
uranium inventory of $1,043 and wrote down the cost of inventory
to the March 31, 2010 market value. See Note 12 for
additional information.
Property, plant and equipment Additions and
improvements to property, plant and equipment are recorded at
cost (including decommissioning costs where appropriate).
Construction in progress is recorded at cost and is not
depreciated until placed in service.
Depreciation is calculated principally on a straight-line basis
over the estimated useful lives of the assets. The estimated
lives used for depreciation purposes are:
|
|
|
Buildings and improvements
|
|
13 to 60 years
|
Machinery and equipment
|
|
3 to 20 years
|
Computer hardware and software
|
|
3 to 5 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 amortized to
depreciation expense over their useful lives. Interest expense
related to the capital lease obligations is charged to the
accompanying combined statements of operations and comprehensive
income (loss) 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.
The Company recognizes asset retirement obligations (ARO), in
accordance with asset retirement and environmental obligations
accounting, 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 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. The
Company recognizes the fair value of a liability for an ARO 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 5 for additional information.
The Company capitalizes certain costs incurred in connection
with developing or obtaining internal use software. During the
software application development state, capitalized costs
include the cost of the software,
F-77
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
external consulting costs and internal payroll costs for
employees who are directly associated with a software project.
Similar costs related to software upgrades and enhancements are
capitalized if they result in added functionality which enables
the software to perform tasks it previously was incapable of
performing. Software maintenance, data conversion and training
costs are expensed in the period in which they are incurred.
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.
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
$52,826, $43,133 and $41,688 of research and development costs,
net of reimbursements discussed below, which are included in
marketing, administrative and general expenses in the
accompanying combined statements of operations and comprehensive
income (loss) for the fiscal years ended March 31, 2010,
2009 and 2008, 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 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
$93,891, $51,469 and $44,170 for the fiscal years ended
March 31, 2010, 2009 and 2008, respectively, of this
funding as a reduction of indirect product costs within the
marketing, administrative and general expenses in the
accompanying combined statements of operations and comprehensive
income (loss).
Pre-contract costs The Company capitalized
certain Long Lead Material items relative to AP1000 projects not
yet contracted but deemed probable of being obtained as
pre-contract costs. At March 31, 2010 and 2009, $73,846 and
$76,727, respectively, of such costs were included in costs and
estimated earnings in excess of billings on uncompleted
contracts in the accompanying balance sheets.
Shipping and handling costs The Company
expenses shipping and handling costs as incurred. These costs
are included in cost of goods sold.
Fair value accounting Fair value is defined
as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date (i.e., an exit price). The
fair value of financial instruments classified as cash and cash
equivalents, receivables, related-party receivables, accounts
payable, related-party payables, and note due to related party
approximates carrying value due to the short-term nature or the
relative liquidity of the instrument.
Fair value accounting defines a hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets and liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the hierarchy under
fair value accounting are described below:
Level 1 Unadjusted quoted prices in
active markets that are accessible to the reporting entity at
the measurement date for identical assets and liabilities.
F-78
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Level 2 Inputs other than quoted prices
in active markets for identical assets and liabilities that are
observable either directly or indirectly for substantially the
full term of the asset or liability. Level 2 inputs include
the following:
quoted prices for similar assets and
liabilities in active markets
quoted prices for identical or similar assets
or liabilities in markets that are not active
|
|
|
|
|
observable inputs other than quoted prices that are used in the
valuation of the asset or liabilities (e.g., interest rate and
yield curve quotes at commonly quoted intervals)
|
|
|
|
inputs that are derived principally from or corroborated by
observable market data by correlation or other means
|
Level 3 Unobservable inputs for the
asset or liability (i.e., supported by little or no market
activity. Level 3 inputs include managements own
assumption about the assumptions that market participants would
use in pricing the asset or liability (including assumptions
about risk).
The level in the fair value hierarchy within which the fair
value measurement is classified is determined based on the
lowest level input that is significant to the fair value measure
in its entirety.
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 (loss) 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
compensation-retirement benefits accounting are detailed in
Note 7.
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 combined balance
sheets at fair value. 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
derivatives and hedging accounting. 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. Derivatives that are not hedges are adjusted to fair
value and reflected through the results of changes in the fair
value of derivatives or either offset against the change in fair
value of the operations. If the derivative is designated as a
hedge, and depending on the nature of the hedge, hedged assets,
liabilities or firm commitments through earnings are 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 (loss). A nonhedged derivatives change in fair
value is recognized in earnings. See Note 4 for additional
information.
F-79
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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 19 for additional information.
Subsequent events The Company has evaluated
subsequent events through May 18, 2010, the date the
financial statements were available to be issued.
Recently adopted accounting pronouncements
The following new accounting standards have been adopted by the
Company during the fiscal year ended March 31, 2010:
On April 1, 2009, the Company adopted new accounting
guidance related to the fair value measurement of non-financial
assets and liabilities. The adoption of this accounting guidance
did not have an impact on the Companys financial
position, results of operations or cash flows.
Also effective April 1, 2009, the Company adopted new
accounting guidance on the fair value option for financial
assets and liabilities, which allows an entity the irrevocable
option to measure certain financial assets and liabilities at
fair value. The Company has not elected the fair value option
for any additional financial assets or liabilities beyond those
already prescribed by accounting principles generally accepted
in the United States.
In November 2007, the Financial Accounting Standards Board
(FASB) issued new accounting guidance related to collaborative
arrangements. This guidance applies to participants in
collaborative arrangements that are conducted without the
creation of a separate legal entity for the arrangement. The
Company adopted this guidance effective April 1, 2009.
Adoption of the provisions of this guidance did not impact the
Companys financial position, results of operations or cash
flows.
In December 2007, the FASB issued new accounting guidance
related to business combinations. This guidance, which
establishes requirements for the recognition and measurement of
acquired assets, liabilities, goodwill and noncontrolling
interests and provides disclosure requirements, related to
business combinations, is effective for fiscal years beginning
after December 15, 2008. The Company adopted this guidance
effective April 1, 2009 and has applied the provisions of
this guidance to its accounting for applicable business
combinations consummated after April 1, 2009.
In December 2007, the FASB issued new accounting guidance
related to noncontrolling interests. This guidance changes the
accounting, reporting and disclosure standards for
noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary (noncontrolling
interest) is an ownership interest in the consolidated entity
that should be reported as equity in the combined financial
statements and separately from the Companys equity.
Among other requirements, this guidance requires net income to
be reported at amounts that include the amounts attributable to
both the Company and the noncontrolling interests. It also
requires that both amounts are disclosed on the face of the
combined statements of operations and comprehensive income
(loss). This guidance is effective for fiscal years beginning
after December 15, 2008, and the Company adopted this
guidance effective April 1, 2009. The disclosure provisions
of this guidance have been applied to all periods presented in
the accompanying combined financial statements. The adoption has
not had a significant effect on the Companys
financial position, results of operations or cash flows.
In March 2008, the FASB issued new accounting guidance on
derivatives and hedging, which changed the disclosure
requirements for derivative instruments and hedging activities.
This new guidance requires disclosures about (a) how and
why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for and (c) how derivative instruments and related hedged
items affect an entitys financial position, financial
performance and cash flows. The Company included the required
disclosures in its combined financial statements beginning in
the current year. See Note 4 for the Companys
disclosures regarding its derivative instruments.
F-80
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
In December 2008, the FASB issued new accounting guidance
related to pension and other postretirement benefits, which
provides 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, concentration of
credit risk and fair value measurements of plan assets. This
guidance is effective for annual financial statements for fiscal
years ending after December 31, 2009. Adoption of this
guidance has changed the Companys disclosures about plan
assets but did not have a material impact on the Companys
financial position, results of operations or cash flows.
In May 2009, the FASB issued authoritative guidance that
incorporates guidance into accounting literature that was
previously addressed only in auditing standards and is intended
to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date but before the
financial statements are issued or available to be issued. The
Company adopted this authoritative guidance in the fiscal year
ended March 31, 2010. This guidance did not have a material
impact on the Companys financial position, results
of operations or cash flows.
In June 2009, The Financial Accounting Standards Board (FASB)
issued new accounting guidance, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (ASC), which identifies the sources of
accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
GAAP. This guidance became effective for the Company on
July 1, 2009. The adoption of this guidance has changed how
the Company references various elements of GAAP when preparing
the financial statement disclosures, but did not have an impact
on the Companys financial position, results of operations
or cash flows.
