Other
Non-Current Assets
We have
included deferred debt issuance costs in other assets. We amortize
deferred debt issuance cost as interest expense over the life of the related
debt. Following are the changes in the carrying amount of these
assets:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
19,798
|
|
|
$
|
11,614
|
|
|
$
|
13,977
|
|
Additions
(1)
|
|
|
3,625
|
|
|
|
10,170
|
|
|
|
949
|
|
Reconsolidation
of B&W PGG
|
|
|
-
|
|
|
|
9,873
|
|
|
|
-
|
|
Terminations
and retirements
|
|
|
-
|
|
|
|
(7,865
|
)
|
|
|
-
|
|
Interest
expense – debt issuance costs
|
|
|
(8,912
|
)
|
|
|
(3,994
|
)
|
|
|
(3,312
|
)
|
Balance
at end of period
|
|
$
|
14,511
|
|
|
$
|
19,798
|
|
|
$
|
11,614
|
|
(1)
For the year ended December
31, 2007, additions are deferred debt issuance costs related to amendments
to the credit facilities of our Power Generation Systems segment ($2.1
million) and our Offshore Oil and Gas Construction segment ($1.5
million). For the year ended December 31, 2006, additions are
deferred debt issuance costs related to our Offshore Oil and Gas segment
and performance guarantees.
|
|
Capitalization
of Interest Cost
We
capitalize interest in accordance with SFAS No. 34, “Capitalization of Interest
Cost.” We incurred total interest of $28.5 million, $33.4 million and
$33.7 million in the years ended December 31, 2007, 2006 and 2005, respectively,
of which we capitalized $6.0 million, $3.1 million and $1.9 million in the years
ended December 31, 2007, 2006 and 2005, respectively.
Restricted
Cash and Cash Equivalents
We record
current cash and cash equivalents as restricted when we are unable to freely use
such cash and cash equivalents for our general operating purposes.
Our cash
equivalents are highly liquid investments, with maturities of three months or
less when we purchase them, which we do not hold as part of our investment
portfolio.
At
December 31, 2007, we had total restricted cash and cash equivalents of $64.8
million. The restricted cash and cash equivalents include the
following: $0.7 million, which is required to meet reinsurance
reserve requirements of our captive insurance companies, and $64.1 million,
which is held in restricted foreign accounts.
Derivative
Financial Instruments
Our
worldwide operations give rise to exposure to market risks from changes in
foreign exchange rates. We use derivative financial instruments to
reduce the impact of changes in foreign exchange rates on our operating
results. We use these instruments primarily to hedge our exposure
associated with revenues or costs on our long-term contracts that are
denominated in currencies other than our operating entities’ functional
currencies. We record these contracts at fair value on our
consolidated balance sheet. Depending on the hedge designation at the
inception of the contract, the related gains and losses on these contracts are
either deferred in stockholders’ equity (deficit) (as a component of accumulated
other comprehensive loss) until the hedged item is recognized in earnings or
offset against the change in fair value of the hedged firm commitment through
earnings. Any ineffective portion of a derivative’s change in fair
value is immediately recognized in earnings. The gain or loss on a
derivative financial instrument not designated as a hedging instrument is also
immediately recognized in earnings. Gains and losses on derivative
financial instruments that require immediate recognition are included as a
component of other income (expense) – net in our consolidated statements of
income.
Self-Insurance
We have
several wholly owned insurance subsidiaries that provide workers compensation,
employer’s liability, general and automotive liability and workers’ compensation
insurance and, from time to time, builder’s risk insurance (within certain
limits) and marine hull to our companies. We may also, in the future, have these
insurance subsidiaries accept other risks that we cannot or do not wish to
transfer to outside insurance companies. Reserves related to these
insurance programs are based on the facts and circumstances specific to the
insurance claims, our past experience with similar claims, loss factors and the
performance of the outside insurance market for the type of risk at issue. The
actual outcome of insured claims could differ significantly from estimated
amounts. We maintain actuarially determined accruals in our consolidated balance
sheets to cover self-insurance retentions for these coverages. These accruals
are based on assumptions developed utilizing historical data to project future
losses. Loss estimates in the calculation of these accruals are adjusted as
required based upon actual claim settlements and reported claims. These loss
estimates and accruals recorded in our financial statements for claims have
historically been reasonable in light of the actual amount of claims
paid.
Loss
Contingencies
We
estimate liabilities for loss contingencies when it is probable that a liability
has been incurred and the amount of loss is reasonably estimable. We
provide disclosure when there is a reasonable possibility that the ultimate loss
will exceed the recorded provision or if such loss is not reasonably
estimable. We are currently involved in some significant litigation,
as discussed in Note 11. We have accrued our estimates of the
probable losses associated with these matters. However, our losses
are typically resolved over long periods of time and are often difficult to
estimate due to various factors, including the possibility of multiple actions
by third parties. Therefore, it is possible future earnings could be affected by
changes in our estimates related to these matters.
Stock-Based
Compensation
Effective
January 1, 2006, we adopted the provisions of the revised SFAS No. 123,
“Share-Based Payment” (“SFAS No. 123(R)”), on a modified prospective application
basis. SFAS No. 123(R) eliminates the alternative permitted under
SFAS No. 123, “Accounting for Stock-Based Compensation,” to use the intrinsic
value method described in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No. 25”), under which issuing
stock options to employees generally did not result in recognition
of
compensation. Under the provisions of SFAS No. 123(R) and using the
modified prospective application method, we recognize stock-based compensation
based on the grant date fair value, net of an estimated forfeiture rate, for all
share-based awards granted after December 31, 2005 and granted prior to, but not
yet vested as of, December 31, 2005 on a straight-line basis over the requisite
service periods of the awards, which is generally equivalent to the vesting
term. Under the modified prospective application, the results of
prior periods are not restated.
Prior to
January 1, 2006, we accounted for our stock-based compensation plans using the
intrinsic value method under APB No. 25 and related
interpretations. Under APB No. 25, if the exercise price of the
employee stock option equaled or exceeded the fair value of the underlying stock
on the measurement date, no compensation expense was recognized. If the
measurement date was later than the date of grant, compensation expense was
recorded to the measurement date based on the quoted market price of the
underlying stock at the end of each reporting period.
Under
SFAS No. 123(R), the fair value of equity-classified awards, such as restricted
stock, performance shares and stock options, is determined on the date of grant
and is not remeasured. Grant date fair values for restricted stock
and performance shares are determined using the closing price of our common
stock on the date of grant. Grant date fair values for stock options
are determined using the Black-Scholes option-pricing model
(“Black-Scholes”). The determination of the fair value of a
share-based payment award on the date of grant using an option-pricing model
requires the input of highly subjective assumptions, such as the expected life
of the award and stock price volatility. For liability-classified
awards, such as cash-settled deferred stock units and performance units, fair
values are determined at grant date using the closing price of our common stock
and are remeasured at the end of each reporting period through the date of
settlement.
SFAS No.
123(R) requires compensation expense to be recognized, net of an estimate for
forfeitures, such that compensation expense is recorded only for those awards
expected to vest. We will review the estimate for forfeitures
periodically and record any adjustments deemed necessary for each reporting
period. If our actual
forfeiture
rate is materially different from our estimate, the stock-based compensation
expense could be significantly different from what we have recorded in the
current period.
Additionally,
SFAS No. 123(R) amends SFAS No. 95, “Statement of Cash Flows,” to require excess
tax benefits to be reported as a financing cash flow, rather than as a reduction
of taxes paid. These excess tax benefits result from tax deductions
in excess of the cumulative compensation expense recognized for options
exercised and other equity-classified awards. Prior to the adoption
of SFAS No. 123(R), we presented all tax benefits resulting from the exercise of
stock options as operating cash flows in our consolidated statement of cash
flows.
On March
29, 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) 107 to address certain issues related to SFAS No. 123(R). SAB
107 provides guidance on transition methods, valuation methods, income tax
effects and other share-based payment topics, and we applied this guidance in
our adoption of SFAS No. 123(R).
On
November 10, 2005, the FASB issued FSP No. FAS No. 123(R)-3, “Transition
Election Related to Accounting for Tax Effects of Share-Based Payment Awards”
(“FSP 123(R)-3”). FSP 123(R)-3 provides for an alternative transition
method for establishing the beginning balance of the additional paid-in capital
pool (“APIC pool”) related to the tax effects of employee share-based
compensation, which is available to absorb tax deficiencies recognized
subsequent to the adoption of SFAS No. 123(R). We have elected to
adopt this alternative transition method, otherwise known as the “simplified
method,” in establishing our beginning APIC pool at January 1,
2006.
See Note
10 for further discussion on stock-based compensation.
Stock
options granted to employees of certain subsidiaries in our Power Generation
Systems segment during the pendency of their Chapter 11 Bankruptcy proceedings
were accounted for using the fair value method of SFAS No. 123, as these
employees were not considered employees of MII for purposes of APB No.
25. In addition, for the year ended December 31, 2005, our
stock-based compensation cost included amounts related to stock options that
required variable accounting.
New
Accounting Standards
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. SFAS No. 157
became effective for our financial assets and liabilities on January 1,
2008. On February 12, 2008, the FASB issued FSP No. FAS 157-2,
“Effective Date of FASB Statement No. 157,” to provide a partial deferral of
SFAS No. 157. The FSP defers the effective date of SFAS No. 157 for
all nonfinancial assets and liabilities, excluding those recognized or disclosed
at fair value in an entity’s financial statements on a recurring basis (at least
annually), until fiscal years beginning after November 15, 2008. SFAS
No. 157 is not expected to materially affect our determination of fair value but
may result in additional disclosures.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115.” SFAS No. 159 permits companies to choose to
measure certain financial assets and certain other items at fair
value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. SFAS No. 159 became
effective for us on January 1, 2008. We do not plan to elect the fair
value option for any of our existing financial instruments on the effective date
and have not determined whether or not we will elect the option for any eligible
financial instruments we acquire in the future.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51.” SFAS
No. 160 establishes accounting and reporting standards pertaining to ownership
interests in subsidiaries held by parties other than the parent, the amount of
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest and the valuation of any retained
noncontrolling equity investment when a subsidiary is
deconsolidated. It also establishes disclosure requirements that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160 will be
effective for us January 1, 2009. We are currently reviewing this new
guidance to determine the impact on our consolidated financial condition,
results of operations and related disclosures.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”), which amends SFAS No. 141, “Business
Combinations.” SFAS No. 141(R) broadens the guidance of SFAS No. 141,
extending its applicability to all transactions and events in which one entity
obtains control over one or more other businesses. It broadens the
fair value measurements and recognition of assets acquired, liability assumed
and interests transferred as a result of business combinations. It
also provides disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of business
combinations. SFAS No. 141(R) will be effective for us January 1,
2009. We do not expect the adoption of SFAS No. 141(R) to have a
material effect on our consolidated financial statements. However, we
are reviewing the effects SFAS No. 141(R) may have on future business
combinations.
NOTE
2 – BUSINESS ACQUISITIONS
Acquisition
of Marine Mechanical Corporation
On May 1, 2007, our Government
Operations segment completed its stock acquisition of Marine Mechanical
Corporation for approximately $72 million in cash. In addition, we
recognized liabilities in excess of those directly assumed from Marine
Mechanical Corporation of approximately $16 million, primarily related to
deferred income taxes. We recorded goodwill of approximately $39
million in connection with this acquisition, none of which will be deductible
for tax purposes. Headquartered in Euclid, Ohio, Marine Mechanical
Corporation designs, manufactures and supplies electro-mechanical equipment used
by the U.S. Navy. In addition to the goodwill, we recorded
identifiable intangible assets of approximately $31 million, which have a
weighted-average amortization period of 14.4 years. Those intangible
assets consist of the following (amounts in thousands):
|
|
|
|
Amortization
|
|
|
Amount
|
|
Period
|
Customer
Relationship
|
|
$
|
19,790
|
|
20.0
years
|
Backlog
|
|
$
|
9,540
|
|
4.7
years
|
Trade
Name
|
|
$
|
1,770
|
|
5.0
years
|
Acquisition
of Assets from Secunda International Limited
On July
27, 2007, our Offshore Oil and Gas Construction segment completed its
acquisition of substantially all of the assets of Secunda International Limited,
including 14 harsh-weather, multi-functional vessels, with capabilities which
include subsea construction, pipelay, cable lay and dive support, as well as its
shore-based operations, for approximately $263 million in cash and the
assumption of approximately $10 million of liabilities, including approximately
$4 million related to deferred income taxes. We recorded goodwill of
approximately $29 million in connection with this acquisition, none of which
will be deductible for tax purposes. In addition to the goodwill, we
recorded identifiable intangible assets of approximately $12 million related to
contractual customer relationships, which have a weighted-average amortization
period of 3.6 years.
NOTE
3 –DISCONTINUED OPERATIONS
In April
2006, we completed the sale of our Mexican subsidiary, Talleres Navales del
Golfo, S.A. de C.V. (“TNG”), previously a component of our Offshore Oil and Gas
Construction segment. As a result of that sale, we received proceeds
of $19.5 million and recorded a gain of $13.8 million. The gain is
included in discontinued operations in our consolidated statement of income for
the year ended December 31, 2006.
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the consolidated statement of income for the year ended
December 31, 2005 has been restated for consistency to reflect TNG as a
discontinued operation. Condensed financial information for our operations
reported in discontinued operations is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,466
|
|
|
$
|
16,571
|
|
Income
(Loss) before Provision for
(Benefit
from) Income Taxes
|
|
$
|
(802
|
)
|
|
$
|
686
|
|
NOTE
4 – EQUITY METHOD INVESTMENTS
We have
investments in entities that we account for using the equity
method. The undistributed earnings of our equity method investees
were $33.5 million and $28.5 million at December 31, 2007 and 2006,
respectively.
Summarized
below is combined balance sheet and income statement information, based on the
most recent financial information, for investments in entities we accounted for
using the equity method:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
228,213
|
|
|
$
|
196,809
|
|
Noncurrent
assets
|
|
|
117,400
|
|
|
|
116,640
|
|
Total
Assets
|
|
$
|
345,613
|
|
|
$
|
313,449
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
$
|
121,244
|
|
|
$
|
120,313
|
|
Noncurrent
Liabilities
|
|
|
82,418
|
|
|
|
73,065
|
|
Owners’
Equity
|
|
|
141,951
|
|
|
|
120,071
|
|
Total
Liabilities and Owners’ Equity
|
|
$
|
345,613
|
|
|
$
|
313,449
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,889,273
|
|
|
$
|
1,829,688
|
|
|
$
|
1,831,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
152,063
|
|
|
$
|
138,312
|
|
|
$
|
117,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Provision for Income Taxes
|
|
$
|
114,551
|
|
|
$
|
101,743
|
|
|
$
|
90,812
|
|
Provision
for Income Taxes
|
|
|
15,916
|
|
|
|
10,732
|
|
|
|
4,642
|
|
Net
Income
|
|
$
|
98,635
|
|
|
$
|
91,011
|
|
|
$
|
86,170
|
|
Revenues
of equity method investees include $1,392.7 million, $1,403.4 million and
$1,660.5 million of reimbursable costs recorded by limited liability companies
in our Government Operations segment at December 31, 2007, 2006 and 2005,
respectively. Our investment in equity method investees was less than
our underlying equity in net assets of those investees based on stated ownership
percentages by $1.4 million at December 31, 2007. These differences
were primarily related to the timing of distribution of dividends and various
adjustments under U.S. GAAP.
The
provision for income taxes is based on the tax laws and rates in the countries
in which our investees operate. There is no expected relationship
between the provision for income taxes and income before provision for
income
taxes. The
taxation regimes vary not only by their nominal rates, but also by the
allowability of deductions, credits and other benefits. For some of our U.S.
investees, U.S. income taxes are the responsibility of the respective
owners.
Reconciliation
of net income per combined income statement information to equity in income from
investees per our consolidated statements of income is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Equity
income based on stated ownership percentages
|
|
$
|
46,966
|
|
|
$
|
42,366
|
|
|
$
|
40,722
|
|
Sale
of shares in foreign entity
|
|
|
-
|
|
|
|
-
|
|
|
|
3,073
|
|
Impairment
of investment
|
|
|
-
|
|
|
|
(2,609
|
)
|
|
|
-
|
|
All
other adjustments due to amortization of basis differences, timing of GAAP
adjustments, dividend distributions and other adjustments
|
|
|
(5,242
|
)
|
|
|
(2,233
|
)
|
|
|
(3,272
|
)
|
Equity
in income from investees
|
|
$
|
41,724
|
|
|
$
|
37,524
|
|
|
$
|
40,523
|
|
Our
transactions with unconsolidated affiliates include the following:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Sales
to
|
|
$
|
9,750
|
|
|
$
|
48,407
|
|
|
$
|
81,311
|
|
Purchases
from
|
|
$
|
42,686
|
|
|
$
|
31,602
|
|
|
$
|
-
|
|
Leasing
activities (included in sales to)
|
|
$
|
-
|
|
|
$
|
36,020
|
|
|
$
|
74,170
|
|
Dividends
received
|
|
$
|
41,844
|
|
|
$
|
39,072
|
|
|
$
|
35,809
|
|
During
the year ended December 31, 2005, we leased certain marine equipment to an
unconsolidated affiliate. During the year ended December 31, 2006, we
disposed of our interest in that unconsolidated affiliate. As
discussed further in Note 13, during the year ended December 31, 2004, we sold
the vessel DB17 to that unconsolidated affiliate. However, we
deferred recognition of the gain on that sale until the receivables were
settled. Such settlement occurred during the year ended December 31,
2007, and we recognized the gain on sale of approximately $5.4
million.
Effective
January 1, 2006, we converted the accounting for our investment in Babcock &
Wilcox Beijing Company, Ltd., a Chinese entity, from the cost method to the
equity method. As a result of this conversion, we recorded
adjustments to retained earnings of $7.0 million and to cumulative translation
adjustment of $0.2 million at January 1, 2006. For the years ended
December 31, 2007 and 2006, we recognized $10.3 million and $8.3 million,
respectively, of equity income related to this entity.
NOTE
5 - INCOME TAXES
We
provide for income taxes based on the tax laws and rates in the countries in
which we conduct our operations. MII is a Panamanian corporation that has earned
all of its income outside of Panama. As a result, we are not subject to income
tax in Panama. We operate in the U.S. taxing jurisdiction and various other
taxing jurisdictions around the world. Each of these jurisdictions has a regime
of taxation that varies from the others. The taxation regimes vary not only with
respect to nominal rates, but also with respect to the basis on which these
rates are applied. These variances, along with variances in our mix of income
from these jurisdictions, contribute to shifts in our effective tax
rate.
On
December 31, 2006, we completed a reorganization of our U.S. tax groups into a
single consolidated U.S. tax group. This reorganization provides us
with administrative efficiencies, the opportunity to increase the flexibility of
our financial structure and returns us to a more tax-efficient legal
structure. Beginning January 1, 2007, the results of the former separate
U.S. tax groups are consolidated.
We
conduct business globally, and as a result, we or one or more of our
subsidiaries file income tax returns in the U.S. federal jurisdiction and in
many state and foreign jurisdictions. In the normal course of
business, we are subject to examination by taxing authorities throughout the
world, including such major jurisdictions as Canada,
Indonesia,
Malaysia, China, Singapore, Saudi Arabia, Kuwait, India, Qatar, Azerbaijan and
the United States. With few exceptions, we are no longer subject to
non-U.S. tax examinations for years prior to 2000.
Both of
our former U.S. tax groups are currently under audit by the Internal Revenue
Service (the “IRS”). The IRS examination of the years 1993 through
2003 for one group has been completed. We are awaiting final
resolution of all disputed adjustments from an appellate conference with the IRS
and a subsequent review by the Joint Committee on
Taxation. Additionally, the IRS has commenced the examination for the
years 2004 through 2006 for this group. The IRS examination of the years 1996
through 2003 for the other group is also complete and is pending review by the
Joint Committee on Taxation. It is anticipated that a settlement with
the IRS for all years under audit may be reached within the next 12
months.
State
income tax returns are generally subject to examination for a period of three to
five years after filing the respective returns. With few exceptions,
we do not have any state returns under examination for years prior to
2000.
Effective
January 1, 2007, we adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”). As a result
of this adoption, we recognized a charge of approximately $12.0 million to our
accumulated deficit component of stockholders’ equity. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (amounts in millions):
Balance
at January 1, 2007
|
|
$
|
70,433
|
|
|
|
|
|
|
Increases
based on tax positions taken in the current year
|
|
|
2,217
|
|
Increases
based on tax positions taken in the prior years
|
|
|
7,742
|
|
Decreases
based on tax positions taken in the prior years
|
|
|
(12,759
|
)
|
Decreases
due to settlements with tax authorities
|
|
|
(2,313
|
)
|
Decreases
due to lapse of applicable statute of limitations
|
|
|
(510
|
)
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
64,810
|
|
Approximately
$63.4 million of the balance of unrecognized tax benefits at December 31, 2007
would reduce our effective tax rate if recognized. The
remaining balance relates to positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the timing of such
deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax rate but would
accelerate the payment of cash to the taxing authority to an earlier
period.
As part
of the adoption of FIN 48, we began to recognize interest and penalties related
to unrecognized tax benefits in income tax expense. As of the date of
implementation, we recorded liabilities of approximately $27.3 million for the
payment of tax-related interest and penalties, including amounts recorded upon
implementation. At December 31, 2007, we have
recorded liabilities of approximately $20.4 million for the payment of
tax-related interest and penalties. The $6.9 million change during
the year is attributable to the reassessment of certain tax positions from the
U.S. federal audits described above, as well as payment of interest to the state
of Virginia from a prior audit settlement.
It is
reasonably possible that within the next 12 months we will see a decrease of
approximately $22.6 million in unrecognized tax benefits and a related $8.7
million of interest and penalties as a result of settling various federal, state
and international audits.
Deferred
income taxes reflect the net tax effects of temporary differences between the
financial and tax bases of assets and liabilities. Significant
components of deferred tax assets and liabilities as of December 31, 2007 and
2006 were as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Pension
liability
|
|
$
|
93,393
|
|
|
$
|
151,709
|
|
Minimum
tax credit carryforward
|
|
|
26,536
|
|
|
|
5,576
|
|
Accrued
warranty expense
|
|
|
36,318
|
|
|
|
26,690
|
|
Accrued
vacation pay
|
|
|
11,209
|
|
|
|
10,101
|
|
Accrued
liabilities for self-insurance
(including
postretirement health care benefits)
|
|
|
52,057
|
|
|
|
51,710
|
|
Accrued liabilities for executive and employee incentive
compensation
|
|
|
62,733
|
|
|
|
49,155
|
|
Investments
in joint ventures and affiliated companies
|
|
|
1,667
|
|
|
|
2,151
|
|
Net
operating loss carryforward
|
|
|
20,007
|
|
|
|
122,563
|
|
Environmental
and products liabilities
|
|
|
29,068
|
|
|
|
27,982
|
|
Long-term
contracts
|
|
|
16,459
|
|
|
|
30,015
|
|
Accrued
interest
|
|
|
1,602
|
|
|
|
770
|
|
State
tax net operating loss carryforward
|
|
|
67,473
|
|
|
|
109,772
|
|
Capital
loss carryforward
|
|
|
-
|
|
|
|
3,419
|
|
Foreign
tax credit carryforward
|
|
|
18,583
|
|
|
|
18,670
|
|
Other
|
|
|
15,290
|
|
|
|
17,556
|
|
Total
deferred tax assets
|
|
|
452,395
|
|
|
|
627,839
|
|
Valuation
allowance for deferred tax assets
|
|
|
(100,617
|
)
|
|
|
(152,950
|
)
|
Deferred
tax assets
|
|
|
351,778
|
|
|
|
474,889
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
27,430
|
|
|
|
30,336
|
|
Prepaid
drydock
|
|
|
9,832
|
|
|
|
11,113
|
|
Investments
in joint ventures and affiliated companies
|
|
|
7,883
|
|
|
|
7,896
|
|
Intangibles
|
|
|
15,183
|
|
|
|
-
|
|
Other
|
|
|
7,146
|
|
|
|
6,527
|
|
Total
deferred tax liabilities
|
|
|
67,474
|
|
|
|
55,872
|
|
Net
deferred tax assets
|
|
$
|
284,304
|
|
|
$
|
419,017
|
|
Income
from continuing operations before provision for income taxes was as
follows:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
266,984
|
|
|
$
|
89,910
|
|
|
$
|
56,750
|
|
Other
than U.S.
|
|
|
478,481
|
|
|
|
262,906
|
|
|
|
157,660
|
|
Income
from continuing operations before provision for income
taxes
|
|
$
|
745,465
|
|
|
$
|
352,816
|
|
|
$
|
214,410
|
|
The
provision for income taxes consisted of:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
U.S.
– Federal
|
|
$
|
(16,872
|
)
|
|
$
|
(207,675
|
)
|
|
$
|
28,727
|
|
U.S.
– State and local
|
|
|
6,621
|
|
|
|
12,829
|
|
|
|
2,863
|
|
Other
than U.S.
|
|
|
58,264
|
|
|
|
50,574
|
|
|
|
24,794
|
|
Total
current
|
|
|
48,013
|
|
|
|
(144,272
|
)
|
|
|
56,384
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
- Federal
|
|
|
93,815
|
|
|
|
186,721
|
|
|
|
(47,685
|
)
|
U.S.
– State and local
|
|
|
687
|
|
|
|
(321
|
)
|
|
|
128
|
|
Other
than U.S.
|
|
|
(4,878
|
)
|
|
|
(6,933
|
)
|
|
|
-
|
|
Total
deferred
|
|
|
89,624
|
|
|
|
179,467
|
|
|
|
(47,557
|
)
|
Provision
for income taxes
|
|
$
|
137,637
|
|
|
$
|
35,195
|
|
|
$
|
8,827
|
|
The
following is a reconciliation of the U.S. statutory federal tax rate (35%) to
the consolidated effective tax rate:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
U.S.
federal statutory (benefit) rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State
and local income taxes
|
|
|
0.8
|
|
|
|
2.1
|
|
|
|
2.0
|
|
Non-U.S.
operations
|
|
|
(13.7
|
)
|
|
|
(9.4
|
)
|
|
|
(14.2
|
)
|
Non-deductible
Chapter 11 Bankruptcy expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1.6
|
|
Expiration
of foreign tax credits
|
|
|
-
|
|
|
|
3.0
|
|
|
|
-
|
|
Valuation
allowance for deferred tax assets
|
|
|
(2.0
|
)
|
|
|
(22.8
|
)
|
|
|
(21.3
|
)
|
Other
|
|
|
(1.6
|
)
|
|
|
2.1
|
|
|
|
1.0
|
|
Effective
tax rate attributable to continuing operations
|
|
|
18.5
|
%
|
|
|
10.0
|
%
|
|
|
4.1
|
%
|
For the
year ended December 31, 2005, we recorded a tax provision benefit of $50.4
million from the reversal of the valuation allowance related to our minimum
pension liability. For the year ended December 31, 2006, we
reduced the valuation allowance $78.1 million on various deferred assets and
recorded a benefit to the provision as a result of the reorganization of our
U.S. legal entities.
At
December 31, 2007, we had a valuation allowance of $100.6 million for
deferred tax assets, which we expect cannot be realized through carrybacks,
future reversals of existing taxable temporary differences and our estimate of
future taxable income. We believe that our remaining deferred tax assets are
realizable through carrybacks, future reversals of existing taxable temporary
differences and our estimate of future taxable income. Any changes to our
estimated valuation allowance could be material to our consolidated financial
statements.
We have
foreign net operating loss carryforwards of approximately $55.6 million
available to offset future taxable income in foreign jurisdictions.
Approximately $16.4 million of the foreign net operating loss carryforwards
is scheduled to expire in 2008 to 2010. The foreign net operating losses have a
valuation allowance of $11.4 million against them. We have domestic net
operating loss carryforwards of approximately $121.7 million available to
offset future taxable income in domestic jurisdictions, including
$115.4 million of losses related to exercised stock options that will be
reflected as an addition to capital in excess of par when utilized. The domestic
net operating loss carryforwards are scheduled to expire in years 2009 to 2026.
We have state net operating losses of $1,087.3 million available to offset
future taxable income in various states. The state net operating loss
carryforwards begin to expire in the year 2008. The state net operating losses
have a valuation allowance against the entire carryforward.
We would
be subject to withholding taxes if we were to distribute earnings from our U.S.
subsidiaries and certain foreign subsidiaries. For the year ended
December 31, 2007, the undistributed earnings of these subsidiaries were
$589.4 million. Unrecognized deferred income tax liabilities, including
withholding taxes, of approximately
$172.9 million
would be payable upon distribution of these earnings. We have provided $3.1
million of taxes on earnings we intend to remit. All other earnings
are considered permanently reinvested.
NOTE
6 - LONG-TERM DEBT AND NOTES PAYABLE
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Long-term
debt consists of:
|
|
|
|
|
|
|
Unsecured
Debt:
|
|
|
|
|
|
|
Other
notes payable through 2009 (interest at various rates up to
6.8%)
|
|
$
|
14,824
|
|
|
$
|
19,283
|
|
Secured
Debt:
|
|
|
|
|
|
|
|
|
Power
Generation Systems – various notes payable
|
|
|
2,384
|
|
|
|
2,455
|
|
Power
Generation Systems – term loan due 2012
($250,000
principal amount)
|
|
|
-
|
|
|
|
250,000
|
|
|
|
|
17,208
|
|
|
|
271,738
|
|
Less: Amounts
due within one year
|
|
|
6,599
|
|
|
|
256,496
|
|
Long-term
debt
|
|
$
|
10,609
|
|
|
$
|
15,242
|
|
Notes
payable and current maturities of long-term debt consist
of:
|
|
|
|
|
|
|
|
|
Short-term
lines of credit
|
|
$
|
-
|
|
|
$
|
996
|
|
Current
maturities of long-term debt
|
|
|
6,599
|
|
|
|
256,496
|
|
Total
|
|
$
|
6,599
|
|
|
$
|
257,492
|
|
Weighted
average interest rate on short-term borrowing
|
|
|
-
|
|
|
|
6.70
|
%
|
Maturities
of long-term debt during the five years subsequent to December 31, 2007 are as
follows: 2008 – $6.6 million; 2009 – $4.6 million; 2010 – $0.4 million; 2011 –
$0.4 million; and 2012 – $4.4 million.
Offshore
Oil and Gas Construction
On June
6, 2006, one of our subsidiaries, J. Ray McDermott, S.A. entered into a senior
secured credit facility with a syndicate of lenders (the “JRMSA Credit
Facility”). During July 2007, the JRMSA Credit Facility was amended
to, among other things, (1) increase the revolving credit facility by $100
million to $500 million and eliminate a synthetic letter of credit facility, (2)
reduce the commitment fees and applicable margins for revolving loans and
letters of credit and (3) eliminate the limitation on revolving credit
borrowings. The JRMSA Credit Facility now consists of a five-year,
$500 million revolving credit facility (under which all of the credit capacity
may be used for the issuance of letters of credit and revolver borrowings),
which matures on June 6, 2011. The proceeds of the JRMSA Credit
Facility are available for working capital needs and other general corporate
purposes of our Offshore Oil and Gas Construction segment.
JRMSA’s
obligations under the JRMSA Credit Facility are unconditionally guaranteed by
substantially all of our wholly owned subsidiaries comprising our Offshore Oil
and Gas Construction segment and secured by liens on substantially all the
assets of those subsidiaries (other than cash, cash equivalents, equipment and
certain foreign assets), including their major marine vessels. JRMSA is
permitted to prepay amounts outstanding under the JRMSA Credit Facility at any
time without penalty. Other than customary mandatory prepayments on
certain contingent events, the JRMSA Credit Facility requires only interest
payments on a quarterly basis until maturity. Loans outstanding under
the JRMSA Credit Facility bear interest at either the Eurodollar rate plus a
margin ranging from 1.00% to 1.75% per year or the base rate plus a margin
ranging from 0.00% to 0.75% per year. If there had been borrowings
under this facility, the applicable interest rate at December 31, 2007 would
have been 6.35% per year. The applicable margin for revolving loans
varies depending on credit ratings of the JRMSA Credit
Facility. JRMSA is charged a commitment fee on the unused portions of
the JRMSA Credit Facility, and that fee varies between 0.25% and 0.375% per year
depending on credit ratings of the JRMSA Credit
Facility. Additionally, JRMSA is charged a letter of credit fee of
between 1.00% and 1.75% per year with respect to the amount of each letter of
credit issued under the JRMSA Credit Facility depending on credit ratings of the
JRMSA Credit Facility. An additional 0.125% annual fee is charged on
the amount of each letter of credit issued under the JRMSA Credit
Facility.