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, 2010:
In June 2009, the FASB issued authoritative guidance related to
the consolidation of variable interest entities, which modifies
how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The guidance clarifies that the
determination of whether a company is required to consolidate an
entity is based on, among other things, an entitys purpose
and design and a companys ability to direct the activities
of the entity that most significantly impact the entitys
economic performance. The guidance requires a periodic
reassessment of whether a company is the primary beneficiary of
a variable interest entity. The guidance also requires
additional disclosures about a companys involvement in
variable interest entities and any significant changes in risk
exposure due to that involvement. The guidance is effective for
fiscal years beginning after November 15, 2009. The Company
is currently evaluating the impact, if any, on its combined
financial statements.
In October 2009, the FASB issued changes to revenue recognition
for multiple-deliverable arrangements. This accounting guidance
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. This guidance 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. The
Company is currently evaluating the impact of adopting this
guidance on its combined financial statements.
F-81
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
On May 7, 2009, the Company acquired 52% of Nuclear Fuel
Industries, Ltd. (NFI), Japans sole producer of nuclear
fuel for both boiling-water and pressurized-water reactors. The
total cash paid for the acquisition at the time of the sale was
$113,400. Funding for the transaction consisted of cash paid to
the seller of $12,892 and debt incurred of $100,508 to a related
party. An additional cash payment of $6,372 was paid in July of
2009 bringing the total purchase price to $119,772. Cash and
cash equivalents acquired as a result of the transaction was
$80,604, resulting in net cash used to acquire NFI of $39,186.
The acquired other intangible assets primarily consisted of
contracted customer relationships in the amount of $75,420
amortizable over a weighted average of life of 15.7 years
and developed technology in the amount of $8,274 amortizable
over 24 years.
The final purchase price allocation was completed as follows:
|
|
|
|
|
|
|
May 7, 2009
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,604
|
|
Receivables
|
|
|
24,333
|
|
Inventories
|
|
|
140,705
|
|
Prepaid advances
|
|
|
47,525
|
|
Other current assets
|
|
|
4,456
|
|
|
|
|
|
|
Total current assets
|
|
|
297,623
|
|
Noncurrent assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
142,159
|
|
Other intangible assets
|
|
|
83,696
|
|
Other noncurrent assets
|
|
|
14,299
|
|
Goodwill (not deductible for tax purposes)
|
|
|
1,147
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
241,301
|
|
|
|
|
|
|
Total assets
|
|
$
|
538,924
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
5,824
|
|
Advances received
|
|
|
141,721
|
|
Deferred tax liabilities
|
|
|
6,408
|
|
Other current liabilities
|
|
|
39,675
|
|
|
|
|
|
|
Total current liabilities
|
|
|
193,628
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
Environmental liabilities
|
|
|
41,820
|
|
Noncurrent lease obligation
|
|
|
39,819
|
|
Deferred tax liabilities
|
|
|
14,575
|
|
Benefit obligations
|
|
|
1,898
|
|
Other noncurrent liabilities
|
|
|
22,767
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
120,879
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
314,507
|
|
|
|
|
|
|
Noncontrolling interest related to acquisition of NFI
|
|
$
|
104,645
|
|
|
|
|
|
|
Our Nuclear Fuel segment was allocated the goodwill from the NFI
acquisition which reflects the benefits we expect to receive
from expanding our fuel operations in this geographic area.
F-82
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Noncontrolling interest was valued by using the price that the
Company will pay to purchase the remaining 48% holding along
with projected dividends. This was then compared to the
transaction price of purchasing 52% of NFI, including the
purchase price adjustment, using a minimal discount rate. An
average amount was used based on the two results.
In the fiscal year ended March 31, 2010, the Company
recognized $5,484 of acquisition-related costs. Of this amount,
$3,600 was incurred in the fiscal year ended March 31, 2009
but was deferred until the current year. These expenses are
included within the marketing, administrative and general
expenses line in the accompanying combined statements of
operations and comprehensive income (loss).
The results of NFI have been included in the Companys
combined results from May 7, 2009 onward. NFIs
results since the acquisition date and for the fiscal year ended
March 31, 2010 are as follows:
|
|
|
|
|
Net revenues
|
|
$
|
215,210
|
|
Cost of goods sold
|
|
|
162,179
|
|
|
|
|
|
|
Gross profit
|
|
|
53,031
|
|
Marketing, administrative and general expenses
|
|
|
30,999
|
|
Amortization of intangibles
|
|
|
1,842
|
|
|
|
|
|
|
Income from operations
|
|
|
20,190
|
|
Interest and other (expense) income:
|
|
|
|
|
Interest expense
|
|
|
(1,159
|
)
|
Other income, net
|
|
|
789
|
|
|
|
|
|
|
Total interest and other (expense) income
|
|
|
(370
|
)
|
|
|
|
|
|
Income before income taxes
|
|
|
19,820
|
|
Income tax provision
|
|
|
7,624
|
|
|
|
|
|
|
Net income
|
|
|
12,196
|
|
Less net income attributable to noncontrolling interest
|
|
|
5,824
|
|
|
|
|
|
|
Net income attributable to TNEH-US & TNEH-UK
|
|
$
|
6,372
|
|
|
|
|
|
|
On July 30, 2009, the Company acquired CS Innovations, LLC
(CSI), a leading Instrumentation and Control (I&C) nuclear
product supplier to the digital I&C safety system upgrade
market for a cash payment of $12,000 at the time of the sale and
contingent payments of $18,000 to be paid over the next three
years when certain milestones are achieved. Of this $18,000,
$7,975 was allocated to purchase price, shown as a liability,
and any adjustments to this liability will be recorded in the
combined statements of operations and comprehensive income
(loss). Total purchase price was $19,975. The purchase price
allocation for CSI was recorded in the current year and the
majority of the cash paid was allocated to intangible assets for
developed technology in the amount of $19,300 with an
amortizable life of twenty years, $250 to a non-compete
agreement with an amortizable life of three years, $140 to a
brand name with an amortizable life of five years, and the
remaining small amount as fixed assets. The results of CSI have
been included in the Companys combined results from
July 30, 2009 onward.
Reportable segments are 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.
There is no aggregation within the Companys defined
business segments.
F-83
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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.