The JRMSA
Credit Facility contains customary financial covenants relating to leverage and
interest coverage and includes covenants that restrict, among other things, debt
incurrence, liens, investments, acquisitions, asset dispositions, dividends,
prepayments of subordinated debt, mergers, transactions with affiliates and
capital expenditures. At December 31, 2007, JRMSA was in compliance
with all of the covenants set forth in the JRMSA Credit Facility.
At
December 31, 2007, there were no borrowings outstanding and letters of credit
issued under the JRMSA Credit Facility totaled $279.2 million. In addition,
JRMSA and its subsidiaries had $172.8 million in outstanding unsecured letters
of credit under separate arrangements with financial institutions at December
31, 2007. At December 31, 2007, there was $220.8 million available
for borrowings or to meet letter of credit requirements under the JRMSA Credit
Facility.
On
December 22, 2005, JRMSA, as guarantor, and its subsidiary, J. Ray McDermott
Middle East, Inc., entered into a $105.2 million unsecured performance guarantee
issuance facility with a syndicate of commercial banking institutions. The
outstanding amount under this facility is included in the $172.8 million
outstanding referenced above. This facility provides credit support
for bank guarantees issued in connection with three major projects. The term of
this facility is for the duration of these projects, and the average commission
rate is less than 4.5% on an annualized basis.
On June
6, 2006, JRMSA completed a cash tender offer for all its outstanding 11% senior
secured notes due 2013 (the “Secured Notes”). The tender offer
consideration was based on a fixed-spread over specified U.S. Treasury
securities, which equated to an offer price of approximately 119% of the
principal amount of the notes. JRMSA used cash on hand to purchase
the entire $200 million in aggregate principal amount of the Secured Notes
outstanding for approximately $249.0 million, including accrued interest of
approximately $10.9 million. As a result of this early retirement of
debt, we recognized $49.0 million of expense during the year ended December 31,
2006.
Government
Operations
On
December 9, 2003, one of our subsidiaries, BWX Technologies, Inc. entered into a
senior unsecured credit facility with a syndicate of lenders (the “BWXT Credit
Facility”), which is currently scheduled to mature March 18, 2010. On
October 29, 2007, the BWXT Credit Facility was amended to reduce the applicable
margins for revolving loans and letters of credit. This facility
provides for borrowings and issuances of letters of credit in an aggregate
amount of up to $135 million. The proceeds of the BWXT Credit Facility are
available for working capital needs and other general corporate purposes of our
Government Operations segment.
The BWXT
Credit Facility requires BWXT to comply with various financial and nonfinancial
covenants and reporting requirements. The financial covenants require
maintenance of a maximum leverage ratio, a minimum fixed charge coverage ratio
and a maximum debt to capitalization ratio within our Government Operations
segment. At December 31, 2007, BWXT was in compliance with all of the
covenants set forth in the BWXT Credit Facility.
Loans
outstanding under the BWXT Credit Facility bear interest at either the
Eurodollar rate plus a margin ranging from 1.25% to 1.75% per year or the base
rate plus a margin ranging from 0.25% and 0.75% per year. The
applicable margin for revolving loans varies depending on the leverage ratio of
our Government Operations segment as of the last day of the preceding fiscal
quarter. If there had been borrowings under this facility, the
applicable interest rate at December 31, 2007 would have been 5.85% per
year. BWXT is charged an annual commitment fee of 0.375%, which is
payable quarterly. Additionally, BWXT is charged a letter of credit
fee of between 1.25% and 1.75% per year with respect to the amount of each
letter of credit issued, depending on the leverage ratio of our Government
Operations segment as of the last day of the preceding fiscal
quarter. An additional 0.125% per year fee is charged on the amount
of each letter of credit issued.
At
December 31, 2007, there were no borrowings outstanding, and letters of credit
issued under the BWXT Credit Facility totaled $48.0 million. At
December 31, 2007, there was $87.0 million available for borrowings or to meet
letter of credit requirements under the BWXT Credit Facility.
Power
Generation Systems
On
February 22, 2006, one of our subsidiaries, Babcock & Wilcox Power
Generation Group, Inc. entered into a senior secured credit facility with a
syndicate of lenders (the “B&W PGG Credit Facility”). During July 2007, the
B&W PGG Credit Facility was amended to, among other things, (1) increase the
revolving credit facility by $200 million to $400 million and eliminate a
synthetic letter of credit facility and (2) reduce the commitment fees and
applicable margins for revolving loans and letters of credit. The
entire credit availability under the B&W PGG Credit Facility may be used for
the issuance of letters of credit or for borrowings to fund working capital
requirements for our Power Generation System segment. The B&W PGG
Credit Facility also originally included a commitment by certain of the lenders
to loan up to $250 million in term debt to refinance the $250 million promissory
note payable to a trust under the Chapter 11 plan of
reorganization. On November 30, 2006, B&W PGG drew down $250
million on this term loan under the B&W PGG Credit Facility. On
April 12, 2007, the $250 million term loan was retired without
penalty. This payment was made using cash on hand, including the $272
million federal tax refund received on April 12, 2007. This federal
tax refund resulted from carrying back to prior tax years the tax loss generated
in 2006, primarily as a result of the $955 million of asbestos-related payments
made during 2006 in connection with the settlement of asbestos-related claims
made in the Chapter 11 Bankruptcy proceedings.
B&W
PGG’s obligations under the B&W PGG Credit Facility are unconditionally
guaranteed by all of our domestic subsidiaries included in our Power Generation
Systems segment and secured by liens on substantially all the assets of those
subsidiaries, excluding cash and cash equivalents.
Loans
outstanding under the revolving credit subfacility bear interest at either the
Eurodollar rate plus a margin ranging from 1.00% to 1.75% per year or the base
rate plus a margin ranging from 0.00% to 0.75% per year. If there had
been borrowings under this facility, the applicable interest rate at December
31, 2007 would have been 5.85% per year. The applicable margin for
revolving loans varies depending on credit ratings of the B&W PGG Credit
Facility. B&W PGG is charged a commitment fee on the unused
portion of the B&W PGG Credit Facility, and that fee varies between 0.25%
and 0.375% per year depending on credit ratings of the B&W PGG Credit
Facility. Additionally, B&W PGG is charged a letter of credit fee
of between 1.00% and 1.75% per year with respect to the amount of each letter of
credit issued under the B&W PGG Credit Facility. An additional
0.125% per year fee is charged on the amount of each letter of credit issued
under the B&W PGG Credit Facility.
The
B&W PGG Credit Facility only requires interest payments on a quarterly basis
until maturity. Amounts outstanding under the B&W PGG Credit
Facility may be prepaid at any time without penalty.
The
B&W PGG Credit Facility contains customary financial covenants within our
Power Generation Systems segment, including maintenance of a maximum leverage
ratio and a minimum interest coverage ratio, and covenants that, among other
things, restrict the ability of this segment to incur debt, create liens, make
investments and acquisitions, sell assets, pay dividends, prepay subordinated
debt, merge with other entities, engage in transactions with affiliates and make
capital expenditures. The B&W PGG Credit Facility also contains customary
events of default. At December 31, 2007, B&W PGG was in
compliance with all of the covenants set forth in the B&W PGG Credit
Facility.
As of
December 31, 2007, there were no outstanding borrowings and letters of credit
issued under the B&W PGG Credit Facility totaled $225.2
million. At December 31, 2007, there was $174.8 million available for
borrowings or to meet letter of credit requirements under the B&W PGG Credit
Facility.
Other
Certain
of our subsidiaries are restricted in their ability to transfer funds to
MII. Such restrictions principally arise from debt covenants,
insurance regulations, national currency controls and the existence of minority
shareholders. We refer to the proportionate share of net assets,
after intercompany eliminations, that may not be transferred to MII as a result
of these restrictions, as “restricted net assets.” At December 31,
2007, the restricted net assets of our consolidated subsidiaries were
approximately $596 million.
NOTE
7 - PENSION PLANS AND POSTRETIREMENT BENEFITS
We have
historically provided defined benefit retirement benefits, primarily
through noncontributory pension plans, for most of our regular
employees. Effective March 31, 2003, the retirement plan for
U.S.-based employees of our Offshore Oil and Gas Construction segment was closed
to new entrants and benefit accruals were frozen for existing participants.
Effective March 31, 2006, the retirement plans for corporate employees and for
U.S.-based salaried employees of our Government Operations and Power Generation
Systems segments were closed to new entrants, and benefit accruals were frozen
for existing salaried participants hired on or after April 1, 2001. Effective
December 31, 2007, the salaried retirement plan acquired with Marine Mechanical
Corporation in May, 2007 was closed to new entrants and benefit accruals were
frozen for existing participants who were not vested as of December 31,
2007. In addition, we do not provide retirement benefits to certain
non-resident alien employees of foreign subsidiaries. Retirement benefits for
salaried employees who accrue benefits in a defined benefit plan are based on
final average compensation and years of service, while benefits for hourly paid
employees are based on a flat benefit rate and years of service. Our
funding policy is to fund the plans as recommended by the respective plan
actuaries and in accordance with the Employee Retirement Income Security Act of
1974, as amended, or other applicable law. The Pension Protection Act of 2006
replaces the current funding provisions for single-employer defined benefit
plans. Funding provisions under the Pension Protection Act accelerate funding
requirements to ensure full funding of benefits accrued. The Pension Protection
Act became effective in 2008, and we do not anticipate any material impact on
our consolidated financial condition or cash flows.
Effective
December 31, 2007, we adopted the measurement date provision of SFAS No. 158,
“Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans,” for our plans that were not on a calendar year measurement. In
accordance with this provision, we recorded a reduction in retained earnings of
$1.7 million, net of a related tax benefit of $0.8 million.
Effective
December 31, 2006, we adopted the recognition and disclosure provisions of SFAS
No. 158. In accordance with SFAS No. 158, the funded status of our
defined benefit pension plans and postretirement plans has been recognized on
our consolidated balance sheets. The initial impact of the standard was to
recognize in accumulated other comprehensive loss all unrecognized prior service
costs and net actuarial gains and losses. Furthermore, additional minimum
pension liabilities and associated intangible assets required under previous
accounting rules were reversed.
In
December 2005, we recorded an additional gain totaling $1.4 million related to
the finalization of the 2004 termination of one of our pension plans in the
United Kingdom.
We make
available other benefits which include postretirement health care and life
insurance benefits to certain salaried and union retirees based on their union
contracts. Certain subsidiaries provide these benefits to unionized and salaried
future retirees.
Obligations
and Funded Status
|
|
Pension
Benefits
Year
Ended
December
31,
|
|
|
Other
Benefits
Year
Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of period
|
|
$
|
2,521,895
|
|
|
$
|
2,313,191
|
|
|
$
|
108,697
|
|
|
$
|
38,999
|
|
Service
cost
|
|
|
37,766
|
|
|
|
37,724
|
|
|
|
331
|
|
|
|
129
|
|
Interest
cost
|
|
|
149,329
|
|
|
|
133,176
|
|
|
|
5,993
|
|
|
|
5,269
|
|
Measurement
date change
|
|
|
4,203
|
|
|
|
-
|
|
|
|
189
|
|
|
|
-
|
|
Acquisition
of Marine Mechanical Corporation
|
|
|
24,830
|
|
|
|
-
|
|
|
|
1,681
|
|
|
|
-
|
|
Plan
participants’ contributions
|
|
|
319
|
|
|
|
315
|
|
|
|
-
|
|
|
|
-
|
|
Reconsolidation
of B&W PGG
|
|
|
-
|
|
|
|
197,750
|
|
|
|
-
|
|
|
|
66,251
|
|
Amendments
|
|
|
(26,381
|
)
|
|
|
(496
|
)
|
|
|
-
|
|
|
|
-
|
|
Medicare
reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
Actuarial
(gain) loss
|
|
|
10,197
|
|
|
|
(26,669
|
)
|
|
|
(2,530
|
)
|
|
|
8,786
|
|
Foreign
currency exchange rate changes
|
|
|
28,436
|
|
|
|
4,728
|
|
|
|
1,332
|
|
|
|
(60
|
)
|
Benefits
paid
|
|
|
(144,877
|
)
|
|
|
(137,824
|
)
|
|
|
(12,142
|
)
|
|
|
(10,677
|
)
|
Benefit
obligation at end of period
|
|
|
2,605,717
|
|
|
$
|
2,521,895
|
|
|
$
|
103,570
|
|
|
$
|
108,697
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of period
|
|
$
|
2,050,215
|
|
|
$
|
1,706,343
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Actual
return on plan assets
|
|
|
191,203
|
|
|
|
217,798
|
|
|
|
-
|
|
|
|
-
|
|
Measurement
date change
|
|
|
3,027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition
of Marine Mechanical Corporation
|
|
|
16,466
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Plan
participants’ contributions
|
|
|
319
|
|
|
|
315
|
|
|
|
-
|
|
|
|
-
|
|
Company
contributions
|
|
|
138,630
|
|
|
|
104,668
|
|
|
|
12,142
|
|
|
|
10,676
|
|
Reconsolidation
of B&W PGG
|
|
|
-
|
|
|
|
155,190
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency exchange rate changes
|
|
|
25,001
|
|
|
|
3,725
|
|
|
|
-
|
|
|
|
-
|
|
Benefits
paid
|
|
|
(144,877
|
)
|
|
|
(137,824
|
)
|
|
|
(12,142
|
)
|
|
|
(10,676
|
)
|
Fair
value of plan assets at the end of period
|
|
|
2,279,984
|
|
|
|
2,050,215
|
|
|
|
-
|
|
|
|
-
|
|
Funded
status
|
|
$
|
(325,733
|
)
|
|
$
|
(471,680
|
)
|
|
$
|
(103,570
|
)
|
|
$
|
(108,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the balance sheet consist of:
|
|
Prior
to Adoption of SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
employee benefits
|
|
|
N/A
|
|
|
$
|
(104,073
|
)
|
|
|
N/A
|
|
|
$
|
(8,381
|
)
|
Accumulated
postretirement benefit obligation
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
(79,716
|
)
|
Pension
liability
|
|
|
N/A
|
|
|
|
(242,734
|
)
|
|
|
N/A
|
|
|
|
-
|
|
Intangible
asset
|
|
|
N/A
|
|
|
|
24,539
|
|
|
|
N/A
|
|
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
N/A
|
|
|
|
318,213
|
|
|
|
N/A
|
|
|
|
-
|
|
Net
amount recognized
|
|
|
N/A
|
|
|
$
|
(4,055
|
)
|
|
|
N/A
|
|
|
$
|
(88,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
Adoption of SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
employee benefits
|
|
$
|
(159,601
|
)
|
|
$
|
(104,073
|
)
|
|
$
|
(7,317
|
)
|
|
$
|
(8,381
|
)
|
Accumulated
postretirement benefit obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
(96,253
|
)
|
|
|
(100,316
|
)
|
Pension
liability
|
|
|
(182,739
|
)
|
|
|
(367,607
|
)
|
|
|
-
|
|
|
|
-
|
|
Prepaid
pension
|
|
|
16,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accrued
benefit liability, net
|
|
$
|
(325,733
|
)
|
|
$
|
(471,680
|
)
|
|
$
|
(103,570
|
)
|
|
$
|
(108,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in accumulated other comprehensive loss:
|
|
Net
actuarial loss
|
|
$
|
367,057
|
|
|
$
|
450,352
|
|
|
$
|
14,413
|
|
|
$
|
18,494
|
|
Prior
service cost
|
|
|
17,401
|
|
|
|
17,273
|
|
|
|
473
|
|
|
|
578
|
|
Unrecognized
transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,156
|
|
|
|
1,528
|
|
Total
before taxes
|
|
$
|
384,458
|
|
|
$
|
467,625
|
|
|
$
|
16,042
|
|
|
$
|
20,600
|
|
The
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets were $2,364.4 million, $2,266.2 million and $2,046.1 million,
respectively, at December 31, 2007 for plans with accumulated benefit obligation
in excess of plan assets. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets were $241.3 million, $218.4 million and
$233.9 million, respectively, at December 31, 2007 for plans with plan assets in
excess of the accumulated benefit obligation. The projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for all pension
plans were $2,521.9 million, $2,397.0 million and $2,050.2 million,
respectively, at December 31, 2006. The accumulated benefit
obligation was in excess of plan assets for all of our plans at December 31,
2006.
|
|
Pension Benefits
Year
Ended December 31,
|
|
|
Other
Benefits
Year
Ended December 31,
|
|
|
|
2007
(1)
|
|
|
2006
|
|
|
2005
(2)
|
|
|
2007
(1)
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
37,766
|
|
|
$
|
37,724
|
|
|
$
|
28,931
|
|
|
$
|
331
|
|
|
$
|
129
|
|
|
$
|
-
|
|
Interest cost
|
|
|
149,329
|
|
|
|
133,176
|
|
|
|
121,981
|
|
|
|
5,993
|
|
|
|
5,269
|
|
|
|
2,166
|
|
Expected
return on plan assets
|
|
|
(172,087
|
)
|
|
|
(143,674
|
)
|
|
|
(134,400
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273
|
|
|
|
222
|
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
3,091
|
|
|
|
3,142
|
|
|
|
3,110
|
|
|
|
71
|
|
|
|
58
|
|
|
|
-
|
|
Recognized
net actuarial loss
|
|
|
45,799
|
|
|
|
63,183
|
|
|
|
43,068
|
|
|
|
1,723
|
|
|
|
1,402
|
|
|
|
1,489
|
|
Net
periodic benefit cost
|
|
$
|
63,898
|
|
|
$
|
93,551
|
|
|
$
|
62,690
|
|
|
$
|
8,391
|
|
|
$
|
7,080
|
|
|
$
|
3,655
|
|
(1)
Excludes
approximately $2.2 million and $0.3 million of net benefit cost for
pension benefits and other benefits, respectively, which have been
recorded as adjustments to beginning-of-year retained
earnings.
(2)
Includes
approximately $35 million of expense which was recorded in our Power
Generation Systems segment attributable to the spin-off of the B&W PGG
pension plan from MI.
|
|
Additional
Information
|
|
Pension
Benefits
Year
Ended December 31,
|
|
|
Other
Benefits
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
Decrease
in accumulated other comprehensive loss due to actuarial gains (before
taxes)
|
|
$
|
34,625
|
|
|
|
N/A
|
|
|
$
|
2,487
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accumulated other comprehensive loss due to adoption of SFAS No. 158
(before taxes)
|
|
|
N/A
|
|
|
$
|
124,873
|
|
|
|
N/A
|
|
|
$
|
20,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in minimum liability included in other comprehensive income (before
taxes)
|
|
|
N/A
|
|
|
$
|
(85,001
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
The increase in accumulated other
comprehensive loss of $124.9 million for pension benefits due to the adoption of
SFAS No. 158 includes a reclassification of $24.5 million from intangible
assets. The decrease in the minimum pension liability of $85.0 million is net of
an increase of $39.8 million due to the reconsolidation of B&W
PGG.
We have
recognized in the current fiscal year, and expect to recognize in the next
fiscal year, the following amounts in other comprehensive loss as components of
net periodic benefit cost:
|
|
Recognized
in the
Year
Ended
December
31, 2007
|
|
|
To
Be Recognized in the
Year
Ended
December
31, 2008
|
|
|
|
Pension
|
|
|
Other
|
|
|
Pension
|
|
|
Other
|
|
|
|
(In
thousands)
|
|
Pension
cost in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
45,799
|
|
|
$
|
1,723
|
|
|
$
|
34,765
|
|
|
$
|
1,470
|
|
Prior
service cost
|
|
|
3,091
|
|
|
|
71
|
|
|
|
3,074
|
|
|
|
76
|
|
Transition
obligation
|
|
|
-
|
|
|
|
273
|
|
|
|
-
|
|
|
|
294
|
|
|
|
$
|
48,890
|
|
|
$
|
2,067
|
|
|
$
|
37,839
|
|
|
$
|
1,840
|
|
Assumptions
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average assumptions used to determine net periodic benefit obligations at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.14
|
%
|
|
|
5.92
|
%
|
|
|
5.74
|
%
|
|
|
5.75
|
%
|
Rate
of compensation increase
|
|
|
3.96
|
%
|
|
|
3.96
|
%
|
|
|
-
|
|
|
|
-
|
|
Weighted
average assumptions used to determine net periodic benefit cost for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.89
|
%
|
|
|
5.67
|
%
|
|
|
5.70
|
%
|
|
|
5.75
|
%
|
Expected
return on plan assets
|
|
|
8.33
|
%
|
|
|
8.28
|
%
|
|
|
-
|
|
|
|
-
|
|
Rate
of compensation increase
|
|
|
3.93
|
%
|
|
|
3.96
|
%
|
|
|
-
|
|
|
|
-
|
|
The
expected rate of return on plan assets assumption is based on the long-term
expected returns for the investment mix of assets currently in the
portfolio. In setting this rate, we use a building-block
approach. Historic real return trends for the various asset classes
in the plan’s portfolio are combined with anticipated future market conditions
to estimate the real rate of return for each class. These rates
are then adjusted for anticipated future inflation to determine estimated
nominal rates of return for each class. The expected rate of return on plan
assets is determined to be the weighted average of the nominal returns based on
the weightings of the classes within the total asset portfolio.
We have been using an expected return
on plan assets assumption of 8.5%, which is consistent with the long-term asset
returns of the portfolio.
|
|
2007
(1)
|
|
|
2006
|
|
|
|
|
|
|
|
|
Assumed
health-care cost trend rates at December 31
|
|
|
|
|
|
|
Health-care
cost trend rate assumed for next year
|
|
|
8.00%
- 9.00
|
%
|
|
|
9.00
|
%
|
Rates
to which the cost trend rate is assumed to decline (ultimate trend
rate)
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Year
that the rate reaches ultimate trend rate
|
|
|
2012
- 2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
(1)
Assumed
health-care cost trend rate for our existing plans is 8.00%, reaching the
ultimate trend rate in 2012. The assumed health-care cost trend rate
for our plans acquired with Marine Mechanical Corporation is 9.00%,
reaching the ultimate trend rate in 2013.
|
|
Assumed
health-care cost trend rates have a significant effect on the amounts we report
for our health-care plan. A one-percentage-point change in our
assumed health-care cost trend rates would have the following
effects:
|
|
One-Percentage-
Point Increase
|
|
|
One-Percentage-
Point Decrease
|
|
|
|
(In
thousands)
|
|
Effect
on total of service and interest cost
|
|
$
|
335
|
|
|
$
|
(303
|
)
|
Effect
on postretirement benefit obligation
|
|
$
|
5,076
|
|
|
$
|
(4,619
|
)
|
Investment
Goals
General
The
overall investment strategy of the pension trusts is to achieve long-term growth
of principal, while avoiding excessive risk and to minimize the probability of
loss of principal over the long term. The specific investment goals
that have been set for the pension trusts in the aggregate are (1) to ensure
that plan liabilities are met when due and (2) to achieve an investment return
on trust assets consistent with a reasonable level of risk.
Allocations
to each asset class for both domestic and foreign plans are reviewed
periodically and rebalanced, if appropriate, to assure the continued relevance
of the goals, objectives and strategies. The pension trusts for both our
domestic and foreign plans employ a professional investment advisor, and a
number of professional investment managers whose individual benchmarks are, in
the aggregate, consistent with the plan’s overall investment
objectives.
The goals
of each investment manager are (1) to meet (in the case of passive accounts) or
exceed (for actively managed accounts) the benchmark selected and agreed upon by
the manager and the Trust and (2) to display an overall level of risk in its
portfolio that is consistent with the risk associated with the agreed upon
benchmark.
The
investment performance of total portfolios, as well as asset class components,
is periodically measured against commonly accepted benchmarks, including the
individual investment manager benchmarks. In evaluating investment
manager performance, consideration is also given to personnel, strategy,
research capabilities, organizational and business matters, adherence to
discipline and other qualitative factors that may impact ability to achieve
desired investment results.
Domestic Plans
We
sponsor the following domestic defined benefit plans:
·
|
Retirement
Plan for Employees of McDermott Incorporated and Participating Subsidiary
and Affiliated Companies (covering corporate
employees);
|
·
|
Retirement
Plan for Employees of J. Ray McDermott Holdings, LLC and Participating
Subsidiary and Affiliated Companies (the “J. Ray Plan,” covering Offshore
Oil and Gas Construction segment
employees);
|
·
|
Retirement
Plan for Employees of The Babcock & Wilcox Company and Participating
Subsidiary and Affiliated Companies (covering Power Generation Systems
segment employees);
|
·
|
Retirement
Plan for Employees of BWX Technologies, Inc. (covering Government
Operations segment employees); and
|
·
|
Marine
Mechanical Corporation Hourly Pension Plan and Marine Mechanical
Corporation Salaried pension Plan (collectively, the “MMC Plans”) acquired
with Marine Mechanical Corporation.
|
For the
years ended December 31, 2007 and 2006, the investment return on domestic plan
assets (before deductions for management fees) was approximately 10.2% and
12.4%, respectively. The assets of the domestic pension plans are
commingled for investment purposes and held by the Trustee, Mellon Trust of New
England, N.A., in the McDermott Incorporated Master Trust (the “Master Trust”).
Our domestic pension plans’ asset allocations at December 31, 2007 and 2006 by
asset category were as follows:
|
|
2007
|
|
|
2006
|
|
Asset
Category:
|
|
|
|
|
|
|
Equity
Securities
|
|
|
34
|
%
|
|
|
42
|
%
|
Debt
Securities
|
|
|
33
|
%
|
|
|
28
|
%
|
Partnerships
with Security Holdings
|
|
|
12
|
%
|
|
|
10
|
%
|
U.S.
Government Securities
|
|
|
10
|
%
|
|
|
8
|
%
|
Real
Estate
|
|
|
8
|
%
|
|
|
5
|
%
|
Other
|
|
|
3
|
%
|
|
|
7
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
The
target allocation for 2008 for the domestic plans, by asset class, is as
follows:
|
|
JRAY Plan
|
|
|
MMC Plans
|
|
|
Other Plans
|
|
Asset
Class:
|
|
|
|
|
|
|
|
|
|
Public
Equity
|
|
|
-
|
%
|
|
|
70.0
|
%
|
|
|
42.5
|
%
|
Private
Equity
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
10.0
|
%
|
Fixed
Income
|
|
|
98.0
|
%
|
|
|
29.0
|
%
|
|
|
38.0
|
%
|
Real
Estate
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
5.0
|
%
|
Other
|
|
|
2.0
|
%
|
|
|
1.0
|
%
|
|
|
4.5
|
%
|
Foreign Plans
We
sponsor various plans through certain of our foreign subsidiaries. These plans
are the J. Ray McDermott, S.A. TCN Employees Pension Plan (the “TCN Plan”),
various plans of Babcock & Wilcox Canada, Ltd. (the “Canadian Plans”) and
the Diamond Power Specialty Limited Retirement Benefits Plan (the “Diamond UK
Plan”).
The
weighted average asset allocations of these plans at December 31, 2007 and 2006
by asset category were as follows:
|
|
2007
|
|
|
2006
|
|
Asset
Category:
|
|
|
|
|
|
|
Equity
Securities
|
|
|
62
|
%
|
|
|
65
|
%
|
Debt
Securities
|
|
|
35
|
%
|
|
|
30
|
%
|
Other
|
|
|
3
|
%
|
|
|
5
|
%
|
Total
|
|
$
|
100
|
%
|
|
|
100
|
%
|
The
target allocation for 2008 for the foreign plans, by asset class, is as
follows:
|
|
TCN Plan
|
|
|
Canadian
Plans
|
|
|
Diamond
UK
Plan
|
|
Asset
Class:
|
|
|
|
|
|
|
|
|
|
U.
S. Equity
|
|
|
40
|
%
|
|
|
20
|
%
|
|
|
10
|
%
|
Global
Equity
|
|
|
30
|
%
|
|
|
40
|
%
|
|
|
50
|
%
|
Fixed
Income
|
|
|
30
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
Cash
Flows
|
|
Domestic
Plans
|
|
|
Foreign
Plans
|
|
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
employer contributions to trusts of defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
134,503
|
|
|
|
N/A
|
|
|
$
|
21,594
|
|
|
|
N/A
|
|
Expected
benefit payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
140,155
|
|
|
$
|
12,470
|
|
|
$
|
13,158
|
|
|
$
|
549
|
|
2009
|
|
$
|
146,988
|
|
|
$
|
12,226
|
|
|
$
|
12,909
|
|
|
$
|
590
|
|
2010
|
|
$
|
153,922
|
|
|
$
|
11,844
|
|
|
$
|
13,662
|
|
|
$
|
640
|
|
2011
|
|
$
|
160,261
|
|
|
$
|
11,424
|
|
|
$
|
15,290
|
|
|
$
|
691
|
|
2012
|
|
$
|
167,584
|
|
|
$
|
10,698
|
|
|
$
|
15,553
|
|
|
$
|
743
|
|
2013-2017
|
|
$
|
918,460
|
|
|
$
|
42,042
|
|
|
$
|
97,817
|
|
|
$
|
4,479
|
|
The
expected employer contributions to trusts for 2008 are included in current
liabilities at December 31, 2007. We are currently reviewing funding
alternatives for certain domestic pension plans. It is possible that amounts
actually contributed to these plans in 2008 will exceed the amounts included in
current liabilities at December 31, 2007.
Defined
Contribution Plans
We
provide benefits under the McDermott International, Inc. Supplemental Executive
Retirement Plan (“SERP Plan”), which is a defined contribution
plan. We recorded expenses related to the SERP Plan of approximately
$1.1 million, $2.9 million and $1.3 million in the years ended December 31,
2007, 2006 and 2005, respectively.
We also
provide benefits under the Thrift Plan for Employees of McDermott Incorporated
and Participating Subsidiary and Affiliated Companies (“Thrift Plan”). The
Thrift Plan generally provides for matching employer contributions of 50% of
participants’ contributions up to 6 percent of compensation. These matching
employer contributions are typically made in shares of MII common stock. The
Thrift Plan also provides for unmatched employer cash contributions to certain
employees of our Offshore Oil and Gas Construction segment as well as
service-based contributions to salaried corporate employees and salaried
employees within our Power Generation Systems and Government Operations
segments. Amounts charged to expense for employer contributions under the Thrift
Plan totaled approximately $18.6 million, $14.6 million and $8.2 million in the
years ended December 31, 2007, 2006 and 2005, respectively.
Multiemployer
Plans
One of
the subsidiaries in our Power Generation Systems segment contributes to various
multiemployer plans. The plans generally provide defined benefits to
substantially all unionized workers in this subsidiary. Amounts charged to
pension cost and contributed to the plans were $32.6 million in the year ended
December 31, 2007 and $24.4 million in the period ended December 31, 2006, since
the reconsolidation of B&W PGG and its subsidiaries as of February 22,
2006.
NOTE
8 – ASSET SALES AND IMPAIRMENT OF LONG-LIVED ASSETS
We had
losses on the sale of assets totaling approximately $15.0 million in 2006,
primarily in our Offshore Oil and Gas Construction segment, which includes a
loss of approximately $16.4 million associated with an entity operating in
Mexico, offset by gains on sales of various non-strategic assets, primarily in
our Government Operations segment.
During
the years ended December 31, 2007, 2006 and 2005, we did not record any
impairments of property, plant and equipment.
NOTE
9 - CAPITAL STOCK
The
Panamanian regulations that relate to acquisitions of securities of companies
registered with the Panamanian National Securities Commission, such as MII,
require, among other matters, that detailed disclosure concerning an offeror be
finalized before that person acquires beneficial ownership of more than 5% of
the outstanding shares of any class of our stock. The detailed
disclosure is subject to review by either the Panamanian National Securities
Commission or our Board of Directors. Transfers of shares of common
stock in violation of these regulations are invalid and cannot be registered for
transfer.