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, 2010, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
1,396,909
|
|
|
$
|
962,432
|
|
|
$
|
1,152,042
|
|
Nuclear Services
|
|
|
1,815,661
|
|
|
|
1,674,957
|
|
|
|
1,316,420
|
|
Nuclear Power Plants
|
|
|
959,993
|
|
|
|
769,679
|
|
|
|
254,173
|
|
Eliminations
|
|
|
(12,594
|
)
|
|
|
(11,770
|
)
|
|
|
(12,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,159,969
|
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
65,347
|
|
|
$
|
37,527
|
|
|
$
|
94,634
|
|
Nuclear Services
|
|
|
136,721
|
|
|
|
124,636
|
|
|
|
81,451
|
|
Nuclear Power Plants
|
|
|
2,184
|
|
|
|
(8,494
|
)
|
|
|
(54,755
|
)
|
Corporate Center
|
|
|
(22,657
|
)
|
|
|
(24,793
|
)
|
|
|
(17,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,595
|
|
|
$
|
128,876
|
|
|
$
|
103,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
37,790
|
|
|
$
|
23,802
|
|
|
$
|
23,564
|
|
Nuclear Services
|
|
|
25,407
|
|
|
|
21,435
|
|
|
|
19,445
|
|
Nuclear Power Plants
|
|
|
1,997
|
|
|
|
1,682
|
|
|
|
1,669
|
|
Corporate Center
|
|
|
24,888
|
|
|
|
24,155
|
|
|
|
16,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
90,082
|
|
|
$
|
71,074
|
|
|
$
|
61,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-84
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amortization expense of definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
23,899
|
|
|
$
|
20,379
|
|
|
$
|
20,669
|
|
Nuclear Services
|
|
|
27,198
|
|
|
|
25,719
|
|
|
|
26,051
|
|
Nuclear Power Plants
|
|
|
31,818
|
|
|
|
31,425
|
|
|
|
31,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,915
|
|
|
$
|
77,523
|
|
|
$
|
78,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
2,797,074
|
|
|
$
|
1,917,540
|
|
|
|
|
|
Nuclear Services
|
|
|
2,581,460
|
|
|
|
2,467,248
|
|
|
|
|
|
Nuclear Power Plants
|
|
|
2,581,797
|
|
|
|
2,479,721
|
|
|
|
|
|
Corporate Center
|
|
|
672,727
|
|
|
|
967,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,633,058
|
|
|
$
|
7,831,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel
|
|
$
|
47,422
|
|
|
$
|
45,565
|
|
|
|
|
|
Nuclear Services
|
|
|
1,130,245
|
|
|
|
1,114,204
|
|
|
|
|
|
Nuclear Power Plants
|
|
|
1,638,855
|
|
|
|
1,615,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,816,522
|
|
|
$
|
2,775,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2010, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Americas
|
|
$
|
2,077,285
|
|
|
$
|
1,867,868
|
|
|
$
|
1,354,172
|
|
Europe
|
|
|
1,047,709
|
|
|
|
955,708
|
|
|
|
906,777
|
|
China
|
|
|
459,451
|
|
|
|
283,360
|
|
|
|
190,186
|
|
Japan
|
|
|
317,893
|
|
|
|
36,218
|
|
|
|
29,200
|
|
Other Asia
|
|
|
216,443
|
|
|
|
215,173
|
|
|
|
199,187
|
|
Other
|
|
|
41,188
|
|
|
|
36,971
|
|
|
|
30,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,159,969
|
|
|
$
|
3,395,298
|
|
|
$
|
2,710,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets consist of the following by geographical region at
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
5,204,565
|
|
|
$
|
5,295,219
|
|
UK
|
|
|
2,092,884
|
|
|
|
1,886,241
|
|
Other European countries
|
|
|
678,540
|
|
|
|
609,190
|
|
Japan
|
|
|
596,194
|
|
|
|
7,728
|
|
South Africa
|
|
|
34,966
|
|
|
|
27,266
|
|
Other Asia
|
|
|
25,909
|
|
|
|
6,350
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,633,058
|
|
|
$
|
7,831,994
|
|
|
|
|
|
|
|
|
|
|
The Company derives the majority of its revenue from sales and
services, including engineering and construction, to the energy
industry. For the fiscal year ended March 31, 2010, there
was one customer who individually accounted for 10.9% of total
revenue.
F-85
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
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 purpose of the
Companys foreign currency risk management activities is to
protect 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 determines the fair value of foreign exchange
contracts using a
mark-to-market
model, incorporating real market pricing with probable
variables. The Company has classified all foreign exchange
contracts as Level 2 with respect to the fair value
hierarchy. 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.
The following table presents the fair values of derivative
instruments included in the combined balance sheets as of
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Balance Sheet
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
15,252
|
|
|
$
|
11,320
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
4,640
|
|
|
|
2,830
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
19,892
|
|
|
$
|
14,150
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities Derivatives
|
|
|
|
Balance Sheet
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
Other current liabilities
|
|
|
$
|
(19,640
|
)
|
|
$
|
(56,310
|
)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
Other current liabilities
|
|
|
|
(5,194
|
)
|
|
|
(29,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
|
|
$
|
(24,834
|
)
|
|
$
|
(85,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability) position
|
|
|
|
|
|
$
|
(4,942
|
)
|
|
$
|
(71,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the effect of derivative
instruments on the combined statements of operations and
comprehensive income (loss) for the fiscal years ended
March 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Statement of
Financial
|
|
Performance for the Fiscal Years Ended March 31, 2010,
2009, and 2008
|
|
|
|
Amount of Gain or (Loss)
|
|
Derivatives in Cash Flow
|
|
Recognized in OCI on Derivative (Effective Portion)
|
|
Hedging Relationships
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Foreign exchange contracts
|
|
$
|
42,601
|
|
|
$
|
(14,717
|
)
|
|
$
|
(8,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss)
|
|
Amount of Gain or (Loss) Reclassified from
|
|
|
|
Reclassified from
|
|
Accumulated OCI
|
|
Derivatives in Cash Flow
|
|
Accumulated OCI into
|
|
into Income (Effective Portion)
|
|
Hedging Relationships
|
|
Income (Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Foreign exchange contracts
|
|
Other income/(expense)
|
|
$
|
4,502
|
|
|
$
|
(16,952
|
)
|
|
$
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss)
|
|
|
Amount of Gain or (Loss)
|
|
Derivatives Not Designated
|
|
Recognized in Income on
|
|
|
Recognized in Income on Derivative
|
|
as Hedging Instruments
|
|
Derivative
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Foreign exchange contracts
|
|
|
Other income/(expense
|
)
|
|
$
|
25,928
|
|
|
$
|
(42,296
|
)
|
|
$
|
18,606
|
|
Assuming market rates remain the same, the Company estimates
$910 of the unrealized net losses on these cash flow hedges to
be reclassified into earnings in the fiscal year ending
March 31, 2011. 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. There were no gains or
losses reclassified into earnings as a result of the
discontinuance of cash flow hedges in the current year. At
March 31, 2010, 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.
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 fiscal year ended
March 31, 2010, there was one customer who individually
accounted for greater than 10% of total revenue.
F-87
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Trade receivables are generated from a broad and diverse group
of customers. At March 31, 2010, there was one customer 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.
|
|
5.
|
ASSET
RETIREMENT OBLIGATIONS (ARO)
|
The Company recognizes an ARO at its fair value 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.
The Company has included the estimated recovery related to
certain indemnities for cleanup costs at its Hematite, Missouri
facility in other noncurrent assets on the accompanying combined
balance sheets. In addition, during the fiscal year ended
March 31, 2009, the Company 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, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, beginning of year
|
|
$
|
252,786
|
|
|
$
|
277,561
|
|
Liabilities settled
|
|
|
(15,181
|
)
|
|
|
(14,479
|
)
|
Foreign currency translation effect
|
|
|
3,252
|
|
|
|
(7,422
|
)
|
Liabilities incurred (reduced)
|
|
|
11,461
|
|
|
|
(14,821
|
)
|
Accretion expense
|
|
|
11,959
|
|
|
|
11,947
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
264,277
|
|
|
$
|
252,786
|
|
|
|
|
|
|
|
|
|
|
F-88
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, 2010 and 2009,
$37,205 and $29,190, 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.
|
|
6.
|
GOODWILL
AND INTANGIBLE ASSETS
|
As of March 31, 2010 and 2009, goodwill consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, beginning of year
|
|
$
|
2,775,369
|
|
|
$
|
3,072,358
|
|
Business acquisitions
|
|
|
1,147
|
|
|
|
|
|
Purchase price allocation adjustments
|
|
|
|
|
|
|
(4,406
|
)
|
Foreign currency translation adjustment
|
|
|
40,006
|
|
|
|
(292,583
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,816,522
|
|
|
$
|
2,775,369
|
|
|
|
|
|
|
|
|
|
|
Of the amount of goodwill and indefinite lived intangibles at
March 31, 2010, only $925,456 is amortizable for income tax
purposes. Approximately $74,158 of amortization will be deducted
in tax returns for the fiscal year ended March 31, 2010.
The carrying amount and accumulated amortization of identifiable
intangible assets as of March 31, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
2010
|
|
|
2009
|
|
|
Contracted customer relationships
|
|
|
5-24
|
|
|
$
|
108,156
|
|
|
$
|
32,185
|
|
Noncontracted customer relationships
|
|
|
25
|
|
|
|
198,980
|
|
|
|
196,607
|
|
Developed technology
|
|
|
20-25
|
|
|
|
1,405,152
|
|
|
|
1,358,705
|
|
Brand name
|
|
|
Indefinite
|
|
|
|
402,810
|
|
|
|
398,794
|
|
Brand name
|
|
|
3
|
|
|
|
140
|
|
|
|
|
|
Patent
|
|
|
20
|
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2,122,738
|
|
|
|
1,993,791
|
|
Accumulated amortization
|
|
|
|
|
|
|
(270,856
|
)
|
|
|
(187,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
$
|
1,851,882
|
|
|
$
|
1,805,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $82,915, $77,523 and $78,508 for the
fiscal years ended March 31, 2010, 2009 and 2008,
respectively.