We issue
shares of our common stock in connection with our 2001 Directors and Officers
Long-Term Incentive Plan, our 1996 Officer Long-Term Incentive Plan (and its
predecessor programs) and contributions to our Thrift Plan. At
December 31, 2007 and 2006, 13,829,901 and 14,999,026 shares of common
stock, respectively, were reserved for issuance in connection with those
plans.
Increase
in Authorized Shares
On May 4,
2007, our shareholders approved an amendment to our articles of
incorporation increasing the number of authorized shares of
common stock from 150 million to 400 million. The amendment became
effective on August 6, 2007 upon filing of a certificate of amendment in
the Public Registry Office of the Republic of Panama.
Stock
Split
On August
7, 2007, our Board of Directors declared a two-for-one stock split effected in
the form of a stock dividend. The dividend was paid on September 10,
2007 to stockholders of record as of the close of business on August 20,
2007. On May 3, 2006, our Board of Directors declared a three-for-two
stock split effected in the form of a stock dividend. The dividend
was paid on May 31, 2006 to stockholders of record as of the close of business
on May 17, 2006. All share and per share information in the
accompanying financial statements and notes has been retroactively adjusted to
reflect these stock splits.
NOTE
10 – STOCK PLANS
At
December 31, 2007, we had a stock-based employee compensation plan, which is
described below. Where required, disclosures have been adjusted for our stock
splits effected in the form of a stock dividend in September 2007 and May 2006.
See Note 9 for further information regarding our stock split.
2001
Directors and Officers Long-Term Incentive Plan
In May 2006, our shareholders approved
the amended and restated 2001 Directors and Officers Long-Term Incentive
Plan. Members of the Board of Directors, executive officers, key
employees and consultants are eligible to participate in the
plan. The Compensation Committee of the Board of Directors selects
the participants for the plan. The plan provides for a number of
forms of stock-based compensation, including nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock, deferred
stock units, performance shares and performance units, subject to satisfaction
of specific performance goals. In addition to shares previously available under
this plan that have not been awarded, or that were subject to awards under this
and other plans that have been canceled, terminated, forfeited, expired, settled
in cash, or exchanged for consideration not involving shares, up to 7,500,000
additional shares of our common stock were authorized for issuance through the
plan in May 2006. Options to purchase shares are granted at not less
than 100% of the fair market value (average of the high and low trading price)
on the date of grant, become exercisable at such time or times as determined
when granted and expire not more than seven years after the date of the
grant. Options granted prior to the amendment of this plan expire not
more than ten years after the date of the grant.
At
December 31, 2007, we had a total of 7,397,650 shares of our common stock
available for award under the 2001 Directors and Officers Long-Term Incentive
Plan.
1997
Director Stock Program
During 2007, we also maintained a 1997
Director Stock Program. Under this program, nonmanagement directors were
entitled to receive a grant of options to purchase 2,700 shares of our common
stock in the first year of a director's term and a grant of options to purchase
900 shares in subsequent years of such term at a purchase price equal to the
fair market value of one share of our common stock on the date of
grant. These options become exercisable, in full, six months after the
date of grant and expire ten years from the date of grant. In addition,
nonmanagement directors are entitled to receive a grant 1,350 shares
of restricted stock in the first year of a director's term and 450 shares
in subsequent years of such term. The shares of restricted stock are
subject to payment by the director of a purchase price at par value ($1.00
per share) and to transfer restrictions that lapse at the end of the director's
term. By the terms of the 1997 Director Stock Program, no award may be
granted under the program beginning June 6, 2007. As a result, we made our
final grants of stock options and restricted stock under the 1997 Directors
Stock Program in connection with our Annual Meeting of Stockholders in May
2007. The shares of common stock available to be awarded under the 1997
Director Stock Program are available under the terms of the 2001
Directors and Officers Long-Term Incentive Plan and have been included in
the amount available for grant discussed above.
In the
event of a change in control of our company, all of these stock-based
compensation programs have provisions that may cause restrictions to lapse and
accelerate the exercisability of outstanding options.
Pursuant
to the adoption of SFAS No. 123(R), we recognized stock-based compensation
expense of $2.7 and $4.4 million related to employee stock options during the
years ended December 31, 2007 and 2006, respectively. During the year
ended December 31, 2005, there was no stock-based compensation expense for
employee stock options, other than for stock options subject to variable
accounting. These stock options subject to variable accounting
resulted from the cancellation and reissuance of stock options during the year
ended December 31, 2000. Under APB No. 25 and its related
interpretations, the cancellation and reissuance of stock options within six
months of each other triggered mark-to-market accounting. For stock
options granted prior to the adoption of SFAS No. 123(R), the effect on net
income and earnings per share, if we had applied the fair value recognition
provisions of SFAS No. 123 to employee stock options, would have been as follows
for the year ended December 31, 2005 (in thousands, except per share
data):
Net
income, as reported
|
|
$
|
205,687
|
|
Add
back: stock-based compensation cost included in net income, net
of related tax effects
|
|
|
12,763
|
|
Deduct: total
stock-based compensation cost determined under fair-value-based method,
net of related tax effects
|
|
|
(10,894
|
)
|
Pro
forma net income
|
|
$
|
207,556
|
|
Earnings
per share:
|
|
|
|
|
Basic,
as reported
|
|
$
|
1.00
|
|
Basic,
pro forma
|
|
$
|
1.01
|
|
Diluted,
as reported
|
|
$
|
0.94
|
|
Diluted,
pro forma
|
|
$
|
0.95
|
|
For our
other stock-based compensation awards, such as restricted stock and performance
units, the adoption of SFAS No. 123(R) did not significantly change our
accounting policies for the recognition of compensation expense, as we have
recognized expense for those awards in prior periods. Total
compensation expense recognized for the years ended December 31, 2007, 2006 and
2005 was as follows:
|
|
Compensation
Expense
|
|
|
Tax
Benefit
|
|
|
Net
Impact
|
|
|
|
(In
thousands)
|
|
|
|
Year
Ended December 31, 2007
|
|
Stock
options
|
|
$
|
2,740
|
|
|
$
|
(747
|
)
|
|
$
|
1,993
|
|
Restricted
stock
|
|
|
904
|
|
|
|
(21
|
)
|
|
|
883
|
|
Performance
shares
|
|
|
19,196
|
|
|
|
(6,085
|
)
|
|
|
13,111
|
|
Performance
and deferred stock units
|
|
|
7,165
|
|
|
|
(2,314
|
)
|
|
|
4,851
|
|
TOTAL
|
|
$
|
30,005
|
|
|
$
|
(9,167
|
)
|
|
$
|
20,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
Stock
options
|
|
$
|
4,352
|
|
|
$
|
(971
|
)
|
|
$
|
3,381
|
|
Restricted
stock
|
|
|
1,199
|
|
|
|
(122
|
)
|
|
|
1,077
|
|
Performance
shares
|
|
|
4,826
|
|
|
|
(1,329
|
)
|
|
|
3,497
|
|
Performance
and deferred stock units
|
|
|
8,434
|
|
|
|
(2,195
|
)
|
|
|
6,239
|
|
TOTAL
|
|
$
|
18,811
|
|
|
$
|
(4,617
|
)
|
|
$
|
14,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2005
|
|
Repriced
stock options
|
|
$
|
6,116
|
|
|
$
|
(1,128
|
)
|
|
$
|
4,988
|
|
Restricted
stock
|
|
|
1,106
|
|
|
|
(251
|
)
|
|
|
855
|
|
Performance
and deferred stock units
|
|
|
11,141
|
|
|
|
(2,899
|
)
|
|
|
8,242
|
|
TOTAL
|
|
$
|
18,363
|
|
|
$
|
(4,278
|
)
|
|
$
|
14,085
|
|
The
impact on basic earnings per share of stock-based compensation expense
recognized for the years ended December 31, 2007, 2006 and 2005 was $0.09, $0.07
and $0.07 per share, respectively, and on diluted earnings per share was $0.09,
$0.06 and $0.06 per share, respectively.
As of
December 31, 2007, total unrecognized estimated compensation expense related to
nonvested awards was $39.3 million, net of estimated tax benefits of $18.3
million. The components of the total gross unrecognized estimated
compensation expense of $57.6 million and their expected weighted-average
periods for expense recognition are as follows (amounts in millions; periods in
years):
|
|
Amount
|
|
|
Weighted-Average
Period
|
|
Stock
options
|
|
$
|
0.9
|
|
|
|
0.4
|
|
Restricted
stock
|
|
$
|
0.2
|
|
|
|
1.4
|
|
Performance
shares
|
|
$
|
39.2
|
|
|
|
1.9
|
|
Performance
and deferred stock units
|
|
$
|
17.3
|
|
|
|
2.4
|
|
Stock
Options
The fair value of each option grant was
estimated at the date of grant using Black-Scholes, with the following
weighted-average assumptions:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Risk-free
interest rate
|
|
|
4.51
|
%
|
|
|
4.99
|
%
|
|
|
3.90
|
%
|
Expected
volatility
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.71
|
|
Expected
life of the option in years
|
|
|
5.28
|
|
|
|
4.94
|
|
|
|
5.70
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The
risk-free interest rate is based on the implied yield on a U.S. Treasury
zero-coupon issue with a remaining term equal to the expected life of the
option. The expected volatility is based on historical implied
volatility from publicly traded options on our common stock, historical implied
volatility of the price of our common stock and other factors. The
expected life of the option is based on observed historical
patterns. The expected dividend yield is based on the projected
annual dividend payment per share divided by the stock price at the date of
grant. This amount is zero because we have not paid cash dividends
for several years and do not expect to pay cash dividends at this
time.
The
following table summarizes activity for our stock options for the year ended
December 31, 2007 (share data in thousands):
|
|
Number
of
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining Contractual Term
|
|
Aggregate
Intrinsic Value
(in
millions)
|
|
Outstanding,
beginning of year
|
|
|
7,058
|
|
|
$
|
4.33
|
|
|
|
|
|
Granted
|
|
|
15
|
|
|
|
28.87
|
|
|
|
|
|
Exercised
|
|
|
(3,921
|
)
|
|
|
3.88
|
|
|
|
|
|
Cancelled/expired/forfeited
|
|
|
(23
|
)
|
|
|
6.94
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
3,129
|
|
|
$
|
4.99
|
|
5.12
Years
|
|
$
|
170.5
|
|
Exercisable,
end of year
|
|
|
2,636
|
|
|
$
|
4.65
|
|
4.69
Years
|
|
$
|
144.5
|
|
The
aggregate intrinsic value included in the table above represents the total
pretax intrinsic value that would have been received by the option holders had
all option holders exercised their options on December 31, 2007. The
intrinsic value is calculated as the total number of option shares multiplied by
the difference between the closing price of our common stock on the last trading
day of each period and the exercise price of the options. This amount
changes based on the fair market value of our common stock.
The
weighted-average fair value of the stock options granted in the years ended
December 31, 2007, 2006 and 2005 was $14.48, $10.32 and $4.37,
respectively. The total fair value of shares vested during the years
ended December 31, 2007, 2006 and 2005 was $4.3 million, $5.0 million and $6.7
million, respectively.
During
the years ended December 31, 2007, 2006 and 2005, the total intrinsic value of
stock options exercised was $134.9 million, $102.4 million and $71.0 million,
respectively. We recorded cash received in the years ended December
31, 2007, 2006 and 2005 from the exercise of these stock options totaling $15.2
million, $21.5 million and $53.0 million, respectively. The actual
tax benefits realized related to the stock options exercised during the years
ended 2006 and 2005 was $17.9 million and $14.2 million,
respectively. Tax benefits related to the year ended December 31,
2007 have been deferred until utilization of the net operating losses causes the
benefits to be realized. Additionally, tax benefits previously
realized in prior years have also been deferred for a total deferral of $115.4
million, as discussed further in Note 5.
Restricted
Stock
Nonvested
restricted stock awards as of December 31, 2007 and changes during the year
ended December 31, 2007 were as follows (share data in thousands):
|
|
Number
of
Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Nonvested,
beginning of year
|
|
|
1,424
|
|
|
$
|
3.39
|
|
Granted
|
|
|
29
|
|
|
|
32.35
|
|
Vested
|
|
|
(1,076
|
)
|
|
|
4.69
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested,
end of year
|
|
|
377
|
|
|
$
|
1.87
|
|
Performance
Shares
Nonvested
performance share awards as of December 31, 2007 and changes during the year
ended December 31, 2007 were as follows (share data in thousands):
|
|
Number
of
Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Nonvested,
beginning of year
|
|
|
960
|
|
|
$
|
23.38
|
|
Granted
|
|
|
891
|
|
|
|
35.04
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Cancelled/forfeited
|
|
|
(83
|
)
|
|
|
24.11
|
|
Nonvested,
end of year
|
|
|
1,768
|
|
|
$
|
29.22
|
|
The actual number of shares earned by
each participant is dependent upon achievement of certain consolidated operating
income targets over the three-year performance periods. The awards
actually earned will range from zero to 150% of the targeted number of
performance shares, to be determined upon completion of the three-year
performance period.
No performance shares vested during the
years ended December 31, 2007, 2006 and 2005.
Performance
and Deferred Stock Units
Nonvested
performance and deferred stock unit awards as of December 31, 2007 and changes
during the year ended December 31, 2007 were as follows (share data in
thousands):
|
|
Number
of
Units
|
|
Aggregate
Intrinsic Value
(in
millions)
|
Nonvested,
beginning of year
|
|
|
520
|
|
|
Granted
|
|
|
1
|
|
|
Vested
|
|
|
(134
|
)
|
|
Cancelled/forfeited
|
|
|
(13
|
)
|
|
Nonvested,
end of year
|
|
|
374
|
|
$22.2
|
The aggregate intrinsic value included
in the table above represents the total pretax intrinsic value recorded as a
liability at December 31, 2007 in the consolidated balance
sheets. During the years ended December 31, 2007 and
2006, we
paid $4.7 million and $26.2 million, respectively, for the settlement of vested
performance and deferred stock units. There were no such settlements
during the year ended December 31, 2005.
Thrift
Plan
On
November 12, 1991, 15,000,000 of the authorized and unissued shares of MII
common stock were reserved for issuance for the employer match to the Thrift
Plan for Employees of McDermott Incorporated and Participating Subsidiary and
Affiliated Companies (the "Thrift Plan"). On October 11, 2002, an
additional 15,000,000 of the authorized and unissued shares of MII common stock
were reserved for issuance for the employer match to the Thrift
Plan. Those matching employer contributions equal 50% of the first 6%
of compensation, as defined in the Thrift Plan, contributed by participants, and
fully vest and are nonforfeitable after three years of service or upon
retirement, death, lay-off or approved disability. The Thrift Plan
allows employees to sell their interest in MII’s common stock fund at any time,
except as limited by applicable securities laws and regulations. During the
years ended December 31, 2007, 2006 and 2005, we issued 333,939, 473,860 and
731,544 shares, respectively, of MII's common stock as employer contributions
pursuant to the Thrift Plan. At December 31, 2007, 6,432,251 shares
of MII's common stock remained available for issuance under the Thrift
Plan.
NOTE
11 - CONTINGENCIES AND COMMITMENTS
Investigations
and Litigation
Apollo/Parks
Township Claims — Hall Litigation
On
June 7, 1994, Donald F. Hall, Mary Ann Hall and others filed suit against
B&W PGG, Babcock & Wilcox Technical Services Group, Inc., formerly known
as B&W Nuclear Environmental Services, Inc., and Atlantic Richfield Company
(“ARCO”) in the United States District Court for the Western District of
Pennsylvania (the “Pennsylvania District Court”). The suit, which has been
amended from time to time, presently involves approximately 500 separate claims
for compensatory and punitive damages relating to the operation of two nuclear
fuel processing facilities located in Apollo and Parks Township, Pennsylvania
(the “Hall Litigation”), previously owned by Nuclear Materials and Equipment
Company (“Numec.”). The plaintiffs in the Hall Litigation allege, among other
things, that they suffered death, personal injury, property damage and other
damages as a result of alleged radioactive and non-radioactive emissions from
these facilities.
At the
time of ARCO’s sale of Numec (a subsidiary of ARCO) to B&W PGG, B&W
PGG received an indemnity and hold harmless from ARCO from claims or liabilities
arising as a result of pre-closing Numec or ARCO actions. We believe
that this indemnity should protect B&W PGG from claims caused by or arising
from the actions of Numec or ARCO prior to B&W PGG’s acquisition of
Numec.
In
September 1998, a jury found B&W PGG and ARCO liable to eight
plaintiffs in the first cases brought to trial, awarding $36.7 million in
compensatory damages. During the trial, B&W PGG settled all pending punitive
damages claims in the Hall Litigation for $8.0 million. In June 1999, the
Pennsylvania District Court set aside the $36.7 million judgment and
ordered a new trial on all issues. In November 1999, the Court allowed an
interlocutory appeal by the plaintiffs of some of the issues, which, following
the commencement of the Chapter 11 Bankruptcy, the Third Circuit Court of
Appeals declined to accept for review.
In July
1999, B&W PGG commenced a declaratory judgment action against its
insurers, American Nuclear Insurers and Mutual Atomic Energy Liability
Underwriters (collectively “ANI”), in Pennsylvania state court seeking, among
other things, a judicial determination as to the amount of coverage available
under four “facility form” nuclear energy liability policies that insure
B&W PGG against, among other things, death, bodily injury and property
damage caused or allegedly caused by the radioactive, toxic, explosive or other
hazardous properties of nuclear material discharged from the nuclear fuel
processing facilities at issue in the Hall Litigation. In April 2001, the
Pennsylvania state court issued a ruling regarding: (1) the applicable
“trigger of coverage” under the insurance policies; and (2) the scope of ANI’s
defense obligations to B&W PGG under the insurance policies. With
respect to the trigger of coverage, the Pennsylvania state court held that
“manifestation” is an applicable trigger with respect to the underlying claims
in the Hall Litigation. Although the Court did not make any specific
determination with respect to any of the underlying claims, the effect of its
ruling is to increase the total amount of coverage potentially available to
B&W PGG for the claims alleged in the Hall Litigation under the insurance
policies to $320 million, subject to decrease for defense costs. The
Pennsylvania state court also held that ANI must pay for separate and
independent counsel to represent B&W PGG
in the
Hall Litigation. ANI appealed and the Pennsylvania Superior Court
affirmed. The Pennsylvania Supreme Court denied further discretionary
review.
The
Chapter 11 plan of reorganization, entered on February 22, 2006, did not
impair the claims asserted in the Hall Litigation, which were permitted to pass
through the Chapter 11 Bankruptcy unaffected by it. Accordingly, the
Hall Litigation is proceeding in the Pennsylvania District Court.
In July
2007, the Pennsylvania District Court ordered separate trials on general
causation for claims based upon uranium and plutonium exposure. A
March 2008 trial on general causation as it relates to uranium has been
postponed to allow the plaintiffs additional limited discovery. The
trial on general causation as it relates to plutonium has not yet been
scheduled. Any plaintiffs who may remain in the case following the
“general causation” trials would be required to show “specific causation” in
additional trial proceedings.
In
December 2007, B&W PGG filed an action for breach of contract against ARCO
in the Court of Common Pleas Allegheny County, Pennsylvania. In addition to its
claim for breach of contract, B&W PGG seeks a declaratory judgment that ARCO
is obligated to indemnify B&W PGG under the indemnity agreement between the
two parties against any losses that B&W PGG may incur arising out of the
nuclear fuel processing facilities at issue in the Hall
Litigation. ARCO removed the declaratory judgment action to federal
court and the case was assigned to the same judge handling the Hall
Litigation. B&W PGG filed a motion to remand to state court,
which has not yet been decided.
In
February 2008, the plaintiffs and ARCO reached an agreement to settle ARCO’s
exposure in the Hall Litigation and have asked the Pennsylvania District Court
to approve the settlement. On February 19, B&W PGG filed
objections to the settlement with the Court. The Court has made no
decision on approval of the settlement.
We
believe these claims will be resolved within the limits of coverage of our
insurance policies and/or the ARCO indemnity. However, should any judgment on
these claims prove excessive, or additional future claims be asserted, there may
be an issue as to whether our insurance coverage is adequate, and we may be
materially and adversely impacted if our liabilities exceed our coverage, the
benefits of the ARCO indemnity and the amount we have reserved for these
claims.
Other
Litigation and Settlements
On or
about August 23, 2004, a declaratory judgment action entitled
Certain Underwriters at Lloyd’s
London, et al v. J. Ray McDermott, Inc. et al
, was filed by certain
underwriters at Lloyd’s, London and Threadneedle Insurance Company Limited (the
“London Insurers”), in the 23rd Judicial District Court, Assumption Parish,
Louisiana, against MII, JRMI and two insurer defendants, Travelers and INA,
seeking a declaration that the London Insurers have no obligation to indemnify
MII and JRMI for certain bodily injury claims, including claims for asbestos and
welding rod fume personal injury which have been filed by claimants in various
state courts, and an environmental claim involving B&W PGG. Additionally,
Travelers filed a cross-claim requesting a declaration of non-coverage in
approximately 20 underlying matters. This proceeding was stayed by the court on
January 3, 2005.
On
June 1, 2005, a proceeding entitled
Iroquois Falls Power Corp. v.
Jacobs Canada Inc., et al.,
was filed in the Superior Court of Justice,
in Ontario, Canada, alleging damages of approximately $16 million
(Canadian) for remedial work, loss of profits and related engineering/redesign
costs due to the alleged breach by Jacobs Canada Inc. (formerly Delta Hudson
Engineering Limited (“Delta”)), of its engineering design obligations relating
to the supply and installation of heat recovery steam generators. In addition to
Jacobs, the proceeding names as defendants MI, which provided a guarantee to
certain obligations of its then affiliate, Delta, and two bonding companies with
whom MII entered into an indemnity arrangement. Pursuant to a subcontract with
Delta, B&W PGG supplied and installed the generators at issue. On March 20,
2007, the Court granted summary judgment in favor of all defendants and
dismissed all claims of Iroquois Falls Power Corp., which appealed the ruling in
April 2007. The Court of Appeals for Ontario heard arguments on
appeal in November 2007 and has taken the matter under advisement.
In a
proceeding entitled
Antoine,
et al. vs. J. Ray McDermott, Inc., et al.,
filed in the 24
th
Judicial District Court, Jefferson Parish, Louisiana, approximately 88
plaintiffs filed suit against approximately 215 defendants, including JRMI and
Delta Hudson Engineering Corporation (“DHEC”), another affiliate of ours,
generally alleging injuries for exposure to asbestos, and unspecified chemicals,
metals and noise while the plaintiffs were allegedly employed as Jones Act
seamen. On January 10, 2007, the District Court dismissed the Plaintiffs’
claims, without prejudice to
their
right to refile their claims. On January 29, 2007, in a matter
entitled
Boudreaux, et al v.
McDermott, Inc., et al,.
originally filed in the United States District
Court for the Southern District of Texas, 21 plaintiffs originally named in the
Antoine
matter filed
suit against JRMI, MI and approximately 30 other employer defendants, alleging
Jones Act seaman status and generally alleging exposure to welding fumes,
solvents, dyes, industrial paints and noise.
Boudreaux
was transferred to
the United States District Court for the Eastern District of Louisiana on May 2,
2007. The District Court entered an order in September 2007 staying the matter
until further order of the court due to the bankruptcy filing of one of the
co-defendants. Additionally, on January 29, 2007, in a matter
entitled
Antoine,
et al. v. McDermott, Inc., et al.,
filed in the 164
th
Judicial District Court for Harris County, Texas, 43
plaintiffs originally named in the
Antoine
matter filed suit
against JRMI, MI and approximately 65 other employer defendants and 42 maritime
products defendants, alleging Jones Act seaman status and generally alleging
personal injuries for exposure to asbestos and noise. On April 27,
2007, the District Court entered an order staying all activity and deadlines in
this matter other than service of process and answer/appearance dates until
further order of the court. The Plaintiffs seek monetary damages in
an unspecified amount in both cases and attorneys’ fees in the new
Antoine
case.
In 2003,
we received a favorable arbitration award for one of our claims related to a
project in India completed in the 1980s. The award, which with interest and
costs then had a value of approximately $50 million, was appealed to the Supreme
Court of India. On May 28, 2005, we received a favorable award for the
remainder of our claim in the approximate amount of $48 million, including
interest and costs, which was also appealed. The Supreme Court of India heard
the consolidated appeal in late October 2005 and, in May 2006, issued
a decision reducing the total of the awards to approximately $90 million,
including interest and costs, but otherwise affirming the awards. With interest,
the award value now exceeds $100 million. The Defendants applied for
rehearing of this decision, which was denied in October 2006. We have
aggressively pursued collection of these amounts and will continue to do so;
however, we have not recognized as income any amounts associated with either
award, as collection of these amounts is uncertain.
Additionally,
due to the nature of our business, we are, from time to time, involved in
routine litigation or subject to disputes or claims related to our business
activities, including, among other things:
·
|
performance-
or warranty-related matters under our customer and supplier contracts and
other business arrangements; and
|
·
|
workers’
compensation claims, Jones Act claims, premises liability claims and other
claims.
|
Based
upon our prior experience, we do not expect that any of these other litigation
proceedings, disputes and claims will have a material adverse effect on our
consolidated financial position, results of operations or cash
flows.
Environmental
Matters
We have
been identified as a potentially responsible party at various cleanup sites
under the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended (“CERCLA”). CERCLA and other environmental laws can impose liability
for the entire cost of cleanup on any of the potentially responsible parties,
regardless of fault or the lawfulness of the original
conduct. Generally, however, where there are multiple responsible
parties, a final allocation of costs is made based on the amount and type of
wastes disposed of by each party and the number of financially viable parties,
although this may not be the case with respect to any particular
site. We have not been determined to be a major contributor of wastes
to any of these sites. On the basis of our relative contribution of
waste to each site, we expect our share of the ultimate liability for the
various sites will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity in any given
year.
The
Department of Environmental Protection of the Commonwealth of Pennsylvania
("PADEP") advised us in March 1994 that it would seek monetary sanctions and
remedial and monitoring relief related to the Parks Facilities. The
relief sought is related to potential groundwater contamination resulting from
previous operations at the facilities. These facilities are currently
owned by a subsidiary in our Government Operations segment. PADEP has
advised us that it does not intend to assess any monetary sanctions, provided
our Government Operations segment continues its remediation program for the
Parks Facilities. Whether additional nonradiation contamination
remediation will be required at the Parks Facility remains
unclear. Results from sampling completed by our Government Operations
segment have indicated that such remediation may not be
necessary. Our Government Operations segment continues to evaluate
closure of the groundwater issues pursuant to applicable Pennsylvania
law.
We
perform significant amounts of work for the U.S. Government under both prime
contracts and subcontracts and operate certain facilities that are licensed to
possess and process special nuclear materials. As a result of these
activities, we are subject to continuing reviews by governmental agencies,
including the Environmental Protection Agency and the Nuclear Regulatory
Commission (the “NRC”).
The NRC’s
decommissioning regulations require our Government Operations segment to provide
financial assurance that it will be able to pay the expected cost of
decommissioning their facilities at the end of its service lives. We
will continue to provide financial assurance aggregating $24.5 million during
the year ending December 31, 2008 with existing letters of credit for the
ultimate decommissioning of all their licensed facilities, except
one. This facility, which represents the largest portion of our
eventual decommissioning costs, has provisions in its government contracts
pursuant to which all of its decommissioning costs and financial assurance
obligations are covered by the U.S. Department of Energy.
At
December 31, 2007 and 2006, we had total environmental reserves (including
provisions for the facilities discussed above) of $18.8 million and $18.6
million, respectively. Of our total environmental reserves at
December 31, 2007 and 2006, $7.0 million and $9.6 million, respectively, were
included in current liabilities. Inherent in the estimates of those reserves and
recoveries are our expectations regarding the levels of contamination,
decommissioning costs and recoverability from other parties, which may vary
significantly as decommissioning activities progress. Accordingly,
changes in estimates could result in material adjustments to our operating
results, and the ultimate loss may differ materially from the amounts that we
have provided for in our consolidated financial statements.
Operating
Leases
Future
minimum payments required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year at December 31, 2007 are as
follows (in thousands):
Fiscal Year Ending December
31,
|
|
Amount
|
|
2008
|
|
$
|
17,660
|
|
2009
|
|
$
|
9,402
|
|
2010
|
|
$
|
7,466
|
|
2011
|
|
$
|
4,226
|
|
2012
|
|
$
|
3,862
|
|
Thereafter
|
|
$
|
4,981
|
|
Total
rental expense for the years ended December 31, 2007, 2006 and 2005 was $66.9
million, $52.0 million and $33.1 million, respectively. These expense
amounts include contingent rentals and are net of sublease income, neither of
which is material.
Other
One of
our Canadian subsidiaries has received notice of a possible warranty claim on
one of its projects on a contract executed in 1998. This situation relates to
technical issues concerning components associated with nuclear steam
generators
.
Data
collection and analysis, which can only be performed at specific time periods
when the power plant is scheduled to be off-line for maintenance, is continuing.
The next outage of this facility is scheduled for the spring of 2008 when
additional testing will be performed. These tests require detailed engineering
study and comprehensive analysis
.
This project included a
limited-term performance bond totaling approximately $140 million for which we
entered into
an
indemnity arrangement with the surety underwriters. At this time, our subsidiary
continues to analyze the facts and circumstances surrounding this issue. It is
possible that our subsidiary may incur warranty costs in excess of amounts
provided for as of December 31, 2007. It is also possible that a claim could be
initiated by our subsidiary’s customer against the surety underwriter should
certain events occur. If such a claim were successful, the surety
could seek to recover from our subsidiary the costs incurred in satisfying the
customer claim. If the surety seeks recovery from our subsidiary, we believe
that our subsidiary would have adequate liquidity to satisfy its obligations.
However, the ultimate resolution of this possible claim is uncertain, and an
adverse outcome could have a material adverse impact on our consolidated
financial position, results of operations and cash flows.
We have
been advised by the IRS of potential proposed unfavorable tax adjustments
related to the 2001 through 2003 tax years. We have reviewed the IRS positions
and disagree with certain proposed
adjustments. Accordingly,
we filed
a protest with the IRS regarding the resolution of these issues and have met
with an appellate conferee in this regard. We have provided for amounts that we
believe will be ultimately payable under the proposed adjustments; however,
these proposed IRS adjustments, should they be sustained, would result in a tax
liability of approximately $15 million in excess of amounts provided for in our
consolidated financial statements. In addition to this IRS matter,
refer to Note 13 for information on the potential uncertainties associated with
our reorganization of our U.S. tax groups.
NOTE
12 – RELATED-PARTY TRANSACTIONS
We are a
large business organization with worldwide operations, and we engage in numerous
purchase, sale and other transactions annually. We have various types of
business arrangements with corporations and other organizations in which an
executive officer, director or nominee for director may also be a director,
executive or investor, or have some other direct or indirect relationship. We
enter into these arrangements in the ordinary course of our business,
and
they
typically involve us receiving or providing some good or service on a
nonexclusive basis and at arm’s-length negotiated rates or in accordance with
regulated price schedules.
Each of
the following executive officers of our company has irrevocably elected to
satisfy withholding obligations relating to all or a portion of any applicable
federal, state or other taxes that may be due on the vesting in the year ending
December 31, 2008 of certain shares of restricted stock awarded under various
long-term incentive plans by returning to us the number of such vested shares
having a fair market value equal to the amount of such taxes: Bruce
W. Wilkinson, Robert A. Deason, James Easter, Francis S. Kalman, John T. Nesser
III and Louis J. Sannino. These elections, which apply to an
aggregate of 82,200, 75,000, 11,700, 43,500, 28,200 and 18,300 shares vesting in
the year ending December 31, 2008 and held by Messrs. Wilkinson, Deason, Easter,
Kalman, Nesser and Sannino, respectively, are subject to approval of the
Compensation Committee of our Board of Directors, which approval was
granted. In the year ended December 31, 2007, each of Messrs.
Wilkinson, Easter, Kalman, Nesser and Sannino made a similar election, which
applied to an aggregate of 150,000, 24,000, 120,000, 63,000 and 48,000 shares,
respectively, that vested in the year ended December 31, 2007. Those
elections were also approved by the Compensation Committee. We expect
any transfers reflecting shares of restricted stock returned to us will be
reported in the SEC filings made by those transferring holders who are obligated
to report transactions in our securities under Section 16 of the Securities
Exchange Act of 1934.