F-89
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, 2010. 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:
|
|
|
|
|
2011
|
|
$
|
88,791
|
|
2012
|
|
|
87,620
|
|
2013
|
|
|
87,146
|
|
2014
|
|
|
79,618
|
|
2015
|
|
|
79,034
|
|
Thereafter
|
|
|
1,026,863
|
|
|
|
|
|
|
Total
|
|
$
|
1,449,072
|
|
|
|
|
|
|
|
|
7.
|
PENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
|
PENSION
PLANS
The majority of the employees of the Company are covered under
separate pension plans sponsored by Westinghouse Electric
Company LLC (WEC LLC) (U.S. Plans), and separate plans
sponsored by Nuclear Fuel Industries LTD, 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.
The following table presents the net periodic pension costs
covering current and former employees of the Company for the
fiscal years ended March 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Service cost
|
|
$
|
43,261
|
|
|
$
|
4,757
|
|
|
$
|
48,018
|
|
|
$
|
40,013
|
|
|
$
|
2,008
|
|
|
$
|
42,021
|
|
|
$
|
37,331
|
|
|
$
|
2,909
|
|
|
$
|
40,240
|
|
Interest cost
|
|
|
28,453
|
|
|
|
8,875
|
|
|
|
37,328
|
|
|
|
23,344
|
|
|
|
7,690
|
|
|
|
31,034
|
|
|
|
19,752
|
|
|
|
6,700
|
|
|
|
26,452
|
|
Expected return on plan assets
|
|
|
(31,684
|
)
|
|
|
(3,227
|
)
|
|
|
(34,911
|
)
|
|
|
(26,113
|
)
|
|
|
(3,155
|
)
|
|
|
(29,268
|
)
|
|
|
(21,445
|
)
|
|
|
(2,015
|
)
|
|
|
(23,460
|
)
|
Amortization of prior service cost
|
|
|
443
|
|
|
|
|
|
|
|
443
|
|
|
|
234
|
|
|
|
|
|
|
|
234
|
|
|
|
169
|
|
|
|
|
|
|
|
169
|
|
Amortization of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
|
363
|
|
|
|
182
|
|
|
|
545
|
|
|
|
(46
|
)
|
|
|
(22
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ongoing periodic pension cost
|
|
|
40,836
|
|
|
|
10,587
|
|
|
|
51,423
|
|
|
|
37,432
|
|
|
|
6,521
|
|
|
|
43,953
|
|
|
|
35,807
|
|
|
|
7,594
|
|
|
|
43,401
|
|
Settlement charges
|
|
|
|
|
|
|
468
|
|
|
|
468
|
|
|
|
|
|
|
|
1,420
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
40,836
|
|
|
$
|
11,055
|
|
|
$
|
51,891
|
|
|
$
|
37,432
|
|
|
$
|
7,941
|
|
|
$
|
45,373
|
|
|
$
|
35,807
|
|
|
$
|
7,594
|
|
|
$
|
43,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended March 31, 2009, the Company
adopted the measurement date provision of pension and defined
benefits accounting 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.
F-90
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The assumptions used to develop the net periodic pension cost
and the present value of benefit obligations for the fiscal year
ended March 31, 2010 are shown below.
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S. Ranges
|
|
Discount rate for obligations
|
|
|
5.65
|
%
|
|
|
2.25
|
% - 5.60%
|
Discount rate for expense
|
|
|
6.25
|
%
|
|
|
2.00
|
% - 6.70%
|
Compensation increase rate for obligations
|
|
|
4.00
|
%
|
|
|
3.00
|
% - 4.60%
|
Compensation increase rate for expense
|
|
|
4.00
|
%
|
|
|
2.50
|
% - 5.40%
|
Long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
1.00
|
% - 6.00%
|
Based on the requirements of pension and defined benefits
accounting, 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.
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, 2010 and 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Accumulated benefit obligation
|
|
$
|
506,206
|
|
|
$
|
195,135
|
|
|
$
|
701,341
|
|
|
$
|
417,633
|
|
|
$
|
143,184
|
|
|
$
|
560,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
463,831
|
|
|
$
|
148,123
|
|
|
$
|
611,954
|
|
|
$
|
382,670
|
|
|
$
|
197,143
|
|
|
$
|
579,813
|
|
Service cost
|
|
|
43,261
|
|
|
|
4,757
|
|
|
|
48,018
|
|
|
|
40,013
|
|
|
|
2,008
|
|
|
|
42,021
|
|
Interest cost
|
|
|
28,453
|
|
|
|
8,875
|
|
|
|
37,328
|
|
|
|
23,344
|
|
|
|
7,690
|
|
|
|
31,034
|
|
Employee contributions
|
|
|
8,901
|
|
|
|
365
|
|
|
|
9,266
|
|
|
|
8,893
|
|
|
|
366
|
|
|
|
9,259
|
|
Plan amendments
|
|
|
1,333
|
|
|
|
|
|
|
|
1,333
|
|
|
|
1,821
|
|
|
|
|
|
|
|
1,821
|
|
Actuarial (gain) loss
|
|
|
44,330
|
|
|
|
10,894
|
|
|
|
55,224
|
|
|
|
(1,191
|
)
|
|
|
(6,032
|
)
|
|
|
(7,223
|
)
|
Business combinations
|
|
|
|
|
|
|
39,228
|
|
|
|
39,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for change in measurement date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,839
|
|
|
|
|
|
|
|
15,839
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
10,369
|
|
|
|
10,369
|
|
|
|
|
|
|
|
(42,478
|
)
|
|
|
(42,478
|
)
|
Benefits paid
|
|
|
(7,403
|
)
|
|
|
(8,242
|
)
|
|
|
(15,645
|
)
|
|
|
(7,558
|
)
|
|
|
(10,574
|
)
|
|
|
(18,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
582,706
|
|
|
$
|
214,369
|
|
|
$
|
797,075
|
|
|
$
|
463,831
|
|
|
$
|
148,123
|
|
|
$
|
611,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
|
$
|
272,650
|
|
|
$
|
46,271
|
|
|
$
|
318,921
|
|
|
$
|
334,795
|
|
|
$
|
69,474
|
|
|
$
|
404,269
|
|
Actual return on plan assets
|
|
|
119,439
|
|
|
|
13,279
|
|
|
|
132,718
|
|
|
|
(114,983
|
)
|
|
|
(8,819
|
)
|
|
|
(123,802
|
)
|
Employee contributions
|
|
|
8,901
|
|
|
|
365
|
|
|
|
9,266
|
|
|
|
8,893
|
|
|
|
366
|
|
|
|
9,259
|
|
Employer contributions
|
|
|
46,258
|
|
|
|
12,228
|
|
|
|
58,486
|
|
|
|
51,503
|
|
|
|
11,089
|
|
|
|
62,592
|
|
Business combinations
|
|
|
|
|
|
|
38,124
|
|
|
|
38,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from plan assets
|
|
|
(7,403
|
)
|
|
|
(8,242
|
)
|
|
|
(15,645
|
)
|
|
|
(7,558
|
)
|
|
|
(10,574
|
)
|
|
|
(18,132
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
3,190
|
|
|
|
3,190
|
|
|
|
|
|
|
|
(15,265
|
)
|
|
|
(15,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of year
|
|
$
|
439,845
|
|
|
$
|
105,215
|
|
|
$
|
545,060
|
|
|
$
|
272,650
|
|
|
$
|
46,271
|
|
|
$
|
318,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-91
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Accrued cost as included in the combined balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
|
|
|
$
|
7,468
|
|
|
$
|
7,468
|
|
|
$
|
|
|
|
$
|
1,648
|
|
|
$
|
1,648
|
|
Other current liabilities
|
|
|
(965
|
)
|
|
|
(5,496
|
)
|
|
|
(6,461
|
)
|
|
|
(681
|
)
|
|
|
(4,791
|
)
|
|
|
(5,472
|
)
|
Noncurrent benefit obligation
|
|
|
(141,895
|
)
|
|
|
(111,127
|
)
|
|
|
(253,022
|
)
|
|
|
(190,500
|
)
|
|
|
(98,709
|
)
|
|
|
(289,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit obligation
|
|
$
|
(142,860
|
)
|
|
$
|
(109,155
|
)
|
|
$
|
(252,015
|
)
|
|
$
|
(191,181
|
)
|
|
$
|
(101,852
|
)
|
|
$
|
(293,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive (loss)
income consist of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
|
$
|
(80,848
|
)
|
|
$
|
(6,203
|
)
|
|
$
|
(87,051
|
)
|
|
$
|
(124,637
|
)
|
|
$
|
(6,516
|
)
|
|
$
|
(131,153
|
)
|
Prior service cost
|
|
|
(4,297
|
)
|
|
|
|
|
|
|
(4,297
|
)
|
|
|
(3,407
|
)
|
|
|
|
|
|
|
(3,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, before tax effect
|
|
$
|
(85,145
|
)
|
|
$
|
(6,203
|
)
|
|
$
|
(91,348
|
)
|
|
$
|
(128,044
|
)
|
|
$
|
(6,516
|
)
|
|
$
|
(134,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth by level, within the fair value
hierarchy, the Master Trusts assets carried at fair value
as of March 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value
|
|
|
|
as of March 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Equities
|
|
$
|
68,006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,006
|
|
Corporate and municipal obligations
|
|
|
26,389
|
|
|
|
|
|
|
|
|
|
|
|
26,389
|
|
Pooled funds and mutual funds
|
|
|
|
|
|
|
9,767
|
|
|
|
|
|
|
|
9,767
|
|
Common collective trusts
|
|
|
|
|
|
|
333,251
|
|
|
|
|
|
|
|
333,251
|
|
Money market funds
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
10,043
|
|
Investment contracts issued by insurance companies
|
|
|
|
|
|
|
34,673
|
|
|
|
|
|
|
|
34,673
|
|
Fixed income
|
|
|
|
|
|
|
62,931
|
|
|
|
|
|
|
|
62,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
104,438
|
|
|
$
|
440,622
|
|
|
$
|
|
|
|
$
|
545,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value
|
|
|
|
as of March 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Equities
|
|
$
|
42,251
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
42,251
|
|
Corporate and municipal obligations
|
|
|
17,868
|
|
|
|
|
|
|
|
|
|
|
|
17,868
|
|
Pooled funds and mutual funds
|
|
|
|
|
|
|
37,540
|
|
|
|
|
|
|
|
37,540
|
|
Common collective trusts
|
|
|
|
|
|
|
173,144
|
|
|
|
|
|
|
|
173,144
|
|
Money market funds
|
|
|
11,901
|
|
|
|
|
|
|
|
|
|
|
|
11,901
|
|
Investments in real estate equities
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
693
|
|
Fixed income
|
|
|
|
|
|
|
35,524
|
|
|
|
|
|
|
|
35,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
72,713
|
|
|
$
|
246,208
|
|
|
$
|
|
|
|
$
|
318,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-92
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE
U.S. PLANS
The assets of the U.S. Plans are managed via the
Westinghouse Electric Company Pension Master Trust (Trust). The
Westinghouse Electric Company Pension 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%
|
|
EMU
|
|
MSCI EMU net dividends reinvestment
|
25%
|
|
Global ex EMU
|
|
MSCI World ex-EMU net dividends reinvestment
|
32%
|
|
Bonds EMU
|
|
JPM EMU
|
10%
|
|
Bonds EMU Corporate
|
|
iBoxx Euro Corporate Bonds
|
8%
|
|
Real Estate EMU
|
|
EPRA Eurozone
|
F-93
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,
2010:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Target
|
|
|
Actual
|
|
|
U.S. Plans:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
50
|
%
|
|
|
53
|
%
|
Non-U.S.
equity securities
|
|
|
20
|
|
|
|
20
|
|
Debt securities
|
|
|
30
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans:
|
|
|
|
|
|
|
|
|
Equities
|
|
|
34
|
%
|
|
|
32
|
%
|
Corporate and municipal obligations
|
|
|
32
|
|
|
|
25
|
|
Investments contracts issued by insurance companies
|
|
|
34
|
|
|
|
35
|
|
Money market funds
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
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, 2010 are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
Fiscal years ending March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
9,954
|
|
|
$
|
8,835
|
|
|
$
|
18,789
|
|
2012
|
|
|
12,681
|
|
|
|
7,896
|
|
|
|
20,577
|
|
2013
|
|
|
15,869
|
|
|
|
9,935
|
|
|
|
25,804
|
|
2014
|
|
|
19,815
|
|
|
|
8,325
|
|
|
|
28,140
|
|
2015
|
|
|
23,927
|
|
|
|
10,264
|
|
|
|
34,191
|
|
2016-2019
|
|
|
200,314
|
|
|
|
64,087
|
|
|
|
264,401
|
|
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
|
|
$
|
965
|
|
|
$
|
11,509
|
|
|
$
|
12,474
|
|
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.
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
F-94
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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, 2010 and 2009 are $594 and $5,487,
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, 2010 and
2009 in the amount of $29,505 and $28,693, respectively.
The components of net periodic postretirement benefit cost for
the fiscal years ended March 31, 2010, 2009 and 2008 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
1,637
|
|
|
$
|
1,837
|
|
|
$
|
2,577
|
|
Interest cost
|
|
|
2,478
|
|
|
|
2,826
|
|
|
|
3,799
|
|
Expected return on plan assets
|
|
|
(2,000
|
)
|
|
|
(2,150
|
)
|
|
|
(2,157
|
)
|
Amortization of prior service cost
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
|
(1,584
|
)
|
|
|
(1,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit costs
|
|
$
|
298
|
|
|
$
|
967
|
|
|
$
|
4,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 periodic 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, 2010, are shown below. A
measurement date of March 31, 2010 was used.
|
|
|
|
|
Discount rate for obligations
|
|
|
5.10
|
%
|
Discount rate for expense
|
|
|
6.00
|
%
|
Healthcare cost trend rates:
|
|
|
|
|
Pre-age 65
|
|
|
5.50
|
%
|
Post-age 65
|
|
|
3.50
|
%
|
Compensation increase rate for obligations
|
|
|
4.00
|
%
|
Compensation increase rate for expense
|
|
|
4.00
|
%
|
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
|
|
$
|
26
|
|
|
$
|
(23
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
220
|
|
|
$
|
(195
|
)
|
F-95
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, 2010 and 2009 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
48,703
|
|
|
$
|
47,329
|
|
Service cost
|
|
|
1,637
|
|
|
|
1,838
|
|
Interest cost
|
|
|
2,478
|
|
|
|
2,826
|
|
Plan amendments
|
|
|
|
|
|
|
(2,216
|
)
|
Employee contributions
|
|
|
1,699
|
|
|
|
|
|
Adjustment for change in measurement date
|
|
|
|
|
|
|
1,166
|
|
Actuarial (gain) loss
|
|
|
(1,938
|
)
|
|
|
3,084
|
|
Benefits paid
|
|
|
(4,324
|
)
|
|
|
(5,324
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
48,255
|
|
|
$
|
48,703
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain recognized in accumulated other comprehensive
income, before tax effect
|
|
$
|
22,918
|
|
|
$
|
22,797
|
|
|
|
|
|
|
|
|
|
|
Annual benefit payments for the fiscal years subsequent to
March 31, 2010 are estimated to be as follows:
|
|
|
|
|
2011
|
|
$
|
2,732
|
|
2012
|
|
|
3,220
|
|
2013
|
|
|
3,424
|
|
2014
|
|
|
3,743
|
|
2015
|
|
|
3,998
|
|
2016-2019
|
|
|
22,155
|
|
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 after-tax basis. WEC LLC
matches 50% of the first 6% of an employees compensation
contribution and WEC LLC contributed approximately $17,285,
$14,343 and $12,307, to the defined contribution plan for the
years ended March 31, 2010, 2009 and 2008, 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.