See Note
4 for additional transactions with unconsolidated affiliates.
NOTE
13 – RISKS AND UNCERTAINTIES
As of
December 31, 2007, in accordance with the percentage-of-completion method of
accounting, we have provided for our estimated costs to complete all of our
ongoing contracts. However, it is possible that current estimates could change
due to unforeseen events, which could result in adjustments to overall contract
costs. The risk on fixed-priced contracts is that revenue from the customer does
not rise to cover increases in our costs. It is possible that current estimates
could materially change for various reasons, including, but not limited to,
fluctuations in forecasted labor productivity, pipeline lay rates or steel and
other raw material prices. Increases in costs on our fixed-price contracts could
have a material adverse impact on our consolidated results of operations,
financial condition and cash flows. Alternatively, reductions in overall
contract costs at completion could materially improve our consolidated results
of operations, financial condition and cash flows.
At December 31, 2006, we had
approximately $28 million in accounts and notes receivable due from our former
joint venture in Mexico. A note receivable was attributable to the sale of our
DB17 vessel during the quarter ended September 30, 2004. Due to the
joint venture’s liquidity problems, we deferred recognition of a gain of
approximately $5.4 million on the sale of the DB17 pending final settlement of
the accounts and notes receivable. On October 17, 2006, we reached an agreement
with its partner and terminated our interest in this joint
venture. The financial impact of this transaction was included in our
consolidated results of operations for the year ended December 31, 2006,
including an impairment loss totaling approximately $16.4 million attributable
to currency translation losses recorded in accumulated other comprehensive
loss. During the year ended December 31, 2007, we received final
payment from the entity, and the deferred gain of $5.4 million was
recognized.
The
reorganization of our U.S. tax groups, which was completed on December 31, 2006,
resulted in a material, favorable impact on our consolidated financial results
for the year ended December 31, 2006. Although we
believe
that the
tax result of the reorganization as reported in our consolidated financial
statements is accurate, the tax results derived will likely be subject to audit,
or other challenge, by the IRS. Should the IRS’ interpretation of the
tax law in this regard differ from our interpretation and that of our outside
tax advisors, such that adjustments are proposed or sustained by the IRS, there
could be a material adverse effect on our consolidated financial results as
reported and our expected future cash flows.
NOTE
14 – FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
Our
Offshore Oil and Gas Construction segment's principal customers are businesses
in the offshore oil, natural gas and hydrocarbon processing industries and other
offshore construction companies. The primary customer of our
Government Operations segment is the U.S. Government, including its
contractors. Our Power Generation Systems segment’s major customers
are large utilities. These concentrations of customers may impact our
overall exposure to credit risk, either positively or negatively, in that our
customers may be similarly affected by changes in economic or other
conditions. In addition, we and many of our customers operate
worldwide and are therefore exposed to risks associated with the economic and
political forces of various countries and geographic areas. Approximately 37% of
our trade receivables are due from foreign customers. See Note 18 for additional
information about our operations in different geographic areas. We generally do
not obtain any collateral for our receivables.
We
believe that our provision for possible losses on uncollectible accounts
receivable is adequate for our credit loss exposure. At December 31,
2007 and 2006, the allowance for possible losses that we deducted from accounts
receivable – trade on the accompanying balance sheet was $5.2 million and $4.1
million, respectively.
NOTE
15 – INVESTMENTS
The
following is a summary of our available-for-sale securities at December 31,
2007:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations of U.S. Government
agencies
|
|
$
|
91,845
|
|
|
$
|
907
|
|
|
$
|
-
|
|
|
$
|
92,752
|
|
Money
market instruments and short term investments
|
|
|
341,777
|
|
|
|
1,532
|
|
|
|
-
|
|
|
|
343,309
|
|
Asset-Backed
Securities and Collateralized Mortgage Obligations
(1)
|
|
|
27,555
|
|
|
|
-
|
|
|
|
(1,455
|
)
|
|
|
26,100
|
|
Total
(2)
|
|
$
|
461,177
|
|
|
$
|
2,439
|
|
|
$
|
(1,455
|
)
|
|
$
|
462,161
|
|
|
|
(1)
Included
in our Asset-Backed Securities and Collateralized Mortgage Obligations is
approximately $18 million of commercial paper secured by prime mortgaged
backed securities. These investments originally matured in August of 2007
but were extended.
We
have changed our investment policy effective August of 2007 to no longer
invest in Asset-Backed Securities or Asset-Backed Commercial paper. These
investments represent approximately 1.7% of our total cash and cash
equivalents and investments at December 31, 2007.
|
|
|
|
(2)
Fair
value of $30.7 million pledged to secure payments under certain
reinsurance agreements
|
|
The
following is a summary of our available-for-sale securities at December 31,
2006:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations of U.S. Government
agencies
|
|
$
|
89,557
|
|
|
$
|
-
|
|
|
$
|
(179
|
)
|
|
$
|
89,378
|
|
Money
market instruments and short term investments
|
|
|
202,909
|
|
|
|
712
|
|
|
|
(1
|
)
|
|
|
203,620
|
|
Asset-Backed
Securities and Collateralized Mortgage Obligations
|
|
|
1,087
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,087
|
|
Total
(1)
|
|
$
|
293,553
|
|
|
$
|
712
|
|
|
|
(180
|
)
|
|
$
|
294,085
|
|
(1)
Fair
value of $36.0 million pledged to secure payments under certain
reinsurance agreements
|
|
At
December 31, 2007, all our available-for-sale debt securities have contractual
maturities primarily between 2008 and 2010.
Proceeds,
gross realized gains and gross realized losses on sales of available-for-sale
securities were as follows:
|
|
Proceeds
|
|
|
Gross
Realized Gains
|
|
|
Gross
Realized Losses
|
|
Year
Ended December 31, 2007
|
|
$
|
2,311,730
|
|
|
$
|
177
|
|
|
$
|
-
|
|
Year
Ended December 31, 2006
|
|
$
|
1,730,838
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Year
Ended December 31, 2005
|
|
$
|
11,030,512
|
|
|
$
|
-
|
|
|
$
|
5
|
|
NOTE
16 – DERIVATIVE FINANCIAL INSTRUMENTS
Our
worldwide operations give rise to exposure to market risks from changes in
foreign exchange rates. We use derivative financial instruments to
reduce the impact of changes in foreign exchange rates on our operating
results. We use these instruments primarily to hedge our exposure
associated with revenues or costs on our long-term contracts and other cash flow
exposures that are denominated in currencies other than our operating entities’
functional currencies. We do not hold or issue financial instruments
for trading or other speculative purposes.
We enter
into derivative financial instruments primarily as hedges of certain firm
purchase and sale commitments denominated in foreign currencies. We
record these contracts at fair value on our consolidated balance
sheets. Depending on the hedge designation at the inception of the
contract, the related gains and losses on these contracts are either deferred in
stockholders’ equity (deficit), as a component of accumulated other
comprehensive loss, until the hedged item is recognized in earnings or offset
against the change in fair value of the hedged firm commitment through
earnings. The ineffective portion of a derivative’s change in fair
value and any portion excluded from the assessment of effectiveness are
immediately recognized in earnings. The gain or loss on a derivative
instrument not designated as a hedging instrument is also immediately recognized
in earnings. Gains and losses on derivative financial instruments
that require immediate recognition are included as a component of other income
(expense) – net in our consolidated statements of income.
At
December 31, 2007, we had forward contracts to purchase or sell a net total
notional value of $368.7 million in foreign currencies, primarily Euros and
Canadian Dollars, at varying maturities through December 2011. At
December 31, 2006, we had forward contracts to purchase or sell a net total of
$211.1 million in foreign currencies, primarily Euros and Canadian Dollars, at
varying maturities through September 2009.
At
December 31, 2007, we had a foreign currency option contract outstanding to
purchase 0.9 million Euros at a strike price of 1.34 with varying expiration
dates extending to October 2008. Also at December 31, 2007, we had a
foreign currency option contract to purchase 427.1 million Japanese Yen at a
strike price of 110.0 with an expiration date of February 29,
2008. At December 31, 2006, we had a foreign currency option contract
outstanding to purchase 1.3 million Euros at a strike price of 1.30 with varying
expiration dates extending to October 31, 2007. Also at December 31, 2006, we
had a foreign currency option contract to purchase 1.5 million Chinese Renminbi
at a strike price of 8.0316 with an expiration date of August 30,
2007.
We have
designated substantially all of our forward and option contracts as cash flow
hedging instruments. For the option contracts, the hedged risk is the
risk of changes in forecasted U.S. dollar equivalent cash flows related to
long-term contracts attributable to movements in the exchange rate above the
strike prices. We assess effectiveness based upon total changes in
cash flows of the option contracts. For forward contracts, the
hedged risk is the risk of changes in functional-currency-equivalent cash flows
attributable to changes in spot exchange rates of forecasted transactions
related to long-term contracts. We exclude from our assessment of
effectiveness the portion of the fair value of the forward contracts
attributable to the difference between spot exchange rates and forward exchange
rates. At December 31, 2007 and 2006, we have deferred
approximately $20.9 million and $9.4 million, respectively, of net gains on
these derivative financial instruments. Of the deferred amount at December 31,
2007, we expect to recognize substantially all of it in income over the next 12
months, primarily in accordance with the percentage-of-completion method of
accounting. For the years ended December 31, 2007, 2006 and 2005, we
immediately recognized net losses of approximately $2.1 million, $4.1 million
and $0.2 million, respectively, which primarily represent changes in the fair
value of forward contracts excluded from hedge effectiveness.
We are
exposed to credit-related losses in the event of nonperformance by
counterparties to derivative financial instruments. We mitigate this
risk by using major financial institutions with high credit
ratings.
NOTE
17 – FAIR VALUES OF FINANCIAL INSTRUMENTS
We used
the following methods and assumptions in estimating our fair value disclosures
for financial instruments:
Cash and
cash equivalents and restricted cash and cash equivalents: The
carrying amounts that we have reported in the accompanying consolidated balance
sheets for cash and cash equivalents approximate their fair values.
Investments: We
estimate the fair values of investments based on quoted market
prices. For investments for which there are no quoted market prices,
we derive fair values from available yield curves for investments of similar
quality and terms.
Long- and
short-term debt: We base the fair values of debt instruments on
quoted market prices. Where quoted prices are not available, we base
the fair values on the present value of future cash flows discounted at
estimated borrowing rates for similar debt instruments or on estimated prices
based on current yields for debt issues of similar quality and
terms.
Foreign
currency derivative instruments: We estimate the fair values of
foreign currency option contracts and forward contracts by obtaining quoted
market rates. At December 31, 2007, we had net forward contracts
outstanding to purchase or sell foreign currencies, primarily Euros and Canadian
Dollars, with a total notional value of $368.7 million and a total fair value of
$5.5 million.
The
estimated fair values of our financial instruments are as follows:
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash equivalents
|
|
$
|
1,001,394
|
|
|
$
|
1,001,394
|
|
|
$
|
600,843
|
|
|
$
|
600,843
|
|
Restricted
cash and cash equivalents
|
|
$
|
64,786
|
|
|
$
|
64,786
|
|
|
$
|
106,674
|
|
|
$
|
106,674
|
|
Investments
|
|
$
|
462,161
|
|
|
$
|
462,161
|
|
|
$
|
294,085
|
|
|
$
|
294,085
|
|
Debt
|
|
$
|
17,208
|
|
|
$
|
17,421
|
|
|
$
|
272,734
|
|
|
$
|
275,648
|
|
NOTE
18 – SEGMENT REPORTING
Our
reportable segments are Offshore Oil and Gas Construction, Government Operations
and Power Generation Systems, as described in Note 1. The operations
of our segments are managed separately and each has unique technology, services
and customer class.
We
account for intersegment sales at prices that we generally establish by
reference to similar transactions with unaffiliated
customers. Reportable segments are measured based on operating income
exclusive of general corporate
expenses,
contract and insurance claims provisions, legal expenses and gains (losses) on
sales of corporate assets. Other reconciling items to income from
continuing operations before provision for income taxes are interest income,
interest expense, minority interest and other income (expense) –
net. We exclude prepaid pension costs from segment
assets.
Due to
the Chapter 11 Bankruptcy, we did not consolidate the results of operations for
the primary operating subsidiaries in our Power Generation Systems segment from
February 22, 2000 through February 22, 2006.
SEGMENT
INFORMATION FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005.
1. Information
about Operations in our Different Industry Segments:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands)
|
|
REVENUES
(1)
:
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
2,445,675
|
|
|
$
|
1,610,307
|
|
|
$
|
1,238,870
|
|
Government
Operations
|
|
|
694,024
|
|
|
|
630,067
|
|
|
|
601,042
|
|
Power
Generation Systems
|
|
|
2,504,225
|
|
|
|
1,888,636
|
|
|
|
-
|
|
Adjustments
and Eliminations
|
|
|
(12,314
|
)
|
|
|
(8,869
|
)
|
|
|
(172
|
)
|
|
|
$
|
5,631,610
|
|
|
$
|
4,120,141
|
|
|
$
|
1,839,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Segment revenues are net of the following intersegment transfers and other
adjustments:
|
|
Offshore
Oil and Gas Construction Transfers
|
|
$
|
11,415
|
|
|
$
|
7,770
|
|
|
$
|
51
|
|
Government
Operations Transfers
|
|
|
776
|
|
|
|
784
|
|
|
|
121
|
|
Power
Generation Systems Transfers
|
|
|
123
|
|
|
|
315
|
|
|
|
-
|
|
|
|
$
|
12,314
|
|
|
$
|
8,869
|
|
|
$
|
172
|
|
(2)
Due to the Chapter 11
Bankruptcy, we did not consolidate the results of operations for the
primary operating subsidiaries in our Power Generation Systems segment
from February 22, 2000 through February 22,
2006.