F-96
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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 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 (loss) for the fiscal years ended
March 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
4,730
|
|
|
$
|
6,444
|
|
|
$
|
(2,752
|
)
|
State
|
|
|
1,515
|
|
|
|
|
|
|
|
(752
|
)
|
Foreign
|
|
|
51,690
|
|
|
|
42,313
|
|
|
|
57,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
|
57,935
|
|
|
|
48,757
|
|
|
|
53,578
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
37,324
|
|
|
|
11,288
|
|
|
|
(9,936
|
)
|
State
|
|
|
4,417
|
|
|
|
3,177
|
|
|
|
(729
|
)
|
Foreign
|
|
|
(29,655
|
)
|
|
|
(15,574
|
)
|
|
|
(18,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
|
12,086
|
|
|
|
(1,109
|
)
|
|
|
(29,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision presented in combined statements of
operations and comprehensive income
|
|
$
|
70,021
|
|
|
$
|
47,648
|
|
|
$
|
24,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides detail of income before taxes and
noncontrolling interest reported in the accompanying combined
statements of operations and comprehensive income (loss) for the
fiscal years ended March 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S. income
|
|
$
|
115,067
|
|
|
$
|
26,939
|
|
|
$
|
(34,032
|
)
|
Foreign income
|
|
|
47,601
|
|
|
|
88,553
|
|
|
|
168,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest
|
|
$
|
162,668
|
|
|
$
|
115,492
|
|
|
$
|
134,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-97
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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, 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income tax expense, computed at the statutory rate of 35%
|
|
$
|
56,934
|
|
|
$
|
40,422
|
|
|
$
|
47,073
|
|
State income taxes, net of U.S. Federal income tax effect
|
|
|
3,969
|
|
|
|
916
|
|
|
|
(963
|
)
|
Tax effect of foreign earnings
|
|
|
2,821
|
|
|
|
(1,983
|
)
|
|
|
(3,763
|
)
|
Changes to valuation allowances
|
|
|
1,691
|
|
|
|
2,262
|
|
|
|
1,808
|
|
Non-U.S.
statutory rate reduction
|
|
|
|
|
|
|
(1,073
|
)
|
|
|
(18,320
|
)
|
Other permanent differences
|
|
|
(780
|
)
|
|
|
1,492
|
|
|
|
(1,659
|
)
|
Reserve for uncertain tax positions
|
|
|
4,264
|
|
|
|
3,311
|
|
|
|
|
|
Provision-to-return
adjustments
|
|
|
1,122
|
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
70,021
|
|
|
$
|
47,648
|
|
|
$
|
24,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
43.0
|
%
|
|
|
41.3
|
%
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $714,216 and
($997,749), respectively, at March 31, 2010, and $883,745
and ($1,122,188), respectively, at March 31, 2009. The
components of net deferred income tax assets and (liabilities)
at March 31, 2010 and 2009 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred income tax assets and liabilities:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
24,214
|
|
|
$
|
17,406
|
|
Inventory
|
|
|
16,809
|
|
|
|
8,633
|
|
Deferred revenue and contract reserves
|
|
|
16,798
|
|
|
|
23,482
|
|
Decommissioning
|
|
|
9,330
|
|
|
|
3,095
|
|
Product warranty
|
|
|
5,630
|
|
|
|
4,816
|
|
General liability
|
|
|
4,048
|
|
|
|
4,102
|
|
Other
|
|
|
(531
|
)
|
|
|
7,022
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
76,298
|
|
|
|
68,556
|
|
Valuation allowance
|
|
|
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
76,298
|
|
|
$
|
67,857
|
|
|
|
|
|
|
|
|
|
|
F-98
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The net deferred tax asset (liability) components at
March 31, 2010 and 2009 were presented in the accompanying
combined balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-term deferred income tax assets and liabilities:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
267,532
|
|
|
$
|
328,268
|
|
Decommissioning
|
|
|
73,538
|
|
|
|
73,468
|
|
Compensation and benefits
|
|
|
63,484
|
|
|
|
85,596
|
|
Fixed assets
|
|
|
(74,027
|
)
|
|
|
(59,799
|
)
|
Inventory
|
|
|
(82,572
|
)
|
|
|
(76,865
|
)
|
Goodwill and intangible assets
|
|
|
(737,274
|
)
|
|
|
(711,625
|
)
|
Other
|
|
|
129,487
|
|
|
|
53,958
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(359,832
|
)
|
|
|
(306,999
|
)
|
Valuation allowance
|
|
|
(32,622
|
)
|
|
|
(17,331
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax liabilities
|
|
$
|
(392,454
|
)
|
|
$
|
(324,330
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred income tax liabilities
|
|
$
|
(316,156
|
)
|
|
$
|
(256,473
|
)
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, the Company has a U.S. Federal
net operating loss carryforward of approximately $659,762 (or
tax-effected benefit of $230,917), which will expire from 2022
through 2026. The Company has a state net operating loss
tax-effected benefit of approximately $26,199, which will if not
used, expire from 2010 through 2029. The Company has
non-U.S. net
operating loss carryforwards in various countries of
approximately $32,179 (or tax-effected benefit of $10,416), all
of which have no expiration date.
The Company has an alternative minimum tax credit carryforward
of approximately $5,512 that has no expiration date. The Company
also has a research and development tax credit carryforward of
approximately $1,942, which will, if not utilized, begin to
expire in 2028.
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 valuation allowances of
$10,693 for certain state net operating loss carryforwards and
$1,556 for capital loss carryforwards, both of which are
expected to produce no tax benefit. Additionally, the Company
has recorded a valuation allowance of $20,373 primarily driven
by current year acquisitions 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, 2010 and 2009.
Effective April 1, 2007, the Company adopted accounting for
uncertain tax positions, 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
F-99
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
file in a particular jurisdiction, as well as the taxability of
transactions. The following is a tabular reconciliation of the
total amounts of unrecognized tax benefits for the year
(excluding interest and penalties):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Unrecognized tax benefit, beginning of year
|
|
$
|
8,643
|
|
|
$
|
9,129
|
|
Increases in tax positions in current year
|
|
|
6,775
|
|
|
|
1,614
|
|
Decrease in tax positions from prior year
|
|
|
(1,342
|
)
|
|
|
(2,100
|
)
|
Lapse of statute of limitations or closed audits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
14,076
|
|
|
$
|
8,643
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
March 31, 2010, is $12,276 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 $255 and interest of $146 during the fiscal year
ended March 31, 2010, and in total, as of March 31,
2010, has recognized a liability for penalties of $532 and
interest of $342.
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.
With few exceptions, the Company is no longer subject to
U.S. Federal, state, local or foreign examinations by tax
authorities for years before 2006. The Companys tax years
for 2006 through 2009 are generally subject to examination by
the tax authorities in the U.S. and in various state and
foreign jurisdictions.
At March 31, 2010 and 2009, inventories consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials and consumables
|
|
$
|
137,896
|
|
|
$
|
88,193
|
|
Work in process
|
|
|
143,311
|
|
|
|
108,196
|
|
Finished goods
|
|
|
214,495
|
|
|
|
122,405
|
|
Engineering inventory
|
|
|
6,618
|
|
|
|
6,236
|
|
Uranium inventory
|
|
|
105,621
|
|
|
|
206,952
|
|
|
|
|
|
|
|
|
|
|
Gross inventories
|
|
|
607,941
|
|
|
|
531,982
|
|
Inventory reserve
|
|
|
(16,399
|
)
|
|
|
(17,103
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
591,542
|
|
|
$
|
514,879
|
|
|
|
|
|
|
|
|
|
|
Inventories other than those related to long-term contracts are
generally sold within one year.
F-100
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
PROPERTY,
PLANT AND EQUIPMENT
|
At March 31, 2010 and 2009, property, plant and equipment
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
48,308
|
|
|
$
|
20,940
|
|
Buildings and improvements
|
|
|
290,777
|
|
|
|
142,839
|
|
Machinery and equipment
|
|
|
600,606
|
|
|
|
384,460
|
|
Construction in progress
|
|
|
188,110
|
|
|
|
166,494
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,127,801
|
|
|
|
714,733
|
|
Less accumulated depreciation
|
|
|
257,361
|
|
|
|
146,657
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
870,440
|
|
|
$
|
568,076
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the fiscal years ended March 31,
2010, 2009 and 2008 has been classified in the accompanying
combined statements of operations and comprehensive income
(loss) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of goods sold
|
|
$
|
77,062
|
|
|
$
|
53,042
|
|
|
$
|
48,073
|
|
Marketing, administrative and general expenses
|
|
|
13,020
|
|
|
|
18,032
|
|
|
|
13,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
90,082
|
|
|
$
|
71,074
|
|
|
$
|
61,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
OTHER
CURRENT AND NONCURRENT ASSETS
|
At March 31, 2010 and 2009, other current assets and other
noncurrent assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Prepaid insurance, taxes and other services
|
|
$
|
97,524
|
|
|
$
|
83,438
|
|
Derivative instruments, at fair value
|
|
|
19,892
|
|
|
|
14,150
|
|
Indemnity for Hematite decommissioning
|
|
|
15,717
|
|
|
|
13,613
|
|
Other
|
|
|
18,911
|
|
|
|
22,190
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
152,044
|
|
|
$
|
133,391
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets:
|
|
|
|
|
|
|
|
|
Indemnity for Hematite decommissioning
|
|
$
|
54,702
|
|
|
$
|
51,462
|
|
Contractual asset for postretirement benefit costs
|
|
|
29,505
|
|
|
|
28,693
|
|
Pension asset
|
|
|
7,468
|
|
|
|
1,648
|
|
Restricted cash
|
|
|
751
|
|
|
|
751
|
|
Other
|
|
|
27,498
|
|
|
|
10,711
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
119,924
|
|
|
$
|
93,265
|
|
|
|
|
|
|
|
|
|
|
Restricted cash at March 31, 2010 and 2009 is held pursuant
to customer contracts in lieu of other financial security; the
requirements to maintain restricted cash balances expire by
October 2012.
F-101
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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 fiscal year ended March 31, 2010, the Company
completed two sales transactions to sell a total of 511 teU, 78
thousand CS and 20 thousand SWU for a total of $70 million.
During the fiscal year ended March 31, 2009, the Company
completed three sales transactions to sell a total of 3 teU and
102 thousand SWU for a total of $19 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, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Inventory held for sale under contract
|
|
$
|
40,355
|
|
|
$
|
76,189
|
|
Surplus available for sale
|
|
|
65,266
|
|
|
|
130,763
|
|
|
|
|
|
|
|
|
|
|
Gross uranium inventory
|
|
|
105,621
|
|
|
|
206,952
|
|
Reserve to reduce cost to market
|
|
|
(827
|
)
|
|
|
(2,951
|
)
|
|
|
|
|
|
|
|
|
|
Net uranium inventory
|
|
|
104,794
|
|
|
|
204,001
|
|
Uranium working stock
|
|
|
483,569
|
|
|
|
460,919
|
|
Uranium leased to external party
|
|
|
3,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net uranium assets
|
|
$
|
591,600
|
|
|
$
|
664,920
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
DEBT AND
CREDIT FACILITIES
|
Revolving credit facilities In November 2008,
the Company entered into a four-year revolving credit facility
in the amount of $150,000. This facility was increased to
$200,000 and extended by one year in November 2009. In October
2009, the Company replaced an $800,000 facility with a new
three-year revolving credit facility in the amount of $600,000.
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 $600,000
facility, but not the $200,000 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, 2010. 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
0.55% to 3.50%, and fees for capacity range from 0.30% to
0.875%. Under the $600,000 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, 2010 and March 31, 2009; however,
approximately $638,306 and $688,418, 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
$600,000 revolving credit facility expires in October 2012 and
$200,000 revolving credit facility expires in November 2013.
F-102
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
OTHER
CURRENT AND NONCURRENT LIABILITIES
|
At March 31, 2010 and 2009, other current and noncurrent
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Vacation liability
|
|
$
|
77,446
|
|
|
$
|
65,758
|
|
Accrued payroll and other employee compensation
|
|
|
65,723
|
|
|
|
71,702
|
|
Accrued income and other taxes
|
|
|
40,863
|
|
|
|
29,777
|
|
Reserve for decommissioning matters
|
|
|
37,205
|
|
|
|
29,190
|
|
Contract and other reserves
|
|
|
33,163
|
|
|
|
54,319
|
|
Accrued royalties and commissions
|
|
|
28,421
|
|
|
|
41,472
|
|
Derivative instruments, at fair value
|
|
|
24,834
|
|
|
|
85,622
|
|
Accrued product warranty
|
|
|
14,155
|
|
|
|
18,534
|
|
Settlement obligations to provide future discounts
|
|
|
11,382
|
|
|
|
15,806
|
|
Contractually obligated liabilities
|
|
|
10,500
|
|
|
|
10,500
|
|
Pension liability
|
|
|
6,461
|
|
|
|
5,472
|
|
Environmental liabilities
|
|
|
3,106
|
|
|
|
7,227
|
|
Obligations under capital leases
|
|
|
1,735
|
|
|
|
163
|
|
Other
|
|
|
107,324
|
|
|
|
44,341
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
462,318
|
|
|
$
|
479,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Environmental liabilities
|
|
$
|
68,884
|
|
|
$
|
24,391
|
|
Obligations under capital leases
|
|
|
48,902
|
|
|
|
2,573
|
|
Accrued royalties and commissions
|
|
|
31,004
|
|
|
|
6,896
|
|
Accrued product warranty
|
|
|
22,419
|
|
|
|
19,117
|
|
Unfavorable lease reserve
|
|
|
2,147
|
|
|
|
4,723
|
|
Reserve for contract losses
|
|
|
754
|
|
|
|
894
|
|
Other
|
|
|
48,661
|
|
|
|
38,904
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
$
|
222,771
|
|
|
$
|
97,498
|
|
|
|
|
|
|
|
|
|
|
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,
2010, 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
F-103
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
dividend distribution timing. There were 686 shares of
Class A stock and 714 shares of Class B stock
issued and outstanding at March 31, 2010, 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.
TNEH-US paid dividends of $32,536 on February 23, 2010.
TNEH-UK paid dividends of $11,388 on February 22, 2010 and
$15,719 on February 25, 2010. During the fiscal year ended
March 31, 2009, TNEH-UK paid dividends of $71,201 on
December 31, 2008. During the fiscal year ended
March 31, 2008, TNEH-US and TNEH-UK paid dividends of
$6,052 and $2,118, respectively, on January 30, 2008.
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, 2010, no call options have been
exercised.
|
|
16.
|
ACCUMULATED
OTHER COMPREHENSIVE LOSS
|
The components of accumulated other comprehensive loss, net of
tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Net unrealized gain (loss) on derivatives
|
|
$
|
4,102
|
|
|
$
|
(23,296
|
)
|
Unrealized (loss) on foreign currency translation
|
|
|
(512,933
|
)
|
|
|
(626,917
|
)
|
Pension and other postretirement benefits adjustment
|
|
|
(43,650
|
)
|
|
|
(70,232
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(552,481
|
)
|
|
$
|
(720,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
COMMITMENTS
AND CONTINGENCIES
|
Prior acquisition 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, 2010 and 2009, the Company had a
reserve of $91,110 and $99,718, respectively, included in
reserves for decommissioning matters on the accompanying
combined balance sheets, to cover future expenditures. As of
March 31, 2010 and 2009, the Company had an asset for the
expected collections under the indemnity of $15,717 and $13,613,
respectively, included in other current assets, and $54,702 and
$51,462, respectively, included in other noncurrent assets in
the accompanying combined balance sheets representing the ABB
indemnities (see Note 11). 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.
F-104
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The changes in the provision for those warranties for the fiscal
years ended March 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, beginning of year
|
|
$
|
37,651
|
|
|
$
|
42,385
|
|
Liabilities settled
|
|
|
(12,099
|
)
|
|
|
(16,160
|
)
|
Additional liabilities accrued
|
|
|
11,978
|
|
|
|
14,142
|
|
Foreign currency translation effect
|
|
|
(956
|
)
|
|
|
(2,716
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
36,574
|
|
|
$
|
37,651
|
|
|
|
|
|
|
|
|
|
|
Recorded in balance sheet as:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
14,155
|
|
|
$
|
18,534
|
|
Other noncurrent liabilities
|
|
|
22,419
|
|
|
|
19,117
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
36,574
|
|
|
$
|
37,651
|
|
|
|
|
|
|
|
|
|
|
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 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 $3,000 in the accompanying
combined balance sheets as of March 31, 2010 and 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
$71,990 and $31,618 as of March 31, 2010 and 2009,
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 $3,328, $3,018 and $2,994 for the fiscal years ended
March 31, 2010, 2009 and 2008, respectively. These expenses
are included in cost of goods sold in the accompanying combined
statements of operations and comprehensive income (loss).
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.