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands)
|
|
OPERATING
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
397,560
|
|
|
$
|
214,105
|
|
|
$
|
157,470
|
|
Government
Operations
|
|
|
90,022
|
|
|
|
82,744
|
|
|
|
67,983
|
|
Power
Generation Systems
|
|
|
219,734
|
|
|
|
101,904
|
|
|
|
(891
|
)
|
|
|
$
|
707,316
|
|
|
$
|
398,753
|
|
|
$
|
224,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(Losses) on Asset Disposal and Impairments – Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
6,765
|
|
|
$
|
(16,175
|
)
|
|
$
|
6,445
|
|
Government
Operations
|
|
|
1,631
|
|
|
|
1,123
|
|
|
|
130
|
|
Power
Generation Systems
|
|
|
(25
|
)
|
|
|
65
|
|
|
|
-
|
|
|
|
$
|
8,371
|
|
|
$
|
(14,987
|
)
|
|
$
|
6,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income (Loss) of Investees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
(3,923
|
)
|
|
$
|
(2,882
|
)
|
|
$
|
2,818
|
|
Government
Operations
|
|
|
31,288
|
|
|
|
27,768
|
|
|
|
31,258
|
|
Power
Generation Systems
|
|
|
14,359
|
|
|
|
12,638
|
|
|
|
6,447
|
|
|
|
$
|
41,724
|
|
|
$
|
37,524
|
|
|
$
|
40,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
400,402
|
|
|
$
|
195,048
|
|
|
$
|
166,733
|
|
Government
Operations
|
|
|
122,941
|
|
|
|
111,635
|
|
|
|
99,371
|
|
Power
Generation Systems
|
|
|
234,068
|
|
|
|
114,607
|
|
|
|
5,556
|
|
|
|
$
|
757,411
|
|
|
$
|
421,290
|
|
|
$
|
271,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
Corporate
|
|
|
(41,214
|
)
|
|
|
(29,949
|
)
|
|
|
(39,940
|
)
|
|
|
$
|
716,197
|
|
|
$
|
391,341
|
|
|
$
|
231,720
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands)
|
|
SEGMENT
ASSETS:
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
2,044,740
|
|
|
$
|
1,299,883
|
|
|
$
|
1,008,906
|
|
Government
Operations
|
|
|
494,707
|
|
|
|
336,750
|
|
|
|
300,223
|
|
Power
Generation Systems
|
|
|
1,420,162
|
|
|
|
1,433,551
|
|
|
|
16,101
|
|
Total
Segment Assets
|
|
|
3,959,609
|
|
|
|
3,070,184
|
|
|
|
1,325,230
|
|
Corporate
Assets
|
|
|
451,877
|
|
|
|
563,578
|
|
|
|
384,732
|
|
Total
Assets
|
|
$
|
4,411,486
|
|
|
$
|
3,633,762
|
|
|
$
|
1,709,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL
EXPENDITURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
172,580
|
|
|
$
|
89,501
|
|
|
$
|
37,411
|
|
Government
Operations
|
|
|
14,117
|
|
|
|
16,608
|
|
|
|
26,892
|
|
Power
Generation Systems
|
|
|
40,218
|
|
|
|
23,718
|
|
|
|
-
|
|
Segment
Capital Expenditures
|
|
|
226,915
|
|
|
|
129,827
|
|
|
|
64,303
|
|
Corporate
Capital Expenditures
|
|
|
6,374
|
|
|
|
2,877
|
|
|
|
217
|
|
Total
Capital Expenditures
|
|
$
|
233,289
|
|
|
$
|
132,704
|
|
|
$
|
64,520
|
|
|
|
DEPRECIATION
AND AMORTIZATION:
|
|
Offshore
Oil and Gas Construction
|
|
$
|
54,318
|
|
|
$
|
28,515
|
|
|
$
|
28,727
|
|
Government
Operations
|
|
|
19,269
|
|
|
|
14,833
|
|
|
|
13,696
|
|
Power
Generation Systems
|
|
|
21,266
|
|
|
|
16,342
|
|
|
|
-
|
|
Segment
Depreciation and Amortization
|
|
|
94,853
|
|
|
|
59,690
|
|
|
|
42,423
|
|
Corporate
Depreciation and Amortization
|
|
|
1,136
|
|
|
|
1,310
|
|
|
|
1,843
|
|
Total
Depreciation and Amortization
|
|
$
|
95,989
|
|
|
$
|
61,000
|
|
|
$
|
44,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
IN UNCONSOLIDATED AFFILIATES:
|
|
Offshore
Oil and Gas Construction
|
|
$
|
7,339
|
|
|
$
|
6,662
|
|
|
$
|
5,812
|
|
Government
Operations
|
|
|
3,983
|
|
|
|
4,404
|
|
|
|
7,303
|
|
Power
Generation Systems
|
|
|
50,919
|
|
|
|
41,735
|
|
|
|
9,754
|
|
Total Investment
in Unconsolidated Affiliates
|
|
$
|
62,241
|
|
|
$
|
52,801
|
|
|
$
|
22,869
|
|
2. Information
about our Product and Service Lines
:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands)
|
|
REVENUES:
|
|
|
|
Offshore
Oil and Gas Construction:
|
|
|
|
|
|
|
|
|
|
Offshore
Operations
|
|
$
|
1,126,609
|
|
|
$
|
661,231
|
|
|
$
|
596,729
|
|
Fabrication
Operations
|
|
|
413,940
|
|
|
|
307,759
|
|
|
|
126,807
|
|
Project
Services and Engineering Operations
|
|
|
303,671
|
|
|
|
241,102
|
|
|
|
201,268
|
|
Procurement
Activities
|
|
|
618,795
|
|
|
|
417,905
|
|
|
|
324,993
|
|
Eliminations
|
|
|
(17,340
|
)
|
|
|
(17,690
|
)
|
|
|
(10,927
|
)
|
|
|
|
2,445,675
|
|
|
|
1,610,307
|
|
|
|
1,238,870
|
|
Government
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear
Component Program
|
|
|
619,154
|
|
|
|
533,468
|
|
|
|
509,560
|
|
Management
& Operation Contracts of U.S. Government Facilities
|
|
|
18,776
|
|
|
|
10,628
|
|
|
|
5,594
|
|
Other
Commercial Operations
|
|
|
3,853
|
|
|
|
11,879
|
|
|
|
24,637
|
|
Nuclear
Environmental Services
|
|
|
51,703
|
|
|
|
44,833
|
|
|
|
42,174
|
|
Contract
Research
|
|
|
1,877
|
|
|
|
5,426
|
|
|
|
9,886
|
|
Other
Government Operations
|
|
|
708
|
|
|
|
25,830
|
|
|
|
14,082
|
|
Other
Industrial Operations
|
|
|
-
|
|
|
|
913
|
|
|
|
160
|
|
Eliminations
|
|
|
(2,047
|
)
|
|
|
(2,910
|
)
|
|
|
(5,051
|
)
|
|
|
|
694,024
|
|
|
|
630,067
|
|
|
|
601,042
|
|
Power
Generation Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
Equipment Manufacturers’ Operations
|
|
|
1,371,427
|
|
|
|
916,889
|
|
|
|
-
|
|
Nuclear
Equipment Operations
|
|
|
137,864
|
|
|
|
135,403
|
|
|
|
-
|
|
Aftermarket
Goods and Services
|
|
|
829,185
|
|
|
|
693,578
|
|
|
|
-
|
|
Operations
and Maintenance
|
|
|
54,854
|
|
|
|
47,057
|
|
|
|
-
|
|
Boiler
Auxiliary Equipment
|
|
|
115,855
|
|
|
|
106,121
|
|
|
|
-
|
|
Eliminations
|
|
|
(4,960
|
)
|
|
|
(10,412
|
)
|
|
|
-
|
|
|
|
|
2,504,225
|
|
|
|
1,888,636
|
|
|
|
-
|
|
Eliminations
|
|
|
(12,314
|
)
|
|
|
(8,869
|
)
|
|
|
(172
|
)
|
|
|
$
|
5,631,610
|
|
|
$
|
4,120,141
|
|
|
$
|
1,839,740
|
|
3.
Information about our Operations in Different Geographic Areas:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands)
|
|
REVENUES
(
3
)
:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
2,986,442
|
|
|
$
|
2,197,368
|
|
|
$
|
688,748
|
|
Azerbaijan
|
|
|
469,984
|
|
|
|
406,510
|
|
|
|
424,061
|
|
Saudi
Arabia
|
|
|
367,651
|
|
|
|
256,484
|
|
|
|
89,145
|
|
Qatar
|
|
|
365,410
|
|
|
|
262,681
|
|
|
|
174,609
|
|
India
|
|
|
246,881
|
|
|
|
25,752
|
|
|
|
36,993
|
|
Canada
|
|
|
239,181
|
|
|
|
228,246
|
|
|
|
768
|
|
Australia
|
|
|
172,838
|
|
|
|
7,201
|
|
|
|
84,511
|
|
Malaysia
|
|
|
167,125
|
|
|
|
75,513
|
|
|
|
42,769
|
|
Vietnam
|
|
|
131,438
|
|
|
|
102,680
|
|
|
|
16,945
|
|
Thailand
|
|
|
130,419
|
|
|
|
129,753
|
|
|
|
52,209
|
|
Indonesia
|
|
|
102,560
|
|
|
|
161,023
|
|
|
|
42,743
|
|
Sweden
|
|
|
41,754
|
|
|
|
49,286
|
|
|
|
-
|
|
Denmark
|
|
|
36,382
|
|
|
|
45,438
|
|
|
|
-
|
|
Trinidad
|
|
|
36,220
|
|
|
|
27,213
|
|
|
|
11,310
|
|
China
|
|
|
32,903
|
|
|
|
42,199
|
|
|
|
-
|
|
Belgium
|
|
|
17,416
|
|
|
|
424
|
|
|
|
-
|
|
United
Arab Emirates
|
|
|
10,598
|
|
|
|
-
|
|
|
|
776
|
|
United
Kingdom
|
|
|
10,142
|
|
|
|
8,040
|
|
|
|
585
|
|
France
|
|
|
9,934
|
|
|
|
10,207
|
|
|
|
-
|
|
Germany
|
|
|
8,815
|
|
|
|
4,627
|
|
|
|
-
|
|
Mexico
|
|
|
3,657
|
|
|
|
39,204
|
|
|
|
82,697
|
|
Russia
|
|
|
1,165
|
|
|
|
4,477
|
|
|
|
89,928
|
|
Other
Countries
|
|
|
42,695
|
|
|
|
35,815
|
|
|
|
943
|
|
|
|
$
|
5,631,610
|
|
|
$
|
4,120,141
|
|
|
$
|
1,839,740
|
|
(
3
)
We
allocate geographic revenues based on the location of the customer’s
operations.
|
|
PROPERTY,
PLANT AND EQUIPMENT, NET
(
4
)
:
|
|
United
States
|
|
$
|
333,815
|
|
|
$
|
279,095
|
|
|
$
|
193,512
|
|
United
Arab Emirates
|
|
|
154,113
|
|
|
|
60,707
|
|
|
|
36,932
|
|
Indonesia
|
|
|
145,549
|
|
|
|
74,259
|
|
|
|
34,366
|
|
Canada
|
|
|
114,472
|
|
|
|
34,529
|
|
|
|
-
|
|
Mexico
|
|
|
42,607
|
|
|
|
3,523
|
|
|
|
12,693
|
|
Australia
|
|
|
25,458
|
|
|
|
72
|
|
|
|
-
|
|
India
|
|
|
18,912
|
|
|
|
21,183
|
|
|
|
6,808
|
|
United
Kingdom
|
|
|
14,587
|
|
|
|
5,340
|
|
|
|
-
|
|
Trinidad
|
|
|
12,763
|
|
|
|
-
|
|
|
|
-
|
|
Singapore
|
|
|
9,315
|
|
|
|
1,203
|
|
|
|
-
|
|
Denmark
|
|
|
8,943
|
|
|
|
8,403
|
|
|
|
-
|
|
Malaysia
|
|
|
186
|
|
|
|
16
|
|
|
|
31,558
|
|
Saudi
Arabia
|
|
|
-
|
|
|
|
19,667
|
|
|
|
-
|
|
Other
Countries
|
|
|
33,018
|
|
|
|
5,497
|
|
|
|
1,864
|
|
|
|
$
|
913,738
|
|
|
$
|
513,494
|
|
|
$
|
317,733
|
|
(4)
Our marine vessels are included in the country in which they are operating
as of December 31, 2007.
|
|
4. Information
about our Major Customers:
In the
years ended December 31, 2007, 2006 and 2005, the U.S. Government accounted for
approximately 12%, 15% and 31%, respectively, of our total
revenues. We have included these revenues in our Government
Operations segment. In the year ended December 31, 2005, revenue from
a distinct customer of our Offshore Oil and Gas Construction segment was $369.6
million and represented 20% of our total revenues.
NOTE
19 – QUARTERLY FINANCIAL DATA (UNAUDITED)
The
following tables set forth selected unaudited quarterly financial information
for the years ended December 31, 2007 and 2006:
|
|
Year
Ended December 31, 2007
Quarter
Ended
|
|
|
|
March
31,
2007
|
|
|
June
30,
2007
|
|
|
Sept.
30,
2007
|
|
|
Dec.
31,
2007
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,363,430
|
|
|
$
|
1,418,146
|
|
|
$
|
1,324,018
|
|
|
$
|
1,526,016
|
|
Operating
income
(1)
|
|
$
|
192,478
|
|
|
$
|
181,792
|
|
|
$
|
155,150
|
|
|
$
|
186,777
|
|
Equity
in income from investees
|
|
$
|
7,241
|
|
|
$
|
7,308
|
|
|
$
|
12,477
|
|
|
$
|
14,698
|
|
Net
income
|
|
$
|
158,061
|
|
|
$
|
149,374
|
|
|
$
|
140,408
|
|
|
$
|
159,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
|
$
|
0.63
|
|
|
$
|
0.71
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.69
|
|
|
$
|
0.66
|
|
|
$
|
0.61
|
|
|
$
|
0.70
|
|
(1)
Includes
equity in income from investees.
|
|
|
|
Year
Ended December 31, 2006
Quarter
Ended
|
|
|
|
March
31,
2006
|
|
|
June
30,
2006
|
|
|
Sept.
30,
2006
|
|
|
Dec.
31,
2006
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
644,907
|
|
|
$
|
1,048,930
|
|
|
$
|
1,118,260
|
|
|
$
|
1,308,044
|
|
Operating
income
(1)
|
|
$
|
67,728
|
|
|
$
|
112,711
|
|
|
$
|
124,100
|
|
|
$
|
86,802
|
|
Equity
in income from investees
|
|
$
|
7,547
|
|
|
$
|
7,340
|
|
|
$
|
10,310
|
|
|
$
|
12,327
|
|
Net
income
|
|
$
|
55,323
|
|
|
$
|
47,014
|
|
|
$
|
102,667
|
|
|
$
|
125,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.26
|
|
|
$
|
0.22
|
|
|
$
|
0.47
|
|
|
$
|
0.57
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.25
|
|
|
$
|
0.21
|
|
|
$
|
0.45
|
|
|
$
|
0.55
|
|
(1)
Includes
equity in income from investees.
|
|
Results
for each quarter in the year ended December 31, 2006 have been adjusted for the
change in accounting policy for drydocking costs, as discussed further in Note
1, and the stock splits effected in September 2007 and May 2006, as discussed
further in Note 9.
NOTE
20 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands, except shares and per share amounts)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
607,828
|
|
|
$
|
317,621
|
|
|
$
|
205,583
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
12,894
|
|
|
|
104
|
|
Net
income for basic computation
|
|
$
|
607,828
|
|
|
$
|
330,515
|
|
|
$
|
205,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
223,511,880
|
|
|
|
217,752,454
|
|
|
|
205,137,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
2.72
|
|
|
$
|
1.46
|
|
|
$
|
1.00
|
|
Income
from discontinued operations
|
|
|
0.00
|
|
|
|
0.06
|
|
|
|
0.00
|
|
Net
income
|
|
$
|
2.72
|
|
|
$
|
1.52
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
607,828
|
|
|
$
|
317,621
|
|
|
$
|
205,583
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
12,894
|
|
|
|
104
|
|
Net
income for diluted computation
|
|
$
|
607,828
|
|
|
$
|
330,515
|
|
|
$
|
205,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (basic)
|
|
|
223,511,880
|
|
|
|
217,752,454
|
|
|
|
205,137,664
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and performance shares
|
|
|
5,230,642
|
|
|
|
9,966,330
|
|
|
|
13,199,866
|
|
Adjusted
weighted average common shares
|
|
|
228,742,522
|
|
|
|
227,718,784
|
|
|
|
218,337,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
2.66
|
|
|
$
|
1.39
|
|
|
$
|
0.94
|
|
Income
from discontinued operations
|
|
|
0.00
|
|
|
|
0.06
|
|
|
|
0.00
|
|
Net
income
|
|
$
|
2.66
|
|
|
$
|
1.45
|
|
|
$
|
0.94
|
|
NOTE
21 – PRO FORMA CONSOLIDATION (UNAUDITED)
On
February 22, 2006, several subsidiaries included in our Power Generation Systems
segment exited from the Chapter 11 Bankruptcy, which commenced on February 22,
2000. Due to the Chapter 11 Bankruptcy, we did not consolidate the
results of operations for these subsidiaries in our consolidated financial
statements from February 22, 2000 through February 22, 2006. The pro
forma information below presents combined results of operations as if these
subsidiaries had been reconsolidated at the beginning of the respective periods
presented. This pro forma information is not necessarily indicative of the
results of operations of the combined entities had the combination occurred at
the beginning of the periods presented, nor is it indicative of future
results.
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,378,408
|
|
|
$
|
3,347,820
|
|
Operating
Income (Loss)
(1)
|
|
$
|
393,019
|
|
|
$
|
(183,752
|
)
|
Net
Income (Loss)
(2)
|
|
$
|
332,307
|
|
|
$
|
(57,084
|
)
|
Diluted
Earnings (Loss) Per Share
|
|
$
|
1.46
|
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
(1)
Included
in Operating Income (Loss) for the year ended December 31, 2005 is
approximately $491 million of expenses related to asbestos and
certain other liability claims and various expenses associated with the
Chapter 11 Bankruptcy.
|
|
|
|
(2)
Included in Net Income (Loss) for the year ended December 31, 2005 is
approximately $314 million, net of tax, of expenses related to asbestos
and certain other liability claims and various expenses associated with
the Chapter 11 Bankruptcy.
|
|