F-105
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Unconditional purchase obligations The
Company is obligated to make payments under unconditional
purchase obligations. Maximum payments for contracts with
remaining terms in excess of one year are summarized below:
|
|
|
|
|
For the fiscal year ending March 31:
|
|
|
|
|
2011
|
|
$
|
36,477
|
|
2012
|
|
|
59,533
|
|
2013
|
|
|
114,972
|
|
2014
|
|
|
114,852
|
|
2015
|
|
|
27,623
|
|
Thereafter
|
|
|
19,267
|
|
|
|
|
|
|
Unconditional purchase obligations
|
|
$
|
372,724
|
|
|
|
|
|
|
The Companys unconditional purchase obligations relate to
long-lead equipment procured for use as part of future
AP1000 units not currently governed by a contractual
arrangement with a customer.
Commitments In the ordinary course of
business, letters of credit and surety bonds are issued on
behalf of the Company. As of March 31, 2010 and 2009, the
Company had $638,306 and $688,418, respectively, under letters
of credit and $57,520 and $46,763 under surety bond obligations.
Other During the fiscal years 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
statements of operations and comprehensive income (loss) as
reductions to marketing, administrative and general expenses.
There were no terminations of contracts during the fiscal year
ended March 31, 2010.
|
|
18.
|
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.
AP1000
DESIGN FINALIZATION STATUS
In October 2009, the Nuclear Regulatory Commission (NRC)
requested that the Company provide it with additional
information concerning whether the AP1000 shield building met
U.S. design codes in order to provide required regulatory
certainty. In addition, the Company has experienced some
challenges with respect to first time design detail and
manufacturing of first time equipment associated with the
AP1000. The Company has developed action plans to address each
of these issues to enable Design Amendment Certification, as
well as to meet customer commitments for the first AP1000s in
China and the United States. Management believes ultimate
resolution of these items will not materially affect the
Companys financial position or results of operations.
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
F-106
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Company; and a Fuel Assembly (FA) contract to provide the
initial core fuel load for each unit. 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, 2010, 2009 and
2008, $436,205, $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, 2010 and 2009, 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 the year ended March 31, 2009, the Company signed
three Engineering, Procurement, and Construction (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 (Southern Project). 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 (Scana Project). In
December 2008, the Company signed an EPC agreement with Progress
Energy Florida, for the sale of two AP1000 units to be
constructed in the State of Florida (Progress Project). Like the
China contract, and in conjunction with the three signed EPC
agreements noted above, the Company and Shaw (the Consortium
Partners) signed separate Consortium Agreements for each
individual EPC agreement; however, the US EPCs require Shaw to
provide substantially all of the construction components of the
EPC. The consortium is not a legal entity, but a working
arrangement that defines the split of work scope, sharing of
risk and dispute resolution between the Consortium Partners.
Revenue recognition, on all US AP1000 agreements, is generally
on the
percentage-of-completion
method and for the years ended March 31, 2010, 2009 and
2008, $532,739, $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, 2010 and 2009, 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.
PROGRESS
ENERGY FLORIDA (PEF)
On April 30, 2009, the Company received notice from PEF of
their intention to delay the execution of the EPC contract
signed in December 2008. PEF has determined that the delay is
warranted as PEF is required to obtain its Combined Operating
License from the NRC, prior to the beginning of pre-construction
work. Subsequently, the Company and PEF executed an amendment,
signed in March 2010, to the existing EPC contract that called
for a further suspension and revision of certain contract terms.
As a result of the above, and in consultation with PEF, the
Company will begin to plan for a commercial operating date delay
ranging from 24 to 36 months for the first of two units
covered under the EPC. The EPC addresses the matter of
suspension of activity, and neither party anticipates that this
suspension will result in termination of the contract.
F-107
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
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 for
additional periods of five years and contain certain rent
escalation clauses. Rental expense was $52,969, $40,627 and
$38,587 for the fiscal years ended March 31, 2010, 2009 and
2008, respectively.
Minimum lease payments under the Companys operating leases
as of March 31, 2010 are presented in the table below:
|
|
|
|
|
For the fiscal year ending March 31:
|
|
|
|
|
2011
|
|
$
|
51,537
|
|
2012
|
|
|
35,814
|
|
2013
|
|
|
33,329
|
|
2014
|
|
|
28,215
|
|
2015
|
|
|
25,323
|
|
Thereafter
|
|
|
236,077
|
|
|
|
|
|
|
Minimum lease payments
|
|
$
|
410,295
|
|
|
|
|
|
|
The Company leases three facilities within its Nuclear Services
and Nuclear Fuel business segments under capital leases. These
facilities are included with buildings and improvements under
property, plant and equipment on the accompanying combined
balance sheets. The gross and net carrying values of facilities
under capital leases are approximately $55,241 and $5,062,
respectively, as of March 31, 2010 and $6,624 and $3,339,
respectively, as of March 31, 2009.
One of the facilities is being leased from a partner in a joint
venture formed to fabricate, assemble and test specialty cranes
for nuclear power plants. The Company entered into the lease in
the current year, and the gross and net carrying value of the
leased facility is approximately $6,121 as of March 31,
2010.
The Company also acquired various equipment under capital leases
in the current year. This equipment is included with machinery
and equipment under property, plant and equipment on the
accompanying combined balance sheets. The gross and net carrying
values of equipment under capital leases are approximately
$2,761 and $2,456, respectively, as of March 31, 2010.
Minimum lease payments under the Companys capital lease
obligations as of March 31, 2010 are as follows:
|
|
|
|
|
For the fiscal year ending March 31:
|
|
|
|
|
2011
|
|
$
|
3,544
|
|
2012
|
|
|
3,223
|
|
2013
|
|
|
3,221
|
|
2014
|
|
|
3,199
|
|
2015
|
|
|
3,146
|
|
Thereafter
|
|
|
60,189
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
76,522
|
|
Less amounts representing interest
|
|
|
25,885
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
50,637
|
|
|
|
|
|
|
F-108
TOSHIBA
NUCLEAR ENERGY HOLDINGS (US), INC. AND
TOSHIBA NUCLEAR ENERGY HOLDINGS (UK) LTD.
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
RELATED-PARTY
TRANSACTIONS
|
At March 31, 2010 and 2009, the Company had the following
outstanding balances with related parties reported in the
accompanying combined balance sheets:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Related-party receivables
|
|
$
|
615,119
|
|
|
$
|
213,824
|
|
|
|
|
|
|
|
|
|
|
Related-party payables
|
|
$
|
40,447
|
|
|
$
|
51,788
|
|
|
|
|
|
|
|
|
|
|
Note due to related party
|
|
$
|
104,954
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Related-party receivables consisted of trade receivables of
$12,083 and $6,140 as of March 31, 2010 and 2009,
respectively, and loans receivable with Toshiba companies as of
March 31, 2010 and 2009 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
Lender
|
|
Borrower
|
|
Receivable
|
|
|
Accrued Interest
|
|
|
Interest Rate
|
|
|
Westinghouse
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
382,041
|
|
|
$
|
20
|
|
|
|
*0.52
|
%
|
Westinghouse
|
|
Toshiba America Capital Corp.
|
|
$
|
211,000
|
|
|
$
|
2
|
|
|
|
0.18
|
%
|
TNEH-UK
|
|
Toshiba International Finance (UK) plc.
|
|
$
|
5,995
|
|
|
$
|
1
|
|
|
|
0.60
|
%
|
TNEH-US
|
|
Toshiba America Capital Corp.
|
|
$
|
4,000
|
|
|
$
|
|
|
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
603,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Weighted average interest rate for seven separate loans. |
|
** |
|
Weighted average interest rate for three separate loans. |
The loans and related interest due to the Company outstanding at
March 31, 2010 and 2009 were repaid on various dates in
April 2010 and 2009, respectively.
The note due to related party of $104,954 represents a note from
Toshiba America Capital Corp. to the Company during April 2009
to facilitate the acquisition of NFI. The note bears an interest
rate of 1.23%, and accrued interest on the note was $219 as of
March 31, 2010. The note matures on April 28, 2011.
F-109
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 18). For
the fiscal years ended March 31, 2010, 2009 and 2008, the
Company had the following activity with related parties reported
in the accompanying combined statements of operations and
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
67,021
|
|
|
$
|
49,891
|
|
|
$
|
18,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
263,978
|
|
|
$
|
46,434
|
|
|
$
|
3,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, administrative and general expenses
|
|
$
|
1,858
|
|
|
$
|
299
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110